Financial Forecasting for Investor Presentations - Bus Fundamentals Bootcamp
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Presentation made by David Fogel of Swifton CFOs on March 21, 2014 at Business Fundamentals Bootcamp sponsored by Supporting Strategies at District Hall, Boston, MA

Presentation made by David Fogel of Swifton CFOs on March 21, 2014 at Business Fundamentals Bootcamp sponsored by Supporting Strategies at District Hall, Boston, MA

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    Financial Forecasting for Investor Presentations - Bus Fundamentals Bootcamp Financial Forecasting for Investor Presentations - Bus Fundamentals Bootcamp Document Transcript

    • March 21, 2014 1 Financial Projections for Investor Presentations David Fogel Managing Director, Swifton CFOs LLC dfogel@swiftoncfos.com www.swiftoncfos.com ABC Company, Inc. Estimated Statement of Operations For The Years Ended December 31, 2010. 2011, 2012, and 2013 2010 2011 2012 2013 2010 2011 2012 2013 Re venue: Installation Revenue 450$ 3,825$ 21,038$ 73,633$ 77.1% 84.3% 82.3% 80.6% Non-Installation Revenue Service Fees 89$ 623$ 4,361$ 17,444$ 15.2% 13.7% 17.1% 19.1% Other Non-Installation Revenue 45$ 90$ 158$ 237$ 7.7% 2.0% 0.6% 0.3% Total Revenue: 584$ 4,538$ 25,557$ 91,314$ 100.0% 100.0% 100.0% 100.0% Direct Costs: Installation Costs 338$ 2,678$ 12,623$ 36,817$ 57.9% 59.0% 49.4% 40.3% Non-Installation Costs 38$ 193$ 1,175$ 4,420$ 6.5% 4.3% 4.6% 4.8% Direct Costs: 376$ 2,871$ 13,798$ 41,237$ 64.4% 63.3% 54.0% 45.2% Other Cost of Services 88$ 567$ 2,556$ 6,849$ 15.1% 12.5% 10.0% 7.5% Gross Margin ($) 120$ 1,100$ 9,203$ 43,228$ 20.5% 24.2% 36.0% 47.3% Gross Margin (%) 20.5% 24.2% 36.0% 47.3% Operating Expe nse s: Sales 292$ 1,588$ 6,389$ 18,263$ 50.0% 35.0% 25.0% 20.0% Marketing 263$ 1,361$ 5,111$ 13,697$ 45.0% 30.0% 20.0% 15.0% Research & Development 175$ 998$ 2,811$ 8,218$ 30.0% 22.0% 11.0% 9.0% General & Administration 44$ 295$ 1,533$ 4,566$ 7.5% 6.5% 6.0% 5.0% Total Operating Expenses: 774$ 4,242$ 15,844$ 44,744$ 132.5% 93.5% 62.0% 49.0% EBITDA (654)$ (3,142)$ (6,641)$ (1,516)$ -112.0% -69.2% -26.0% -1.7% Other (Revenue) & Expenses: Interest 80$ 156$ 32$ 80$ 13.7% 3.4% 0.1% 0.1% Taxes 8$ 9$ 11$ 15$ 1.4% 0.2% 0.0% 0.0% Depreciation & Amortization 13$ 67$ 268$ 874$ 2.2% 1.5% 1.0% 1.0% Total Other (Revenue) & Expenses 101$ 232$ 311$ 969$ 17.3% 5.1% 1.2% 1.1% Ne t Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$ -129.3% -74.3% -27.2% -2.7% Statement Notes: Re venue Market 1 43$ 2,320$ 12,205$ 46,232$ 7.4% 51.1% 47.8% 50.6% Market 2 230$ 1,201$ 7,652$ 26,450$ 39.4% 26.5% 29.9% 29.0% Market 3 256$ 932$ 3,250$ 12,658$ 43.8% 20.5% 12.7% 13.9% Market 4 55$ 85$ 2,450$ 5,974$ 9.4% 1.9% 9.6% 6.5% Total Reve nue 584$ 4,538$ 25,557$ 91,314$ Headcount Existing 13.00$ 18.00$ 61.00$ 298.00$ New Hires 5.00$ 43.00$ 237.00$ 830.00$ Total Headcount 18.00$ 61.00$ 298.00$ 1,128.00$ Capital Expenditures 126.00$ 424.00$ 1,584.00$ 4,474.00$ Dollars (000's omitte d) Percent (%) of Revenue COPYRIGHT © 2010 COPYRIGHT © 2014
    • March 21, 2014 2 Rule #1: If you cannot read the financial statement from two feet away the font is too small (too many details) COPYRIGHT © 2014 ABC Company, Inc. Projected Statement of Operations For The Years Ended December 31, 2010. 2011, 2012, and 2013 2010 2011 2012 2013 Revenue: Market 1 43.00$ 2,320.00$ 12,205.00$ 46,232.00$ Market 2 230.00$ 1,201.00$ 7,652.00$ 26,450.00$ Market 3 256.00$ 932.00$ 3,250.00$ 12,658.00$ Market 4 55.00$ 85.00$ 2,450.00$ 5,974.00$ Total Revenue 584.00$ 4,538.00$ 25,557.00$ 91,314.00$ Gross Margin ($) 120.00$ 1,100.00$ 9,203.00$ 43,228.00$ Gross Margin (%) 20.5% 24.2% 36.0% 47.3% Operating Expenses: Sales & Marketing 555.00$ 2,949.00$ 11,500.00$ 31,960.00$ Research & Development 175.00$ 998.00$ 2,811.00$ 8,218.00$ General & Administration 44.00$ 295.00$ 1,533.00$ 4,566.00$ Total Operating Expenses: 774.00$ 4,242.00$ 15,844.00$ 44,744.00$ Other Expense/(Income) 101.00$ 232.00$ 311.00$ 969.00$ Net Income (Loss) (755.00)$ (3,374.00)$ (6,952.00)$ (2,485.00)$ Statement Notes: Headcount Existing 13.00$ 18.00$ 61.00$ 298.00$ New Hires 5.00$ 43.00$ 237.00$ 830.00$ Total Headcount 18.00$ 61.00$ 298.00$ 1,128.00$ Capital Expenditures 126.00$ 424.00$ 1,584.00$ 4,474.00$ Dollars (000's omitted) COPYRIGHT © 2014
    • March 21, 2014 3 Rule #2: Pennies are only for accounting auditors COPYRIGHT © 2014 ABC Company, Inc. Estimated Statement of Operations For The Years Ended December 31, 2010. 2011, 2012, and 2013 2010 2011 2012 2013 Revenue: Market 1 43$ 2,320$ 12,205$ 46,232$ Market 2 230$ 1,201$ 7,652$ 26,450$ Market 3 256$ 932$ 3,250$ 12,658$ Market 4 55$ 85$ 2,450$ 5,974$ Total Revenue 584$ 4,538$ 25,557$ 91,314$ Gross Margin ($) 120$ 1,100$ 9,203$ 43,228$ Gross Margin (%) 20.5% 24.2% 36.0% 47.3% Operating Expenses: Sales & Marketing 555$ 2,949$ 11,500$ 31,960$ Research & Development 175$ 998$ 2,811$ 8,218$ General & Administration 44$ 295$ 1,533$ 4,566$ Total Operating Expenses: 774$ 4,242$ 15,844$ 44,744$ Other Expense/(Income) 101$ 232$ 311$ 969$ Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$ Statement Notes: Headcount Existing 13$ 18$ 61$ 298$ New Hires 5$ 43$ 237$ 830$ Total Headcount 18$ 61$ 298$ 1,128$ Capital Expenditures 126$ 424$ 1,584$ 4,474$ Dollars (000's omitted) COPYRIGHT © 2014
    • March 21, 2014 4 Rule #3: Use $ (dollar signs) on the first and last row only. Unless, of course, you are mixing rows of $ and %, etc. COPYRIGHT © 2014 FORMAT CREDIBILITY The presentation format does not interfere with (or create noise for) the reader COPYRIGHT © 2014
    • March 21, 2014 5 ABC Company, Inc. Projected Statement of Operations For The Years Ended December 31, 2010 through 2013 Revenue: Market 1 43$ 2,320$ 12,205$ 46,232$ Market 2 230 1201 7652 26450 Market 3 256 932 3250 12658 Market 4 55 85 2450 5974 Total Revenue 584 4538 25557 91314 Gross Margin ($) 120 1100 9203 43228 Gross Margin (%) 20.5% 24.2% 36.0% 47.3% Operating Expenses: Sales & Marketing 555 2949 11500 31960 Research & Development 175 998 2811 8218 General & Administration 44 295 1533 4566 Total Operating Expenses: 774 4242 15844 44744 Other Expense/(Income) 101 232 311 969 Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$ Statement Notes: Headcount Existing 13 18 61 298 New Hires 5 43 237 830 Total Headcount 18 61 298 1,128 Capital Expenditures 126$ 424$ 1,584$ 4,474$ Dollars COPYRIGHT © 2014 Rule #4: Use column headings that make sense COPYRIGHT © 2014
    • March 21, 2014 6 Rule #5: Numbers with thousands or millions must have commas This: 54,556 Not this: 54556 COPYRIGHT © 2014 Rule #6: Don’t mix fonts Or font size…… And do not use a silly font COPYRIGHT © 2014
    • March 21, 2014 7 Rule #7 Spelle Check COPYRIGHT © 2014 And do not tell me you relied on Microsoft……. Rule #8: Text is left justified Numbers are right justified Violators confuse the reader COPYRIGHT © 2014
    • March 21, 2014 8 Rule #9: Do not overdo color and Do not highlight in COPYRIGHT © 2014 Use Spot color! Rule #11: Round your numbers to the nearest thousand for presentations COPYRIGHT © 2014
    • March 21, 2014 9 Financials in your Slide deck are a Marketing Effort! Really? COPYRIGHT © 2014 ABC Co. ($ 000's omitted) 2010 2011 2012 2013 2014 Pro Forma Financial Statement Revenue -$ 1,875$ 44,953$ 108,238$ 180,161$ Cost of Service - 1,162 12,739 5,369 - Gross Margin - 712 32,214 102,868 180,161 38% 72% 95% 100% Operating Expenses Employee Costs 1,303 2,972 3,587 4,198 4,379 Professional Fees 253 637 1,780 1,230 1,135 Marketing & Travel 61 525 2,340 293 658 Administrative Expenses 60 55 232 41 47 Development & Pilot Manufacturing 409 819 262 965 1,733 Facility & Other 195 801 1,206 1,612 2,023 Total Expenses 2,282 5,807 9,407 8,340 9,976 Depreciation & Amortization 42 98 301 590 791 EBIT (2,324) (5,193) 22,507 93,939 169,394 Net Income (2,639) (5,411) 16,893 55,530 100,603 0% -289% 38% 51% 56% Pro Forma Cash Flow Cash from Operations (2,597) (5,313) 17,193 56,120 101,393 Cash from Working Capital (31) (936) (2,879) (2,754) (3,437) Cash from Investments (57) (297) (1,052) (607) (600) Cash from Financing 7,000 - 42,000 - - Net Cash Flow 4,315 (6,545) 55,262 52,759 97,357 Ending Cash 6,644$ 99$ 55,360$ 108,119$ 205,476$ Income Statement Cash Flow Statement COPYRIGHT © 2014
    • March 21, 2014 10 ABC Company – Financials by Year ($000’s omitted) COPYRIGHT © 2014 ($25,000) $25,000 $75,000 $125,000 $175,000 $225,000 2010 2011 2012 2013 2014 Revenue Income Cash Milestone #1 Prototype Milestone #2 Pilots Milestone #3 Commercialization Seeking $250k Investment Provide cost-effective outsourced CFO support Clients range from pre-revenue startups to later stage privately held companies Goals (1) educate entrepreneurs to understand and consider financial opportunities and implications (2) handle all accounting/ financial matters so the entrepreneurs can focus on driving the business COPYRIGHT © 2014
    • March 21, 2014 11 David A. Fogel, CPA Serial entrepreneurial CFO Managing Director of Swifton CFOs LLC (since 2009) Experience with high tech companies ranging from biotech to telecom to healthcare IT to social media to… Adjunct Instructor of Master’s Program: Presenter & Mentor: Member: COPYRIGHT © 2014 Introducing the Financial Statements • Balance Sheet • Profit and Loss Statement • Cash Flow Statement COPYRIGHT © 2014
    • March 21, 2014 12 Balance Sheet What you own/owe – point in time Assets = Liabilities + Equity Assets are good? Capital expenditures (Fixed Asset) rule Amount => $5,000 AND useful life > one year Liabilities – Disclose, disclose, disclose COPYRIGHT © 2014 Profit and Loss Statement (Statement of Operations) • What you earned • Could represent cash activities but usually much more…… • Management accounting can be more informative, but need to have GAAP • Earnings can be managed, but cash is a reality… COPYRIGHT © 2014
    • March 21, 2014 13 Cash Flow Statement • Where your cash came and went: • Operations, Investing, or Financing • Cash in the bank is a fact • Investors are most interested in your use of $$ COPYRIGHT © 2014 Developing The Financial Forecast 1. Defined 2. What about the assumptions? 3. Creating the sales forecast 4. Spreading the numbers 5. Creating the statements COPYRIGHT © 2014
    • March 21, 2014 14 Ty Danco Member, Mass Medical Angels Member, North Country Angels "I'll never believe your revenue numbers anyway, but I sure want to scrutinize your assumptions and expenses!" COPYRIGHT © 2014 Developing The Financial Forecast 1.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 © 2014
    • March 21, 2014 15 Set your goals from top down but….. Prepare the model from the bottom up then….start over with your top down goals COPYRIGHT © 2014 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 - Desired goal to be obtained - Primary market research – surveys, vendor quotes - Second market research – purchased or gov’t information - Estimated or best guess (really try not to SWAG) COPYRIGHT © 2014
    • March 21, 2014 16 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 © 2014 • Expenses up to the point when you are open for business…….which is when? • List uses of money – describe how spent • Like: Fixed assets & Working Capital • Examples? Fixed Assets = Equipment, Furniture Working Capital = Rental deposits, Insurance Start-up cost assumptions COPYRIGHT © 2014
    • March 21, 2014 17 • Sources where $ will come from • Where? Entrepreneur and team F&F Bank loan (though not likely for start-ups) Debt from owner or outside creditor Non-dilutive financing (maybe ) Equity capital • For loan – know amount, terms of repayment (mos), and rate of interest or return Financing assumptions COPYRIGHT © 2014 • Costs that have a “lifetime” greater than one year AND an individual or collective cost greater than $2k • Predict some fixed assets by headcount, some by significant changes in sales volume, some by changes in product lines, etc. • Examples: Leasehold improvements, Furniture & fixtures, Machinery • Note: Expense the PCs & Macs & iPads (but keep track of them anyway) Capital Expenditures (aka Fixed Assets) COPYRIGHT © 2014
    • March 21, 2014 18 • Costs of being in business • Do not vary by sales volume (i.e. day-to-day) • But DO increase as the business scales • Create fixed cost projections on monthly basis • Research through correspondence with outside vendors • Record the source & amount from each vendor…….. • Examples: Rent, Utilities, Salaries, Benefits, Marketing expenses, Administrative expenses Fixed cost assumptions COPYRIGHT © 2014 • Costs of doing business • May vary directly with sales volume • DO increase as the business scales • Expenses incurred with the next “unit” of product or service • Research through correspondence with outside vendors • Examples: Materials, direct/indirect labor, and shipping costs Variable cost assumptions COPYRIGHT © 2014
    • March 21, 2014 19 What product(s) and/or service(s) Quantities Price When (seasonality/cyclicality)? T&C’s Projected sales assumptions COPYRIGHT © 2014 • Convert your business activity to cash activity • When will cash be collected from customers? May vary by product line and by customer Generally assume 45 days---though currently customers are extending to 60 days • When do you pay your vendor’s invoices? May vary by product line and by vendor Generally assume 30-45 days Need to create “referenceable” vendors Cash flow assumptions COPYRIGHT © 2014
    • March 21, 2014 20 Ben Littauer Member, 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 © 2014 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 © 2014
    • March 21, 2014 21 Developing The Financial Forecast 3. Creating the sales forecast (part 2) How do I start? Market research! • Trade associations • Primary & secondary research • Gov’t resources US Census Bureau IRS Statistical Data Select your geography COPYRIGHT © 2014 Developing The Financial Forecast 3. Creating the sales forecast (part 3) Small Client Medium Client Large Client Average Hours Per Week 4 Hours 8 Hours 16 Hours Average Contract $ Per Week $500 $1,250 $2,500 Predict by client (customer) types • By market • By size Then ID certain characteristics COPYRIGHT © 2014
    • March 21, 2014 22 Forecast Trap: Why they call them “Gross Sales” • Returns • Discounts • Coupons • Rebates • Chargebacks • Markdowns COPYRIGHT © 2014 Forecast Trap: Do not over-estimate first year revenue (what, we can’t sell millions in first month?) COPYRIGHT © 2014
    • March 21, 2014 23 Tip: Integration Must use an integrated model Headcount added Payroll and benefits calculation Summarized employee costs Income Statement Cash Flow COPYRIGHT © 2014 Question? Is the methodology Accrual or Cash? COPYRIGHT © 2014
    • March 21, 2014 24 Tip: Project payroll & benefits in detail • Payroll & benefits are often the most costly expense yet they are often neglected • Project monthly to handle start dates correctly (everyone cannot start in January) • Match people adds with milestones COPYRIGHT © 2014 Tip: Projection Numbers are not separate from the Company Plans Company Plans Milestone Projects Responsible Revenue/ Cost Dates COPYRIGHT © 2014
    • March 21, 2014 25 Multiple Model Trap: One investor model, Multiple options (triggers) But…why not? Fundamental changes made in base model will not be reflected in the clones COPYRIGHT © 2014 Tip: Don’t forget the….. Sales commissions – Direct connect them to your sales staff’s (or sales rep) sales Bonuses – Include with payroll Recruiting expenses – Peg them to change in new employees Debt - Many forget to include Interest Expense on the income statement even though the Company has incurred Debt COPYRIGHT © 2014
    • March 21, 2014 26 Tip: Reasonableness 1. 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)? 2. Do the Like-Kind test. Compare your “metrics” versus your competition COPYRIGHT © 2014 Creating the Statements 1. Consider it a Marketing Effort 2. Present the Pro-Forma Financial Statement 3. Graph the Revenues, Income, and Cash 4. Present the Headcount COPYRIGHT © 2014
    • March 21, 2014 27 Don’t let GustTM blow you away……… 1. Set forecast in stone 2. Complete the boxes 3. Consistent with other docs and financials 4. Be able to back it up (details?) COPYRIGHT © 2014 Contact Information: Email: Website: Twitter: Phone: Cell: COPYRIGHT © 2014