Presented by Dan Vishny, CPA, MBA Principal – Promised Land Consulting Chief Primate – Red Ape Cinnamon

Financial Statement Projections - Purposes  Reality 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 Objectives  Sufficient 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 Requirements 5 year Profit & Loss Statement 5 year Balance Sheet 5 year Statement of Cash Flows Valuation Statement and ROI Analysis Breakeven Analysis What if Analysis Details in appendices Monthly 1 st year Quarterly years 2-3; annual for years 4-5 Provide Assumptions that drive your figures

Dan’s Financial Projections Template CAUTION: This may not be the perfect one for you Don’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 balances The cash account flows from the cash flow statement

Sample Financial Assumptions  Discount Rate of at least 12% (for most new ventures)  Sales that can be closed per month  Sales cycle-produce/sell/get paid  Revenue by month/quarter/year  Revenue growth rate  Costs as function of time  Employee growth/cost rates  Marketing and administrative expenses  Accounts payable/receivable terms  U.S. Custom duty rates:  Inflation estimate  …..[others specific to Your business]

Assumptions- Anticipate the Questions What 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 companies ValueLine Investment Survey, Standard & Poor’s Netadvantage Stock Reports, Bloomberg, Etrade…. Make sure that your assumptions are REASONABLE

Estimating Startup Costs  Office set up, computers, building improvements, etc.  Professional services (lawyers, accountants, etc.)  Web site development  Filing fees, licenses, patent expenses  Initial inventory levels  Initial marketing expenses (if necessary)  Others specific to your business  Don’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 elements Revenues Projected 5 years Cost 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 corner Operating 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 carryforwards Depreciation Expense Noncash expense, but reduces your income tax expense Net Income  Calculate 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 Flows  Cash 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 King Treat it with Respect--- Invest & Spend it Wisely It’s a finite resource and has a way of running out

Operational Breakeven Analysis Puts your business in perspective Worst case scenario picture Can you achieve break even and when? Compare to competitors Compare to last year Do you have enough production capacity? Do this analysis as often as possible

What If Analysis-Breakeven What 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 $ Marketing Costs$200, $400, $600, What is the monthly breakeven in dollars based on various margin %s and increases in Marketing Costs? [ Margin Per Unit ] 51,11160%65%70%40% $0$230,813$213,452$197,839$346,239 Marketing 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 $ Time

Company Valuation Return on Investment (ROI) Terminal Value and ROI Discounted Cash Flow Sales Multiplier EBITDA Multiplier Sales of Comparable Companies All the above Whatever you choose Make sure the ROI is adequate and reasonable

Successful Bootstrapping Define your goal Set the milestones Sprint to the milestones (it’s not a marathon) Invest in things that your customers see Discipline- set the rules and live by them Budget Shmudge it- spend as little as possible Don’t stop digging for the hidden treasure Get 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 market The “Language” of accounting & finance Profit, Profit, Profit