Bugs in version 6.2

Depreciation calculation Total by mnonths years 1 & 2: error in Sum, David Sinkey

Month 3 year 1 Accounts Revc calculation; errror in formula

Added to Revenue worksheetAverage Revenue

by Monthby Quarter

Bug: Operting expenses by months are based on % of revenues. What if have no sales in early months, but have operating expenses. Same for Cost of RevenueBug: If you change first year operting expenses manually, then have a problem with monthly proj

Bug: Inventory is based on % of revenues. Should be on Cost of Revenues

Bug? Tax calculation monthly

Montly Cash Flow: cash at the beginning of year 1

No Sum in preferred stock in FundingNo incre/decre in preferred stock in FundingMonthly Cash flow does not show increase at beginning of year

Cash Flow by monthsCapital espend by months not calculatedFinancing Actvitites not calculated.

Tax loss carry forward: in monthly proj if go through loss carry forward, start paying taxes, then go negative. see BVSC

Comps don't link

What is point of Total Operating expenses by months?

Instruction sheet: lines are not even

Bug: Operting expenses by months are based on % of revenues. What if have no sales in early months, but have operating expenses. Same for Cost of RevenueBug: If you change first year operting expenses manually, then have a problem with monthly proj

Tax loss carry forward: in monthly proj if go through loss carry forward, start paying taxes, then go negative. see BVSC

Instructions Financial Projections Model v6.5

This financial model is designed to enable entrepreneurs and students project the financial results of their ventures for a five-year period. As with all models there are certain simplifying assumptions that have been made. Each of the assumption spreadsheet has an accompanying Notes box that provides suggestions on how to complete the worksheet and the underlying assumptions to the model.

You will notice that the cells in the spreadsheet are color-coded. This has been done to assist you in entering data, creating or changing formulae, or deleting data, formulae and links.

Enter data and information in Green shaded cells only.Blue shaded cells calculate results within a spreadsheet.Data in Yellow shaded cells is transferred to other worksheets.Purple shaded cells bring in data from other spreadsheets.

In the Green and Blue shaded cells, data and formulas may changed, moved or deleted. The current calculations are for illustration only -- you will need to tailor these spreadsheets to fit your plan.

In the Yellow shaded cells data and formulas may be changed, but not deleted.

DO NOT delete the Purple shaded cells -- they link one spreadsheet with others.

There are 7 principal spreadsheet outputs of this model: INCOME: Income Statement BALANCE: Balance Sheet CASHFLOW: Cash Flow Statement BREAKEVEN: Break-even analysis SUMMARY: Analysis of key measures INCOME-MOS: Income Statements by months for Years 1 to 5 CASHFLOW-MOS: Cash flow Statements by months for Years 1 and 2, and by quarters for Years 3 to 5 VAL-1 & VAL-2: Venture capital method for valuing companies

All other spreadsheets are to be used for calculating the underlying assumptions of the 7 principal spreadsheets:

COMPS: Industry Ratios REVENUE: Revenue Projections COST OF REV: Cost of Goods Sold OPER EXPEN: Operating Expenses PROP & EQUIP: Capital Expenditures, Depreciation, and Net Fixed Assets SALARIES: Salary Personnel EXTRA: Extraordinary Income and Expense TAXES: Tax calculation WORKCAP: Working Capital FUNDING: Equity, Debt, Interest Expense, Interest Income, Dividends and Retained Earnings

These assumption spreadsheets are linked to each other and to the 7 principal spreadsheets. When you make a change in one of the spreadsheets, the impact is automatically recalculated for all other spreadsheets.

When doing financial projections it is easy to get lost in the trees and lose the sense of what is reality. Most errors can be identified if you continuously ask your self “Does this result make sense?” The COMPS spreadsheet, where you look at peer companies, can be particularly helpful as a reality test.

There is an example in the model with which you can experiment. When you are ready to start your own projections, delete all the numbers in the green shaded cells, then you can begin to enter new numbers. Before you begin, make a copy of the model on a separate disk.

This original version of the model has been used since the mid-1980’s. It has undergone numerous revisions over that period. Since 1998, students in the Business Plan Preparation course of the University of Colorado have used it to prepare their business plans. We have appreciated their suggestions for improvements and would encourage all users to send us comments and suggestions.

Created by Frank Moyes and Stephen Lawrence Deming Center for Entrepreneurship College of Business and Administration University of Colorado Boulder September 2001

Copyright © 2001 by the Regents of the University of Colorado

document.xls 05/08/202321:23:54XYZ Company

Income StatementYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5

NET REVENUES 500,000 1,705,000 2,300,000 3,080,000 4,110,000

COST OF REVENUE 328,071 932,914 1,288,257 2,097,821 2,244,036 % of Revenues 65.6% 54.7% 56.0% 68.1% 54.6%

GROSS PROFIT 171,929 772,086 1,011,743 982,179 1,865,964 % of Revenues 34.4% 45.3% 44.0% 31.9% 45.4%

OPERATING EXPENSES Sales & Marketing 122,500 398,150 503,750 658,400 888,300 Research & Development 38,000 79,900 104,100 170,400 237,300 General and Administration 81,667 125,000 178,673 288,200 366,733 Total Operating Expenses 242,167 603,050 786,523 1,117,000 1,492,333 % of Revenues 48% 35% 34% 36% 36%

EARNINGS FROM OPERATIONS (70,238) 169,036 225,220 (134,821) 373,631

EXTRAORDINARY INCOME / (EXPENSE) (45,000) 0 0 0 0

EARNINGS BEFORE INTEREST & TAXES (115,238) 169,036 225,220 (134,821) 373,631

INTEREST INCOME / (EXPENSE) (86,000) (62,000) (38,000) (14,000) 10,000

NET EARNINGS BEFORE TAXES (201,238) 107,036 187,220 (148,821) 383,631

TAXES 0 0 (37,207) 0 (131,131)

NET EARNINGS (201,238) 107,036 150,013 (148,821) 252,500 % of Revenues -40.2% 6.3% 6.5% -4.8% 6.1%

document.xls 05/08/202321:23:54XYZ Company

Balance SheetYears 1 to 5($)

Begin Year 1 Year 2 Year 3 Year 4

ASSETS CURRENT ASSETS Cash 1,500,000 969,860 1,169,232 484,686 (53,457) Accounts Receivable 75,000 204,600 266,667 360,000 Inventories 88,000 245,520 320,000 432,000 Other Current Assets 9,000 24,552 32,000 43,200

Total Current Assets 1,500,000 1,141,860 1,643,904 1,103,353 781,743 PROPERTY & EQUIPMENT 43,762 100,048 162,857 244,286

TOTAL ASSETS 1,500,000 1,185,622 1,743,952 1,266,210 1,026,029

LIABILITIES & SHAREHOLDERS' EQUITY CURRENT LIABILITIES Short Term Debt Accounts Payable & Accrued Expen 77,860 213,602 278,400 375,840 Other Current Liab 9,000 24,552 32,000 43,200 Current portion of long term debt 200,000 200,000 200,000 200,000 200,000

Total Current Liabilities 200,000 286,860 438,154 510,400 619,040

800,000 600,000 400,000 200,000 0

STOCKHOLDERS' EQUITY CommonStock 500,000 500,000 1,000,000 500,000 500,000 Preferred Stock 0 0 0 0 0 Retained Earnings (201,238) (94,203) 55,810 (93,011)

Total Equity 500,000 298,762 905,797 555,810 406,989 TOTAL LIABILITIES & EQUITY 1,500,000 1,185,622 1,743,952 1,266,210 1,026,029

0 0 0 0 0

LONG TERM DEBT (less current portion)

document.xls 05/08/202321:23:54

Year 5

(222,058)480,000 576,000

57,600 891,542 326,667

1,218,209

501,120 57,600

0 558,720

0

500,000 0

159,489 659,489

1,218,209

0

document.xls 05/08/202321:23:54XYZ Company

Cash Flow StatememtYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4OPERATING ACTIVITIES Net Earnings (201,238) 107,036 150,013 (148,821) Depreciation 11,238 23,714 32,190 53,571 Working Capital Changes

(Increase)/Decrease Accounts Receivable (75,000) (129,600) (62,067) (93,333)(Increase)/Decrease Inventories (88,000) (157,520) (74,480) (112,000)(Increase)/Decrease Other Current Assets (9,000) (15,552) (7,448) (11,200)Increase/(Decrease) Accts Pay & Accrd Expenses 77,860 135,742 64,798 97,440 Increase/(Decrease) Other Current Liab 9,000 15,552 7,448 11,200 Net Cash Provided/(Used) by Operating Activities (275,140) (20,628) 110,454 (203,143)

INVESTING ACTIVITIES Property & Equipment (55,000) (80,000) (95,000) (135,000) Other

Net Cash Used in Investing Activities (55,000) (80,000) (95,000) (135,000)

FINANCING ACTIVITIES Increase/(Decrease) Short Term Debt 0 0 0 0 Increase/(Decrease) Curr. Portion LTD 0 0 0 0 Increase/(Decrease) Long Term Debt (200,000) (200,000) (200,000) (200,000) Increase/(Decrease) Common Stock 0 500,000 (500,000) 0 Increase/(Decrease) Preferred Stock 0 0 0 0 Dividends Declared 0 0 0 0

Net Cash Provided / (Used) by Financing (200,000) 300,000 (700,000) (200,000)

INCREASE/(DECREASE) IN CASH (530,140) 199,372 (684,546) (538,143)

CASH AT BEGINNING OF YEAR 1,500,000 969,860 1,169,232 484,686 CASH AT END OF YEAR 1,500,000 969,860 1,169,232 484,686 (53,457)

document.xls 05/08/202321:23:54

Year 5

252,500 77,619

(120,000)(144,000)

(14,400)125,280

14,400 191,399

(160,000)

(160,000)

0 (200,000)

0 0 0 0

(200,000)

(168,601)

(53,457)(222,058)

XYZ Company NotesBreakEven AnalysisYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5Revenue 500,000 1,705,000 2,300,000 3,080,000 4,110,000 Units of Customers 20,000 Average Price 25

Cost of RevenueVariable 194,000 612,950 832,400 1,568,000 1,507,500 Fixed 134,071 319,964 455,857 529,821 736,536 Total 328,071 932,914 1,288,257 2,097,821 2,244,036

Operating ExpensesVariable 90,000 306,900 414,000 554,400 739,800 Fixed 152,167 296,150 372,523 562,600 752,533 Total 242,167 603,050 786,523 1,117,000 1,492,333

Total Costs & ExpensesVariable 346,167 909,100 1,204,923 2,130,600 2,260,033 Fixed 376,238 923,014 1,242,380 1,646,821 2,228,869 Total 328,071 932,914 1,288,257 2,097,821 2,244,036

Variable Costs/Revenue Ratio 0.69 0.53 0.52 0.69 0.55

Variable Costs 346,167 909,100 1,204,923 2,130,600 2,260,033 Fixed Costs 376,238 923,014 1,242,380 1,646,821 2,228,869 Total Costs 722,405 1,832,114 2,447,304 3,777,421 4,488,902

No. Cust Revenue Fixed CostsTotal CostsBreak-Even Point Revenues 1,222,877 1,977,308 2,609,384 5,342,543 4,951,793 0 376000 376,000

100,000 376000 445,233 Year 1 Calculations 200,000 376000 514,467 Years 1 2 3 4 5 400,000 376000 652,933 Revenue 0 1,000,000 2,000,000 376000 1,760,667 Fixed Costs 376,238 376,238 Variable Costs 0 549,886 Total Costs 376,238 0 0 0 926,125

1 2 3 4 50

500,000

1,000,000

1,500,000

2,000,000

2,500,000

RevenueFixed CostsTotal Costs

document.xls 05/08/202321:23:54XYZ Company

Income StatementYear 1 by Months Total

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 12 Months

NET REVENUES 0 0 0 25,000 40,000 50,000 50,000 60,000 75,000 60,000 65,000 75,000 500,000

COST OF REVENUE 0 0 0 16,404 26,246 32,807 32,807 39,369 49,211 39,369 42,649 49,211 328,071

GROSS PROFIT 0 0 0 8,596 13,754 17,193 17,193 20,631 25,789 20,631 22,351 25,789 171,929

OPERATING EXPENSES Sales & Marketing 0 0 0 6,125 9,800 12,250 12,250 14,700 18,375 14,700 15,925 18,375 122,500 Research & Development 0 0 0 1,900 3,040 3,800 3,800 4,560 5,700 4,560 4,940 5,700 38,000 General and Administration 0 0 0 4,083 6,533 8,167 8,167 9,800 12,250 9,800 10,617 12,250 81,667 Total Operating Expenses 0 0 0 12,108 19,373 24,217 24,217 29,060 36,325 29,060 31,482 36,325 242,167

EARNINGS FROM OPERATIONS 0 0 0 (3,512) (5,619) (7,024) (7,024) (8,429) (10,536) (8,429) (9,131) (10,536) (70,238)

EXTRAORDINARY INCOME / (EXPENSE) (25,000) (20,000) 0 0 0 0 0 0 0 0 0 0 (45,000)

EARNINGS BEFORE INTEREST & TAXES (25,000) (20,000) 0 (3,512) (5,619) (7,024) (7,024) (8,429) (10,536) (8,429) (9,131) (10,536) (115,238)

INTEREST INCOME / (EXPENSE) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (7,167) (86,000)

NET EARNINGS BEFORE TAXES (32,167) (27,167) (7,167) (10,679) (12,786) (14,190) (14,190) (15,595) (17,702) (15,595) (16,298) (17,702) (201,238)

TAXES 0 0 0 0 0 0 0 0 0 0 0 0 0

NET EARNINGS (32,167) (27,167) (7,167) (10,679) (12,786) (14,190) (14,190) (15,595) (17,702) (15,595) (16,298) (17,702) (201,238)

document.xls 05/08/202321:23:54XYZ Company

Income StatementYear 2 by Months Total

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 12 Months

NET REVENUES 85,250 85,250 119,350 102,300 119,350 119,350 136,400 170,500 170,500 187,550 204,600 204,600 1,705,000

COST OF REVENUE 46,646 46,646 65,304 55,975 65,304 65,304 74,633 93,291 93,291 102,621 111,950 111,950 932,914

GROSS PROFIT 38,604 38,604 54,046 46,325 54,046 54,046 61,767 77,209 77,209 84,929 92,650 92,650 772,086

OPERATING EXPENSES Sales & Marketing 19,908 19,908 27,871 23,889 27,871 27,871 31,852 39,815 39,815 43,797 47,778 47,778 398,150 Research & Development 3,995 3,995 5,593 4,794 5,593 5,593 6,392 7,990 7,990 8,789 9,588 9,588 79,900 General and Administration 6,250 6,250 8,750 7,500 8,750 8,750 10,000 12,500 12,500 13,750 15,000 15,000 125,000 Total Operating Expenses 30,153 30,153 42,214 36,183 42,214 42,214 48,244 60,305 60,305 66,336 72,366 72,366 603,050

EARNINGS FROM OPERATIONS 8,452 8,452 11,833 10,142 11,833 11,833 13,523 16,904 16,904 18,594 20,284 20,284 169,036

EXTRAORDINARY INCOME / (EXPENSE) 0 0 0 0 0 0 0 0 0 0 0 0 0

EARNINGS BEFORE INTEREST & TAXES 8,452 8,452 11,833 10,142 11,833 11,833 13,523 16,904 16,904 18,594 20,284 20,284 169,036

INTEREST INCOME / (EXPENSE) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (5,167) (62,000)

NET EARNINGS BEFORE TAXES 3,285 3,285 6,666 4,975 6,666 6,666 8,356 11,737 11,737 13,427 15,118 15,118 107,036

TAXES 0 0 0 0 0 0 0 0 0 0 0 0 0

NET EARNINGS 3,285 3,285 6,666 4,975 6,666 6,666 8,356 11,737 11,737 13,427 15,118 15,118 107,036

document.xls 05/08/202321:23:54

NET REVENUES 390,000 460,000 650,000 800,000 2,300,000 525,000 615,000 860,000 1,080,000 3,080,000 700,000 820,000 1,150,000 1,440,000 4,110,000

COST OF REVENUE 218,444 257,651 364,073 448,089 1,288,257 357,583 418,883 585,755 735,600 2,097,821 382,196 447,715 627,893 786,231 2,244,036

GROSS PROFIT 171,556 202,349 285,927 351,911 1,011,743 167,417 196,117 274,245 344,400 982,179 317,804 372,285 522,107 653,769 1,865,964

OPERATING EXPENSES Sales & Marketing 85,418 100,750 142,364 175,217 503,750 112,227 131,466 183,839 230,868 658,400 151,292 177,228 248,551 311,229 888,300 Research & Development 17,652 20,820 29,420 36,209 104,100 29,045 34,025 47,579 59,751 170,400 40,416 47,345 66,398 83,142 237,300 General and Administration 30,297 35,735 50,495 62,147 178,673 49,125 57,546 80,471 101,057 288,200 62,461 73,168 102,614 128,491 366,733 Total Operating Expenses 133,367 157,305 222,278 273,573 786,523 190,398 223,037 311,890 391,675 1,117,000 254,169 297,740 417,563 522,861 1,492,333

EARNINGS FROM OPERATIONS 38,189 45,044 63,649 78,337 225,220 (22,981) (26,921) (37,645) (47,275) (134,821) 63,635 74,544 104,544 130,907 373,631

EXTRAORDINARY INCOME / (EXPENSE) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

EARNINGS BEFORE INTEREST & TAXES 38,189 45,044 63,649 78,337 225,220 (22,981) (26,921) (37,645) (47,275) (134,821) 63,635 74,544 104,544 130,907 373,631

INTEREST INCOME / (EXPENSE) (9,500) (9,500) (9,500) (9,500) (38,000) (3,500) (3,500) (3,500) (3,500) (14,000) 2,500 2,500 2,500 2,500 10,000

NET EARNINGS BEFORE TAXES 28,689 35,544 54,149 68,837 187,220 (26,481) (30,421) (41,145) (50,775) (148,821) 66,135 77,044 107,044 133,407 383,631

TAXES 0 0 (9,672) (27,535) (37,207) 0 0 0 0 0 (4,132) (30,818) (42,818) (53,363) (131,131)

NET EARNINGS 28,689 35,544 44,477 41,302 150,013 (26,481) (30,421) (41,145) (50,775) (148,821) 62,003 46,227 64,226 80,044 252,500

Do Not DeleteCalculation Area

Tax Loss Carry ForwardInterest Income/(Expense)

document.xls 05/08/202321:23:54XYZ Company

Cash Flow StatememtYear 1 by Months($)

XYZ CompanyCash Flow Statement Year 1Year 1 by Months Estimated Annual

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 ProjectionOPERATING ACTIVITIES Net Earnings (32,167) (27,167) (7,167) (10,679) (12,786) (14,190) (14,190) (15,595) (17,702) (15,595) (16,298) (17,702) (201,238) (201,238) Depreciation 937 937 937 937 937 937 937 937 937 937 937 937 11,238 11,238 Working Capital Changes

(Increase)/Decrease Accounts Receivable 0 0 0 (25,000) (15,000) (10,000) 0 (10,000) (15,000) 15,000 (5,000) (10,000) (75,000) (75,000)(Increase)/Decrease Inventories 0 0 0 (25,000) (20,000) (13,000) (2,000) (10,000) (17,000) 12,000 (2,000) (11,000) (88,000) (88,000)(Increase)/Decrease Other Current Assets 0 0 0 (3,000) (1,800) (1,200) 0 (1,200) (1,800) 1,800 (600) (1,200) (9,000) (9,000)Increase/(Decrease) Accts Pay & Accrd Expenses 0 0 0 25,000 16,100 10,660 440 10,000 15,440 (14,340) 4,340 10,220 77,860 77,860 Increase/(Decrease) Other Current Liab 0 0 0 3,000 1,800 1,200 0 1,200 1,800 (1,800) 600 1,200 9,000 9,000 Net Cash Provided/(Used) by Operating Activities (31,230) (26,230) (6,230) (34,742) (30,749) (25,594) (14,814) (24,659) (33,326) (1,999) (18,021) (27,546) (275,140) (275,140)

INVESTING ACTIVITIES Property & Equipment 0 (40,000) (15,000) 0 0 0 0 0 0 0 0 0 (55,000) (55,000) Other 0 0

Net Cash Used in Investing Activities 0 (40,000) (15,000) 0 0 0 0 0 0 0 0 0 (55,000) (55,000)

FINANCING ACTIVITIES Increase/(Decrease) Short Term Debt 0 0 0 Increase/(Decrease) Curr. Portion LTD 0 0 0 Increase/(Decrease) Long Term Debt (200,000) (200,000) (200,000) Increase/(Decrease) Common Stock 0 0 0 Increase/(Decrease) Preferred Stock 0 0 0 Dividends Declared 0 0 0

Net Cash Provided / (Used) by Financing 0 0 0 0 0 0 0 0 0 0 0 (200,000) (200,000) (200,000)

INCREASE/(DECREASE) IN CASH (31,230) (66,230) (21,230) (34,742) (30,749) (25,594) (14,814) (24,659) (33,326) (1,999) (18,021) (227,546) (530,140) (530,140)

CASH AT BEGINNING OF PERIOD 1,500,000 1,468,770 1,402,540 1,381,310 1,346,567 1,315,818 1,290,224 1,275,410 1,250,752 1,217,426 1,215,427 1,197,406 1,500,000 CASH AT END OF PERIOD 1,468,770 1,402,540 1,381,310 1,346,567 1,315,818 1,290,224 1,275,410 1,250,752 1,217,426 1,215,427 1,197,406 969,860 969,860

XYZ CompanyCash Flow Statement Year 1Year 2 by Months Estimated Annual

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Year 1 ProjectionOPERATING ACTIVITIES Net Earnings 3,285 3,285 6,666 4,975 6,666 6,666 8,356 11,737 11,737 13,427 15,118 15,118 107,036 107,036 Depreciation 1,976 1,976 1,976 1,976 1,976 1,976 1,976 1,976 1,976 1,976 1,976 1,976 23,714 23,714 Working Capital Changes 0

(Increase)/Decrease Accounts Receivable (10,250) 0 (34,100) 17,050 (17,050) 0 (17,050) (34,100) 0 (17,050) (17,050) 0 (129,600) (129,600)(Increase)/Decrease Inventories (12,250) (2,050) (34,100) 10,230 (13,640) (3,410) (17,050) (37,510) (6,820) (17,050) (20,460) (3,410) (157,520) (157,520)(Increase)/Decrease Other Current Assets (1,230) 0 (4,092) 2,046 (2,046) 0 (2,046) (4,092) 0 (2,046) (2,046) 0 (15,552) (15,552)Increase/(Decrease) Accts Pay & Accrd Expenses 10,690 451 34,100 (15,550) 16,300 750 17,050 34,850 1,500 17,050 17,800 750 135,742 135,742 Increase/(Decrease) Other Current Liab 79,550 451 34,100 (110,825) 2,046 0 2,046 4,092 0 2,046 2,046 0 15,552 15,552 Net Cash Provided/(Used) by Operating Activities 71,771 4,113 4,550 (90,097) (5,748) 5,982 (6,718) (23,047) 8,393 (1,647) (2,616) 14,434 (20,628) (20,628)

0 INVESTING ACTIVITIES 0 Property & Equipment 0 (80,000) 0 0 0 0 0 0 0 0 0 0 (80,000) (80,000) Other 0 0

Net Cash Used in Investing Activities 0 (80,000) 0 0 0 0 0 0 0 0 0 0 (80,000) (80,000)0

FINANCING ACTIVITIES 0 Increase/(Decrease) Short Term Debt 0 0 0 Increase/(Decrease) Curr. Portion LTD 0 0 0 Increase/(Decrease) Long Term Debt (200,000) (200,000) (200,000) Increase/(Decrease) Common Stock 500,000 500,000 500,000 Increase/(Decrease) Preferred Stock 0 0 0 Dividends Declared 0 0 0

Net Cash Provided / (Used) by Financing 0 0 0 0 0 0 0 0 0 0 0 300,000 300,000 300,000 0

INCREASE/(DECREASE) IN CASH 71,771 (75,887) 4,550 (90,097) (5,748) 5,982 (6,718) (23,047) 8,393 (1,647) (2,616) 314,434 199,372 199,372

CASH AT BEGINNING OF PERIOD 969,860 1,041,631 965,744 970,294 880,198 874,449 880,432 873,714 850,667 859,061 857,414 854,798 969,860 CASH AT END OF PERIOD 1,041,631 965,744 970,294 880,198 874,449 880,432 873,714 850,667 859,061 857,414 854,798 1,169,232 1,169,232

XYZ CompanyCash Flow Statement Year 3 Year 4 Year 5Years 3, 4 & 5 by Quarters Annual Annual Annual

Year 3 Year 4 Year 5 Projection Projection Projection1st Qtr 2nd Qrtr 3rd Qrtr 4th Qrtr Total 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total

OPERATING ACTIVITIES Net Earnings 28,689 35,544 44,477 41,302 150,013 (26,481) (30,421) (41,145) (50,775) (148,821) 62,003 46,227 64,226 80,044 252,500 150,013 (148,821) 252,500 Depreciation 8,048 8,048 8,048 8,048 32,190 13,393 13,393 13,393 13,393 53,571 19,405 19,405 19,405 19,405 77,619 32,190 53,571 77,619 Working Capital Changes

(Increase)/Decrease Accounts Receivable 74,600 (23,333) (63,333) (50,000) (62,067) 91,667 (30,000) (81,667) (73,333) (93,333) 126,667 (40,000) (110,000) (96,667) (120,000) (62,067) (93,333) (120,000)(Increase)/Decrease Inventories 89,520 (28,000) (76,000) (60,000) (74,480) 110,000 (36,000) (98,000) (88,000) (112,000) 152,000 (48,000) (132,000) (116,000) (144,000) (74,480) (112,000) (144,000)(Increase)/Decrease Other Current Assets 8,952 (2,800) (7,600) (6,000) (7,448) 11,000 (3,600) (9,800) (8,800) (11,200) 15,200 (4,800) (13,200) (11,600) (14,400) (7,448) (11,200) (14,400)Increase/(Decrease) Accts Pay & Accrd Expenses (77,882) 24,360 66,120 52,200 64,798 (95,700) 31,320 85,260 76,560 97,440 (132,240) 41,760 114,840 100,920 125,280 64,798 97,440 125,280 Increase/(Decrease) Other Current Liab (8,952) 2,800 7,600 6,000 7,448 (11,000) 3,600 9,800 8,800 11,200 (15,200) 4,800 13,200 11,600 14,400 7,448 11,200 14,400 Net Cash Provided/(Used) by Operating Activities 122,975 16,618 (20,689) (8,450) 110,454 92,879 (51,708) (122,159) (122,156) (203,143) 227,834 19,391 (43,529) (12,298) 191,399 110,454 (203,143) 191,399

INVESTING ACTIVITIES Property & Equipment (45,000) (50,000) 0 0 (95,000) (45,000) (30,000) (30,000) 0 (105,000) (40,000) (40,000) (40,000) 0 (120,000) (95,000) (135,000) (160,000) Other 0 0 0 0 0

Net Cash Used in Investing Activities (45,000) (50,000) 0 0 (95,000) (45,000) (30,000) (30,000) 0 (105,000) (40,000) (40,000) (40,000) 0 (120,000) (95,000) (135,000) (160,000)

FINANCING ACTIVITIES Increase/(Decrease) Short Term Debt 0 0 0 0 0 0 0 0 0 Increase/(Decrease) Curr. Portion LTD 0 0 0 0 (200,000) (200,000) 0 0 (200,000) Increase/(Decrease) Long Term Debt (200,000) (200,000) (200,000) (200,000) 0 0 (200,000) (200,000) 0 Increase/(Decrease) Common Stock (500,000) (500,000) 0 0 0 0 (500,000) 0 0 Increase/(Decrease) Preferred Stock 0 0 0 0 0 0 0 0 0 Dividends Declared 0 0 0 0 0 0 0 0 0

Net Cash Provided / (Used) by Financing 0 0 0 (700,000) (700,000) 0 0 0 (200,000) (200,000) 0 0 0 (200,000) (200,000) (700,000) (200,000) (200,000)

INCREASE/(DECREASE) IN CASH 77,975 (33,382) (20,689) (708,450) (684,546) 47,879 (81,708) (152,159) (322,156) (508,143) 187,834 (20,609) (83,529) (212,298) (128,601) (684,546) (538,143) (168,601)

CASH AT BEGINNING OF PERIOD 1,169,232 1,247,207 1,213,825 1,193,136 484,686 532,565 450,857 298,699 (23,457) 164,378 143,769 60,240 1,169,232 484,686 (53,457)CASH AT END OF PERIOD 1,247,207 1,213,825 1,193,136 484,686 532,565 450,857 298,699 (23,457) 164,378 143,769 60,240 (152,058) 484,686 (53,457) (222,058)

XYZ Company NotesValuation Venture Capital MethodYears 1 to 5

?Assumptions: REF

Investor required IRR 100% AP/E ratio at IPO or acquisition 15 BInitial investment $500,000 C FV(A,C) G/F IRR(D,G)

REF D E F G H I J K

Valuation Calculation Year Net IncomeCalculation Income Stmt B * E FV(F,D) C / G F * H I / C IRR(I,C,D)

Liquidity Event in Year 1 1 (201,000) ($3,015,000) $1,000,000 100.0% $0 0% #N/ALiquidity Event in Year 2 2 107,000 $1,605,000 $2,000,000 124.6% $1,605,000 321% 79%Liquidity Event in Year 3 3 150,000 $2,250,000 $4,000,000 177.8% $2,250,000 450% 65%Liquidity Event in Year 4 4 150,000 $2,250,000 $8,000,000 355.6% $2,250,000 450% 46%Liquidity Event in Year 5 5 230,000 $3,450,000 $16,000,000 463.8% $3,450,000 690% 47%

Negotiation Workspace

Year1 25.0% $0 0% #N/A2 25.0% $401,250 80% -10%3 25.0% $562,500 113% 4%4 25.0% $562,500 113% 3%5 25.0% $862,500 173% 12%

MarketCapitalization

Required Future Value (Investor)

Investor'sShare

Investor'sReturn

Investor'sROI

Investor'sIRR

Investor'sShare

Investor'sReturn

Investor'sROI

Investor'sIRR

Valuation

The venture capital method assumes that a firm will undertake an Initial Public Offering (IPO) at some point in the future or be acquired, ie a “Liquidity Event”. The future value of the firm is determined by multiplying the earnings of the firm in the year of the Liquidity Event by the expected price/earnings (P/E) ratio that the market will support. (The long-run P/E ratio of NYSE stocks is about 15.) This provides the expected future value of the firm.

The present value of the firm is then calculated using a risk adjusted discount rate. Discount rates of 50 to 100% (and more) are frequently used in valuing start-up businesses to capture the inherently risky nature of new ventures. Similarly, venture capitalists frequently demand an Internal Rate of Return (IRR) of 100% (or more) in order to justify investing in a risky startup. (An IRR of 100% is equivalent to doubling the value of an investment every year.)

There are two valuation worksheets provided in the model:VAL-1 estimates the value of the company based on an initial investment of the start of the venture and a one-time liquidity event. The net income estimates for each of the five years need to be inputted manually, but you can easily make links directly to Net Income line in the Income Statement projections. Use the Negotiation Workspace to test various dilution assumptions.

Val-2 estimates the value of the company based on multiple rounds of investment. The timing of the each round of Investment and the IPO can be modified. Use the Negotiation Workspace to test various dilution assumptions.

XYZ Company NotesValuation Venture Capital MethodYears 1 to 5 What do if IPO happens before 3rd roundMultiple Rounds

Assumptions Ref CalculationMonth of IPO 48 AForecast annualized earnings at IPO $3,500,000 BP/E ratio at IPO 15 C

Investment Round First Second Third Month of Investment 0 12 24 CInvestor required IRR 100% 75% 50% DAmount of Investment $1,000,000 $1,000,000 $1,000,000 ERequired Monthly IRR 8.33% 6.25% 4.17% F D/12Duration of Investment 48 36 24 G A-C

CalculationsMarket Capitalization at IPO $52,500,000 H B*C

First Second Third Required FV for Investor at IPO $16,000,000 $5,359,375 $2,250,000 I E*(1+F)^GIndividual Investor's Share 30.5% 10.2% 4.3% J I/HIndividual Investor's ROI 1600% 536% 225% K I/EIndividual Investor's IRR 100% 75% 50% L (I/E)^(12/G)-1

Cumulative Investors' Share 30.5% 40.7% 45.0% M sum(J)Cumulative Founders' Share 69.5% 59.3% 55.0% N 1-M

Negotiations Round First Second Third Individual Investor's Share 15.0% 5.0% 3.0%FV for Investor at IPO $7,875,000 $2,625,000 $1,575,000 Individual Investor's ROI 788% 263% 158%Individual Investor's IRR 68% 38% 25%

Valuation

The venture capital method assumes that a firm will undertake an Initial Public Offering (IPO) at some point in the future or be acquired, ie a “Liquidity Event”. The future value of the firm is determined by multiplying the earnings of the firm in the year of the Liquidity Event by the expected price/earnings (P/E) ratio that the market will support. (The long-run P/E ratio of NYSE stocks is about 15.) This provides the expected future value of the firm.

The present value of the firm is then calculated using a risk adjusted discount rate. Discount rates of 50 to 100% (and more) are frequently used in valuing start-up businesses to capture the inherently risky nature of new ventures. Similarly, venture capitalists frequently demand an Internal Rate of Return (IRR) of 100% (or more) in order to justify investing in a risky startup. (An IRR of 100% is equivalent to doubling the value of an investment every year.)

There are two valuation worksheets provided in the model:VAL-1 estimates the value of the company based on an initial investment of the start of the venture and a one-time liquidity event. The net income estimates for each of the five years need to be inputted manually, but you can easily make links directly to Net Income line in the Income Statement projections. Use the Negotiation Workspace to test various dilution assumptions.

Val-2 estimates the value of the company based on multiple rounds of investment. The timing of the each round of Investment and the IPO can be modified. Use the Negotiation Workspace to test various dilution assumptions.

document.xls 05/08/202321:23:55XYZ Company

SummaryYears 1 to 5

Year 1 Year 2 Year 3 Year 4 Year 5Summary Financials ($)

Revenue 500,000 1,705,000 2,300,000 3,080,000 4,110,000 Gross Profit 171,929 772,086 1,011,743 982,179 1,865,964 EBIT (115,238) 169,036 225,220 (134,821) 373,631 EBITDA (104,000) 192,750 257,410 (81,250) 451,250 Net Earnings (201,238) 107,036 150,013 (148,821) 252,500 Net Cash from Operating Activities (275,140) (20,628) 110,454 (203,143) 191,399 Capital Expenditures 55,000 80,000 95,000 135,000 160,000 Interest Income/(Expense) (86,000) (62,000) (38,000) (14,000) 10,000 Dividends 0 0 0 0 0 Cash 969,860 1,169,232 484,686 (53,457) (222,058)Total Equity 298,762 905,797 555,810 406,989 659,489 Total Debt 800,000 600,000 400,000 200,000 0

Growth Revenue Growth Rate - CAGR: 241% 35% 34% 33% Net Earnings Growth Rate - CAGR: -153% 40% -199% -270%

Ratios Current Ratio 4.0 3.8 2.2 1.3 1.6 Debt to Capital (LT Debt + Equity) 0.7 0.4 0.4 0.3 0.0

ProfitabilityGross Profit % 34.4% 45.3% 44.0% 31.9% 45.4%Operating Expenses % 48.4% 35.4% 34.2% 36.3% 36.3%Net Earnings % -40.2% 6.3% 6.5% -4.8% 6.1%

ReturnsReturn on Assets -17.0% 6.1% 11.8% -14.5% 20.7%Return on Equity -67.4% 11.8% 27.0% -36.6% 38.3%Return on Capital (LT Debt + Equity) -18.3% 7.1% 15.7% -24.5% 38.3%

XYZ CompanyPeer Company Comparisons

Select BestCompany A Company B Company C Comparison Projections

Ratios Year 1Accounts Receivable % of Rev 8.3%Inventory % of Rev 10.0%Accounts Payable % of Rev 8.7%Working Capital % of Rev 9.6%Net Fixed Assets % of Rev 8.8%Current Ratio 4.0 Debt to Capital (LT Debt + Equity) 0.73

ProfitabilityGross Profit % of Rev 34.4%Operating Expenses % of Rev 51.6%Earnings from Operations % of Rev -14.0%EBIT % of Rev -23.0%Depreciation % of Rev 2.2%EBITDA % of Rev -20.8%Net Earnings % of Rev -40.2%

ReturnsReturn on Assets -17.0%Return on Equity -67.4%Return on Capital (LT Debt + Equity) -18.3%

Growth Revenue Growth Rate - CAGR: Net Earnings Growth Rate - CAGR:

document.xls 05/08/202321:23:55XYZ Company Notes

Revenue ProjectionsYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5Location A

Number of Customers 20,000 35,000 50,000 60,000 30,000 Fee per Customer 25 23 21 18 17

Total 500,000 805,000 1,050,000 1,080,000 510,000 Location B

Number of Customers 30,000 50,000 100,000 200,000 Fee per Customer 30 25 20 18

Total 0 900,000 1,250,000 2,000,000 3,600,000 Total Number of Customers 20,000 65,000 100,000 160,000 230,000

Net Revenue 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Revenues by Months & Quarters($)

Months Year 1 Year 2 Year 3 Year 4 Year 5Month 1 0 85,250 Month 2 0 85,250 Month 3 0 119,350

Total 1st Quarter 0 289,850 390,000 525,000 700,000 Month 4 25,000 102,300 Month 5 40,000 119,350 Month 6 50,000 119,350

Total 2nd Quarter 115,000 341,000 460,000 615,000 820,000 Month 7 50,000 136,400 Month 8 60,000 170,500 Month 9 75,000 170,500

Total 3rd Quarter 185,000 477,400 650,000 860,000 1,150,000 Month 10 60,000 187,550 Month 11 65,000 204,600 Month 12 75,000 204,600

Total 4th Quarter 200,000 596,750 800,000 1,080,000 1,440,000 Total for year 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Average Revenue by Month 41,667 142,083 191,667 256,667 342,500 by Quarter 125,000 426,250 575,000 770,000 1,027,500

Revenue Projections

To project revenues:1) Determine the key revenue drivers for your business, e.g. a) Number of customers, transactions or units b) Price per customer, transaction or unit c) Average revenue per customer or transaction d) Distribution channel discount e) Market penetration f) Response rate g) Churn rate (proportion of customers lost each year) h) Growth rate i) New services or products

2) Create a revenue model for the 5 years, based on the drivers that you have identified.

3) Estimate revenues by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as a) Roll out timing b) Growth rate c) Seasonality d)When get Customer

document.xls 05/08/202321:23:55XYZ Company Notes

Cost of RevenuesYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5

Revenue 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Cost of Revenue

Personal costsSalary 80,500 109,250 138,000 201,250 247,250 Labor 69,000 227,700 317,400 414,000 552,000

Depreciation 3,571 10,714 17,857 28,571 39,286 Facility costs (rent, energy) 50,000 200,000 300,000 300,000 450,000 Materials 100,000 300,000 400,000 1,000,000 750,000

All other costs % of Revenue 5% 25,000 85,250 115,000 154,000 205,500 Total Cost of Revenues 328,071 932,914 1,288,257 2,097,821 2,244,036

% of Revenue 65.6% 54.7% 56.0% 68.1% 54.6%

Allocation of Cost of Revenue between:Vaiable 194,000 612,950 832,400 1,568,000 1,507,500 Fixed 134,071 319,964 455,857 529,821 736,536

Total 328,071 932,914 1,288,257 2,097,821 2,244,036

Cost of Revenues by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 0 46,646 0 0 0 Month 2 0 46,646 0 0 0 Month 3 0 65,304 0 0 0

Total 1st Quarter 0 158,595 218,444 357,583 382,196 Month 4 16,404 55,975 0 0 0 Month 5 26,246 65,304 0 0 0 Month 6 32,807 65,304 0 0 0

Total 2nd Quarter 75,456 186,583 257,651 418,883 447,715 Month 7 32,807 74,633 0 0 0 Month 8 39,369 93,291 0 0 0 Month 9 49,211 93,291 0 0 0

Total 3rd Quarter 121,386 261,216 364,073 585,755 627,893 Month 10 39,369 102,621 0 0 0 Month 11 42,649 111,950 0 0 0 Month 12 49,211 111,950 0 0 0

Total 4th Quarter 131,229 326,520 448,089 735,600 786,231 Total for year 328,071 932,914 1,288,257 2,097,821 2,244,036

Cost of Revenue Projections To project Cost of Revenues: 1) Determine the key drivers of costs to provide the service or product, e.g.a) Personnel costs (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)b) Depreciation resulting from large capital expenditures (this is calculated automatically when you estimate capital expenditures in PROP & EQUIP spreadsheet)c) Materials costsd) Yields or scrap ratese) Website operating costsf) Systems costsg) Warehouse and shipping expensesh) Maintenance expensesi) Returnsj) Outsourcing expensesk) Lease and/or rental expensesl) Cost reductionsm) Capacity utilization

2) Estimate All Other Costs that will be required to produce and deliver the product/services by projecting a % of Revenue. The model assumes the same % over the 5-year period. If this is not the case, then change the formula in each cell.

3) Evaluate these cost projections in relation to comparable companies (see the COMPS worksheet). Is the Cost of Revenue/Revenue ratio reasonable when compared to companies similar to yours?

4) Analyze the Cost of Revenues to determine which are variable and fixed costs. Enter these into the worksheet where shown. This allocation will be used in the BREAKEVEN spreadsheet to determine the break-even point.

5) Estimate Cost of Revenues by months for years 1 & 2 and by quarters for years 3, 4 and 5. The model assumes that the Cost of Revenue/Revenue ratio for a particular year is consistent through out the year. This may not be the case, particular in the first and second years. Consider such factors as:a) Product or service roll out timingb) Cost reduction timingc) Inefficiencies when starting up new plant and equipmentd) Growth ratee) Seasonality

document.xls 05/08/202321:23:55XYZ Company

Operating ExpensesYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5

Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Sales & MarketingDrivers

Salaries and Benefits 57,500 126,500 204,750 258,000 354,000 Commissions % of Revenue 5% 25,000 85,250 115,000 154,000 205,500 Exhibitions 50,000

All other expenses % of Revenue 8% 40,000 136,400 184,000 246,400 328,800 Total Sales and Marketing 122,500 398,150 503,750 658,400 888,300 % of Revenue 24.5% 23.4% 21.9% 21.4% 21.6%

Research & DevelopmentDrivers

Salaries and Benefits 23,000 28,750 35,100 78,000 114,000 Prototypes

All other expenses % of Revenue 3% 15,000 51,150 69,000 92,400 123,300 Total Reaserch & Development 38,000 79,900 104,100 170,400 237,300 % of Revenue 7.6% 4.7% 4.5% 5.5% 5.8%

General & AdministrationDrivers

Salaries and Benefits 60,000 75,900 119,340 201,600 241,200 Depreciation 6,667 10,000 8,333 15,000 23,333 Rent and Utilities 5,000 5,000 5,000 10,000 20,000

All other expenses % of Revenue 2% 10,000 34,100 46,000 61,600 82,200

Total General & Administration 81,667 125,000 178,673 288,200 366,733 % of Revenue 16.3% 7.3% 7.8% 9.4% 8.9%

Total Operating Expenses 242,167 603,050 786,523 1,117,000 1,492,333 % of Revenue 48.4% 35.4% 34.2% 36.3% 36.3%

Allocation of Operating Expenses between:Vaiable 90,000 306,900 414,000 554,400 739,800 Fixed 152,167 296,150 372,523 562,600 752,533

Total 242,167 603,050 786,523 1,117,000 1,492,333

Sales & Marketing by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 0 19,908 0 0 0 Month 2 0 19,908 0 0 0 Month 3 0 27,871 0 0 0

Total 1st Quarter 0 67,686 85,418 112,227 151,292 Month 4 6,125 23,889 0 0 0 Month 5 9,800 27,871 0 0 0 Month 6 12,250 27,871 0 0 0

Total 2nd Quarter 28,175 79,630 100,750 131,466 177,228 Month 7 12,250 31,852 0 0 0 Month 8 14,700 39,815 0 0 0 Month 9 18,375 39,815 0 0 0

Operating Expense Projections

To project operating expenses:1) Determine the key drivers of operating expenses, e.g.a) Sales & Marketingi) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)ii) Customer acquisition costiii) Sales commissionsiv) Exhibitionsv) Brand buildingvi) Catalogvii) Customer serviceviii) Tech supportix) Customer serviceb) Research and Developmenti) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)ii) Beta testingiii) Time to marketiv) Patent and copyright application v) Prototypingvi) Subcontractingc) General and Administrationi) Personnel expenses (this is calculated automatically when you estimate people expenses - wage rates/salaries, incentives, number of employees - in the PERSONNEL worksheet)ii) Depreciation resulting from large capital expenditures (this is calculated automatically when you estimate capital expenditures in PROP & EQUIP spreadsheet)iii) Legal, accounting and other service provider expensesiv) Credit card transaction feesv) Recruiting expensesvi) MIS expensesvii) Office rent and utilities

2) Make provisions in each of the operating expenses categories for all the other operating expenses that are not significant enough to be considered a driver. These might include marketing materials, travel and entertainment, insurance, leasing, telecommunications, etc.

3) Evaluate the projection of the Operating Expense/Revenue ratio for Sales & Marketing, Research & Development, and General & Administration in relation to comparable companies (see the COMPS worksheet). Is the Operating Expense/Revenue ratio reasonable when compared to companies similar to yours?

4) Estimate operating expenses for Sales & Marketing, Research & Development, and General & Administration by months for years 1 & 2 and by quarters for years 3, 4 and 5.

The model automatically projects the monthly and quarterly expenses by multiplying each month’s or quarter’s Revenue by the year’s operating expense/revenue ratio. This may not be accurate, particularly in the first and second years. Consider such factors as:a) Product or service roll out timingb) Major events, e.g. opening a new location, product launchc) Growth rated) Seasonality

Also, in many new businesses there are little or no revenues in the early months. Conversely, operating expenses can be very high, as you get ready to launch the business. The method used by model may vastly underestimate these early month expenses and you should make suitable adjustments.

document.xls 05/08/202321:23:55XYZ Company

PersonnelYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5

Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Sales & Marketing Sales Manager 50,000 55,000 60,000 65,000 70,000 Marketing Manager 40,000 50,000 60,000 Sales Reps Customer service 20,000 25,000 30,000 35,000

Tech support 35,000 50,000 70,000 130,000 (other…) (other…) Total Salary 50,000 110,000 175,000 215,000 295,000 Benefits Percent (%) 15% 15% 17% 20% 20%

Total benefit costs 7,500 16,500 29,750 43,000 59,000 Total S & M Compensation 57,500 126,500 204,750 258,000 354,000 % of Revenue 11.5% 7.4% 8.9% 8.4% 8.6%

Research and DevelopmentR & D ManagerEngineers 20,000 25,000 30,000 65,000 70,000 Technicians 25,000 Subcontract

(other…) (other…) Total Salary 20,000 25,000 30,000 65,000 95,000 Benefits Percent (%) 15% 15% 17% 20% 20%

Total benefit costs 3,000 3,750 5,100 13,000 19,000 Total R & D Compensation 23,000 28,750 35,100 78,000 114,000 % of Revenue 4.6% 1.7% 1.5% 2.5% 2.8%

General & Administration Chief Executive Officer 35,000 40,000 50,000 65,000 70,000 Chief Financail Officer Accounting 25,000 50,000 75,000 Credit 25,000 27,000 Secretarial 25,000 26,000 27,000 28,000 29,000 (other…) (other…)

Total Salary 60,000 66,000 102,000 168,000 201,000 Benefits

Percent (%) 15% 15% 17% 20% 20%Total benefit costs 0 9,900 17,340 33,600 40,200

Total G & A Compensation 60,000 75,900 119,340 201,600 241,200 % of Revenue 12.0% 4.5% 5.2% 6.5% 5.9%

Personnel Expenses

To project personnel expenses:1) Determine key personnel to be recruiteda) Sales and Marketingb) Research and Developmentc) General and Administratived) Cost of Revenuei) Salaryii) Hourly

2) For each of the above areas indicatea) Position or titleb) Number of employeesc) When will be hiredd) Salary or wages.

3) If you are projecting significant growth over the period, then you should make sure that salaries of the key employees are roughly comparable to companies in the same industry and size. For example, you may be successful in attracting the Chief Marketing Officer to your company with a generous options package, but “low” salary of $100,000 in the first two years of operations. If your company grows to $50 million in revenues in year 3, then you will have to begin the pay close the market rate for company of that size.

One of the most common mistakes new entrepreneurs make is to vastly underestimate the salary levels that the company must pay to attract key personnel. You need to determine the market rate in your area and industry for personnel.

4) Determine the benefits package as a % of base pay. This should include legally required employer deductions such as FICA and Workman’s comp, as well as health insurance, pensions and other benefits.

5) Determine incentive plan (options, profit sharing, bonus). Estimate the cost and include it in the Administrative Expense section of the Operating Expenses worksheet.

document.xls 05/08/202321:23:55

Cost of RevenueSalary Personnel Manufacturing Manager 50,000 55,000 70,000 75,000 100,000 Quality Control Manager 45,000 50,000 Materials Manager 20,000 40,000 50,000 55,000 65,000 (other...)

Total Salary 70,000 95,000 120,000 175,000 215,000 Benefits

Percent (%) 15% 15% 15% 15% 15%Total benefit costs 10,500 14,250 18,000 26,250 32,250

Total Salary Costs 80,500 109,250 138,000 201,250 247,250 Hourly Personnel

Number of employees 3 9 12 15 20 Average wages per employee 20,000 22,000 23,000 24,000 24,000

Total wages 60,000 198,000 276,000 360,000 480,000 Benefits

Percent (%) 15% 15% 15% 15% 15%Total benefit costs 9,000 29,700 41,400 54,000 72,000

Total Wage Costs 69,000 227,700 317,400 414,000 552,000 Total COR's Compensation 149,500 336,950 455,400 615,250 799,250 % of Revenue 29.9% 19.8% 19.8% 20.0% 19.4%

Total Salary & Wages 260,000 494,000 703,000 983,000 1,286,000 Total Benefits 30,000 74,100 111,590 169,850 222,450 Total Compensation 290,000 568,100 814,590 1,152,850 1,508,450 % of Revenue 58.0% 33.3% 35.4% 37.4% 36.7%

document.xls 05/08/202321:23:55

Personnel Expenses

To project personnel expenses:1) Determine key personnel to be recruiteda) Sales and Marketingb) Research and Developmentc) General and Administratived) Cost of Revenuei) Salaryii) Hourly

2) For each of the above areas indicatea) Position or titleb) Number of employeesc) When will be hiredd) Salary or wages.

3) If you are projecting significant growth over the period, then you should make sure that salaries of the key employees are roughly comparable to companies in the same industry and size. For example, you may be successful in attracting the Chief Marketing Officer to your company with a generous options package, but “low” salary of $100,000 in the first two years of operations. If your company grows to $50 million in revenues in year 3, then you will have to begin the pay close the market rate for company of that size.

One of the most common mistakes new entrepreneurs make is to vastly underestimate the salary levels that the company must pay to attract key personnel. You need to determine the market rate in your area and industry for personnel.

4) Determine the benefits package as a % of base pay. This should include legally required employer deductions such as FICA and Workman’s comp, as well as health insurance, pensions and other benefits.

5) Determine incentive plan (options, profit sharing, bonus). Estimate the cost and include it in the Administrative Expense section of the Operating Expenses worksheet.

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Extraordinary Income & ExpenseYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5

Income (Item…) 0 (Item…) (Item…)

Total 0 0 0 0 0 Start-up expenses

Legal 25,000 Relocation 20,000

(Item…)Total 45,000 0 0 0 0

Total Extraordinary Income/(Expense) (45,000) 0 0 0 0

Extraordinary Income and Expense by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 (25,000)Month 2 (20,000)Month 3

Total 1st Quarter (45,000) 0 0 0 0 Month 4Month 5Month 6

Total 2nd Quarter 0 0 0 0 0 Month 7Month 8Month 9

Total 3rd Quarter 0 0 0 0 0 Month 10Month 11Month 12

Total 4th Quarter 0 0 0 0 0 Total for year (45,000) 0 0 0 0

Extraordinary Income & ExpenseTo project extraordinary Income & Expense, estimate those amounts that are one of a kind or nonrecurring.

Estimate Extraordinary Income & Expenses by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider major events such as product or service rollout, acquisition, initial public offering, etc.

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TaxesYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5

Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Income Tax (Rate Federal & State) 0.40 0.40 0.40 0.40 0.40

Net Earnings Before Taxes (201,238) 107,036 187,220 (148,821) 383,631 Cumulative (201,238) (94,203) 93,017 (55,804) 327,827

Taxes 0 0 37,207 0 131,131 Percent of Revenues 0.0% 0.0% 1.6% 0.0% 3.2%

TaxesDetermine the appropriate federal, state and local income tax rates. If you have losses in the initial years, the loss carry-forward is automatically calculates

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Property and EquipmentYears 1 to 5($)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5Purchased

Net Revenues Assets 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Capital ExpendituresComputers, Software & Office Equipment 20,000 10,000 15,000 20,000 35,000 Plant & Equipment 25,000 50,000 50,000 75,000 75,000 Other 10,000 20,000 30,000 40,000 50,000

Total Capital Expenditures 0 55,000 80,000 95,000 135,000 160,000 % of Revenue 11.0% 4.7% 4.1% 4.4% 3.9%

Depreciation Computers, Sofware & Office Equipment (allocated to General & Administrative Expenses) Depreciation Rate: Years 2 3 3 3 3 3 Year 0 0 0 0 0 0 Year 1 6,667 6,667 0 0 0 Year 2 3,333 3,333 3,333 Year 3 5,000 5,000 5,000 Year 4 6,667 6,667 Year 5 11,667

Total Depreciation 6,667 10,000 8,333 15,000 23,333

Depreciation on Plant and Equipment (allocated to Cost of Revenue) Depreciation Rate: Years 5 7 7 7 7 7 Year 0 0 0 0 0 0 Year 1 3,571 3,571 3,571 3,571 3,571 Year 2 7,143 7,143 7,143 7,143 Year 3 7,143 7,143 7,143 Year 4 10,714 10,714 Year 5 10,714

Total Depreciation 3,571 10,714 17,857 28,571 39,286

Depreciation Other (allocated to Cost of Revenue) Depreciation Rate: Years 6 10 10 10 10 10 Year 0 0 0 0 0 0 Year 1 1,000 1,000 1,000 1,000 1,000 Year 2 2,000 2,000 2,000 2,000 Year 3 3,000 3,000 3,000 Year 4 4,000 4,000 Year 5 5,000

Total Depreciation 1,000 3,000 6,000 10,000 15,000

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Total Depreciation 11,238 23,714 32,190 53,571 77,619 % of Revenue 2.2% 1.4% 1.4% 1.7% 1.9%

Property & Equipment Gross Asset Value 55,000 135,000 230,000 365,000 525,000 Accumulated Depreciation 11,238 34,952 67,143 120,714 198,333

Net Property and Equipment 43,762 100,048 162,857 244,286 326,667 % of Revenue 8.8% 5.9% 7.1% 7.9% 7.9%

Capital Expenditures by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1Month 2 40,000 80,000 Month 3 15,000

Total 1st Quarter 55,000 80,000 45,000 45,000 40,000 Month 4Month 5Month 6

Total 2nd Quarter 0 0 50,000 30,000 40,000 Month 7Month 8Month 9

Total 3rd Quarter 0 0 30,000 40,000 Month 10Month 11Month 12

Total 4th Quarter 0 0 Total for year 55,000 80,000 95,000 105,000 120,000

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Property & Equipment To project property and equipment, capital expenditures, depreciation, accumulated depreciation:1) Determine the major capital expenditure projects for 5 years, e.g. property, plant, equipment, computers, servers, systems, software, furniture and fixtures, etc. Keep in mind that software, system design, training can be equal to or greater than the cost of hardware.

Sometimes a new business may be able to purchase the assets of an existing business. The depreciation rates for these assets may be different than that of new capital expenditures. The model will calculate the depreciation and net asset value of the expenditures.

2) Estimate the level on-going capital expenditures.

3) Determine the expected life for the each of the expenditures. Depreciation will be calculated on a straight-line basis. The model assumes that full 12-month’s depreciation is taken in the year that the expenditure takes place. The model groups expenditures into three categories:a) Computers, software and office equipment (depreciation allocated to General & Administrative expenses)b) Plant and equipment (depreciation allocated to Cost of Revenue)c) Other (depreciation allocated to General & Administrative expenses)

If you are a capital-intensive business, you may need more categories of expenditures with different depreciation rates. The model can be modified, but you will need to establish links to the appropriate cost/expense spreadsheets.

4) Estimate capital expenditure by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as:a) Product or service roll out timingb) Capacity utilizationc) New process development and technologyd) Equipment and systems obsolecencee) Cost reduction timingf) Growth rateg) Seasonality

document.xls 05/08/202321:23:55

Property & Equipment To project property and equipment, capital expenditures, depreciation, accumulated depreciation:1) Determine the major capital expenditure projects for 5 years, e.g. property, plant, equipment, computers, servers, systems, software, furniture and fixtures, etc. Keep in mind that software, system design, training can be equal to or greater than the cost of hardware.

Sometimes a new business may be able to purchase the assets of an existing business. The depreciation rates for these assets may be different than that of new capital expenditures. The model will calculate the depreciation and net asset value of the expenditures.

2) Estimate the level on-going capital expenditures.

3) Determine the expected life for the each of the expenditures. Depreciation will be calculated on a straight-line basis. The model assumes that full 12-month’s depreciation is taken in the year that the expenditure takes place. The model groups expenditures into three categories:a) Computers, software and office equipment (depreciation allocated to General & Administrative expenses)b) Plant and equipment (depreciation allocated to Cost of Revenue)c) Other (depreciation allocated to General & Administrative expenses)

If you are a capital-intensive business, you may need more categories of expenditures with different depreciation rates. The model can be modified, but you will need to establish links to the appropriate cost/expense spreadsheets.

4) Estimate capital expenditure by months for years 1 & 2 and by quarters for years 3, 4 and 5. Consider such factors as:a) Product or service roll out timingb) Capacity utilizationc) New process development and technologyd) Equipment and systems obsolecencee) Cost reduction timingf) Growth rateg) Seasonality

document.xls 05/08/202321:23:55XYZ Company

Working CapitalYears 1 to 5($)

Year 1 Year 2 Year 3 Year 4 Year 5Net Revenues 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Accounts ReceivableDays Outstanding 30 30 30 30 30% of Revenue 8.3% 8.3% 8.3% 8.3% 8.3%Accounts Receivable 75,000 204,600 266,667 360,000 480,000 (Increase)/Decrease from Prev. Period (75,000) (129,600) (62,067) (93,333) (120,000)

InventoryInventory Turns 10 10 10 10 10% of Revenue 10.0% 10.0% 10.0% 10.0% 10.0%Inventory Days 36 36 36 36 36Inventory 88,000 245,520 320,000 432,000 576,000 (Increase)/Decrease from Prev. Period (88,000) (157,520) (74,480) (112,000) (144,000)

Other Current Assets% of Revenue 1.0% 1.0% 1.0% 1.0% 1.0%Days 4 4 4 4 4 Other CA Value 9,000 24,552 32,000 43,200 57,600 (Increase)/Decrease from Prev. Period (9,000) (15,552) (7,448) (11,200) (14,400)

Accounts Payable & Accrued Expenses% of Revenue 8.7% 8.7% 8.7% 8.7% 8.7%Days 31 31 31 31 31 AP & Accrued Value 77,860 213,602 278,400 375,840 501,120 Increase/(Decrease) from Prev. Period 77,860 135,742 64,798 97,440 125,280

Other Current Liabilites% of Revenue 1.0% 1.0% 1.0% 1.0% 1.0%

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Days 4 4 4 4 4 Other Current Liabilities 9,000 24,552 32,000 43,200 57,600 Increase/(Decrease) from Prev. Period 9,000 15,552 7,448 11,200 14,400

Revenues by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 0 85,250 0 0 0 Month 2 0 85,250 0 0 0 Month 3 0 119,350 0 0 0

Total 1st Quarter 0 289,850 390,000 525,000 700,000 Month 4 25,000 102,300 0 0 0 Month 5 40,000 119,350 0 0 0 Month 6 50,000 119,350 0 0 0

Total 2nd Quarter 115,000 341,000 460,000 615,000 820,000 Month 7 50,000 136,400 0 0 0 Month 8 60,000 170,500 0 0 0 Month 9 75,000 170,500 0 0 0

Total 3rd Quarter 185,000 477,400 650,000 860,000 1,150,000 Month 10 60,000 187,550 0 0 0 Month 11 65,000 204,600 0 0 0 Month 12 75,000 204,600 0 0 0

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Total 4th Quarter 200,000 596,750 800,000 1,080,000 1,440,000 Total for year 500,000 1,705,000 2,300,000 3,080,000 4,110,000

Accounts Receivable by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 - 85,250 Month 2 - 85,250 Month 3 - 119,350 130,000 175,000 233,333 Month 4 25,000 102,300 Month 5 40,000 119,350 Month 6 50,000 119,350 153,333 205,000 273,333 Month 7 50,000 136,400 Month 8 60,000 170,500 Month 9 75,000 170,500 216,667 286,667 383,333 Month 10 60,000 187,550 Month 11 65,000 204,600 Month 12 75,000 204,600 266,667 360,000 480,000

Inventory by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 - 100,250 Month 2 - 102,300 Month 3 - 136,400 156,000 210,000 280,000 Month 4 25,000 126,170 Month 5 45,000 139,810 Month 6 58,000 143,220 184,000 246,000 328,000 Month 7 60,000 160,270 Month 8 70,000 197,780 Month 9 87,000 204,600 260,000 344,000 460,000 Month 10 75,000 221,650 Month 11 77,000 242,110 Month 12 88,000 245,520 320,000 432,000 576,000

Other Current Assets by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 - 10,230 Month 2 - 10,230 Month 3 - 14,322 15,600 21,000 28,000 Month 4 3,000 12,276 Month 5 4,800 14,322 Month 6 6,000 14,322 18,400 24,600 32,800 Month 7 6,000 16,368 Month 8 7,200 20,460 Month 9 9,000 20,460 26,000 34,400 46,000

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Month 10 7,200 22,506 Month 11 7,800 24,552 Month 12 9,000 24,552 32,000 43,200 57,600

Accounts Payble & Accrued Expenses by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 - 88,550 Month 2 - 89,001 Month 3 - 123,101 135,720 182,700 243,600 Month 4 25,000 107,551 Month 5 41,100 123,851 Month 6 51,760 124,601 160,080 214,020 285,360 Month 7 52,200 141,651 Month 8 62,200 176,502 Month 9 77,640 178,002 226,200 299,280 400,200 Month 10 63,300 195,052 Month 11 67,640 212,852 Month 12 77,860 213,602 278,400 375,840 501,120

Other Current Liabilities by Months & Quarters($)

Year 1 Year 2 Year 3 Year 4 Year 5Month 1 - 88,550 Month 2 - 89,001 Month 3 - 123,101 15,600 21,000 28,000 Month 4 3,000 12,276 Month 5 4,800 14,322 Month 6 6,000 14,322 18,400 24,600 32,800 Month 7 6,000 16,368 Month 8 7,200 20,460

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Funding ProjectionsYears 1 to 5($)

Begin Year 1 Year 2 Year 3 Year 4 Year 5Beginning Cash 1,500,000 Equity

Common 500,000 500,000 1,000,000 500,000 500,000 500,000 Increase / (Decrease) Previous Period 0 500,000 (500,000) 0 0

PreferredA RoundB Round

Total Preferred 0 0 0 0 0 Increase / (Decrease) Previous Period 0 0 0 0 0

Debt Short Term Debt

Increase / (Decrease) Previous Period 0 0 0 0 0

Long Term DebtCurrent Portion 200,000 200,000 200,000 200,000 200,000 0 Long Term Portion 800,000 600,000 400,000 200,000 0

Total Long Term Debt 1,000,000 800,000 600,000 400,000 200,000 0

Increase / (Decrease) Previous PeriodCurrent Portion 0 0 0 0 (200,000)Long Term Protion (200,000) (200,000) (200,000) (200,000) 0

Total Long Term Debt (200,000) (200,000) (200,000) (200,000) (200,000)

Total Equity & Debt 1,500,000 1,300,000 1,600,000 900,000 700,000 500,000

Interest Interest Rate

Short Term Debt 9.0% 9.0% 9.0% 9.0% 9.0%Long Term Debt 12.0% 12.0% 12.0% 12.0% 12.0%

Interest ExpenseShort Term Debt 0 0 0 0 0 Long Term Debt 96,000 72,000 48,000 24,000 0 Total Interest 96,000 72,000 48,000 24,000 0

Interest IncomeInterest Rate 4.0% 4.0% 4.0% 4.0% 4.0%Interest Income 10,000 10,000 10,000 10,000 10,000

Retained EarningsNet Income (201,238) 107,036 150,013 (148,821) 252,500 Dividends 0 0 0 Increase / (Decrease) Retained Earnings (201,238) 107,036 150,013 (148,821) 252,500 Beginning Retained Earnings 0 (201,238) (94,203) 55,810 (93,011)Ending Retained Earnings (201,238) (94,203) 55,810 (93,011) 159,489

Long Term Debt ($)Year 1 Year 2 Year 3 Year 4 Year 5

Month 1Month 2Month 3

Total 1st QuarterMonth 4Month 5Month 6

Total 2nd QuarterMonth 7Month 8Month 9

Total 3rd QuarterMonth 10Month 11Month 12

Total 4th QuarterTotal for year

Funding

Look at Cash Flow projections to determine the amount of funding required. Decide whether equity or debt is most appropriate. For most start-ups, equity is required in the initial years.

If you decide to use debt, determine the type of loan (long term or short term); repayment terms and interest rate.

Interest Income not calculated automatically. Suggest look at cash balance on spreadsheet and make a rough approximation of the interest income, e.g.

Cash balance at the beginning of the year is $250,000 Cash balance at the end of the year is 500,000 Average balance for the year 375,000 Interest rate on 30 day Treasury bills is 5% Interest income for Year 3 is 18,750

Timing of FundingThe model assumes that equity and new debt funding occurs at the beginning of each year. Debt repayments take place at the end of each year and interest expense is calculated accordingly. If this is not the case then manual adjustments to the monthly income statements, balance sheets and cash flow statements are required.