Start-up Financial Forecasting

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This spreadsheet provides a step-by-step example of building a financial model.

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  • Thanks Eric! Have you tried this free and easy financial forecast tool? It's a good help for entrepreneurs to to build their business model and strategy : http://www.businessmodelforecast.com/
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Start-up Financial Forecasting

  1. Selena Sol presents…. selena@selenasol.com http://www.linkedin.com/pub/eric-tachibana/0/33/b53 http://www.slideshare.net/selenasol/presentations BASIC FINANCIAL FORECASTING FOR START-UPS
  2. EXERCISE NOTES The goal of this exercise is to provide a step-by-step example of how one would create a bottom-up financial forecast. To do this, we will build a single spreadsheet section by section. Each successive tab includes everything before it, but adds additional dataTHE BUSINESS For the purposes of this exercise, we'll imagine the following company. This is a B2B model, so if you have a B2C model, your resulting spreadsheet will look differently, but I bet, not significantly. We have developed a unique thread that has long-lasting anti-oxidant properties. Wearing clothes made from these threads is equivalent to wearing anti-oxidant skin cream or drinking anti-oxidant drinks, except that the effects last all day long (while you wear the clothes). We intend to sell the thread to clothes manufacturers who target female retail buyers (35-55) in North Asia (Years 1 & 2), then Europe (Year 3), and then North America (Year 5) The original XLS file can be downloaded at: http://selenasol.com/temp/Ground- up_Financial_Model_V3.xlsx
  3. PART 1: EXPLAINING VOLUME Since PROFIT = REVENUE - COST, and REVENUE = PRICE x VOLUME, if we want to explain profitability, we can start off by explaining the PRICE & VOLUME variables
  4. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Step 1: EXPLAIN THE SEGMENTATION GROWTH PLAN Explaining volume ultimately starts with explaining your segmentation strategy. In our hypothetical case, we explained how the company would grow from North Asia to Europe and to North America. You don't need to use geographic segmentation, you could also use demographics, psychographics, buying processes, etc. to segment the market. But you should explain here how you phase the growth from segment to segment.
  5. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels / clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Step 2: IDENTIFY EXPECTATIONS ABOUT SALES Next, we should do some research into our segments. How many addressable customers are there? Also, of all the addressable customers, how many do we think we can realistically close given our capabilities in Sales?
  6. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Total Bobbins Sold is a forumla cell (in this case, 6000 x 3) ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Step 3: UNITS SOLD Now that we know how many customers we'll have, we need to guesstimate how many units we'll sell to each customer. Once we have that, it is pretty easy to calculate told units sold for each period. This gives us the critical number VOLUME in our formula.
  7. PART 2: EXPLAINING PRICE Now that we understand VOLUME, we need to estimate PRICE so that we can get to REVENUE (PRICE x VOLUME)
  8. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they would pay) 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Step 4: PRICING Finally, we should add our assumptions about pricing. It is worthwhile here to lay out the boundaries (references) that you've gathered from market research. The "Price Per Bobbin" is the actual one we use later in this spreadsheet, but the references rows provide inputs into our decision-making process around Price. You would need to propose relevant references points of course
  9. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they wou 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate 10% 10% 15% 20% 20% 20% 20% Number of deals that should be in the pipeline given close rate 30 50 53 80 125 200 300 Simultaneous Pipeline deals per salesperson (capacity) 15 15 15 20 20 20 25 Labels / Acct Manager (active accounts) ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) 6 months / label 5 Step 5: SANITY CHECK At this point, we want to take a step back and check our assumptions about volume by asking ourselves if we could actually deliver this with our sales organization. We need to speak with people who have sold similar products and ask them about how long it takes to sell, what % of attempted sales actually close, and how many deals a single salesperson can handle at any one time. We'll use this information later, but you can probably see where we are going with this test already.
  10. PART 3: ESTIMATED COSTS Now that we have estimated REVENUE by defining our assumptions around VOLUME and PRICE, it is time to look at COST
  11. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they wou 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate 10% 10% 15% 20% 20% 20% 20% Number of deals that should be the pipeline given close rate 30 50 53 80 125 200 300 Simultaneous Pipeline deals per salesperson (capacity) 15 15 15 20 20 20 25 Labels / Acct Manager (active accounts) Acct Mgmt 0 1 2 3 5 8 12 Sales 2 3 4 4 6 10 12 Management (CEO, CFO, CTO, COO) 4 4 4 4 4 4 4 Administration 1 1 2 2 4 4 6 Engineering / Quality Management 1 2 2 4 4 5 7 In this row, we use the sales management assumptions above to mathematically derive the growth forecast. You'll note that we have a 2 in this cell because in order to achieve the "number of deals the should be in the pipeline given close rate" of 30, and given the face that we have estimated that "Simultaneous pipeline delas per salesperson" is 15. (30/15=2). Given our assumptions we'll need to hire 2 sales peopleFor your business, I recommend that you develop assumptions (like the Sales Management Assumptions in this example) for every Workforce Row if you can. It is a good exercise to sanity check your own assumptions Worforce Growth Assumptions Step 6: WORKFORCE GROWTH For 98% of start-ups out there, most of your cost will be tied up in people. So the next step is to ask how many people (doing what jobs) you'd need in order to deliver the revenue estimates. Some of these estimates (as you can see below) will be a formulas tied to volume growth (remember the sanity check we did earlier?). ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) 6 months / label 5 ASSUMPTIONS AROUND COST
  12. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they wou 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate 10% 10% 15% 20% 20% 20% 20% Number of deals that should be the pipeline given close rate 30 50 53 80 125 200 300 Simultaneous Pipeline deals per salesperson (capacity) 15 15 15 20 20 20 25 Labels / Acct Manager (active accounts) Acct Mgmt 0 1 2 3 5 8 12 Sales 2 3 4 4 6 10 12 Management (CEO, CFO, CTO, COO) 4 4 4 4 4 4 4 Administration 1 1 2 2 4 4 6 Engineering / Quality Management 1 2 2 4 4 5 7 Acct Mgmt Salary (avg monthly) 3,000$ 3,000$ 3,000$ 4,000$ 4,000$ 4,000$ 4,500$ Sales Salary (avg monthly) 2,500$ 2,500$ 2,500$ 3,000$ 3,500$ 4,000$ 4,000$ Management Salary (avg monthly) 4,000$ 4,000$ 6,000$ 6,000$ 9,000$ 9,000$ 9,000$ Administration Salary (avg monthly) 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ Engineering / Quality Management salary (avg monthly) 5,000$ 5,000$ 6,000$ 6,000$ 7,000$ 7,000$ 7,000$ FTE Loading Factor 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Worforce Growth Assumptions FTE Rate Assumptions (USD) Step 7: SALARY Now, for each category of labour, specify the expected market salary. Note that salary expectations may change the more mature the company gets. Also, include a loading factor (additional people cost of insurance, national service, sick days, vacation days, etc on top of salary). I recommend 1.7. (YOU MAY NEED TO SCROLL DOWN) ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) 6 months / label 5 ASSUMPTIONS AROUND COST
  13. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they would p 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate 10% 10% 15% 20% 20% 20% 20% Number of deals that should be the pipeline given close rate 30 50 53 80 125 200 300 Simultaneous Pipeline deals per salesperson (capacity) 15 15 15 20 20 20 25 Labels / Account manager (active accounts) Acct Mgmt 0 1 2 3 5 8 12 Sales 2 3 4 4 6 10 12 Management (CEO, CFO, CTO, COO) 4 4 4 4 4 4 4 Administration 1 1 2 2 4 4 6 Engineering / Quality Management 1 2 2 4 4 5 7 Acct Mgmt Salary (avg monthly) 3,000$ 3,000$ 3,000$ 4,000$ 4,000$ 4,000$ 4,500$ Sales Salary (avg monthly) 2,500$ 2,500$ 2,500$ 3,000$ 3,500$ 4,000$ 4,000$ Management Salary (avg monthly) 4,000$ 4,000$ 6,000$ 6,000$ 9,000$ 9,000$ 9,000$ Administration Salary (avg monthly) 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ Engineering / Quality Management salary (avg monthly) 5,000$ 5,000$ 6,000$ 6,000$ 7,000$ 7,000$ 7,000$ FTE Loading Factor 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Cost of Sales / Acct Mgmt (commission) as a % of sales 20% 20% 20% 20% 20% 20% 20% Cost of Marketing as a % of sales 15% 15% 15% 15% 15% 15% 15% Rent (monthly) 2,000 2,000 10,000 10,000 15,000 15,000 15,000 Cost per Bobbin from manufacturer 0.95 0.95 0.95 0.8 0.8 0.8 0.8 Logistics & Distribution (cost per bobbin) 0.3 0.3 0.4 0.4 0.4 0.5 0.5 Operating Infrastructure Costs (ERP, CRM, etc) 10,000$ 50,000$ 100,000$ 100,000$ 100,000$ 100,000$ Accounting Costs (outsourced) 5,000$ 5,000$ 10,000$ 10,000$ 10,000$ 12,000$ 12,000$ Legal Costs (IP management) 100,000$ 100,000$ 120,000$ 120,000$ 30,000$ 30,000$ 30,000$ Cost of Making & Selling Step 8: OTHER COSTS Next add your assumptions around production and marketing costs (YOU MAY NEED TO SCROLL DOWN) ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) 6 months / label 5 ASSUMPTIONS AROUND COST Worforce Growth Assumptions FTE Rate Assumptions (USD)
  14. PART 4: FINANCIAL MODEL Now it is time to pull all your assumptions together into a financial model. IMPORTANT: The model should be 100% formula driven from here on out. So as you change the assumptions, the model changes automagically. Of course, that means that you do not change the cell formulas in any of the subsequent tabs
  15. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they wou 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate 10% 10% 15% 20% 20% 20% 20% Number of deals that should be the pipeline given close rate 30 50 53 80 125 200 300 Simultaneous Pipeline deals per salesperson (capacity) 15 15 15 20 20 20 25 Labels / Acct manager (active accounts) Acct Mgmt 0 1 2 3 5 8 12 Sales 2 3 4 4 6 10 12 Management (CEO, CFO, CTO, COO) 4 4 4 4 4 4 4 Administration 1 1 2 2 4 4 6 Engineering / Quality Management 1 2 2 4 4 5 7 Acct Mgmt Salary (avg monthly) 3,000$ 3,000$ 3,000$ 4,000$ 4,000$ 4,000$ 4,500$ Sales Salary (avg monthly) 2,500$ 2,500$ 2,500$ 3,000$ 3,500$ 4,000$ 4,000$ Management Salary (avg monthly) 4,000$ 4,000$ 6,000$ 6,000$ 9,000$ 9,000$ 9,000$ Administration Salary (avg monthly) 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ Engineering / Quality Management salary (avg monthly) 5,000$ 5,000$ 6,000$ 6,000$ 7,000$ 7,000$ 7,000$ FTE Loading Factor 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Cost of Sales / Acct Mgmt (commission) as a % of sales 20% 20% 20% 20% 20% 20% 20% Cost of Marketing as a % of sales 15% 15% 15% 15% 15% 15% 15% Rent (monthly) 2,000 2,000 10,000 10,000 15,000 15,000 15,000 Cost per Bobbin from manufacturer 0.95 0.95 0.95 0.8 0.8 0.8 0.8 Logistics & Distribution (cost per bobbin) 0.3 0.3 0.4 0.4 0.4 0.5 0.5 Operating Infrastructure Costs (ERP, CRM, etc) 10,000$ 50,000$ 100,000$ 100,000$ 100,000$ 100,000$ Accounting Costs (outsourced) 5,000$ 5,000$ 10,000$ 10,000$ 10,000$ 12,000$ 12,000$ Legal Costs (IP management) 100,000$ 100,000$ 120,000$ 120,000$ 30,000$ 30,000$ 30,000$ FTE Rate Assumptions (USD) Step 9: PROFITABILITY Now it is time to pull all your assumptions together into a financial model. The model should be 100% formula driven so that as you change the assumptions, the model changes automagically. (YOU MAY NEED TO SCROLL DOWN) ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) 6 months / label 5 ASSUMPTIONS AROUND COST Worforce Growth Assumptions Cost of Making & Selling
  16. Revenue (USD) 475,200$ 792,000$ 2,457,600$ 6,144,000$ 14,400,000$ 23,040,000$ 46,080,000$ Account Mgmt Salary (annual) -$ 61,200$ 97,920$ 261,120$ 408,000$ 652,800$ 1,101,600$ Account Mgmt Salary (annual) 102,000$ 170,000$ 181,333$ 244,800$ 446,250$ 816,000$ 979,200$ Management Salary (annual) 326,400$ 326,400$ 489,600$ 489,600$ 734,400$ 734,400$ 734,400$ Administration Salary (annual) 40,800$ 40,800$ 81,600$ 81,600$ 163,200$ 163,200$ 244,800$ Engineering / Quality Management salary (annual) 102,000$ 204,000$ 244,800$ 489,600$ 571,200$ 714,000$ 999,600$ Salary Sub-Total 571,200$ 802,400$ 1,095,253$ 1,566,720$ 2,323,050$ 3,080,400$ 4,059,600$ Cost of Sales (commission) 95,040$ 158,400$ 491,520$ 1,228,800$ 2,880,000$ 4,608,000$ 9,216,000$ Rent 24,000$ 24,000$ 120,000$ 120,000$ 180,000$ 180,000$ 180,000$ Marketing Budget 71,280$ 118,800$ 368,640$ 921,600$ 2,160,000$ 3,456,000$ 6,912,000$ Legal Costs 100,000$ 100,000$ 120,000$ 120,000$ 30,000$ 30,000$ 30,000$ Logistics & Distribution Costs 5,400$ 9,000$ 25,600$ 64,000$ 150,000$ 300,000$ 600,000$ Accounting Costs 5,000$ 5,000$ 10,000$ 10,000$ 10,000$ 12,000$ 12,000$ Founder's Loan repayment Cost per Bobbin from manufacturer 17,100$ 28,500$ 60,800$ 128,000$ 300,000$ 480,000$ 960,000$ COSTS SUBTOTAL 889,020$ 1,246,100$ 2,291,813$ 4,159,120$ 8,033,050$ 12,146,400$ 21,969,600$ Profit (413,820)$ (454,100)$ 165,787$ 1,984,880$ 6,366,950$ 10,893,600$ 24,110,400$ PROFITABILITY CALCULATED REVENUE CALCULATED COSTS
  17. 2014 2015 2016 2017 2018 2019 2020 Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America Addressable customers (labels/clothing manufacturers) 3500 3500 10000 10000 45000 45000 45000 Number of customers we expect to close 3 5 8 16 25 40 60 Bobbins per label per year (avg) 6000 6000 8000 10000 15000 15000 20000 Total Bobbins sold 18,000 30,000 64,000 160,000 375,000 600,000 1,200,000 Price per bobbin (USD) 2.2 2.2 3.2 3.2 3.2 3.2 3.2 Reference Price (retail price for high-quality thread per bobbin) 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ 6.00$ Reference Price (B2B price for high-quality thread per bobbin) 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ 1.45$ Reference Price (what focus group B2B customers said they wo 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ 2.35$ SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate 10% 10% 15% 20% 20% 20% 20% Number of deals that should be the pipeline given close rate 30 50 53 80 125 200 300 Simultaneous Pipeline deals per salesperson (capacity) 15 15 15 20 20 20 25 Labels / Acct Manager (active accounts) Acct Mgmt 0 1 2 3 5 8 12 Sales 2 3 4 4 6 10 12 Management (CEO, CFO, CTO, COO) 4 4 4 4 4 4 4 Administration 1 1 2 2 4 4 6 Engineering / Quality Management 1 2 2 4 4 5 7 Acct Mgmt Salary (avg monthly) 3,000$ 3,000$ 3,000$ 4,000$ 4,000$ 4,000$ 4,500$ Sales Salary (avg monthly) 2,500$ 2,500$ 2,500$ 3,000$ 3,500$ 4,000$ 4,000$ Management Salary (avg monthly) 4,000$ 4,000$ 6,000$ 6,000$ 9,000$ 9,000$ 9,000$ Administration Salary (avg monthly) 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ 2,000$ Engineering / Quality Management salary (avg monthly) 5,000$ 5,000$ 6,000$ 6,000$ 7,000$ 7,000$ 7,000$ FTE Loading Factor 1.7 1.7 1.7 1.7 1.7 1.7 1.7 Cost of Sales / Acct Mgmt (commission) as a % of sales 20% 20% 20% 20% 20% 20% 20% Cost of Marketing as a % of sales 15% 15% 15% 15% 15% 15% 15% Rent (monthly) 2,000 2,000 10,000 10,000 15,000 15,000 15,000 Cost per Bobbin from manufacturer 0.95 0.95 0.95 0.8 0.8 0.8 0.8 Logistics & Distribution (cost per bobbin) 0.3 0.3 0.4 0.4 0.4 0.5 0.5 Operating Infrastructure Costs (ERP, CRM, etc) 10,000$ 50,000$ 100,000$ 100,000$ 100,000$ 100,000$ Accounting Costs (outsourced) 5,000$ 5,000$ 10,000$ 10,000$ 10,000$ 12,000$ 12,000$ Legal Costs (IP management) 100,000$ 100,000$ 120,000$ 120,000$ 30,000$ 30,000$ 30,000$ Step 9: INVESTABILITY Now that we have proper forecasts, we can look at areas where we are short of cash and how much equity we would give up to fill those holes with investment money. (YOU MAY NEED TO SCROLL DOWN) ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) ASSUMPTIONS AROUND COST Worforce Growth Assumptions FTE Rate Assumptions (USD) Cost of Making & Selling 6 months / label 5
  18. Revenue (USD) 475,200$ 792,000$ 2,457,600$ 6,144,000$ 14,400,000$ 23,040,000$ 46,080,000$ Account Mgmt Salary (annual) -$ 61,200$ 97,920$ 261,120$ 408,000$ 652,800$ 1,101,600$ Account Mgmt Salary (annual) 102,000$ 170,000$ 181,333$ 244,800$ 446,250$ 816,000$ 979,200$ Management Salary (annual) 326,400$ 326,400$ 489,600$ 489,600$ 734,400$ 734,400$ 734,400$ Administration Salary (annual) 40,800$ 40,800$ 81,600$ 81,600$ 163,200$ 163,200$ 244,800$ Engineering / Quality Management salary (annual) 102,000$ 204,000$ 244,800$ 489,600$ 571,200$ 714,000$ 999,600$ Salary Sub-Total 571,200$ 802,400$ 1,095,253$ 1,566,720$ 2,323,050$ 3,080,400$ 4,059,600$ Cost of Sales (commission) 95,040$ 158,400$ 491,520$ 1,228,800$ 2,880,000$ 4,608,000$ 9,216,000$ Rent 24,000$ 24,000$ 120,000$ 120,000$ 180,000$ 180,000$ 180,000$ Marketing Budget 71,280$ 118,800$ 368,640$ 921,600$ 2,160,000$ 3,456,000$ 6,912,000$ Legal Costs 100,000$ 100,000$ 120,000$ 120,000$ 30,000$ 30,000$ 30,000$ Logistics & Distribution Costs 5,400$ 9,000$ 25,600$ 64,000$ 150,000$ 300,000$ 600,000$ Accounting Costs 5,000$ 5,000$ 10,000$ 10,000$ 10,000$ 12,000$ 12,000$ Founder's Loan repayment 120,000$ Cost per Bobbin from manufacturer 17,100$ 28,500$ 60,800$ 128,000$ 300,000$ 480,000$ 960,000$ COSTS SUBTOTAL 889,020$ 1,246,100$ 2,291,813$ 4,279,120$ 8,033,050$ 12,146,400$ 21,969,600$ Profit (413,820)$ (454,100)$ 165,787$ 1,864,880$ 6,366,950$ 10,893,600$ 24,110,400$ Burn (413,820)$ (454,100)$ -$ -$ -$ -$ -$ Founders 4 4 4 Founders Loan (each) - Deferred Salary 15,000$ 15,000$ Founders Loan Total 60,000$ 60,000$ Amount to be raised 375,000$ 400,000$ Cash in company 21,180$ 5,900$ 165,787$ 1,864,880$ 6,366,950$ 10,893,600$ 24,110,400$ Discount Rate 0.9 0.8 Valuation at time of capital injection $938,470 $2,266,115 Profit muliple to estimate Trade Sale valuation 4 Trade Sale value 96,441,600.00$ Round 1 Investor's Equity 40% 33% Round 2 Investor's Equity 18% Founders Equity 60% 49% Founder Exit Returns 47,683,858.52$ Round 1 Investor's Returns 31,734,495.48$ 85 Round 2 Investor's Returns 17,023,245.99$ 43 x x CALCULATED REVENUE PROFITABILITY INVESTMENT CALCULATED COSTS

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