COPYRIGHT © 2010 <br />COPYRIGHT © 2010 <br />
Rule #1: <br />If you cannot read the financial statement from two feet away the font is <br />too small <br />(i.e. there...
COPYRIGHT © 2010 <br />
Rule #2:  <br />Pennies are only for accounting auditors<br />COPYRIGHT © 2010 <br />
COPYRIGHT © 2010 <br />
Rule #3: <br />Use $ (dollar signs) on thefirstand last row only.<br />Unless, of course, you are mixing rows of $ and %, ...
FORMAT CREDIBILITY<br />The presentation format does not interfere with (or create noise for) the reader<br />COPYRIGHT © ...
COPYRIGHT © 2010 <br />
Rule #4: <br />Use column headings that make sense<br />(and there are violators of this in the room)<br />COPYRIGHT © 201...
Rule #5: <br />Numbers with thousands or millions must have commas<br />This:  	54,556<br />Not this: 	54556<br />COPYRIGH...
COPYRIGHT © 2010 <br />
Rule#6: <br />Don’t mixfonts<br />Or font size……<br />And do not use a silly font<br />COPYRIGHT © 2010 <br />
Rule #7: <br />Text is left justified<br />Numbers are right justified<br />Violators confuse the reader<br />COPYRIGHT © ...
Rule #8:<br />Do not overdocolor<br />and<br />Do not highlight in dark colors<br />Spot color<br />COPYRIGHT © 2010 <br />
Rule #9:<br />Round your numbers to the nearest thousand for presentations<br />Thank  you Joe Caruso for this suggestion<...
Rule #10:<br />Spelle Check<br />And do not tell me you relied on Microsoft…….<br />COPYRIGHT © 2010 <br />
Financial Forecast in your Slide deck is a Marketing Effort! (Huh)?<br />COPYRIGHT © 2010 <br />
<ul><li>Provide cost-effective outsourced (part-time) CFO support
Clients range from pre-revenue startups to later stage privately held companies
Goal = provide strategic financial advice and handle all accounting/ financial matters so the entrepreneurs can focus on d...
David Fogel, CPA<br /><ul><li>Serial entrepreneurial CFO
Principal of Swifton CFOs LLC (circa 2009)
Experience with high tech companies ranging from biotech to telecom services to healthcare IT to social media to…
Adjunct Professor of Finance – WPI
Judge & Mentor:
Sponsor:
Associations:</li></ul>COPYRIGHT © 2010 <br />
Developing The Financial Forecast<br /> Defined<br /> What about the assumptions?<br /> Creating the sales forecast<br /> ...
Ty DancoMember, Mass Medical AngelsMember, North Country Angels<br />"I'll never believe your revenue numbers anyway, but ...
Developing The Financial Forecast<br />What are financial projections?<br />Collection of statements that present your bus...
Set your goals from top down<br />but…..<br />Prepare the model from the bottom up<br />then….start over<br />with your to...
Developing The Financial Forecast<br />2. What about the assumptions? <br />Document the source of each number you produce...
Developing The Financial Forecast<br />2. What about the assumptions? (part 2)<br />Start-up costs (uses of $)<br />Financ...
Start-up cost assumptions<br /><ul><li>Expenses up to the point when you are open for business…….which is when?
List all the uses of money – describe exactly how spent
Two types: Fixed assets & Working Capital
Examples?
Fixed Assets = Equipment, Furniture
Working Capital = Rental deposits, Insurance</li></ul>COPYRIGHT © 2010 <br />
Financing assumptions<br /><ul><li>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
Equity capital
ID the amount, terms of repayment (mos), and rate if interest or return</li></ul>COPYRIGHT © 2010 <br />
Capital Expenditures<br />(aka Fixed Assets)<br /><ul><li>Costs that have a “lifetime” greater than one year AND an indivi...
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: Probably expense the PCs and Macs              (but try to keep track of them anyway)</li></ul>COPYRIGHT © 2010 <br />
Fixed cost assumptions<br /><ul><li>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</li></ul>COPYRIGHT © 2010 <br />
Variable cost assumptions<br /><ul><li>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
Upcoming SlideShare
Loading in …5
×

MIT Enterprise Forum Smart Start Presentation

1,636 views

Published on

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

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,636
On SlideShare
0
From Embeds
0
Number of Embeds
73
Actions
Shares
0
Downloads
13
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide
  • 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.
  • MIT Enterprise Forum Smart Start Presentation

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

    ×