An Introduction to Financial Forecasting for Creative Professionals This week we will focus on the concept of financial forecasting, using a startup entertainment business as an example. For creative people, the task of forecasting can feel overwhelming and worthy of outsourcing to "a numbers guy." However, it is more important for a creative entrepreneur to develop their own skills of forecasting (at least during the beginning stages of a new business venture or project). A lot of what I will say this week is meant to get you to buy-into this reality. When I first started forecasting financial statements, I was working as an equity analyst for a $7 billion investment firm in New York State. I was in a group that covered technology companies/stocks, most of which were brand new during this first wave of the technology boom. My job was to use extensive research and forecast what a company will make over the next five years. At first, I was quite nervous generating a forecast, because my perfectionist personality was looking for "correct" answers but I soon learned that no one else at my firm or anywhere else really knew what was going to happen. Did I just guess all those numbers? No, I had to make educated guesses based on detailed assumptions that I was able to explain to an investor. Forecasting relies mainly upon the skill of planning. One anonymous quote said this about planning: "Planning is the substitution of ERROR for CHAOS." In other words, if you don't plan the specifics of a new business or a new project, when it comes time to launch the business/project you'll find yourself in the middle of a chaotic situation. On the other hand, even if you do generate a detailed financial forecast and execute that plan, life still never turns out like you planned it to, which means you can expect to encounter errors in your plan. But having errors is better than having chaos, and so financial forecasting & planning (which enables you to be proactive instead of reactive) is the substitution of errors for chaos. You have to give yourself permission to tell a story about your future, without exactly knowing the precise outcome, well enough to explain how you got your numbers but not so precise or perfect as to totally delay launching your business or project. The best entrepreneurs are the ones who take their unconventional out-of-the-box ideas, generate a solid but imperfect plan, and run with it to get their product or service into the hands of customers quickly. The sooner they do this, the sooner they can start generating feedback and adjust/adapt their plan in order to better create value. This is the entrepreneurial process at its finest, however many businesses lose this edge once they become larger and institute rules, regulations, and red tape which were originally based on the best motives and solid thought process, but unfortunately become the company's own worst enemy over time as the rules become.

1. An Introduction to Financial Forecasting for Creative
Professionals
This week we will focus on the concept of financial forecasting,
using a startup
entertainment business as an example. For creative people, the
task of forecasting can
feel overwhelming and worthy of outsourcing to "a numbers
guy." However, it is more
important for a creative entrepreneur to develop their own skills
of forecasting (at least
during the beginning stages of a new business venture or
project). A lot of what I will say
this week is meant to get you to buy-into this reality. When I
first started forecasting
financial statements, I was working as an equity analyst for a $7
billion investment firm in
New York State. I was in a group that covered technology
companies/stocks, most of which
were brand new during this first wave of the technology boom.
My job was to use extensive research and forecast what a
company will make over the next
five years. At first, I was quite nervous generating a forecast,
because my perfectionist
personality was looking for "correct" answers but I soon learned
that no one else at my firm
or anywhere else really knew what was going to happen. Did I
just guess all those numbers?
No, I had to make educated guesses based on detailed
assumptions that I was able to explain
to an investor. Forecasting relies mainly upon the skill of

2. planning.
One anonymous quote said this about planning: "Planning is the
substitution of
ERROR for CHAOS." In other words, if you don't plan the
specifics of a new business or
a new project, when it comes time to launch the business/project
you'll find yourself in the
middle of a chaotic situation. On the other hand, even if you do
generate a detailed financial
forecast and execute that plan, life still never turns out like you
planned it to, which means
you can expect to encounter errors in your plan. But having
errors is better than having
chaos, and so financial forecasting & planning (which enables
you to be proactive instead of
reactive) is the substitution of errors for chaos. You have to
give yourself permission to tell
a story about your future, without exactly knowing the precise
outcome, well enough to
explain how you got your numbers but not so precise or perfect
as to totally delay launching
your business or project. The best entrepreneurs are the ones
who take their unconventional
out-of-the-box ideas, generate a solid but imperfect plan, and
run with it to get their product
or service into the hands of customers quickly. The sooner they
do this, the sooner they can
start generating feedback and adjust/adapt their plan in order to
better create value.
This is the entrepreneurial process at its finest, however many
businesses lose this
edge once they become larger and institute rules, regulations,
and red tape which
were originally based on the best motives and solid thought

3. process, but unfortunately
become the company's own worst enemy over time as the rules
become focused on
enforcing the rules instead of on the reasoning or purpose the
rules were created for, or the
goals that these rules were based on in the first place.
Before President Eisenhower was president, he was General
Eisenhower, the strategic
planning of the armed forces. Eisenhower and his team were
instrumental in locating the gold
(and valuable works of art) that Hitler stole during World War
II. You can learn more about
this topic by watching the movie The Monuments Men. After
World War II, Europe was
basically destroyed, and in desperate need of funds for
rebuilding. Since they had the idea to
rebuild, but didn't have the money they needed, they obtained
this financing from an outside
source - the United States. The US offered to loan them the
money, in exchange for some
collateral (assets which could be taken in the event the borrower
fails to make regular and
timely payments). Guess what the collateral was... the GOLD.
So all this gold left the hands of
Europe, and was taken to Fort Knox, and consequently the US
Dollar became the strongest
currency on earth - mainly because our currency at that time
was directly connected to the
value of (and exchangeable for) gold. That was one of the
largest transfers of wealth in
human history.
General Eisenhower is quoted as saying "plans are useless, but

4. planning is
indispensable (which means you cannot live without it)". My
interpretation of this
quote is as follows: although life never turns out as planned, the
planning process itself is
vitally important to the future success of your business or
project. The real "gold" in the
planning process is not the plan itself. The real "gold" is in the
process that you had to go
through in order to get the plan. To complete a proper financial
forecast, you have to discover
the answer to some very important questions about your own
business model and the
dynamics of the market you are competing in. For example, you
have to find out how much
you can charge for a product or service; whether or not you can
sell it for a price higher
than what it costs to create or purchase; how much capital from
an outside source you
actually need in order to launch your new business or project,
and many other extremely
valuable insights. This planning process teaches you how a
market works, and it is so valuable
that even if you act on this knowledge, roll the dice, launch
your product or service, and
completely fail (the Small Business Administration has said that
only 44% of small businesses
will stay alive for four years or more), it is possible to take
what you learned, adapt, and try
again another time.

5. PRINCIPLES
OF
BUSINESS
FINANCE
Assignment
1:
2Live
Venue
In
this
assignment,
you
will
apply
the
principles
of
forecasting
discussed
during
week
1
in
order
to
complete
financial

6. pro
forma
projections.
The
business
chosen
for
this
assignment
is
the
2Live
Venue,
a
live
venue
where
indie
bands
will
perform
in
front
of
an
audience
during
the
week.
Details

7. about
the
venue
are
listed
in
the
questions
below.
Some
items
in
the
spreadsheet
have
been
completed
while
others
will
need
to
be
completed
by
you.
Your
goals
are
to
make
the

8. business
profitable
within
2
years
on
the
income
statement
and
ensure
that
the
business
raises
enough
money
on
the
capital
investments
page
so
that
it
never
runs
out
of
cash
(which
can
be
determined

9. on
the
cash
flow
statement).
Please
save
and
submit
only
the
completed
Excel
workbook
by
the
due
date
on
FSO.
This
is
a
GROUP
ASSIGNMENT,
so
please

10. include
the
names
of
all
students
in
your
group
within
the
filename
of
the
file
that
one
of
your
group
members
submits.
Begin
by
pasting
these

11. links
into
your
web
browser
and
reviewing:
http://revenueanalytics.com/wp-
­‐content/uploads/2013/11/Billboards-­‐
TICKETONOMICS.pdf
http://media.ticketmaster.com/en-­‐
us/img/static/ticketlogy/images/2012_Concert_Trends_v11.pdf
Please
answer
the
following
questions
by
entering
the
appropriate
numbers
in

12. your
Excel
spreadsheet
in
order
to
demonstrate
that
the
2Live
Venue
breaks
even
and
earns
a
profit
within
two
years.
Since
the
financial
statements
are
interconnected,
information
in
the
marketing
budget
and
sales
projections

13. will
automatically
show
up
on
the
income
statement.
Be
patient
as
you
enter
all
this
information
and
frequently
monitor
the
bottom
line
of
the
income
statement
in
order
to
ensure
you
break

14. even.
Likewise,
the
capital
investments
page
automatically
links
to
the
cash
flow
statement.
As
you
make
changes
to
the
capital
investments
page,
showing
capital
raised,
switch
back
to
the
cash

15. flow
statement
and
monitor
the
bottom
line
to
ensure
you
raise
enough
capital
to
keep
cash
flow
in
the
black
(positive).
Questions:
1.
Sales
Projections

16. a. If the venue capacity is 300 seats, what unit volume should
you
expect, and how many tickets does this translate into in each
quarter during the two years (shows are 4 nights per week)?
Enter
your answers into “unit volume” under the ticket sales revenue
stream.
b. It is assumed that 30% of ticket buyers spend money on
merchandise. Given this assumption, what is the average price
that
merchandise should be sold at if the average cost is $4 per unit?
Enter this into the “unit price” section of the merchandise
revenue
stream.
2.
Marketing
Budget
Allocation
a. The indie acts that perform at the 2Live Venue tend to appeal
to
young consumers between the ages of 18 and 35, especially
young
professionals and college students. What combination of
marketing
efforts should be undertaken to generate the level of revenue
you
have projected if the total marketing budget is $43,200 for the

17. entire two years? Choose the 3 or 4 most effective categories,
and
spend your marketing dollars on the marketing budget
spreadsheet,
watching the grand total on the bottom-right side of the page.
3.
Capital
Investments
/
Cash
Flow
a. How much money needs to be raised so that there are no
months
with end-of-month negative cash flow on the cash flow
statement?
b. What combination of funding sources, how much for each,
and
how much equity should be given up in order to raise your
target
amount? Enter this info into the Capital Investments page. This
is
like the “Shark Tank” page and must show all 100% of the
equity
ownership.
HELPFUL HINTS!
As you work on Assignment 1, keep in mind these things:

18. The two most important goals of this assignment are to show a
breakeven
and profit within 2 years on the income statement, and ensure
that there
are no negative numbers on the cash flow statement.
• How do you do this? By managing the other worksheets that
flow into the Income
Statement and Cash Flow Statement. In other words, the Sales
Forecast, the
Marketing Budget (which flow into the Income Statement), then
the Capital
Investments page (this flows into the Cash Flow Statement).
• Start with the Sales Forecast, then try the marketing budget,
then click over to the
Income Statement to look at the Net Profit at the bottom of that
page. On the
sales forecast, remember that the maximum capacity of this live
venue is 300
seats per concert. However, it is a STARTUP business,
therefore, some lower
percentage (%) of the capacity should be estimated during the
first quarter.
In addition, a growing business shows sales growing (ramping
up over time).
• Please spend the entire marketing budget mentioned in the
instructions.
• Don't spend marketing dollars on every item - focus your

19. efforts on the 2 or 3
major types of efforts that you believe will attract the type of
customer
mentioned in the instructions.
• Capital Investments shows how much money you raise from an
investor and from
yourself (the owner). In order to attract an investment from an
investor, you
should offer them an equity stake (ownership) in your company
with an
ownership share (%). Whatever the investor owns plus WHAT
YOU OWN must
total 100%. If you give up more than 50% of your company, you
don't own it
anymore. Your objective is to raise the most money but give up
the least
amount of equity (see The Shark Tank on www.hulu.com).
• Don't raise EXCESS capital. How can you tell? By looking at
the cash flow
statement. If it shows an unusually high number at the end of
the month for
quarter 1, then we know that the amount of investments +
owners money is
higher than necessary. Investors don't want their money sitting
around in a
bank account. They want it invested into the business!