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Financial Forecast Style?

Alison Lewis CEO/Creative Director

July 13th, 2014

What should our forecast look like? Is it a balance sheet? Cost analysis? Can someone show me a chart or excel sheet they've used (use fake numbers if you like)

Stephen Huson Leader in Internet lead generation, SEM / PPC / SEO and analytics

July 14th, 2014

I find that almost always a projected income statement is the best summary for a business projection.  If it is not a good representation of cash flow, you will either want a cash flow statement or something that clearly explains your cash position over time (could be as simple as a line item added after the net at the bottom of the income statement).

I usually have the first worksheet (tab) in an Excel spreadsheet be the income statement, with other worksheets behind that supporting any particular line items that require more analysis/depth.  For instance, let's say that you have several products that are in your plans and you have monthly forecasts for each.  Many other items in your income statement, such as staffing requirements, depend on those projections.  For instance, if you don't launch the 2nd product until later, then you wouldn't hire another staffer until then.  I would then have a secondary worksheet with the product forecasts, and possible another with staffing.  The summary income statement would reference those pages for sales/revenue and for salaries and other labor costs.

Each time I've done one of these types of projections, the backup pages are different depending on the business.  But this format proves to people that I know the business and what will be driving the revenues, profits or losses, and cash balances over time. The investors want to know the overall projections, then they want to be really confident that you understand at a very detailed level what drives the business and keeps it running over time.

Hope that helps.  If you want individual help doing this type of projection, feel free to send me a message.

In10city Nation Owner, In10city Pte Ltd

July 14th, 2014

I assume that you are forecasting for a new venture.. where the Best Financial Forecasts, are those that are Artistic & suited for the business model..   When we adapt or follow another,  we tend to lose out on our key monetization aspects,  and still filling in someone else's business model.

For new ventures, you can ignore the balance sheet model,  as they are suited only for going concerns that have a traction, and only if projections are for advanced level of funding.

For new ventures, the forecast must reflect the "understanding of the business" by the promoters, and how the money is to enter and flow through the business.  In fact I am making a forecast, where I deliberately buy and sell an item for less than purchase price and compliment with our product, to show traction and thereby save on promotion/ advertising cost.. and later recover the same.

Samir Said

July 13th, 2014

I'd recommend keeping your forecast in the same system as your accounting. I've been using Quickbooks in the past two companies for the longest time, it's usually enough until you hit 50+ employees or $15M+ revenues (although I know of companies that use QB at a much later stage still).

Your type of forecast depends on your type of accounting, which is either cash or accrual. There is pro's and con's on both sides and to be honest, I'm not sure what VCs prefer.

Depending on how complicated you want to make it, we usually prefer simplicity and look at the last 3 months of expenses (use a PnL statement for this) and that's my baseline for next month's expenses + any adjustments that I know will come up. Same thing with revenues. 

There's also other kinds of forecasts like user acquisition cost, net growth rate, etc. but based on your question I assume you're mostly looking for financial forecasting.

Rob G

July 14th, 2014

I second Steven H's comments.  I would add that i prefer (both for internal use as well as investors) a bottom up forecast rather than top down.   bottom up:  "if i do these activities in these time periods i can gain this many of this type of customer who will pay me this $$".  Top down:  "the market is this big and if we can just get this small % we will generate this much income".   You don't want to fool either yourself or investors so you need to know the detailed inputs and outputs to 'see' how the business will grow.  This will end up as much more than a simple forecast - it will become a key operational tool that you can use to inform many important decisions along the way so even though it will take time (the last one i did for my current company took in the ball park of 3 solid weeks to complete) you can't operate without it.  You will likely discover some very valuable insights as you work through the details too such as how pricing, HR, marketing, server hosting, A/R (if you have any), funding, etc. impact your ability to grow. I've tried to reuse models from previous companies with little luck so plan to start from scratch.  I can share our model, but understand that it will be useful only for a guide and unlikely to be something you can simply change some numbers and run with.  As Stephen said, a key tab in the spreadsheet model (ours has 29 tabs as i recall) is a cash flow summary.  build separate tabs that feed this summery spreadsheet (HR, sales, operations, sales, marketing, market segments, prospects, etc.) to avoid one sheet getting too complicated.  By dedicating separate tabs to certain functions, like for instance, HR you can dump a copy of your hiring plan into a presentation and at the same time do 'what-if' modeling to see what happens when you make staffing changes or offer health insurance to your team. I think we already 'cleansed' a copy for a few others on FD so let me know if you want a copy. 

Alison Lewis CEO/Creative Director

July 13th, 2014

I have all the data and charts, but the response I got is we don't have a forecast in the right style. Very confusing as they didn't answer when I asked the style. 

Sandy Fischler Experiential Marketing Director | Event Producer | Event Management | Entrepreneur

July 14th, 2014

It depends a lot on who's doing the asking. Is this an investor? Bank? 

You have to know what piece of information the person requesting is really asking for and why in order to answer their question. 

Here's an example of something we used - we're a SaaS product and the asking parties were potential angel investors. What they want to know is how long do we anticipate it taking to get to break even and what is our cash need to reach that point, plus some runway beyond that. 

This is a post with some spreadsheet links that are specific to SaaS startups, this was how we put together a financial projection.

The numbers for your project will be different, of course. But knowing what your anticipated cash flow is against anticipated revenue is where you want to get to. Everyone understands that it's all speculative until you start showing some actual growth and the *real* numbers for user acquisition lifetime value are known. What your investor mostly wants to know at this stage is that you're cognizant of the costs that you're looking at to get to break even. 

Alison Lewis CEO/Creative Director

July 16th, 2014

Thank you. It's for investors. 

I use Quickbooks, but really hate it. (HATE doesn't begin to describe QB... ) Anyway, moving to another software, maybe online software and have projections in excel. 

I am a visual person, and need physical or visual examples to follow. SANDY! Thank you... 
Finally, something I can use to template from!

We have everything in EXCEL next 3 years, burn rate, cash flow, revenue and EBIT. It's just so complicated looking that I think we're confusing people. 

This is also very good information and I'm learning how to do a Bottom Up forecast. 
"if i do these activities in these time periods i can gain this many of this type of customer who will pay me this $$".