financial planning for the startup ceo - entrepreneurship 101 (2013/2014)

For the startup CEO!

Presented by: Andrew GrahamMarch 2014!

Memory at Work

Pg 3!

Memory at Work

Pg 4!

Why  money  ma*ers  in  a  startup  

Have  to  pay  the  bills  

Sign  of  a  sustainable  business  model  

Desirable  outcome!!  

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

Pg 7!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Source: Company filings.!For teaching purposes, Depreciation & Amortization fully assigned to Tech & Content!

Memory at Work

Pg 7!

Revenue!!

Money brought into a company by its business

activities!

Revenue Forecasting!!

Top-down!vs.!

Bottom-up!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 8!

Cost of Sales!!

Costs that go into creating the products and services

that a company sells!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 9!

Gross Margin!!

Revenue minus cost of sales!

Amazon!!Linkedin!!Toyota!

!27%!!81%!!13%!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 10!

Operating Expenses!!

Business costs NOT related to producing goods &

services for sale!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 11!

Selling, General and Administrative Expenses

(SG&A)!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 12!

Research & Development!(“Technology & Content”)!

!Activities with the intention of making a discovery that can

lead to new or improved products!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 13!

Depreciation & Amortization!

!Reduction in the capital

value of an asset over time to account for wear & tear!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 14!

Interest & Other income and expenses!

!Income from interest

payments, dividends, etc!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 15!

Taxes!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 16!

Net income!!

Profit!!!

Amazon.com!Income Statement!

For the year ended Dec 31, 2013!

millions of USD!

Revenue! $ 74,452!Cost of sales! 54,181 !Gross margin! 20, 271!

Operating expenses!Selling, general & admin.! 12,847 !Technology & Content! 3,312!Depreciation & Amortization! 3,253 ! Total operating expenses! 19,412!

Income from operations! 745 !Interest & Other income and expenses! (310) !Taxes! 161 !

Net income! 274 !

Memory at Work

Pg 17!

Example: Tom’s Solar Power Company, Inc.!

Input Cost: !$50! Sell for: !$100!

Memory at Work

Pg 18!

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 !

 $-­‐    

 $100,000    

 $200,000    

 $300,000    

 $400,000    

Jan   Feb   Mar   Apr   May   Jun   Jul   Aug   Sep   Oct   Nov   Dec  

Revenue  

Memory at Work

Pg 19!

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)!

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)!

Memory at Work

Pg 20!

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)!

Memory at Work

Pg 21!

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)!

Memory at Work

Pg 22!

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)!

Memory at Work

Pg 23!

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)!

Memory at Work

Pg 24!

Memory at Work

Pg 25!

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)!

Memory at Work

Pg 26!

Memory at Work

Pg 27!

If you don’t forecast cash flows, you’re flying blind!!

Memory at Work

 Earnings Before Interest, Taxes, Depreciation and Amortization!

 A measure of a company’s cash flow from operations!

Pg 28!

Memory at Work

 Snapshot of assets and liabilities at a point in time!

Pg 29!

Memory at Work

Pg 30!

Tom's Solar Power Co, Inc!Balance Sheet!

February 29, 2012!

$!Assets!Cash! $ 13,000 !Accounts Receivable! 5,000 !Inventory (prepaid)! 7,500 !Building and Equipment! 50,000 !Land!  ! 100,000 !Total Assets! 175,500 !

Liabilities!Accounts Payable! - !Loan!  ! 25,000 !Total Liabilities! 25,000 !

Owner's Equity!  ! 150,500 !Total Liabilities and Owner's Eq.!  ! 175,500 !

Tom's Solar Power Co, Inc!Monthly Income Statement!

February 2012!$!

Feb!Revenue! 5,000 !Cost of Sales! 2,500 !Gross Margin! 2,500 !

SG&A! 1,000 !Net Income! 1,500 !

Cash Projection!

Starting Cash! 21,500 !Plus: Revenue (1 month delayed)! - !Minus: Cost of sales (1 month ahead)! 7,500 !Minus: SG&A! 1,000 !Cash gain/(loss)! (8,500)!

Ending Cash! 13,000 !

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 31!

Andrew Grahamagraham@marsdd.com!