Financial Estimates
Stephanie Schmit
July 2, 2013
Source: Charlie Tillett
nutsandbolts.mit.edu/session2.php
Basics
Profit = Revenue – Cost
Revenue = Price * Quantity
Cost = How much the company spent
Price = How much the customer pays
Income Statement Example
Nuts
50-50-50
Consulting
For a generic technology company
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Sales (Revenue)
$ 50.0
100%
After discounts
Cost of Goods Sold (COGS)
$ 20.0
40%
Direct & indirect costs but NOT R&D
Gross Profit (Gross Margin)
$ 30.0
60%
Sales minus COGS
Sales & Marketing (S&M)
$ 15.0
30%
Research & Development (R&D)
$ 5.0
10%
General & Admin (G&A)
$ 2.5
5%
Total Expenses
$ 22.5
45%
Operating Profit (EBITDA)
$ 7.5
15%
Rent, Accounting, HR, IT
Gross Profit minus Total Expenses
I want to open a
chocolate store on BMS
campus
Will it be profitable?
What is “The Business Model”
Nuts
50-50-50
Consulting
And
1.
Provides the super-structure for the Financial Plan
Bolts
Nuts
2.
Blueprint of how business will MAKE MONEY
3.
Documented by an Income Statement
And
1/20/11
Bolts

Financial performance in percentage terms
1/23/13
In assessing YOUR business model

Determine what your business will look like once
you reach critical mass
Business Models – Internet
Nuts
50-50-50
Consulting
And
Bolts
Nuts
Apple
Google
Facebook
Zynga
LinkedIn
Open Table
Pandora
100%
100%
100%
100%
100%
100%
100%
COGS
56%
35%
25%
27%
15%
27%
62%
Gross Margin
44%
65%
75%
73%
85%
73%
38%
R&D
2%
14%
10%
31%
23%
9%
4%
S&M
0%
12%
11%
13%
30%
19%
22%
G&A
6%
9%
10%
11%
21%
14%
12%
Total Expenses
9%
34%
31%
56%
74%
42%
38%
Operating Profit
35%
31%
44%
17%
11%
31%
0%
Annual Rev (M)
$156,508
$37,905
$5,048
$1,140
$522
$139
$274
Employees
75,000
32,500
4,300
2,850
2,100
550
530
Rev/Emp (000)
$2,087
$1,166
$1,174
$400
$249
$253
$517
Revenue
And
1/20/11
Bolts
1/23/13
Building a Tech Model
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
• Your product
 Price that customer will pay
 Cost of Goods Sold (COGS) –
Unit costs & mfg O/H & support
• Distribution Strategy
 May impact your sales price
 May impact S & M and support expenses
• R&D should end up at 10% to 20
• G&A should end up at 5% to 15%
• Target an operating profit of 15% to 20%
First Major Decision:
How will you sell your product?
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Direct Sales Force
Revenue
$100
100%
Cost of Goods Sold
$40
40%
Gross Margin
$60
60%
Sales & Marketing
$23
23%
R&D
$12
12%
G&A
$5
5%
Total Expenses
$40
40%
Operating Profit
$20
20%
Building Financial Projections
Technology Company Rules-of-Thumb
Nuts
50-50-50
Consulting
Staffing DRIVES departmental expenses
And
• Average employee salary will be $90K + -
Bolts
Nuts
• Employee benefits will add just 15%
And
1/20/11
Bolts
1/23/13
• Salaries will be 60% to 70% of total expenses (non-COGS)
 Remainder will be rent, utilities, travel, etc.
 UNLESS you have extraordinary marketing!!!
 Will reduce to 50% to 55% over time
• Sales staff will cost $175 to $250k per person per year
 ~$200k compensation (50% base, 50% commission)
 $50k in annual travel costs
Disclaimer - May not apply to your company
Building Financial Projections
Technology Company Rules-of-Thumb
Nuts
50-50-50
Consulting
And
Bolts
Nuts
• Sales Projections
 $50MM to $100MM in year 5
And
1/20/11
Bolts
• Revenue per Employee
 Between $150K and $350K
1/23/13
• Revenue per Salesperson
 Between $1MM and $3MM
Cash Flow Projections
Happiness is a positive cash flow
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Or at least knowing when you need to raise more
• Burn Rate
 Monthly operating loss plus capital expenditures
• Cash Flow Projection
 Cumulative operating losses excluding depreciation
 Plus cumulative capital expenses
• To determine the total cash required
 Cumulative operating losses PLUS
 Cumulative capital expenses
 On the month that you turn cash positive
How Much to Pay Yourself
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
•
VCs don’t want their entrepreneurs to starve
BUT
They want them to be hungry
End Result
4 year Profit and Loss Statement
Nuts
50-50-50
Consulting
And
Bolts
Nuts
P & L by Year
Source
Year 2
Year 3
Year 4
Revenue
Model 1
P&L By Qtr
$
Model 2
P&L By Qtr
$
-
Model 3
P&L By Qtr
$
-
Total Revenue
COGS
And
1/20/11
Bolts
Year 1
P&L By Qtr
Gross Margin
1,275,000
100%
$ 10,500,000
88%
$ 33,750,000
82%
$ 37,500,000
50%
0%
$
12%
$
5,250,000
13%
$ 27,500,000
36%
0%
$
0%
$
2,400,000
6%
$ 10,500,000
14%
$
1,275,000
100%
$
425,000
$
1,400,000
-
$ 11,900,000 100%
$ 41,400,000 100%
$ 75,500,000 100%
33%
$
3,920,000
33%
$ 13,385,000
32%
$ 23,200,000
31%
850,000
67%
$
7,980,000
67%
$ 28,015,000
68%
$ 52,300,000
69%
$ 12,205,975
16%
Expenses
Engineering
P&L By Qtr
$
1,326,625
104%
$
3,475,275
29%
$
7,212,188
17%
Marketing
P&L By Qtr
$
710,750
56%
$
1,810,750
15%
$
3,239,350
8%
Sales
P&L By Qtr
$
1,214,250
95%
$
3,466,500
29%
$
7,171,500
17%
G&A
P&L By Qtr
$
964,575
76%
$
1,817,750
15%
$
3,117,000
8%
$
4,216,200
331%
$ 10,570,275
89%
$ 20,740,038
1/23/13
Operating Exp.
Operating Profit
Depreciation
EBIT
P&L By Qtr
$ (3,366,200) -264%
$ (2,590,275) -22%
$
7,274,963
$
$
$
593,000
$
6,681,963
144,833
$ (3,511,033)
Red – Input
Black – Calculated
427,333
$ (3,017,608)
$
5,300,000
7%
$ 12,393,500
16%
$
5,308,500
7%
50%
$ 35,207,975
47%
18%
$ 17,092,025
23%
$
608,167
$ 16,483,858
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
Profit and Loss Statement
Quarterly
Nuts
50-50-50
Consulting
And
P & L by Month
Source
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Year 2
Year 2
Year 2
Year 2
Revenue
Bolts
Nuts
Model 1 Sales Plan
$
-
$
Model 2 Sales Plan
$
-
$
Model 3 Sales Plan
$
-
$
$
-
$
150,000
$
375,000
$
750,000
$ 1,700,000
$ 2,550,000
$ 3,400,000
$ 4,250,000
$
-
$
50,000
$
125,000
$
250,000
$
$
840,000
$ 1,120,000
$ 1,400,000
$
-
$
100,000
$
250,000
$
500,000
$ 1,140,000
$ 1,710,000
$ 2,280,000
$ 2,850,000
Total Revenue
COGS
And
1/20/11
Bolts
Q1
Sales Plan
Gross Margin
150,000
$
-
$
-
$
375,000
$
-
$
-
$
750,000
$ 1,500,000
$ 2,250,000
$ 3,000,000
$ 3,750,000
-
$
$
$
$
-
$
200,000
-
560,000
$
300,000
-
$
400,000
-
$
500,000
-
Expenses
Engineering Expenses
$
169,375
$
312,875
$
378,000
$
466,375
$
576,038
$
792,275
$
965,163
$ 1,141,800
Marketing Expenses
$
111,250
$
136,250
$
185,125
$
278,125
$
330,600
$
409,200
$
470,738
$
Sales Expenses
$
146,188
$
220,188
$
378,813
$
469,063
$
672,563
$
792,188
$
938,938
$ 1,062,813
G&A Expenses
$
173,700
$
206,875
$
284,325
$
299,675
$
388,150
$
417,975
$
492,300
$
$
600,513
$
876,188
$ 1,226,263
1/23/13
Operating Exp.
Operating Profit
Depreciation
EBIT
CAPEX
$
(600,513) $
$
9,833
$
(610,346) $
Red – Input
Black – Calculated
$
(776,188) $
20,833
$
$ 1,513,238
$ 1,967,350
(976,263) $ (1,013,238) $
45,667
$
68,500
$
(797,021) $ (1,021,929) $ (1,081,738) $
$ 2,411,638
(827,350) $
81,167
$
(908,517) $
$ 2,867,138
(701,638) $
105,000
$
(806,638) $
519,325
$ 3,324,150
(587,138) $
117,333
600,213
$
(704,471) $
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
(474,150)
123,833
(597,983)
Sales and COGS Forecast
Nuts
50-50-50
Consulting
And
Q3
Q4
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Year 2
Year 2
Year 2
Year 2
100
50
20
200
300
400
500
20
30
40
50
Model 1
Input
-
Model 2
Input
-
-
-
-
Model 3
Input
-
-
-
-
-
-
-
-
100
220
330
440
550
50
20
-
Total Units
1/23/13
Q2
Unit Sales
Bolts
Nuts
And
1/20/11
Bolts
Q1
Source
Sales Plan
Revenue
150,000
$
375,000
$
$
1,500,000
$
2,250,000
$
3,000,000
$
3,750,000
-
$
200,000
$
300,000
$
400,000
$
500,000
-
$
750,000
7,500
$
-
$
Model 2 $ 10,000
$
-
$
-
$
-
$
Model 3 $ 15,000
$
-
$
-
$
-
$
$
-
$
150,000
$
375,000
$
750,000
$
1,700,000
$
2,550,000
$
3,400,000
$
4,250,000
125,000
$
250,000
$
500,000
$
750,000
$
1,000,000
$
1,250,000
120,000
$
150,000
Model 1 $
Total Revenue
-
$
-
$
-
$
-
Cost of Goods Sold
Model 1 $
2,500
$
-
$
50,000
$
Model 2 $
3,000
$
-
$
-
$
-
$
-
$
60,000
$
90,000
$
Model 3 $
3,500
$
-
$
-
$
-
$
-
$
-
$
-
$
$
-
$
50,000
$
Total COGS
To P&L
Red – Input
Black – Calculated
125,000
$
250,000
$
560,000
$
840,000
$
1,120,000
$
$
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
1,400,000
Staffing Plan
Nuts
50-50-50
Consulting
Staffing Plan
Staffing Staffing Staffing Staffing Staffing Staffing Staffing Staffing
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Year 2
Year 2
Year 2
Year 2
Engineering
CTO
Input
1
1
1
1
1
1
1
1
Programmer
Input
4
8
10
12
15
20
25
30
Tech Writer
Input
-
1
1
2
2
4
4
4
Other
Input
-
Total Eng
-
-
-
-
-
-
-
5
10
12
15
18
25
30
35
Marketing
VP Marketing
Input
1
1
1
1
1
1
1
1
Product Manager
Input
1
1
2
2
3
3
4
4
Mar-Com
Input
1
1
2
2
2
2
Other
Input
Total Mktg
Red – Input
Black – Calculated
-
1
1
1
2
2
2
3
3
3
3
5
6
8
8
10
10
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
Salary Expenses
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Staffing Plan
Annual
Expense
Expense
Expense
Expense
Expense
Expense
Expense
Expense
Salary
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Year 2
Year 2
Year 2
Year 2
115%
115%
115%
115%
117%
119%
121%
123%
Benefits/COLA ->
Engineering
CTO
Input
$ 150,000
$ 43,125 $ 43,125 $ 43,125 $ 43,125 $ 43,875 $ 44,625 $ 45,375 $ 46,125
Programmer
Input
$ 75,000
$ 86,250 $ 172,500 $ 215,625 $ 258,750 $ 329,063 $ 446,250 $ 567,188 $ 691,875
Tech Writer
Input
$ 60,000
$
-
$ 17,250 $ 17,250 $ 34,500 $ 35,100 $ 71,400 $ 72,600 $ 73,800
Other
Input
$ 80,000
$
-
$
Total Eng
To Dept Exp
-
$
-
$
-
$
-
$
-
$
-
$
-
$ 129,375 $ 232,875 $ 276,000 $ 336,375 $ 408,038 $ 562,275 $ 685,163 $ 811,800
Marketing
VP Marketing
Input
$ 125,000
$ 35,938 $ 35,938 $ 35,938 $ 35,938 $ 36,563 $ 37,188 $ 37,813 $ 38,438
Product Manager
Input
$ 95,000
$ 27,313 $ 27,313 $ 54,625 $ 54,625 $ 83,363 $ 84,788 $ 114,950 $ 116,850
Mar-Com
Input
$ 75,000
$
Other
Input
$ 80,000
$ 23,000 $ 23,000 $ 23,000 $ 46,000 $ 46,800 $ 47,600 $ 72,600 $ 73,800
Total Mktg
Red – Input
Black – Calculated
To Dept Exp
-
$
-
$ 21,563 $ 21,563 $ 43,875 $ 44,625 $ 45,375 $ 46,125
$ 86,250 $ 86,250 $ 135,125 $ 158,125 $ 210,600 $ 214,200 $ 270,738 $ 275,213
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
Non-Salary Expenses
Nuts
50-50-50
Consulting
Departmental Expenses
Source
And
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Engineering
Bolts
Nuts
And
1/20/11
Bolts
Salaries & Benefits
Staffing Plan
$
129,375
$
232,875
$
276,000
$
336,375
input/formula
$
30,000
$
60,000
$
72,000
$
90,000
input
$
10,000
$
20,000
$
30,000
$
40,000
To P&L
$
169,375
$
312,875
$
378,000
$
466,375
Staffing Plan
$
86,250
$
86,250
$
135,125
$
158,125
Literature / PR
input
$
5,000
$
5,000
$
10,000
$
10,000
Trade Show s
input
$
-
$
25,000
$
-
$
50,000
Misc / Other
input
$
20,000
$
20,000
$
40,000
$
60,000
To P&L
$
111,250
$
136,250
$
185,125
$
278,125
Tech Supplies (PP/PM) $
Misc / Other
Total Engineering
2,000
Marketing
1/23/13
Salaries & Benefits
Total Marketing
Red – Input
Black – Calculated
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
Non-Salary Expenses
Nuts
50-50-50
Consulting
And
Bolts
Nuts
Departm ental Expenses
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Sales
Salaries & Benefits
Staffing Plan
$
122,188
$
179,688
$
309,063
$
366,563
3,000
input/formula
$
9,000
$
18,000
$
36,000
$
45,000
5.00%
input/formula
$
-
$
7,500
$
18,750
$
37,500
Misc / Other
input
$
15,000
$
15,000
$
15,000
$
20,000
Total Sales
To P&L
$
146,188
$
220,188
$
378,813
$
469,063
Staffing Plan
$
129,375
$
143,750
$
195,500
$
195,500
Travel (PP/PM) $
Commission (% Rev)
And
1/20/11
Bolts
Source
General & Adm in
1/23/13
Salaries & Benefits
Rent (pp/pm) $
375
input/formula
$
19,125
$
28,125
$
41,625
$
48,375
Tel & Postage (PP/PM) $
200
input/formula
$
10,200
$
15,000
$
22,200
$
25,800
Misc / Other
input
$
15,000
$
20,000
$
25,000
$
30,000
Total G&A
To P&L
$
173,700
$
206,875
$
284,325
$
299,675
Red – Input
Black – Calculated
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
Profit and Loss Statement
Quarterly
Nuts
50-50-50
Consulting
P & L by Month
And
1/20/11
Bolts
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Year 2
Year 2
Year 2
Year 2
Revenue
And
Bolts
Nuts
Source
Model 1 Sales Plan
$
-
$
Model 2 Sales Plan
$
-
$
-
$
-
$
Model 3 Sales Plan
$
-
$
-
$
-
$
$
-
$
150,000
$
375,000
$
750,000
$ 1,700,000
$ 2,550,000
$ 3,400,000
$ 4,250,000
$
-
$
50,000
$
125,000
$
250,000
$
$
840,000
$ 1,120,000
$ 1,400,000
$
-
$
100,000
$
250,000
$
500,000
$ 1,140,000
$ 1,710,000
$ 2,280,000
$ 2,850,000
Total Revenue
COGS
Sales Plan
Gross Margin
150,000
$
375,000
$
750,000
$ 1,500,000
$ 2,250,000
$ 3,000,000
$ 3,750,000
-
$
$
$
$
-
$
200,000
-
560,000
$
300,000
-
$
400,000
-
$
500,000
-
Expenses
Engineering Expenses
$
169,375
$
312,875
$
378,000
$
466,375
$
576,038
$
792,275
$
965,163
$ 1,141,800
Marketing Expenses
$
111,250
$
136,250
$
185,125
$
278,125
$
330,600
$
409,200
$
470,738
$
Sales Expenses
$
146,188
$
220,188
$
378,813
$
469,063
$
672,563
$
792,188
$
938,938
$ 1,062,813
G&A Expenses
$
173,700
$
206,875
$
284,325
$
299,675
$
388,150
$
417,975
$
492,300
$
$
600,513
$
876,188
$ 1,226,263
1/23/13
Operating Exp.
Operating Profit
Depreciation
EBIT
CAPEX
$
(600,513) $
$
9,833
$
(610,346) $
Red – Input
Black – Calculated
$
(776,188) $
20,833
$
$ 1,513,238
$ 1,967,350
(976,263) $ (1,013,238) $
45,667
$
68,500
$
(797,021) $ (1,021,929) $ (1,081,738) $
$ 2,411,638
(827,350) $
81,167
$
(908,517) $
$ 2,867,138
(701,638) $
105,000
$
(806,638) $
519,325
$ 3,324,150
(587,138) $
117,333
600,213
$
(704,471) $
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
(474,150)
123,833
(597,983)
CAPEX & Cash Flow
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Cash Flow
Beginning Cash
Source
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
Input (Beginning only)
$
-
$ 4,281,488
$ 3,273,300
$ 1,849,038
Gross Margin
From P&L Quarterly
$
-
$
$
$
Expenses
From P&L Quarterly
$ (600,513)
$
$ 5,000,000
$
$ (118,000)
$
Change in Cash
$ 4,281,488
$ (1,008,188)
$ (1,424,263)
$ (1,537,238)
Ending Balance
$ 4,281,488
$ 3,273,300
$ 1,849,038
$
Investment
Capital Expense
Input
From P&L CAPEX
Capital Expenses
Employee Workstations (PP)
Prototype Expenses
Cumulative CAPEX
$
4,000
$
Input
(876,188)
(132,000)
100,000
250,000
$ (1,226,263)
$ (1,513,238)
$
$
$
(298,000)
$
(274,000)
311,800
Q1
Q2
Q3
Q4
Year 1
Year 1
Year 1
Year 1
68,000
$
32,000
$
48,000
$
24,000
$
50,000
$
100,000
$
250,000
$
250,000
$
118,000
$
132,000
$
298,000
$
274,000
$
118,000
$
250,000
$
548,000
$
822,000
$
9,833
$
20,833
$
45,667
$
68,500
Depreciation
Depreciation Charge
Red – Input
Black – Calculated
Magenta – TO another spreadsheet
Blue – FROM another spreadsheet
Financial Data
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
Presentation Suggestions
• Steady, consistent evolution of your model
 Revenue growth in $
 Expenses over time in %
• Show % next to quarterly & yearly columns
• Show pre-tax only
• Don’t allocate G&A expenses
Executive Summary
Presentation Suggestions
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
1/23/13
• Annual P&L for 4 or 5 years (with %)
• Data to justify revenue projections
 Unit sales
 Average selling price (ASP)
• What quarter you will be profitable
• Your total cash requirement
Full Business Plan
Presentation Suggestions
Nuts
50-50-50
Consulting
And
Bolts
Nuts
And
1/20/11
Bolts
• Page 1: Annual P&L for 4 years
• Page 2 & 3: Quarterly P&L for all 4 years
• Page 4: Quarterly Staffing plan for 4 years
1/23/13
• Page 5: Quarterly cash flow for 4 years