2. Takeaways
◦ Able to do a 3-5 year financial plan – basic version
◦ Years 1 and 2 by month, years 3 thru 5 – quarterly
or annually
◦ Keep it simple – just do it – get some help
◦ It makes sense to you
4. Why do we do projections / forecasts?
◦ Need to know where we are headed
Long term – one year
Short term – 6-8 weeks for cash forecast
◦ Need to know how much money we need
“capital required”
“burn rate”
Where are we spending our money (investment)?
◦ It’s important part of business administration –
fundamental
5. Why do we do projections / forecasts?
◦ Must do – startup, early stage, mature businesses
◦ Flows with the record-keeping requirement
Where have we been – historical financial statements
Required to do – no choice
Where are we now – current financial statements
Where will we be in the future
◦ Helpful (necessary) for valuation of your business
7. Terminology
◦ Budget
Fixed – doesn’t change
One year period
Measurement tool for management – expected
by:
Board
Investors
Bank
Etc.
8. Terminology
◦ Forecasts
Most current best estimate
Moving periods –
“rolling 12 months”
one year or multi year
Monthly – quarterly – annually
Must have to manage resources, cash, etc.
9. Terminology
◦ Plans
Business plan
All encompassing
Development, sales and marketing, operations,
financial
Financial plan
Part of the “Business Plan”
10. Accounting Terminology
◦ Accrual basis – use this
◦ Cash basis
◦ Revenues (sales)
◦ Cost of sales ( cost of goods – COG’s)
◦ Gross margin (gross profit)
◦ Operating expenses
◦ Operating income (EBITDA)
11. Accounting Terminology
◦ Other income and expense
Interest – depreciation - taxes
◦ Net income (bottom line)
12. Accounting Terminology
◦ Financial statements
Balance sheet - point in time
Income statement – period of time
Statement of cash flows – period of time
13. Format for forecasting /budgeting
◦ Use “income statement” format
◦ Periods across the top (columns)
Monthly – quarterly - annual
◦ Items down the side (rows)
◦ Use electronic spreadsheet – Excel
◦ This is standard format - do not vary
14. 2013
Revenues:
License fees 270,000
Sales 190,000
Total revenue 460,000
Direct costs 75,000
Gross margin 385,000
Operating expenses:
Wages and burden 129,790
Travel & lodging 53,000
Trade shows 12,000
Marketing 50,000
Server farms 24,000
Rent 36,000
Other - Misc 30,000
Total operating expenses 334,790
Operating income 50,210
Interest expense 3,500
Depreciation expense 10,000
Net income 36,710
15. Line items to forecast
Revenues
◦ What we sell, when, for how much (to who?)
Cost of revenues
◦ Tied directly to what we sold
◦ “direct costs” – can be goods, services, wages
16. Line items to forecast
Operating Expenses
Think through where you are going to spend your
money to operate your business
Look at other income statements, forecasts, etc.
17. Line items to forecast
Operating Expenses
People costs - salaries and wages – yourself
◦ Remember “payroll burden” – payroll taxes
◦ Benefits?
◦ Commissions?
Rent
Insurance
Professional fees
Marketing
18. Line items to forecast
Operating Expenses
T&E
Office supplies
IT costs
Communications