Financials: Investor's Perspective

Financial Projections: The Investor’s Perspective Elia Freedman http://mobilesuccess.infinitysw.com

Overview
Why Financials?
Preparing Financials Backgrounder
10 Common Mistakes
Questions

Why Financials?
Must have financials to raise money
A quantitative perspective of your business

What You Need
Financials
Income Statement/Balance Sheet/Cash Flows
Revenues Detail
Expenses and Payroll Detail
Underlying Assumptions
Business Plan

Preparing Financials
Investor Wants To See…
In reality…
M1… M60 Q1… Q20 Y1… Y5 Detail Balance Sheet Cash Flow Statement Income Statement Y1 Y2 Y3 Y4 Y5 MONTHLY QUARTERLY

How Do I Create Them?
Create from scratch in Excel
Use templates (oregonstartups.com)
Consult with a finance person

10 Common Problems

#1: Expense Misalignment
Examples
Expenses don’t scale with revenues
Marketing doesn’t increase with sales
Support doesn’t scale with customers
Shows how much you understand the true nature of your expenses

#2: Simple Assumptions
Examples
Revenues will grow 20% per year
Assumptions not documented at all
Shows that the plan is poorly thought through

#3: Missing Payroll
Examples
$50k/year for a VP of Marketing
Missing Support in a software/web company
Shows you are living in a fantasy world

#4: Industry Mismatches
Examples
No COGS for hardware companies
Basic ratios don’t compare to industry
Shows how much you know about your industry

#5: Business Plan v. Financials
Examples
Marketing in Plan different than Financials
Costs implied by Plan ignored in Financials
Shows that you have not thought through your business in enough detail

#6: Creation Mistakes
Examples
Income Statement on a cash basis
One giant income statement with no balance sheet
Shows you don’t understand the financial aspects of business (and most likely would not run a successful company)

#7: Ridiculous Sales Growth
Examples
Sales start at $10M per year
Year-over-year sales increase over time (Year 1-2: 2x; Year 4-5: 5x)
Shows your expectations are unrealistic

#8: Ridiculous Cash Growth
Examples
Expect cash flow positive in 6 months
Expect 50% of revenue as cash by year 5
Shows you are not investing enough in your business

#9: High Revenues sans Funding
Examples
$100M in Net Revenue on $250,000 in funding
Shows you don’t understand how growth happens

#10: Top-Down Revenue
“If we can just capture 1% of the market…”
Shows you are unrealistic about your company’s market entry and approach

Financials: Reflection On You
How prepared are you?
How trustworthy are you?
How much do you understand the business environment?

Questions/Contact
Elia Freedman
http://mobilesuccess.infinitysw.com

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Financials: Investor's Perspective

by Elia Freedman

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