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August 7 2015
ABC Company, Inc.Estimated Statement of OperationsFor The Years Ended December 31, 2010. 2011, 2012, and 2013
2010 2011 2012 2013 2010 2011 2012 2013
Revenue:
Installation Revenue 450$ 3,825$ 21,038$ 73,633$ 77.1% 84.3% 82.3% 80.6%
Non-Installation Revenue
Service Fees 89$ 623$ 4,361$ 17,444$ 15.2% 13.7% 17.1% 19.1%
Other Non-Installation Revenue 45$ 90$ 158$ 237$ 7.7% 2.0% 0.6% 0.3%
Total Revenue: 584$ 4,538$ 25,557$ 91,314$ 100.0% 100.0% 100.0% 100.0%
Direct Costs:
Installation Costs 338$ 2,678$ 12,623$ 36,817$ 57.9% 59.0% 49.4% 40.3%
Non-Installation Costs 38$ 193$ 1,175$ 4,420$ 6.5% 4.3% 4.6% 4.8%
Direct Costs: 376$ 2,871$ 13,798$ 41,237$ 64.4% 63.3% 54.0% 45.2%
Other Cost of Services 88$ 567$ 2,556$ 6,849$ 15.1% 12.5% 10.0% 7.5%
Gross Margin ($) 120$ 1,100$ 9,203$ 43,228$ 20.5% 24.2% 36.0% 47.3%
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales 292$ 1,588$ 6,389$ 18,263$ 50.0% 35.0% 25.0% 20.0%
Marketing 263$ 1,361$ 5,111$ 13,697$ 45.0% 30.0% 20.0% 15.0%
Research & Development 175$ 998$ 2,811$ 8,218$ 30.0% 22.0% 11.0% 9.0%
General & Administration 44$ 295$ 1,533$ 4,566$ 7.5% 6.5% 6.0% 5.0%
Total Operating Expenses: 774$ 4,242$ 15,844$ 44,744$ 132.5% 93.5% 62.0% 49.0%
EBITDA (654)$ (3,142)$ (6,641)$ (1,516)$ -112.0% -69.2% -26.0% -1.7%
Other (Revenue) & Expenses:
Interest 80$ 156$ 32$ 80$ 13.7% 3.4% 0.1% 0.1%
Taxes 8$ 9$ 11$ 15$ 1.4% 0.2% 0.0% 0.0%
Depreciation & Amortization 13$ 67$ 268$ 874$ 2.2% 1.5% 1.0% 1.0%
Total Other (Revenue) & Expenses 101$ 232$ 311$ 969$ 17.3% 5.1% 1.2% 1.1%
Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$ -129.3% -74.3% -27.2% -2.7%
Statement Notes:
Revenue
Market 1 43$ 2,320$ 12,205$ 46,232$ 7.4% 51.1% 47.8% 50.6%
Market 2 230$ 1,201$ 7,652$ 26,450$ 39.4% 26.5% 29.9% 29.0%
Market 3 256$ 932$ 3,250$ 12,658$ 43.8% 20.5% 12.7% 13.9%
Market 4 55$ 85$ 2,450$ 5,974$ 9.4% 1.9% 9.6% 6.5%
Total Revenue 584$ 4,538$ 25,557$ 91,314$
Headcount
Existing 13.00$ 18.00$ 61.00$ 298.00$ New Hires 5.00$ 43.00$ 237.00$ 830.00$ Total Headcount 18.00$ 61.00$ 298.00$ 1,128.00$
Capital Expenditures 126.00$ 424.00$ 1,584.00$ 4,474.00$
Dollars (000's omitted) Percent (%) of Revenue
COPYRIGHT © 2010 COPYRIGHT © 2014
Rule #1: If you cannot read the
financial statement from two feet away the font is
too small
(too many details)
COPYRIGHT © 2014
ABC Company, Inc.Projected Statement of OperationsFor The Years Ended December 31, 2010. 2011, 2012, and 2013
2010 2011 2012 2013
Revenue:
Market 1 43.00$ 2,320.00$ 12,205.00$ 46,232.00$
Market 2 230.00$ 1,201.00$ 7,652.00$ 26,450.00$
Market 3 256.00$ 932.00$ 3,250.00$ 12,658.00$
Market 4 55.00$ 85.00$ 2,450.00$ 5,974.00$
Total Revenue 584.00$ 4,538.00$ 25,557.00$ 91,314.00$
Gross Margin ($) 120.00$ 1,100.00$ 9,203.00$ 43,228.00$
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales & Marketing 555.00$ 2,949.00$ 11,500.00$ 31,960.00$
Research & Development 175.00$ 998.00$ 2,811.00$ 8,218.00$
General & Administration 44.00$ 295.00$ 1,533.00$ 4,566.00$
Total Operating Expenses: 774.00$ 4,242.00$ 15,844.00$ 44,744.00$
Other Expense/(Income) 101.00$ 232.00$ 311.00$ 969.00$
Net Income (Loss) (755.00)$ (3,374.00)$ (6,952.00)$ (2,485.00)$
Statement Notes:Headcount
Existing 13.00$ 18.00$ 61.00$ 298.00$ New Hires 5.00$ 43.00$ 237.00$ 830.00$ Total Headcount 18.00$ 61.00$ 298.00$ 1,128.00$
Capital Expenditures 126.00$ 424.00$ 1,584.00$ 4,474.00$
Dollars (000's omitted)
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Rule #2: Pennies are only for accounting auditors
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ABC Company, Inc.Estimated Statement of OperationsFor The Years Ended December 31, 2010. 2011, 2012, and 2013
2010 2011 2012 2013
Revenue:
Market 1 43$ 2,320$ 12,205$ 46,232$
Market 2 230$ 1,201$ 7,652$ 26,450$
Market 3 256$ 932$ 3,250$ 12,658$
Market 4 55$ 85$ 2,450$ 5,974$
Total Revenue 584$ 4,538$ 25,557$ 91,314$
Gross Margin ($) 120$ 1,100$ 9,203$ 43,228$
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales & Marketing 555$ 2,949$ 11,500$ 31,960$
Research & Development 175$ 998$ 2,811$ 8,218$
General & Administration 44$ 295$ 1,533$ 4,566$
Total Operating Expenses: 774$ 4,242$ 15,844$ 44,744$
Other Expense/(Income) 101$ 232$ 311$ 969$
Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$
Statement Notes:Headcount
Existing 13$ 18$ 61$ 298$ New Hires 5$ 43$ 237$ 830$ Total Headcount 18$ 61$ 298$ 1,128$
Capital Expenditures 126$ 424$ 1,584$ 4,474$
Dollars (000's omitted)
COPYRIGHT © 2014
Rule #3: Use $ (dollar signs) on the
first and last row only.
Unless, of course, you are mixing rows of $ and %, etc.
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FORMAT CREDIBILITY
The presentation format does not interfere with (or create
noise for) the reader
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ABC Company, Inc.Projected Statement of OperationsFor The Years Ended December 31, 2010 through 2013
Revenue:
Market 1 43$ 2,320$ 12,205$ 46,232$
Market 2 230 1201 7652 26450
Market 3 256 932 3250 12658
Market 4 55 85 2450 5974
Total Revenue 584 4538 25557 91314
Gross Margin ($) 120 1100 9203 43228
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales & Marketing 555 2949 11500 31960
Research & Development 175 998 2811 8218
General & Administration 44 295 1533 4566
Total Operating Expenses: 774 4242 15844 44744
Other Expense/(Income) 101 232 311 969
Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$
Statement Notes:Headcount
Existing 13 18 61 298 New Hires 5 43 237 830 Total Headcount 18 61 298 1,128
Capital Expenditures 126$ 424$ 1,584$ 4,474$
Dollars
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Rule #4: Use column headings that
make sense
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Rule #5: Numbers with thousands or millions must have commas
This: 54,556Not this: 54556
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Rule #6:
Don’t mix fonts
Or font size……
And do not use a silly fontCOPYRIGHT © 2014
Rule #7
Spelle Check
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And do not tell me you relied on Microsoft…….
Rule #8: Text is left justified
Numbers are right justified
Violators confuse the reader
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Rule #9:Do not overdo color
andDo not highlight in dark colors
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Use Spot color!
Rule #11:Round your numbers to the
nearest thousand for presentations
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Financials in your Slide deck are a Marketing Effort!
Really?
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Income Statement
Cash Flow Statement
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ABC Co.($ 000's omitted)
2010 2011 2012 2013 2014
Pro Forma Financial StatementRevenue -$ 1,875$ 44,953$ 108,238$ 180,161$ Cost of Service - 1,162 12,739 5,369 - Gross Margin - 712 32,214 102,868 180,161
38% 72% 95% 100%
Operating ExpensesResearch & Development 1,303 2,972 3,587 4,198 4,379 Sales & Marketing 662 1,456 2,041 2,195 2,868 General & Administrative 316 1,380 3,778 1,947 2,729 Total Expenses 2,282 5,807 9,407 8,340 9,976
Depreciation & Amortization 42 98 301 590 791 EBIT (2,324) (5,193) 22,507 93,939 169,394
Net Income (2,639) (5,411) 16,893 55,530 100,603 0% -289% 38% 51% 56%
Pro Forma Cash FlowDepr & Amort 42 98 301 590 791 Cash from Operations (2,597) (5,313) 17,193 56,120 101,393
Change in Working CapitalDecrease in Accounts Receivable - (1,125) (4,894) (5,573) (6,324) Increase in Accounts Payable (31) 189 2,015 2,819 2,887
Cash from Working Capital (31) (936) (2,879) (2,754) (3,437)
Change in InvestmentsCapital Equipment Purchases (57) (297) (1,052) (607) (600)
Cash from FinancingSeries A Preferred 7,000 - - - - Series B Preferred - - 42,000 - -
Cash from Financing 7,000 - 42,000 - -
Net Cash Flow 4,315 (6,545) 55,262 52,759 97,357 Ending Cash 6,644$ 99$ 55,360$ 108,119$ 205,476$
ABC Company – Financials by Year($000’s omitted)
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($25,000)
$25,000
$75,000
$125,000
$175,000
$225,000
2015 2016 2017 2018 2019
Revenue
Income
Cash
Milestone #1Prototype
Milestone #2Pilots
Milestone #3Commercialization
Seeking $250k Investment
David A. Fogel, CPA Serial entrepreneurial CFO Managing Director of Swifton CFOs LLC (since 2009) Experience with high tech companies ranging from
biotech to telecom to healthcare IT to social media to… Adjunct Instructor of Master’s Program: Presenter & Mentor:
Member:
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Provide cost-effective outsourced CFO support
Clients range from pre-revenue startups to later stage privately held companies
Goals (1) educate entrepreneurs to understand and
consider financial opportunities and implications(2) handle all accounting/ financial matters so the
entrepreneurs can focus on driving the business
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Can we just forecast revenue annually?
Why do we have to forecast revenue monthly?
Customers
Year # new clients
# total clients
Year 0 - -
Year 1 3 3
Year 2 9 12
Year 3 25 37
Customers
Year # new clients
# total clients J F M A M J J A S O N D
Year 0 - - - - - - - - - - - - - - Year 1 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Year 2 9 12 12 12 12 12 12 12 12 12 12 12 12 12 Year 3 25 37 37 37 37 37 37 37 37 37 37 37 37 37
Customers
Year # new clients
# total clients J F M A M J J A S O N D
Year 0 - - - - - - - - - - - - - - Year 1 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Year 2 9 12 12 12 12 12 12 12 12 12 12 12 12 12 Year 3 25 37 37 37 37 37 37 37 37 37 37 37 37 37
• Are you really going to jump from 12 to 37 customers from Year 2 December to Year 3 January? Then why would you forecast it?
Other reasons:• Timing and seasonality• Basis for cash forecasting
Introducing the Financial Statements
• Balance Sheet• Profit and Loss Statement• Cash Flow Statement
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Balance Sheet What you own/owe – point in time Assets = Liabilities + Equity Assets are good? Capital expenditures (Fixed Asset) rule
Amount => $5,000 AND useful life > one year Liabilities – Disclose, disclose, disclose
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Profit and Loss Statement(Statement of Operations)
• What you earned• Could represent cash activities but usually much
more……• Management accounting can be more
informative, but need to have GAAP• Earnings can be managed, but cash is a reality…
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Cash Flow Statement
• Where your cash came and went: • Operations, Investing, or Financing
• Cash in the bank is a fact• Investors are most interested in your use of $$
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Developing The Financial Forecast
1. Defined
2. What about the assumptions?
3. Creating the sales forecast
4. Spreading the numbers
5. Creating the statements
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Ty Danco(Famous Investor)
"I'll never believe your revenue numbers anyway, but I sure want to scrutinize your
assumptions and expenses!"
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Developing The Financial Forecast
1.What are financial projections?
Collection of statements that present your business in numbers (IS, BS, CF, Cap)
“Does the story make sense?”“Does the story add up?”
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Set your goals from top downbut…..
Prepare the model from the bottom upthen….start over
with your top down goals
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Developing The Financial Forecast2. What about the assumptions?
Document the source of each number you produce - Why? - Knowledge of the assumptions proves that the
entrepreneur understands the business- Prove it to yourself
Sources of assumptions- Desired goal to be obtained- Primary market research – surveys, vendor quotes- Second market research – purchased or gov’t information- Estimated or best guess (really try not to SWAG)
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Developing The Financial Forecast2. What about the assumptions? (part 2)
Start-up costs (uses of $)Financing (sources of $)Capital expenditures (costs with >1 yr life)Fixed expense (cost of being in business)Variable expense (cost of doing business)Projected sales (anticipated revenue earned)Cash flow (anticipated $ received and spent)
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• Expenses up to the point when you are open for business…….which is when?
• List uses of money – describe how spent• Like: Fixed assets & Working Capital• Examples?
Fixed Assets = Equipment, Furniture Working Capital = Rental deposits, Insurance
Start-up cost assumptions
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• Sources where $ will come from• Where?
Entrepreneur and team F&F Bank loan (though not likely for start-ups)
Debt from owner or outside creditor Non-dilutive financing (maybe )
Equity capital• For loan – know amount, terms of repayment (mos),
and rate of interest or return
Financing assumptions
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• Costs that have a “lifetime” greater than one year AND an individual or collective cost greater than $5k
• Predict some fixed assets by headcount, some by significant changes in sales volume, some by changes in product lines, etc.
• Examples: Leasehold improvements, Furniture & fixtures, Machinery
• Note: Expense the PCs & Macs & iPads & iPhones (but keep track of them anyway)
Capital Expenditures(Fixed Assets)
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• Costs of being in business• Do not vary by sales volume (i.e. day-to-day)• But DO increase as the business scales• Create fixed cost projections on monthly basis• Research through correspondence with outside
vendors• Record the source & amount from each vendor……..• Examples: Rent, Utilities, Salaries, Benefits,
Marketing expenses, Administrative expenses
Fixed cost assumptions
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• Costs of doing business• May vary directly with sales volume• DO increase as the business scales• Expenses incurred with the next “unit” of
product or service• Research through correspondence with outside
vendors• Examples: Materials, direct/indirect labor, and
shipping costs
Variable cost assumptions
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What product(s) and/or service(s) Quantities Price When (seasonality/cyclicality)? T&C’s
Projected sales assumptions
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• Convert your business activity to cash activity• When will cash be collected from customers?
May vary by product line and by customer Generally assume 45 days---though currently
customers are extending to 60 days• When do you pay your vendor’s invoices?
May vary by product line and by vendor Generally assume 30-45 days Need to create “referenceable” vendors
Cash flow assumptions
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Ben LittauerMember, Boston Harbor Angels
Member, LaunchPad
"I like to see a business model spreadsheet with the assumptions clearly called out as variables.
Then I can twiddle the knobs and see how sensitive profits are to the assumptions."
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Developing The Financial Forecast
3. Creating the sales forecast
BEST - Predict by customer as detailed as possible….but include customer turnover
BETTER – Predict by market
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Developing The Financial Forecast3. Creating the sales forecast (part 2)
How do I start? Market research!• Trade associations• Primary & secondary research• Gov’t resources
US Census BureauIRS Statistical Data
Select your geography
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Developing The Financial Forecast3. Creating the sales forecast (part 3)
Small Client
Medium Client
Large Client
Average Hours Per Week
4 Hours 8 Hours 16 Hours
Average Contract $ Per Week
$500 $1,250 $2,500
Predict by client (customer) types• By market• By size
Then ID certain characteristics
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Forecast Trap:Why they call them “Gross Sales”
• Returns• Discounts• Coupons• Rebates• Chargebacks• Markdowns
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Forecast Trap:
Do not over-estimate first year revenue
wait, we can’t sell $ millions in month one ?
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Tip:Integration
Must use an integrated model
Headcount addedPayroll and benefits calculationSummarized employee costsIncome StatementCash Flow
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Question?
Is the methodology Accrual or Cash?
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Tip:Project payroll & benefits in detail
• Payroll & benefits are often the most costly expense yet they are often neglected
• Project monthly to handle start dates correctly (everyone cannot start in January)
• Match people adds with milestones
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Tip:Projection Numbers are not separate from
the Company Plans
Company Plans
Milestone Projects Responsible Revenue/Cost
Dates
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Multiple Model Trap:One investor model,
Multiple options (triggers)
Fundamental changes made in base model must be duplicated in the clones---and you will forget.
If multiple scenarios are mandated do create at only a high level
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Tip:Don’t forget the…..
Sales commissions – Direct connect them to your sales staff’s (or sales rep) sales
Bonuses – Include with payroll
Recruiting expenses – Peg them to change in new employees
Debt - Many forget to include Interest Expense on the income statement even though the Company has incurred Debt
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Tip:Reasonableness
1. Once you think you are done take the smell test --- Do the numbers really make sense (i.e. can you really increase revenue w/o an increase in costs)?
2. Do the Like-Kind test. Compare your “metrics” versus your competition
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Creating the Statements
1. Consider it a Marketing Effort2. Present the Pro-Forma Financial
Statement3. Graph the Revenues, Income, and Cash4. Present the Headcount
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Don’t let GustTM blow you away………
1. Set forecast in stone2. Complete the boxes 3. Consistent with other docs and
financials 4. Be able to back it up (details?)
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Contact Information:David A. FogelManaging DirectorSwifton CFOs
Email: [email protected]: www.swiftoncfos.comTwitter: @swifton, @dafogel
Phone: 781.806.5436Cell: 781.910.7559
COPYRIGHT © 2015
Even More Universal Truths:
• Be consistent – Don’t portray cost categories (or individuals) differently by year
• Have “Checks”• Do not need to be hung up with
GAAP, but….don’t go rogue
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