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Financial Planning – February 2010
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If you fail to Plan: will your Plan fail?




Developing a Financial Plan for your Business
                              Kerri Golden, CA
                              February 10, 2010
  Executive Summary

  Company and Opportunity Summary

  Product and Technology

  Market Size and Growth

  Sales and Marketing Plan

  Competitive Overview

  Operations/Execution Plan

  Management Team

  Financials and Investment Requirements – focus for today

                                 3              Financial Planning – February 2010
 You need an outline of your Business Plan including:
    Product/Technology or Service
      •  R&D budget for tech development of initial product or set-up of service
      •  Specs for product/service - bill of material, labor costs to build/deliver
      •  Product/Service evolution over time - cost reduction projects/estimates

    Market Information, including Competitive Overview
      •  Sales Unit Targets, Pricing, Sales Team and Partner Compensation
    Sales and Marketing Plan
      •  Go to Market Plan, Distribution Strategy, Marketing activities

    Operations/Execution Plan
      •  Details of support program, team, equipment required…
                                      4                  Financial Planning – February 2010
  www.trizle.com/topics/985-how-to-budget-your-startup
   has this little story:
   1. Sally gets a new idea
   2. Sally gets funding
   3. Sally spends 100% of $$ developing the idea
   4. Sally runs out of cash
   5. Sally goes bankrupt


  Sad but frequent ending to the entrepreneurial dream!




                                 5              Financial Planning – February 2010
  She spent all/ most of her funding on the development of the
   technology, product or service and almost no time and money selling
   and marketing her product to customers
  Like most technology entrepreneurs, she assumed that marketing/
   sales were easy --- once she’d developed the perfect product the
   customers would come knocking & in meantime investors would be
   impressed with the perfect product she’d developed
  She didn’t use her funding to achieve milestones needed for more
   funding --- investors are always looking for investment prospects that
   have customer traction and that’s more likely in tough times
  She also missed the opportunity to lower her start-up’s dependence
   on outside financing by securing early sales dollars



                                   6               Financial Planning – February 2010
 Cash Flow Forecast based on Business/ Execution Plan
    How much money do you need for the business now and over forecast
     period and what milestones will you accomplish with the funding?

 Business Income Statement
    Sales forecasts, margin, fixed and variable expenses (R&D, Sales &
     Marketing & Administrative costs, interest, etc) and net profit/loss
    Should consider 3 scenarios: optimistic, pessimistic and probable
    Should help you/investors determine the level of sales needed to generate
     profit in the business and timing of profitability/self-sufficiency
    Need to consider what changes/factors will have greatest impact on
     profitability, break-even and timing?

                                       7                  Financial Planning – February 2010
  “Cash is king” in start-ups
     Your cash balance needs to be monitored frequently (daily or weekly)
     Understanding & managing cash flow is key to success
  You’ll need to forecast:
   1.  How much total funding your business will require over its life?
   2.  What is the logical timing and available sources for getting funding and
       what milestones will you have to achieve to ensure you get next
       required investment?
   3.  Based on the above, what is estimated round size and how much can
       you reasonably invest yourself or raise from your network of investors?
  Develop forecasts for time horizons that make sense
     Monthly/weekly in near-term for your own management tool
     For investors: monthly for term of first round, may be quarterly thereafter


                                       8                  Financial Planning – February 2010
Round One           Round Two              Round Three

Opening Cash                          $-               $15K                        $40K

+Equity/Debt                      $250K               $500K                      $500K

+Customer receipts                     -              $200K                    $1,350K

-Payroll expenses                ($200K)            ($500K)                    ($800K)

-Supplier expenses                ($50K)            ($125K)                    ($200K)

- Product exp (40%)                    -            ($100K)                    ($600K)

+Grants/other funds                $15K                    -                            -

+ITC credit (prior yr)                 -               $50K                      $115K

-Debt incl. interest                   -                   -                            -
Closing Cash                       $15K                $40K                      $405K

           Sales are $250K before Round Two and $1.5M before Round Three
                                       9                Financial Planning – February 2010
Reduce technology risk, earn revenues earlier
       Q1 ’09         Q2 09          Q3 ‘09          Q4 ‘09            Q1 ‘10            Q2 ‘10


v0.1            Proof of Concept


v0.2                     Early feature set


v0.3
                                   Live processing


v0.4            Platform, Management           Lab Trial


v0.5                          Advanced Features            Lab Trial


v0.6                                                                            Trials
                                        Features Complete

v1.0                                                                   First Commercial
                                                                              Shipments


                                         10                        Financial Planning – February 2010
                                                                                                    10
Q1 ’09          Q2 09           Q3 ‘09           Q4 ‘09            Q1 ‘10            Q2 ‘10


v0.1             Business Plan/Customer Requirements


v0.2                       Go-To-Market Plan/Customer Business Case (ROI)


v0.3
                                     Customer/Partner Meetings


v0.4                   Customer Demos             Lab Trial


v0.5                 Customer Trial Management/               Lab Trial
                                       Feedback

v0.6                                                                               Trials
            Customer Testing, Finalize Pricing, Initial Contracts

v1.0
                                                                          PR & Launch Plan



                                            11                        Financial Planning – February 2010
                                                                                                       11
  Top-line revenues should be derived from:
     Market forecasts for your business and bottom up view of customers
     Pricing and cost assumptions for your product and your business model
     For social entrepreneurs, consider “sponsorship contributions”
     Need to consider the pros and cons of the “hockey stick”
  Expenses:
     Develop bottom-up forecast based on your expectations
     Review benchmark targets for other companies in your industry and
      compare with later years in your plan
     Identify fixed versus variable components of your plan – i.e. those costs
      that may vary with your top-line performance
     Identify unique costs of delivering social impact for investors
  EBITDA – Operating Income for the business
     Earnings before interest, taxes, depreciation and other amortization
     Benchmark for exit values in M&A and performance of public companies

                                    12                 Financial Planning – February 2010
Year One                Year Two                Year Three

Sales                                    $0                 $250K                   $1,500K

Cost of Sales                            $0                 $100K                      $600K

Gross Margin                             $0                 $150K                      $900K

R&D Expenses                         $150K                  $275K                      $300K

ITC Credits                         ($50K)                 ($115K)                   ($125K)

Selling Expenses                      $75K                  $275K                      $600K

Admin Expenses                        $10K                   $75K                      $100K

EBITDA                               $185K                 ($360K)                      $25K

ITDA*                                      -                      -                           -
Net (Loss) Income                  ($185K)                 ($360K)                      $25K

                *ITDA = Interest, Taxes, Depreciation and Amortization

                                               13                 Financial Planning – February 2010
Entrepreneur states: We only need to get 1% of the projected $3 billion
market by year five and have worked backward to develop earlier
year sales projections in the plan…
Year five projected sales = $30 million
                                                      Your Company

 Tip:
 It is better to segment the
 market and show your market
 share in relation to a specific
 smaller segment. Investors like
 to back companies who will be            All Competitors
 significant players in their
 market segment (15-25%) and
 are focused in their approach.



                                   14            Financial Planning – February 2010
  Distribution Channel = Doctors
  Recruit Doctors as follows:
     150 in year one through trade shows (60 signed up already)
     2,400 doctors by year five of the plan, serving up to 30,000
      patients
  Product pricing:
     Annual patient revenues of $1,000 per year – resulting in $30M of
      revenue in year 5 of plan
     Pricing starts at $1,200 per year, competition drives average price
      down 20% over period of the plan
  Require 6 regional sales and support reps to support
   the Doctor Network


                                   15                 Financial Planning – February 2010
  Mixed Distribution Model may result in multiple selling
   prices for products
     End User Selling Price for product sold directly to customers
     Need to consider discount practices in the industry
     Wholesale Price for sales to distribution partners and OEMs
  Currency
     Most Canadian companies sell their products in US and other markets
     Develop pricing strategies for individual markets, validate and state
      assumptions in your plan
     Current volatilty is challenging – err on side of conservatism in your plan
  Service Revenues
     Dependent on salary/consulting rates which generally increase over time


                                      16                 Financial Planning – February 2010
17   Financial Planning – February 2010
  The direct costs of producing your product
     Bill of Material, Labor, Warehousing, Shipping, Warranty…for products
     Service Team Labor and Material Costs
  Costs will evolve over time
     Production volume will impact unit cost
     Labor costs will generally increase, although they often drop as a
      percentage of costs over time
     Planning for cost reductions – it is common for technology companies to
      get version of product to market & then re-engineer it for lowest cost
  Gross Margin
     Expressed in dollars and often a percentage – you should understand
      margin targets for your industry/sector (Software – 80-90%, Product
      Companies – 45-60%, Service companies – 35-50%)


                                    18                Financial Planning – February 2010
Year One                Year Two                Year Three
Sales                                  $0                 $250K                   $1,500K
Cost of Sales                          $0                 $100K                      $600K
Gross Margin                           $0                 $150K                      $900K
R&D Expenses                      $150K                   $275K                      $300K
ITC Credits                       ($50K)                ($115K)                    ($125K)
Selling Expenses                   $75K                   $275K                      $600K
Admin Expenses                     $10K                    $75K                      $100K
EBITDA                            $185K                 ($360K)                       $25K
ITDA*                                   -                       -                           -
Net (Loss) Income                ($185K)                ($360K)                       $25K

                    *ITDA = Interest, Taxes, Depreciation and Amortization


                                            19                  Financial Planning – February 2010
  Teams generally comfortable forecasting these costs
  Largest component is labor costs for the team - should
   consider evolution of team over time from research to
   product design/development, testing and QA
  Must address sustaining work on product line, field
   support for customers and future product cost reductions
  Costs of patenting/protecting trade secrets
  Any licensing costs to use technologies from 3rd parties
  Tax credits/grants can help stretch your R&D budget
     Scientific Research and Experimental Development (SRED) – federal
     Ontario Innovation Tax Credit (OITC) and other provincial programs
     NRC-IRAP programs – advisory services and R&D funding (matching)


                                    20               Financial Planning – February 2010
 Newbridge early sales – a nice “hockey stick” result
 If Sally had been Terry Matthews, she might have
  spent 50% of expenses on sales/marketing and only
  33% on R&D to generate spectacular sales growth!


                          21           Financial Planning – February 2010
% of Operating   Cisco        Adobe       F5 Networks
Expense 2009     $36B         $2.9B                 $650M

R&D Expenses      35%          31%                      26%



Sales &           55%          53%                      60%
Marketing Exp.

General &         10%          16%                      14%
Admin. Exp.




                         22       Financial Planning – February 2010
  Labor costs for sales and marketing team members –
   usually a team that is geographically remote
  Commissions – how does your plan compare with
   industry to enable recruiting top resources?
  Marketing Costs – Public Relations, Advertising, Trade
   Shows, Website, Lead Generation, Case Studies,
   Customer Documentation, Partner recruiting costs
  Travel, Living and Entertainment – strategy to ensure
   customer coverage and policy to control costs
  Performance measures to ensure the costs of pursuing
   customers are matched with margin on sales

                             23           Financial Planning – February 2010
  Labor costs for operations, customer support, finance,
   HR, IT and admin teams, including CEO
  Rent and related costs (telephone, internet, supplies…)
   associated with running the office and operation
  Recruiting and other HR costs – may be significant as
   team is ramped up
  Professional Fees including legal, audit, tax, insurance
  Board/Investor Relations costs
  Travel expenses for CEO/CFO
  Misc. Costs – bank charges, courier, postage


                             24            Financial Planning – February 2010
Year One         Year Two              Year Three

Incremental                  $0         $2,000K                  $6,000K
Revenue
Incr. Margin                 $0         $1,000K                  $3,000K

R&D Costs               $1,000K           $300K                     $200K

Selling Costs             $150K           $500K                  $1,200K

G&A Costs                 $100K           $200K                     $300K

Total Costs             $1,250K         $1,000K                    $1,700

Total Margin           ($1,250K)             $0                    $1,300


Business case discipline should be added to ensure that future
development projects contribute to financial success.

                                   25          Financial Planning – February 2010
Completes the financial statements along with Cash Flow and Income Statement

                                   Year One               Year Two                 Year Three

Cash                                   $15K                      $40K                    $405K

A/R and ITC Rec                        $50K                  $165K                       $325K
Inventory/Prepaid                           -                       -                           -

Fixed Assets                                -                       -                           -

Total Assets                           $65K                  $205K                       $730K

AP & Liabilities                            -                       -                           -
Financing*                            $250K                  $750K                    $1,250K

Ret. (Loss) Income                  ($185K)                ($545K)                     ($520K)

Total Liab/Equity                      $65K                  $205K                       $730K

       *Financing could be Debt, Equity or combination thereof
                                                26                  Financial Planning – February 2010
  Accounts Receivable (A/R)
     Amounts owing from customers, partners, tax credit, grant program,
      GST input tax credits – assumptions regarding terms/collection
     As business grows, company may require cash or alternative financing
      to fund A/R growth (e.g. customers pay 60 days after delivery)
  Inventory and Prepaid Expenses
     For product business, inventory build plan and management are critical
     Need product on hand to ensure sales targets can be met
     Some expenses (insurance, trade shows, rent) may be paid in advance
  Fixed Assets
     Equipment to be used in the business, expensed over longer-term
     Some businesses can be very capital-intensive



                                     27                Financial Planning – February 2010
  Accounts Payable and Liabilities (A/P)
     Need to reflect terms with suppliers, should be negotiated based on your
      business cycle to minimize cash flow impact
     Other liabilities can include: Leases, Sales Tax Payable
  Debt Financing
     Bank loan with personal guarantee from business owner
     Small Business Loan for equipment
     Venture Debt, may be available along with equity funding
     Operating Line of Credit – usually secured against Accounts Receivable
      and maybe Inventory assets
     Long-term Equipment Loan – may be available for capital-intensive
      business
  Equity Financing
     Proceeds from sale of either common or preferred shares


                                     28                 Financial Planning – February 2010
  Your business/execution plan is quantified in your
   financial plan
     The assumptions/content must be consistent
     The key aspects of the business plan need to be researched and
      thought through before starting the financial plan
  Your financial plan can be a work in progress
     Not all elements of the plan need to be finalized before seeking funding
     Be honest about where there is higher degree of confidence in the plan
      and where more work is required to complete
  Monitoring your business’ progress against your financial
   plan is as important as developing the plan
  In today’s economic times, it is important to develop
   plans that generate early sales & cash flow

                                      29                 Financial Planning – February 2010
  Developing a Financing Roadmap
  What is an execution plan?
  Determining size and timing of investment rounds
  The Tools you need to Raise Money
  The Business Plan
  Business Plans for Social Enterprises (SEs) and Social
   Purpose Businesses (SPBs)




                             30           Financial Planning – February 2010

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If you fail to plan, will your plan fail? Developing a financial plan for your business

  • 1. Financial Planning – February 2010 Follow or Tweet: #ent101
  • 2. If you fail to Plan: will your Plan fail? Developing a Financial Plan for your Business Kerri Golden, CA February 10, 2010
  • 3.   Executive Summary   Company and Opportunity Summary   Product and Technology   Market Size and Growth   Sales and Marketing Plan   Competitive Overview   Operations/Execution Plan   Management Team   Financials and Investment Requirements – focus for today 3 Financial Planning – February 2010
  • 4.  You need an outline of your Business Plan including:  Product/Technology or Service •  R&D budget for tech development of initial product or set-up of service •  Specs for product/service - bill of material, labor costs to build/deliver •  Product/Service evolution over time - cost reduction projects/estimates  Market Information, including Competitive Overview •  Sales Unit Targets, Pricing, Sales Team and Partner Compensation  Sales and Marketing Plan •  Go to Market Plan, Distribution Strategy, Marketing activities  Operations/Execution Plan •  Details of support program, team, equipment required… 4 Financial Planning – February 2010
  • 5.   www.trizle.com/topics/985-how-to-budget-your-startup has this little story: 1. Sally gets a new idea 2. Sally gets funding 3. Sally spends 100% of $$ developing the idea 4. Sally runs out of cash 5. Sally goes bankrupt   Sad but frequent ending to the entrepreneurial dream! 5 Financial Planning – February 2010
  • 6.   She spent all/ most of her funding on the development of the technology, product or service and almost no time and money selling and marketing her product to customers   Like most technology entrepreneurs, she assumed that marketing/ sales were easy --- once she’d developed the perfect product the customers would come knocking & in meantime investors would be impressed with the perfect product she’d developed   She didn’t use her funding to achieve milestones needed for more funding --- investors are always looking for investment prospects that have customer traction and that’s more likely in tough times   She also missed the opportunity to lower her start-up’s dependence on outside financing by securing early sales dollars 6 Financial Planning – February 2010
  • 7.  Cash Flow Forecast based on Business/ Execution Plan  How much money do you need for the business now and over forecast period and what milestones will you accomplish with the funding?  Business Income Statement  Sales forecasts, margin, fixed and variable expenses (R&D, Sales & Marketing & Administrative costs, interest, etc) and net profit/loss  Should consider 3 scenarios: optimistic, pessimistic and probable  Should help you/investors determine the level of sales needed to generate profit in the business and timing of profitability/self-sufficiency  Need to consider what changes/factors will have greatest impact on profitability, break-even and timing? 7 Financial Planning – February 2010
  • 8.   “Cash is king” in start-ups   Your cash balance needs to be monitored frequently (daily or weekly)   Understanding & managing cash flow is key to success   You’ll need to forecast: 1.  How much total funding your business will require over its life? 2.  What is the logical timing and available sources for getting funding and what milestones will you have to achieve to ensure you get next required investment? 3.  Based on the above, what is estimated round size and how much can you reasonably invest yourself or raise from your network of investors?   Develop forecasts for time horizons that make sense   Monthly/weekly in near-term for your own management tool   For investors: monthly for term of first round, may be quarterly thereafter 8 Financial Planning – February 2010
  • 9. Round One Round Two Round Three Opening Cash $- $15K $40K +Equity/Debt $250K $500K $500K +Customer receipts - $200K $1,350K -Payroll expenses ($200K) ($500K) ($800K) -Supplier expenses ($50K) ($125K) ($200K) - Product exp (40%) - ($100K) ($600K) +Grants/other funds $15K - - +ITC credit (prior yr) - $50K $115K -Debt incl. interest - - - Closing Cash $15K $40K $405K Sales are $250K before Round Two and $1.5M before Round Three 9 Financial Planning – February 2010
  • 10. Reduce technology risk, earn revenues earlier Q1 ’09 Q2 09 Q3 ‘09 Q4 ‘09 Q1 ‘10 Q2 ‘10 v0.1 Proof of Concept v0.2 Early feature set v0.3 Live processing v0.4 Platform, Management Lab Trial v0.5 Advanced Features Lab Trial v0.6 Trials Features Complete v1.0 First Commercial Shipments 10 Financial Planning – February 2010 10
  • 11. Q1 ’09 Q2 09 Q3 ‘09 Q4 ‘09 Q1 ‘10 Q2 ‘10 v0.1 Business Plan/Customer Requirements v0.2 Go-To-Market Plan/Customer Business Case (ROI) v0.3 Customer/Partner Meetings v0.4 Customer Demos Lab Trial v0.5 Customer Trial Management/ Lab Trial Feedback v0.6 Trials Customer Testing, Finalize Pricing, Initial Contracts v1.0 PR & Launch Plan 11 Financial Planning – February 2010 11
  • 12.   Top-line revenues should be derived from:   Market forecasts for your business and bottom up view of customers   Pricing and cost assumptions for your product and your business model   For social entrepreneurs, consider “sponsorship contributions”   Need to consider the pros and cons of the “hockey stick”   Expenses:   Develop bottom-up forecast based on your expectations   Review benchmark targets for other companies in your industry and compare with later years in your plan   Identify fixed versus variable components of your plan – i.e. those costs that may vary with your top-line performance   Identify unique costs of delivering social impact for investors   EBITDA – Operating Income for the business   Earnings before interest, taxes, depreciation and other amortization   Benchmark for exit values in M&A and performance of public companies 12 Financial Planning – February 2010
  • 13. Year One Year Two Year Three Sales $0 $250K $1,500K Cost of Sales $0 $100K $600K Gross Margin $0 $150K $900K R&D Expenses $150K $275K $300K ITC Credits ($50K) ($115K) ($125K) Selling Expenses $75K $275K $600K Admin Expenses $10K $75K $100K EBITDA $185K ($360K) $25K ITDA* - - - Net (Loss) Income ($185K) ($360K) $25K *ITDA = Interest, Taxes, Depreciation and Amortization 13 Financial Planning – February 2010
  • 14. Entrepreneur states: We only need to get 1% of the projected $3 billion market by year five and have worked backward to develop earlier year sales projections in the plan… Year five projected sales = $30 million Your Company Tip: It is better to segment the market and show your market share in relation to a specific smaller segment. Investors like to back companies who will be All Competitors significant players in their market segment (15-25%) and are focused in their approach. 14 Financial Planning – February 2010
  • 15.   Distribution Channel = Doctors   Recruit Doctors as follows:   150 in year one through trade shows (60 signed up already)   2,400 doctors by year five of the plan, serving up to 30,000 patients   Product pricing:   Annual patient revenues of $1,000 per year – resulting in $30M of revenue in year 5 of plan   Pricing starts at $1,200 per year, competition drives average price down 20% over period of the plan   Require 6 regional sales and support reps to support the Doctor Network 15 Financial Planning – February 2010
  • 16.   Mixed Distribution Model may result in multiple selling prices for products   End User Selling Price for product sold directly to customers   Need to consider discount practices in the industry   Wholesale Price for sales to distribution partners and OEMs   Currency   Most Canadian companies sell their products in US and other markets   Develop pricing strategies for individual markets, validate and state assumptions in your plan   Current volatilty is challenging – err on side of conservatism in your plan   Service Revenues   Dependent on salary/consulting rates which generally increase over time 16 Financial Planning – February 2010
  • 17. 17 Financial Planning – February 2010
  • 18.   The direct costs of producing your product   Bill of Material, Labor, Warehousing, Shipping, Warranty…for products   Service Team Labor and Material Costs   Costs will evolve over time   Production volume will impact unit cost   Labor costs will generally increase, although they often drop as a percentage of costs over time   Planning for cost reductions – it is common for technology companies to get version of product to market & then re-engineer it for lowest cost   Gross Margin   Expressed in dollars and often a percentage – you should understand margin targets for your industry/sector (Software – 80-90%, Product Companies – 45-60%, Service companies – 35-50%) 18 Financial Planning – February 2010
  • 19. Year One Year Two Year Three Sales $0 $250K $1,500K Cost of Sales $0 $100K $600K Gross Margin $0 $150K $900K R&D Expenses $150K $275K $300K ITC Credits ($50K) ($115K) ($125K) Selling Expenses $75K $275K $600K Admin Expenses $10K $75K $100K EBITDA $185K ($360K) $25K ITDA* - - - Net (Loss) Income ($185K) ($360K) $25K *ITDA = Interest, Taxes, Depreciation and Amortization 19 Financial Planning – February 2010
  • 20.   Teams generally comfortable forecasting these costs   Largest component is labor costs for the team - should consider evolution of team over time from research to product design/development, testing and QA   Must address sustaining work on product line, field support for customers and future product cost reductions   Costs of patenting/protecting trade secrets   Any licensing costs to use technologies from 3rd parties   Tax credits/grants can help stretch your R&D budget   Scientific Research and Experimental Development (SRED) – federal   Ontario Innovation Tax Credit (OITC) and other provincial programs   NRC-IRAP programs – advisory services and R&D funding (matching) 20 Financial Planning – February 2010
  • 21.  Newbridge early sales – a nice “hockey stick” result  If Sally had been Terry Matthews, she might have spent 50% of expenses on sales/marketing and only 33% on R&D to generate spectacular sales growth! 21 Financial Planning – February 2010
  • 22. % of Operating Cisco Adobe F5 Networks Expense 2009 $36B $2.9B $650M R&D Expenses 35% 31% 26% Sales & 55% 53% 60% Marketing Exp. General & 10% 16% 14% Admin. Exp. 22 Financial Planning – February 2010
  • 23.   Labor costs for sales and marketing team members – usually a team that is geographically remote   Commissions – how does your plan compare with industry to enable recruiting top resources?   Marketing Costs – Public Relations, Advertising, Trade Shows, Website, Lead Generation, Case Studies, Customer Documentation, Partner recruiting costs   Travel, Living and Entertainment – strategy to ensure customer coverage and policy to control costs   Performance measures to ensure the costs of pursuing customers are matched with margin on sales 23 Financial Planning – February 2010
  • 24.   Labor costs for operations, customer support, finance, HR, IT and admin teams, including CEO   Rent and related costs (telephone, internet, supplies…) associated with running the office and operation   Recruiting and other HR costs – may be significant as team is ramped up   Professional Fees including legal, audit, tax, insurance   Board/Investor Relations costs   Travel expenses for CEO/CFO   Misc. Costs – bank charges, courier, postage 24 Financial Planning – February 2010
  • 25. Year One Year Two Year Three Incremental $0 $2,000K $6,000K Revenue Incr. Margin $0 $1,000K $3,000K R&D Costs $1,000K $300K $200K Selling Costs $150K $500K $1,200K G&A Costs $100K $200K $300K Total Costs $1,250K $1,000K $1,700 Total Margin ($1,250K) $0 $1,300 Business case discipline should be added to ensure that future development projects contribute to financial success. 25 Financial Planning – February 2010
  • 26. Completes the financial statements along with Cash Flow and Income Statement Year One Year Two Year Three Cash $15K $40K $405K A/R and ITC Rec $50K $165K $325K Inventory/Prepaid - - - Fixed Assets - - - Total Assets $65K $205K $730K AP & Liabilities - - - Financing* $250K $750K $1,250K Ret. (Loss) Income ($185K) ($545K) ($520K) Total Liab/Equity $65K $205K $730K *Financing could be Debt, Equity or combination thereof 26 Financial Planning – February 2010
  • 27.   Accounts Receivable (A/R)   Amounts owing from customers, partners, tax credit, grant program, GST input tax credits – assumptions regarding terms/collection   As business grows, company may require cash or alternative financing to fund A/R growth (e.g. customers pay 60 days after delivery)   Inventory and Prepaid Expenses   For product business, inventory build plan and management are critical   Need product on hand to ensure sales targets can be met   Some expenses (insurance, trade shows, rent) may be paid in advance   Fixed Assets   Equipment to be used in the business, expensed over longer-term   Some businesses can be very capital-intensive 27 Financial Planning – February 2010
  • 28.   Accounts Payable and Liabilities (A/P)   Need to reflect terms with suppliers, should be negotiated based on your business cycle to minimize cash flow impact   Other liabilities can include: Leases, Sales Tax Payable   Debt Financing   Bank loan with personal guarantee from business owner   Small Business Loan for equipment   Venture Debt, may be available along with equity funding   Operating Line of Credit – usually secured against Accounts Receivable and maybe Inventory assets   Long-term Equipment Loan – may be available for capital-intensive business   Equity Financing   Proceeds from sale of either common or preferred shares 28 Financial Planning – February 2010
  • 29.   Your business/execution plan is quantified in your financial plan   The assumptions/content must be consistent   The key aspects of the business plan need to be researched and thought through before starting the financial plan   Your financial plan can be a work in progress   Not all elements of the plan need to be finalized before seeking funding   Be honest about where there is higher degree of confidence in the plan and where more work is required to complete   Monitoring your business’ progress against your financial plan is as important as developing the plan   In today’s economic times, it is important to develop plans that generate early sales & cash flow 29 Financial Planning – February 2010
  • 30.   Developing a Financing Roadmap   What is an execution plan?   Determining size and timing of investment rounds   The Tools you need to Raise Money   The Business Plan   Business Plans for Social Enterprises (SEs) and Social Purpose Businesses (SPBs) 30 Financial Planning – February 2010