Financial Planning - Entrepreneurship 101

For the startup CEO!Presented by: Andrew Graham  January 2012!

Memory at Work Pg 3!

Memory at Work Have to pay the bills Why money ma*ers in a startup Sign of a Desirable sustainable outcome!! business model Pg 4!

Memory at Work ¨  Income Statement! ¨  Cash Flow Forecast! ¨  Balance Sheet! Pg 5!

Memory at Work ¨  Financial performance over a period of time! ¨  Usually for a year, quarter or month! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Taxes! 1,233 ! Net income! 3,411 ! Pg 7!

Memory at Work Research in Motion! Income Statement! Revenue! 2011 Fiscal Year! ! millions of USD! Money brought into a company by its business Revenue! $ 19,907 ! Cost of sales! 11,082 ! activities! Gross margin! 8,825 ! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! Revenue Forecasting! Total operating expenses! 4,189 ! ! Top-down! Income from operations! 4,636 ! Investment income! 8! vs! Taxes! 1,233 ! Bottom-up! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! Cost of Sales! ! millions of USD! Costs that go into creating Revenue! $ 19,907 ! the products and services Cost of sales! 11,082 ! Gross margin! 8,825 ! that a company sells! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Gross Margin! ! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Revenue minus cost of Gross margin! 8,825 ! sales! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! RIM !44%! Total operating expenses! 4,189 ! !!Linkedin !81%! !!Toyota !13%! Income from operations! 4,636 ! Investment income! 8! ! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Operating Expenses! Revenue! $ 19,907 ! ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Business costs NOT related to producing goods & Operating expenses! Research & development! 1,351 ! services for sale! Selling, general & admin.! 2,400 ! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Research & Development! Revenue! $ 19,907 ! ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Activities with the intention of making a discovery that Operating expenses! Research & development! 1,351 ! can lead to new or Selling, general & admin.! 2,400 ! improved products! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Selling, General and Operating expenses! Administrative Expenses Research & development! 1,351 ! Selling, general & admin.! 2,400 ! (SG&A)! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Amortization! ! Operating expenses! Research & development! 1,351 ! Deduction of capital Selling, general & admin.! 2,400 ! expenses over a period of Amortization! 438 ! Total operating expenses! 4,189 ! time! Income from operations! 4,636 ! Investment income! 8! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! Investment Income! Total operating expenses! 4,189 ! ! Income from operations! 4,636 ! Income from interest Investment income! 8! payments, dividends, etc! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Taxes! Taxes! 1,233 ! Net income! 3,411 ! Pg 6!

Memory at Work Research in Motion! Income Statement! 2011 Fiscal Year! millions of USD! Revenue! $ 19,907 ! Cost of sales! 11,082 ! Gross margin! 8,825 ! Operating expenses! Research & development! 1,351 ! Selling, general & admin.! 2,400 ! Amortization! 438 ! Total operating expenses! 4,189 ! Income from operations! 4,636 ! Investment income! 8! Net income! Taxes! 1,233 ! ! Net income! 3,411 ! Proﬁt!!! Pg 6!

Memory at Work Example: Tomʼs Solar Power Company, Inc.! Input Cost: !$50! Sell for: !$100! Pg 7!

Memory at Work Revenue $400,000 $300,000 $200,000 $100,000 $-‐ Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Units Sold! - ! 50 ! 150 ! 250 ! 400 ! 550 ! 750 ! 1,050 ! 1,400 ! 1,900 ! 2,500 ! 3,500 ! Unit Price! $100/unit! Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 ! 75,000 ! 105,000 ! 140,000 ! 190,000 ! 250,000 ! 350,000 ! Pg 8!

Memory at Work Toms Solar Power Co, Inc! Monthly Income Statement! January-June, 2012! $! Jan! Feb! Mar! Apr! May! Jun! Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 ! Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 ! Cash Projection! Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 ! SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 ! Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)! Pg 9!

Memory at Work Toms Solar Power Co, Inc! Monthly Income Statement! January-June, 2012! $! Jan! Feb! Mar! Apr! May! Jun! Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 ! Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 ! Cash Projection! Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 ! Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 ! Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)! Pg 9!

Memory at Work Pg 10!

Memory at Work If you donʼt forecast cash ﬂows, youʼre ﬂying blind!! Pg 10!

Memory at Work ¨  Earnings Before Interest, Taxes, Depreciation and Amortization! ¨  A measure of a companyʼs cash ﬂow from operations! Pg 11!

Memory at Work ¨  Snapshot of assets and liabilities at a point in time! Pg 12!

Memory at Work Toms Solar Power Co, Inc! Toms Solar Power Co, Inc! Monthly Income Statement! Balance Sheet! February 2012! February 29, 2012!$! Feb! $!Revenue! 5,000 ! Assets!Cost of Sales! 2,500 ! Cash! $ 13,000 !Gross Margin! 2,500 ! Accounts Receivable! 5,000 ! Inventory (prepaid)! 7,500 ! Building and Equipment! 50,000 !SG&A! 1,000 ! Land! ! 100,000 !Net Income! 1,500 ! Total Assets! 175,500 ! Cash Projection! Liabilities! Accounts Payable! - !Starting Cash! 21,500 ! Loan! ! 25,000 !Plus: Revenue (1 month delayed)! - ! Total Liabilities! 25,000 !Minus: Cost of sales (1 month ahead)! 7,500 !Minus: SG&A! 1,000 ! Owners Equity! ! 150,500 !Cash gain/(loss)! (8,500)! Total Liabilities and Owners Eq.! ! 175,500 !Ending Cash! 13,000 ! Pg 13!

Memory at Work ¨  Itʼs all about cash!! ¨  Forecast from the bottom! ¨  Create multiple scenarios: how sensitive is your business to changes:! –  In revenue! –  In expenses! ¨  Get expert advice when you need it! Pg 14!

Andrew Graham  agraham@marsdd.com!

Financial Planning - Entrepreneurship 101

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Financial Planning - Entrepreneurship 101 Presentation Transcript