creating your financial statments-slideshare

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Creating Your Financial Projections for Your Business Plan
Creating Your Financial Projections
For Your Business Plan
The Step-by-Step Manual for Solopreneurs

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© Solventurer –All Rights Reserved 2
Table of Contents
I. The Goal....................................................................................................................4
II. The Challenge ..........................................................................................................4
II. Introduction to Bill’s Solopreneur Business.................................................................8
Transactions for Financial Projections ...........................................................................9
III. Projected Balance Sheet.........................................................................................10
A. The Balance Sheet Equation..................................................................................10
B. Assets .........................................................................................................................10
C. Liabilities.....................................................................................................................11
D. Net Worth...................................................................................................................11
E. The Financial Concerto ............................................................................................11
F. Bill’s Balance Sheet...................................................................................................14
IV. Projected Profit & Loss .............................................................................................22
A. The Basic Statement.................................................................................................22
B. Bill’s Projected P&L ....................................................................................................24
C. Looking at Bill’s P&L and Balance Sheet ..............................................................31
V. Projected Cash Flow ...............................................................................................33
VI. Putting the Projections Together ............................................................................38

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VII. Complex Transactions That You Will Use ..............................................................40
VIII. Putting the Projections Together (V 2.0) ..............................................................48
IX. Creating Your Financial Assumptions.....................................................................50
VIII. Crystal Ball ..............................................................................................................53
IX. Calculation ...............................................................................................................59

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I. The Goal
As we all know, a business is built on numbers. A business plan needs to include numbers. Your idea needs to have
numbers. This ebook shows you how to create accurate projections for your business.
II. The Challenge
Oh, the dreaded financials.
The financials have caused so much stress in Solopreneurs that many business plans are scrapped because there are no
numbers attached to the qualitative information.
Many of my former students use to insist on pushing the work of the numbers to the end. The numbers are at the end of
the business plan, so save these for the end, right?
No!
Ideally, you want to start working on numbers at the onset of writing. These numbers should be started in a conceptual
way when you are conducting your Feasibility.
If you haven’t done Feasibility, revisit it because it breaks down your business into very simple financial terms like unit cost,
unit price, unit profit as well as the basic profit and loss statement.
The work that you do in that initial Financial Feasibility is different from constructing your financial projections at the end of
your business planning process. Your financial projections must be built on a business plan that is already figured out. So
the order must be:

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Unfortunately, many people who rush things either skip the Financial Feasibility and rush into the plan resulting in an
uncompleted business plan or one that is not with income expectations and industry norms.
Consider what happens when someone skips Step 1. He will start plugging away at the business plan outline, with no
clear sense of what he wants personally and what the most basic business model will look like. He won’t know if the idea
is likely to cover his salary expectations, how many items he needs to sell to break even, and if he needs to acquire a few
skills or more money before he can start the business that he is imagining.
In other words, without that first step, the aspiring Solopreneur is akin to a trekker climbing a mountain with no map,
compass, and water—let alone a goal.
Ideally, you start writing the business plan with the basic Feasibility done. Once you have worked out what you want and
a general idea of how the business fits into your life, then you can start filling out the details of your story. The financials at
the end are basically your implementation ideas turned into numbers.
Proforma Projections
STEP 1
Financial
Feasibility
STEP 2
Business
Plan
Step 3
Financial
Projections

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In the entrepreneurial world, financial projections are considered pro forma statements. These statements model what is
going to happen with a business based on a common set of assumptions.
Before I go into proforma projections, I feel compelled to point out one misconception: This is not financial accounting. It
is management accounting.
The primary difference between the two is the time period they are depicting: Financial accounting looks at historical
numbers to show what happened. Management accounting is more conceptual and shows management decisions in
the future.
Management accounting for our purposes has a much lower learning curve than financial accounting because
everything does not have to completely balance as it does in financial accounting to meet GAAR (Generally Accepted
Accounting Rules).
Our use of management accounting, or proforma projections, is to quickly translate your verbal ideas into numbers to get
a sense of how your business story will unfold. If the numbers don’t look good, you can make changes to your
assumptions in your plan, and then modify the numbers.
How To Prepare Your Numbers
Startups service based businesses have three options for preparing Financial Projections: 1) use a Business Plan Pro kind of
program, 2) disregard the financial projections numbers completely and hope for the best, or 3), create pro forma
projections by hand (what I advocate and am teaching).
1) Many clients come in with all three financial statements: the cash flow projections, the balance sheet, and the
projected profit and loss. At first glance, it is very impressive. After two or three minutes though, I can tell that is
was generated by a Business Plan Pro type of software. It’s clear the person doesn’t understand the numbers. The
software asks a series of questions and then spits out all three financial statements (as well as financial ratios!). The
problem is not the statements themselves, but the lack of understanding what they mean.

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Every banker will tell you the assumptions behind your numbers are more important than the numbers themselves.
So these clients are missing the point! Decisions in your business SHOULD revolve around either cost or income
considerations…if you don’t understand how your financial statements are linked, you won’t know the true
consequences of making a big decision.
2) The second scenario is not looking at the numbers at all. A rational person has heard from experts that “you need
at least a college accounting course to see how the statements are linked” or, “If you can’t do it correctly, don’t
do it at all.” Not the case. You need to have numbers to accompany your business plan. Ever see a car move
with no wheels?
3) The third option, the best option, is to create a series of projections where you know what is behind each number.
Because our type of business is relatively straightforward, we shouldn’t lose any accuracy by taking this path. The
process of doing it “by hand” will empower your understanding of the numbers behind your business and put you
in a better situation than without.

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III. Introduction to Bill’s Solopreneur Business
I am going to show you how to build all your financial projections through an example Solopreneur, Bill. This example will
deviate from the normal financial projection process because I will look at isolated transactions versus trends, what you
will be using. Isolated transactions will allow you to understand how each type of transaction affects the Balance Sheet,
Profit & Loss, and Cash Flow projections.
An isolated transaction versus a trend can be seen when you are projecting loan payments:
• Isolated: Our avatar Bill will only project ONE loan payment for the entire year.
• Trend: Bill in reality will project a loan payment each month moving forward. This will require one more
mathematical step. As I am trying to teach the concepts quickly, this is one step too many. After the initial lesson, I
will take another example, Lilly, and show how she builds her statements using Trends. By understanding individual
transactions, this should be an easy learn.
So you’ll notice below at the future transactions that will build Bill’s projections, they are broken down into four quarters.
Again, this is for simplicity. I didn’t want to have to build out 12 months of transactions to make my point.
While we are changing a few basic things to make the example more simple, we are not sacrificing other norms that you
should get used to. All your projections should be one year projections. You can also have more detailed month-to-
month projections, but the at the very least, your set of projections should span twelve months.

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Transactions for Financial Projections
Month 0:
A. Starting point. Cash, investments…
Quarter 1:
B. Receive loan $2,500
C. Marketing expense $2,500
D. Sales $4,000
Quarter 2:
E. Pay loan $1,250
F. Owner Withdrawal of $3,000
G. Pay Rent $1,000; Utilities $1,000
Quarter 3:
H. Marketing expense $2,000
I. Sales $8,000
Quarter 4:
J. Owner Withdrawal of $500
To show later…
K. Sales of $4,000, half paid in cash and half later (undefined time)
L. Subcontractor X does work for Bill who will pay $1,000 later
Other:
M. A line item showing an expected 10% of Account Receivables that won’t be collected.
N. Bill will depreciate his equipment

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IV. Projected Balance Sheet
A. The Balance Sheet Equation
The Balance Sheet is a snapshot of the company at any time—be it today, tomorrow or Mar 23rd at 10AM next year. This
snapshot shows you what you have on hand—your assets and what you owe other people—your liabilities. The difference
between Assets and Liabilities, Net Worth, is what part of the company you own.
Seen in equation form, it is
Assets = Liabilities + Net Worth
In a table form, note how the Assets are equal to the sum of the Liabilities and Net Worth. If Assets are worth $3, and
Liabilities (Debt) are worth $1, your Net Worth is worth $2 to make the equation true:
Balance Sheet
Assets $3
Liabilities $1
Net Worth ?
Liabilities + Net Worth $3
Balance Sheet
Assets $3
Liabilities $1
Net Worth $2
Liabilities + Net Worth $3
B. Assets
Assets are the stuff in your business such as the cash, equipment, property, investments, and inventory and your business.
Assets give your business capacity to do business. Compare a Solopreneur web designer with $5,000 of Assets ($3,000 in
Cash and $2,000 in computer equipment/software) with one with no Assets. The second web designer is handcuffed in
marketing his service, let alone actually producing web pages. Good Solopreneurs reinvest profits into their business’s Asset
base to give it more capacity to create and service demand.

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C. Liabilities
Liabilities is the stuff your business owes. It consists of outstanding loans and contracted payments (also known as Accounts
Payable). Liabilities give you leverage to expand your business through borrowing money to build up your Assets (to give
extra capacity). It is split up between Current and Long Term Liabilities. Current Liabilities is the portion of the debt that is
due in less than a year. Long term Liabilities is the portion due in more than a year. Note that these Liabilities are not to be
confused with bills due next month that you haven’t paid yet, i.e. your utility or rent bill. Those don’t affect your Projected
Balance Sheet at all as they are expenses found in the Projected Profit & Loss and are only considered Liabilities on the day
that they are due. For your Balance Sheet projections, you’ll only worry about loans and Accounts Payable. Accounts
Payable are going to be classified under Current Liabilities. Loans, called Notes Payable in the Balance Sheet, are going
to be split between Current and Long Term Payables. If I were to get a loan for $9,000 to be paid over 3 years, roughly
$3,000 would be categorized as Current Notes Payable and roughly $6,000 would be listed as Long Term Notes Payable.
D. Net Worth
Net Worth, called Owner’s Equity in the corporate world, is how much of the stuff in your company is yours. That is, the
amount of “value” that is created from your initial investment and re-investments of the company profits. Net Worth is what
business owners look closely at because it is the fruits of labor. When we talk about reinvesting profits into the company or
working hard now to benefit later, what we’re really talking about is building our Net Worth. The day we want to get out of
our company, the Net Worth is how much we own and can sell. Net Worth is often broken up into three parts: Initial
Investment, Retained Earnings, and Net Worth. Initial Investment is how much the Solopreneur actually contributes to the
business from his own pocket—usually at the startup phase. Retained Earnings is the amount of Profit that is left in the
company rather than taken out for the owner. Net Worth is the sum of the two.
E. Put em’ Together
Let’s put all of the elements together. If your Assets are $10, Liabilities are $5, and your Net Worth is $5, the equation and
Balance Sheet (table) look like:

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Initial Balance Sheet
$10 = $5 + $5
Balance Sheet
Assets $10
Liabilities $5
Net Worth $5
Liabilities & Net Worth $10
Let’s show some activity. Let’s say you decide to pay off the debt. If you want to reduce your Liabilities balance to zero,
you’ll have to take the money from your Assets. You’ll take $5 off your Assets, take $5 from your Liabilities, and your Net
Worth will stay the same. See the changes:
Balance Sheet after paying off Liabilities
$5 = $0 + $5
Balance Sheet
Assets $5
Liabilities $0
Net Worth $5
Liabilities & Net Worth $5
The Balance Sheets shows the Assets the same as the Net Worth, meaning all of the Assets in the company are YOURS. No
one else has the rights to them. No banker, no friend who has lent you money, no equipment dealer has any right to
anything in your business. If your business closed its doors, your would own all of the Assets.
Before we go any further, let’s build out the Balance Sheet in a few steps to include some details.
Step 1
Build out the Assets to two line items, Cash
and Equipment. We’ll add other items like
Accumulated Depreciation and Accounts
Receivable later, but Cash and Equipment
is a good place to start.
Under Liabilities, break that down into
Balance Sheet
Current
Assets
Cash
Equipment
Total Assets
Liabilities
Current Liabilities
Long Term Liabilities

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Current and Long Term Liabilities. Current
Liabilities are those that you have to pay
within one year, and the Long Term
Liabilities are those you’ll pay later.
Total Liabilities
Net Worth
Liabilities + Net Worth
Step 2
Build out Liabilities to include Notes
Payable. Current Notes Payable you’ll
have to pay within one year, and the Long
Term Notes Payable are the debts you’ll
have to pay beyond the immediate year.
I’ll abbreviate Notes Payable as “Notes.”
Later I’ll add Accounts Payable to Current
Liabilities, but I’ll leave it out for now.
Balance Sheet
Current
Assets
Cash
Equipment
Total Assets
Liabilities
Current Liabilities
Current Notes
Long Term Liabilities
Long Term Notes
Total Liabilities
Net Worth
Step 3
To avoid subcategorizing to death, let’s
eliminate Current and Long Term Liabilities.
Balance Sheet
Current
Assets
Cash
Equipment
Total Assets
Liabilities
Current Notes
Long Term Notes
Total Liabilities
Net Worth

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F. Bill’s Balance Sheet
To build a basic projected Balance Sheet we’ll work through Bill’s list of future transactions (shown earlier). Through the
example, I will be building out a table with a new column for every transaction to show how each transaction affects the
Balance Sheet. Please note that this is a learning tool only and you will not be doing this yourself when you build your
projections. The goal of this section is simply to understand how transactions affect the Balance Sheet.
A. Starting Assets of $10,500. Bill has $3,500 in cash and $7,000 invested in equipment giving him total assets of $10,500. He
owes no one anything so his Liabilities are zero. Just by looking at the equation, his Net Worth or equity in the business is
$10,500 (or $10,500 - $0).
Balance Sheet on Step A
Current
Assets
Cash $3,500
Equipment $7,000
Total Assets $10,500
Liabilities
Current Notes $0
Long Term Notes $0
Total Liabilities $0
Net Worth $10,500
Liabilities + Net Worth $10,500
B. Receive Loan for $2,500. So lets say he secures a $2,500 loan—payable over two years—to launch a marketing
campaign. Half of the loan will be due within a year (Current Notes Payable); the other half will be due next year (Long
Term Notes Payable). Bill starts with the Assets and adds $2,500 to his Cash to give him $6,000 in Cash then breaks up

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the loan into two almost- equal parts1 of $1,350 and $1,150 for this year and next year, respectively. On the first day he
receives the loan, his Balance Sheet will look like the following:
Balance Sheet on Step B (Cumulative)
Startup Loan
Assets
Cash $3,500 $6,000
Equipment $7,000 $7,000
Total Assets $10,500 $13,000
Liabilities
Current Notes $0 $1,200
Long Term Notes $0 $1,300
Total Liabilities $0 $2,500
Net Worth $10,500 $10,500
Liabilities + Net Worth $10,500 $13,000
See how the Assets and Liabilities change? Compare the first column (the moment before the loan) with the second
column (the moment after the loan was received). Total Assets still equal the sum of Liabilities and Net Worth. Assets
(specifically Cash) are raised by $2,500 from receiving the loan disbursement, while the Liabilities are raised by the loan
amount. Note that in getting the loan, Bill doesn’t change his Net Worth of $10,500. What would change his Net Worth?
The next step will do just that.
C. Marketing Campaign $2,500. Bill plans to use the $2,500 loan to invest into a marketing campaign. This will reduce his
Cash to $3,500. For the Balance Sheet to be in equilibrium (A=L+NW), Bill knows that either the Liabilities or the Net
Worth must also go down, but which one? He knows that his Liabilities haven’t changed because he is spending Cash,
not repaying the loan. Thus, spending on Marketing must be reducing his Net Worth. Don’t be alarmed that there is no
1 Some people just divide this number in half ($1,250 Current and $1,250 Long Term Notes), but that will result in the Balance Sheet and P&L not
“balancing” later. If you do split it in exactly in half, when you do your P&L, don’t include the Interest Payable. An amortization schedule will break the
loan up into $1,200 Current Notes and $1,300 Long Term Notes. In terms of actual loan payments, the loan payments for the first year are $1,350 and
$1,150 for the second. Finally, the Interest Payable is $157 for the first year and only $57 for the second year.

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place to show marketing. We are only looking at the Balance Sheet now. Marketing will be labeled on both the Profit
& Loss and the Cash Flow. Here is the cumulative BS right after Bill’s spends $2,500 on Marketing:
Balance Sheet on Step C (Cumulative)
Startup Loan Marketing
Assets
Cash $3,500 $6,000 $3,500
Equipment $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500
Liabilities
Current Notes $0 $1,200 $1,200
Long Term Notes $0 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500
Net Worth $10,500 $10,500 $8,000
Liabilities + Net Worth $10,500 $13,000 $10,500
D. Sales of $4,000. The next transaction that Bill projects is the marketing investment paying off and producing $4,000 in
cash sales. That helps his Balance Sheet out tremendously. It raises his Assets by $4,000 and also raises his—what, Net
Worth or Liabilities? If you are thinking Net Worth, you are correct—Bill raises it by $4,000. Check your BS equation: do
Assets still equal Liabilities plus Net Worth? Yes, they do!
Balance Sheet on Step D (Cumulative)
Startup Loan Marketing Sales
Assets
Cash $3,500 $6,000 $3,500 $7,500
Equipment $7,000 $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500 $14,500
Liabilities
Current Notes $0 $1,200 $1,200 $1,200
Long Term Notes $0 $1,300 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500 $2,500
Net Worth $10,500 $10,500 $8,000 $12,000
Liabilities + Net Worth $10,500 $13,000 $10,500 $14,500

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Let’s take a step back and see where Bill stands. From the startup through Step D, Bill projects to grow his Assets by
$4,000 ($7,500-$3,500), Liabilities by $2,500 ($2,500-$0), and his Net Worth by $1,500 ($12,000-$10,500).
E. Loan Payment of $1,350. Bill plans to take out $1,350 cash to pay for the entire first year loan balance (Interest + the
Notes Payable). This will reduce his Current Notes to zero. Part E of the P&L will explain fully how $1,350 was derived, but
note that the cash used paid for all of the Current Notes Payable ($1,200), but also had to draw from the Net Worth to
pay for the annual Interest Expense ($150) to make the equation balance.
Balance Sheet on Step E (Cumulative)
Startup Loan Marketing Sales Loan Pmt
Assets
Cash $3,500 $6,000 $3,500 $7,500 $6,150
Equipment $7,000 $7,000 $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500 $14,500 $13,150
Liabilities
Current Notes $0 $1,200 $1,200 $1,200 $0
Long Term Notes $0 $1,300 $1,300 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500 $2,500 $1,300
Net Worth $10,500 $10,500 $8,000 $12,000 $11,850
Liabilities + Net Worth $10,500 $13,000 $10,500 $14,500 $13,150
F. Owner Withdrawal of $3,000. Bill foresees his next transaction will be taking money out of the company for personal
reasons. This is often called an Owner’s Withdrawal in contrast to Salary, which implies a consistent drawing every
month. Aside from Cash, what else is affected? If an owner takes cash out of the business, and it is not used to pay
loans or build assets, the only thing it can change is Net Worth. That’s the bad news about paying yourself a salary: you
are enriching yourself now at the expense of a higher Net Worth later. A Withdrawal of $3,000 is shown below:

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Balance Sheet on Step F (Cumulative)
Startup Loan Marketing Sales Loan
Pmt
O.W.
Assets
Cash $3,500 $6,000 $3,500 $7,500 $6,150 $3,150
Equipment $7,000 $7,000 $7,000 $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500 $14,500 $13,150 $10,150
Liabilities
Current Notes $0 $1,200 $1,200 $1,200 $0 $0
Long Term Notes $0 $1,300 $1,300 $1,300 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500 $2,500 $1,300 $1,300
Net Worth $10,500 $10,500 $8,000 $12,000 $11,850 $8,850
Liabilities + Net Worth $10,500 $13,000 $10,500 $14,500 $13,150 $10,150
You see how taking money out of the company for the owner’s expenses sucks the equity out of the business: Bill’s Net
Worth dropped by $3,000.
G. Pay Rent $1,000 and Utilities $1,000. He knows he will have to pay his overhead bills. Where would they go? If you’re
thinking Cash…that’s right! Where else? Net Worth. By paying bills, Bills is again diluting his Net Worth. So paying bills of
$2,000 leaves his Balance Sheet looking like:
Balance Sheet on Step G (Cumulative)
Startup Loan Marketing Sales Loan
Pmt
O.W. Bills
Assets
Cash $3,500 $6,000 $3,500 $7,500 $6,300 $3,150 $1,150
Equipment $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500 $14,500 $13,300 $10,150 $8,150
Liabilities
Current Notes $0 $1,200 $1,200 $1,200 $0 $0 $0
Long Term Notes $0 $1,300 $1,300 $1,300 $1,300 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500 $2,500 $1,300 $1,300 $1,300
Net Worth $10,500 $10,500 $8,000 $12,000 $12,000 $8,850 $6,850
Liabilities + Net Worth $10,500 $13,000 $10,500 $14,500 $13,300 $10,150 $8,150

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Bill sees that both sides of the Balance Sheet have gone down by paying bills. It not only drains cash, it sucks out his Net
Worth. At a high, his Assets were projected at $14,500, but they have dropped down to $8,150.
Bill is going to combine the next two transactions (H and I) together into one column.
H. Marketing Campaign #2 of $2,000
I. Sales of $8,000
Looking at the transactions together:
Change in Cash: -$2,000 + $8,000 = +$6,000; Cash position becomes $7,150
Change in Net Worth: Without letting the table show you the answer, can you use the BS equation to figure it out? If
Assets are increasing by $4,000, Net Worth will be raised by $6,000, bringing it up to $14,150.
Balance Sheet on Step J (Cumulative)
Startup Loan Mktg. Sales Loan
Pmt
O.W. Bills Mktg. &
Sales
Assets
Cash $3,500 $6,000 $3,500 $7,500 $6,250 $4,000 $1,150 $7,150
Equipment $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500 $14,500 $13,250 $11,000 $8,150 $14,150
Liabilities
Current Notes $0 $1,200 $1,200 $1,200 $0 $0 $0 $0
Long Term Notes $0 $1,300 $1,300 $1,300 $1,300 $1,300 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500 $2,500 $1,300 $1,300 $1,300 $1,300
Net Worth $10,500 $10,500 $8,000 $12,000 $12,000 $9,000 $6,850 $12,850
Liabilities + Net Worth $10,500 $13,000 $10,500 $14,500 $13,250 $11,000 $8,150 $14,150
The last transaction he’ll make will be to pay himself again:

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J. Owner Withdrawal of $500
Balance Sheet on Step J (Cumulative)
Startup Loan Marketi
ng
Sales Loan
Pmt
O.W. Bills Mktg. &
Sales
O.W.
Assets
Cash $3,500 $6,000 $3,500 $7,500 $6,250 $4,000 $2,000 $7,150 $6,650
Equipment $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000 $7,000
Total Assets $10,500 $13,000 $10,500 $14,500 $13,250 $11,000 $9,000 $14,150 $13,650
Liabilities
Current Notes $0 $1,200 $1,200 $1,200 $0 $0 $0 $0 $0
Long Term Notes $0 $1,300 $1,300 $1,300 $1,300 $1,300 $1,300 $1,300 $1,300
Total Liabilities $0 $2,500 $2,500 $2,500 $1,300 $1,300 $1,300 $1,300 $1,300
Net Worth $10,500 $10,500 $8,000 $12,000 $12,000 $9,000 $7,000 $12,850 $12,350
Liabilities + Net Worth $10,500 $13,000 $10,500 $14,500 $13,250 $11,000 $9,000 $14,150 $13,650
Remember, you won’t show all of these calculations (columns) in your projections. This entire section that we have just
finished was exclusively to teach how to record future events in the Balance Sheet. In your actual Balance Sheet, you
will use two columns showing your Balance Sheet now and at some specific time in the future (Say 12 months from the
current time). With Bill finished, he will use this Projected Balance Sheet in his Business Plan:
Projected Balance Sheet (After Step J)
Current In 1 year
Assets
Cash $3,500 $6,650
Equipment $7,000 $7,000
Total Assets $10,500 $13,650
Liabilities
Current Notes $0 $0
Net Worth $10,500 $12,350

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Looking at the Balance Sheet Projections, it’s clear that Bill is not planning to build his Net Worth in the first year as it
stayed the same. He plans to only increase his Assets by $750 (and this is before we get to Accumulated Depreciation!)
Meanwhile, his Liabilities have been raised to $1,250 after he paid for half of them during the year. Like most startup
businesses, Bill’s company hasn’t improved his Asset base or Net Worth in the first year. My question to bill is, “Can you
change a few assumptions to give you a better business outlook?”
I want to leave you with a summary of how transactions will affect your Projected Balance Sheet:
Cash Expenses like Rent, Utilities, Marketing Costs, Costs of Goods (Direct Costs), and Owner’s Withdrawal will affect
the Cash and the Owner’s Equity.
Loan Payments or loan disbursements will change your Cash and your Liabilities.
We’ll go over the more complicated transactions like Accounts Receivable, Accounts Payable, Depreciation, and
Uncollectible Payments after we go over the Profit and Loss.

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V. Projected Profit & Loss
A. The Basic Statement
Think of your Balance Sheet as a noun—that is, a moment in time or “a snapshot”. It shows your financial standing at a
precise time be it now or tomorrow or March 17, 2013 at 9:33AM. Your Profit and Loss, also called the Income Statement or
abbreviated as P&L, can be thought of as a verb. It shows business activity over a period of time. On the Profit and Loss, a
time range is always indicated. For a historical P&L, the range might be “1st Quarter 2014” in the year, or “January 1-March
31st 2014”. For a Projected P&L, the range could be from today to twelve months from now, using the appropriate dates.
That’s what I’ll be teaching.
The P&L shows three things: Income, Expenses, and Profit. That’s it. Here’s a simple Projected P&L for today through
tomorrow having made no sales or incurring no expenses:
Profit and Loss
Debit Credit
Income
Sales $0
Less Direct Costs $0
Gross Profit $0
Expenses
Rent $0
Utilities $0
Marketing $0
Owner Withdrawal $0
Travel $0
Total Expenses $0
Net Income Before Tax $0
A few things to point out.

Solventurer
The table is split horizontally by Debits and Credits, which are easy for our simple projections. You Credit all the income
coming in and Debit all your costs.
The table is split vertically by the Income items (Sales) and the Expense items (Rent, Utilities, etc.). The two most important
numbers are Gross Profit and Net Income Before Tax, thus I bolded them.
Gross Profit is the Sales minus the Direct Costs—also called the Cost of Goods or COGS. The Client-Focused Solopreneurs
won’t have Direct Costs or they will be extremely minor. For projections we can treat these as zero. So, our Sales are also
our Gross Revenue.
Net Income Before Taxes is the Gross Profit minus the Total Expenses. Typically, you’ll write your Expenses as positive (+) in
the column, but the Net Income will be written with a negative if the expenses are greater than the Sales. For the sake of
brevity, I’ll abbreviate this as “Net Income”.
Let’s construct a simple P&L. Say you buy something for $1, sell it for $5, and incur a marketing cost of $2.
P & L: Simple Example
Income
Sales $5
Gross Profit $4
Expenses
Rent $0
Utilities $0
Marketing $2
Owner Withdrawal $0
Interest Payable $0
Total Expenses $2
Net Income Before Tax $2

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B. Bill’s Projected P&L
Using the same list of transactions, let’s look at the transactions that Bill already created a Projected Balance Sheet for and
create a Projected P&L.
Step A—starting cash—shows a position, not a transaction (remember the P&L is the activity that affects that Balance
Sheet) so there is no P&L entry. Step B, a loan disbursement, also won’t change the P & L because it’s neither income nor
an expense. More on recording loans in the P&L in step E.
C. Marketing of $2,500. Marketing is an expense. So after a loan payment and marketing expenses, the business is
showing a loss of $2,500. Note how the negative is represented by parenthesis.
P & L: Step A – Step C
Income
Sales $0
Gross Profit $0
Expenses
Rent $0
Utilities $0
Marketing $2,500
Owner Withdrawal $0
Interest Payable $0
Total Expenses $2,500
Net Income ($2,500)
D. Sales of $4,000. We can’t add columns like we did in the Balance Sheet to teach each step. So we’ll just work on top of
the last example. Step D is securing $4,000 in Sales. Note that Bill’s expected Direct Costs are zero, so the Gross Profit is
the same as the Sales. The Net Income is now a positive $1,500.

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P & L: Step A – Step D
Income
Sales $4,000
Gross Profit $4,000
Expenses
Rent $0
Utilities $0
Marketing $2,500
Owner Withdrawal $0
Interest Payable $0
Net Income $1,500
E. Loan Payment of $1,350. Expecting to make a loan payment of $1,350 needs an in-depth explanation. In Step B, I said
you don’t include loan disbursements on your P&L because it’s neither income nor an expense. While you will never
include a loan disbursement (you receiving a loan), you could include making interest payments on your P&L.
A loan payment consists of two parts: an interest and principle portion. For your P&L, you ignore the principle and
consider only the interest portion. It’s your cost (expense) to use the money from the bank.
My view is that unless the amount of debt is considerable, don’t consider the interest payments on your P&L because
the interest is most likely a very small amount and not worth the trouble for your projections. For instance, if you are
borrowing a few thousand dollars, and your annual expenses are projected to be ten times that, the Interest Expense
will be relatively tiny (and the key word is relative).
If I were teaching a course on how to start a restaurant, where a considerable amount of debt is typically required to
start, this advice would be foolish because the Interest Expense would be relatively large. But for our business, typically
financed with small loans (if any), the interest portion of each loan payment is small. By working out the interest
payments, the entire purpose of using a proforma is defeated.

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Now, if you decide to incorporate the interest into your projections, you need to be precise or your three statements will
not work together. So you can’t split the loan amount by the number of years (i.e. a three year loan cannot be split 1/3,
1/3, 1/3 because your Balance Sheet and P&L won’t balance).
Here are all the payments2 of Bill’s $2,500 loan (with one payment/month over 24 months at 8% interest). See how little
monthly interest there is? Note the interest getting smaller each month, i.e. the interest by say month 15 (Pmt 15) is $7.
This would give Bill an annual Interest Payable (or Interest Expense) of $156.
The first column shows a table copied from an amortization table. While the interest payments are always the same, the
interest portion is declining over time while the principle portion is increasing.
The Interest Payable for the first year shows the interest getting very small by the end of the first year. The total Interest
Expense (I use “expense” and “payable” interchangeably) is $157.
The summary shows the relationships between Interest, Notes Payable, and loan payments. In year one, the Notes
Payable is smaller than in year two, yet the Interest Expense is higher. In other words, while the cash outlay will be
exactly the same in year one as year two, the impact on the P&L will be larger in the first year (Interest Expense drops
from $157 to $57), and the Balance Sheet the second year (the Notes Payable increases from $1,200 to $1,300).
2 See the attached Excel amortization table to play around with these.

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Amortization:
Pmt Payment
Due
Principal Interest Prin Bal
1 113.07 96.40 16.67 2,403.60
2 113.07 97.05 16.02 2,306.55
3 113.07 97.69 15.38 2,208.86
4 113.07 98.34 14.73 2,110.52
5 113.07 99.00 14.07 2,011.52
6 113.07 99.66 13.41 1,911.86
7 113.07 100.32 12.75 1,811.54
8 113.07 100.99 12.08 1,710.55
9 113.07 101.67 11.40 1,608.88
10 113.07 102.34 10.73 1,506.54
11 113.07 103.03 10.04 1,403.51
12 113.07 103.71 9.36 1,299.80
13 113.07 104.40 8.67 1,195.40
14 113.07 105.10 7.97 1,090.30
15 113.07 105.80 7.27 984.50
16 113.07 106.51 6.56 877.99
17 113.07 107.22 5.85 770.77
18 113.07 107.93 5.14 662.84
19 113.07 108.65 4.42 554.19
20 113.07 109.38 3.69 444.81
21 113.07 110.10 2.97 334.71
22 113.07 110.84 2.23 223.87
23 113.07 111.58 1.49 112.29
24 113.04 112.29 0.75 0.00
Interest Payable (Expense):
Pmt Interest
1 16.67
2 16.02
3 15.38
4 14.73
5 14.07
6 13.41
7 12.75
8 12.08
9 11.40
10 10.73
11 10.04
12 9.36
Interest
Payable
Year 1
$157
Summary:
Period Notes
Payable
Interest Annual
Payment
Year 1 $1,200 $157 $1,357
Year 2 $1,300 $57 $1,357
Total $2,500 $214 $2,714
His expenses are on track to be over $10,000, so is this expense something to even bother with? I would say no. It’s like
dumping a bucket of water in the ocean. But I’ll show how it affects the statements nevertheless so you can learn and
use it if you have larger loans relative to your expenses. Let’s round off the $157 to $150 so we have easier numbers to
handle. If you noticed, we rounded off the payment to $1,350 back in the Balance Sheet section also to make the
math easier.

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P & L: Step A – Step D
Income
Sales $4,000
Gross Profit $4,000
Expenses
Rent $0
Utilities $0
Marketing $2,500
Owner Withdrawal $0
Interest Payable $150
Net Income $1,350
F. Owner Withdrawal of $3,000. The $3,000 Owner Withdrawal is a simple line item. You’ll see that it raises the Total Expenses
to $6,650. Bill’s Net Income is now actually a Net Loss of $1,650. Note: a Loss does NOT mean Bill is bankrupt (i.e. out of
cash.) A company projected to run out of cash is easily seen on the Balance Sheet or Cash Flow Projection, which we’ll do
in the next section.
P & L: Step A – Step F
Income
Sales $4,000
Gross Profit $4,000
Expenses
Rent $0
Utilities $0
Marketing $2,500
Owner Withdrawal $3,000
Net Income ($1,650)

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G. Pay Rent $1,000, Utilities $1,000. Simple.
P & L: Step A – Step G
Income
Sales $4,000
Gross Profit $4,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $2,500
Net Income ($3,650)
H. Marketing Campaign #2 of $2,000. Total Marketing Expense is $4,500 now. Bill is digging a big Loss at this point. If this was
a real chronology of a future business, I would be concerned.
P & L: Step A – Step H
Income
Sales $4,000
Gross Profit $4,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Net Income ($5,650)

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I. Sales of $8,000. Finally, Income! $8,000 helps Bill’s Net Income climb out of the red.
P & L: Step A – Step J
Income
Sales $12,000
Gross Profit $12,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Net Income $2,350
J. Owner Withdrawal—this time it’s $500, bringing the Net Income to $1,850.
Income
Sales $12,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Net Income $1,850

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C. Looking at Bill’s P&L and Balance Sheet In Concerto
With all the steps done, lets look at Bill’s Projected BS and P&L together:
Income
Sales $12,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Net Income $1,850
Current In 1 year
Assets
Cash $3,500 $6,650
Equipment $7,000 $7,000
Total Assets $10,500 $13,650
Liabilities
Current Notes $0 $0
Net Worth $10,500 $12,350
Some observations:
• Over the span of one year (Steps A through K) Bill’s business has a Net Income of $1,850, which he would be able to
reinvest in the business in year two.
• To see if the Balance Sheet and P&L are in accordance with one another, look at the change of Net Worth ($12,350-
$10,500=$1,850). That’s the same as the Net Income so the transactions were documented correctly.
• He paid himself a total of $3,500.
• His Cash is expected to rise by $3,250 to $6,750, but he will still owe the bank $1,300.
• The first half the loan he paid off ($1,200) is reflected in several places. The Notes Payable was reduced to zero on
the Balance Sheet. The Cash was reduced by $1,200 to pay for that. In order to pay for the Interest portion of
$150—shown on the P&L—the Net Worth was reduced by $150 so the Balance Sheet equation would balance.
• Most of his Sales Income went to pay for expenses (mainly Marketing), which totaled $10,150.

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Before we move to the Cash Flow, I wanted to show a few more complex transactions that a Client Focused Solopreneur
comes across regularly.

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VI. Projected Cash Flow
Businesses go out of business because they run out of cash. The next projected statement, the Cash Flow shows how much
cash is moving through the company. Loan officers, investors, and vendors will ask for the Projected Cash Flow because it’s
the statement that shows how cash flows in and out of the business.
The P&L, it is shown over a period of time and looks at all the same things—but only counts transactions when cash
exchanges hands. Like the BS, it looks at cash.
The Projected Cash Flow Statement shows a flow of cash each month in this natural order:
Starting Balance + Cash In - Cash out = Net Cash;
Net Cash + Starting Balance = Ending Balance.
Say that you start with a cash balance of $5, you are paid $20 in cash, and you spend $7. Later you get paid $17 and spend $6. See
how you would build your Cash Flow Projections.
Cash Flow Now to Later
Now Later
Starting Balance $5 $18
Cash In $20
Cash Out $7
Net Cash $13
Ending Cash $18
Now Later
Cash In $20
Cash Out $7
Net Cash $13
Ending Cash $18
The Starting Balance is how much you have in the beginning of the time period (usually a month). Cash In is how much
cash comes in through Sales or Financing. Cash Out is all the Cash you shell out on operating expenses and loan
payments. The difference between Cash In and Cash Out gives you the Net Cash, also called the Cash Flow. That’s how
much cash you brought into the business during the time period. A good business has positive Net Cash.

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Ending Cash is your cash position at the end of the month; you simply add the Net Cash to the Starting Balance. The last
step is to carry the Ending Cash line item and use it for the Starting Balance of the next time period.
Let’s put more detail into the table. It looks similar to the P&L, but remember this is only cash!
Now Later
Cash In (Sales) $20 $18
Cash Out
Rent $1 $1
Utilities $2 $2
Marketing $1 $0
Loan Payment $1 $1
Owner Withdrawal $2 $0
Total Cash Out $7 $4
Net Cash $13 $14
Ending Cash $18 $27
Usually, the Cash Flow Projection, like the P&L, projects out 12 months. Let’s take Bill’s expected transactions and put them
into a Cash Flow Projection. Our simplistic example should look funny here as Bill is only projecting to pay Rent once, Utilities
once, etc. In your business, the Indirect Costs (Cash Outs) here will be recurring payments. Instead of looking at the
transactions in steps, let’s group them into when they will be paid (in quarters). Quarter 0 (signifying right now) will only
show $3,500 at the Starting Balance. No other transactions will occur, so Quarter 1 will start with $3,500 Cash.
1. Quarter 1. Sales of $4,000, a loan disbursement of $2,500, and Marketing expense of $2,500. Simply put them on the
right line to show $4,000 in Net Cash (Cash Flow) and an Ending Balance of $7,500.

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Cash Flow for 12 Months
Quarter 0 1 2 3 4 Total
Starting Balance $3,500 $3,500 $7,500
Cash In
Sales $4,000
Receive Loan $2,500
Total Cash In $0 $6,500
Cash Out
Rent
Utilities
Marketing $2,500
Loan Payment
Owner
Withdrawal
Total Cash Out $0 $2,500
Net Cash $0 $4,000
Ending Cash $3,500 $7,500
2. Quarter 2. Rent and Utilities each $1,000, a Loan Payment of $1,350, and an Owner Withdrawal of $3,000. Note the
projected huge amount of cash leaving the business in the second quarter. The Ending Balance is low at $1,250.
Quarter 0 1 2 3 4 total
Starting Balance $3,500 $3,500 $7,500 $1,150
Cash In
Sales $4,000
Receive Loan $2,500
Total Cash In $0 $6,500 $0
Cash Out
Rent $1,000
Utilities $1,000
Marketing $2,500
Loan Payment $1,350

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Total Cash Out $0 $2,500 $6,350
Net Cash $0 $4,000 -$6,350
Ending Cash $3,500 $7,500 $1,150
3. Quarter 3. A marketing expense of $2,000 and Sales of $6,000 helps the cash position.
Quarter 0 1 2 3 4 total
Starting Balance $3,500 $3,500 $7,500 $1,150 $7,150
Cash In
Sales $4,000 $8,000
Receive Loan $2,500
Total Cash In $0 $6,500 $0 $8,000
Cash Out
Rent $1,000
Utilities $1,000
Marketing $2,500 $2,000
Loan Payment $1,350
Total Cash Out $0 $2,500 $6,350 $2,000
Net Cash $0 $4,000 -$6,350 $6,000
Ending Cash $3,500 $7,500 $1,150 $7,150
4. Quarter 4. Owner Withdrawal of $500 along with the completed Cash Flow Projection.

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Cash In
Sales $4,000 $8,000 $10,000
Receive Loan $2,500 $2,500
Total Cash In $0 $6,500 $0 $8,000 $0 $12,500
Cash Out
Rent $1,000 $1,000
Utilities $1,000 $1,000
Marketing $2,500 $2,000 $4,500
Loan Payment $1,350 $1,350
Owner Withdrawal $3,000 $500 $3,500
Total Cash Out $0 $2,500 $6,350 $2,000 $500 $11,350
Net Cash $0 $4,000 -$6,350 $6,000 -$500 $3,150
Ending Cash $3,500 $7,500 $1,150 $7,150 $4,750
Observations: Bill’s business is expected to generate $3,250 over the first year, a meager amount for a business that had so
much activity. While this example was created not to show a realistic business starting (paying rent only in a single quarter,
the loan in a single quarter, sales in a single quarter, etc.), you would have to be alarmed if you saw this little cash
generated! The other item I would look at is the Ending Cash balance of each quarter. Each quarter ends with a good
amount of cash in the bank except for quarter 2.

Solventurer
VII. Putting the Projections Together
Before we move onto the other more complex transactions, let’s go over how all the statements balance.
Income
Sales $12,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Net Income $1,850
Current In 1 year
Assets
Cash $3,500 $6,650
Equipment $7,000 $7,000
Total Assets $10,500 $13,650
Liabilities
Current Notes $0 $0
Net Worth $10,500 $12,350
Cash Flow to Step J
Cash In
Sales $4,000 $8,000 $12,000
Total Cash In $0 $6,500 $0 $8,000 $0 $14,500
Cash Out
Rent $1,000 $1,000
Utilities $1,000 $1,000
Marketing $2,500 $2,000 $4,500
Total Cash Out $0 $2,500 $6,350 $2,000 $500 $11,350
Net Cash $0 $4,000 -$6,350 $6,000 -$500 $3,150
Ending Cash $3,500 $7,500 $1,150 $7,150 $6,650

Solventurer
The 3 ways that they work together:
• Total Net Cash (Cash Flow), $3,150, equals the change in Bill’s Cash on the Balance Sheet: his Cash increases from
$3,500 to $6,650.
• The Net Income (P&L) equals his change of Net Worth ($1,850).
• The Cash position (BS) is the same as the Starting and Ending balance on the Cash Flow Projection. Check: Start =
$3,500, End = $6,650.

Solventurer
VIII. Complex Transactions That You Will Use
We just flew through some simple future transactions. This doesn’t give any detail, and our business—the consulting,
professional services, and coaching professions—need to consider a few more transactions highly important for our
business financials. These transactions are: Depreciation, Accounts Receivable and Payable, and Uncollectible Accounts.
As usual, let’s teach through building upon Bill’s example. Here are 4 more transactions he will want to incorporate into his
accounts:
K. Sales of $4,000, half paid in cash and half later
L. Subcontractor does work for Bill who will pay $1,000 later
M. A line item showing 10% of Account Receivables that won’t be uncollected
N. Bill will depreciate his equipment
Let’s start by defining Accounts Receivable and Payables so we can understand Step K.
To this point, we have assumed that all payments and sales income have been cash. In other words, when we show that
there is Sales in the P&L, we have assumed that cash was received. Unfortunately, this is usually not the case for Client-
Focused Solopreneurs. As consulting and service professionals, most of us will not be paid entire payments at once. A
common example is when we are paid half now, and the other half at the end of the project. While we record the entire
transaction as Sales Income (on the P&L) we are not receiving all the income in cash (or credit card, check, etc.).
We have some separate accounts (line items) on the Balance Sheet to show this. On the Balance Sheet, an Account
Receivable is considered an Asset. It is money owed to us! You can list it right under the Equipment line. An Accounts
Payable is a Current Liability—money we owe to others within the year. You can list it right under the Current Notes
Payable line.
The P&L will never distinguish between cash or a promised payment in the future. This promise is called an Accounts
Receivable. It indicates money that is owed to us for work that has been done. Accounts Payable shows money that we
owe others for service rendered for us.

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K. $2,000 in Cash Sales, $2,000 in Accounts Receivable. Let’s say Bill thinks right after step K, he’ll make a $4,000 sale, but
the company pays him half cash upfront, and the other half when the job is finished. NEED TO ADD COLLECTIONS FOR
ACCOUNTS RECEIVABLE ON CASH FLOW. IF YOU SHOW THE RECEIVABLES IN 4th QUARTER< YOU”LL NEVER SEE IT!
P & L: Step A – Step K
Income
Sales $16,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Net Income $5,850
Projected Balance Sheet After Job K
Before K After K
Assets
Cash $6,650 $8,650
Equipment $7,000 $7,000
Accounts
Receivable
$0 $2,000
Total Assets $13,650 $17,650
Liabilities
Current Notes $0 $0
Long Term Notes $1,300 $1,300
Total Liabilities $1,300 $1,300
Net Worth $12,350 $16,350
Both his Cash and Accounts Receivable went up by $2,000, raising his Assets by $4,000. On the other side of the
equation, his equity went up by $4,000 also. On his P & L, which we will review in a bit, the transaction would count as
$4,000 Sales. No distinction will be made whether it is cash or receivables (future payments). But this brings up an
important consideration.
Bill doesn’t record any of his non-cash sales? Sounds a bit pessimistic, doesn’t it? Bill needs to add a line item in his Cash
Flow to include “Collections” which represents the cash received a month or two or three later than the original
exchange of services. If Bill thought that he would collect 9/10 Accounts Receivables, he would simply multiply his A/R
by 9/10, or:
$2,000 * 9/10 = $1,800 is Collections

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For now, let’s assume that Bill doesn’t forsee collecting on that sale until the following year. So he can leave Collections
as zero, and for all intents and purposes, just count on half of the sale netting any cash.
Cash Flow to Step K
Cash In
Sales $4,000 $8,000 $2,000 $14,000
Collections
Total Cash In $0 $6,500 $0 $8,000 $0 $16,500
Cash Out
Rent $1,000 $1,000
Utilities $1,000 $1,000
Marketing $2,500 $2,000 $4,500
Total Cash Out $0 $2,500 $6,350 $2,000 $500 $11,250
Net Cash $0 $4,000 -$6,350 $6,000 $1,500 $5,150
Ending Cash $3,500 $7,500 $1,150 $7,150 $8,650
L. $1,000 in Accounts Payable for subcontracting expense. If Bill owes another company—say a subcontractor for
services—$1,000, the Balance Sheet would show it as an increase in Accounts Payable and a reduction of Net Worth.
The P&L would record it as Subcontracting Expense. Let’s go back to showing the Balance Sheet from the Current time.

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P & L: Step A – Step L
Income
Sales $16,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Subcontracting $1,000
Net Income $4,850
Projected Balance Sheet after Step L
Current After L
Assets
Cash $3,500 $8,650
Equipment $7,000 $7,000
Accounts Receivable $0 $2,000
Total Assets $10,500 $17,650
Liabilities
Current Notes $0 $0
Accounts Payable $0 $1,000
Net Worth $10,500 $15,350
Now let’s move to Uncollectible Accounts. This is a little more mechanical, but it isn’t difficult. With quick turnaround
services like an auto mechanic, cash payments will be immediate. But if you’re in any kind of business where a service
is performed before it is paid for, you need to assume some customers won’t pay you—either from dissatisfaction,
financial distress, or personalities. Each business tends to have a good rule of thumb of what percentage of Sales they
deem to be uncollectible and budget accordingly. This is important for your projections because if you’re assuming
that you’ll pocket all your Sales and you lose a fifth of them because people don’t pay you, your projections are going
to be as good as worthless.
M. 10% Uncollectible Accounts. Bill thinks of his Accounts Receivable, 10% will be uncollectible. He will have to show this
on both the Profit & Loss and Balance Sheet. For the P&L, he will create an expense called, Bad Debts. On the BS, you
will create an item called Uncollectibles. They are the exact number on each statement that estimates how much of
the Receivables that won’t ever be collected. Bill assumes that 10% of his Receivables won’t be collected so he does a
quick calculation of:
10% * $2,000 = $200

Solventurer
$200 is estimated to be uncollectible. Bills puts that number on each statement as shown below.
P & L: Step A – Step M
Income
Sales $16,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Bad Debts $200
Net Income $4,650
Projected Balance Sheet After Step M
Current After M
Assets
Cash $3,500 $8,650
Equipment $7,000 $7,000
Uncollectible @ 10% $0 -$200
Total Assets $10,500 $17,450
Liabilities
Current Notes $0 $0
Net Worth $10,500 $15,150
This process of adjusting entries is much more difficult for “real-time” or historical accounting, but for pro forma
statements, it is really that easy.
Finally, the secrets of Depreciation will be revealed.
N. Depreciate equipment over 5 years with no Salvage Value at the end. Over time, equipment ages and loses value
through wear & tear, technologically obsolescence, and breakage. Depreciation is an accounting method to account
for this aging by “charging” the business a non-cash expense to equipment over a period of years until the equipment is
worth a salvage value—or ending value. Because it’s a non-cash expense, you aren’t spending cash but simply
documenting the asset’s value. As you know now, the Balance Sheet and Profit & Loss are joined at the hip so you
can’t just reduce the value of the equipment on the Balance Sheet. First, you have to make an expense on the P&L.
Depreciation affects your P&L (as an Expense) and Balance Sheet (your Equipment Asset will be getting smaller each
month).

Solventurer
To figure out depreciation, you need to create a few assumptions before you can get the Depreciation Expense
number. First, decide the period in years that you will depreciate the equipment over. Next, determine the Salvage
Value. This is the equipment’s worth at the end of the period. To arrive at your monthly Depreciation Expense, subtract
the salvage value from the start value and then divide it by the number of years.
You get the following equation:
Start Value - Salvage Value
# Of Years
= Monthly Depreciation Expense
Bill decides his equipment will depreciate to zero value in five years. He considered how long his computer would
actually have value, and he thinks that in five years, if he tried to sell it, he would get absolutely nothing for it because of
the mileage he’ll put on it and how obsolete it will be. In five years, his equipment will be worth absolutely $0 on his
Balance Sheet. So:
$7,000 - $0
5 years
= $1,400 /yr Depreciation Expense
In a narrative form, this is how his equipment will be depreciated over five years:
Time Starting
Value
Depreciation
Expense
Ending
Value
Purchase $7,000 $0 $7,000
End of Year 1 $7,000 $1,400 $5,600
End of Year 2 $5,600 $1,400 $4,200
End of Year 3 $4,200 $1,400 $2,800
End of Year 4 $2,800 $1,400 $1,400
End of Year 5 $1,400 $1,400 $0

Solventurer
Just because Bill is treating depreciation as an expense, he won’t be paying someone cash for the aging of his
equipment. His assets are losing value; if he sells them a year from now, they will be worth much less than $7,000
because they have been depreciated.
On Bill’s P&L, the Depreciation Expense is actually going to be $1,400 and the Accumulated Depreciation will be also be
$1,400 because it is only at the end of year 1. If it were the end of year 2, the expense would again be $1,400 but the
Accumulated would be $2,800. Bill has prepares his projections quarterly and so should calculates his depreciation
quarterly. To do that he would divide $1,400 by 4, or $350 per quarter. But he simplifies for all of our sakes and waits to
show the depreciation until Quarter 4.
To make these projections, Bill creates a line item on the P&L called “Depreciation Expense”. Then he adds an
“Accumulated Depreciation” line on the Balance Sheet that will show how much has accumulated over the lifetime of
the asset. By subtracting that and the Equipment, Bill will get the purchase value. Remember, no cash changes in
Depreciation!
P & L: Step A – Step O
Income
Sales $16,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Owner Withdrawal
(withdrawal)
$3,500
Bad Debts $200
Depreciation $1,400
Net Income $3,250
Projected Balance Sheet After Step N
Current After N
Assets
Cash $3,500 $8,650
Equipment $7,000 $7,000
Accum. Depreciation $0 -$1,400
Total Assets $10,500 $16,050
Liabilities
Current Notes $0 $0
Net Worth $10,500 $13,750

Solventurer
Let’s go over how the transactions will affect the Cash Flow now.
K. $2,000 cash and $2,000 Accounts Payable in Quarter 4. Bill will only show the $2,000 Cash here. The future payment
isn’t placed on the CF!
K. Accounts Payable for $1,000. Nothing goes on the Cash Flow as it’s not cash.
L. 10% Uncollectible Account Receivables. This won’t go on it either, because it has to do with Accounts Receivables
(not cash!)
M. Depreciation. As we mentioned, Depreciation is a non-cash expense with the sole purpose of bringing asset value
down to reflect its wear or technological irrelevance. It won’t be on the Cash Flow Projection.
So after Step N, the Cash Flow remains unchanged.

Solventurer
IX. Putting the Projections Together (V 2.0)
Looking at the projections they do work together and tell a story. Final step is to see if everything checks out and they
balance.
1. Does the Total Cash Flow equal the change of Bill’s Cash on his Balance Sheet? Yes. Net Cash is $5,150, the same
as $8,650-$3,500.
2. The Change in Net Worth (BS) equal to Net Income? Yes. The change in Net Income (called Retained Earnings in
finance) from now to the end of year one is predicted to be $3,250, the same as the Net Income.
3. The Cash Flow’s start and end balances are the same as those on the BS.
P & L: Step A – Step N
Income
Sales $16,000
Expenses
Rent $1,000
Utilities $1,000
Marketing $4,500
Owner Withdrawal
(withdrawal)
$3,500
Bad Debts $200
Depreciation $1,400
Net Income $3,250
Projected Balance Sheet After Step N
Current After N
Assets
Cash $3,500 $8,650
Equipment $7,000 $7,000
Accum. Depreciation $0 -$1,400
Total Assets $10,500 $16,050
Liabilities
Current Notes $0 $0
Net Worth $10,500 $13,750

Solventurer
Through Bill’s example, I explained the mechanics behind documenting future transactions on the Financial Projections.
Obviously, you won’t be using the same process to construct yours—but you have to understand the concepts already
presented.
Having understood how the transactions influence each of the “Big 3”, now let’s teach the correct process. The ideal
process involves building projections through using trends, rather than isolated transactions.
Cash Flow to Step N
Cash In
Sales $4,000 $8,000 $2,000 $14,000
Total Cash In $0 $6,500 $0 $8,000 $0 $16,500
Cash Out
Rent $1,000 $1,000
Utilities $1,000 $1,000
Marketing $2,500 $2,000 $4,500
Total Cash Out $0 $2,500 $6,350 $2,000 $500 $11,250
Net Cash $0 $4,000 -$6,350 $6,000 $1,500 $5,150
Ending Cash $3,500 $7,500 $1,150 $7,150 $8,650

Solventurer
X. Creating Your Financial Assumptions
Up to this point, the course has been dedicated to showing you how future transactions are reflected on your projections.
Now that we all know how these sheets are constructed, I’m going to show how to efficiently build the proformas. But you
can’t just sit down and start putting numbers in the BS, P&L, and Cash Flow tables. You have to do a few more things to
give you reliable projections.
I use a three-step process (the 3 C’s) in building financial projections, that begins with assumptions, then makes
calculations, and finally takes the calculations and inserts them in the right statement. The steps are:
A. Crystal Ball. Write down what you think is going to happen. How many sales will you create, how much will marketing
cost, how much do you need to borrow, etc. Rely on your business plan to say what is going to happen.
B. Calculate. Make the necessary calculations to create the numbers and decide how they’ll impact each statement.
For instance, what will your loan payment be and how will that affect the BS, P&L, and Cash Flow?
C. Color. Fill in the three proforma statements with the numbers. Check to see if it balances.
The following order is how I create the assumptions:

Solventurer
The 6 Steps To Do Before You Start Building Your Projections
The most critical number on your projections is also the hardest to gauge: your Sales. In addition to your Cash Sales
projections, you will have to determine what part of your Sales will be on account (Account Receivables), and of these,
what percentage of people do you think might not pay at all (your projected Bad Debt Expense).
Figuring out your marketing costs is also challenging. Unless you have been in this business for sometime before, your level
of marketing expenditures will rise and fall with each campaign’s success throughout the year. In the beginning, you will be
experimenting with your marketing to see what works and what doesn’t. Oftentimes, the marketing budget will be
relatively high in our kind of business.
Most of the rest of the numbers are extremely easy to guess—that is, if you have to guess at all. If you know you will be
paying $75 for Internet, there really isn’t that much guesswork.
1
2
3
4
5
6
Indirect
Costs
Direct
Costs
Sales
Mktg
Costs
Startup
Costs
Required
Funding
Creating
Your
Assumptions

Solventurer
Your projections are based on experiences, research, interviews, and good old-fashioned educated guesses. Understand
that you are not trying to get 100% accuracy here. That would be difficult because the market changes so quickly and
your idea is always slightly changing. You simply want a certain level of confidence about your numbers before you go out
and test them!
Most of your Indirect Costs (overhead) are extremely easy to forecast. These are your rent, utilities, insurance, etc. For the
most part, these are only a phone call away to inquire about.
As for the process, you want to start by writing down your starting costs (Step 1), then look at where the money will come
from (your financing, or Step 2). Marketing (Step 3) is next, followed by Sales (Step 4). As I mentioned, Sales is not
straightforward because you’ll have to split up Cash Sales, Accounts Receivables, and your predicted Bad
Debts/Uncollectibles. Then you’ll work through your Direct Costs—step 5—which shouldn’t be too high considering we are
all client-focused service businesses. For Step 6, you will write down the final set of assumptions in Indirect Costs. They will
include things like your typical overhead in addition to non-cash expenses like depreciation and loan payments. Once
that process is finished, then you can begin taking these numbers and inserting them into the P&L, Cash Flow, and Balance
Sheet.
Let’s look at Lilly’s Projections and work through this system. Lilly is starting a design business of some kind. I will leave out
the details behind the numbers.

Solventurer
XI. Crystal Ball
I3 will start my business with the help of my $10,000 savings and a $15,000 bank loan (over 3 years at 7.25% interest). My
startup costs are going to be $20,000 and I will invest heavily in marketing as ongoing cost. I will depreciate my equipment
and pay off my loan as I expect to generate about $7,500 in Sales for each of the first few months while growing to $15,000
in Sales for the last few months of the year.
A. Required Funding
Sources of capital
Savings $10,000
Bank Loan $15,000
Total $20,000
B. Startup Costs
Startup costs
Equipment $5,000
Marketingt $5,000
Software $10,000
Total $20,000
3 The narrative is through the eyes of Lilly; when I am talking out of character, I’ll use parenthesis.

Solventurer
t See Startup Marketing Cost breakdown in Step C.
C. Marketing Costs
I must break up Marketing into recurring costs and startup costs. Startup costs include things I will buy once, like business
cards and website design. Recurring costs are marketing campaigns.
Marketing Costs Ongoing Cost per
unit
Frequency Monthly Cost
Workshops $200 4Xmo $800
Levittown Small Biz Chronicle $500 4Xmo $2,000
Direct Mail $2000 In mo 1 & 6 n/a
Startup Marketing Costs
Business Cards $3,000
Blog Platform and Design $2,000
Total $5,000
D. Sales
Total Sales. My Sales Projections will start up with 5 jobs per month in the first quarter. They will grow to 8 for the next six
months and then take another leap to 10 in the last quarter. The price per job will remain the same at $1,500 per job.

Solventurer
Quarter Volume Price Total Sales
Quarter 1 5 jobs/month $1,500/job $7,500
Cash Sales and Account Receivables. In terms of payment terms, I will ask for ¾ Cash upfront. The rest is recorded as
an Accounts Receivable that is due in 30 days. I assume that 10% of all Receivables won’t be collected which needs
to be calculated.
E. Direct Costs
Quarter Volume Cost Direct Costs
Quarter 1 5 jobs/month $200/job $1,000
F. Indirect Costs

Solventurer
I listed the Indirect Costs and indicated which statement they involve:
Balance SheetIndirect Cost P&L Cash
Flow Cash Current
Loans
Due
Accum.
Deprec.
Rent
x x x
Internet
x x x
Web Hosting
x x x
Insurance
x x x
Withdrawal
x x x
Loan Payments interest payment payment payment
Depreciation
x x
Indirect Costs reflected on the Cash Flow, the P&L, and the Balance Sheet (the cash used): These are monthly.
Item Indirect Costs
Rent $0
Internet/data $100
Hosting $20
Insurance $25
Owner Withdrawal $2,000 1st half of year, $2,500 2nd half of
year

Solventurer
Loan Payment $15,000 @ 7.25% in 36 months
=$465/month payment. I listed the
amortization chart below.
Depreciation $15,000 equipment; Depreciated over 3
years w/ $3,000 Salvage Value gives
$4,000 Depreciation Expense monthly
and $4,000 Accumulated Depreciation
for the year. See the table below to see
explanation.
Loan Amortization for one year. (To see the entire three-year amortization, use the amortization calculator provided).
Note how my Short Term Notes are $4,643, not simply 1/3 of $15,000, $5,000. This is because the “Notes Payable”, the
amount in my Balance Sheet’s Liabilities, is only principle, not interest.
No. Due
Date
Payment
Due
Interest Principal Balance Short
Term
Notes
Long
Term
Notes
Interest
Expense
Time
$15,000.00
1 3/2/14 464.87 90.63 374.24 14,625.76 4,643 10,357 n/a upon receipt of loan
2 4/2/14 464.87 88.36 376.51 14,249.25
3 5/2/14 464.87 86.09 378.78 13,870.47
4 6/2/14 464.87 83.80 381.07 13,489.40
5 7/2/14 464.87 81.50 383.37 13,106.03
6 8/2/14 464.87 79.18 385.69 12,720.34
7 9/2/14 464.87 76.85 388.02 12,332.32
8 10/2/14 464.87 74.51 390.36 11,941.96
9 11/2/14 464.87 72.15 392.72 11,549.24
10 12/2/14 464.87 69.78 395.09 11,154.15

Solventurer
11 1/2/15 464.87 67.39 397.48 10,756.67
12 2/2/15 464.87 64.99 399.88 10,356.79 0 10,357 935 end of first year
The other numbers I need for my statements are here. The Interest Payable, the payments, and the Current Notes.
Period Current
Notes
Long
Notes
Interest Annual
Payment
Year 1 $4,463 $10,357 $935 $5,578
Year 2 $4,991 $5,366 $587 $5,578
Year 3 $5,366 $0 $213 $5,578
Total $15,000
Depreciation lifespan of select equipment:
Starting
Value
Depreciation
Expense
Ending
Value
Purchase $15,000 $0 $15,000
End of Year 1 $15,000 $4,000 $11,000
End of Year 2 $11,000 $4,000 $7,000
End of Year 2 $7,000 $4,000 $3,000
By the end of year one, I’ll have depreciated my equipment by $4,000, and in the process, build my Accumulated
Depreciation by $4,000. If I were constructing my financial statements for year two, my Depreciation Expense would
again be $4,000, but my Accumulated Depreciation for this particular equipment would be $8,000.

Solventurer
XII. Calculation
A. Sources of Funding
I will use both savings and bank financing. For the $15,000 loan, I will be applying to local bank where interest rate is 7.25% and
structured over 3 years. That will give me a monthly payment of $465, which will be discussed in Step F.
Balance Sheet
The loan amount of $15,000 will be on the Balance Sheet under
Cash when disbursed. To balance the A=L+NW equation, the
Liabilities will also be $15,000. Almost 1/3 of that ($4,643) will be
Current Notes Payable (due this year), while the approximately 2/3
remaining ($10,357) will be listed as Long-Term Notes Payable. I
obviously plan to pay the Current Notes, bringing the balance to
$0. My $10,000 savings will contribute to the startup Cash also but
will increase my Net Worth by $10,000.
P&L
My Savings invested in the company doesn’t change the P&L at all,
which is used for operating income. The loan disbursement will be
responsible for an Interest Expense of $935 over the year.
Cash Flow
My Cash Flow will be STARTED by the two lump sums of money—the
loan and my savings. Every month, the Cash Flow will be affected
by taking from that initial sum of money in addition to the $465 loan
payment.
B. Startup Costs

Solventurer
Balance Sheet
Equipment and Software will be combined under the line item
Equipment and will total $15,000. Marketing startup costs will be
$5,000. Both Cash and Net Worth will be reduced to $5,000 from
these startup costs.
P&L
Equipment and Software are Assets so purchase of them are not
included on the Balance Sheet. The $5,000 Marketing startup costs
will show up under Marketing Expense.
Cash Flow
All of these will be purchased with cash, so they will all appear
under Equipment & Software at $20,000 in the startup month.
C. Marketing Costs
Balance Sheet
The monthly marketing costs of $37,600 will reduce both the Cash
and Net Worth positions to -$32,600. I am pulling equity out of my
company for marketing—I better make it worth it!
P&L All marketing costs show up on the P&L as Marketing Expenses.
Cash Flow
All my marketing will be using cash and will be reflected on the
Cash Flow. Startup marketing costs will be $10,000 in the first month
(in the same column as the loan disbursement and savings
contribution). The other expenses have different frequencies.
D. Sales, Accounts Receivable, and Uncollectible Accounts
Figuring out these is the most challenging part of the process. It would be a lot different if I was simply selling everything
cash on delivery (COD), but as a service provider, clients won’t pay me everything upfront, so I have to work with

Solventurer
Account Receivables. Furthermore, with A/R, there is the reality that not everyone will pay me as billed and have to
calculate that into my projections. See the table below for the expected Account Receivables, which were found by
multiplying the Total Sales by 25%. The other 75% is the Cash paid to start the job. To get the annual totals, I multiply the
rows by 3 (because each quarter represents the Sales and A/R for each month within the quarter). For Total Sales, it is
$7,500*3 + $9,000*3 + $12,000*3 + $15,000*3, or $130,500. The Cash Sales are $104,625, and the A/R are $34,875.
Quarter Total Sales Cash Sale A/R
Quarter 1 $7,500 $5,625 $1,875
Quarter 2 $9,000 $9,000 $3,000
Quarter 3 $12,000 $9,000 $3,000
Quarter 4 $15,000 $11,250 $3,750
Annual $130,500 $104,625 $34,875
I have to consider the Accounts Receivables all being collected in the following month. This won’t really impact my
Balance Sheet and P&L at the end of the year, but will make a difference when tracking the monthly cash flow. As
shown below, I break down Sales into Cash Sales (3/4 of the Sales) and A/R (1/4 of the Sales). I.e. in month 4, ¾ of the
$12,000 Sales gives me $9,000 in Cash Sales and ¼ of the Sales gives me $3,000 in A/R.
1 2 3 4 5 6 7 8 9 10 11 12 total
Cash
Sales
$5,625 $5,625 $5,625 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $11,250 $11,250 $11,250 $104,625
A/R for
current
jobs
$1,875 $1,875 $1,875 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,750 $3,750 $3,750 $34,875
10% of these Receivables I am predicting to be never paid, or “Uncollectible.” I need to figure out how much of this A/R
I will collect (in cash a month after billing) versus how much will be Uncollectible.

Solventurer
To see out how much cash I will eventually collect (and not collect), I need to create another line item of A/R Owed
From Last Month, which is the money owed to me from work I finished last month. You can see it’s almost always the
same as the current month Receivables except when the volume changes, i.e. month 3 to 4. This is the money that is
owed to me and collected 30 days after I complete a job. Of that money, I will not collect 10%, so I multiply the
aforementioned line by 10% to get the Uncollectible value. Finally, I subtract the difference to get the amount that I will
actually collect in cash:
1 2 3 4 5 6 7 8 9 10 11 12 total
Cash Sales $5,625 $5,625 $5,625 $9,000 $9,000 $9,000 $9,000 $9,000 $9,000 $11,250 $11,250 $11,250 $104,625
A/R for current jobs $1,875 $1,875 $1,875 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,750 $3,750 $3,750 $34,875
A/R owed from last
Month
$1,875 $1,875 $1,875 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,750 $3,750 $31,125
Uncollectibles $188 $188 $188 $300 $300 $300 $300 $300 $300 $375 $375 $3,113
Collections in Cash $1,688 $1,688 $1,688 $2,700 $2,700 $2,700 $2,700 $2,700 $2,700 $3,375 $3,375 $28,013

Solventurer
Balance Sheet
The Balance Sheet is concerned with the cash involved in
transactions, the Receivables, and the contra account,
Uncollectibles. Because I am creating an annual projected BS, I
am looking at totals here. I will bring cash into the business: the
Cash Sales and Account Receivable Collections, or $104,625 +
$28,013 = $132,168. The Accounts Receivables are the $34,875 and
the Uncollectibles are $3,113. My Net Worth is going to rise
considerably.
P&L
On the P&L, I need to show two numbers: total sales and the how
much I won’t ever collect. Accounts Receivables are not shown
here. So I will show all Sales at $130,500. I will also have a line item
called Bad Debts Expense, the same as Uncollectibles. This will be
$3,113.
Cash Flow
The Cash Flow will be monthly. The Sales on my Cash Flow will be
different than those on my P&L, as I am limiting to the cash
exchanging hands. I will have two line items on the Cash Flow—
the Cash Sales ($104,625) and the Account Receivable Collections
($28,013).
E. Direct Costs
My Direct Costs will be paid for in cash, making these easy to categorize. I need to annualize these as I did with the
Sales and A/R. The total Direct Costs for the year are $18,600, or $1,000*3 + $1,600*3+ $1,600*3 + $2,000*3.
Balance Sheet
My Cash will be reduced by $18,600. To balance the BS, I will also
decrease my Net Worth by $18,600.

Solventurer
P&L My Direct Costs will be $18,600 also.
Cash Flow
My Cash Flow is monthly and will simply have Direct Costs of $1,000
for each of the first three months, $1,600 for each of the next three
months, etc.
F. Indirect Costs
I took the table and used the numbers from it. I already did much of the math.
Rent=$0; Internet/data at $100*12 = $1,200; Hosting at $20*12=$240; Insurance at $25*12 = $300. All of this overhead is $0
+ $1,200 + $240 + $300 = $1,740
Owner Withdrawal is $2,000*6 = $24,000 for the first six months and $2,500*6 = $15,000 for the remaining six months
totaling $39,000 for the year.
Loan payments of $465 monthly. For the annual Balance Sheet, this adds to up to $5,460, which will do two things. First,
it will reduce my Cash by $5,460. It will also reduce the Current Notes Payable to $0 in month 12. Please note all the
different numbers with loan payments. $5,460 is the cash outflow of loan payments, which includes both interest and
principle. The Current Notes Payable Liability, initially at $4,643, will be reduced to zero after 12 payments. And finally,
your P&L will be affected by the interest payments (i.e. Interest Expense or Interest Payable), which adds up to $935 for
the year. I have to remind myself that Interest Expense is an accounting concept—I won’t be writing a check to
anyone for interest. I’ll be concerned with the loan payments!
Depreciation, a non-cash expense. This is $4,000 for the year, showing up on the P&L as Deprecation Expense. On the
Balance Sheet, it will also show up as Accumulated Depreciation of $4,000. Remember it doesn’t affect my Cash
position!
The cash taken out of the business—for the Cash Flow and reducing the Cash position on the Balance Sheet:
$1,740 (Overhead) + $39,000 (Withdrawal) + $5,460 (Loan Payments) = $46,200.

Solventurer
Though the table a few pages ago clearly shows where each transaction will go, this shows a little more detail:
Balance Sheet
Indirect costs—overhead—sucks the cash out of my business. From
these and paying off my Current Notes Payable, my cash position
will be decreased by $46,200. Accumulated Depreciation will be
$4,000.
P&L
The expenses are Rent=$0, Internet=$1,200, Hosting=$240, Owner
Withdrawal=$39,000, Interest Expense=$935, and
Depreciation=$4,000.
Cash Flow As shown above, the Cash Flow will be reduced by $46,200.
G. Totals
I’ll start with the Balance Sheet. In the Current Column, I’ll use my Startup Month (Steps A & B). This will include my
startup cash, the loan, and the initial equipment and software purchases. For Year 1, I will add all the above steps into
the worksheet below. As we did earlier in the ebook, each step shows the cumulative totals.
Step A shows me contributing my $10,000 in Cash and taking out a bank loan of $15,000.
Step B has a $15,000 investment in Software/Equipment, transferring the Asset from Cash to Software & Equipment.
$5,000 is spent in marketing, which effects the Cash and Net Worth (Marketing is not an Asset!)
Step C shows monthly Marketing costs, reducing the Cash and Equity by $2,800 per month, or $37,600 total. I’m not
worried about the negatives at this point because these steps are not chronological! So the Cash is reduced to $5,000 -
$37,600, or $32,600.
Step D, the most involving step. Good thing I did most of the work already! Cash will be increased by $132,638, bringing
Cash up to $100,038. Then I have to add in the Accounts Receivable which will be $34,875. Finally the Uncollectibles I

Solventurer
calculated to be -$3,113. I readjusted my Net Worth simply by balancing the equation A=L+NE. I love the way Sales
inflates my Net Worth!
Step E, the Direct Costs, is
simply taking Cash out. I
already figured the DC will be
$18,600.
Step F for the Balance Sheet
includes Accumulated
Depreciation ($4,000), which
shows my equipment/software
becoming technological
obsolete over the next year. It
decreases the value of the
Equipment and my Net Worth.
I also need to include the
overhead expenses, or the
$46,200 in costs just to maintain
my business. That will take my
Cash down to $35,238,
($81,438-$46,200.) My Net
Worth will drop from $113,200
to $67,643.
Giving me the following Projected Balance Sheet. Please not that Year 1 represents 12 AM on Dec 31st (or at a moment
in time exactly 12 months after now).
A B C D E F
Cash $25,000 $5,000 ($32,600) $100,038 $81,438 $35,238
Software & Equipment $15,000 $15,000 $15,000 $15,000 $15,000
Less A.D. ($4,000)
A/R $34,875 $34,875 $34,875
Uncollectible ($3,113) ($3,113) ($3,113)
Total Assets $25,000 $20,000 ($17,600) $146,800 $128,200 $78,000
Current Note $4,643 $4,643 $4,643 $4,643 $4,643 $0
Long Term Note $10,357 $10,357 $10,357 $10,357 $10,357 $10,357
Liabilities $15,000 $15,000 $15,000 $15,000 $15,000 $10,357
Net Worth $10,000 $5,000 ($32,600) $131,800 $113,200 $67,643
Liabilities + NW $25,000 $20,000 ($17,600) $146,800 $128,200 $78,000

Solventurer
Projected Balance Sheet
Current Year 1
Assets
Cash $10,000 $35,238
Equipment $15,000 $15,000
Less Accumulated Depreciation $0 ($4,000)
Total Equipment $15,000 $11,000
Uncollectible @ 10% $0 ($3,113)
Total Assets $10,500 $78,000
Liabilities
Current Notes $4,643 $0
Long Term Notes $10,357 $10,357
Total Liabilities $15,000 $10,357
Net Worth $4,500 $67,643
P&L for first 12 months
Income
Sales $130,500
Less Direct Costs $18,600
Expenses
Rent $0
Internet/data $1,200
Hosting $240
Marketing $37,600
Insurance $300
Bad Debts $3,113
Depreciation $1,200
Net Income Before
Tax
$40,312

Solventurer
The Cash Flow Projection:
Month startup 1 2 3 4 5 6
Starting Balance $10,000 $20,000 $18,245 $20,178 $22,110 $27,418 $33,738
Cash In
Cash Sales $5,625 $5,625 $5,625 $9,000 $9,000 $9,000
Collections from
Credit accounts
$1,688 $1,688 $1,688 $2,700 $2,700
Receive Loan $15,000
Total Cash In $15,000 $5,625 $7,313 $7,313 $10,688 $11,700 $11,700
Cash Out
Direct Costs
(Transport, printing)
$1,000 $1,000 $1,000 $1,600 $1,600 $1,600
Equipment/Software $15,000
Rent $0 $0 $0 $0 $0 $0
Internet/data $100 $100 $100 $100 $100 $100
Marketing $5,000 $4,800 $2,800 $2,800 $2,800 $2,800 $4,800
Insurance $25 $25 $25 $25 $25 $25
Loan Payment $455 $455 $455 $455 $455 $455
Owner Withdrawal $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Total Cash Out $5,000 $7,380 $5,380 $5,380 $5,380 $5,380 $7,380
Net Cash $10,000 -$1,755 $1,933 $1,933 $5,308 $6,320 $4,320
Ending Cash $20,000 $18,245 $20,178 $22,110 $27,418 $33,738 $38,058

Solventurer
Month 7 8 9 10 11 12 total
Starting Balance $38,058 $43,878 $49,698 $55,518 $63,588 $72,333
Cash In
Sales $9,000 $9,000 $9,000 $11,250 $11,250 $11,250 $104,625
Collections from
Credit accounts
$2,700 $2,700 $2,700 $2,700 $3,375 $3,375
$28,013
Receive Loan $15,000
Total Cash In $11,700 $11,700 $11,700 $13,950 $14,625 $14,625 $147,638
Cash Out
Direct Costs $1,600 $1,600 $1,600 $2,000 $2,000 $2,000 $18,600
Equipment/Software $15,000
Rent $0 $0 $0 $0 $0 $0 $0
Internet/data $100 $100 $100 $100 $100 $100 $1,200
Marketing $2,800 $2,800 $2,800 $2,800 $2,800 $2,800 $37,600
Insurance $25 $25 $25 $25 $25 $25 $300
Loan Payment $455 $455 $455 $455 $455 $455 $5,460
Owner Withdrawal $2,500 $2,500 $2,500 $2,500 $2,500 $2,500 $27,000
Total Cash Out $5,880 $5,880 $5,880 $5,880 $5,880 $5,880 $71,560
Net Cash $5,820 $5,820 $5,820 $8,070 $8,745 $8,745 $71,078
Ending Cash $43,878 $49,698 $55,518 $63,588 $72,333 $81,078

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