MIT Enterprise Forum Smart Start Presentation
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Financial projection presentation on Dec 14, 2010 for MIT Enterprise Forum Smart Start bootcamp

Financial projection presentation on Dec 14, 2010 for MIT Enterprise Forum Smart Start bootcamp

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  • See new employees, etc.Don’t fall into the yr-to-yr trap.
  • See new employees, etc.Don’t fall into the yr-to-yr trap.
  • See new employees, etc.Don’t fall into the yr-to-yr trap.

Transcript

  • 1. COPYRIGHT © 2010
    COPYRIGHT © 2010
  • 2. Rule #1:
    If you cannot read the financial statement from two feet away the font is
    too small
    (i.e. there are too many details)
    COPYRIGHT © 2010
  • 3. COPYRIGHT © 2010
  • 4. Rule #2:
    Pennies are only for accounting auditors
    COPYRIGHT © 2010
  • 5. COPYRIGHT © 2010
  • 6. Rule #3:
    Use $ (dollar signs) on thefirstand last row only.
    Unless, of course, you are mixing rows of $ and %, etc.
    COPYRIGHT © 2010
  • 7. FORMAT CREDIBILITY
    The presentation format does not interfere with (or create noise for) the reader
    COPYRIGHT © 2010
  • 8. COPYRIGHT © 2010
  • 9. Rule #4:
    Use column headings that make sense
    (and there are violators of this in the room)
    COPYRIGHT © 2010
  • 10. Rule #5:
    Numbers with thousands or millions must have commas
    This: 54,556
    Not this: 54556
    COPYRIGHT © 2010
  • 11. COPYRIGHT © 2010
  • 12. Rule#6:
    Don’t mixfonts
    Or font size……
    And do not use a silly font
    COPYRIGHT © 2010
  • 13. Rule #7:
    Text is left justified
    Numbers are right justified
    Violators confuse the reader
    COPYRIGHT © 2010
  • 14. Rule #8:
    Do not overdocolor
    and
    Do not highlight in dark colors
    Spot color
    COPYRIGHT © 2010
  • 15. Rule #9:
    Round your numbers to the nearest thousand for presentations
    Thank you Joe Caruso for this suggestion
    COPYRIGHT © 2010
  • 16. Rule #10:
    Spelle Check
    And do not tell me you relied on Microsoft…….
    COPYRIGHT © 2010
  • 17. Financial Forecast in your Slide deck is a Marketing Effort! (Huh)?
    COPYRIGHT © 2010
  • 18.
    • Provide cost-effective outsourced (part-time) CFO support
    • 19. Clients range from pre-revenue startups to later stage privately held companies
    • 20. Goal = provide strategic financial advice and handle all accounting/ financial matters so the entrepreneurs can focus on driving the business
    COPYRIGHT © 2010
  • 21. David Fogel, CPA
    • Serial entrepreneurial CFO
    • 22. Principal of Swifton CFOs LLC (circa 2009)
    • 23. Experience with high tech companies ranging from biotech to telecom services to healthcare IT to social media to…
    • 24. Adjunct Professor of Finance – WPI
    • 25. Judge & Mentor:
    • 26. Sponsor:
    • 27. Associations:
    COPYRIGHT © 2010
  • 28. Developing The Financial Forecast
    Defined
    What about the assumptions?
    Creating the sales forecast
    Spreading the numbers
    Creating the statements
    COPYRIGHT © 2010
  • 29. 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 © 2010
  • 30. Developing The Financial Forecast
    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 © 2010
  • 31. Set your goals from top down
    but…..
    Prepare the model from the bottom up
    then….start over
    with your top down goals
    COPYRIGHT © 2010
  • 32. 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
    - Estimated or best guess (really try not to SWAG)
    - Desired goal to be obtained
    - Primary market research – surveys, vendor quotes
    - Second market research – purchased or gov’t information
    COPYRIGHT © 2010
  • 33. 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 © 2010
  • 34. Start-up cost assumptions
    • Expenses up to the point when you are open for business…….which is when?
    • 35. List all the uses of money – describe exactly how spent
    • 36. Two types: Fixed assets & Working Capital
    • 37. Examples?
    • 38. Fixed Assets = Equipment, Furniture
    • 39. Working Capital = Rental deposits, Insurance
    COPYRIGHT © 2010
  • 40. Financing assumptions
    • Sources where $ will come from
    • 41. Where?
    • 42. Entrepreneur and team
    • 43. F&F
    • 44. Bank loan (though not likely for start-ups)
    • 45. Debt from owner or outside creditor
    • 46. Equity capital
    • 47. ID the amount, terms of repayment (mos), and rate if interest or return
    COPYRIGHT © 2010
  • 48. Capital Expenditures
    (aka Fixed Assets)
    • Costs that have a “lifetime” greater than one year AND an individual or collective cost greater than $2k
    • 49. Predict some fixed assets by headcount, some by significant changes in sales volume, some by changes in product lines, etc.
    • 50. Examples: Leasehold improvements, Furniture & fixtures, Machinery
    • 51. Note: Probably expense the PCs and Macs (but try to keep track of them anyway)
    COPYRIGHT © 2010
  • 52. Fixed cost assumptions
    • Costs of being in business
    • 53. Do not vary by sales volume (i.e. day-to-day)
    • 54. But DO increase as the business scales
    • 55. Create fixed cost projections on monthly basis
    • 56. Research through correspondence with outside vendors
    • 57. Record the source & amount from each vendor……..
    • 58. Examples: Rent, Utilities, Salaries, Benefits, Marketing expenses, Administrative expenses
    COPYRIGHT © 2010
  • 59. Variable cost assumptions
    • Costs of doing business
    • 60. May vary directly with sales volume
    • 61. DO increase as the business scales
    • 62. Expenses incurred with the next “unit” of product or service
    • 63. Research through correspondence with outside vendors
    • 64. Examples: Materials, direct/indirect labor, and shipping costs
    COPYRIGHT © 2010
  • 65. Projected sales assumptions
    • What product(s) and/or service(s)
    • 66. Quantities
    • 67. Price
    • 68. When (seasonality/cyclicality)?
    • 69. T&C’s
    COPYRIGHT © 2010
  • 70. Cash flow assumptions
    • Convert your business activity to cash activity
    • 71. When will cash be collected from customers?
    • 72. May vary by product line and by customer
    • 73. Generally assume 45 days---though currently customers are extending to 60 days
    • 74. When do you pay your vendor’s invoices?
    • 75. May vary by product line and by vendor
    • 76. Generally assume 30-45 days
    • 77. Need to create “referenceable” vendors
    COPYRIGHT © 2010
  • 78. 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 © 2010
  • 79. Developing The Financial Forecast
    3. Creating the sales forecast (part 2)
    How do I start? Market research
    • Gov’t resources
    • 80. US Census Bureau
    • 81. IRS Statistical Data
    • 82. Trade association
    • 83. Primary & secondary research
    Select your geography
    COPYRIGHT © 2010
  • 84. Developing The Financial Forecast
    3. Creating the sales forecast (part 2)
    Predict by client (customer) types
    Then ID certain characteristics
    COPYRIGHT © 2010
  • 86. Developing The Financial Forecast
    3. Creating the sales forecast (part 3)
    Predict using Sales staff
    • Assume lag time (3-6 mos.)
    • 87. Estimate the pipeline
    • 88. # of calls / meetings per staff
    • 89. # of sales per staff
    • 90. Remember: Not all staff start same date
    • 91. Spread out the volume by month – with realistic goals
    • 92. ….Consider turnover of sales staff
    COPYRIGHT © 2010
  • 93. Forecast Trap:
    Why they call them “Gross Sales”
    COPYRIGHT © 2010
  • 98. Forecast Trap:
    Do not over-estimate first year revenue
    (we can’t sell millions in first month?)
    COPYRIGHT © 2010
  • 99. Developing The Financial Forecast
    4. Spreading the Numbers
    • Yes, you need to do it monthly -- for the entire period
    • 100. No flat numbers – consider the meaning – use % increases
    • 101. Think: As headcount increases rent increases (just not variably)
    • 102. Start with revenue, then cost of services
    COPYRIGHT © 2010
  • 103. Multiple Model Trap:
    One model, Multiple options (triggers)
    Making fundamental changes in the base model and then forgetting to make similar changes on the “other scenario models”
    COPYRIGHT © 2010
  • 104. Tip:
    Integration
    Must use an integrated model
    Headcount added
    Payroll and benefits calculation
    Summarized employee costs
    Income Statement
    Cash Flow
    COPYRIGHT © 2010
  • 105. Tip:
    Use Rounding
    Use the MS Excel “rounding function” --- otherwise your numbers may not add up
    COPYRIGHT © 2010
  • 106. Question?
    Is the methodology
    Accrual or Cash?
    COPYRIGHT © 2010
  • 107. Tip:
    If you want to be taken seriously do not use round numbers
    This: 53,567
    Not this: 50,000
    COPYRIGHT © 2010
  • 108. Tip:
    Project payroll & benefits in detail
    • Payroll & benefits are often the most costly expense yet they are often neglected.
    • 109. Project monthly to handle start dates correctly
    • 110. Match additions of people with milestones
    • 111. Employer-provided benefits should be determined by person for more accuracy (e.g. mandatory costs)
    COPYRIGHT © 2010
  • 112. Tip:
    Projection Numbers are not separate from the Company Plans
    Company Plans
    COPYRIGHT © 2010
  • 113. Tip:
    Be careful with Depreciation and Interest expense
    • Depreciation is a non-cash expense – do not include in cash flow
    (we’ll worry about how to calculate this when you come see me)
    • Interest expense does not include the principal portion of your payment
    COPYRIGHT © 2010
  • 114. 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 © 2010
  • 115. Tip:
    Don’t forget the…..
    Sales commissions – Direct connect them to your sales staff’s (or sales rep) sales
    Bonuses – Include in your payroll model
    Recruiting expenses – Peg them to change in new employees
    Debt - Many forget to include Interest Expense on the income statement even though there the Company has incurred Debt
    COPYRIGHT © 2010
  • 116. Presentation Suggestions
    Steady, consistent evolution of the model
    • Revenue growth in $
    • 117. Expenses over time in %
    Know the % change for major components
    Do not allocate G&A/Facilities expenses
    Show depreciation separately (non-cash)
    COPYRIGHT © 2010
  • 118. Tip:
    Reasonableness
    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)?
    Do the Like-Kind test. Compare your “metrics” versus your competition
    COPYRIGHT © 2010
  • 119. Creating the Statements
    Consider it a Marketing Effort
    Present the Pro-Forma Financial Statement
    Graph the Revenues, Income, and Cash
    Present the Headcount
    COPYRIGHT © 2010
  • 120. Income Statement
    Cash Flow Statement
    COPYRIGHT © 2010
  • 121. ABC Company – Financials by Year
    ($ 000’s omitted)
    COPYRIGHT © 2010
  • 122. COPYRIGHT © 2010
  • 123. For your review only. Not for presentation
    Looking at the monthly headcount helps you find obvious discrepancies
    COPYRIGHT © 2010
  • 124. More on charts and tables……
    Highlight revenue especially as compared with your competition
    Explain the sales & distribution model (…so about those 90% margins)
    Key events to next funding round
    Cash flow cycle
    COPYRIGHT © 2010
  • 125. Universal Truths:
    Project monthly, Present annually
    Projections constantly change,
    let them. Not an annual exercise.
    Develop as a monthly exercise.
    3. Financial must be consistent with rest of presentation
    4. Do not need to be hung up with GAAP, but don’t go rogue
    COPYRIGHT © 2010
  • 126. Even More Universal Truths:
    Be consistent – Don’t portray cost categories (or individuals) differently by year
    P&L Income ≠ Cash Flow (we know this right?)
    COPYRIGHT © 2010
  • 127. Developing The Financial Forecast
  • 128. Contact Information:
    David A. Fogel
    Principal
    Swifton CFOs
    Email: dfogel@swiftoncfos.com
    Website: www.swiftoncfos.com
    Twitter: @swifton
    Phone: 781.806.5436
    Cell: 781.910.7559
    COPYRIGHT © 2010
  • 129. COPYRIGHT © 2010