1. Create Financials Stephen Lawrence and Frank Moyes Graduate School of Business University of Colorado Boulder, CO 80309-0419

2. Course Outline

3. This Week

4. Create Financial Statements n Financial Projections –Drivers –Model –Assumptions n Financial Dynamics n Dean Abrams n Present Operations Plan

5. Financial Plan n Income Statement n Balance Sheet n Cash Flow n Summary n Assumptions

6. Operating Expenses Year 1 Year 2 Year 3 Marketing 30 45 65 R & D Administration Total 60 90 140 Cost of Goods Year 1 Year 2 Year 3 Direct 70 130 160 Indirect 30 70 90 Total 100 200 250 Income Statement Year 1 Year 2 Year 3 Revenue 250 350 500 COG’s 100 200 250 Oper Expenses 60 90 140

7. Fixed Assets (Plant) Year 1 Year 2 Year 3 Assets 200 300 400 Depreciation 140 210 260 Fixed Assets 60 90 140 Working Capital Year 1 Year 2 Year 3 Receivables 100 200 300 Inventory 50 75 125 Balance Sheet Year 1 Year 2 Year 3 Receivables 100 200 300 Inventory 50 75 125 Fixed Assets 60 90 140

8. Revenue Drivers n Number of customers, transactions or units n Price per customer, transaction or unit n Average revenue per customer or transaction n Distribution channel discount n Market penetration n Response rate n Churn rate n Growth rate n New services or product

9. Cost of Revenue Drivers n Personnel costs (labor and/or salary) n Materials costs n Yields n Website operating costs n Systems costs n Warehouse and shipping expenses n Returns n Outsourcing expenses n Lease and/or rental expenses n Cost reductions n Depreciation large capital expenditures

10. Operating Expense Drivers n Sales & Marketing –Customer acquisition cost –Personnel expenses –Sales commissions –Exhibitions –Brand building –Tech support –Customer service

11. Operating Expense Drivers n Research and Development –Personnel expenses –Beta testing –Time to market –Patent and copyright application –Prototyping –Subcontracting n General and Administration –Personnel expenses –Recruiting expenses –MIS expenses –Office rent and utilities

12. Financial Dynamics n Who does the financial projections? n Investor questions n Drivers n Optimism vs. Pessimism

13. Financials Spreadsheet Template