New Venture Finance

First steps – how much $ does your new venture need?

• Must assemble pro forma financials to test assumptions (and convince investors of your logic)– Income statement– Statement of cash flows– Balance sheet

• These forecasts point out capital requirements and determine equity investments

Simplicity is a virtueSample income statement

Sales1 $

Less COGS2

Gross profit margin

Less SGA expenses3

Operating income or loss

Less interest expense

Income before taxes

Less income taxes4

Net income or loss $

• 1. Sales forecasts are based on market research presented separately in this plan.• 2. See separate cost accounting model for COGS assumptions• 3. See Detailed pro forma (attached)• 4. See Detailed pro forma (attached)

From previous sample income statement

• Show items in summary form – save details for separate schedules or footnotes attached to the financial statements

• Make sure statements conform to generally accepted format practices

• Forecast three estimates of sales for five years: most likely, most pessimistic, and most optimistic

• Monthly sales forecasts for first 2 – 3 years• Express forecast in both terms of items sold and dollars

to account for factors affecting price

The build-up method of pro forma forecasts

• Revenues worksheet• Costs worksheet• Income statement• Statement of cash flows• Balance sheet• Amortization of loan (if applicable)• Example