Presented by Dan Vishny, CPA, MBA Principal – Promised Land Consulting Chief Primate – Red Ape...
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Transcript of Presented by Dan Vishny, CPA, MBA Principal – Promised Land Consulting Chief Primate – Red Ape...
Creating, Managing, & Understanding Startup Financials
Presented by Dan Vishny, CPA, MBAPrincipal – Promised Land Consulting
Chief Primate – Red Ape Cinnamon
Financial Statement Projections - PurposesReality 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 ObjectivesSufficient 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 Requirements5 year Profit & Loss Statement5 year Balance Sheet5 year Statement of Cash FlowsValuation Statement and ROI AnalysisBreakeven AnalysisWhat if AnalysisDetails in appendices
Monthly 1st yearQuarterly years 2-3; annual for years 4-5Provide Assumptions that drive your figures
Dan’s Financial Projections TemplateCAUTION: This may not be the perfect one
for youDon’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 balancesThe cash account flows from the cash flow
statement
Sample Financial AssumptionsDiscount Rate of at least 12% (for most new
ventures)Sales that can be closed per monthSales cycle-produce/sell/get paidRevenue by month/quarter/yearRevenue growth rateCosts as function of timeEmployee growth/cost ratesMarketing and administrative expensesAccounts payable/receivable termsU.S. Custom duty rates:
http://www.usitc.gov/tata/hts/Inflation estimate…..[others specific to Your business]
Assumptions- Anticipate the QuestionsWhat 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 companiesValueLine Investment Survey, Standard &
Poor’s Netadvantage Stock Reports, Bloomberg, Etrade….Make sure that your assumptions are
REASONABLE
Estimating Startup CostsOffice set up, computers, building
improvements, etc.Professional services (lawyers, accountants,
etc.)Web site developmentFiling fees, licenses, patent expensesInitial inventory levelsInitial marketing expenses (if necessary)Others specific to your businessDon’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 elementsRevenues Projected 5 yearsCost 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
cornerOperating 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
carryforwardsDepreciation Expense
Noncash expense, but reduces your income tax expense
Net IncomeCalculate 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 FlowsCash 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 KingTreat it with Respect--- Invest & Spend it Wisely
It’s a finite resource and has a way of running out
Operational Breakeven AnalysisPuts your business in perspectiveWorst case scenario pictureCan you achieve break even and when?
Compare to competitorsCompare to last year
Do you have enough production capacity?Do this analysis as often as possible
What If Analysis-BreakevenWhat is the monthly breakeven in units based on various margins and increases in Marketing Costs?
[---------------------- Margin Per Unit -----------------------]10 $3,000 $3,500 $4,000 $2,500$0 46 40 35 55
Marketing Costs $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?
[---------------------- Margin Per Unit -----------------------]51,111 60% 65% 70% 40%
$0 $230,813 $213,452 $197,839 $346,239Marketing Costs $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 $471,219
Accumulated Costs Break-even Analysis(When do we get our money back?)
Total Accumulated Revenues = Total Accumulated Costs
Comes directly from Income Analysis
Cash Flow Positive occurs ahead of B/E
B/E Analysis Chart must be in your Plan
0
2
4
68
10
12
14
1 2 3 4 5
Revenue
Cost$
Time
Company ValuationReturn on Investment (ROI)
Terminal Value and ROIDiscounted Cash FlowSales MultiplierEBITDA MultiplierSales of Comparable CompaniesAll the above
Whatever you chooseMake sure the ROI is adequate and reasonable
Successful BootstrappingDefine your goalSet the milestonesSprint to the milestones (it’s not a marathon)Invest in things that your customers seeDiscipline- set the rules and live by themBudget Shmudge it- spend as little as
possibleDon’t stop digging for the hidden treasureGet 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 marketThe “Language” of accounting & financeProfit, Profit, Profit