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Financial Planning for the startup CEO - Entrepreneurship 101 (2012/2013)

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MaRS Discovery District
MaRS Discovery District

Learn the financial planning basics that will help you build a realistic financial plan for your startup. Get to know the basic tools of financial planning, including income statements, cash-flow forecasts, expense statements and balance sheets. We examine the financial plans of both successful and failed companies and focus on their ability to forecast realistic scenarios for business growth and cash flow.

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For the startup CEO! Presented by: Andrew Graham
 
 March 2013!
Memory at Work Pg 3!
Memory at Work Have  to  pay   the  bills   Why  money   ma*ers  in  a   startup   Sign  of  a   Desirable   sustainable   outcome!!   business   model   Pg 4!
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 Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 7!
Memory at Work Research in Motion! Income Statement! Revenue! 2012 Fiscal Year! ! millions of USD! Money brought into a company by its business Revenue! $ 18,435! Cost of sales! 11,856 ! activities! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Revenue Forecasting! Total operating expenses! 4,583 ! ! Top-down! Income from operations! 1,490 ! Investment income! 21 ! vs! Taxes! 347 ! Bottom-up! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! Cost of Sales! ! millions of USD! Costs that go into creating Revenue! $ 18,435! the products and services Cost of sales! 11,856 ! Gross margin! 6,579 ! that a company sells! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Gross Margin! ! Revenue! $ 18,435! Cost of sales! 11,856 ! Revenue minus cost of Gross margin! 6,579 ! sales! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! RIM !36%! Total operating expenses! 4,583 ! !!Linkedin !81%! !!Toyota !13%! Income from operations! 1,490 ! Investment income! 21 ! ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Operating Expenses! Revenue! $ 18,435! ! Cost of sales! 11,856 ! Gross margin! 6,579 ! Business costs NOT related to producing goods & Operating expenses! Research & development! 1,536 ! services for sale! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Research & Development! Revenue! $ 18,435! ! Cost of sales! 11,856 ! Gross margin! 6,579 ! Activities with the intention of making a discovery that Operating expenses! Research & development! 1,536 ! can lead to new or Selling, general & admin.! 2,476 ! improved products! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Selling, General and Operating expenses! Administrative Expenses Research & development! 1,536 ! Selling, general & admin.! 2,476 ! (SG&A)! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Amortization! ! Operating expenses! Research & development! 1,536 ! Deduction of capital Selling, general & admin.! 2,476 ! expenses over a period of Amortization! 571 ! Total operating expenses! 4,583 ! time! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Investment Income! Total operating expenses! 4,583 ! ! Income from operations! 1,490 ! Income from interest Investment income! 21 ! payments, dividends, etc! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! Taxes! 347 ! Net income! 1,164 ! Pg 6!
Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Net income! Taxes! 347 ! ! Net income! 1,164 ! Profit!!! Pg 6!
Memory at Work Example: Tom’s Solar Power Company, Inc.! Input Cost: !$50! Sell for: !$100! Pg 7!
Memory at Work Revenue    $400,000      $300,000      $200,000      $100,000      $-­‐     Jan   Feb   Mar   Apr   May   Jun   Jul   Aug   Sep   Oct   Nov   Dec   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 ! Pg 8!
Memory at Work 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)! Pg 9!
Memory at Work 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)! Pg 9!
Memory at Work 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)! Pg 9!
Memory at Work 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)! Pg 9!
Memory at Work 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)! Pg 9!
Memory at Work 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)! Pg 9!
Memory at Work 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)! Pg 9!
Memory at Work Pg 10!
Memory at Work If you don’t forecast cash flows, you’re flying blind!! Pg 10!
Memory at Work ¨  Earnings Before Interest, Taxes, Depreciation and Amortization! ¨  A measure of a company’s cash flow from operations! Pg 11!
Memory at Work ¨  Snapshot of assets and liabilities at a point in time! Pg 12!
Memory at Work Tom's Solar Power Co, Inc! Tom's Solar Power Co, Inc! Monthly Income Statement! Balance Sheet! February 2012! February 29, 2012! $! Feb! $! Revenue! 5,000 ! Assets! Cost of Sales! 2,500 ! Cash! $ 13,000 ! Gross Margin! 2,500 ! Accounts Receivable! 5,000 ! Inventory (prepaid)! 7,500 ! Building and Equipment! 50,000 ! SG&A! 1,000 ! Land!  ! 100,000 ! Net Income! 1,500 ! Total Assets! 175,500 ! Cash Projection! Liabilities! Accounts Payable! - ! Starting Cash! 21,500 ! Loan!  ! 25,000 ! Plus: Revenue (1 month delayed)! - ! Total Liabilities! 25,000 ! Minus: Cost of sales (1 month ahead)! 7,500 ! Minus: SG&A! 1,000 ! Owner's Equity!  ! 150,500 ! Cash gain/(loss)! (8,500)! Total Liabilities and Owner's Eq.!  ! 175,500 ! Ending Cash! 13,000 ! Pg 13!
Memory at Work ¨  It’s 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 Graham
 
 agraham@marsdd.com!

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Financial Planning for the startup CEO - Entrepreneurship 101 (2012/2013)

  • 1. For the startup CEO! Presented by: Andrew Graham
 
 March 2013!
  • 2.
  • 4. Memory at Work Have  to  pay   the  bills   Why  money   ma*ers  in  a   startup   Sign  of  a   Desirable   sustainable   outcome!!   business   model   Pg 4!
  • 5. Memory at Work ¨  Income Statement! ¨  Cash Flow Forecast! ¨  Balance Sheet! Pg 5!
  • 6. Memory at Work ¨  Financial performance over a period of time! ¨  Usually for a year, quarter or month! Pg 6!
  • 7. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 7!
  • 8. Memory at Work Research in Motion! Income Statement! Revenue! 2012 Fiscal Year! ! millions of USD! Money brought into a company by its business Revenue! $ 18,435! Cost of sales! 11,856 ! activities! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Revenue Forecasting! Total operating expenses! 4,583 ! ! Top-down! Income from operations! 1,490 ! Investment income! 21 ! vs! Taxes! 347 ! Bottom-up! Net income! 1,164 ! Pg 6!
  • 9. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! Cost of Sales! ! millions of USD! Costs that go into creating Revenue! $ 18,435! the products and services Cost of sales! 11,856 ! Gross margin! 6,579 ! that a company sells! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 10. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Gross Margin! ! Revenue! $ 18,435! Cost of sales! 11,856 ! Revenue minus cost of Gross margin! 6,579 ! sales! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! RIM !36%! Total operating expenses! 4,583 ! !!Linkedin !81%! !!Toyota !13%! Income from operations! 1,490 ! Investment income! 21 ! ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 11. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Operating Expenses! Revenue! $ 18,435! ! Cost of sales! 11,856 ! Gross margin! 6,579 ! Business costs NOT related to producing goods & Operating expenses! Research & development! 1,536 ! services for sale! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 12. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Research & Development! Revenue! $ 18,435! ! Cost of sales! 11,856 ! Gross margin! 6,579 ! Activities with the intention of making a discovery that Operating expenses! Research & development! 1,536 ! can lead to new or Selling, general & admin.! 2,476 ! improved products! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 13. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Selling, General and Operating expenses! Administrative Expenses Research & development! 1,536 ! Selling, general & admin.! 2,476 ! (SG&A)! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 14. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Amortization! ! Operating expenses! Research & development! 1,536 ! Deduction of capital Selling, general & admin.! 2,476 ! expenses over a period of Amortization! 571 ! Total operating expenses! 4,583 ! time! Income from operations! 1,490 ! Investment income! 21 ! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 15. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Investment Income! Total operating expenses! 4,583 ! ! Income from operations! 1,490 ! Income from interest Investment income! 21 ! payments, dividends, etc! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 16. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Taxes! Taxes! 347 ! Net income! 1,164 ! Pg 6!
  • 17. Memory at Work Research in Motion! Income Statement! 2012 Fiscal Year! millions of USD! Revenue! $ 18,435! Cost of sales! 11,856 ! Gross margin! 6,579 ! Operating expenses! Research & development! 1,536 ! Selling, general & admin.! 2,476 ! Amortization! 571 ! Total operating expenses! 4,583 ! Income from operations! 1,490 ! Investment income! 21 ! Net income! Taxes! 347 ! ! Net income! 1,164 ! Profit!!! Pg 6!
  • 18. Memory at Work Example: Tom’s Solar Power Company, Inc.! Input Cost: !$50! Sell for: !$100! Pg 7!
  • 19. Memory at Work Revenue    $400,000      $300,000      $200,000      $100,000      $-­‐     Jan   Feb   Mar   Apr   May   Jun   Jul   Aug   Sep   Oct   Nov   Dec   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 ! Pg 8!
  • 20. Memory at Work 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)! Pg 9!
  • 21. Memory at Work 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)! Pg 9!
  • 22. Memory at Work 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)! Pg 9!
  • 23. Memory at Work 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)! Pg 9!
  • 24. Memory at Work 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)! Pg 9!
  • 25. Memory at Work 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)! Pg 9!
  • 26. Memory at Work 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)! Pg 9!
  • 27. Memory at Work Pg 10!
  • 28. Memory at Work If you don’t forecast cash flows, you’re flying blind!! Pg 10!
  • 29. Memory at Work ¨  Earnings Before Interest, Taxes, Depreciation and Amortization! ¨  A measure of a company’s cash flow from operations! Pg 11!
  • 30. Memory at Work ¨  Snapshot of assets and liabilities at a point in time! Pg 12!
  • 31. Memory at Work Tom's Solar Power Co, Inc! Tom's Solar Power Co, Inc! Monthly Income Statement! Balance Sheet! February 2012! February 29, 2012! $! Feb! $! Revenue! 5,000 ! Assets! Cost of Sales! 2,500 ! Cash! $ 13,000 ! Gross Margin! 2,500 ! Accounts Receivable! 5,000 ! Inventory (prepaid)! 7,500 ! Building and Equipment! 50,000 ! SG&A! 1,000 ! Land!  ! 100,000 ! Net Income! 1,500 ! Total Assets! 175,500 ! Cash Projection! Liabilities! Accounts Payable! - ! Starting Cash! 21,500 ! Loan!  ! 25,000 ! Plus: Revenue (1 month delayed)! - ! Total Liabilities! 25,000 ! Minus: Cost of sales (1 month ahead)! 7,500 ! Minus: SG&A! 1,000 ! Owner's Equity!  ! 150,500 ! Cash gain/(loss)! (8,500)! Total Liabilities and Owner's Eq.!  ! 175,500 ! Ending Cash! 13,000 ! Pg 13!
  • 32. Memory at Work ¨  It’s 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!