For the startup CEO!

Presented by: Andrew Graham

March 2013!
Memory at Work

Pg 3!
Memory at Work

Have  to  pay  

the  bills  

Why  money  
ma*ers  in  a  
startup  
Sign  of  a  
Desirable   sustainable  
outcome!!   business  
model  

Pg 4!
Memory at Work

¨ Income Statement!
¨ Cash Flow Forecast!
¨ Balance Sheet!

Pg 5!
Memory at Work

¨ Financial performance over a period of time!

¨ Usually for a year, quarter or month!

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Revenue! $ 18,435!
Cost of sales! 11,856 !
Gross margin! 6,579 !

Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Taxes! 347 !

Net income! 1,164 !

Pg 7!
Memory at Work

Research in Motion!
Income Statement!
Revenue! 2012 Fiscal Year!
!
millions of USD!
Money brought into a
company by its business Revenue! $ 18,435!
Cost of sales! 11,856 !
activities!
Gross margin! 6,579 !

Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
Revenue Forecasting! Total operating expenses! 4,583 !
!
Top-down! Income from operations! 1,490 !
Investment income! 21 !
vs! Taxes! 347 !
Bottom-up!
Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!
Cost of Sales!
! millions of USD!

Costs that go into creating Revenue! $ 18,435!

the products and services Cost of sales! 11,856 !
Gross margin! 6,579 !
that a company sells!
Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!
Gross Margin!
! Revenue! $ 18,435!
Cost of sales! 11,856 !
Revenue minus cost of Gross margin! 6,579 !
sales!
Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
RIM !36%! Total operating expenses! 4,583 !
!!Linkedin !81%!
!!Toyota !13%! Income from operations! 1,490 !
Investment income! 21 !
! Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Operating Expenses! Revenue! $ 18,435!

! Cost of sales! 11,856 !
Gross margin! 6,579 !
Business costs NOT related
to producing goods & Operating expenses!
Research & development! 1,536 !
services for sale! Selling, general & admin.! 2,476 !
Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Research & Development! Revenue! $ 18,435!

! Cost of sales! 11,856 !
Gross margin! 6,579 !
Activities with the intention
of making a discovery that Operating expenses!
Research & development! 1,536 !
can lead to new or Selling, general & admin.! 2,476 !
improved products! Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Revenue! $ 18,435!
Cost of sales! 11,856 !
Gross margin! 6,579 !

Selling, General and Operating expenses!

Administrative Expenses Research & development! 1,536 !
Selling, general & admin.! 2,476 !
(SG&A)! Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Revenue! $ 18,435!
Cost of sales! 11,856 !
Gross margin! 6,579 !
Amortization!
! Operating expenses!
Research & development! 1,536 !
Deduction of capital Selling, general & admin.! 2,476 !
expenses over a period of Amortization! 571 !
Total operating expenses! 4,583 !
time!
Income from operations! 1,490 !
Investment income! 21 !
Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Revenue! $ 18,435!
Cost of sales! 11,856 !
Gross margin! 6,579 !

Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
Investment Income! Total operating expenses! 4,583 !
!
Income from operations! 1,490 !
Income from interest Investment income! 21 !
payments, dividends, etc! Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Revenue! $ 18,435!
Cost of sales! 11,856 !
Gross margin! 6,579 !

Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Taxes! Taxes! 347 !

Net income! 1,164 !

Pg 6!
Memory at Work

Research in Motion!
Income Statement!
2012 Fiscal Year!

millions of USD!

Revenue! $ 18,435!
Cost of sales! 11,856 !
Gross margin! 6,579 !

Operating expenses!
Research & development! 1,536 !
Selling, general & admin.! 2,476 !
Amortization! 571 !
Total operating expenses! 4,583 !

Income from operations! 1,490 !

Investment income! 21 !
Net income! Taxes! 347 !
!
Net income! 1,164 !
Profit!!!

Pg 6!
Memory at Work

Example: Tom’s Solar Power Company, Inc.!

Input Cost: !$50! Sell for: !$100!

Pg 7!
Memory at Work

Revenue  
 $400,000    

 $300,000    

 $200,000    

 $100,000    

 $-­‐    
Jan   Feb   Mar   Apr   May   Jun   Jul   Aug   Sep   Oct   Nov   Dec  

Units Sold! - ! 50 ! 150 ! 250 ! 400 ! 550 ! 750 ! 1,050 ! 1,400 ! 1,900 ! 2,500 ! 3,500 !

Unit Price! $100/unit!

Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 ! 75,000 ! 105,000 ! 140,000 ! 190,000 ! 250,000 ! 350,000 !

Pg 8!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Tom's Solar Power Co, Inc!

Monthly Income Statement!
January-June, 2012!
$!
Jan! Feb! Mar! Apr! May! Jun!
Revenue! $ - ! 5,000 ! 15,000 ! 25,000 ! 40,000 ! 55,000 !
Cost of Sales! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !
Gross Margin! - ! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 !

SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !

Net Income! (1,000)! 1,500 ! 6,500 ! 11,500 ! 19,000 ! 26,500 !

Cash Projection!

Starting Cash! $25,000 ! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)!

Plus: Revenue (1 month delayed)! - ! 5,000 ! 15,000 ! 25,000 ! 40,000 !
Minus: Cost of sales (1 month ahead)! 2,500 ! 7,500 ! 12,500 ! 20,000 ! 27,500 ! 37,500 !
Minus: SG&A! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 ! 1,000 !
Cash gain/(loss)! (3,500)! (8,500)! (8,500)! (6,000)! (3,500)! 1,500 !

Ending Cash! 21,500 ! 13,000 ! 4,500 ! (1,500)! (5,000)! (3,500)!

Pg 9!
Memory at Work

Pg 10!
Memory at Work

If you don’t forecast cash flows, you’re flying blind!!

Pg 10!
Memory at Work

¨ Earnings Before Interest, Taxes, Depreciation and Amortization!

¨ A measure of a company’s cash flow from operations!

Pg 11!
Memory at Work

¨ Snapshot of assets and liabilities at a point in time!

Pg 12!
Memory at Work

Tom's Solar Power Co, Inc! Tom's Solar Power Co, Inc!
Monthly Income Statement! Balance Sheet!
February 2012! February 29, 2012!
$!
Feb! $!
Revenue! 5,000 ! Assets!
Cost of Sales! 2,500 ! Cash! $ 13,000 !
Gross Margin! 2,500 ! Accounts Receivable! 5,000 !
Inventory (prepaid)! 7,500 !
Building and Equipment! 50,000 !
SG&A! 1,000 !
Land! ! 100,000 !
Net Income! 1,500 !
Total Assets! 175,500 !

Cash Projection!
Liabilities!
Accounts Payable! - !
Starting Cash! 21,500 ! Loan! ! 25,000 !
Plus: Revenue (1 month delayed)! - ! Total Liabilities! 25,000 !
Minus: Cost of sales (1 month ahead)! 7,500 !
Minus: SG&A! 1,000 ! Owner's Equity! ! 150,500 !
Cash gain/(loss)! (8,500)! Total Liabilities and Owner's Eq.! ! 175,500 !

Ending Cash! 13,000 !

Pg 13!
Memory at Work

¨ It’s all about cash!!

¨ Forecast from the bottom!
¨ Create multiple scenarios: how sensitive is your business to changes:!
– In revenue!
– In expenses!

¨ Get expert advice when you need it!

Pg 14!
Andrew Graham
agraham@marsdd.com!