Financial Planning

April 2014

• Why we need financial planning?• What is financial planning?• Revenue Model• Assumptions• Financial Statements / Projections• Building a financial model• The Wonders of Excel

Agenda

Why Financial Planning

$$$

What is Financial Planning

Building numbers into marketing & operationsGoals & strategy feasibilityGuidance on changes neededStrategic partnering & contract negotiations

Projections• Revenue model• Costs & Expenses

Monthly Financials• Follow-up / Comparison• Cash Position• Timeline of Cash

Project Feasibility• New products• New markets• Etc.

What is Financial Planning

• Income statement• Balance Sheet• Cash Flow

• Strategy• Operations• Partnerships

Goal setting … then work backwards• How do you get there?• How much cash will it take• What is your timing

Target Market / Target list• Consumer • B2B• Partners

Segments• Keep it simple & FOCUS• Prioritize

Assumptions

Revenue Model

Ass…U…Me

Assumptions

Everybody Must Make Assumptions• Revenue• Costs / Expenses• Timing

Research• Google, friends, surveys, other professionals

Eventually, “Just do it”• Put it on paper• Change if needed

Projections are never perfect• Over or Below

Income Statement

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalRevenue 3000 3300 3630 3993 4392 4832 5315 5846 6431 7074 7781 8559 64153

Cost of Goods 1500 1650 1815 1997 2196 2416 2657 2923 3215 3537 3891 4280 32076Gross Profit 1500 1650 1815 1997 2196 2416 2657 2923 3215 3537 3891 4280 32076Gross Margin 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50%

Expenses:Rent 500 500 500 500 500 500 500 500 500 500 500 500 6,000 Salaries 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 24,000 Selling & Marketing 50 50 50 50 50 50 50 50 50 50 50 50 600 G&A / Depreciation 20 20 20 20 20 20 20 20 20 20 20 20 240

Total Expenses 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 2,570 30,840

Operating Profit / (Loss) (1,070) (920) (755) (573) (374) (154) 87 353 645 967 1,321 1,710 1,236

Other Expenses:Loan Interest 10 10 10 10 10 10 10 10 10 10 10 10 120 Other 5 7 9 21

Total Other Expenses 15 10 10 17 10 10 10 10 10 10 19 10 141

Net Profit (1,085) (930) (765) (590) (384) (164) 77 343 635 957 1,302 1,700 1,095

EBITDA (Earnings before interest, tax, depreciation & amortization)

Balance Sheet

(Dollars) Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14ASSETSCurrent Assets

Cash 14,395 60,375 486,556 179,970 124,248 77,696 31,389 98,413 206,376 180,923 309,395 378,803Accounts Receivable 226 83,737 107,704 165,699 211,562 260,384 386,433 414,247 386,877 400,932 318,674 263,342Total Other Current Assets 4,063 4,063 4,063 4,063 4,063 4,063 4,063 4,063 4,063 4,063 4,063 4,063

Total Current Assets 18,683 148,175 598,323 349,731 339,873 342,142 421,884 516,723 597,316 585,917 632,132 646,209Fixed Assets

Net Fixed Assets 81,434 81,434 81,434 281,434 281,434 281,434 281,434 281,434 281,434 381,434 381,434 381,434Other Assets

Security Deposit 6,760 6,760 6,760 6,760 6,760 6,760 6,760 6,760 6,760 6,760 6,760 6,760

TOTAL ASSETS $106,877 $236,369 $686,517 $637,925 $628,067 $630,336 $710,078 $804,917 $885,510 $974,111 $1,020,326 $1,034,403

LIABILITIES & EQUITYCurrent Liabilities

Total Current Liabilities 60,568 177,669 109,026 80,314 63,007 50,917 57,441 65,221 71,688 79,523 83,836 86,960Long Term Liabilities

CNB - Loan Payble & term loan 38,055 38,798 37,678 36,553 35,423 34,287 33,146 32,000 30,848 29,691 28,528 27,36038,800 38,798 37,678 36,553 35,423 34,287 33,146 32,000 30,848 29,691 28,528 27,360

EquityPaid-In-Capital 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000Equity Injection 0 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000 500,000Retained Earnings (6,315) (7,491) 4,902 24,813 36,059 44,637 60,133 134,492 222,696 297,974 379,898 422,961Net Income (1,176) 12,393 19,912 11,245 8,578 15,495 74,360 88,204 75,278 81,924 43,064 12,122Total Equity 7,509 19,902 539,813 521,059 529,637 545,133 619,492 707,696 782,974 864,898 907,961 920,083

TOTAL LIABILITIES & EQUITY $106,877 $236,369 $686,518 $637,926 $628,067 $630,337 $710,079 $804,917 $885,510 $974,112 $1,020,326 $1,034,403

Cash Flow Statement

(Dollars) Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14

Net Income ($1,176) $12,393 $19,912 $11,245 $8,578 $15,495 $74,360 $88,204 $75,278 $81,924 $43,064 $12,122Depreciation & Amortization $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Change in OP assets & liabilities:

A/R $0 ($83,511) ($23,967) ($57,995) ($45,863) ($48,822) ($126,049) ($27,814) $27,370 ($14,055) $82,258 $55,332Other Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0A/P $0 $117,101 ($27,357) ($28,712) ($17,307) ($12,090) $6,524 $7,781 $6,467 $7,834 $4,313 $3,123Other accrued expenses $2,199 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0

Total Change in OP A&L $2,200 $33,589 ($51,324) ($86,707) ($63,170) ($60,912) ($119,526) ($20,033) $33,837 ($6,220) $86,571 $58,455

Net Cash from Operations $1,024 $45,982 ($31,413) ($75,461) ($54,591) ($45,417) ($45,166) $68,171 $109,114 $75,703 $129,635 $70,577

CAPEX ($4,101) ($0) $0 ($200,000) $0 $0 $0 $0 $0 ($100,000) $0 $0Net Cash from Investment Activity ($4,101) ($0) $0 ($200,000) $0 $0 $0 $0 $0 ($100,000) $0 $0

Paid-in-Capital $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Equity Injection $0 $0 $500,000 $0 $0 $0 $0 $0 $0 $0 $0 $0Tax Distribution $0 $0 $0 ($30,000) $0 $0 $0 $0 $0 $0 $0 $0Credit Card $10,642 $0 ($41,286) $0 $0 $0 $0 $0 $0 $0 $0 $0Term Debt #1 $745 ($745) $0 $0 $0 $0 $0 $0 $0 $0 $0 $0Term Debt #2 ($2,967) $743 ($1,120) ($1,125) ($1,130) ($1,136) ($1,141) ($1,146) ($1,152) ($1,157) ($1,163) ($1,168)

Net Cash from Financing $8,420 ($2) $457,594 ($31,125) ($1,130) ($1,136) ($1,141) ($1,146) ($1,152) ($1,157) ($1,163) ($1,168)

Net Cash Provided 5,343 45,980 426,181 (306,586) (55,722) (46,553) (46,307) 67,025 107,963 (25,454) 128,472 69,409

Beginning Cash 9,052 14,395 60,375 486,556 179,970 124,248 77,696 31,389 98,413 206,376 180,923 309,395Change in Cash 5,343 45,980 426,181 (306,586) (55,722) (46,553) (46,307) 67,025 107,963 (25,454) 128,472 69,409

Ending Cash 14,395 60,375 486,556 179,970 124,248 77,696 31,389 98,413 206,376 180,923 309,395 378,803

The Financial Reporting Link

− Revenue Numbers− Costs & Expenses− Match to timing of sales− Leads to Net Income / Loss

− Net Income goes on the Balance Sheet− Snap shot in time that shows assets & liabilities− Assumptions of timing for collecting cash from

sales and paying expenses− Change in assets and liabilities effects cash flow

− Starts with Net Income− Changes in assets and liabilities− Additions and pay back of equity and debt− Ending cash goes back on the balance sheet

The Financial Reporting Link Cont’d

− Sales, Costs, Expense assumptions feed into IS

− Usually from other sheets

− Account Receivable/Payable days− Inventory Days− Debt & Equity− Equipment purchases

− Income Statement & Balance sheet are brought together

• Complex vs. Simple• Use Excel for flexibility and ease

– Calculations/Formulas, Drag

• Build assumptions that can be easily changed• Think through revenue, costs, expenses• All sheets should be integrated

Building a financial model

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec TotalRevenue 50 55 61 67 73 81 89 97 107 118 130 143 1069Cost 25 28 30 33 37 40 44 49 54 59 65 71 535Expenses 10 11 11 12 12 13 13 14 15 16 16 17 159Net Profit 15 17 19 22 24 27 31 35 39 43 49 54 375

Growth 10%Cost 50%Expense Inflation 5%

Lori:Drag months and dates

Lori:Assumptions in yellow & blue

Excel Wonders Cont’d

Growth FormulasGrowth of 10% = previous month or year multiplied by 1 + 10% growth

C4 = January RevenueC9 = Growth Rate

The dollar sign (“$”) in front of a column letter and or row number grounds the column and row, respectively.

Excel Wonders Cont’d

• AutoSum button• Fill or Drag

• Formatting• Inserting

Excel Wonders Cont’d

• Formulas• Review

• View

• 5-Year financial plan: – 2 years of monthly & following 3 annual

• Need Initial Data– Can figure it out with CFO– Still need CEO engagement

• Part-time or full-time CFO– Full time not needed in the beginning– Typical salary is from $120k - $200k, depending on factors– Part-time CFO typical hourly rate is $170-$250– Bookkeeping and senior accountant rates are lower

Data & Costs

Thank You

Lori Murphree

Lori.murphree@gmail.com Cell: 917-969-9593