Start-Up Financials Where do we get the numbers? Read F. Wakefield, MBA President Business La8tudes 2017 Cell: un8l Midnight

Transcription

1 Start-Up Financials Where do we get the numbers? Read F. Wakefield, MBA President Business La8tudes 2017 Cell: un8l Midnight

2 Start-up Capital Costs $250,000 AddiAonal Working Capital $200,000 Business Concept, LLC Fiscal Year Ending Sales growth 88% 53% Sales $1,990,000 $3,750,000 $5,740,000 CGS% of Sales 50% 49% 48% Cost of Goods Sold $995,000 $1,840,000 $2,760,000 Gross Profit $995,000 $1,910,000 $2,980,000 Op Exp % of Sales 46% 34% 30% Opera8ng Expenses $915,000 $1,275,000 $1,722,000 Earnings $80,000 $635,000 $1,258,000 Earnings/Sales 4.0% 16.9% 21.9%

3 Revenue Streams Revenue Streams result from value proposiaons successfully offered to customers. Osterwalder & Pigneur 2010

4 Who is the Customer? The customer is always the one who pays you. Clearly, it is important to understand both the customers and the end-users. Kathleen R. Allen 2009

5 Customer Development Process SEARCH Customer Discovery Customer ValidaAon PIVOTS PIVOTS are a substanave change to one or more business model components. ITERATIONS are a minor change to one or more business model components. Steve Blank 2013

6 Customer Segments The Market Customer Groups represent separate segments if: Their needs require and jus8fy a dis8nct offer. They are reached through different Distribu8on Channels. They require different types of rela8onships. They have substan8ally different profitabili8es. The are willing to pay for different aspects of the offer. Osterwalder & Pigneur 2010

7 How big is this opportunity? Market Analysis What is the size of the market? North American Industry Classifica8on System (NAICS) hgp:// 2012* or 2007 Economic Census data: # Establishments, sales, geography hgp:// Is the market growing, flat or declining? Compare the 2012*, 2007 and 2002 Economic Census data hgps:// Steve Blank 2013

8 Total Available Market Industry Analysis Industry and Compe8tor Analysis (College & University Library Resources): Business Source Complete Gartner Forrester IBIS World Public Company Research Reports Public Company SEC Filings hgp:// Steve Blank 2013

9 How Big is My Market Slice? Served Available Market: How many people need/can use the product and/ or service? How many have the money to buy? Understand the payments and units of sales. Requires primary research by talking to customers and compe8tors. Steve Blank 2013

10 Physical DistribuAon Channels Raw Materials/ Supplies $4 Manufacturer $6 Wholesale Distributor $10 Retailer Commission Agent or Manufacturer s RepresentaAve Sells@ $19.95 Consumer/ End User Figure 4.3 Kathleen R. Allen 2013

11 DISINTERMEDIATION Physical Channel InnovaAon Raw Materials/ Supplies $4 $6 Manufacturer Wholesale Distributor Commission Agent or Manufacturer s RepresentaAve Sells@ $18.95 Consumer/ End User Figure 4.3 Kathleen R. Allen 2013

12 DISINTERMEDIATION Virtual Channel InnovaAon Raw Materials/ Supplies $19.95 $4 Manufacturer Wholesale Distributor Retailer Consumer/ End User Agent or Manufacturer s RepresentaAve Can you innovate within the DistribuAon Channel? Figure 4.3 Kathleen R. Allen 2013

13 Revenue Streams For what value are customers really willing to pay? For what do they currently pay? How are they currently paying? How would they prefer to pay? How much does each revenue stream contribute to overall revenues? Osterwalder & Pigneur 2010

14 Revenue Models are the Strategy Requires primary research by talking to customers. REVENUE TYPES: Asset Sale Usage Fee Subscrip8on Fee Lending/Ren8ng/Leasing Licensing Brokerage Fee Adver8sing Osterwalder & Pigneur 2010 & Steve Blank 2013

15 Pricing is the TacAcs Requires primary research by talking to customers. FIXED PRICING: List Price (e.g., cost plus) Product Feature Dependent Customer Segment Dependent Volume Dependent DYNAMIC PRICING: Nego8a8on (bargaining) Yield Management Real-Time Markets Osterwalder & Pigneur 2010 and Steve Blank 2013

16 3 Common Revenue ForecasAng Mistakes The Linear Forecast Mistake The Hockey S8ck Forecast Mistake The 20/80 versus 80/20 Mistake (Spending only 20% of 8me on the revenue forecast and 80% on expenses.) Cornwall, Hartman &Vang 2013

17 The Growth Curve Revenue Model CUSTOMERS, UNITS or SALES YEARS l l l l l l l l Wachtler 2005

18 Cost Structure The Cost Structure describes all costs incurred to operate the business model. Osterwalder & Pigneur

19 IdenAfying Start-Up Resource Requirements Start-up resources include: People (founding team, employees, advisors, independent contractors). Physical assets (equipment, inventory, office or plant space). Financial resources (cash, equity, debt). Bootstrapping Minimizing resources to keep low overhead. Crea8ng innova8ve combina8ons of resources to generate compe88ve advantage and wealth. Kathleen R. Allen 2013

20 Figure 8.1 Steps in CalculaAng Start-Up Capital Requirements Kathleen R. Allen 2013

21 ConstrucAng a Business Process Map Ques8ons to answer: Who does the work in this business? Where do these people work? What do they need to do the work? What informa8on is being generated? Where does that informa8on go? How much do these resources cost? Kathleen R. Allen 2013

22 EsAmated Costs Cost of Goods Sold Material Costs (variable) Direct Labor (variable) Indirect Labor (fixed) Overhead (fixed)

23 EsAmated OperaAng Expenses Selling, General & Administra8ve Marke8ng & Selling Expenses Website, Adver8sing, Promo8ons, Literature, Trade Shows Salaries, Commissions, Travel Research & Development Expenses Administra8ve Expenses Payroll, Benefits, Taxes, Rent, U8li8es, Supplies, Equipment Leases, Insurance, Bank Fees, Credit Card Fees, Shipping, Maintenance, Legal & Accoun8ng

24 Breakeven Analysis Breakeven QuanAty Breakeven QuanAty Fixed Costs = ( Price per unit Variable Cost per unit ) Fixed Costs = ContribuAon Margin Breakeven Sales = BEQ x Price per unit Breakeven Quantity is not an optimum, it is a minimum. Cornwall, Hartman & Vang 2013

25 Addi8onal Working Capital Cover Pre-Launch Start-Up Costs Funding Inventory and Accounts Receivable Cumula8ve Nega8ve Cash Flow un8l Breakeven Con8ngency Factor for a Safety Margin Wachtler 2005

26 Start-Up Capital Costs $250,000 AddiAonal Working Capital $200,000 Business Concept, LLC Fiscal Year Ending Sales growth 88% 53% Sales $1,990,000 $3,750,000 $5,740,000 CGS% of Sales 50% 49% 48% Cost of Goods Sold $995,000 $1,840,000 $2,760,000 Gross Profit $995,000 $1,910,000 $2,980,000 Op Exp % of Sales 46% 34% 30% Opera8ng Expenses $915,000 $1,275,000 $1,722,000 Earnings $80,000 $635,000 $1,258,000 Earnings/Sales 4.0% 16.9% 21.9%

27 References Allen, Kathleen R. (2009), Launching New Ventures: An Entrepreneurial Approach, Fiph EdiAon, Mason, Ohio: South-Western, Cengage Learning Allen, Kathleen R. (2012), Launching New Ventures: An Entrepreneurial Approach, Sixth EdiAon, Mason, Ohio: South-Western, Cengage Learning Blank, Steve (2013), hgp://steveblank.com/tools-and-blogs-for-entrepreneurs/ Free Lean LaunchPad Class, hgps:// Blank, Steve and Dorf, Bob, (2012), The Startup Owner s Manual Vol. 1, Pescadero, California: K and S Ranch, Inc. Cornwall, Jeffrey R., Hartman, Jean M. and Vang, David O. (2013), Entrepreneurial Financial Management: An Applied Approach, 2 nd EdiFon, Armonk, New York: M. E. Sharpe, Inc. Osterwalder, Alexander & Pigneur, Yves (2010), Business Model GeneraFon, Hoboken, New Jersey, John Wiley & Sons Wachtler, Paul (2005), Lecture: Business Planning, Market Analysis and Pitching Investors,