Transcript Slide 1

Presented by Dan Vishny, CPA, MBA
Principal – Promised Land Consulting
Chief Primate – Red Ape Cinnamon
Financial Statement Projections - Purposes
Reality check on Financial Goals & Objectives
 Makes you define/quantify your goals & objectives
Demonstrates team is knowledgeable, realistic,
committed and on top of the business plan
 You’ve done your homework
 You understand the costs involved
 You understand the market and its potential
Value estimate of the company and the ROI
Financial Projections
Define Your Financial Goals and Objectives
 Sufficient funds to launch and execute your plan
 Plan and track your cash flow requirements
 Establish profitable operations by (date)
 Re-invest profits in future growth (increase value of biz)
 Provide shareholders liquidity/exit by (date) – align
expectations of investors and owners
 Provide “what if” scenario analyses
Projections- Minimum Requirements
 5 year Profit & Loss Statement
 5 year Balance Sheet
 5 year Statement of Cash Flows
 Valuation Statement and ROI Analysis
 Breakeven Analysis
 What if Analysis
 Details in appendices
 Monthly 1st year
 Quarterly years 2-3; annual for years 4-5
 Provide Assumptions that drive your figures
Dan’s Financial Projections Template
 CAUTION: This may not be the perfect one for you
 Don’t use it blindly (use as a start and build on it)
 Be careful when making changes (it’s excel)
 Save often and different versions (so you can go back)
 Dig into the formulas and how they flow
 Make sure that the financials “foot”
 The balance sheet balances
 The cash account flows from the cash flow statement
Sample Financial Assumptions
 Discount Rate of at least 12% (for most new ventures)
 Sales that can be closed per month
 Sales cycle-produce/sell/get paid
 Revenue by month/quarter/year
 Revenue growth rate
 Costs as function of time
 Employee growth/cost rates
 Marketing and administrative expenses
 Accounts payable/receivable terms
 U.S. Custom duty rates: http://www.usitc.gov/tata/hts/
 Inflation estimate
 …..[others specific to Your business]
Assumptions- Anticipate the Questions
 What will you charge for your product and why?
 How do your marketing costs support your sales
growth?
 How do you scale up your business?
 How long does it take?
 How much capital is required?
 What is the effect on cash flow?
 Compare to industry & competition (if possible)
 Ratios, margin percentages, cost comparisons…..
 10Q reports for public companies
 ValueLine Investment Survey, Standard & Poor’s
Netadvantage Stock Reports, Bloomberg, Etrade….
Make sure that your assumptions are REASONABLE
Estimating Startup Costs
 Office set up, computers, building improvements, etc.
 Professional services (lawyers, accountants, etc.)
 Web site development
 Filing fees, licenses, patent expenses
 Initial inventory levels
 Initial marketing expenses (if necessary)
 Others specific to your business
 Don’t forget that you’ll need adequate working capital
to take you to your next infusion of cash
 typically ~ 20% of the amount you raise
 Keep 20% of each funding round in the bank account as a
cash reserve
Financial Elements – Income Statements
Purpose: to manage the company to profitability
Some key elements
 Revenues Projected 5 years
 Cost of Goods Sold


Sufficient back up for your unit costs (do your homework)
Make sure margins are sufficient
 Why go into a low profit business?
 There’s a reason that there’s a Starbuck’s on every corner
 Operating Expenses



Compare to other companies
Use realistic estimates
Allow a miscellaneous cushion (shows your conservative)
Income Statement- (continued)
 Allow for taxes (40%) AND tax loss carryforwards
 Depreciation Expense

Noncash expense, but reduces your income tax expense
 Net Income
Calculate ratios appropriate to your industry
 If your ratios vary significantly, explain why
Balance Sheet
 Purpose: Indicates financial position of the Company
 Some key elements
 CASH CASH CASH
 If you run out of cash-game over
 Equity or Net Worth (Assets minus Liabilities)
 Bank financing will never be available if you do not have
sufficient positive equity…
 you have no collateral!
 Liquidity issues
 Make sure the balance sheet balances
Statement of Cash Flows
 Cash Flow helps you determine how much you need to reach
milestones, and when you need cash infusions.
 Cash Inflows
Revenue Collections
 Loans
 Capital Investments
 Grants & Other Public Funding

 Cash Outflows
 Purchases of Inventory
 Purchases of Fixed Assets
 Operating Expenses
 Interest/Dividends to Investors
 Income Taxes
 Perform Cash Flow analyses on various “what if’s”
 Raise $ before you are desperate!
Cash is King
Treat it with Respect--- Invest & Spend it Wisely
It’s a finite resource and has a way of running out
Operational Breakeven Analysis
 Puts your business in perspective
 Worst case scenario picture
 Can you achieve break even and when?
 Compare to competitors
 Compare to last year
 Do you have enough production capacity?
 Do this analysis as often as possible
What If Analysis-Breakeven
What is the monthly breakeven in units based on various margins and increases in Marketing
Costs?
Marketing Costs
[---------------------- Margin Per Unit -----------------------]
10
$3,000
$3,500
$4,000
$2,500
$0
46
40
35
55
$200,000
52
44
39
62
$400,000
57
49
43
69
$600,000
63
54
47
75
What is the monthly breakeven in dollars based on various margin %s and increases in Marketing
Costs?
Marketing Costs
[---------------------- Margin Per Unit -----------------------]
51,111
60%
65%
70%
40%
$0
$230,813
$213,452
$197,839
$346,239
$200,000
$258,890
$239,140
$221,649
$387,885
$400,000
$286,368
$264,829
$245,458
$429,552
$600,000
$314,146
$290,517
$269,268
$471,219
Accumulated Costs Break-even Analysis
(When do we get our money back?)
 Total Accumulated Revenues =
Total Accumulated Costs
 Comes directly from Income
Analysis
$
14
12
10
8
6
4
2
0
Revenue
Cost
1
 Cash Flow Positive occurs
ahead of B/E
 B/E Analysis Chart must be in
your Plan
2
3
4
Time
5
Company Valuation
Return on Investment (ROI)
 Terminal Value and ROI
 Discounted Cash Flow
 Sales Multiplier
 EBITDA Multiplier
 Sales of Comparable Companies
 All the above
Whatever you choose
Make sure the ROI is adequate and reasonable
Successful Bootstrapping
 Define your goal
 Set the milestones
 Sprint to the milestones (it’s not a marathon)
 Invest in things that your customers see
 Discipline- set the rules and live by them
 Budget Shmudge it- spend as little as possible
 Don’t stop digging for the hidden treasure
 Get Financial Advice from people you trust
 And not people who tell you what you want to hear
Financial Advice
 ♫ You gotta know when to hold em... ♫
 Focus on getting the product to market
 The “Language” of accounting & finance
 Profit, Profit, Profit