Bugs in version 6.2 Depreciation calculation Total by mnonths years 1 & 2: error in Sum, David Sinkey Month 3 year 1 Accounts Revc calculation; errror in formula Added to Revenue worksheet Average Revenue by Month by Quarter Bug: Operting expenses by months are based on % of revenues. What if have no sales Bug: If you change first year operting expenses manually, then have a problem with Bug: Inventory is based on % of revenues. Should be on Cost of Revenues Bug? Tax calculation monthly Montly Cash Flow: cash at the beginning of year 1 No Sum in preferred stock in Funding No incre/decre in preferred stock in Funding Monthly Cash flow does not show increase at beginning of year Cash Flow by months Capital espend by months not calculated Financing Actvitites not calculated. Tax loss carry forward: in monthly proj if go through loss carry forward, start pa Comps don't link What is point of Total Operating expenses by months? Instruction sheet: lines are not even
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Bugs in version 6.2
Depreciation calculation Total by mnonths years 1 & 2: error in Sum, David Sinkey
Month 3 year 1 Accounts Revc calculation; errror in formula
Added to Revenue worksheetAverage Revenue
by Monthby Quarter
Bug: Operting expenses by months are based on % of revenues. What if have no sales in early months, but have operating expenses. Same for Cost of RevenueBug: If you change first year operting expenses manually, then have a problem with monthly proj
Bug: Inventory is based on % of revenues. Should be on Cost of Revenues
Bug? Tax calculation monthly
Montly Cash Flow: cash at the beginning of year 1
No Sum in preferred stock in FundingNo incre/decre in preferred stock in FundingMonthly Cash flow does not show increase at beginning of year
Cash Flow by monthsCapital espend by months not calculatedFinancing Actvitites not calculated.
Tax loss carry forward: in monthly proj if go through loss carry forward, start paying taxes, then go negative. see BVSC
Comps don't link
What is point of Total Operating expenses by months?
Instruction sheet: lines are not even
Bug: Operting expenses by months are based on % of revenues. What if have no sales in early months, but have operating expenses. Same for Cost of RevenueBug: If you change first year operting expenses manually, then have a problem with monthly proj
Tax loss carry forward: in monthly proj if go through loss carry forward, start paying taxes, then go negative. see BVSC
Instructions Financial Projections Model v6.5
This financial model is designed to enable entrepreneurs and students project the financial results of their ventures for a five-year period. As with all models there are certain simplifying assumptions that have been made. Each of the assumption spreadsheet has an accompanying Notes box that provides suggestions on how to complete the worksheet and the underlying assumptions to the model.
You will notice that the cells in the spreadsheet are color-coded. This has been done to assist you in entering data, creating or changing formulae, or deleting data, formulae and links.
Enter data and information in Green shaded cells only.Blue shaded cells calculate results within a spreadsheet.Data in Yellow shaded cells is transferred to other worksheets.Purple shaded cells bring in data from other spreadsheets.
In the Green and Blue shaded cells, data and formulas may changed, moved or deleted. The current calculations are for illustration only -- you will need to tailor these spreadsheets to fit your plan.
In the Yellow shaded cells data and formulas may be changed, but not deleted.
DO NOT delete the Purple shaded cells -- they link one spreadsheet with others.
There are 7 principal spreadsheet outputs of this model: INCOME: Income Statement BALANCE: Balance Sheet CASHFLOW: Cash Flow Statement BREAKEVEN: Break-even analysis SUMMARY: Analysis of key measures INCOME-MOS: Income Statements by months for Years 1 to 5 CASHFLOW-MOS: Cash flow Statements by months for Years 1 and 2, and by quarters for Years 3 to 5 VAL-1 & VAL-2: Venture capital method for valuing companies
All other spreadsheets are to be used for calculating the underlying assumptions of the 7 principal spreadsheets:
COMPS: Industry Ratios REVENUE: Revenue Projections COST OF REV: Cost of Goods Sold OPER EXPEN: Operating Expenses PROP & EQUIP: Capital Expenditures, Depreciation, and Net Fixed Assets SALARIES: Salary Personnel EXTRA: Extraordinary Income and Expense TAXES: Tax calculation WORKCAP: Working Capital FUNDING: Equity, Debt, Interest Expense, Interest Income, Dividends and Retained Earnings
These assumption spreadsheets are linked to each other and to the 7 principal spreadsheets. When you make a change in one of the spreadsheets, the impact is automatically recalculated for all other spreadsheets.
When doing financial projections it is easy to get lost in the trees and lose the sense of what is reality. Most errors can be identified if you continuously ask your self “Does this result make sense?” The COMPS spreadsheet, where you look at peer companies, can be particularly helpful as a reality test.
There is an example in the model with which you can experiment. When you are ready to start your own projections, delete all the numbers in the green shaded cells, then you can begin to enter new numbers. Before you begin, make a copy of the model on a separate disk.
This original version of the model has been used since the mid-1980’s. It has undergone numerous revisions over that period. Since 1998, students in the Business Plan Preparation course of the University of Colorado have used it to prepare their business plans. We have appreciated their suggestions for improvements and would encourage all users to send us comments and suggestions.
Created by Frank Moyes and Stephen Lawrence Deming Center for Entrepreneurship College of Business and Administration University of Colorado Boulder September 2001
OPERATING EXPENSES Sales & Marketing 122,500 398,150 503,750 658,400 888,300 Research & Development 38,000 79,900 104,100 170,400 237,300 General and Administration 81,667 125,000 178,673 288,200 366,733 Total Operating Expenses 242,167 603,050 786,523 1,117,000 1,492,333 % of Revenues 48% 35% 34% 36% 36%
EARNINGS FROM OPERATIONS (70,238) 169,036 225,220 (134,821) 373,631
EXTRAORDINARY INCOME / (EXPENSE) (45,000) 0 0 0 0
EARNINGS BEFORE INTEREST & TAXES (115,238) 169,036 225,220 (134,821) 373,631
INTEREST INCOME / (EXPENSE) (86,000) (62,000) (38,000) (14,000) 10,000
NET EARNINGS BEFORE TAXES (201,238) 107,036 187,220 (148,821) 383,631
TAXES 0 0 (37,207) 0 (131,131)
NET EARNINGS (201,238) 107,036 150,013 (148,821) 252,500 % of Revenues -40.2% 6.3% 6.5% -4.8% 6.1%
document.xls 05/08/202321:23:54XYZ Company
Balance SheetYears 1 to 5($)
Begin Year 1 Year 2 Year 3 Year 4
ASSETS CURRENT ASSETS Cash 1,500,000 969,860 1,169,232 484,686 (53,457) Accounts Receivable 75,000 204,600 266,667 360,000 Inventories 88,000 245,520 320,000 432,000 Other Current Assets 9,000 24,552 32,000 43,200
Total Current Assets 1,500,000 1,141,860 1,643,904 1,103,353 781,743 PROPERTY & EQUIPMENT 43,762 100,048 162,857 244,286
TOTAL ASSETS 1,500,000 1,185,622 1,743,952 1,266,210 1,026,029
LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short Term Debt Accounts Payable & Accrued Expen 77,860 213,602 278,400 375,840 Other Current Liab 9,000 24,552 32,000 43,200 Current portion of long term debt 200,000 200,000 200,000 200,000 200,000
Total Current Liabilities 200,000 286,860 438,154 510,400 619,040
Total Equity 500,000 298,762 905,797 555,810 406,989 TOTAL LIABILITIES & EQUITY 1,500,000 1,185,622 1,743,952 1,266,210 1,026,029
0 0 0 0 0
LONG TERM DEBT (less current portion)
document.xls 05/08/202321:23:54
Year 5
(222,058)480,000 576,000
57,600 891,542 326,667
1,218,209
501,120 57,600
0 558,720
0
500,000 0
159,489 659,489
1,218,209
0
document.xls 05/08/202321:23:54XYZ Company
Cash Flow StatememtYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4OPERATING ACTIVITIES Net Earnings (201,238) 107,036 150,013 (148,821) Depreciation 11,238 23,714 32,190 53,571 Working Capital Changes
(Increase)/Decrease Accounts Receivable (75,000) (129,600) (62,067) (93,333)(Increase)/Decrease Inventories (88,000) (157,520) (74,480) (112,000)(Increase)/Decrease Other Current Assets (9,000) (15,552) (7,448) (11,200)Increase/(Decrease) Accts Pay & Accrd Expenses 77,860 135,742 64,798 97,440 Increase/(Decrease) Other Current Liab 9,000 15,552 7,448 11,200 Net Cash Provided/(Used) by Operating Activities (275,140) (20,628) 110,454 (203,143)
INVESTING ACTIVITIES Property & Equipment (55,000) (80,000) (95,000) (135,000) Other
Net Cash Used in Investing Activities (55,000) (80,000) (95,000) (135,000)
FINANCING ACTIVITIES Increase/(Decrease) Short Term Debt 0 0 0 0 Increase/(Decrease) Curr. Portion LTD 0 0 0 0 Increase/(Decrease) Long Term Debt (200,000) (200,000) (200,000) (200,000) Increase/(Decrease) Common Stock 0 500,000 (500,000) 0 Increase/(Decrease) Preferred Stock 0 0 0 0 Dividends Declared 0 0 0 0
Net Cash Provided / (Used) by Financing (200,000) 300,000 (700,000) (200,000)
INCREASE/(DECREASE) IN CASH (530,140) 199,372 (684,546) (538,143)
CASH AT BEGINNING OF YEAR 1,500,000 969,860 1,169,232 484,686 CASH AT END OF YEAR 1,500,000 969,860 1,169,232 484,686 (53,457)
document.xls 05/08/202321:23:54
Year 5
252,500 77,619
(120,000)(144,000)
(14,400)125,280
14,400 191,399
(160,000)
(160,000)
0 (200,000)
0 0 0 0
(200,000)
(168,601)
(53,457)(222,058)
XYZ Company NotesBreakEven AnalysisYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4 Year 5Revenue 500,000 1,705,000 2,300,000 3,080,000 4,110,000 Units of Customers 20,000 Average Price 25
Cost of RevenueVariable 194,000 612,950 832,400 1,568,000 1,507,500 Fixed 134,071 319,964 455,857 529,821 736,536 Total 328,071 932,914 1,288,257 2,097,821 2,244,036
Break-even Analysis Look at the Costs of Revenues and determine which costs are fixed and variable. Conduct a similar analysis of the Operating Expenses. Input these numbers in the appropriate cell of this worksheet. The break-even revenue is calculated automatically. To determine the break-even quantity, divide the break-even revenue by the average selling price per unit or customer.
The venture capital method assumes that a firm will undertake an Initial Public Offering (IPO) at some point in the future or be acquired, ie a “Liquidity Event”. The future value of the firm is determined by multiplying the earnings of the firm in the year of the Liquidity Event by the expected price/earnings (P/E) ratio that the market will support. (The long-run P/E ratio of NYSE stocks is about 15.) This provides the expected future value of the firm.
The present value of the firm is then calculated using a risk adjusted discount rate. Discount rates of 50 to 100% (and more) are frequently used in valuing start-up businesses to capture the inherently risky nature of new ventures. Similarly, venture capitalists frequently demand an Internal Rate of Return (IRR) of 100% (or more) in order to justify investing in a risky startup. (An IRR of 100% is equivalent to doubling the value of an investment every year.)
There are two valuation worksheets provided in the model:VAL-1 estimates the value of the company based on an initial investment of the start of the venture and a one-time liquidity event. The net income estimates for each of the five years need to be inputted manually, but you can easily make links directly to Net Income line in the Income Statement projections. Use the Negotiation Workspace to test various dilution assumptions.
Val-2 estimates the value of the company based on multiple rounds of investment. The timing of the each round of Investment and the IPO can be modified. Use the Negotiation Workspace to test various dilution assumptions.
G1
Valuation The venture capital method assumes that a firm will undertake an Initial Public Offering (IPO) at some point in the future or be acquired, ie a “Liquidity Event”. The future value of the firm is determined by multiplying the earnings of the firm in the year of the Liquidity Event by the expected price/earnings (P/E) ratio that the market will support. (The long-run P/E ratio of NYSE stocks is about 15.) This provides the expected future value of the firm. The present value of the firm is then calculated using a risk adjusted discount rate. Discount rates of 50 to 100% (and more) are frequently used in valuing start-up businesses to capture the inherently risky nature of new ventures. Similarly, venture capitalists frequently demand an Internal Rate of Return (IRR) of 100% (or more) in order to justify investing in a risky startup. (An IRR of 100% is equivalent to doubling the value of an investment every year.) There are two valuation worksheets provided in the model: VAL-1 estimates the value of the company based on an initial investment of the start of the venture and a one-time liquidity event. The net income estimates for each of the five years need to be inputted manually, but you can easily make links directly to Net Income line in the Income Statement projections. Use the Negotiation Workspace to test various dilution assumptions. Val-2 estimates the value of the company based on multiple rounds of investment. The timing of the each round of Investment and the IPO can be modified. Use the Negotiation Workspace to test various dilution assumptions.
XYZ Company NotesValuation Venture Capital MethodYears 1 to 5 What do if IPO happens before 3rd roundMultiple Rounds
Assumptions Ref CalculationMonth of IPO 48 AForecast annualized earnings at IPO $3,500,000 BP/E ratio at IPO 15 C
Investment Round First Second Third Month of Investment 0 12 24 CInvestor required IRR 100% 75% 50% DAmount of Investment $1,000,000 $1,000,000 $1,000,000 ERequired Monthly IRR 8.33% 6.25% 4.17% F D/12Duration of Investment 48 36 24 G A-C
CalculationsMarket Capitalization at IPO $52,500,000 H B*C
First Second Third Required FV for Investor at IPO $16,000,000 $5,359,375 $2,250,000 I E*(1+F)^GIndividual Investor's Share 30.5% 10.2% 4.3% J I/HIndividual Investor's ROI 1600% 536% 225% K I/EIndividual Investor's IRR 100% 75% 50% L (I/E)^(12/G)-1
Cumulative Investors' Share 30.5% 40.7% 45.0% M sum(J)Cumulative Founders' Share 69.5% 59.3% 55.0% N 1-M
Negotiations Round First Second Third Individual Investor's Share 15.0% 5.0% 3.0%FV for Investor at IPO $7,875,000 $2,625,000 $1,575,000 Individual Investor's ROI 788% 263% 158%Individual Investor's IRR 68% 38% 25%
Valuation
The venture capital method assumes that a firm will undertake an Initial Public Offering (IPO) at some point in the future or be acquired, ie a “Liquidity Event”. The future value of the firm is determined by multiplying the earnings of the firm in the year of the Liquidity Event by the expected price/earnings (P/E) ratio that the market will support. (The long-run P/E ratio of NYSE stocks is about 15.) This provides the expected future value of the firm.
The present value of the firm is then calculated using a risk adjusted discount rate. Discount rates of 50 to 100% (and more) are frequently used in valuing start-up businesses to capture the inherently risky nature of new ventures. Similarly, venture capitalists frequently demand an Internal Rate of Return (IRR) of 100% (or more) in order to justify investing in a risky startup. (An IRR of 100% is equivalent to doubling the value of an investment every year.)
There are two valuation worksheets provided in the model:VAL-1 estimates the value of the company based on an initial investment of the start of the venture and a one-time liquidity event. The net income estimates for each of the five years need to be inputted manually, but you can easily make links directly to Net Income line in the Income Statement projections. Use the Negotiation Workspace to test various dilution assumptions.
Val-2 estimates the value of the company based on multiple rounds of investment. The timing of the each round of Investment and the IPO can be modified. Use the Negotiation Workspace to test various dilution assumptions.
G1
Valuation The venture capital method assumes that a firm will undertake an Initial Public Offering (IPO) at some point in the future or be acquired, ie a “Liquidity Event”. The future value of the firm is determined by multiplying the earnings of the firm in the year of the Liquidity Event by the expected price/earnings (P/E) ratio that the market will support. (The long-run P/E ratio of NYSE stocks is about 15.) This provides the expected future value of the firm. The present value of the firm is then calculated using a risk adjusted discount rate. Discount rates of 50 to 100% (and more) are frequently used in valuing start-up businesses to capture the inherently risky nature of new ventures. Similarly, venture capitalists frequently demand an Internal Rate of Return (IRR) of 100% (or more) in order to justify investing in a risky startup. (An IRR of 100% is equivalent to doubling the value of an investment every year.) There are two valuation worksheets provided in the model: VAL-1 estimates the value of the company based on an initial investment of the start of the venture and a one-time liquidity event. The net income estimates for each of the five years need to be inputted manually, but you can easily make links directly to Net Income line in the Income Statement projections. Use the Negotiation Workspace to test various dilution assumptions. Val-2 estimates the value of the company based on multiple rounds of investment. The timing of the each round of Investment and the IPO can be modified. Use the Negotiation Workspace to test various dilution assumptions.
document.xls 05/08/202321:23:55XYZ Company
SummaryYears 1 to 5
Year 1 Year 2 Year 3 Year 4 Year 5Summary Financials ($)
ReturnsReturn on Assets -17.0% 6.1% 11.8% -14.5% 20.7%Return on Equity -67.4% 11.8% 27.0% -36.6% 38.3%Return on Capital (LT Debt + Equity) -18.3% 7.1% 15.7% -24.5% 38.3%
XYZ CompanyPeer Company Comparisons
Select BestCompany A Company B Company C Comparison Projections
Ratios Year 1Accounts Receivable % of Rev 8.3%Inventory % of Rev 10.0%Accounts Payable % of Rev 8.7%Working Capital % of Rev 9.6%Net Fixed Assets % of Rev 8.8%Current Ratio 4.0 Debt to Capital (LT Debt + Equity) 0.73
ProfitabilityGross Profit % of Rev 34.4%Operating Expenses % of Rev 51.6%Earnings from Operations % of Rev -14.0%EBIT % of Rev -23.0%Depreciation % of Rev 2.2%EBITDA % of Rev -20.8%Net Earnings % of Rev -40.2%
ReturnsReturn on Assets -17.0%Return on Equity -67.4%Return on Capital (LT Debt + Equity) -18.3%
Total 4th Quarter 200,000 596,750 800,000 1,080,000 1,440,000 Total for year 500,000 1,705,000 2,300,000 3,080,000 4,110,000
Average Revenue by Month 41,667 142,083 191,667 256,667 342,500 by Quarter 125,000 426,250 575,000 770,000 1,027,500
Revenue Projections
To project revenues:1) Determine the key revenue drivers for your business, e.g. a) Number of customers, transactions or units b) Price per customer, transaction or unit c) Average revenue per customer or transaction d) Distribution channel discount e) Market penetration f) Response rate g) Churn rate (proportion of customers lost each year) h) Growth rate i) New services or products
2) Create a revenue model for the 5 years, based on the drivers that you have identified.
3) Estimate revenues by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as a) Roll out timing b) Growth rate c) Seasonality d)When get Customer
H1
Revenue Projections To project revenues: 1) Determine the key revenue drivers for your business, e.g. a) Number of customers, transactions or units b) Price per customer, transaction or unit c) Average revenue per customer or transaction d) Distribution channel discount e) Market penetration f) Response rate g) Churn rate (proportion of customers lost each year) h) Growth rate i) New services or products 2) Create a revenue model for the 5 years, based on the drivers that you have identified. 3) Estimate revenues by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as a) Roll out timing b) Growth rate c) Seasonality d)When get Customer
Total 4th Quarter 131,229 326,520 448,089 735,600 786,231 Total for year 328,071 932,914 1,288,257 2,097,821 2,244,036
Cost of Revenue Projections To project Cost of Revenues: 1) Determine the key drivers of costs to provide the service or product, e.g.a) Personnel costs (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)b) Depreciation resulting from large capital expenditures (this is calculated automatically when you estimate capital expenditures in PROP & EQUIP spreadsheet)c) Materials costsd) Yields or scrap ratese) Website operating costsf) Systems costsg) Warehouse and shipping expensesh) Maintenance expensesi) Returnsj) Outsourcing expensesk) Lease and/or rental expensesl) Cost reductionsm) Capacity utilization
2) Estimate All Other Costs that will be required to produce and deliver the product/services by projecting a % of Revenue. The model assumes the same % over the 5-year period. If this is not the case, then change the formula in each cell.
3) Evaluate these cost projections in relation to comparable companies (see the COMPS worksheet). Is the Cost of Revenue/Revenue ratio reasonable when compared to companies similar to yours?
4) Analyze the Cost of Revenues to determine which are variable and fixed costs. Enter these into the worksheet where shown. This allocation will be used in the BREAKEVEN spreadsheet to determine the break-even point.
5) Estimate Cost of Revenues by months for years 1 & 2 and by quarters for years 3, 4 and 5. The model assumes that the Cost of Revenue/Revenue ratio for a particular year is consistent through out the year. This may not be the case, particular in the first and second years. Consider such factors as:a) Product or service roll out timingb) Cost reduction timingc) Inefficiencies when starting up new plant and equipmentd) Growth ratee) Seasonality
H1
Cost of Revenue Projections To project Cost of Revenues: 1) Determine the key drivers of costs to provide the service or product, e.g. a) Personnel costs (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet) b) Depreciation resulting from large capital expenditures (this is calculated automatically when you estimate capital expenditures in PROP & EQUIP spreadsheet) c) Materials costs d) Yields or scrap rates e) Website operating costs f) Systems costs g) Warehouse and shipping expenses h) Maintenance expenses i) Returns j) Outsourcing expenses k) Lease and/or rental expenses l) Cost reductions m) Capacity utilization 2) Estimate All Other Costs that will be required to produce and deliver the product/services by projecting a % of Revenue. The model assumes the same % over the 5-year period. If this is not the case, then change the formula in each cell. 3) Evaluate these cost projections in relation to comparable companies (see the COMPS worksheet). Is the Cost of Revenue/Revenue ratio reasonable when compared to companies similar to yours? 4) Analyze the Cost of Revenues to determine which are variable and fixed costs. Enter these into the worksheet where shown. This allocation will be used in the BREAKEVEN spreadsheet to determine the break-even point. 5) Estimate Cost of Revenues by months for years 1 & 2 and by quarters for years 3, 4 and 5. The model assumes that the Cost of Revenue/Revenue ratio for a particular year is consistent through out the year. This may not be the case, particular in the first and second years. Consider such factors as: a) Product or service roll out timing b) Cost reduction timing c) Inefficiencies when starting up new plant and equipment d) Growth rate e) Seasonality
document.xls 05/08/202321:23:55XYZ Company
Operating ExpensesYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4 Year 5
Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000
Sales & MarketingDrivers
Salaries and Benefits 57,500 126,500 204,750 258,000 354,000 Commissions % of Revenue 5% 25,000 85,250 115,000 154,000 205,500 Exhibitions 50,000
All other expenses % of Revenue 8% 40,000 136,400 184,000 246,400 328,800 Total Sales and Marketing 122,500 398,150 503,750 658,400 888,300 % of Revenue 24.5% 23.4% 21.9% 21.4% 21.6%
Research & DevelopmentDrivers
Salaries and Benefits 23,000 28,750 35,100 78,000 114,000 Prototypes
All other expenses % of Revenue 3% 15,000 51,150 69,000 92,400 123,300 Total Reaserch & Development 38,000 79,900 104,100 170,400 237,300 % of Revenue 7.6% 4.7% 4.5% 5.5% 5.8%
To project operating expenses:1) Determine the key drivers of operating expenses, e.g.a) Sales & Marketingi) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)ii) Customer acquisition costiii) Sales commissionsiv) Exhibitionsv) Brand buildingvi) Catalogvii) Customer serviceviii) Tech supportix) Customer serviceb) Research and Developmenti) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)ii) Beta testingiii) Time to marketiv) Patent and copyright application v) Prototypingvi) Subcontractingc) General and Administrationi) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)ii) Depreciation resulting from large capital expenditures (this is calculated automatically when you estimate capital expenditures in PROP & EQUIP spreadsheet)iii) Legal, accounting and other service provider expensesiv) Credit card transaction feesv) Recruiting expensesvi) MIS expensesvii) Office rent and utilities
2) Make provisions in each of the operating expenses categories for all the other operating expenses that are not significant enough to be considered a driver. These might include marketing materials, travel and entertainment, insurance, leasing, telecommunications, etc.
3) Evaluate the projection of the Operating Expense/Revenue ratio for Sales & Marketing, Research & Development, and General & Administration in relation to comparable companies (see the COMPS worksheet). Is the Operating Expense/Revenue ratio reasonable when compared to companies similar to yours?
4) Estimate operating expenses for Sales & Marketing, Research & Development, and General & Administration by months for years 1 & 2 and by quarters for years 3, 4 and 5.
The model automatically projects the monthly and quarterly expenses by multiplying each month’s or quarter’s Revenue by the year’s operating expense/revenue ratio. This may not be accurate, particularly in the first and second years. Consider such factors as:a) Product or service roll out timingb) Major events, e.g. opening a new location, product launchc) Growth rated) Seasonality
Also, in many new businesses there are little or no revenues in the early months. Conversely, operating expenses can be very high, as you get ready to launch the business. The method used by model may vastly underestimate these early month expenses and you should make suitable adjustments.
H1
Operating Expense Projections To project operating expenses: 1) Determine the key drivers of operating expenses, e.g. a) Sales & Marketing i) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet) ii) Customer acquisition cost iii) Sales commissions iv) Exhibitions v) Brand building vi) Catalog vii) Customer service viii) Tech support ix) Customer service b) Research and Development i) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet) ii) Beta testing iii) Time to market iv) Patent and copyright application v) Prototyping vi) Subcontracting c) General and Administration i) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet) ii) Depreciation resulting from large capital expenditures (this is calculated automatically when you estimate capital expenditures in PROP & EQUIP spreadsheet) iii) Legal, accounting and other service provider expenses iv) Credit card transaction fees v) Recruiting expenses vi) MIS expenses vii) Office rent and utilities 2) Make provisions in each of the operating expenses categories for all the other operating expenses that are not significant enough to be considered a driver. These might include marketing materials, travel and entertainment, insurance, leasing, telecommunications, etc. 3) Evaluate the projection of the Operating Expense/Revenue ratio for Sales & Marketing, Research & Development, and General & Administration in relation to comparable companies (see the COMPS worksheet). Is the Operating Expense/Revenue ratio reasonable when compared to companies similar to yours? 4) Estimate operating expenses for Sales & Marketing, Research & Development, and General & Administration by months for years 1 & 2 and by quarters for years 3, 4 and 5. The model automatically projects the monthly and quarterly expenses by multiplying each month’s or quarter’s Revenue by the year’s operating expense/revenue ratio. This may not be accurate, particularly in the first and second years. Consider such factors as: a) Product or service roll out timing b) Major events, e.g. opening a new location, product launch c) Growth rate d) Seasonality Also, in many new businesses there are little or no revenues in the early months. Conversely, operating expenses can be very high, as you get ready to launch the business. The method used by model may vastly underestimate these early month expenses and you should make suitable adjustments.
document.xls 05/08/202321:23:55XYZ Company
PersonnelYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4 Year 5
Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000
Total G & A Compensation 60,000 75,900 119,340 201,600 241,200 % of Revenue 12.0% 4.5% 5.2% 6.5% 5.9%
Personnel Expenses
To project personnel expenses:1) Determine key personnel to be recruiteda) Sales and Marketingb) Research and Developmentc) General and Administratived) Cost of Revenuei) Salaryii) Hourly
2) For each of the above areas indicatea) Position or titleb) Number of employeesc) When will be hiredd) Salary or wages.
3) If you are projecting significant growth over the period, then you should make sure that salaries of the key employees are roughly comparable to companies in the same industry and size. For example, you may be successful in attracting the Chief Marketing Officer to your company with a generous options package, but “low” salary of $100,000 in the first two years of operations. If your company grows to $50 million in revenues in year 3, then you will have to begin the pay close the market rate for company of that size.
One of the most common mistakes new entrepreneurs make is to vastly underestimate the salary levels that the company must pay to attract key personnel. You need to determine the market rate in your area and industry for personnel.
4) Determine the benefits package as a % of base pay. This should include legally required employer deductions such as FICA and Workman’s comp, as well as health insurance, pensions and other benefits.
5) Determine incentive plan (options, profit sharing, bonus). Estimate the cost and include it in the Administrative Expense section of the Operating Expenses worksheet.
H1
Personnel Expenses To project personnel expenses: 1) Determine key personnel to be recruited a) Sales and Marketing b) Research and Development c) General and Administrative d) Cost of Revenue i) Salary ii) Hourly 2) For each of the above areas indicate a) Position or title b) Number of employees c) When will be hired d) Salary or wages. 3) If you are projecting significant growth over the period, then you should make sure that salaries of the key employees are roughly comparable to companies in the same industry and size. For example, you may be successful in attracting the Chief Marketing Officer to your company with a generous options package, but “low” salary of $100,000 in the first two years of operations. If your company grows to $50 million in revenues in year 3, then you will have to begin the pay close the market rate for company of that size. One of the most common mistakes new entrepreneurs make is to vastly underestimate the salary levels that the company must pay to attract key personnel. You need to determine the market rate in your area and industry for personnel. 4) Determine the benefits package as a % of base pay. This should include legally required employer deductions such as FICA and Workman’s comp, as well as health insurance, pensions and other benefits. 5) Determine incentive plan (options, profit sharing, bonus). Estimate the cost and include it in the Administrative Expense section of the Operating Expenses worksheet.
Total Wage Costs 69,000 227,700 317,400 414,000 552,000 Total COR's Compensation 149,500 336,950 455,400 615,250 799,250 % of Revenue 29.9% 19.8% 19.8% 20.0% 19.4%
Total Salary & Wages 260,000 494,000 703,000 983,000 1,286,000 Total Benefits 30,000 74,100 111,590 169,850 222,450 Total Compensation 290,000 568,100 814,590 1,152,850 1,508,450 % of Revenue 58.0% 33.3% 35.4% 37.4% 36.7%
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Personnel Expenses
To project personnel expenses:1) Determine key personnel to be recruiteda) Sales and Marketingb) Research and Developmentc) General and Administratived) Cost of Revenuei) Salaryii) Hourly
2) For each of the above areas indicatea) Position or titleb) Number of employeesc) When will be hiredd) Salary or wages.
3) If you are projecting significant growth over the period, then you should make sure that salaries of the key employees are roughly comparable to companies in the same industry and size. For example, you may be successful in attracting the Chief Marketing Officer to your company with a generous options package, but “low” salary of $100,000 in the first two years of operations. If your company grows to $50 million in revenues in year 3, then you will have to begin the pay close the market rate for company of that size.
One of the most common mistakes new entrepreneurs make is to vastly underestimate the salary levels that the company must pay to attract key personnel. You need to determine the market rate in your area and industry for personnel.
4) Determine the benefits package as a % of base pay. This should include legally required employer deductions such as FICA and Workman’s comp, as well as health insurance, pensions and other benefits.
5) Determine incentive plan (options, profit sharing, bonus). Estimate the cost and include it in the Administrative Expense section of the Operating Expenses worksheet.
document.xls 05/08/202321:23:55XYZ Company
Extraordinary Income & ExpenseYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4 Year 5
Income (Item…) 0 (Item…) (Item…)
Total 0 0 0 0 0 Start-up expenses
Legal 25,000 Relocation 20,000
(Item…)Total 45,000 0 0 0 0
Total Extraordinary Income/(Expense) (45,000) 0 0 0 0
Extraordinary Income and Expense by Months & Quarters($)
Year 1 Year 2 Year 3 Year 4 Year 5Month 1 (25,000)Month 2 (20,000)Month 3
Total 4th Quarter 0 0 0 0 0 Total for year (45,000) 0 0 0 0
Extraordinary Income & ExpenseTo project extraordinary Income & Expense, estimate those amounts that are one of a kind or nonrecurring.
Estimate Extraordinary Income & Expenses by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider major events such as product or service rollout, acquisition, initial public offering, etc.
H1
Extraordinary Income & Expense To project extraordinary Income & Expense, estimate those amounts that are one of a kind or nonrecurring. Estimate Extraordinary Income & Expenses by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider major events such as product or service rollout, acquisition, initial public offering, etc.
document.xls 05/08/202321:23:55XYZ Company
TaxesYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4 Year 5
Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000
Income Tax (Rate Federal & State) 0.40 0.40 0.40 0.40 0.40
Net Earnings Before Taxes (201,238) 107,036 187,220 (148,821) 383,631 Cumulative (201,238) (94,203) 93,017 (55,804) 327,827
TaxesDetermine the appropriate federal, state and local income tax rates. If you have losses in the initial years, the loss carry-forward is automatically calculates
H1
Taxes Determine the appropriate federal, state and local income tax rates. If you have losses in the initial years, the loss carry-forward is automatically calculates
document.xls 05/08/202321:23:55XYZ Company
Property and EquipmentYears 1 to 5($)
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Purchased
Net Revenues Assets 500,000 1,705,000 2,300,000 3,080,000 4,110,000
Total Capital Expenditures 0 55,000 80,000 95,000 135,000 160,000 % of Revenue 11.0% 4.7% 4.1% 4.4% 3.9%
Depreciation Computers, Sofware & Office Equipment (allocated to General & Administrative Expenses) Depreciation Rate: Years 2 3 3 3 3 3 Year 0 0 0 0 0 0 Year 1 6,667 6,667 0 0 0 Year 2 3,333 3,333 3,333 Year 3 5,000 5,000 5,000 Year 4 6,667 6,667 Year 5 11,667
Total Depreciation 6,667 10,000 8,333 15,000 23,333
Depreciation on Plant and Equipment (allocated to Cost of Revenue) Depreciation Rate: Years 5 7 7 7 7 7 Year 0 0 0 0 0 0 Year 1 3,571 3,571 3,571 3,571 3,571 Year 2 7,143 7,143 7,143 7,143 Year 3 7,143 7,143 7,143 Year 4 10,714 10,714 Year 5 10,714
Total Depreciation 3,571 10,714 17,857 28,571 39,286
Depreciation Other (allocated to Cost of Revenue) Depreciation Rate: Years 6 10 10 10 10 10 Year 0 0 0 0 0 0 Year 1 1,000 1,000 1,000 1,000 1,000 Year 2 2,000 2,000 2,000 2,000 Year 3 3,000 3,000 3,000 Year 4 4,000 4,000 Year 5 5,000
Total Depreciation 1,000 3,000 6,000 10,000 15,000
document.xls 05/08/202321:23:55
Total Depreciation 11,238 23,714 32,190 53,571 77,619 % of Revenue 2.2% 1.4% 1.4% 1.7% 1.9%
Total 4th Quarter 0 0 Total for year 55,000 80,000 95,000 105,000 120,000
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Property & Equipment To project property and equipment, capital expenditures, depreciation, accumulated depreciation:1) Determine the major capital expenditure projects for 5 years, e.g. property, plant, equipment, computers, servers, systems, software, furniture and fixtures, etc. Keep in mind that software, system design, training can be equal to or greater than the cost of hardware.
Sometimes a new business may be able to purchase the assets of an existing business. The depreciation rates for these assets may be different than that of new capital expenditures. The model will calculate the depreciation and net asset value of the expenditures.
2) Estimate the level on-going capital expenditures.
3) Determine the expected life for the each of the expenditures. Depreciation will be calculated on a straight-line basis. The model assumes that full 12-month’s depreciation is taken in the year that the expenditure takes place. The model groups expenditures into three categories:a) Computers, software and office equipment (depreciation allocated to General & Administrative expenses)b) Plant and equipment (depreciation allocated to Cost of Revenue)c) Other (depreciation allocated to General & Administrative expenses)
If you are a capital-intensive business, you may need more categories of expenditures with different depreciation rates. The model can be modified, but you will need to establish links to the appropriate cost/expense spreadsheets.
4) Estimate capital expenditure by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as:a) Product or service roll out timingb) Capacity utilizationc) New process development and technologyd) Equipment and systems obsolecencee) Cost reduction timingf) Growth rateg) Seasonality
H1
Property & Equipment To project property and equipment, capital expenditures, depreciation, accumulated depreciation: 1) Determine the major capital expenditure projects for 5 years, e.g. property, plant, equipment, computers, servers, systems, software, furniture and fixtures, etc. Keep in mind that software, system design, training can be equal to or greater than the cost of hardware. Sometimes a new business may be able to purchase the assets of an existing business. The depreciation rates for these assets may be different than that of new capital expenditures. The model will calculate the depreciation and net asset value of the expenditures. 2) Estimate the level on-going capital expenditures. 3) Determine the expected life for the each of the expenditures. Depreciation will be calculated on a straight-line basis. The model assumes that full 12-month’s depreciation is taken in the year that the expenditure takes place. The model groups expenditures into three categories: a) Computers, software and office equipment (depreciation allocated to General & Administrative expenses) b) Plant and equipment (depreciation allocated to Cost of Revenue) c) Other (depreciation allocated to General & Administrative expenses) If you are a capital-intensive business, you may need more categories of expenditures with different depreciation rates. The model can be modified, but you will need to establish links to the appropriate cost/expense spreadsheets. 4) Estimate capital expenditure by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as: a) Product or service roll out timing b) Capacity utilization c) New process development and technology d) Equipment and systems obsolecence e) Cost reduction timing f) Growth rate g) Seasonality
document.xls 05/08/202321:23:55
Property & Equipment To project property and equipment, capital expenditures, depreciation, accumulated depreciation:1) Determine the major capital expenditure projects for 5 years, e.g. property, plant, equipment, computers, servers, systems, software, furniture and fixtures, etc. Keep in mind that software, system design, training can be equal to or greater than the cost of hardware.
Sometimes a new business may be able to purchase the assets of an existing business. The depreciation rates for these assets may be different than that of new capital expenditures. The model will calculate the depreciation and net asset value of the expenditures.
2) Estimate the level on-going capital expenditures.
3) Determine the expected life for the each of the expenditures. Depreciation will be calculated on a straight-line basis. The model assumes that full 12-month’s depreciation is taken in the year that the expenditure takes place. The model groups expenditures into three categories:a) Computers, software and office equipment (depreciation allocated to General & Administrative expenses)b) Plant and equipment (depreciation allocated to Cost of Revenue)c) Other (depreciation allocated to General & Administrative expenses)
If you are a capital-intensive business, you may need more categories of expenditures with different depreciation rates. The model can be modified, but you will need to establish links to the appropriate cost/expense spreadsheets.
4) Estimate capital expenditure by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as:a) Product or service roll out timingb) Capacity utilizationc) New process development and technologyd) Equipment and systems obsolecencee) Cost reduction timingf) Growth rateg) Seasonality
document.xls 05/08/202321:23:55XYZ Company
Working CapitalYears 1 to 5($)
Year 1 Year 2 Year 3 Year 4 Year 5Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000
Accounts ReceivableDays Outstanding 30 30 30 30 30% of Revenue 8.3% 8.3% 8.3% 8.3% 8.3%Accounts Receivable 75,000 204,600 266,667 360,000 480,000 (Increase)/Decrease from Prev. Period (75,000) (129,600) (62,067) (93,333) (120,000)
InventoryInventory Turns 10 10 10 10 10% of Revenue 10.0% 10.0% 10.0% 10.0% 10.0%Inventory Days 36 36 36 36 36Inventory 88,000 245,520 320,000 432,000 576,000 (Increase)/Decrease from Prev. Period (88,000) (157,520) (74,480) (112,000) (144,000)
Other Current Assets% of Revenue 1.0% 1.0% 1.0% 1.0% 1.0%Days 4 4 4 4 4 Other CA Value 9,000 24,552 32,000 43,200 57,600 (Increase)/Decrease from Prev. Period (9,000) (15,552) (7,448) (11,200) (14,400)
Accounts Payable & Accrued Expenses% of Revenue 8.7% 8.7% 8.7% 8.7% 8.7%Days 31 31 31 31 31 AP & Accrued Value 77,860 213,602 278,400 375,840 501,120 Increase/(Decrease) from Prev. Period 77,860 135,742 64,798 97,440 125,280
Other Current Liabilites% of Revenue 1.0% 1.0% 1.0% 1.0% 1.0%
H1
document.xls 05/08/202321:23:55
Days 4 4 4 4 4 Other Current Liabilities 9,000 24,552 32,000 43,200 57,600 Increase/(Decrease) from Prev. Period 9,000 15,552 7,448 11,200 14,400
Revenues by Months & Quarters($)
Year 1 Year 2 Year 3 Year 4 Year 5Month 1 0 85,250 0 0 0 Month 2 0 85,250 0 0 0 Month 3 0 119,350 0 0 0
Long Term Debt ($)Year 1 Year 2 Year 3 Year 4 Year 5
Month 1Month 2Month 3
Total 1st QuarterMonth 4Month 5Month 6
Total 2nd QuarterMonth 7Month 8Month 9
Total 3rd QuarterMonth 10Month 11Month 12
Total 4th QuarterTotal for year
Funding
Look at Cash Flow projections to determine the amount of funding required. Decide whether equity or debt is most appropriate. For most start-ups, equity is required in the initial years.
If you decide to use debt, determine the type of loan (long term or short term); repayment terms and interest rate.
Interest Income not calculated automatically. Suggest look at cash balance on spreadsheet and make a rough approximation of the interest income, e.g.
Cash balance at the beginning of the year is $250,000 Cash balance at the end of the year is 500,000 Average balance for the year 375,000 Interest rate on 30 day Treasury bills is 5% Interest income for Year 3 is 18,750
Timing of FundingThe model assumes that equity and new debt funding occurs at the beginning of each year. Debt repayments take place at the end of each year and interest expense is calculated accordingly. If this is not the case then manual adjustments to the monthly income statements, balance sheets and cash flow statements are required.
H1
Funding Look at Cash Flow projections to determine the amount of funding required. Decide whether equity or debt is most appropriate. For most start-ups, equity is required in the initial years. If you decide to use debt, determine the type of loan (long term or short term); repayment terms and interest rate. Interest Income not calculated automatically. Suggest look at cash balance on spreadsheet and make a rough approximation of the interest income, e.g. Cash balance at the beginning of the year is $250,000 Cash balance at the end of the year is 500,000 Average balance for the year 375,000 Interest rate on 30 day Treasury bills is 5% Interest income for Year 3 is 18,750 Timing of Funding The model assumes that equity and new debt funding occurs at the beginning of each year. Debt repayments take place at the end of each year and interest expense is calculated accordingly. If this is not the case then manual adjustments to the monthly income statements, balance sheets and cash flow statements are required.