1. Financial Modeling for Entrepreneurs
By Anthony Suidan, Stratsolver Corporation

2. Topics Relevant Accounting Basics Financial Modeling
Key Performance Indicators
Perfecting Your Request for Financing
Your Own Financial Model
Little Andy’s Lemonade Stand

3. 1. Relevant Accounting Basics

4. Conventional Financial Statements
Income Statement
Revenue
Revenue A
Revenue B
Revenue N
Cost of Goods Sold
Expense A
Expense B
Expense N
Gross Profit
Sales, General and Administrative
Overhead A
Overhead B
Overhead N
EBITDA
Depreciation
EBIT
Interest Expense
EBT
Income Tax
Net Income
Balance Sheet
Assets
Current Assets
Cash
Accounts Receivable
Inventory
Long-term Assets
Net Property, Plant & Equipment
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Short-term Credit
Long-term Liabilities
Taxes Payable
Long-term Credit
Ownership Equity
Stock
Retained Earnings
Total Liabilities & Ownership Equity
Statement of Cash Flows
Operating Activities
Net Income
Accounts Receivable
Inventory
Accounts Payable
Income Tax Payable
Cash P (U) Operating Activities
Investing Activities
Property, Plant & Equipment
Cash P (U) Investing Activities
Financing Activities
Short-term Credit
Long-term Credit
Issuance of Shares
Dividends
Cash P (U) Financing Activities
Net Change in Cash
Cash, Beginning of Period
Cash, End of Period
Internally Consistent | Stress the Importance of Cash and Cash Flow

5. Cash is King

6. Financial Accounting In a company which is a going concern
Financial accounting is based on an accounting system
The general ledger (G/L) is a database with codes (e.g. companies, departments and accounts)
Money in and out now and later = debits and credits
Scenarios are in terms of budget, actual and forecast
Book recommendation
How to Read a Financial Report by John A. Tracy (now on 8th edition)
Financial accounting results in the three conventional financial statements
Why are financial statements described as “conventional”?
Financial Modeling
The entrepreneur wishes to simulate the financial accounting of his/her business without a financial accounting system

7. Managerial/Cost Accounting
Financial Accounting versus Managerial/Cost Accounting
Activity Based Costing (“ABC”); Operations Finance
Management accounting system
If you can’t measure it you can’t manage it
No conventions; Outside accounting system; Data integrity of non-G/L data; “People respect what you inspect”; Inherent disconnect with G/L; Drives G/L
Business-specific operating reports
Key Performance Indicators (KPI)
Financial Modeling
The entrepreneur wishes to simulate and the managerial accounting of his/her business without a management accounting system

8. 2. Financial Modeling

9. Financial/Operational Business Simulation
Features
Dynamic, spreadsheet-based
Custom operating reports and conventional financial statements
Benefits
What-if scenarios
Business performance sensitivities
Align performance with strategy
Investor and stakeholder conversations
Business valuations

10. A Business Scenario Simulator

11. 3. Key Performance Indicators

12. Key Performance Indicators (KPI)
Business performance dashboard
Many ways to measure the same general metric
Return on investment: ROI, ROCE, ROTA, RONA, ROOA, ROE, IRR, MIRR, NPV, EPS, P/E, Payback, Discounted Payback and more (define R)
Find the metrics which work for your business model

13. 4. Perfecting Your Request for Financing

14. Available Financing Options
Many different financing options are available to help entrepreneurs get their business up and running
Bank Financing
Agreement with bank to borrow funds and repay loan over time
Venture Capital (Angel Investor)
Agreement with wealthy individual(s) to give up ownership in exchange for money
Think Dragon’s Den
% of the company for $$$

15. Perfecting Your Request for Financing
Show that you have “skin in the game”
Financiers want to know that you’ve put some of your own money into the business
Provide significant detail on what your business needs the money for
Also discuss how/when you expect to be able to pay back the lender
Ask for enough funds to cover your capital expenditures under your worst scenario
Include a working capital requirement
Working capital is money that is “tied up”
Working Capital = Current Assets – Current Liabilities

16. 5. Your Own Financial Model

17. Financial Model Checklist
Internal cross-checks (retained earnings, checksums)
Dynamic yet robust
Full set of financial statements
Income Statement
Balance Sheet
Statement of Cash Flows
Customized to your business

18. 6. Little Andy’s Lemonade Stand

19. Financial Model Template
Little Andy
Your little brother: Astute seven-year-old entrepreneur
Business proposition: Lemonade stand open 90 days per year (summers)
Rented space on Mr. Wilson’s corner lot, expected to be a good location
Small loan and LOC from Mrs. Sachs, neighbor, local credit union manager
Dad provides loan collateral and startup investment
Guaranteed revenue base on three-year contract to local baseball league
Will hire Joey and Igor, school friends to staff the stand; other kids later
Will manage the business
Has done financial modeling and a full set of interrelated financials
Offering to sell you the business for $2,000, which he says is a great deal
Little Andy’s Lemonade Stand

20. Conclusions How can the Lemonade Stand model be improved?
What have you learned?

21. What We Covered Relevant Accounting Basics Financial Modeling
Key Performance Indicators
Perfecting Your Request for Financing
Your Own Financial Model
Little Andy’s Lemonade Stand