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Sabin & Thorne Deadlines. * if you want a mentor. Sabin Environmental Prize. Financial Projections January 31, 2014. Sabin Application (Due March 24). Five years of financial projections Income Statement & Balance Sheet Explanation of use of prize money

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Sabin thorne deadlines

Sabin & Thorne Deadlines

*if you want a mentor

Financial projections january 31 2014

Sabin Environmental Prize

Financial Projections

January 31, 2014

Sabin application due march 24

Sabin Application (Due March 24)

  • Five years of financial projections

    • Income Statement & Balance Sheet

  • Explanation of use of prize money

  • Total $ needed – to make business work

Purpose of financial projections

Purpose of Financial Projections

  • Answer: Can the business make $?

  • Help you think through the details

  • Attract capital (investors)

Stages of financing

Stages of Financing

What do investors want

What do Investors Want?

  • Their money back in, say, 5 years

  • A nice return, say, 100% per year

Risk of loss

Risk of Loss

50% gone

in 4 years


Risk of loss1

Risk of Loss

Lose SOME or All money 1/3 of the time

Boring returns another 1/3 of the time

Make good money 1/3 of the time

Good Investors:


Stages of financing1

Stages of Financing







Another example

Another Example

Ten times too optimistic!

$ 1 million

$ 9 million

Rules of thumb

Rules of Thumb

  • Sales:

    • Small in Year One

    • Big jump to Year 2 – 4x? 5x? 10x?

    • Less big jump to Year 3 – 1.2 x? 1.5x?

    • 1x after to Year 4 and Year 5

  • Profits:

    • Lose a little in Year One, more in Year Two

    • Break even Year 3, then 







Moral of this story

Moral of this Story

If you want/need investor money

  • You must deliver the return they need

  • So, start with the endgoal in mind

  • These are the numbers I need…

  • Can my business produce them?

Another example1

Another Example

Ten times too optimistic!

$ 1 million

$ 9 million



  • Build a detailed Year One

  • Review the “Rules of Thumb”

  • Apply them to Years 2-5

  • Then do a sanity check --

    • What assumptions do you need?

    • Are these doable?

Types of statements

Types of Statements

  • Income Statement

  • Balance Sheet

  • Sources and Uses of Funds


Start with an income statement

Start with an Income Statement

Your income statement

Your “Income Statement”

Company income statement

Company Income Statement

Income statement definitions

Income Statement Definitions

Revenues (Sales):

> $ value exchanged

> for products or services


> $ value of resources used

> to earn those revenues



Divide expenses into:

Direct Costs/Expenses


Indirect Costs/Expenses

Direct costs cost of goods sold

Direct Costs or “Cost of Goods Sold”

Costs of Making a Product/Service

Direct Costs = Cost of Goods Sold






Customer Service

Revenues – Cost of Goods Sold

= Gross Profit

Indirect costs

Operating Expenses (Sales & Marketing, General & Administrative, R&D or “S,G&A”)

Other Costs – to run the Company

Indirect Costs




Sales Expense


IT, HR, Legal, etc.

Gross Profit – Operating Costs


Key measure for startups

Key Measure -- for Startups


Earnings Before Interest, Taxes,

Depreciation & Amortization

Measures -- earning power

E - BIT - DA


Net income loss

Net Income (Loss)

EBITDA minus:

  • Depreciation

  • Interest expense

  • Taxes

  • “One time events”

Why these categories

Why These Categories?



Property, Plant & Equipment (Fixed Assets)

  • Long term assets of the company

  • Not for sale

  • Things that have or create value – over time

Examples of pp e

Examples of PP&E









  • Fixed Assets provide valueover time

  • Also, wear out over time

  • Depreciationspreads these costs

  • Over their useful life



A Company buys a wind turbine to generate its electricity. It pays $750,000 for the turbine.

It expects the turbine to:

  • Last for 25 years,

  • Wear out evenly, and

  • Then be worth $0



What is the “depreciation” of this asset?

  • $750,000/25 years = $30,000 year

  • $30,000 = annual depreciation expense

This is called: “straight line” depreciation




Quick review

Quick Review

What Gets Depreciated?

Green Wind Co. sells and installs wind turbines for customers.

Are the following: Cost of Goods Sold, Operating Costs or Property, Plant & Equipment?

Delivery trucks?

Wind turbine?

Finance staff?


Sales people?

Billing IT system?

Back to building projections

Back to Building Projections

The details

The Details

  • Sales: Price? First sale? How do sales grow? What makes them grow?

  • Costs: What do you need to make the product? Sell it? Who will you hire? When? Do you buy ads? Make brochures?

  • More costs: Office rent? Costs of running it? Who does the hiring? How do you pay people? Health insurance?

Start big picture

Start “ Big Picture ”

> People ?

> Machines ?

> Advertising?

> Locations?

  • What are the key sales drivers ?



> How many sales calls per month?

> Success rate of sales calls?

> Time till sale is completed?

> Average price of a sale?

  • Sales require a sales force

Sabin thorne deadlines

The Product

  • Fresh farmed tilapia fillets

  • “Seafood Safe” and Organic

  • 100% organic feed

  • Purified and filtered re-circulated water

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  • Suppliers of restaurants, grocery & fish stores

  • Also, Trader Joe’s, Whole Foods

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Quote from EcoFish:

“We will buy everything you have to sell.”

Think big picture

Think “ Big Picture ”

> Systems that grow fish

  • The Good Fish key sales driver:

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Sales depend on “Pod Systems”

  • A Pod System produces 50,000 lbs fish/yr

  • Fresh organic tilapia sells for $5.63/lb

  • One Pod System in Year 1

  • Couple of months to get going

  • Couple of months to ramp up

First 12 month s projections

First 12 Month’s Projections

Do this for 12 months

Sabin thorne deadlines

First Year



Next step costs

Next Step -- Costs

Cost of Goods Sold – materials, labor, delivery, customer service

Operating costs – sales people, travel, ads, CEO, rent, supplies

  • Going forward, 12 months

Sabin thorne deadlines

Cost of Goods Sold

  • Baby fish

  • Facilities: Rent & heating

  • Feed: Organic vegetarian

  • Staff: Monitor, move, clean, fillet fish

  • Delivery to customers

  • Byproducts: Waste and offal

Sabin thorne deadlines

Operating (S,G&A) Costs

  • Sales person

  • List in organic seafood directories

  • Advertise with trade associations

  • Host events, tours, tastings

  • CEO, accounting, IT, office rent

Sabin thorne deadlines

Depreciation – from Equipment purchases

  • “Pod System”

  • Filleting machine

  • $60,000 total

  • Lasts 10 years

  • (120 months)

Cost projections

Cost Projections

Do this for 12 months

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Add up the First Year

Moving forward

Moving Forward

  • First year projections – aim for accuracy

  • After that, it’s more “vision”

  • Apply the “rules of thumb”

  • Focus on meeting investor expectations

  • Then checking for sanity

Example timing of milestones

Example: Timing of Milestones





Next step pick a break even

Next Step: Pick A Break Even

How big must sales be?




Can I cover my costs

with $3-4M in sales?

Sabin thorne deadlines

Break Even

15 pods

Then exit

Then, Exit


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And fill in the gaps

And, Fill in the Gaps

Fill in

Fill in

Sabin thorne deadlines

Fill in the Gaps

Make a list

Make a List

Key assumptions that drive the model

  • How do your sales grow?

  • Costs?

  • People?

  • Key equipment?

Sanity check on year five

Sanity Check on Year Five

Find some comparable public companies

  • Look at gross and EBITDA margin

  • Cost ratios (S&M/Sales, G&A/Sales)

  • Sales per employee

    How do yours compare?

    Warning: they should not be better!

Example sanity check

Example: Sanity Check

Sabin thorne deadlines

How Much $ Do We Need?

Sabin thorne deadlines

$60k Pod

Next building a balance sheet

Next – Building a Balance Sheet

Good fish balance sheet as of 12 31 14


Cash 9.9

Accounts Receivable 32.7

Property & Equipment 60.0

Less Depreciation (6.0)

Other Assets 2.0

Total Assets $125.6


Accounts Payable 26.9

Accrued Expenses 24.4

Total Liabilities 51.3

Shareholders’ Equity

Common Stock 450.3

Retained Earnings (376)

Total Liabilities & Shareholders’ Equity $125.6

Good Fish Balance Sheet as of 12/31/14

Balance sheet

Balance Sheet

Assets =

Liabilities + Shareholders’ Equity

Balance sheet definitions

Balance Sheet Definitions


> What the company owns

Liabilities & Shareholders’ Equity

> How the company pays for what it owns

Think about a house

Think about a House

Asset:the house

Liability: the mortgage

Shareholders’ Equity =

the “equity” in the house, or

value of the house - mortgage

Shareholders equity

Shareholders’ Equity

  • What the investors put in


  • What the company makes (net income)


  • What investors take out (dividends)

Balance sheet more definitions

Balance Sheet: More Definitions

Accounts Receivable

What Customers Owe You

Accounts Payable

What You owe Suppliers

Accrued Expenses

What you owe non-suppliers


Products in stock

Transfer income statement data

Transfer Income Statement Data

  • From Custom Projections

  • Into Model Template

Construct model formulas

Construct Model Formulas

Old Property Investments + New

Example balance sheet

Example -- Balance Sheet

From Balance Sheet Formulas


Sell some stock

Done !

Sell Some Stock

Example year two

Example -- Year Two

From Balance Sheet Formulas


Sell more stock

Done !

Sell More Stock

Exercise construct a balance sheet

How much $ do you need – now?

Exercise: Construct a Balance Sheet

  • Cash = 3% of sales

  • Customers pay in 30 days

  • You pay all expenses – in 15 days

  • You hold 2 months product, in stock

  • You need a 60K Pod, plus a 15K filleting machine

What you use the for

What You Use the $ For

  • List the key items (not exhaustive)

  • $5k items or more (good rule of thumb)

  • Show you have thought about it

  • Show you know what things cost



Green Wind will use the $25k to:

  • Buy x equipment to build a demo (15k)

  • Attend y important industry event (5k)

  • Design and print sales brochures (5k)

What will you do to:

Show progress? Reduce Risk? Get more $?

Warning about projections

Warning about Projections

You are likely to be much too optimistic

> Things just take longer -- to happen

> Cost more than you think

> Under-estimate cash needed

Final advice

Final Advice

  • Think through sales & expense detail

  • Remember all Cash Needs!

  • Be realistic, careful – in year one

  • Keep total year $ needs to $350k max

  • Explain how you will use the $

  • Come to Feb 21st session on writing & presentations!

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