Partially adapted from "Three Keys to Obtaining Venture Capital", by PricewaterhouseCoopers LLP

 

The financial forecast illustrated below represent a fast-growth, technology-oriented manufacturing company. The forecasts are shown on a yearly basis. An actual business plan, however, should show monthly figures until breakeven and then quarterly statements for subsequent years. The assumptions are included as a guide and may not apply to all start-up companies. Be sure to consult your financial advisor.

Venture Financing Funnel

Venture Financing: Key Documents To Be Prepared

 

 

NewCo, Inc.

Income Statement (000s omitted)

 

Year 1

Year 2

Year 3

Year 4

Year 5

Product Sales

$1,197

$3,699

$7,500

$16,685

$37,349

Service Revenue

81

572

1,509

2,499

3,934

Total Revenue

1,278

4,271

9,009

19,184

41,283

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

Direct Materials

474

995

2,434

4,532

11,674

Overhead

164

705

900

1,860

2,708

Service Cost

41

286

755

1,250

1,967

Total Cost of Sales

679

1,986

4,089

7,642

16,349

 

 

 

 

 

 

Gross Margin

599

2,285

4,920

11,542

24,934

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

Engineering

270

462

618

1,158

1,958

Marketing / Sales

351

829

1,605

3,109

5,968

Administration

1,465

1,660

2,154

2,805

4,179

Total Operating Expense

2,086

2,951

4,377

7,072

12,105

 

 

 

 

 

 

Income Before Int. and Tax

(1,487)

(666)

543

4,470

12,829

Interest Expense

0

0

0

0

0

Interest Income

33

21

44

118

340

Income (loss) Before Taxes

(1,454)

(645)

587

4,588

13,169

 

 

 

 

 

 

Tax Expense

0

0

0

1,231

5,268

 

 

 

 

 

 

Net Income (loss)

$(1,454)

$(645)

$(587)

$3,357

$7,901

NewCo, Inc.

Balance Sheet (000s omitted)

 

Year 1

Year 2

Year 3

Year 4

Year 5

Assets

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash

$365

$657

$548

$363

$2,332

Accounts Receivable, Net

256

1,452

2,152

5,522

10,991

Inventory

211

909

1,312

2,775

6,753

Total Current Assets

832

3,018

4,012

8,660

20,076

 

 

 

 

 

 

Property, Plant and Equipment

64

137

248

430

690

Less Accumulated Depreciation

14

50

115

215

366

Net Property, Plant and Equipment

50

87

133

215

324

           

Other Long-Term Assets

         

Organization Costs

5

5

5

0

0

Less Accumulated Amortization

2

4

5

0

0

Total Other Long-Term Assets

3

1

0

0

0

           

Total Assets

$885

$3,106

$4,145

$8,875

$20,400

           

Liabilities

         

Short-Term Liabilities

         

Accounts Payable

114

282

473

999

2,609

Accrued Expense

191

329

503

848

1,398

Salaries Payable

10

20

31

42

83

Taxes Payable

0

0

0

308

1,317

Total Short-Term Liabilities

315

631

1,007

2,197

5,407

 

 

 

 

 

 

Long-Term Liabilities

         

Long-Term Debt

0

0

0

0

0

Reserve for Warranty

24

74

150

333

747

Total Long-Term Liabilities

24

74

150

333

747

 

 

 

 

 

 

Tax Liabilities

339

705

1,157

2,530

6,154

 

 

 

 

 

 

Equity

         

Common Stock

500

500

500

500

500

Preferred Stock

1,500

4,000

4,000

4,000

4,000

Retained Earnings

(1,454)

(2,099)

(1,512)

1,845

9,746

Total Equity

546

2,401

2,988

6,345

14,246

 

 

 

 

 

 

Liabilities and Equity

$885

$3,106

$4,145

$8,875

$20,400

 

 

NewCo, Inc.

Statement of Cash Flows (000s omitted)

 

Year 1

Year 2

Year 3

Year 4

Year 5

Cash Flows From Operating Activities

 

 

 

 

 

Net Income (loss)

$(1,454)

$(645)

$ 587

$3,357

$7,901

Add: items not requiring cash in the current period

 

 

 

 

 

Depreciation / Amortization

16

38

66

100

151

Changes in Operating Assets and Liabilities

         

Assets and Liabilities

 

 

 

 

 

Accounts Receivable

(256)

(1,196)

(700)

(3,370)

(5,469)

Inventory

(211)

(698)

(403)

(1,463)

(3,978)

Accounts Payable

114

168

191

526

1,610

Accrued Expense

191

138

174

345

550

Salaries Payable

10

10

11

11

41

Taxes Payable

0

0

0

308

1,009

Reserve for Warranty

24

50

76

183

414

Other Long-Term Assets

(5)

0

0

0

0

Net Cash Provided by (used in) Operating Activities

(1,571)

(2,135)

2

0

2,229

Cash Flows from Investing Activities

 

 

 

 

 

Capital Expenditures

(64)

(73)

(111)

(182)

(260)

Net Cash Used in Investing Activities

(64)

(73)

(111)

(182)

(260)

Cash Flows from Financing Equity Investment

2,000

2,500

0

0

0

Net Cash Provided by Financing Activities

2,000

2,500

0

0

0

Change in Cash

365

292

(109)

(185)

1,969

Cash, Beginning of Year

0

365

657

548

363

Cash, End of Year

$365

$657

$548

$363

$2,232

 

 

NewCo, Inc.

Summary of Financial Assumptions

Sales:

The sales forecast for product reflects the following unit and pricing assumptions:

Year

Units

Unit Price

Product Revenues*

Service Revenues

Total Revenues

1

42

$28,500

$1,197

$ 81

$1,278

2

137

27,000

3,699

572

4,271

3

300

25,000

7,500

1,509

9,009

4

710

23,500

16,685

2,499

19,184

5

1,690

22,100

37,349

3,934

41,283

* 000s omitted: small rounding adjustment included

 

  • Product revenue is recognized at time of shipment

  • Declining unit prices reflect savings from economies of scale as well as a more competitive environment beginning in year two.

  • Total revenue reflects the company's target of owning 10% of the market by year five

  • Service revenue increases are due to growing product-installed base

 

Expenses:

  • Salaries are based on competitive compensation

  • Operating expenses include estimates for supplies, travel and telephone

Balance Sheet:

  • Accounts receivable are collected 72 days from sales (turnover rate of five times a year)

  • The reserve for warranty is 2% of product sales

  • Organizational costs are amortized over three years

  • Inventory is assumed to turn on average three times a year.

  • Fixed assets include both purchased equipment and leasehold improvements

  • Depreciation is based on three- to five-year lives

  • Accounts payable reflect a 60-day payment cycle

  • Accrued expense includes overhead cost, service cost and operating cost for one month

  • Salaries are paid bi-monthly

  • Taxes are paid in the month following each fiscal quarter and are assumed to be at a combined rate of 40%

  • Income tax expense assumes that losses will carry forward until income is earned. Years three and four tax expenses are reduced by the net loss carryforwards of prior years

  • Preferred and common stock are issued as shown

Cash-Flows Statement:

  • The cash flows statement is based on the spending and payment decisions of the income and balance sheets

  • Equity investment includes founders' and initial investors' common stock of $500,000, plus the venture capitalists' investment of $1,500,000