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uh i'm jim gann i'm with the mizzou venture mentoring service which is an offering of the university of missouri that does uh venture support i've been in entrepreneur support in the city of columbia for about 15 years and have helped actually i stopped counting at 650 businesses but i'm sure it's around 700 or 700 or 750 now but what i want to do tonight is to sprint through this concept of doing financial projections um and so this will be a sprint i'll give my real intent is to give you some resources and some places to look and i've also furnished the moderators tonight some spreadsheets and stuff that you will be able to get fairly easily so what i'd like to talk about is that financial projections are absolutely your best guess about the inflows and outflows of money that you expect to happen in your business at some point in the future typically that's for the next three to five years and uh when i'm teaching entrepreneurs about this topic what i what i get a lot is is well but they're not going to be accurate they're going to be a guess and you're right they are absolutely going to be a guess the thing is is that everybody knows it's a guess no one no one knows with certainty what the future is going to be the thing is is that you have to make your best guess so how do you do that well to the extent that you can predict what your expenses are going to be usually those are relatively easy to get if you know you're going to have to have insurance in your business then get an insurance quote from an insurance agent if you're going to have to drive then figure out you know how many miles that will be in a year and estimate what your auto expenses will be if you're going to rent a location to have your retail operation then before you sign a lease talk with uh a prospective landlord about what lease rates will be those kinds of things so expenses uh can be estimated with accuracy relatively easily the variable costs and uh let me tell you what so you have you have fixed costs and you have variable costs when you're doing these projections so fixed cost will be those costs that change are are that don't change regardless of how much business you're doing so if you're renting a store front let's say for two thousand dollars a month that is a fixed cost that's going to occur every month whether or not you sell one item or or a hundred thousand items so that's fixed other costs which are variable costs will be relative to your sales so for every uh to use steve's term uh for every pound of gourmet dog food that your store sells you will have had to pay out something for that pound of gourmet dog food so that is going to vary directly in proportion with uh what you're selling so variable costs are another concept i wanted to turn you on to very quickly and then revenues should be tied to milestones financial projections are also presented in a format that is fairly common in how they're presented so what i'm advocating for you is to not just start with a blank spreadsheet and build something you think will work because chances are unless you're trained in finances you're probably not going to structure it in the same way that business people would read it and when i say business people will read it really what they're doing is is they're reading the language of your business but it's written in numbers rather than letters like would be written out in words and the whole reason that you do this is is these documents will show how you're thinking about the future and what you will be tested are not the numbers themselves so much but as but more the rationale of how you came up with the particular numbers so what you'll have to manage through in the case of a startup is is this area that is called the valley of death and you you begin over here at zero and you'll spend money spend money spend money and then at some point in the future you'll start to break even and then make profits and so in the case of a startup how does that reflect in numbers this is going to be your your greatest point where your numbers are going to be the most negative uh are in the trough of this valley of death so that's what that's what you're thinking through and that's the story that you're telling in numbers so a blank spreadsheet can be incredibly intimidating and so what i want to turn you on to here tonight is some resources so you don't have to start from a blank spreadsheet and the first one i want to tell you about works for existing businesses as well as startups and it is a free resource that's available to you at score and again these links will be in the resources for this event tonight but if you search if you google for score financial template you will find this page and you'll see that there is a download template thing here score used to stand for the service core of retired executives but this is a resource of the small business administration and uh what you get if you hit that template is a is a template that looks like this and it comes with good instructions and what happens is that you start here on the left hand side of the tab and actually let me show you what that looks like really is that you start here on the left tab and you have directions and they tell you how to unlock the workbook if you need to but you start at the left and then work to the right and fill in the variables and then when you get out here what it will do is it will calculate all of these uh statements for you so this would be your cash flow statements for year one to three that are calculated for you and you don't have to do all the figuring these are calculated based upon the entries that you make as you work from left to right so it makes it fairly easy to do that and again this is what it looks like so you would go in and put in in the orange spaces you would go in and you would put in what you expect your advertising expenses to be all those things that are on the left there under expenses and then it will compute for you and print statements for you that are in a commonly accepted format relatively automatically so the questions that are asked in the front of this uh there'll be some entries to make if your business is existing and you're projecting forward and there and there are other questions to answer if you're starting from scratch and being a startup so this is what uh the income statement would look like where you had your revenues and your expenses and if we scroll down what you would see is the profit and loss of the business for your first second and third years the second resource i want to tell you about and again the links will be shared with you in the materials for uh this event tonight comes from the kauffman foundation which is based in kansas city they have a strong support of entrepreneurs and if you google for fast track resources you'll find this page and and when you find this page there are different resources for new ventures a venture that is growing which means that it's existing and growing technology-based ventures and then some other resources here and if we clicked on the new venture what you would see is a is a bunch of resources here including business plan templates financial facts the financial template instructions on how to do that uh doing sales projections all those kinds of things and what i will tell you is is that the kaufman template uh it's a little bit dated but it is really really good is it works the same way as you work from left to right on the tabs what happens is that you will answer questions and tabs will appear or disappear depending on if they apply to your situation or not so that's really really cool how that works and it's it's very well done and you you won't miss anything uh in your thinking when you do that so i really really like this format that kaufman has done it's much more complicated however than the score templates so again you will ask there will be questions that you'll fill out so if for example it says is your is your company a startup if you say yes there then all of the historic tabs go away that it will where you would fill in existing data and what it will print for you is much the same as the score spreadsheet where it will end up doing uh sales budgets for you and those things that can be printed out and the it will print out again this is an example of an income statement in a commonly accepted format it's it has all uh divide by zeros in there because this one's blank but it would fill in with your numbers based upon how you filled out uh the things previously what i want to remind you about is though that what many uh beginning entrepreneurs do is they figure out i'm gonna do the same amount by month over the course of my business and that's probably not realistic in most businesses so don't forget about seasonality so what i've shown you here for jake's advertising is is that in jake's case um you know these months prior to christmas are when jake does more of his business uh than any other time of the year so for the 100 percent uh in a year of business that's done uh 14 of that would be in in august 12 percent in september so just don't forget about seasonality when you're thinking about doing your projections so you've gone through you've done that you've put in your seasonality you've called your insurance agent you've done all those things how do you know if you're even in the realm of possibility so how do bankers know if you've done a good job or how do investors know how do you know if you're even close to to being real and the way you can do that is here or the way you can answer that question is to compare yourself to others so one report that i will show you comes from profit sense uh profit sense is a report you can get from the small business development center and they can help you with that another another resource that's available to you is from the risk management association it's called statement studies the daniel boone regional library has a copy of this on hand you cannot take it from the library but you can go there and make copies of the pages that apply to you and i'll show you what this looks like in just a second but what you do is make your best guess first so fill out everything as best you can and then check and so what happens is is you can get some information that looks like this so i i ran this for sporting goods stores with yearly sales under a million dollars so this is the profit sense product and in this database there are um gosh i lost it there's 2 2771 sporting goods stores in the database 54 of which in this case have put have been live information in the last 12 months and this information by this service provider is as fresh as 24 hours old and what you'll see here is once you learn how to read these is is that in the in the sporting goods business for yearly sales under a million dollars for every dollar that's taken in an income they are paying out 58 cents for the product that is being sold so for every dollar in golf clubs and ball bats and baseballs and those kinds of things it's costing them 58 cents so you would be able to compute their markup based upon that 26 cents of every dollar they sell is for overhead sales general and administrative expenses so you can see how you would be able to compare to the industry if to see if you're in the realm of whether i'm right on or not so again this is available from the small business development center this is a over here is kind of what the well this is what the cover the book looked like which was the only image i could find from 14 to 15 but again the daniel boone regional library has that and it's available for you to look at but the best source of information if you're interested in seeing how you compare is going to be from an industry trade organization uh of which you're a member in a in a previous life i was a member of i owned a commercial printing company i was a member of the national association of printers and lithographers extensive statement studies that were available to me as a member also built a golf course in a previous life the national golf course owners association had statement studies that were better than this generic information that was available but this is still better than than nothing at all jim can you tell us again how to access profit sense yeah so profit sense uh the small business development center has a subscription to that so contacting anyone in the sbdc should should be able to give you access to that great and again i'm with the mizzou venture mentoring service uh and that's a little who we are and what we do and um that's my contact information so scott you can you can fire away with questions well i just have a question being a business owner myself uh previously how do you prevent yourself from being too optimistic especially if you're in a field that maybe is not has as much data as some of these that you've been putting out here on profit sense yes yeah that so that's that's gonna happen particularly if you're doing something that is innovative is how do you how do you benchmark against something that really doesn't exist in a large number and so a strategy that i've used often that's been somewhat successful is it is there is there an incumbent industry that would be close in a sales model to what you're doing that you can benchmark against so if you are um i can think of a good example off the top of my head but if you're doing something that interacts with builders and you're doing some custom service for them that no one else does can you can you benchmark against architects or engineers or whatever and so there really isn't a perfect answer always but it it sometimes is helpful if you can triangulate to say well we're kind of like this but we're kind of like this and the happy medium is in between great well one really quick question for you jim how often do these have to be updated like every time you go meet with a new person do you update the whole thing or you just do it once and it's good for a year well so the answer is it depends so uh what i encourage people to do is that if if you if you do a spreadsheet that doesn't mean that you can't have multiple versions so doing a save as and saying this is this is my most optimistic projection of my sales and i do a save as optimistic projection and i do a save as pessimistic projection or you want to model some business process change that you want to do or some other variable you can save those versions now what i always encourage is for people to give it their best shot first but then ask themselves what ifs so how often do they need to be done is really going to be dependent on how you are using the information if you're using the information to seek loans or to seek investments then they're going to have to stand up to your you're going to have to make justifications for every number that's on that and so you'll want them to be accurate if you're using them to create a a budget for yourself which is also a good use then you can then you can use that to do financial management of your business