Entrepreneurs build financial plans in four steps: (1) sales forecast, (2) costs forecast, (3) income and cash flow forecast, and (4) balance sheet. The financial plan provides an estimate of a venture's potential and demonstrates growth and profitability. It is based on assumptions about sales, costs, cash receivables/payables, and starting assets. Breakeven analysis calculates the sales level where total revenue equals total costs. The financial plan helps entrepreneurs determine a venture's economic viability.
1. Technology Ventures: From Idea to OpportunityTechnology Ventures: From Idea to OpportunityChapter 17: Summary
Summary
Budgets are not merely affairs of arithmetic, but in a
thousand ways go to the root of prosperity of individuals,
the relation of classes, and the strength of kingdoms.
William E. Gladstone
How do entrepreneurs describe the financial elements of
their new venture?
Entrepreneurs build a financial plan to determine the economic
potential for their venture. This plan provides an estimate of
the potential of the venture.
2. Technology Ventures: From Idea to OpportunityChapter 17:Table 17.1
Four Steps to Build A Financial Plan
1. The Sales Forecast
• Time Frame — Two or three years
• Assumptions about sales per customer, number of customers and growth
rate of sales
• Calculation of the sales forecast
2. The Costs Forecast
• Assumptions about the costs of doing business in the specified time frame
• Calculation of the costs associated with the projected sales of Step 1.
3. The Income and Cash Flow Forecast
• Assumptions about the timing of cash receivables and payables specified in
the time frame.
• Calculation of the income and cash flow associated with the projected sales
and costs on a monthly basis over the time frame.
4. The Balance Sheet
• Assumptions about the starting value of cash and assets.
• Calculated based on the income and cash flows from Step 3.
3. Technology Ventures: From Idea to OpportunityChapter 17:Figure 17.1
Assets
The Value
of Items
Owned
Income
Liabilities
The Value of Items
Purchased,
Borrowed, Owed,
or Leased
Expenses
Net
Income
Σ+ _ Assets generate income and
liabilities lead to expenses. Net
income is income minus expenses.
4. Technology Ventures: From Idea to Opportunity
Cash Flow is the amount of cash flowing into
or out a firm during a specific period.
TC(N+1) = (CF – Disbursements) + TC (N)
Where:
TC(N) = Cash on hand at the end of
the Nth
month
CF = Cash Flow into the firm in
the Nth
month
Chapter 17: Cash Flow
5. Technology Ventures: From Idea to OpportunityChapter 17:Figure 17.2
Calculations of the Income Statement
7. Technology Ventures: From Idea to OpportunityChapter 17:Breakeven
Breakeven is defined as when the total sales
equal the total costs.
R = Q x P
TC = FC + VC and VC = Qc
Then: Q x P = FC + Qc
Breakeven Q =
Where:
c = Cost Per Unit
P = Price Per Unit
)( cP
FC
−
8. Technology Ventures: From Idea to OpportunityChapter 17: Principle
A sound financial plan demonstrates the
potential for growth and profitability for a
new venture and is based on the most
accurate and reliable assumptions available.
9. Technology Ventures: From Idea to OpportunityTechnology Ventures: From Idea to OpportunityChapter 17: DVD Video
DVD Video
“Keeping a Financial Focus”
Gajus Worthington (Fluidigm)
10. Technology Ventures: From Idea to OpportunityTechnology Ventures: From Idea to OpportunityChapter 17: DVD Video
DVD Video
“Keeping a Financial Focus”
Gajus Worthington (Fluidigm)
