Financial Planning for the startup CEO - Entrepreneurship 101 (2013/2014)
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For the startup CEO Presented by: Andrew Graham March 2014
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This lecture will help you build a realistic financial plan for your start-up. It‘s important to have a detailed plan that identifies how you spend money and how you make money. To do this, you need to be familiar with the basic tools of financial planning, including income statements, cash-flow forecasts, expense statements and balance sheets. We use case studies to examine the financial plans of both successful and failed companies, focusing on their ability to forecast realistic scenarios for business growth and cash flow.
Transcript of Financial Planning for the startup CEO - Entrepreneurship 101 (2013/2014)
For the startup CEO!
Presented by: Andrew GrahamMarch 2014!
Memory at Work
Pg 3!
Memory at Work
Pg 4!
Why money ma*ers in a startup
Have to pay the bills
Sign of a sustainable business model
Desirable outcome!!
Memory at Work
Income Statement!
Cash Flow Forecast!
Balance Sheet!
Pg 5!
Memory at Work
Financial performance over a period of time!
Usually for a year, quarter or month!
Pg 6!
Memory at Work
Pg 7!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Source: Company filings.!For teaching purposes, Depreciation & Amortization fully assigned to Tech & Content!
Memory at Work
Pg 7!
Revenue!!
Money brought into a company by its business
activities!
Revenue Forecasting!!
Top-down!vs.!
Bottom-up!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 8!
Cost of Sales!!
Costs that go into creating the products and services
that a company sells!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 9!
Gross Margin!!
Revenue minus cost of sales!
Amazon!!Linkedin!!Toyota!
!27%!!81%!!13%!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 10!
Operating Expenses!!
Business costs NOT related to producing goods &
services for sale!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 11!
Selling, General and Administrative Expenses
(SG&A)!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 12!
Research & Development!(“Technology & Content”)!
!Activities with the intention of making a discovery that can
lead to new or improved products!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 13!
Depreciation & Amortization!
!Reduction in the capital
value of an asset over time to account for wear & tear!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 14!
Interest & Other income and expenses!
!Income from interest
payments, dividends, etc!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 15!
Taxes!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 16!
Net income!!
Profit!!!
Amazon.com!Income Statement!
For the year ended Dec 31, 2013!
millions of USD!
Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!
Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!
Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !
Net income! 274 !
Memory at Work
Pg 17!
Example: Tom’s Solar Power Company, Inc.!
Input Cost: !$50! Sell for: !$100!
Memory at Work
Pg 18!
Units Sold! - !
50 !
150 !
250 !
400 !
550 !
750 !
1,050 !
1,400 !
1,900 !
2,500 !
3,500 !
Unit Price! $100/unit!
Revenue! $ - !
5,000 !
15,000 !
25,000 !
40,000 !
55,000 !
75,000 !
105,000 !
140,000 !
190,000 !
250,000 !
350,000 !
$-‐
$100,000
$200,000
$300,000
$400,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Revenue
Memory at Work
Pg 19!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 20!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 21!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 22!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 23!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 24!
Memory at Work
Pg 25!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 26!
Memory at Work
Pg 27!
If you don’t forecast cash flows, you’re flying blind!!
Memory at Work
Earnings Before Interest, Taxes, Depreciation and Amortization!
A measure of a company’s cash flow from operations!
Pg 28!
Memory at Work
Snapshot of assets and liabilities at a point in time!
Pg 29!
Memory at Work
Pg 30!
Tom's Solar Power Co, Inc!Balance Sheet!
February 29, 2012!
$!Assets!Cash! $ 13,000 !Accounts Receivable! 5,000 !Inventory (prepaid)! 7,500 !Building and Equipment! 50,000 !Land! ! 100,000 !Total Assets! 175,500 !
Liabilities!Accounts Payable! - !Loan! ! 25,000 !Total Liabilities! 25,000 !
Owner's Equity! ! 150,500 !Total Liabilities and Owner's Eq.! ! 175,500 !
Tom's Solar Power Co, Inc!Monthly Income Statement!
February 2012!$!
Feb!Revenue! 5,000 !Cost of Sales! 2,500 !Gross Margin! 2,500 !
SG&A! 1,000 !Net Income! 1,500 !
Cash Projection!
Starting Cash! 21,500 !Plus: Revenue (1 month delayed)! - !Minus: Cost of sales (1 month ahead)! 7,500 !Minus: SG&A! 1,000 !Cash gain/(loss)! (8,500)!
Ending Cash! 13,000 !
Memory at Work
It’s all about cash!!
Forecast from the bottom!
Create multiple scenarios: how sensitive is your business to changes:!– In revenue!– In expenses!
Get expert advice when you need it!
! Pg 31!
Andrew [email protected]!
