financial planning/budgeting - entrepreneurship 101
TRANSCRIPT
For the startup CEO!
Presented by: Andrew GrahamMarch 2015!
Memory at Work
Pg 2!
Better borrowing for responsible Canadians
Memory at Work
Pg 3!
Memory at Work
Pg 4!
Memory at Work
Pg 5!
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 6!
Memory at Work
¨ Financial performance over a period of time!
¨ Usually for a year, quarter or month!
Pg 7!
Memory at Work
Pg 8!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
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, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
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, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
Gross Margin!!
Revenue minus cost of sales!
Amazon!Linkedin!Toyota!
!29%!!81%!!13%!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
Operating Expenses!!
Business costs NOT related to producing goods &
services for sale!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
Selling, General and Administrative Expenses
(SG&A)!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
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, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
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, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
Interest & Other income and expenses!
!Income from interest
payments, dividends, etc!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
Taxes!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 8!
Net income!!
Profit!!!
Amazon.com!Income Statement!
For the year ended Dec 31, 2014!
millions of USD!
Revenue! $ 88,988!Cost of sales! 62,752 !Gross margin! 26,236!
Operating expenses!Selling, general & admin.! 16,650 !Technology & Content! 4,529!Depreciation & Amortization! 4,746! Total operating expenses! 25,925!
Income from operations! 311 !Interest & Other income and expenses! (385)!Taxes! 167 !
Net income! (241) !
Source: Company filings.!Simplified for teaching purposes; not all lines match actual results!
Memory at Work
Pg 9!
Example: Tom’s Solar Power Company, Inc.!
Input Cost: !$50! Sell for: !$100!
Memory at Work
Pg 10!
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
$400,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Revenue
Memory at Work
Pg 11!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
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! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 11!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
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! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 11!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
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! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 11!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
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! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 11!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
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! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !
Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!
Memory at Work
Pg 11!
Memory at Work
Pg 11!
Tom's Solar Power Co, Inc!Monthly Income Statement!
January-June, 2012!$!
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 12!
Memory at Work
Pg 12!
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 13!
Memory at Work
¨ Snapshot of assets and liabilities at a point in time!
Pg 14!
Memory at Work
Pg 15!
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 16!
Andrew [email protected]!