The document provides an agenda for a presentation on financial projections. It introduces the two speakers, Alicia Amaral and Heather Onsto, and their relevant experience. It then outlines the objectives of the presentation, which are to: 1) Force discipline and objectivity through a methodical approach, 2) Demonstrate a thorough understanding of the company's business model, and 3) Provide answers to "what if" scenarios. The document continues by addressing some common concerns and questions around building financial projections, emphasizing the importance of logical, consistent assumptions and tying projections to the company's growth drivers and key metrics.

1. Financial Projections for Presentations
September 18, 2012

2. Today’s
Speakers
Alicia
Amaral
Heather
Onsto,
• Managing
Director,
• Venture
Partner
with
Scalar
Analy<cs
LaunchCapital
(business
valua<on
• Interim
CEO
of
the
firm)
Nanny
Caddy,
a
• Visi<ng
Professor,
LaunchCapital
Clark
University
and
porSolio
company
TuIs
University
• Over
20
years
• CPA
and
CVA
experience
in
small
• Prior
CFO,
Sen<nel
business
finance
Financial
Group
and
• BA,
MBA,
and
the
far
IHI
more
expensive
• Recovering
auditor
School
of
Hard
Knocks
• BA,
Furman,
MSA,
Bentley

3. Financial
Projec<ons:
WIFM?
Today’s
presenta<on
will
focus
on
the
how
and
why
of
building
and
pitching
financial
projec<ons
• How:
Crea<ng
financial
projec<ons
using
a
spreadsheet
and
some
common
accoun<ng
knowledge
shows
you
where
to
focus
your
resources
• Why:
Crea<ng
financial
projec<ons
shows
investors
that
you
have
carefully
considered
all
financial
implica<ons

4. Financial
Projec<ons:
3
Objec<ves
1.
Force
discipline
and
objec<vity
through
crea<ng
a
methodical
approach
2.
Demonstrate
thorough
understanding
of
your
company’s
business
model
3.
Provide
answers
to
“what
if?”

5. Building
Projec<ons:
Yeah,
but…
I’ve
heard
that
I
don’t
really
have
to
build
a
business
plan
with
financial
projec8ons
because
no
one
actually
reads
it…
• Business
plans
with
financial
projec<ons
are
necessary…
FOR
YOU
– Bo,oms-­‐up
vs.
Top-­‐down
– HINT:
You're
trying
to
talk
yourself
out
of
this!
• Financial
projec<ons
are
a
key
por<on
of
the
due
diligence
most
investors
perform
Investors
are
more
interested
in
the
assump1ons
made
when
building
financial
projec1ons,
not
the
exact
bo;om
line

6. Building
Projec<ons:
Pulp
fic<on?
Projec8ons
are
just
imaginary
anyway,
so
what
does
it
maCer
what
I
put
in?
A
common
mistake
is
to
have
illogical
numbers
in
the
projec<ons
– All
numbers
should
be
<ed
to
your
growth
assump<ons
• Ex
1:
If
sales
cycle
is
6
weeks,
should
there
be
sales
in
month
1?
• Ex
2:
If
business
is
seasonal,
should
growth
be
smooth
in
every
month?
– All
numbers
should
<e
with
a
rough
cash
flow
statement
• Either
a
separate
tab
or
at
the
bo,om
of
the
P&L
Projec1ons
that
have
not
been
planned
properly
make
investors
ques1on
your
understanding
of
your
business
model

7. Building
Projec<ons:
What
if…
Scenario
planning
is
just
worst-­‐case
(out
of
business),
expected
(what
I
really
think
will
happen),
and
best-­‐case
(Google
buys
us
for
a
bazillion
dollars),
right?
Focus
on
YOUR
key
success
metrics
to
drive
scenario
planning
– Sales
trac<on
– Gross
margins
– Incremental
headcount
Fundraise
amount
range
should
encompass
most
likely
scenarios
to
avoid
expensive
“Bridge”
or
“A-­‐1”
rounds

8. More
on
Scenario
Planning…
Worst-­‐case
scenarios
should
answer
“What
happens
if
there
is
no
outside
capital?”
– if
the
answer
isn't
'grow
slower',
is
this
a
pipe
dream?
Best-­‐case
scenarios
should
answer
“What
does
this
business
look
like
if
everything
goes
right?”
– if
the
answer
isn’t
a
huge
financial
win
for
your
investor,
is
this
a
pipe
dream?
Most-­‐likely
scenarios
should
answer
“What
does
this
business
look
like
following
comparable
companies’
growth
paths?”
– if
the
answer
isn’t
able
to
be
funded
with
the
current
“ask”,
is
this
a
pipe
dream?
Goldilocks
got
it
right:
examine
all
op1ons!

9. Building
Projec<ons:
Common
terms
• EBITDA
• Margin
• Working
capital
• Sustainable
growth
rate
• Burn
rate
• Accrual
vs.
cash
basis
• Cash
flow
breakeven
• CapEx
• Capital
structure
• Cost
of
capital

10. Projec<ons:
Start
with
Revenue
Es<mate
1%
of
$100
bazillion
market
share

11. Projec<ons:
Start
with
Revenue
Es<mate
1%
of
$100
bazillion
market
share
JUST
KIDDING!

12. Projec<ons:
Start
with
Revenue
Take
a
“Bo,oms
Up”
approach
• Ex:
We
have
tracked
X
unique
visitors
to
our
website
and
with
an
industry
averages
2%
conversion
rate,
sales
will
be
Y.
• Ex:
Survey
revealed
customers
are
willing
to
pay
$X
for
an
app
with
Y
features.
• Ex:
Q4
sales
were
$X.
With
a
customer
acquisi<on
cost
of
$Y,
we
expect
a
20%
growth
rate
as
a
result
of
marke<ng
efforts
Econ
101:
revenue
=
price
*
volume.
Knowing
which
element
is
driving
your
company’s
revenue
is
a
key
metric.

13. Revenue
Assump<ons
-­‐
Tips
• Don’t
be
overly
conserva<ve
–
need
to
have
faith!
• Don’t
be
implausibly
op<mis<c
–
creates
credibility
issues

14. Building
Projec<ons:
How
it
works
• Have
an
assump8ons
page
and
reference
cells
for
your
Income
Statement
(don’t
hard
code
anything)
• A
separate
assump<ons
page
allows
flexibility
–
change
them
for
different
growth
scenarios
• Assump<ons
are
the
backbone
of
your
projec<ons,
so
you
should
know
them
COLD
Excel
is
your
friend,
but
be
careful
with
cell
references
–
it’s
easy
to
make
a
mistake!

15. Projec<ons:
Add
in
expenses
This
also
has
a
“Bo,oms-­‐up”
approach
• Include
details
of
all
categories
– Ex.
Headcount
is
a
step-­‐func<on
(hard
to
find
.25
person)
– Ex.
Income
taxes,
no;
Sales
tax,
use
tax,
payroll
tax…
yes!
• SG&A
– Marke<ng
– Development
– Overhead

16. Projec<ons:
Understand
EBITDA
piSalls
• EBITDA
excludes
expenses
that
are
not
core
to
a
company’s
opera<ons;
allows
for
comparisons
without
regard
to
capital
structure
(debt
vs.
equity)
• Be
careful
about
using
EBITDA
as
proxy
for
cash
flow
even
though
most
investors
expect
it
• EBITDA
excludes
deprecia<on
because
it’s
noncash
but
CapEx
requires
cash
“References
to
EBITDA
make
us
shudder
–
does
management
think
the
tooth
fairy
pays
for
capital
expenditures?”
–
Warren
Buffet

17. Projec<ons:
Cash
Flow
• Map
out
cash
inflows
and
ouSlows
to
determine
funding
needs
–
do
this
by
month!
• Revenue
collec<on
–
<ming
impacts
cash
projec<ons.
Collect
in
30
days?
60
days?
• Deprecia<on
=
noncash
expense
(include?)
• Don’t
forget
to
include
CapEx
in
cash
flow
(tooth
fairy
doesn’t
exist)

18. Projec<ons:
MORE
final
checks
"The
GOAL”
is
to
make
money
– Social
jus<ce,
triple
net
bo,om
line,
etc,
come
AFTER
profitability
• "You
can't
give
away
what
you
don't
have"
(unless
you're
the
Feds)
– You'll
need
space
one
day
that
isn't
free
– It
is
illegal
to
hire
someone
and
not
pay
them
– Equity
+
cash
=
total
compensa<on
• As
equity
values
increase,
cash
compensa<on
should
increase
as
the
less
expensive
long-­‐run
pay
op<on
(this
means
you
are
WINNING!)
– Research
financial
statements
to
get
an
idea
of
expenses
you
may
have
missed
– Research
how
much
things
cost
–
don’t
guess!

19. Pitching
projec<ons:
What’s
the
“ask”?
Fin
projec<ons
need
to
<e
to
the
amount
of
the
raise
– Fundraising
takes
<me,
so
12-­‐18
months
of
cash
per
raise
– Iden<fy
milestones
to
be
hit
and
cost
of
each
one
– The
sum
of
those
milestone
costs
is
the
raise
amount
– The
"cushion"
in
the
raise
is
not
X%,
it's
the
cost
difference
in
the
most
likely
scenarios
The
secret
to
life
is
“t”
– “t”
is
the
variable
for
“<me”
in
mathema<cal
equa<ons…
and
<me
in
projec<ons
is
everything

20. Pitching
Projec<ons:
Expert
moves
• Know
your
audience
– The
earlier
you
are,
the
more
interested
in
your
assump<ons
the
investors
are
–
so
know
you’ll
be
discussing
them
in
detail.
Painstaking
detail.
• Be
rich,
not
king
– Does
a
new
hire
cut
costs
or
increase
revenue?
This
will
drive
the
<ming
of
a
new
hire.
• Don’t
forget
that
headcount
is
a
step-­‐func<on
• What
is
B/E
expecta<on
for
a
new
hire?
– Good
metric
for
HC
is
sales/employee
–
these
numbers
are
benchmarked
and
available
with
some
research.

21. Pitching
Projec<ons:
Rookie
moves
– CTRL+C+P
en<re
excel
model
into
a
slide
– Using
anything
less
than
18-­‐point
font
– Li,ering
clipart
from
1995
– Sta<ng
projec<ons
to
the
$.01
– Failing
to
summarize
projec<ons
– Using
ANY
of
the
following
phrases:
• “conserva<vely
es<mated…”
• “at
only
X%
of
the
market…”
• “with
no
compe<<on…”
– Forgezng
to
explain
what
the
amount
you
raise
achieves
– Assuming
a
short-­‐term
exit
at
a
high
mul<ple

22. Bad
Example
Revenue
Custom
runners
$
480,000
624,000
811,200
1,054,560
1,370,928
Standard
runners 60,000
78,000
101,400
131,820
171,366
Total
Revenue
$
540,000
$
702,000
$
912,600
$
1,186,380
$
1,542,294
COGS
Custom
runners
$
120,000
$
156,000
$
202,800
$
263,640
$
342,732
Standard
runners 39,000
50,700
65,910
85,683
111,388
Total
COGS
$
159,000
$
206,700
$
268,710
$
349,323
$
454,120
GROSS
PROFIT
$
381,000
$
495,300
$
643,890
$
837,057
$
1,088,174
Expenses
Selling
Expenses
Commission
$
36,000
$
46,800
$
60,840
$
79,092
$
102,820
Marke<ng/Adver<sing 50,000
50,000
100,000
150,000
200,000
Research
and
Development 40,000
50,000
62,500
78,125
97,656
General
and
Administra<ve
Expenses
Office
Rent 30,000
30,000
30,000
30,000
30,000
Insurance 9,600
9,600
9,600
9,600
9,600
Office
U<li<es 4,800
4,800
4,800
4,800
4,800
Supplies 18,000
18,000
18,000
18,000
18,000
Salaries 120,000
120,000
120,000
120,000
120,000
Benefits 30,000
30,000
30,000
30,000
30,000
Miscellaneous
21,600
21,600
21,600
21,600
21,600
Total
Expenses
$
360,000
$
380,800
$
457,340
$
541,217
$
634,476
EBITDA
$
21,000
$
114,500
$
186,550
$
295,840
$
453,698

23. Good
Example
-­‐
Financial
Projec<ons
Stream 1
Stream 2
Salaries
Lease space
Equipment
Licensing

24. Good
Example
–
“Breakeven
2015”
Raise Raise
$750K $3 MM
24