March 21, 2014

1

Financial Projections for Investor

Presentations

David Fogel

Managing Director, Swifton CFOs LLC

dfogel@swiftoncfos.com

www.swiftoncfos.com

ABC Company, Inc.

Estimated Statement of Operations

For 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

March 21, 2014

2

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 Operations

For 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)

COPYRIGHT © 2014

March 21, 2014

3

Rule #2:

Pennies are only for

accounting auditors

COPYRIGHT © 2014

ABC Company, Inc.

Estimated Statement of Operations

For 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

March 21, 2014

4

Rule #3:

Use $ (dollar signs) on the

first and last row only.

Unless, of course, you are

mixing rows of $ and %, etc.

COPYRIGHT © 2014

FORMAT CREDIBILITY

The presentation format does

not interfere with (or create

noise for) the reader

COPYRIGHT © 2014

March 21, 2014

5

ABC Company, Inc.

Projected Statement of Operations

For 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

COPYRIGHT © 2014

Rule #4:

Use column headings that

make sense

COPYRIGHT © 2014

March 21, 2014

6

Rule #5:

Numbers with thousands or

millions must have commas

This: 54,556

Not this: 54556

COPYRIGHT © 2014

Rule #6:

Don’t mix fonts

Or font size……

And do not use a silly font

COPYRIGHT © 2014

March 21, 2014

7

Rule #7

Spelle Check

COPYRIGHT © 2014

And do not tell me you relied

on Microsoft…….

Rule #8:

Text is left justified

Numbers are right justified

Violators confuse the reader

COPYRIGHT © 2014

March 21, 2014

8

Rule #9:

Do not overdo color

and

Do not highlight in

COPYRIGHT © 2014

Use Spot color!

Rule #11:

Round your numbers to the

nearest thousand for

presentations

COPYRIGHT © 2014

March 21, 2014

9

Financials in your Slide deck

are a Marketing Effort!

Really?

COPYRIGHT © 2014

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 Expenses

Employee Costs 1,303 2,972 3,587 4,198 4,379

Professional Fees 253 637 1,780 1,230 1,135

Marketing & Travel 61 525 2,340 293 658

Administrative Expenses 60 55 232 41 47

Development & Pilot Manufacturing 409 819 262 965 1,733

Facility & Other 195 801 1,206 1,612 2,023

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 FlowCash from Operations (2,597) (5,313) 17,193 56,120 101,393

Cash from Working Capital (31) (936) (2,879) (2,754) (3,437)

Cash from Investments (57) (297) (1,052) (607) (600)

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$

Income

Statement

Cash Flow

Statement

COPYRIGHT © 2014

March 21, 2014

10

ABC Company – Financials by Year

($000’s omitted)

COPYRIGHT © 2014

($25,000)

$25,000

$75,000

$125,000

$175,000

$225,000

2010 2011 2012 2013 2014

Revenue

Income

Cash

Milestone #1

Prototype

Milestone #2

Pilots

Milestone #3

Commercialization

Seeking $250k Investment

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

COPYRIGHT © 2014

March 21, 2014

11

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:

COPYRIGHT © 2014

Introducing the Financial Statements

• Balance Sheet

• Profit and Loss Statement

• Cash Flow Statement

COPYRIGHT © 2014

March 21, 2014

12

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

COPYRIGHT © 2014

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…

COPYRIGHT © 2014

March 21, 2014

13

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 $$

COPYRIGHT © 2014

Developing The Financial Forecast

1. Defined

2. What about the assumptions?

3. Creating the sales forecast

4. Spreading the numbers

5. Creating the statements

COPYRIGHT © 2014

March 21, 2014

14

Ty DancoMember, Mass Medical AngelsMember, North Country Angels

"I'll never believe your revenue numbers

anyway, but I sure want to scrutinize your

assumptions and expenses!"

COPYRIGHT © 2014

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?”

COPYRIGHT © 2014

March 21, 2014

15

Set your goals from top down

but…..

Prepare the model from the bottom up

then….start over

with your top down goals

COPYRIGHT © 2014

Developing The Financial Forecast

2. 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)

COPYRIGHT © 2014

March 21, 2014

16

Developing The Financial Forecast

2. 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)

COPYRIGHT © 2014

• 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

COPYRIGHT © 2014

March 21, 2014

17

• 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

COPYRIGHT © 2014

• Costs that have a “lifetime” greater than one year

AND an individual or collective cost greater than $2k

• 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(but keep track of them anyway)

Capital Expenditures(aka Fixed Assets)

COPYRIGHT © 2014

March 21, 2014

18

• 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

COPYRIGHT © 2014

• 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

COPYRIGHT © 2014

March 21, 2014

19

� What product(s) and/or service(s)

� Quantities

� Price

� When (seasonality/cyclicality)?

� T&C’s

Projected sales assumptions

COPYRIGHT © 2014

• 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

COPYRIGHT © 2014

March 21, 2014

20

Ben LittauerMember, Boston Harbor Angels

"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."

COPYRIGHT © 2014

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

COPYRIGHT © 2014

March 21, 2014

21

Developing The Financial Forecast

3. Creating the sales forecast (part 2)

How do I start? Market research!

• Trade associations

• Primary & secondary research

• Gov’t resources

�US Census Bureau

�IRS Statistical Data

Select your geography

COPYRIGHT © 2014

Developing The Financial Forecast

3. 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

COPYRIGHT © 2014

March 21, 2014

22

Forecast Trap:

Why they call them “Gross Sales”

• Returns

• Discounts

• Coupons

• Rebates

• Chargebacks

• Markdowns

COPYRIGHT © 2014

Forecast Trap:

Do not over-estimate

first year revenue(what, we can’t sell millions in first month?)

COPYRIGHT © 2014

March 21, 2014

23

Tip:

Integration

Must use an integrated model

Headcount added

Payroll and benefits calculation

Summarized employee costs

Income Statement

Cash Flow

COPYRIGHT © 2014

Question?

Is the methodology

Accrual or Cash?

COPYRIGHT © 2014

March 21, 2014

24

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

COPYRIGHT © 2014

Tip:Projection Numbers are not separate from

the Company Plans

Company Plans

Milestone Projects Responsible Revenue/

Cost

Dates

COPYRIGHT © 2014

March 21, 2014

25

Multiple Model Trap:

One investor model,

Multiple options (triggers)

But…why not?

Fundamental changes made in base model

will not be reflected in the clones

COPYRIGHT © 2014

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

COPYRIGHT © 2014

March 21, 2014

26

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

COPYRIGHT © 2014

Creating the Statements

1. Consider it a Marketing Effort

2. Present the Pro-Forma Financial

Statement

3. Graph the Revenues, Income, and Cash

4. Present the Headcount

COPYRIGHT © 2014

March 21, 2014

27

Don’t let GustTM blow you away………

1. Set forecast in stone

2. Complete the boxes

3. Consistent with other docs and

financials

4. Be able to back it up (details?)

COPYRIGHT © 2014

Contact Information:

Email:

Website:

Twitter:

Phone:

Cell:

COPYRIGHT © 2014