|
Financial forecasts should be prepared by the company for fund
raising campaign. Prospective investors would ask you for a full set
of cohesive financial statements, including a
balance sheet,
income statement, and cash-flows
statement (see
examples of financial
forecasts). These projections should be based on certain
assumptions described below.
Assumptions
Companies submitting their
business plans to
venture capitalist investors must prepare financial forecasts, usually for a
period of three to five years. Monthly statements are to be shown until the
breakeven point or profitability is reached.
Venture Financing Funnel
Venture Financing:
Key Documents To Be Prepared
Thereafter, quarterly statements
should be prepared for two years, followed by yearly data for the remaining
timeframe. It is also imperative that the forecasts include a footnote section
that explains the major assumptions used to develop revenue and expense items.
Assumptions to Use in Forecasts:
Sales
The plan should state an average selling price per
unit along with the projected number of units to be sold each reporting period.
Sales prices should be competitive with similar offerings in the market and
should take into consideration the cost to produce and distribute the product.
Cost of Sales
The forecast should provide accurate unit cost data
over the reporting period, taking into consideration the labor, material, and
overhead costs to produce each unit. A good grasp on initial product costing is
recommended so it is protected against price pressure from competitors.
Product Development
Forecasts should include enough of cash cushion for
a major rework of the first major product of the company, at least six month'
worth of burn rate.
Product development expenses should be closely tied to
product introduction timetables elsewhere in the plan. Investors will focus on
these assumptions because further rounds of financing may be needed if major
products are not introduced on time.
Other Expenses
All other expense categories such as headcount,
selling and administrative costs, space, and major promotions should be taken
into consideration.
Balance sheet
The balance sheet
should agree with the income and cash flows statement. Consideration should be
given to the level of inventory and capital expenditures required to support the
projected sales level. Capital expenditures should be limited at the outset to
current requirements. It is generally better to rent or lease capital equipment
in the first few years in order to conserve cash for marketing and selling
expenses that will generate sales.
Cash Flows
The cash-flows statement must correlate to the
balance sheet and income statement and should mirror the timing of the funding
requirements stated in the plan. The cost in lower valuations for unanticipated
financings can be high. This is why it is important to set realistic forecasts
so that the initial request covers the capital needs until the business can
complete milestones leading to higher valuations in future rounds.
Tips for Financial
Calculations Preparer:
Average Accounts Receivable = (Beginning Accounts Receivable + Ending Accounts
Receivable) / 2
Accounts Receivable, Net = Sales / Average Accounts Receivable
Accounts Payable (for 1 year) = (Purchases + Ending Inventory
×
Payment Cycle) / 360 days
For
Following Years: (Purchases + Average Inventory x Payment Cycle) / 360 days
Inventory Turns = Cost of Goods Sold / Average Inventory
Accrued Expenses = (Overhead + Service Coast + Ending Accounts Receivable) / 2
|
