University:
Boston University
Course:
QST BA 472 | Business Experiments and Causal Methods
Academic year:

2024
Views:

461

Pages:

20
Author:

me2pik5j0f

Building a financial plan – The Numbers The numbers Boston University Slideshow Title Goes Here       Calisthenics The Idea Revenue Costs Cash Table Financing What’s the difference between these three words? I’ll offer my simple definitions Boston University Slideshow Title Goes Here The purpose of accounting is to have a systematic way for us to look at companies’ financials. It’s a standardized, common language with guidelines and generally accepted principles Accounting Finance Finance addresses the type of funding you require to achieve your objective Cash Cash is the most liquid asset that permits you to buy something NOW. Editorial: in the world of a startup, cash is what matters most The Income Statement Boston University Slideshow Title Goes Here Revenue Cost of Goods sold Gross Profit Operating expenses - salaries Operating Margin = Operating Profit/Revenue Gross Margin = Gross Profit/Revenue - overhead - travel - services (insurance, lawyers, accountants) - product development Operating Profit Interest, Tax, Depreciation, Amortization Net Income I/S: let’s take a closer look – the head Boston University Slideshow Title Goes Here  Revenue – money coming in!  Sales: units, subscriptions, advertising commissions, services  Royalties (from a license)  Cost of Goods Sold     AKA “variable costs” Just those costs associated with the sold item Materials, labor are the usual suspects Sales commissions? Royalty payments? There’s a lot of “creativity”  Gross Profit & Gross Margin  Learn to talk about margins, with the accompanying face I/S: let’s take a closer look – the body Boston University Slideshow Title Goes Here  Operating expenses  Fixed costs  Where all the work gets done  All the costs that’ll occur whether you sell anything or not  Operating profit and Operating Margin  EBIT (earnings before interest and tax)  And that other acronym (EBITDA, ew) I/S: let’s take a closer look – the legs     Interest: what you owe a lender if you take out a loan Tax: ummm Depreciation: How we expense a capital cost** over time  Check it out: if you buy a $10,000 piece of equipment, where does that show up in an income statement? Depreciation  Think for a moment about cash flow here. When did that $10,000 leave your pocket? Amortization: another form of depreciation – leave this to accountants to know the difference ** Capital expense v. Operating expense: Capital expense is a lump sum payment, e.g. equipment, building, machinery Operating expense: an ongoing expense that shows up in the income statement The Balance Sheet Boston University Slideshow Title Goes Here Liabilities More liquid Cash Short term - salary - accounts payable Inventory Long term - a loan over a year Less liquid Property, Plant & Equipment (PPE) Assets Shares owned by shareholders Retained earnings Equity Why do I say profit is an idea? Boston University Slideshow Title Goes Here Make it Accruing costs!! Raw materials Manufacturing Salaries Finished: Ship the product! Send the invoice! Q: when can I record the revenue on my I/S? Waiting to get paid Paid 30 days? 60 days? when does 90 days? Q: the cash hit my bank account? Accruing more costs!! One of the most important equations in business Boston University Slideshow Title Goes Here P*Q Where: P = price Q = quantity Check it out: P * Q Boston University Slideshow Title Goes Here    A company’s Market Capitalization (aka market cap, value of a company, company’s valuation)  P = share price What part of the story is  Q = number of shares this not telling? A company’s sales  P = price of the product(s)  Q = number of products sold Market size (based on sales)  P = price of the product(s)  Q = number of products sold Components of a financial plan Boston University Slideshow Title Goes Here START HERE REVENUE • Objective • Vision, strategic intent • How to make money • Value proposition • Can you build it?  ASSUMPTIONS COST • Business model • Customer(s) • Addressable market • Revenue forecast  ASSUMPTIONS FINANCING • Vendors • Expense forecast (COGS, Operating) • Break even  ASSUMPTIONS  Cash table • Milestones • Amount required • Use of funds • Type of funds • Long term plan or Exit • Capitalization table  ASSUMPTIONS Competition Market forces Product development Supply chain Operations Marketing Contracts Intellectual property Financial statements Acquirers Components of a financial plan Boston University Slideshow Title Goes Here START HERE • Objective • Vision, strategic intent • How to make money • Value proposition • Can you build it?  ASSUMPTIONS REVENUE • Business model • Customer(s) • Addressable market • Revenue forecast  ASSUMPTIONS COST FINANCING • Vendors • Expense forecast (COGS, Operating) • Break even  ASSUMPTIONS  Cash table • Milestones • Amount required • Use of funds • Type of funds • Long term plan or Exit • Capitalization table  ASSUMPTIONS Do you have an idea, a REAL idea? Really? Boston University Slideshow Title Goes Here  A CA venture capital firm asks: Can you build it? Can you sell it?  Mike Gonnerman asserts:  Prof Gupta suggests:  SERIOUSLY    “You need to articulate a vision, how you’ll make money and when you’ll breakeven” “Run a back of the envelope (BOE) analysis because 99% of your (and my) ideas should be discarded” Value proposition Customer conversations Market NEED I seriously doubt it Must have that Product-Market fit!!! Boston University Slideshow Title Goes Here Key Partners Key Activities Key Resources Cost Structure Value Proposition Customer Relationships Channels Revenue Streams Segments The idea - assumptions Boston University Slideshow Title Goes Here Life situation Need Required solution Customers Any assumptions that lay the foundation for your idea Components of a financial plan Boston University Slideshow Title Goes Here START HERE • Objective  Vision, strategic intent • How to make money • Value proposition • Can you build it?  ASSUMPTIONS REVENUE • Business model • Customer(s)  Addressable market  Revenue forecast  ASSUMPTIONS COST FINANCING • Vendors  Expense forecast (COGS, Operating)  Break even  ASSUMPTIONS  Cash table  Milestones Amount required  Use of funds  Type of funds • Long term plan or Exit* • Capitalization table*  ASSUMPTIONS Revenue forecasting – the most difficult of all Boston University Slideshow Title Goes Here      I’ll tell you the trick I will That’s why you’re here isn’t it? To hear the trick? Oh yes, there’s a trick Ready?  CUSTOMERS AND COMPETITORS!  That’s it. That’s the trick. For real. Revenue forecast – from three directions Boston University Slideshow Title Goes Here  Top down – macro  Addressable market  Assumptions about market penetration  Percentages  Bottom up – micro  House by house  Sale by sale  Click by click  Sideways – competitors, comparables    Annual reports Interviews – ALWAYS meet with your competitors! Talk with experts to learn how others did it What’s an addressable market – Boston University Slideshow Title Goes Here  NOT the size of the auto industry  NOT the size of the medical industry  It IS the market into which you can sell DIRECTLY your product or service  Examples  Hot dog stand at Museum of Science  Cardiac Stent

Building a Financial Plan - The Numbers

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