Financial Projections for Presentations
Heather	
  Onsto,	
  
Today’s	
  Speakers	
  
•  Senior	
  Controller	
  
Consultant,	
  Venture	
  
Advisors	
  
•  CPA	
...
Financial	
  Projec>ons:	
  WIFM?	
  
Today’s	
  presenta>on	
  will	
  focus	
  on	
  the	
  how	
  and	
  why	
  of	
  
...
Financial	
  Projec>ons:	
  3	
  Objec>ves	
  
1.  Force	
  discipline	
  and	
  objec>vity	
  through	
  crea>ng	
  a	
  ...
Building	
  Projec>ons:	
  Yeah,	
  but…	
  
I’ve	
  heard	
  that	
  I	
  don’t	
  really	
  have	
  to	
  build	
  a	
  ...
Building	
  Projec>ons:	
  Pulp	
  fic>on?	
  
Projec8ons	
  are	
  just	
  imaginary	
  anyway,	
  so	
  what	
  does	
  i...
Building	
  Projec>ons:	
  What	
  if…	
  
Scenario	
  planning	
  is	
  just	
  worst-­‐case	
  (out	
  of	
  business),	...
More	
  on	
  Scenario	
  Planning…	
  
Worst-­‐case	
  scenarios	
  should	
  answer	
  “What	
  happens	
  if	
  there	
...
Building	
  Projec>ons:	
  Common	
  Terms	
  
•  Revenue/Sales	
  
•  COGS	
  	
  
•  Gross	
  Profit/Margin	
  
•  Opera>...
Building	
  Projec>ons:	
  How	
  it	
  works	
  
•  Fundamental	
  components	
  of	
  model:	
  
•  Profit	
  &	
  Loss	
...
Building	
  Projec>ons:	
  Let’s	
  get	
  started…	
  
Es>mate	
  1%	
  of	
  $100	
  
bazillion	
  market	
  
share	
  
...
Projec>ons:	
  Start	
  with	
  Revenue	
  
Take	
  a	
  “Bo,oms	
  Up”	
  approach	
  
•  Ex:	
  We	
  have	
  tracked	
 ...
Include	
  details	
  of	
  relevant	
  expenses/ac>vi>es	
  
related	
  to:	
  
  Selling	
  
  Marke>ng	
  
  Enginee...
Projec>ons:	
  Add	
  in	
  expenses	
  
•  Payroll	
  expenses	
  
– Salaries	
  and	
  payroll	
  taxes	
  
– Other	
  c...
Projec>ons:	
  Other	
  considera>ons	
  
•  You'll	
  need	
  space	
  one	
  day	
  that	
  isn't	
  free	
  
•  It	
  i...
Projec>ons:	
  final	
  checks	
  
•  Look	
  for	
  gradual	
  (realis>c)	
  P&L	
  improvement	
  over	
  
>me	
  
•  EBI...
Pitching	
  projec>ons:	
  What’s	
  the	
  “ask”?	
  
Financial	
  projec>ons	
  need	
  to	
  >e	
  to	
  the	
  amount	...
Pitching	
  Projec>ons:	
  Rookie	
  moves	
  
–  CTRL+C+P	
  en>re	
  excel	
  model	
  into	
  a	
  slide	
  
–  Using	
...
Pitching	
  Projec>ons:	
  Expert	
  moves	
  
•  Know	
  your	
  audience	
  
–  The	
  earlier	
  you	
  are	
  in	
  th...
Bad	
  Example	
  
Revenue
Custom	
  runners 	
  $	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  480,000	
   624,000	...
Good	
  Example	
  -­‐	
  Financial	
  Projec>ons	
  
Stream 2
Licensing
Stream 1
Equipment
Lease space
Salaries
22	
  
Good	
  Example	
  –	
  “Breakeven	
  2015”	
  
Raise
$750K
Raise
$3 MM
Financial projections for investment presentations
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Financial projections for investment presentations

  1. 1. Financial Projections for Presentations
  2. 2. Heather  Onsto,   Today’s  Speakers   •  Senior  Controller   Consultant,  Venture   Advisors   •  CPA   •  Prior  Controller,   Accoun>ng   Manager  at  several   area  startups/high   growth  companies   •  BS,  UVM;  MSA/MBA   Northeastern   •  Venture  Partner,   former  Director  of   Small  Business  with   LaunchCapital   •  Interim  CEO  of  the   Nanny  Caddy,  a   LaunchCapital   porMolio  company   •  Over  20  years   experience  in  small   business  finance   •  BA,  Wofford  College;   MBA,  Dartmouth   Heather  Shanahan  
  3. 3. Financial  Projec>ons:  WIFM?   Today’s  presenta>on  will  focus  on  the  how  and  why  of   building  and  pitching  financial  projec>ons   • How:    Crea>ng  financial  projec>ons  using  a  spreadsheet  and  some   common  accoun>ng  knowledge  shows  you  where  to  focus  your   resources   • Why:    Crea>ng  financial  projec>ons  shows  investors  that  you  have   carefully  considered  all  financial  implica>ons  
  4. 4. Financial  Projec>ons:  3  Objec>ves   1.  Force  discipline  and  objec>vity  through  crea>ng  a   methodical  approach   2.  Demonstrate  thorough  understanding  of  your   company’s  business  model   3.    Provide  answers  to  “what  if?”  
  5. 5. Building  Projec>ons:  Yeah,  but…   I’ve  heard  that  I  don’t  really  have  to  build  a  business  plan  with   financial  projec8ons  because  no  one  actually  reads  it…   •  Business  plans  with  financial  projec>ons  are  necessary…       –  Bo,oms-­‐up  vs.  Top-­‐down   –  HINT:  You're  trying  to  talk  yourself  out  of  this!   •  Financial  projec>ons  are  a  key  por>on  of  the  due  diligence   most  investors  perform   FOR  YOU   Investors  are  more  interested  in  the  assump1ons  made  when   building  financial  projec1ons,  not  the  exact  bo;om  line  
  6. 6. Building  Projec>ons:  Pulp  fic>on?   Projec8ons  are  just  imaginary  anyway,  so  what  does  it  maCer   what  I  put  in?   A  common  mistake  is  to  have  illogical  numbers  in  the  projec>ons   –  All  numbers  should  be  >ed  to  your  growth  assump>ons   •  Ex  1:  If  sales  cycle  is  6  weeks,  should  there  be  sales  in  month  1?   •  Ex  2:  If  business  is  seasonal,  should  growth  be  smooth  in  every  month?   –  All  numbers  should  >e  with  a  rough  cash  flow  statement   •  Either  a  separate  tab  or  at  the  bo,om  of  the  P&L   Projec1ons  that  have  not  been  planned  properly  make  investors   ques1on  your  understanding  of  your  business  model  
  7. 7. Building  Projec>ons:  What  if…   Scenario  planning  is  just  worst-­‐case  (out  of  business),  expected   (what  I  really  think  will  happen),  and  best-­‐case  (Google  buys  us   for  a  bazillion  dollars),  right?   Focus  on  YOUR  key  success  metrics  to  drive  scenario  planning   –  Sales  trac>on   –  Gross  margins   –  Incremental  headcount   Fundraise  amount  range  should  encompass  most  likely  scenarios  to   avoid  expensive  “Bridge”  or  “A-­‐1”  rounds  
  8. 8. More  on  Scenario  Planning…   Worst-­‐case  scenarios  should  answer  “What  happens  if  there  is   no  outside  capital?”   –  if  the  answer  isn't  'grow  slower',  is  this  a  pipe  dream?   Best-­‐case  scenarios  should  answer  “What  does  this  business   look  like  if  everything  goes  right?”   –  if  the  answer  isn’t  a  huge  financial  win  for  your  investor,  is  this  a  pipe   dream?   Most-­‐likely  scenarios  should  answer  “What  does  this  business   look  like  following  comparable  companies’  growth  paths?”   –  if  the  answer  isn’t  able  to  be  funded  with  the  current  “ask”,  is  this  a   pipe  dream?   Goldilocks  got  it  right:  examine  all  op1ons!  
  9. 9. Building  Projec>ons:  Common  Terms   •  Revenue/Sales   •  COGS     •  Gross  Profit/Margin   •  Opera>ng  expenses   •  EBITDA   •  Cash  flow  breakeven   •  Working  capital   •  Burn  rate  
  10. 10. Building  Projec>ons:  How  it  works   •  Fundamental  components  of  model:   •  Profit  &  Loss     •  Balance  Sheet   •  Cash  Flow   •  Above  schedules  should  be  presented  by  month   •  Have  an  assump8ons  page:  this  allows  flexibility  –  change   assump>ons  for  different  growth  scenarios   •  Assump>ons  are  the  backbone  of  your  projec>ons,  so  you   should  know  them  COLD   Excel  is  your  friend,  but  be  careful  with  cell   references  –  it’s  easy  to  make  a  mistake!  
  11. 11. Building  Projec>ons:  Let’s  get  started…   Es>mate  1%  of  $100   bazillion  market   share   JUST KIDDING!
  12. 12. Projec>ons:  Start  with  Revenue   Take  a  “Bo,oms  Up”  approach   •  Ex:  We  have  tracked  X  unique  visitors  to  our  website   and  with  an  industry  averages  2%  conversion  rate,   sales  will  be  Y.   •  Ex:  Survey  revealed  customers  are  willing  to  pay  $X   for  a  product  with  Y  features.   •  Ex:  Q4  sales  were  $X.  With  a  customer  acquisi>on   cost  of  $Y,  we  expect  a  20%  growth  rate  as  a  result  of   marke>ng  efforts   •  All  revenue  projec>ons  must  be  backed  up  with  a   sales  plan   Econ  101:  revenue  =  price  *  volume.    Knowing  which  element  is   driving  your  company’s  revenue  is  a  key  metric.  
  13. 13. Include  details  of  relevant  expenses/ac>vi>es   related  to:     Selling     Marke>ng     Engineering  &  Development     COGS     General  &  Administra>ve   Determine  headcount  first  then  build  expenses   around  that   Projec>ons:  Add  in  expenses  
  14. 14. Projec>ons:  Add  in  expenses   •  Payroll  expenses   – Salaries  and  payroll  taxes   – Other  compensa>on  (bonuses,  commission)   – Fringe  benefits   – Variable  expenses  (T&E’s)   •  Legal  and  Accoun>ng   •  Insurance  
  15. 15. Projec>ons:  Other  considera>ons   •  You'll  need  space  one  day  that  isn't  free   •  It  is  illegal  to  hire  someone  and  not  pay  them   •  Equity  +  cash  =  total  compensa>on   •  As  equity  values  increase,  cash  compensa>on  should  increase  as   the  less  expensive  long-­‐run  pay  op>on  (this  means  you  are   WINNING!)   •  Research  how  much  things  cost  –  don’t  guess!   •  Call  your  iden>fied  suppliers  for  costs,  terms  of  materials  and   development  costs  
  16. 16. Projec>ons:  final  checks   •  Look  for  gradual  (realis>c)  P&L  improvement  over   >me   •  EBITDA  excludes  expenses  that  are  not  core  to  a   company’s  opera>ons;  allows  for  comparisons   without  regard  to  capital  structure.   •  EBITDA  measures  the  progression  of  the  business  but   cash  flow  is  ul>mately  what  the  investors  look  for   •  Consider  reasonableness  of  when  you  get  to  cash   flow  breakeven  and  the  total  cash  you  are  asking   for.    Does  it  make  sense?  
  17. 17. Pitching  projec>ons:  What’s  the  “ask”?   Financial  projec>ons  need  to  >e  to  the  amount  of  the  raise   –  Fundraising  takes  >me,  so  12-­‐18  months  of  cash  per  raise   –  Iden>fy  milestones  to  be  hit  and  cost  of  each  one   –  The  sum  of  those  milestone  costs  is  the  raise  amount   –  The  "cushion"  in  the  raise  is  not  X%,  it's  the  cost  difference  in   the  most  likely  scenarios   The  secret  to  life  is  “t”   –  “t”  is  the  variable  for  “>me”  in  mathema>cal  equa>ons…  and   >me  in  projec>ons  is  everything  
  18. 18. Pitching  Projec>ons:  Rookie  moves   –  CTRL+C+P  en>re  excel  model  into  a  slide   –  Using  anything  less  than  18-­‐point  font     –  Li,ering  clipart  from  1995…  or  2013   –  Sta>ng  projec>ons  to  the  $.01   –  Failing  to  summarize  projec>ons   –  Using  ANY  of  the  following  phrases:   •  “conserva>vely  es>mated…”   •  “at  only  X%  of  the  market…”   •  “with  no  compe>>on…”   –  Forgexng  to  explain  what  the  amount  you  raise  achieves   –  Relying  on  a  short-­‐term  exit  at  a  high  mul>ple  
  19. 19. Pitching  Projec>ons:  Expert  moves   •  Know  your  audience   –  The  earlier  you  are  in  the  development  of  your  business,   the  more  interested  in  your  assump>ons  the  investors   are…so  know  you’ll  be  discussing  them  in  detail.     Painstaking  detail.     •  Be  rich,  not  king   –  Does  a  new  hire  cut  costs  or  increase  revenue?    This  will   drive  the  >ming  of  a  new  hire.   •  Don’t  forget  that  headcount  is  a  step-­‐func>on     •  What  is  B/E  expecta>on  for  a  new  hire?   –  Good  metric  for  HC  is  sales/employee  –  these  numbers  are   benchmarked  and  available  with  some  research.  
  20. 20. Bad  Example   Revenue Custom  runners  $                          480,000   624,000   811,200   1,054,560   1,370,928   Standard  runners 60,000   78,000   101,400   131,820   171,366   Total  Revenue  $                          540,000    $        702,000    $        912,600    $  1,186,380    $  1,542,294   COGS Custom  runners  $                          120,000    $        156,000    $        202,800    $        263,640    $        342,732   Standard  runners 39,000   50,700   65,910   85,683   111,388   Total  COGS  $                          159,000    $        206,700    $        268,710    $        349,323    $        454,120   GROSS  PROFIT  $                          381,000    $        495,300    $        643,890    $        837,057    $  1,088,174   Expenses Selling  Expenses Commission  $                              36,000    $            46,800    $            60,840    $            79,092    $        102,820   Marke>ng/Adver>sing 50,000   50,000   100,000   150,000   200,000   Research  and  Development 40,000   50,000   62,500   78,125   97,656   General  and  Administra>ve  Expenses Office  Rent 30,000   30,000   30,000   30,000   30,000   Insurance 9,600   9,600   9,600   9,600   9,600   Office  U>li>es 4,800   4,800   4,800   4,800   4,800   Supplies 18,000   18,000   18,000   18,000   18,000   Salaries 120,000   120,000   120,000   120,000   120,000   Benefits 30,000   30,000   30,000   30,000   30,000   Miscellaneous   21,600   21,600   21,600   21,600   21,600   Total  Expenses  $                          360,000    $        380,800    $        457,340    $        541,217    $        634,476   EBITDA  $                              21,000    $        114,500    $        186,550    $        295,840    $        453,698  
  21. 21. Good  Example  -­‐  Financial  Projec>ons   Stream 2 Licensing Stream 1 Equipment Lease space Salaries
  22. 22. 22   Good  Example  –  “Breakeven  2015”   Raise $750K Raise $3 MM

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