1. COPYRIGHT © 2013
Thank you Ben Hron!

2. ABC Company, Inc.
Estimated Statement of Operations
For The Years Ended December 31, 2010. 2011, 2012, and 2013
2010 2011 2012 2013 2010 2011 2012 2013
Reve nue:
Installation Revenue 450$ 3,825$ 21,038$ 73,633$ 77.1% 84.3% 82.3% 80.6%
Non-Installation Revenue
Service Fees 89$ 623$ 4,361$ 17,444$ 15.2% 13.7% 17.1% 19.1%
Other Non-Installation Revenue 45$ 90$ 158$ 237$ 7.7% 2.0% 0.6% 0.3%
Total Revenue: 584$ 4,538$ 25,557$ 91,314$ 100.0% 100.0% 100.0% 100.0%
Direct Costs:
Installation Costs 338$ 2,678$ 12,623$ 36,817$ 57.9% 59.0% 49.4% 40.3%
Non-Installation Costs 38$ 193$ 1,175$ 4,420$ 6.5% 4.3% 4.6% 4.8%
Direct Costs: 376$ 2,871$ 13,798$ 41,237$ 64.4% 63.3% 54.0% 45.2%
Other Cost of Service s 88$ 567$ 2,556$ 6,849$ 15.1% 12.5% 10.0% 7.5%
Gross Margin ($) 120$ 1,100$ 9,203$ 43,228$ 20.5% 24.2% 36.0% 47.3%
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales 292$ 1,588$ 6,389$ 18,263$ 50.0% 35.0% 25.0% 20.0%
Marketing 263$ 1,361$ 5,111$ 13,697$ 45.0% 30.0% 20.0% 15.0%
Research & Development 175$ 998$ 2,811$ 8,218$ 30.0% 22.0% 11.0% 9.0%
General & Administration 44$ 295$ 1,533$ 4,566$ 7.5% 6.5% 6.0% 5.0%
Total Operating Expenses: 774$ 4,242$ 15,844$ 44,744$ 132.5% 93.5% 62.0% 49.0%
EBITDA (654)$ (3,142)$ (6,641)$ (1,516)$ -112.0% -69.2% -26.0% -1.7%
Other (Revenue ) & Expenses:
Interest 80$ 156$ 32$ 80$ 13.7% 3.4% 0.1% 0.1%
Taxes 8$ 9$ 11$ 15$ 1.4% 0.2% 0.0% 0.0%
Depreciation & Amortization 13$ 67$ 268$ 874$ 2.2% 1.5% 1.0% 1.0%
Total Other (Revenue) & Expenses 101$ 232$ 311$ 969$ 17.3% 5.1% 1.2% 1.1%
Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$ -129.3% -74.3% -27.2% -2.7%
Stateme nt Note s:
Reve nue
Market 1 43$ 2,320$ 12,205$ 46,232$ 7.4% 51.1% 47.8% 50.6%
Market 2 230$ 1,201$ 7,652$ 26,450$ 39.4% 26.5% 29.9% 29.0%
Market 3 256$ 932$ 3,250$ 12,658$ 43.8% 20.5% 12.7% 13.9%
Market 4 55$ 85$ 2,450$ 5,974$ 9.4% 1.9% 9.6% 6.5%
Total Re venue 584$ 4,538$ 25,557$ 91,314$
Headcount
Existing 13.00$ 18.00$ 61.00$ 298.00$
New Hires 5.00$ 43.00$ 237.00$ 830.00$
Total Headcount 18.00$ 61.00$ 298.00$ 1,128.00$
Capital Expe nditures 126.00$ 424.00$ 1,584.00$ 4,474.00$
Dollars (000's omitte d) Percent (%) of Revenue
COPYRIGHT © 2010
COPYRIGHT © 2012

3. Rule #1:
If you cannot read the
financial statement from two
feet away the font is
too small
(i.e. there are too many details)
COPYRIGHT © 2012

4. ABC Company, Inc.
Projected Statement of Operations
For The Years Ended December 31, 2010. 2011, 2012, and 2013
2010 2011 2012 2013
Revenue:
Market 1 43.00$ 2,320.00$ 12,205.00$ 46,232.00$
Market 2 230.00$ 1,201.00$ 7,652.00$ 26,450.00$
Market 3 256.00$ 932.00$ 3,250.00$ 12,658.00$
Market 4 55.00$ 85.00$ 2,450.00$ 5,974.00$
Total Revenue 584.00$ 4,538.00$ 25,557.00$ 91,314.00$
Gross Margin ($) 120.00$ 1,100.00$ 9,203.00$ 43,228.00$
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales & Marketing 555.00$ 2,949.00$ 11,500.00$ 31,960.00$
Research & Development 175.00$ 998.00$ 2,811.00$ 8,218.00$
General & Administration 44.00$ 295.00$ 1,533.00$ 4,566.00$
Total Operating Expenses: 774.00$ 4,242.00$ 15,844.00$ 44,744.00$
Other Expense/(Income) 101.00$ 232.00$ 311.00$ 969.00$
Net Income (Loss) (755.00)$ (3,374.00)$ (6,952.00)$ (2,485.00)$
Statement Notes:
Headcount
Existing 13.00$ 18.00$ 61.00$ 298.00$
New Hires 5.00$ 43.00$ 237.00$ 830.00$
Total Headcount 18.00$ 61.00$ 298.00$ 1,128.00$
Capital Expenditures 126.00$ 424.00$ 1,584.00$ 4,474.00$
Dollars (000's omitted)
COPYRIGHT © 2012

5. Rule #2:
Pennies are only for
accounting auditors
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6. ABC Company, Inc.
Estimated Statement of Operations
For The Years Ended December 31, 2010. 2011, 2012, and 2013
2010 2011 2012 2013
Revenue:
Market 1 43$ 2,320$ 12,205$ 46,232$
Market 2 230$ 1,201$ 7,652$ 26,450$
Market 3 256$ 932$ 3,250$ 12,658$
Market 4 55$ 85$ 2,450$ 5,974$
Total Revenue 584$ 4,538$ 25,557$ 91,314$
Gross Margin ($) 120$ 1,100$ 9,203$ 43,228$
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales & Marketing 555$ 2,949$ 11,500$ 31,960$
Research & Development 175$ 998$ 2,811$ 8,218$
General & Administration 44$ 295$ 1,533$ 4,566$
Total Operating Expenses: 774$ 4,242$ 15,844$ 44,744$
Other Expense/(Income) 101$ 232$ 311$ 969$
Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$
Statement Notes:
Headcount
Existing 13$ 18$ 61$ 298$
New Hires 5$ 43$ 237$ 830$
Total Headcount 18$ 61$ 298$ 1,128$
Capital Expenditures 126$ 424$ 1,584$ 4,474$
Dollars (000's omitted)
COPYRIGHT © 2012

7. Rule #3:
Use $ (dollar signs) on the
first and last row only.
Unless, of course, you are
mixing rows of $ and %, etc.
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8. FORMAT CREDIBILITY
The presentation format does
not interfere with (or create
noise for) the reader
COPYRIGHT © 2012

9. ABC Company, Inc.
Projected Statement of Operations
For The Years Ended December 31, 2010 through 2013
Revenue:
Market 1 43$ 2,320$ 12,205$ 46,232$
Market 2 230 1201 7652 26450
Market 3 256 932 3250 12658
Market 4 55 85 2450 5974
Total Revenue 584 4538 25557 91314
Gross Margin ($) 120 1100 9203 43228
Gross Margin (%) 20.5% 24.2% 36.0% 47.3%
Operating Expenses:
Sales & Marketing 555 2949 11500 31960
Research & Development 175 998 2811 8218
General & Administration 44 295 1533 4566
Total Operating Expenses: 774 4242 15844 44744
Other Expense/(Income) 101 232 311 969
Net Income (Loss) (755)$ (3,374)$ (6,952)$ (2,485)$
Statement Notes:
Headcount
Existing 13 18 61 298
New Hires 5 43 237 830
Total Headcount 18 61 298 1,128
Capital Expenditures 126$ 424$ 1,584$ 4,474$
Dollars
COPYRIGHT © 2012

10. Rule #4:
Use column headings that
make sense
COPYRIGHT © 2012

11. Rule #5:
Numbers with thousands or
millions must have commas
This: 54,556
Not this: 54556
COPYRIGHT © 2012

12. Rule #6:
Don’t mix fonts
Or font size……
And do not use a silly font
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13. Rule #7
Spelle Check
COPYRIGHT © 2012
And do not tell me you relied
on Microsoft…….

14. Rule #8:
Text is left justified
Numbers are right justified
Violators confuse the reader
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15. Rule #9:
Do not overdo color
and
Do not highlight in
COPYRIGHT © 2012
Use Spot color!

16. Rule #11:
Round your numbers to the
nearest thousand for
presentations
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17. Financials in your Slide deck
are a Marketing Effort!
Really?
COPYRIGHT © 2012

18. Provide cost-effective outsourced CFO support
Clients range from pre-revenue startups to later stage
privately held companies
Goals
(1) educate entrepreneurs to understand and
consider financial opportunities and implications
(2) handle all accounting/ financial matters so the
entrepreneurs can focus on driving the business
COPYRIGHT © 2012

19. David A. Fogel, CPA
Serial entrepreneurial CFO
Managing Director of Swifton CFOs LLC (since 2009)
Experience with high tech companies ranging from biotech to
telecom to healthcare IT to social media to…
Adjunct Instructor of Master’s Program:
Presenter & Mentor:
Member:
COPYRIGHT © 2013

20. Introducing the Financial Statements
• Balance Sheet
• Profit and Loss Statement
• Cash Flow Statement
COPYRIGHT © 2012

21. Balance Sheet
What you own/owe – point in time
Assets = Liabilities + Equity
Assets are good?
Capital expenditures (Fixed Asset) rule
Amount => $5,000 AND useful life > one year
Liabilities – Disclose, disclose, disclose
COPYRIGHT © 2012

22. Profit and Loss Statement
(Statement of Operations)
• What you earned
• Could represent cash activities but usually much
more……
• Management accounting can be more
informative, but need to have GAAP
• Earnings can be managed, but cash is a reality…
COPYRIGHT © 2012

23. Cash Flow Statement
• Where your cash came and went:
• Operations, Investing, or Financing
• Cash in the bank is a fact
• Investors are most interested in your use of $$
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24. Developing The Financial Forecast
1. Defined
2. What about the assumptions?
3. Creating the sales forecast
4. Spreading the numbers
5. Creating the statements
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25. Ty Danco
Member, Mass Medical Angels
Member, North Country Angels
"I'll never believe your revenue numbers
anyway, but I sure want to scrutinize your
assumptions and expenses!"
COPYRIGHT © 2012

26. Developing The Financial Forecast
1.What are financial projections?
Collection of statements that present
your business in numbers (IS, BS, CF, Cap)
“Does the story make sense?”
“Does the story add up?”
COPYRIGHT © 2012

27. Set your goals from top down
but…..
Prepare the model from the bottom up
then….start over
with your top down goals
COPYRIGHT © 2012

28. Developing The Financial Forecast
2. What about the assumptions?
Document the source of each number you produce - Why?
- Knowledge of the assumptions proves that the
entrepreneur understands the business
- Prove it to yourself
Sources of assumptions
- Desired goal to be obtained
- Primary market research – surveys, vendor quotes
- Second market research – purchased or gov’t information
- Estimated or best guess (really try not to SWAG)
COPYRIGHT © 2012

29. Developing The Financial Forecast
2. What about the assumptions? (part 2)
Start-up costs (uses of $)
Financing (sources of $)
Capital expenditures (costs with >1 yr life)
Fixed expense (cost of being in business)
Variable expense (cost of doing business)
Projected sales (anticipated revenue earned)
Cash flow (anticipated $ received and spent)
COPYRIGHT © 2012

30. • Expenses up to the point when you are open
for business…….which is when?
• List uses of money – describe how spent
• Like: Fixed assets & Working Capital
• Examples?
Fixed Assets = Equipment, Furniture
Working Capital = Rental deposits, Insurance
Start-up cost assumptions
COPYRIGHT © 2012

31. • Sources where $ will come from
• Where?
Entrepreneur and team
F&F
Bank loan (though not likely for start-ups)
Debt from owner or outside creditor
Non-dilutive financing (maybe )
Equity capital
• For loan – know amount, terms of repayment
(mos), and rate of interest or return
Financing assumptions
COPYRIGHT © 2012

32. • Costs that have a “lifetime” greater than one year
AND an individual or collective cost greater than $2k
• Predict some fixed assets by headcount, some by
significant changes in sales volume, some by
changes in product lines, etc.
• Examples: Leasehold improvements, Furniture &
fixtures, Machinery
• Note: Expense the PCs & Macs & iPads
(but keep track of them anyway)
Capital Expenditures
(aka Fixed Assets)
COPYRIGHT © 2012

33. • Costs of being in business
• Do not vary by sales volume (i.e. day-to-day)
• But DO increase as the business scales
• Create fixed cost projections on monthly basis
• Research through correspondence with outside
vendors
• Record the source & amount from each
vendor……..
• Examples: Rent, Utilities, Salaries, Benefits,
Marketing expenses, Administrative expenses
Fixed cost assumptions
COPYRIGHT © 2012

34. • Costs of doing business
• May vary directly with sales volume
• DO increase as the business scales
• Expenses incurred with the next “unit” of
product or service
• Research through correspondence with outside
vendors
• Examples: Materials, direct/indirect labor, and
shipping costs
Variable cost assumptions
COPYRIGHT © 2012

35. What product(s) and/or service(s)
Quantities
Price
When (seasonality/cyclicality)?
T&C’s
Projected sales assumptions
COPYRIGHT © 2012

36. • Convert your business activity to cash activity
• When will cash be collected from customers?
May vary by product line and by customer
Generally assume 45 days---though currently
customers are extending to 60 days
• When do you pay your vendor’s invoices?
May vary by product line and by vendor
Generally assume 30-45 days
Need to create “referenceable” vendors
Cash flow assumptions
COPYRIGHT © 2012

37. Ben Littauer
Member, Boston Harbor Angels
"I like to see a business model spreadsheet with
the assumptions clearly called out as variables.
Then I can twiddle the knobs and see how
sensitive profits are to the assumptions."
COPYRIGHT © 2012

38. Developing The Financial Forecast
3. Creating the sales forecast
BEST - Predict by customer as detailed as
possible
….but include customer turnover
BETTER – Predict by market
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39. Developing The Financial Forecast
3. Creating the sales forecast (part 2)
How do I start? Market research!
• Trade associations
• Primary & secondary research
• Gov’t resources
US Census Bureau
IRS Statistical Data
Select your geography
COPYRIGHT © 2012

40. Developing The Financial Forecast
3. Creating the sales forecast (part 3)
Small
Client
Medium
Client
Large
Client
Average Hours Per
Week
4 Hours 8 Hours 16 Hours
Average Contract $
Per Week
$500 $1,250 $2,500
Predict by client (customer) types
• By market
• By size
Then ID certain characteristics
COPYRIGHT © 2012

41. Developing The Financial Forecast
3. Creating the sales forecast (part 4)
Predict using Sales staff
• Assume lag time (3-6 mos.)
• Estimate the pipeline
• # of calls / meetings per staff
• # of sales per staff
• Remember: Not all staff start same date
• Spread out the volume by month – with
realistic goals
• ….Consider turnover of sales staff
COPYRIGHT © 2012

42. Forecast Trap:
Why they call them “Gross Sales”
• Returns
• Discounts
• Coupons
• Rebates
• Chargebacks
• Markdowns
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43. Forecast Trap:
Do not over-estimate
first year revenue
(what, we can’t sell millions in first month?)
COPYRIGHT © 2012

44. Developing The Financial Forecast
4. Spreading the Numbers
• Yes, you need to do it monthly -- for the entire period
• Avoid flat numbers – consider the meaning – use %
increases or $ per some type of unit
• Think: As headcount increases rent increases
(just not variably)
• Start with revenue, then cost of services
COPYRIGHT © 2012

45. Tip:
Integration
Must use an integrated model
Headcount added
Payroll and benefits calculation
Summarized employee costs
Income Statement
Cash Flow
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46. Tip:
Use Rounding
Use the MS Excel “rounding
function” --- otherwise your
numbers may not add up
(and some people are really a pain about this……)
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47. Question?
Is the methodology
Accrual or Cash?
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48. Tip:
Project payroll & benefits in detail
• Payroll & benefits are often the most costly
expense yet they are often neglected
• Project monthly to handle start dates
correctly (everyone cannot start in January)
• Match people adds with milestones
COPYRIGHT © 2012

49. Tip:
Projection Numbers are not separate from
the Company Plans
Company Plans
Milestone Projects Responsible Revenue/
Cost
Dates
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50. Multiple Model Trap:
One investor model,
Multiple options (triggers)
But…why not?
Fundamental changes made in base model
will not be reflected in the clones
COPYRIGHT © 2012

51. Tip:
Don’t forget the…..
Sales commissions – Direct connect them to your
sales staff’s (or sales rep) sales
Bonuses – Include with payroll
Recruiting expenses – Peg them to change in new
employees
Debt - Many forget to include Interest Expense on
the income statement even though the Company
has incurred Debt
COPYRIGHT © 2012

52. Presentation Suggestions
Steady, consistent evolution of the model
Revenue growth in $
Expenses over time in %
Know the % change for major components
(and be able to explain them)
Do not allocate G&A/Facilities expenses
COPYRIGHT © 2012

53. Tip:
Reasonableness
1. Once you think you are done take the
smell test --- Do the numbers really make
sense (i.e. can you really increase revenue
w/o an increase in costs)?
2. Do the Like-Kind test. Compare your
“metrics” versus your competition
COPYRIGHT © 2012

54. Creating the Statements
1. Consider it a Marketing Effort
2. Present the Pro-Forma Financial
Statement
3. Graph the Revenues, Income, and Cash
4. Present the Headcount
COPYRIGHT © 2012

55. ABC Co.
($ 000's omitted)
2010 2011 2012 2013 2014
Pro Forma Financial Statement
Revenue -$ 1,875$ 44,953$ 108,238$ 180,161$
Cost of Service - 1,162 12,739 5,369 -
Gross Margin - 712 32,214 102,868 180,161
38% 72% 95% 100%
Operating Expenses
Employee Costs 1,303 2,972 3,587 4,198 4,379
Professional Fees 253 637 1,780 1,230 1,135
Marketing & Travel 61 525 2,340 293 658
Administrative Expenses 60 55 232 41 47
Development & Pilot Manufacturing 409 819 262 965 1,733
Facility & Other 195 801 1,206 1,612 2,023
Total Expenses 2,282 5,807 9,407 8,340 9,976
Depreciation & Amortization 42 98 301 590 791
EBIT (2,324) (5,193) 22,507 93,939 169,394
Net Income (2,639) (5,411) 16,893 55,530 100,603
0% -289% 38% 51% 56%
Pro Forma Cash Flow
Cash from Operations (2,597) (5,313) 17,193 56,120 101,393
Cash from Working Capital (31) (936) (2,879) (2,754) (3,437)
Cash from Investments (57) (297) (1,052) (607) (600)
Cash from Financing 7,000 - 42,000 - -
Net Cash Flow 4,315 (6,545) 55,262 52,759 97,357
Ending Cash 6,644$ 99$ 55,360$ 108,119$ 205,476$
Income
Statement
Cash Flow
Statement
COPYRIGHT © 2012

56. ABC Company – Financials by Year
($000’s omitted)
COPYRIGHT © 2012
($25,000)
$25,000
$75,000
$125,000
$175,000
$225,000
2010 2011 2012 2013 2014
Revenue
Income
Cash
Milestone #1
Prototype
Milestone #2
Pilots
Milestone #3
Commercialization
Seeking $250k Investment

57. Universal Truths:
1. Project monthly, Present annually
2. Projections constantly change,
let them. Not an annual exercise.
Develop as a monthly exercise.
3. Financials must be consistent with rest
of presentation
4. P&L Income ≠ Cash Flow
(we know this right?)
COPYRIGHT © 2012

58. Don’t let Gust blow you away………
1. Set forecast in stone
2. Complete the boxes
3. Consistent with other docs and
financials
4. Be able to back it up (details?)
COPYRIGHT © 2013

60. COPYRIGHT © 2013
Thank you Ben Hron!

61. Contact Information:
Email:
Website:
Twitter:
Phone:
Cell:
COPYRIGHT © 2012

62. COPYRIGHT © 2012

63. COPYRIGHT © 2013

64. Even More Universal Truths:
• Be consistent – Don’t portray cost
categories (or individuals)
differently by year
• Have “Checks”
• Do not need to be hung up with
GAAP, but….don’t go rogue
COPYRIGHT © 2012