128 Innovation Capital Group (128 ICG) - Presented Compelling Financials for Your Investor

1. 1/9/2014
Thank you Annette!
COPYRIGHT © 2014
AB C Company, Inc.
Es timate d State me nt of Ope rations
For The Years Ended December 31, 2010. 2011, 2012, and 2013
Dollars (000's omitte d)
2010
2011
Pe rce nt (%) of Re ve nue
2012
2013
2010
2011
2012
2013
Re ve nue :
Installation Revenue
$
450
$
3,825
$
21,038
$
73,633
77.1%
84.3%
82.3%
80.6%
Non-Installation Revenue
Service Fees
$
89
$
623
$
4,361
$
17,444
15.2%
13.7%
17.1%
Other Non-Installation Revenue
$
45
$
90
$
158
$
237
7.7%
2.0%
0.6%
0.3%
Total Revenue:
$
584
$
4,538
$
25,557
$
91,314
100.0%
100.0%
100.0%
100.0%
19.1%
Installation Costs
$
2,678
$
36,817
57.9%
59.0%
49.4%
40.3%
Non-Installation Costs
Dire ct Cos ts:
338
$
12,623
$
$
38
$
193
$
1,175
$
4,420
6.5%
4.3%
4.6%
4.8%
Direct Costs:
$
376
$
2,871
$
13,798
$
41,237
64.4%
63.3%
54.0%
45.2%
Othe r Cos t of Se rvice s
$
88
$
567
$
2,556
$
6,849
15.1%
12.5%
10.0%
7.5%
Gros s M argin ($)
$
120
$
1,100
$
9,203
$
43,228
20.5%
24.2%
36.0%
47.3%
25.0%
20.0%
Gross Margin (%)
20.5%
24.2%
36.0%
47.3%
Ope rating Expe nse s:
Sales
$
Research & Development
General & Administration
Total Operating Expenses:
EBITDA
292
$
263
$
175
$
$
44
$
$
774
$
4,242
$
Marketing
$
1,588
$
18,263
$
1,361
$
5,111
$
13,697
45.0%
30.0%
20.0%
998
$
2,811
$
8,218
30.0%
22.0%
11.0%
295
(654)
$
$
1,533
$
4,566
7.5%
6.5%
6.0%
5.0%
$
15,844
$
44,744
132.5%
93.5%
62.0%
49.0%
$
(6,641)
$
(1,516)
-112.0%
-69.2%
-26.0%
-1.7%
13.7%
3.4%
0.1%
0.1%
(3,142)
$
6,389
50.0%
35.0%
15.0%
9.0%
Othe r (Re ve nue ) & Expe ns e s :
Interest
Taxes
$
$
Depreciation & Amortization
$
Total Other (Revenue) & Expenses
$
Ne t Income (Loss )
$
80
$
8
$
1.4%
0.2%
0.0%
0.0%
13
$
67
$
268
$
874
2.2%
1.5%
1.0%
1.0%
$
232
$
311
$
969
17.3%
5.1%
1.2%
1.1%
-129.3%
-74.3%
-27.2%
-2.7%
101
(755)
$
156
$
9
$
(3,374)
32
$
11
$
$
(6,952)
$
12,205
$
80
15
(2,485)
State me nt Note s :
Re ve nue
Market 1
$
43
$
2,320
46,232
7.4%
51.1%
47.8%
50.6%
Market 2
$
230
$
1,201
$
7,652
$
26,450
39.4%
26.5%
29.9%
29.0%
Market 3
$
256
$
932
$
3,250
$
12,658
43.8%
20.5%
12.7%
13.9%
Market 4
$
55
$
85
$
2,450
$
$
5,974
9.4%
1.9%
9.6%
6.5%
Total Re ve nue
$
584
$
4,538
$
25,557
$
91,314
He adcount
Existing
New Hires
Total Headcount
$
$
$
13.00
5.00
18.00
$
$
$
18.00
43.00
61.00
$
$
$
61.00
237.00
298.00
$
298.00
$
830.00
$ 1,128.00
Capital Expe nditure s
$
126.00
$
424.00
$ 1,584.00
$ 4,474.00
COPYRIGHT © 2010
COPYRIGHT © 2014
1

2. 1/9/2014
Rule #1:
If you cannot read the
financial statement from two
feet away the font is
too small
(too many details)
COPYRIGHT © 2014
ABC Company, Inc.
Projected Statement of Operations
For The Years Ended December 31, 2010. 2011, 2012, and 2013
Dollars (000's omitted)
2010
2011
2012
2013
Revenue:
Market 1
$
43.00 $
Market 2
$
230.00 $
1,201.00 $
2,320.00 $ 12,205.00 $ 46,232.00
7,652.00 $ 26,450.00
Market 3
$
256.00 $
932.00 $
3,250.00 $ 12,658.00
Market 4
$
55.00 $
85.00 $
2,450.00 $
5,974.00
Total Revenue
$ 584.00
$ 4,538.00
$ 25,557.00
$ 91,314.00
Gross Margin ($)
$ 120.00
$ 1,100.00
$ 9,203.00
$ 43,228.00
Gross Margin (%)
20.5%
24.2%
36.0%
47.3%
Operating Expenses:
Sales & Marketing
$
555.00 $
Research & Development
$
175.00 $
998.00 $
2,811.00 $
8,218.00
General & Administration
$
44.00 $
295.00 $
1,533.00 $
4,566.00
$
774.00 $
Other Expense/(Income)
$
101.00
Net Income (Loss)
$ (755.00) $ (3,374.00) $ (6,952.00) $ (2,485.00)
Stateme nt Notes:
Headcount
Existing
New Hires
Total Headcount
$
$
$
Capital Expenditures
$
Total Operating Expenses:
$
2,949.00 $ 11,500.00 $ 31,960.00
4,242.00
$ 15,844.00
232.00 $
$ 44,744.00
311.00 $
969.00
13.00 $
5.00 $
18.00 $
18.00 $
43.00 $
61.00 $
61.00 $
237.00 $
298.00 $
298.00
830.00
1,128.00
126.00 $
424.00 $
1,584.00 $
4,474.00
COPYRIGHT © 2014
2

3. 1/9/2014
Rule #2:
Pennies are only for
accounting auditors
COPYRIGHT © 2014
ABC Company, Inc.
Estimate d State ment of Operations
For The Years Ended December 31, 2010. 2011, 2012, and 2013
Dollars (000's omitte d)
2010
2011
2012
2013
Revenue:
Market 1
$
43 $
2,320 $
12,205 $
46,232
Market 2
$
230 $
1,201 $
7,652 $
26,450
12,658
Market 3
$
256 $
932 $
3,250 $
Market 4
$
55 $
85 $
2,450 $
Total Reve nue
$
Gross Margin ($)
$
Gross Margin (%)
5,974
584
$
4,538
$
25,557
$
91,314
120
$
1,100
$
9,203
$
43,228
20.5%
24.2%
36.0%
47.3%
Ope rating Expense s:
$
555 $
Research & Development
$
175 $
998 $
2,811 $
8,218
General & Administration
Sales & Marketing
$
44 $
295 $
1,533 $
4,566
Total Operating Expenses:
$
774
$
2,949 $
4,242
$
$
11,500 $
15,844
$
311
$
31,960
44,744
Other Expense/(Income)
$
101 $
232
Net Income (Loss)
$
(755) $
(3,374) $
(6,952) $
969
Statement Notes:
Headcount
Existing
New Hires
Total Headcount
$
$
$
13 $
5 $
18 $
18 $
43 $
61 $
61 $
237 $
298 $
298
830
1,128
Capital Expe nditure s
$
126 $
424 $
1,584 $
4,474
(2,485)
COPYRIGHT © 2014
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4. 1/9/2014
Rule #3:
Use $ (dollar signs) on the
first and last row only.
Unless, of course, you are
mixing rows of $ and %, etc.
COPYRIGHT © 2014
FORMAT CREDIBILITY
The presentation format does
not interfere with (or create
noise for) the reader
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5. 1/9/2014
ABC Company, Inc.
Projected Statement of Operations
For The Years Ended December 31, 2010 through 2013
Dollars
Revenue:
2,320 $
12,205 $
Market 2
Market 1
$
230
1201
7652
26450
Market 3
256
932
3250
12658
Market 4
55
85
2450
5974
584
4538
25557
91314
Total Revenue
Gross Margin ($)
43 $
46,232
120
1100
9203
43228
20.5%
24.2%
36.0%
47.3%
Sales & Marketing
555
2949
11500
31960
Research & Development
175
998
2811
8218
General & Administration
44
295
1533
4566
774
4242
15844
44744
Gross Margin (%)
Operating Expenses:
Total Operating Expenses:
Other Expense/(Income)
Net Income (Loss)
101
Statement Notes:
Headcount
Existing
New Hires
Total Headcount
Capital Expenditures
$
232
311
(755) $
(3,374) $
(6,952) $
(2,485)
13
5
18
$
18
43
61
61
237
298
298
830
1,128
126 $
424 $
1,584 $
969
4,474
COPYRIGHT © 2014
Rule #4:
Use column headings that
make sense
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6. 1/9/2014
Rule #5:
Numbers with thousands or
millions must have commas
This:
54,556
Not this: 54556
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Rule #6:
Don’t mix fonts
Or font
size……
And do not use a silly font
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7. 1/9/2014
Rule #7
Spelle Check
And do not tell me you relied
on Microsoft…….
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Rule #8:
Text is left justified
Numbers are right justified
Violators confuse the reader
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8. 1/9/2014
Rule #9:
Do not overdo color
and
Do not highlight in
Use Spot color!
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Rule #11:
Round your numbers to the
nearest thousand for
presentations
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9. 1/9/2014
Financials in your Slide deck
are a Marketing Effort!
Really?
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Provide cost-effective outsourced CFO support
Clients range from pre-revenue startups to later stage
privately held companies
Goals
(1) educate entrepreneurs to understand and
consider financial opportunities and implications
(2) handle all accounting/ financial matters so the
entrepreneurs can focus on driving the business
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10. 1/9/2014
David A. Fogel, CPA
Serial entrepreneurial CFO
Managing Director of Swifton CFOs LLC (since 2009)
Experience with high tech companies ranging from biotech to
telecom to healthcare IT to social media to…
Adjunct Instructor of Master’s Program:
Presenter & Mentor:
Member:
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Introducing the Financial Statements
• Balance Sheet
• Profit and Loss Statement
• Cash Flow Statement
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11. 1/9/2014
Balance Sheet
What you own/owe – point in time
Assets = Liabilities + Equity
Assets are good?
Capital expenditures (Fixed Asset) rule
Amount => $5,000 AND useful life > one year
Liabilities – Disclose, disclose, disclose
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Profit and Loss Statement
(Statement of Operations)
• What you earned
• Could represent cash activities but usually much
more……
• Management accounting can be more
informative, but need to have GAAP
• Earnings can be managed, but cash is a reality…
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12. 1/9/2014
Cash Flow Statement
• Where your cash came and went:
• Operations, Investing, or Financing
• Cash in the bank is a fact
• Investors are most interested in your use of $$
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Developing The Financial Forecast
1. Defined
2. What about the assumptions?
3. Creating the sales forecast
4. Spreading the numbers
5. Creating the statements
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13. 1/9/2014
Ty Danco
Member, Mass Medical Angels
Member, North Country Angels
"I'll never believe your revenue numbers
anyway, but I sure want to scrutinize your
assumptions and expenses!"
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Developing The Financial Forecast
1.What are financial projections?
Collection of statements that present
your business in numbers (IS, BS, CF, Cap)
“Does the story make sense?”
“Does the story add up?”
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14. 1/9/2014
Set your goals from top down
but…..
Prepare the model from the bottom up
then….start over
with your top down goals
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Developing The Financial Forecast
2. What about the assumptions?
Document the source of each number you produce - Why?
- Knowledge of the assumptions proves that the
entrepreneur understands the business
- Prove it to yourself
Sources of assumptions
- Desired goal to be obtained
- Primary market research – surveys, vendor quotes
- Second market research – purchased or gov’t information
- Estimated or best guess (really try not to SWAG)
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15. 1/9/2014
Developing The Financial Forecast
2. What about the assumptions? (part 2)
Start-up costs (uses of $)
Financing (sources of $)
Capital expenditures (costs with >1 yr life)
Fixed expense (cost of being in business)
Variable expense (cost of doing business)
Projected sales (anticipated revenue earned)
Cash flow (anticipated $ received and spent)
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Start-up cost assumptions
• Expenses up to the point when you are open
for business…….which is when?
• List uses of money – describe how spent
• Like: Fixed assets & Working Capital
• Examples?
Fixed Assets = Equipment, Furniture
Working Capital = Rental deposits, Insurance
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16. 1/9/2014
Financing assumptions
• Sources where $ will come from
• Where?
Entrepreneur and team
F&F
Bank loan (though not likely for start-ups)
Debt from owner or outside creditor
Non-dilutive financing (maybe
)
Equity capital
• For loan – know amount, terms of repayment
(mos), and rate of interest or return
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Capital Expenditures
(aka Fixed Assets)
• Costs that have a “lifetime” greater than one year
AND an individual or collective cost greater than $2k
• Predict some fixed assets by headcount, some by
significant changes in sales volume, some by
changes in product lines, etc.
• Examples: Leasehold improvements, Furniture &
fixtures, Machinery
• Note: Expense the PCs & Macs & iPads
(but keep track of them anyway)
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17. 1/9/2014
Fixed cost assumptions
•
•
•
•
•
Costs of being in business
Do not vary by sales volume (i.e. day-to-day)
But DO increase as the business scales
Create fixed cost projections on monthly basis
Research through correspondence with outside
vendors
• Record the source & amount from each
vendor……..
• Examples: Rent, Utilities, Salaries, Benefits,
Marketing expenses, Administrative expenses
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Variable cost assumptions
•
•
•
•
Costs of doing business
May vary directly with sales volume
DO increase as the business scales
Expenses incurred with the next “unit” of
product or service
• Research through correspondence with outside
vendors
• Examples: Materials, direct/indirect labor, and
shipping costs
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18. 1/9/2014
Projected sales assumptions
What product(s) and/or service(s)
Quantities
Price
When (seasonality/cyclicality)?
T&C’s
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Cash flow assumptions
• Convert your business activity to cash activity
• When will cash be collected from customers?
May vary by product line and by customer
Generally assume 45 days---though currently
customers are extending to 60 days
• When do you pay your vendor’s invoices?
May vary by product line and by vendor
Generally assume 30-45 days
Need to create “referenceable” vendors
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19. 1/9/2014
Ben Littauer
Member, Boston Harbor Angels
"I like to see a business model spreadsheet with
the assumptions clearly called out as variables.
Then I can twiddle the knobs and see how
sensitive profits are to the assumptions."
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Developing The Financial Forecast
3. Creating the sales forecast
BEST - Predict by customer as detailed as
possible
….but include customer turnover
BETTER – Predict by market
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20. 1/9/2014
Developing The Financial Forecast
3. Creating the sales forecast (part 2)
How do I start? Market research!
• Trade associations
• Primary & secondary research
• Gov’t resources
US Census Bureau
IRS Statistical Data
Select your geography
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Developing The Financial Forecast
3. Creating the sales forecast (part 3)
Predict by client (customer) types
• By market
• By size
Then ID certain characteristics
Small
Client
Medium Large
Client
Client
Average Hours Per
Week
4 Hours 8 Hours
16 Hours
Average Contract $
Per Week
$500
$2,500
$1,250
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21. 1/9/2014
Developing The Financial Forecast
3. Creating the sales forecast (part 4)
Predict using Sales staff
• Assume lag time (3-6 mos.)
• Estimate the pipeline
• # of calls / meetings per staff
• # of sales per staff
• Remember: Not all staff start same date
• Spread out the volume by month – with
realistic goals
• ….Consider turnover of sales staff
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Forecast Trap:
Why they call them “Gross Sales”
• Returns
• Discounts
• Coupons
• Rebates
• Chargebacks
• Markdowns
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22. 1/9/2014
Forecast Trap:
Do not over-estimate
first year revenue
(what, we can’t sell millions in first month?)
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Developing The Financial Forecast
4. Spreading the Numbers
• Yes, you need to do it monthly -- for the entire period
• Avoid flat numbers – consider the meaning – use %
increases or $ per some type of unit
• Think: As headcount increases rent increases
(just not variably)
• Start with revenue, then cost of services
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23. 1/9/2014
Tip:
Integration
Must use an integrated model
Headcount added
Payroll and benefits calculation
Summarized employee costs
Income Statement
Cash Flow
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Tip:
Use Rounding
Use the MS Excel “rounding
function” --- otherwise your
numbers may not add up
(and some people are really a pain about this……)
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24. 1/9/2014
Question?
Is the methodology
Accrual or Cash?
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Tip:
Project payroll & benefits in detail
• Payroll & benefits are often the most costly
expense yet they are often neglected
• Project monthly to handle start dates
correctly (everyone cannot start in January)
• Match people adds with milestones
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25. 1/9/2014
Tip:
Projection Numbers are not separate from
the Company Plans
Company Plans
Milestone
Projects
Responsible
Revenue/
Cost
Dates
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Multiple Model Trap:
One investor model,
Multiple options (triggers)
But…why not?
Fundamental changes made in base model
will not be reflected in the clones
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26. 1/9/2014
Tip:
Don’t forget the…..
Sales commissions – Direct connect them to your
sales staff’s (or sales rep) sales
Bonuses – Include with payroll
Recruiting expenses – Peg them to change in new
employees
Debt - Many forget to include Interest Expense on
the income statement even though the Company
has incurred Debt
COPYRIGHT © 2014
Presentation Suggestions
Steady, consistent evolution of the model
Revenue growth in $
Expenses over time in %
Know the % change for major components
(and be able to explain them)
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27. 1/9/2014
Tip:
Reasonableness
1. Once you think you are done take the
smell test --- Do the numbers really make
sense (i.e. can you really increase revenue
w/o an increase in costs)?
2. Do the Like-Kind test. Compare your
“metrics” versus your competition
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Creating the Statements
1. Consider it a Marketing Effort
2. Present the Pro-Forma Financial
Statement
3. Graph the Revenues, Income, and Cash
4. Present the Headcount
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28. 1/9/2014
ABC Co.
($ 000's omitted)
2010
2011
2012
2013
2014
$ 1,875
1,162
712
$ 44,953
12,739
32,214
$ 108,238
5,369
102,868
$ 180,161
180,161
Pro Forma Financial Statement
Revenue
Cost of Service
Gross Margin
$
-
38%
72%
95%
Income
Statement
100%
Operating Expenses
Employee Costs
Professional Fees
Marketing & Travel
Administrative Expenses
Development & Pilot Manufacturing
Facility & Other
Total Expenses
1,303
253
61
60
409
195
2,282
2,972
637
525
55
819
801
5,807
3,587
1,780
2,340
232
262
1,206
9,407
4,198
1,230
293
41
965
1,612
8,340
4,379
1,135
658
47
1,733
2,023
9,976
Depreciation & Amortization
EBIT
42
(2,324)
98
(5,193)
301
22,507
590
93,939
791
169,394
Net Income
(2,639)
(5,411)
16,893
55,530
100,603
0%
-289%
38%
51%
56%
(2,597)
(31)
(57)
7,000
(5,313)
(936)
(297)
-
17,193
(2,879)
(1,052)
42,000
56,120
(2,754)
(607)
-
101,393
(3,437)
(600)
-
Cash Flow
Statement
Pro Forma Cash Flow
Cash from
Cash from
Cash from
Cash from
Operations
Working Capital
Investments
Financing
Net Cash Flow
Ending Cash
4,315
$ 6,644
$
(6,545)
99
55,262
$ 55,360
52,759
$ 108,119
97,357
$ 205,476
COPYRIGHT © 2014
ABC Company – Financials by Year
($000’s omitted)
$225,000
Seeking $250k Investment
Milestone #1
Prototype
$175,000
Milestone #2
Pilots
Milestone #3
Commercialization
$125,000
Revenue
Income
Cash
$75,000
$25,000
2010
2011
2012
2013
2014
($25,000)
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29. 1/9/2014
Universal Truths:
1. Project monthly, Present annually
2. Projections constantly change,
let them. Not an annual exercise.
Develop as a monthly exercise.
3. Financials must be consistent with rest
of presentation
4. P&L Income ≠ Cash Flow
(we know this right?)
COPYRIGHT © 2014
Don’t let Gust blow you away………
TM
1. Set forecast in stone
2. Complete the boxes
3. Consistent with other docs and
financials
4. Be able to back it up (details?)
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30. 1/9/2014
Thank you!
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31. 1/9/2014
Contact Information:
Email:
Website:
Twitter:
Phone:
Cell:
COPYRIGHT © 2014
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32. 1/9/2014
COPYRIGHT © 2014
Even More Universal Truths:
• Be consistent – Don’t portray cost
categories (or individuals)
differently by year
• Have “Checks”
• Do not need to be hung up with
GAAP, but….don’t go rogue
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