financial planning - entrepreneurship 101
DESCRIPTION
This presentation will help you build a realistic financial plan for your start-up. It‘s important to have a detailed plan that identifies how you spend money and how you make money. To do this, you need to be familiar with the basic tools of financial planning, including income statements, cash-flow forecasts, expense statements and balance sheets. We use case studies to examine the financial plans of both successful and failed companies, focusing on their ability to forecast realistic scenarios for business growth and cash flow. http://www.marsdd.com/events/details/financial-planning-2011/TRANSCRIPT
For the startup CEO!
Presented by: Andrew GrahamJanuary 2012!
Memory at Work
Pg 3!
Memory at Work
Pg 4!
Why money ma*ers in a startup
Have to pay the bills
Sign of a sustainable business model
Desirable outcome!!
Memory at Work
¨ Income Statement!
¨ Cash Flow Forecast!
¨ Balance Sheet!
Pg 5!
Memory at Work
¨ Financial performance over a period of time!
¨ Usually for a year, quarter or month!
Pg 6!
Memory at Work
Pg 7!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Revenue!!
Money brought into a company by its business
activities!
Revenue Forecasting!!
Top-down!vs!
Bottom-up!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Cost of Sales!!
Costs that go into creating the products and services
that a company sells!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Gross Margin!!
Revenue minus cost of sales!
RIM!!Linkedin!!Toyota!
!44%!!81%!!13%!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Operating Expenses!!
Business costs NOT related to producing goods &
services for sale!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Research & Development!!
Activities with the intention of making a discovery that
can lead to new or improved products!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Selling, General and Administrative Expenses
(SG&A)!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Amortization!!
Deduction of capital expenses over a period of
time!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Investment Income!!
Income from interest payments, dividends, etc!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Taxes!
Memory at Work
Pg 6!
Research in Motion!Income Statement!2011 Fiscal Year!
millions of USD!
Revenue! $ 19,907 !Cost of sales! 11,082 !Gross margin! 8,825 !
Operating expenses!Research & development! 1,351 !Selling, general & admin.! 2,400 !Amortization! 438 ! Total operating expenses! 4,189 !
Income from operations! 4,636 !Investment income! 8 !Taxes! 1,233 !
Net income! 3,411 !
Net income!!
Profit!!!
Memory at Work
Pg 7!
Example: Tomʼs Solar Power Company, Inc.!
Input Cost: !$50! Sell for: !$100!
Memory at Work
Pg 8!
Units Sold! - !
50 !
150 !
250 !
400 !
550 !
750 !
1,050 !
1,400 !
1,900 !
2,500 !
3,500 !
Unit Price! $100/unit!
Revenue! $ - !
5,000 !
15,000 !
25,000 !
40,000 !
55,000 !
75,000 !
105,000 !
140,000 !
190,000 !
250,000 !
350,000 !
$-‐
$100,000
$200,000
$300,000
$400,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Revenue
Memory at Work
Pg 9!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 9!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 9!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 9!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 9!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 9!
Memory at Work
Pg 9!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
Jan! Feb! Mar! Apr! May! Jun!Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !
Cash Projection!
Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 10!
Memory at Work
Pg 10!
If you donʼt forecast cash flows, youʼre flying blind!!
Memory at Work
¨ Earnings Before Interest, Taxes, Depreciation and Amortization!
¨ A measure of a companyʼs cash flow from operations!
Pg 11!
Memory at Work
¨ Snapshot of assets and liabilities at a point in time!
Pg 12!
Memory at Work
Pg 13!
Tom's Solar Power Co, Inc!Balance Sheet!
February 29, 2012!
$!Assets!Cash! $ 13,000 !Accounts Receivable! 5,000 !Inventory (prepaid)! 7,500 !Building and Equipment! 50,000 !Land! ! 100,000 !Total Assets! 175,500 !
Liabilities!Accounts Payable! - !Loan! ! 25,000 !Total Liabilities! 25,000 !
Owner's Equity! ! 150,500 !Total Liabilities and Owner's Eq.! ! 175,500 !
Tom's Solar Power Co, Inc!Monthly Income Statement!
February 2012!$!
Feb!Revenue! 5,000 !Cost of Sales! 2,500 !Gross Margin! 2,500 !
SG&A! 1,000 !Net Income! 1,500 !
Cash Projection!
Starting Cash! 21,500 !Plus: Revenue (1 month delayed)! - !Minus: Cost of sales (1 month ahead)! 7,500 !Minus: SG&A! 1,000 !Cash gain/(loss)! (8,500)!
Ending Cash! 13,000 !
Memory at Work
¨ Itʼs all about cash!!
¨ Forecast from the bottom!
¨ Create multiple scenarios: how sensitive is your business to changes:!– In revenue!– In expenses!
¨ Get expert advice when you need it!
Pg 14!
Andrew [email protected]!