This presentation was delivered at the April 23, 2009 Smart-ups event in Eugene, OR by Dan Vishny (CFO for two start-ups companies). Dan is also known for having one of the top 10 best scores on the CPA exam - for the entire U.S.A.!

1. Bootstrapping Entrepreneurs & TheirBusinesses
A Marriage Made in _____ (fill in the blank)
Creating, Managing, & Understanding Startup Financials
Presented by Dan Vishny, CPA, MBA
(and Recovering Entrepreneur)

2. Successful Bootstrapping
• Define your goal
• Set the milestones
• Sprint to the milestones (it’s not a marathon)
• Invest in things that your customers see
• Discipline- set the rules and live by them
• Financial Advice

3. Financial Advice
• ♫ You gotta know when to hold em... ♫
• Don’t micromanage the finances
• Focus on getting the product to market
• The “Language” of accounting & finance
• Profit, Profit, Profit

4. Financial Projections

5. Main Points to Convey
• You have done your homework
• You understand the costs involved
• You understand the market space
• Your assumptions are reasonable

6. Projections- Minimum Requirements
• 5 year Profit & Loss Statement
• 5 year Balance Sheet
• 5 year Statement of Cash Flows
• Valuation Statement and ROI Analysis
• Breakeven Analysis
• What if Analysis
• Assumptions

7. Breakeven Analysis
• Puts your business in perspective
• Worst case scenario
• Can you achieve break even and when?
– Compare to competitors
– Compare to last year
• Do you have enough production capacity?
• Do this analysis as often as possible

8. Breakeven Analysis
2009 2010 2011 2012 2013
Fixed Expenses:
Payroll $ 150,000 $ 195,000 $ 405,000 $ 840,000 $ 4,350,000
R&D Materials 150,000 130,000 270,000 560,000 2,900,000
Rent 24,000 48,000 48,000 48,000 120,000
Marketing - 195,000 405,000 840,000 4,350,000
Utilities & Facilities 20,000 40,000 60,000 80,000 250,000
Insurance 12,000 24,000 24,000 36,000 48,000
Legal & Professional 12,000 24,000 24,000 48,000 60,000
Depreciation Expense n/a n/a n/a n/a n/a
Total Fixed Expenses $ 368,000 $ 656,000 $ 1,236,000 $ 2,452,000 $ 12,078,000
Average Gross Margin % 60.00% 60.58% 61.11% 61.61% 62.07%
Average Margin Per Unit $3,000 $3,150 $3,300 $3,450 $3,600
Annual Breakeven Units 123 208 375 711 3,355
Annual Breakeven Dollars $613,333 $1,082,921 $2,022,545 $3,980,058 $19,459,000
Monthly Breakeven Units 10 17 31 59 280
Monthly Breakeven Dollars $51,111 $90,243 $168,545 $331,671 $1,621,583
Formula for Breakeven Units: Fixed Expenses/Average Margin Per Unit
Formula for Breakeven Dollars: Fixed Expenses/Average Gross Margin %

9. What If Analysis
What is the monthly breakeven in units based on various margins and increases in Marketing
Costs?
[---------------------- Margin Per Unit -----------------------]
10 $3,000 $3,500 $4,000 $2,500
$0 10 9 8 12
Marketing Costs $200,000 16 14 12 19
$400,000 21 18 16 26
$600,000 27 23 20 32
What is the monthly breakeven in dollars based on various margin %s and increases in Marketing
Costs?
[---------------------- Margin Per Unit -----------------------]
51,111 60% 65% 70% 40%
$0 $51,111 $47,179 $43,810 $76,667
Marketing Costs $200,000 $78,889 $72,821 $67,619 $118,333
$400,000 $106,667 $98,462 $91,429 $160,000
$600,000 $134,444 $124,103 $115,238 $201,667

10. Assumptions
Anticipate the Questions
• What will you charge for your product and
why?
• How do your marketing costs support your
sales growth?
• How do you scale up your business?
– How long? How much money?

11. Assumptions
Nail down the Costs
• Payroll- have you added 15% for payroll
taxes?
• Rent- get a quote from a broker
• Miscellaneous- add a cushion for error
• Detailed Cost Sheet

12. Conclusion
Bootstrap Responsibly
Cash is King
Treat it with Respect, Invest & Spend it Wisely

13. Extra Slides

14. Monthly CEO Dashboard
MARCH 2009
Revenue: Compared to last year
YTD Sales $4,146,255 2009 2008 Difference
YTD Projections $4,235,000 YTD Sales $4,146,255 $2,889,293 $1,256,962
Surplus (Deficit) ($88,745) YTD Gross Margin % 49% 51% -2%
YTD Operating
Expenses $1,906,506 $1,618,717 $287,789
YTD Gross Margin % 49% YTD Net Income (Loss) $88,035 ($157,579) $245,614
YTD Operating
Expenses $1,906,506
YTD Net Income (Loss) $88,035 Cash in Bank $115,964 $54,949 $61,015
Accounts Receivable $2,114,224 $1,467,456 $646,768
Accounts Payable $1,691,421 $1,414,280 $277,141
Cash Position:
Cash in Bank $115,964
Accounts Receivable $2,114,224
$2,230,188
Accounts Payable $1,691,421
$538,767

15. Pro Forma Balance Sheets
2008 2009 2010 2011 2012 2013
ASSETS
Cash $ 3,672 $ 475,672 $ 4,389,672 $ 4,455,344 $ 3,989,566 $ 6,653,515
Inventories - 100,000 187,500 366,667 1,283,333 2,050,000
Fixed Assets 32,625 92,625 222,625 372,625 572,625 812,625
Accum. Depreciation (5,200) (22,400) (63,857) (133,569) (241,539) (390,759)
Total Assets $ 31,097 $ 645,897 $ 4,735,940 $ 5,061,067 $ 5,603,985 $ 9,125,381
LIABILITIES
Accounts Payable $ 19,438 $ 19,438 $ 19,438 $ 19,438 $ 19,438 $ 19,438
Total Liabilities 19,438 19,438 19,438 19,438 19,438 19,438
EQUITY
Capital 524,955 1,524,955 5,524,955 5,524,955 5,524,955 5,524,955
Retained Earnings (513,296) (898,496) (808,453) (483,326) 59,592 3,580,988
Total Equity 11,659 626,459 4,716,502 5,041,629 5,584,547 9,105,943
Total Liabilities & Equity $ 31,097 $ 645,897 $ 4,735,940 $ 5,061,067 $ 5,603,985 $ 9,125,381

16. Pro Forma Income Statements
2009 2010 2011 2012 2013
Sales $ - $ 1,300,000 $ 2,700,000 $ 5,600,000 $ 29,000,000
Cost of Goods Sold - 512,500 1,050,000 2,150,000 11,000,000
Gross Profit - 787,500 1,650,000 3,450,000 18,000,000
Operating Expenses:
Payroll 150,000 195,000 405,000 840,000 4,350,000
R&D Materials 150,000 130,000 270,000 560,000 2,900,000
Rent 24,000 48,000 48,000 48,000 120,000
Marketing - 195,000 405,000 840,000 4,350,000
Utilities & Facilities 20,000 40,000 60,000 80,000 250,000
Insurance 12,000 24,000 24,000 36,000 48,000
Legal & Professional 12,000 24,000 24,000 48,000 60,000
Total Operating Expenses $ 368,000 $ 656,000 $ 1,236,000 $ 2,452,000 $ 12,078,000
Other Expenses:
Depreciation Expense 17,200 41,456 69,713 107,969 149,220
Income (Loss) Before Taxes (385,200) 90,044 344,287 890,031 5,772,780
Provision for Income Taxes - - 19,161 347,112 2,251,384
Net Income (Loss) $ (385,200) $ 90,044 $ 325,126 $ 542,919 $ 3,521,396

17. Statements of Cash Flows
2009 2010 2011 2012 2013
Beginning Cash $ 3,672 $ 475,672 $ 4,389,672 $ 4,455,344 $ 3,989,566
Cash Inflows:
Sales Revenues - 1,300,000 2,700,000 5,600,000 29,000,000
Angel Funds 1,000,000 - - - -
Series A - 4,000,000 - - -
Series B - - - - -
1,000,000 5,300,000 2,700,000 5,600,000 29,000,000
Cash Outflows:
Purchase of Fixed Assets 60,000 130,000 150,000 200,000 240,000
Purchases of Inventory 100,000 600,000 1,229,167 3,066,667 11,766,667
Operating Expenses 368,000 656,000 1,236,000 2,452,000 12,078,000
Income Taxes - - 19,161 347,112 2,251,384
528,000 1,386,000 2,634,328 6,065,779 26,336,051
Net Change in Cash 472,000 3,914,000 65,672 (465,779) 2,663,949
Ending Cash $ 475,672 $ 4,389,672 $ 4,455,344 $ 3,989,566 $ 6,653,515

18. Projected Valuation and ROI
Year Revenue Expenses EBITDA
2009 $ - $ 368,000 $ (368,000)
2010 $ 1,300,000 $ 1,168,500 $ 131,500
2011 $ 2,700,000 $ 2,286,000 $ 414,000
2012 $ 5,600,000 $ 4,602,000 $ 998,000
2013 $ 29,000,000 $ 23,078,000 $ 5,922,000
multiple factor 8
Terminal Value $ 47,376,000
* The value of the Company is projected at 8X EBITDA in year 2013
Owner Initial % Year Capital Expected % Projected IRR
Cash
On
Class Ownership Contributed Contributed in 2013 Value in 2013 (ROI) Cash
Founders 100.00% 2009 $ 524,955 41.25% $ 19,542,600 106% 37
Angels 25.00% 2009 $ 1,000,000 13.75% $ 6,514,200 49% 7
Series A 45.00% 2010 $ 4,000,000 45.00% $ 21,319,200 52% 5
170.00% $ 5,524,955 100.00% $ 47,376,000 9

19. Assumptions
2009 2010 2011 2012 2013
Average Unit Sales
Price $ 5,000 $ 5,200 $ 5,400 $ 5,600 $ 5,800 compare to similar products
Units Sold - 250 500 1,000 5,000 Market Research
Average Unit Cost $ 2,000 $ 2,050 $ 2,100 $ 2,150 $ 2,200
Do you have a detailed cost
sheet?
Revenue $ - $ 1,300,000 $ 2,700,000 $ 5,600,000 $ 29,000,000 formula
Cost of Goods Sold $ - $ 512,500 $ 1,050,000 $ 2,150,000 $ 11,000,000 formula
Gross Profit $ - $ 787,500 $ 1,650,000 $ 3,450,000 $ 18,000,000 formula
Operating Expenses:
Payroll $ 150,000 15.00% 15.00% 15.00% 15.00%percentage of sales
R&D Materials 15.00% 10.00% 10.00% 10.00% 10.00%percentage of sales
Rent $ 24,000 $ 48,000 $ 48,000 $ 48,000 $ 120,000 per R. Crieger commercial broker
Marketing 0.00% 15.00% 15.00% 15.00% 15.00%percentage of sales
Utilities & Facilities $ 20,000 $ 40,000 $ 60,000 $ 80,000 $ 250,000 based on current faciltites
Insurance $ 12,000 $ 24,000 $ 24,000 $ 36,000 $ 48,000 per J. Kammer, insurance agent
Legal & Professional $ 12,000 $ 24,000 $ 24,000 $ 48,000 $ 60,000 estimate
Average GM% 60.00% 60.58% 61.11% 61.61% 62.07%
Other Assumptions:
Sales are collected at time of sale- no accounts receivable
Purchases of Inventory are COD
Inventory Levels are 8% of Next Years' Cost of Goods Sold (30
days turn) 8%
Income Tax Rate 39.00%

20. Assumptions- continued
Capital Investment:
2009 2010 2011 2012 2013
Angel Funds $ 1,000,000
Series A $ 4,000,000
Series B
$ 1,000,000 $ 4,000,000 $ - $ - $ -
Fixed Asset Purchases:
2009 2010 2011 2012 2013
Original Cost
Machinery &
Equipment $ 50,000 $ 100,000 $ 100,000 $ 150,000 $ 150,000
Leasehold
Improvements - 10,000 10,000 10,000 10,000
Computers & Software 10,000 10,000 20,000 20,000 60,000
Furniture & Fixtures - 10,000 20,000 20,000 20,000
$ 60,000 $ 130,000 $ 150,000 $ 200,000 $ 240,000