Lecture Entrepreneurship: Chapter 9 - Zacharakis, Bygrave, Corbett

Chapter 9 - Building your pro-forma financial statements. This chapter examines funding from entrepreneurs themselves, informal investors, and venture capitalists in the United States and throughout the world. Before we examine conventional means of financing startups in medium- and higherincome nations, we’ll begin by looking at how many would-be entrepreneurs eking out subsistence livings in some of the most impoverished regions of the world are being financed by microcredit organizations.

BUI LDI NG  YOUR  PRO­ FORMA  FI NANCI AL  STATEMENTS Chapt e r   COMMON  ENTREPRENEURI AL  MI STAKES Not understanding the revenue drivers Underestimating costs Underestimating time to generate revenues Lack of comparables Top-down versus bottom-up forecasting Underestimating time to secure financing Reduced survival Zacharakis, Bygrave & Corbett, Entrepreneurship, New York:chance Wiley, 2017© BUI LDI NG  PROCESS Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© FI NANCI AL  CONSTRUCTI ON CHECKLI ST Build-up method Comparabl e method Integrated financial statements Final Steps Build-Up Method Identify all your sources of revenues Determine your revenues for a “typical day” Understand your revenue drivers a How many customers you will serve b How much product they will buy c How much they will pay for each product d How often they will buy Validate driver assumptions a Primary research (talk to customers, attend trade shows, etc.) b Secondary research (industry reports, company reports, etc.) Recombine Multiply the typical day by the number of days in a year Determine Cost of Goods Sold (COGS) for a typical day Recombine Multiply COGS by number of days in a year Determine operating expenses by most appropriate time frame Refine operating costs 10 Create preliminary income statement Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© BUI LD­ UP  METHOD Revenue Projections Revenue Worksheet COGS COGS Worksheet Operating Expenses Operating Expense Worksheet Preliminary Income Statement Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© UNDERSTANDI NG  YOUR REVENUE  DRI VERS Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© REVENUE  WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© COST  OF  GOODS  WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© OPERATI NG  EXPENSES  WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© HEADCOUNT  TABLE Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 10 I NCOME  STATEMENT Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 11 FI NANCI AL  CONSTRUCTI ON CHECKLI ST Build-up method Comparabl e method Integrated financial statements Final Steps Comparable Method 11 Compare revenue projections to industry metrics 12 Run scenario analysis 13 Compare common-sized cost percentages to industry averages Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 12 COMPARABLE  METHOD Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 13 COMPARABLE  ANALYSI S Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 14 FI NANCI AL  CONSTRUCTI ON CHECKLI ST Build-up method Comparabl e method Integrated financial statements Final Steps Building Integrated Financial Statements 14 Derive monthly income statements for first two years, yearly statements for year 3–5 15 Create balance sheet (yearly for year 1–5) 16 Create cash-flow statement (monthly for years and 2, yearly for years 3–5) Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 15 I NTEGRATED  FI NANCI AL STATEMENTS INTEGRATED FINANCIAL STATEMENTS Income Statement Balance Sheet Statement of Cash Flows Monthly forecasts for years and Consider Accounts Receivable Adjust monthly forecasts according to seasonality Show outflow and depreciate PP&E Annual forecasts for years 3-5 Consider Accounts Payable Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 16 I NTEGRATED  FI NANCI AL  STATEMENTS Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 17 SEASONALI TY  PROJECTI ONS Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 18 FI NANCI AL  CONSTRUCTI ON CHECKLI ST Build-up method Comparabl e method Integrated financial statements Final Steps Final Steps 17 Write a two- to three-page description of financial statements Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 19 PUTTI NG  I T  ALL  TOGETHER Continual iterations strengthen your financials and should give you further confidence in the viability of your business model Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 20 CASH­ FLOW  STATEMENT Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017â 21 RECAP Execute each step in order to build realistic pro formas • Know your numbers cold • Further refine numbers as you launch the business • Financials help you gauge actual performance Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 22 ... WORKSHEET Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© HEADCOUNT  TABLE Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 10 I NCOME  STATEMENT Zacharakis,. .. 13 Compare common-sized cost percentages to industry averages Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 12 COMPARABLE  METHOD Zacharakis, Bygrave & Corbett, Entrepreneurship,... forecasts for years 3-5 Consider Accounts Payable Zacharakis, Bygrave & Corbett, Entrepreneurship, New York: Wiley, 2017© 16 I NTEGRATED  FI NANCI AL  STATEMENTS Zacharakis, Bygrave & Corbett, Entrepreneurship,