Business Plan Financials, A Survey Course

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UCSD ENTREPRENEUR UCSD ENTREPRENEUR CHALLENGE CHALLENGE

Business Plan FinancialsBusiness Plan FinancialsA survey courseA survey course

David W. KramerDavid W. KramerOutsource CFO ServicesOutsource CFO Services

David W. Kramer Outsource CFO 3

Business Plan FinancialsBusiness Plan Financials

Process, proofProcess, proof

MindsetMindset

StructureStructure

PresentationPresentation


ProcessProcess

Strategy is words – start here

Financials are dollarized words

They prove it’s fundable


ProcessProcess

Top Down: Good idea or Not?

Product/Service = Competitive Painkiller

Sales ResearchMarket size, growthCompetitionPricing ($), erosion

Cost of Goods Sold

Gross margin


ProcessProcess

Bottom Up – Make Money?

Operating Expenses:

Getting customers = marketing, sales Ads: online click-thru rates, etc.TradeshowsPersonal selling

Keeping them = Product development

Running the business = G&A


ProcessProcess

The bottom lines:

Operating Profit

Income Taxes/Credits (40%)

Net Income

Then: How fast can you break even?

Project 5 years, monthly. Scale up.


ProcessProcess

Can you sustain it? Cash flow:

Net Income plus:

-Capital expenditures+Depreciation+Prepaid Sales-Delay in collecting sales

Can you shorten your cash cycle?


ProcessProcess

Can you interest the investor?

Return: 5-10x investment in 4-7 years

Exit: probably acquisition

Speed to market/earnings on cash invested

Aggressive numbers, tempered by realism


ProofProof

Typical High Tech Investment Stages, 1-3 yrs.

Source Stage Pre-$ Val Funding

Family Concept $0.5-1M $50-250K

Angel 1 Prototype, Patent $1-3M $50-500K

Angel 2 Beta site/launch $2-3M $.05-1.5M

Venture A Volume mfg $6-10M $3-5M+


ProofProof

Typical Biotech Investment Stages, 1-3 yrs.

Source Stage Pre-$ Val Funding

Grants Target identified or lead identified

Negl. $100-500K

Private Equity

Target Validated orPrelim animal efficacy

$1.5M $250k-$1M

Venture A Animal efficacy/safetyFor IND, studies for IND

$5-10M $5-30M


ProofProof

Investor return = % ownership x exit valuation

Valuation = multiple of sales/earnings or stage level

Multiples: Industry-specific, need research


MindsetMindset

Fire in the belly + frugality

It’s not about the money – for you

Funding dilutes your ownership

Ask for as little as possible, stage it


StructureStructure

Workbook:

Summary tabs at left, details at right

1. PPT slides on tabs, linked to detail2. Input variables on tab(s), linked to detail3. Income Statement linked to:

Revenue and COGS detail tabOperating Expense detail tab

sub tabs: Mktg, Devel, G&A, Staffing


StructureStructure

Cash Flow may be added below I/S if:

Sales collections prompt

Sale earned upfront, not over time

Capital expenditures minimal


Structure Structure Backup of I/S + Cash FlowBackup of I/S + Cash Flow

% % % %

2002 2003 of rev 2004 of rev 2005 of rev 2006 of rev

REVENUE - 1,000 9,814 45,538 91,564 COGS - 250 2,889 9,108 13,735 Gross Margin - 750 75% 6,925 71% 36,431 80% 77,830 85%

RD&E 2,012 5,091 509% 9,762 99% 6,831 15% 10,988 12%

SG&A 2,528 5,368 537% 8,706 89% 9,108 20% 16,482 18%

Other (Income) or ExpensePretax (4,540) (9,710) (11,543) 20,492 50,360 Tax - - - - 15,084 NET INCOME (4,540) (9,710) (11,543) 20,492 35,276

Cash Flow Summary, sources (uses):Net Income (loss) (4,540) (9,710) (11,543) 20,492 35,276 Depreciation 183 826 1,617 5,250 7,500 Working Capital & Other 175 (1,552) 155% 4,438 -45% (13,661) 30% (22,891) 25%

Capex (373) (2,479) 248% (4,852) 49% (7,000) 15% (10,000) 11%

Cash Burn before Financing (4,556) (12,914) (10,340) 5,081 9,885 Equity Financing 14,000 Equipment Lease Financing (85) 1,322 2,587 5,600 8,000 Cash Burn 9,359 (11,592) (7,753) 10,681 17,885

Headcount 27 69 111 156 188

Revenue & Funding Forecast(US$ in thousands)


Structure Structure Additional elementsAdditional elements

Cash Flow, if separate from I/S

Balance Sheet, if needed

Detail tabs, above, spaced to right

Capital expenditure detail

Need solid basis for summary numbers


Presentation:Presentation: Exec. Summary/PPTExec. Summary/PPT

$M.1, if possible Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

Sales

Gross Margin

Net Income

Funding Needed

Cap. Expend., if any

Cash Balance

Technology Phase

Summary financials in one box/page:


Revenue detail in one box/page

Streams, $M.1, if possibleInput drivers: clicks, sales calls, etc.

Graphs, if helpful to show growth and how funding will be used

Presentation:Presentation: Exec. Summary/PPExec. Summary/PP

For all slides: Few lines, big type


You tell the story, slides back it up

Be in front of the audience, to side of screen

Presentation:Presentation: The PitchThe Pitch

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Business Plan Financials, A Survey Course

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