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Start-up Financial Forecasting

This spreadsheet provides a step-by-step example of building a financial model.

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Start-up Financial Forecasting

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  1. Selena Sol presents…. BASIC FINANCIAL FORECASTING FOR START-UPS selena@selenasol.com http://www.linkedin.com/pub/eric-tachibana/0/33/b53 http://www.slideshare.net/selenasol/presentations

  2. EXERCISE NOTES The goal of this exercise is to provide a step-by-step example of how one would create a bottom-up financial forecast. To do this, we will build a single spreadsheet section by section. Each successive tab includes everything before it, but adds additional data THE BUSINESS For the purposes of this exercise, we'll imagine the following company. This is a B2B model, so if you have a B2C model, your resulting spreadsheet will look differently, but I bet, not significantly. We have developed a unique thread that has long-lasting anti-oxidant properties. Wearing clothes made from these threads is equivalent to wearing anti-oxidant skin cream or drinking anti-oxidant drinks, except that the effects last all day long (while you wear the clothes). We intend to sell the thread to clothes manufacturers who target female retail buyers (35-55) in North Asia (Years 1 & 2), then Europe (Year 3), and then North America (Year 5) The original XLS file can be downloaded at: http://selenasol.com/temp/Ground- up_Financial_Model_V3.xlsx

  3. PART 1: EXPLAINING VOLUME Since PROFIT = REVENUE - COST, and REVENUE = PRICE x VOLUME, if we want to explain profitability, we can start off by explaining the PRICE & VOLUME variables

  4. Step 1: EXPLAIN THE SEGMENTATION GROWTH PLAN Explaining volume ultimately starts with explaining your segmentation strategy. In our hypothetical case, we explained how the company would grow from North Asia to Europe and to North America. You don't need to use geographic segmentation, you could also use demographics, psychographics, buying processes, etc. to segment the market. But you should explain here how you phase the growth from segment to segment. 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth (+) N Asia N Asia (+) Europe Europe (+) N. America N. America N. America

  5. Step 2: IDENTIFY EXPECTATIONS ABOUT SALES Next, we should do some research into our segments. How many addressable customers are there? Also, of all the addressable customers, how many do we think we can realistically close given our capabilities in Sales? 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels / clothing manufacturers) Number of customers we expect to close (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America 45000 N. America 45000 45000 3 5 8 16 25 40 60

  6. Step 3: UNITS SOLD Now that we know how many customers we'll have, we need to guesstimate how many units we'll sell to each customer. Once we have that, it is pretty easy to calculate told units sold for each period. This gives us the critical number VOLUME in our formula. 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America 45000 N. America 45000 45000 3 5 8 16 25 40 60 6000 6000 8000 10000 160,000 15000 375,000 15000 600,000 20000 18,000 30,000 64,000 1,200,000 Total Bobbins Sold is a forumla cell (in this case, 6000 x 3)

  7. PART 2: EXPLAINING PRICE Now that we understand VOLUME, we need to estimate PRICE so that we can get to REVENUE (PRICE x VOLUME)

  8. Step 4: PRICING Finally, we should add our assumptions about pricing. It is worthwhile here to lay out the boundaries (references) that you've gathered from market research. The "Price Per Bobbin" is the actual one we use later in this spreadsheet, but the references rows provide inputs into our decision-making process around Price. You would need to propose relevant references points of course 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they would pay) (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe (+) N. America 10000 16 10000 160,000 3.2 6.00 $ 1.45 $ 2.35 $ N. America 45000 N. America 45000 45000 3 5 8 25 40 60 6000 18,000 6000 30,000 8000 64,000 15000 375,000 15000 600,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35

  9. Step 5: SANITY CHECK At this point, we want to take a step back and check our assumptions about volume by asking ourselves if we could actually deliver this with our sales organization. We need to speak with people who have sold similar products and ask them about how long it takes to sell, what % of attempted sales actually close, and how many deals a single salesperson can handle at any one time. We'll use this information later, but you can probably see where we are going with this test already. 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they wou SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate Number of deals that should be in the pipeline given close rate Simultaneous Pipeline deals per salesperson (capacity) Labels / Acct Manager (active accounts) (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America 45000 N. America 45000 45000 3 5 8 16 25 40 60 6000 18,000 6000 30,000 8000 64,000 10000 160,000 15000 375,000 15000 600,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 6 months / label 10% 30 15 10% 50 15 15% 53 15 20% 80 20 20% 125 20 20% 200 20 20% 300 25 5

  10. PART 3:ESTIMATED COSTS Now that we have estimated REVENUE by defining our assumptions around VOLUME and PRICE, it is time to look at COST

  11. Step 6: WORKFORCE GROWTH For 98% of start-ups out there, most of your cost will be tied up in people. So the next step is to ask how many people (doing what jobs) you'd need in order to deliver the revenue estimates. Some of these estimates (as you can see below) will be a formulas tied to volume growth (remember the sanity check we did earlier?). 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they wou SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate Number of deals that should be the pipeline given close rate Simultaneous Pipeline deals per salesperson (capacity) Labels / Acct Manager (active accounts) ASSUMPTIONS AROUND COST (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America 45000 N. America 45000 45000 3 5 8 16 25 40 60 6000 18,000 6000 30,000 8000 64,000 10000 160,000 15000 375,000 15000 600,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 6 months / label 10% 30 15 10% 50 15 15% 53 15 20% 80 20 20% 125 20 20% 200 20 20% 300 25 5 Worforce Growth Assumptions Acct Mgmt Sales Management (CEO, CFO, CTO, COO) Administration Engineering / Quality Management 0 2 4 1 1 1 3 4 1 2 2 4 4 2 2 3 4 4 2 4 5 6 4 4 4 8 10 4 4 5 12 12 4 6 7 In this row, we use the sales management assumptions above to mathematically derive the growth forecast. You'll note that we have a 2 in this cell because in order to achieve the "number of deals the should be in the pipeline given close rate" of 30, and given the face that we have estimated that "Simultaneous pipeline delas per salesperson" is 15. (30/15=2). Given our assumptions we'll need to hire 2 sales people For your business, I recommend that you develop assumptions (like the Sales Management Assumptions in this example) for every Workforce Row if you can. It is a good exercise to sanity check your own assumptions

  12. Step 7: SALARY Now, for each category of labour, specify the expected market salary. Note that salary expectations may change the more mature the company gets. Also, include a loading factor (additional people cost of insurance, national service, sick days, vacation days, etc on top of salary). I recommend 1.7. (YOU MAY NEED TO SCROLL DOWN) 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they wou SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate Number of deals that should be the pipeline given close rate Simultaneous Pipeline deals per salesperson (capacity) Labels / Acct Manager (active accounts) ASSUMPTIONS AROUND COST (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America N. America 45000 40 15000 600,000 3.2 6.00 $ 1.45 $ 2.35 $ 45000 45000 3 5 8 16 25 60 6000 18,000 6000 30,000 8000 64,000 10000 160,000 15000 375,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 6 months / label 10% 30 15 10% 50 15 15% 53 15 20% 80 20 20% 125 20 20% 200 20 20% 300 25 5 Worforce Growth Assumptions Acct Mgmt Sales Management (CEO, CFO, CTO, COO) Administration Engineering / Quality Management FTE Rate Assumptions (USD) 0 2 4 1 1 1 3 4 1 2 2 4 4 2 2 3 4 4 2 4 5 6 4 4 4 8 10 4 4 5 12 12 4 6 7 Acct Mgmt Salary (avg monthly) Sales Salary (avg monthly) Management Salary (avg monthly) Administration Salary (avg monthly) Engineering / Quality Management salary (avg monthly) FTE Loading Factor $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,000 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,500 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,000 4,000 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,500 4,000 9,000 2,000 7,000 1.7

  13. Step 8: OTHER COSTS Next add your assumptions around production and marketing costs (YOU MAY NEED TO SCROLL DOWN) 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they would p SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate Number of deals that should be the pipeline given close rate Simultaneous Pipeline deals per salesperson (capacity) Labels / Account manager (active accounts) ASSUMPTIONS AROUND COST Worforce Growth Assumptions (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America 45000 N. America 45000 45000 3 5 8 16 25 40 60 6000 18,000 6000 30,000 8000 64,000 10000 160,000 15000 375,000 15000 600,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 6 months / label 10% 30 15 10% 50 15 15% 53 15 20% 80 20 20% 125 20 20% 200 20 20% 300 25 5 Acct Mgmt Sales Management (CEO, CFO, CTO, COO) Administration Engineering / Quality Management FTE Rate Assumptions (USD) 0 2 4 1 1 1 3 4 1 2 2 4 4 2 2 3 4 4 2 4 5 6 4 4 4 8 10 4 4 5 12 12 4 6 7 Acct Mgmt Salary (avg monthly) Sales Salary (avg monthly) Management Salary (avg monthly) Administration Salary (avg monthly) Engineering / Quality Management salary (avg monthly) FTE Loading Factor Cost of Making & Selling $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,000 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,500 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,000 4,000 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,500 4,000 9,000 2,000 7,000 1.7 Cost of Sales / Acct Mgmt (commission) as a % of sales Cost of Marketing as a % of sales Rent (monthly) Cost per Bobbin from manufacturer Logistics & Distribution (cost per bobbin) Operating Infrastructure Costs (ERP, CRM, etc) Accounting Costs (outsourced) Legal Costs (IP management) 20% 15% 2,000 0.95 0.3 20% 15% 2,000 0.95 0.3 10,000 5,000 100,000 20% 15% 20% 15% 20% 15% 20% 15% 20% 15% 10,000 0.95 10,000 15,000 15,000 15,000 0.8 0.4 0.8 0.4 0.8 0.5 0.8 0.5 0.4 $ $ $ $ $ $ 50,000 10,000 120,000 $ $ $ 100,000 10,000 120,000 $ $ $ 100,000 10,000 30,000 $ $ $ 100,000 12,000 30,000 100,000 $ 12,000 $ 30,000 $ $ $ 5,000 100,000

  14. PART 4: FINANCIAL MODEL Now it is time to pull all your assumptions together into a financial model. IMPORTANT: The model should be 100% formula driven from here on out. So as you change the assumptions, the model changes automagically. Of course, that means that you do not change the cell formulas in any of the subsequent tabs

  15. Step 9: PROFITABILITY Now it is time to pull all your assumptions together into a financial model. The model should be 100% formula driven so that as you change the assumptions, the model changes automagically. (YOU MAY NEED TO SCROLL DOWN) 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they wou SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate Number of deals that should be the pipeline given close rate Simultaneous Pipeline deals per salesperson (capacity) Labels / Acct manager (active accounts) ASSUMPTIONS AROUND COST Worforce Growth Assumptions (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe 10000 (+) N. America N. America 45000 N. America 45000 45000 3 5 8 16 25 40 60 6000 18,000 6000 30,000 8000 64,000 10000 160,000 15000 375,000 15000 600,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 6 months / label 10% 30 15 10% 50 15 15% 53 15 20% 80 20 20% 125 20 20% 200 20 20% 300 25 5 Acct Mgmt Sales Management (CEO, CFO, CTO, COO) Administration Engineering / Quality Management FTE Rate Assumptions (USD) 0 2 4 1 1 1 3 4 1 2 2 4 4 2 2 3 4 4 2 4 5 6 4 4 4 8 12 12 4 6 7 10 4 4 5 Acct Mgmt Salary (avg monthly) Sales Salary (avg monthly) Management Salary (avg monthly) Administration Salary (avg monthly) Engineering / Quality Management salary (avg monthly) FTE Loading Factor Cost of Making & Selling $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,000 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,500 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,000 4,000 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,500 4,000 9,000 2,000 7,000 1.7 Cost of Sales / Acct Mgmt (commission) as a % of sales Cost of Marketing as a % of sales Rent (monthly) Cost per Bobbin from manufacturer Logistics & Distribution (cost per bobbin) Operating Infrastructure Costs (ERP, CRM, etc) Accounting Costs (outsourced) Legal Costs (IP management) 20% 15% 2,000 0.95 0.3 20% 15% 2,000 0.95 0.3 10,000 5,000 100,000 20% 15% 20% 15% 20% 15% 20% 15% 20% 15% 10,000 0.95 10,000 15,000 15,000 15,000 0.8 0.4 0.8 0.4 0.8 0.5 0.8 0.5 0.4 $ $ $ $ $ $ 50,000 10,000 120,000 $ $ $ 100,000 10,000 120,000 $ $ $ 100,000 10,000 30,000 $ $ $ 100,000 12,000 30,000 $ $ $ 100,000 12,000 30,000 $ $ 5,000 100,000

  16. CALCULATED REVENUE Revenue (USD) $ 475,200 $ 792,000 2,457,600 $ 6,144,000 $ 14,400,000 $ 23,040,000 $ 46,080,000 $ CALCULATED COSTS Account Mgmt Salary (annual) Account Mgmt Salary (annual) Management Salary (annual) Administration Salary (annual) Engineering / Quality Management salary (annual) $ 102,000 $ 326,400 $ 40,800 $ 102,000 $ 571,200 $ 95,040 $ 24,000 $ 71,280 $ 100,000 $ $ $ - $ $ $ $ $ $ $ $ $ $ $ $ 61,200 170,000 326,400 40,800 204,000 802,400 158,400 24,000 118,800 100,000 9,000 5,000 97,920 181,333 489,600 81,600 244,800 1,095,253 $ 491,520 $ 120,000 $ 368,640 $ 120,000 $ 25,600 $ 10,000 $ $ $ $ $ $ 261,120 244,800 489,600 81,600 489,600 1,566,720 $ 1,228,800 $ 120,000 $ 921,600 $ 120,000 $ 64,000 $ 10,000 $ $ $ $ $ $ 408,000 446,250 734,400 163,200 571,200 2,323,050 $ 2,880,000 $ 180,000 $ 2,160,000 $ $ 150,000 $ $ $ $ $ $ $ 652,800 816,000 734,400 163,200 714,000 3,080,400 $ 4,608,000 $ 180,000 $ 3,456,000 $ 30,000 $ 300,000 $ 12,000 $ $ $ $ $ $ 1,101,600 $ 979,200 $ 734,400 $ 244,800 $ 999,600 $ 4,059,600 $ 9,216,000 $ 180,000 $ 6,912,000 $ 30,000 $ 600,000 $ 12,000 $ Salary Sub-Total Cost of Sales (commission) Rent Marketing Budget Legal Costs Logistics & Distribution Costs Accounting Costs Founder's Loan repayment Cost per Bobbin from manufacturer 30,000 5,400 5,000 10,000 $ $ 17,100 889,020 28,500 1,246,100 $ $ 60,800 2,291,813 $ $ $ 128,000 4,159,120 $ 300,000 8,033,050 $ $ $ 480,000 12,146,400 $ $ 960,000 21,969,600 $ COSTS SUBTOTAL PROFITABILITY Profit (413,820) $ (454,100) $ $ 165,787 1,984,880 $ 6,366,950 $ 10,893,600 $ 24,110,400 $

  17. Step 9: INVESTABILITY Now that we have proper forecasts, we can look at areas where we are short of cash and how much equity we would give up to fill those holes with investment money. (YOU MAY NEED TO SCROLL DOWN) 2014 2015 2016 2017 2018 2019 2020 ASSUMPTIONS AROUND REVENUE (http://www.thethreadexchange.com used as industry benchmark for price and volume) Segment Growth Addressable customers (labels/clothing manufacturers) Number of customers we expect to close Bobbins per label per year (avg) Total Bobbins sold Price per bobbin (USD) Reference Price (retail price for high-quality thread per bobbin) Reference Price (B2B price for high-quality thread per bobbin) Reference Price (what focus group B2B customers said they wo SALES MANAGEMENT ASSUMPTIONS (Assumptions supported by interviews with industry managers) Sales Lifespan Close Rate Number of deals that should be the pipeline given close rate Simultaneous Pipeline deals per salesperson (capacity) Labels / Acct Manager (active accounts) ASSUMPTIONS AROUND COST Worforce Growth Assumptions (+) N Asia 3500 N Asia 3500 (+) Europe 10000 Europe (+) N. America 10000 16 10000 160,000 3.2 6.00 $ 1.45 $ 2.35 $ N. America 45000 N. America 45000 45000 3 5 8 25 40 60 6000 18,000 6000 30,000 8000 64,000 15000 375,000 15000 600,000 20000 1,200,000 2.2 2.2 3.2 3.2 3.2 3.2 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 $ $ $ 6.00 1.45 2.35 6 months / label 10% 30 15 10% 50 15 15% 53 15 20% 80 20 20% 125 20 20% 200 20 20% 300 25 5 Acct Mgmt Sales Management (CEO, CFO, CTO, COO) Administration Engineering / Quality Management FTE Rate Assumptions (USD) 0 2 4 1 1 1 3 4 1 2 2 4 4 2 2 3 4 4 2 4 5 6 4 4 4 8 10 4 4 5 12 12 4 6 7 Acct Mgmt Salary (avg monthly) Sales Salary (avg monthly) Management Salary (avg monthly) Administration Salary (avg monthly) Engineering / Quality Management salary (avg monthly) FTE Loading Factor Cost of Making & Selling $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 4,000 2,000 5,000 1.7 $ $ $ $ $ 3,000 2,500 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,000 6,000 2,000 6,000 1.7 $ $ $ $ $ 4,000 3,500 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,000 4,000 9,000 2,000 7,000 1.7 $ $ $ $ $ 4,500 4,000 9,000 2,000 7,000 1.7 Cost of Sales / Acct Mgmt (commission) as a % of sales Cost of Marketing as a % of sales Rent (monthly) Cost per Bobbin from manufacturer Logistics & Distribution (cost per bobbin) Operating Infrastructure Costs (ERP, CRM, etc) Accounting Costs (outsourced) Legal Costs (IP management) 20% 15% 2,000 0.95 0.3 20% 15% 2,000 0.95 0.3 10,000 5,000 100,000 $ 20% 15% 20% 15% 20% 15% 20% 15% 20% 15% 10,000 0.95 10,000 15,000 15,000 15,000 0.8 0.4 0.8 0.4 0.8 0.5 0.8 0.5 0.4 $ $ 50,000 10,000 120,000 $ $ $ 100,000 $ 10,000 $ 120,000 $ $ $ $ 100,000 10,000 30,000 $ $ $ 100,000 12,000 30,000 $ $ $ 100,000 12,000 30,000 $ $ 5,000 100,000

  18. CALCULATED REVENUE Revenue (USD) $ 475,200 792,000 $ 2,457,600 $ 6,144,000 $ 14,400,000 $ 23,040,000 $ 46,080,000 $ CALCULATED COSTS Account Mgmt Salary (annual) Account Mgmt Salary (annual) Management Salary (annual) Administration Salary (annual) Engineering / Quality Management salary (annual) $ $ $ $ $ $ $ $ $ $ $ $ - 61,200 170,000 $ 326,400 $ 40,800 $ 204,000 $ 802,400 $ 158,400 $ 24,000 $ 118,800 $ 100,000 $ $ $ $ 97,920 181,333 $ 489,600 $ 81,600 $ 244,800 $ 1,095,253 $ 491,520 $ 120,000 $ 368,640 $ 120,000 $ 25,600 $ 10,000 $ $ 261,120 $ 244,800 $ 489,600 $ 81,600 $ 489,600 $ 1,566,720 $ 1,228,800 $ 120,000 $ 921,600 $ 120,000 $ 64,000 $ 10,000 $ 120,000 $ 128,000 $ 4,279,120 $ $ $ $ $ $ 408,000 446,250 734,400 163,200 571,200 2,323,050 $ 2,880,000 $ 180,000 $ 2,160,000 $ 30,000 $ 150,000 $ 10,000 $ 652,800 816,000 734,400 163,200 714,000 3,080,400 $ 4,608,000 $ 180,000 $ 3,456,000 $ 30,000 $ 300,000 $ 12,000 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,101,600 979,200 734,400 244,800 999,600 4,059,600 9,216,000 180,000 6,912,000 30,000 600,000 12,000 102,000 326,400 40,800 102,000 571,200 95,040 24,000 71,280 100,000 5,400 5,000 Salary Sub-Total Cost of Sales (commission) Rent Marketing Budget Legal Costs Logistics & Distribution Costs Accounting Costs Founder's Loan repayment Cost per Bobbin from manufacturer 9,000 5,000 $ $ 17,100 889,020 $ 28,500 1,246,100 $ 60,800 2,291,813 $ $ 300,000 8,033,050 $ $ 480,000 12,146,400 $ $ $ 960,000 21,969,600 $ COSTS SUBTOTAL PROFITABILITY Profit $ (413,820) (454,100) $ 165,787 $ 1,864,880 $ 6,366,950 $ 10,893,600 $ 24,110,400 $ INVESTMENT Burn Founders Founders Loan (each) - Deferred Salary Founders Loan Total Amount to be raised Cash in company Discount Rate Valuation at time of capital injection Profit muliple to estimate Trade Sale valuation Trade Sale value Round 1 Investor's Equity Round 2 Investor's Equity Founders Equity Founder Exit Returns Round 1 Investor's Returns Round 2 Investor's Returns $ $ $ $ $ $938,470 (413,820) (454,100) $ 15,000 $ 60,000 $ 400,000 $ $ $2,266,115 $ - $ - $ - $ - $ - 4 4 4 15,000 60,000 375,000 21,180 5,900 0.8 165,787 $ 1,864,880 $ 6,366,950 $ 10,893,600 $ 24,110,400 $ 0.9 4 96,441,600.00 $ 40% 33% 18% 49% 60% 47,683,858.52 $ 31,734,495.48 $ 17,023,245.99 $ 85 43 x x

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