#7: Financial Projections

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Hugh Hart
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1 Food Business Entrepreneurial Training Academy #7: Financial Projections Alameda County SBDC Alameda County Conference Center February 15, 2017

2 Thank you to Our Sponsor

3 Financial Projections Start-up Budgeting-or Start-up Capital Investment Balance Sheet Income Statement Cash Flow Statement How They Work Together

4 Introduction Financial planning is crucial for your business s success. You must stay on top on your checkbook and your accounts at all times. Investors and the IRS will want to see these types of statements regularly. You will want to use the information in these statements to make decisions.

5 Start-up Budget Sources of Capital $39, Uses: Startup Expenses $43, Investment Real Estate Improvements Member 1 Buy-in $10, Purchase $2, Member 2 Buy-in $10, Construction $5, Member 3 Buy-in $10, Remodeling $3, Total $30, Other $0.00 Total $11, Loans Credit Union $0.00 Leasehold Improvements Crowdfunding $0.00 Repair flooring $ Total $0.00 Design rules $ Item 3 Grassroots Fundraising Item 4 Kickstarter Campaign $5, Total $ Dinners $2, Fundraiser $2, Capital Equipment List Total $9, Furniture $2, Equipment $10, School Funding Fixtures $ Grant $0.00 Machinery $0.00

6 Assumptions Assum ptions January February March Num ber Am ount T otal Num ber Am ount T otal Num ber Am ount T otal EXPENSES 1. Cost of Goods Sold $0 $0 $0 Inventory purchases 0% $0 0% $0 0% $0 Direct labor / month $0 $0 $0 # of weeks in a month # of days open in a week Hrs of operation in day avg # of people working at a time pay / hour $0 $0 $0 Pay roll Taxes & Benefits 12% $0 12% $0 12% $0 2. Other Operating Costs $3,683 ###### $3,223 Non-direct labor $0 $0 $0 Coordinator Stipends / Month $0 $0 $0 Committee Budgets / Month $0 $0 $0 Etc / Month $0 $0 $0 Payroll Taxes & Benefits 12% $0 12% $0 12% $0

7 Building Financial Projections How many seats in a restaurant How many jars per hours How many smoothies per festival How many people to produce How much money it costs Rate of speed to produce xy & z

8 Determine Maximum Capacity Seats Total Covers Served Per Head SpendSales Food Cost Profit on Food 5-6pm 6-7pm 7-8pm 9-10pm 10-11pm Totals: Seating Efficiency Rev per seat hour

9 Creating Projections Projected Patronage Projected Spending Gross Projection Staff & Operation Costs Per Day Projected Revenue Per Night Monday 50 $8 $400 $1,470 ($1,070) Tuesday 90 $13 $1,170 $1,470 ($300) Wednesday 100 $13 $1,300 $1,470 ($170) Thursday 160 $16 $2,560 $1,470 $1,090 Friday 200 $24 $4,800 $1,470 $3,330 Saturday 200 $24 $4,800 $1,470 $3,330 Sunday 160 $16 $2,560 $1,470 $1,090 Total per week $17,590 $10,290 $7,300 Total per month $76,223 $44,590 $31,633 Total per year $914,680 $535,080 $379,600

10 Example Projections Coffee Shop Revenue Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Year 1 Seasonality 9% 10% 10% 8% 8% 8% 6% 6% 6% 8% 10% 11% 100% Monthly Sales $ 31,954 $ 35,504 $ 35,504 $ 28,404 $ 28,404 $ 28,404 $ 21,303 $ 21,303 $ 21,303 $ 28,404 $ 35,504 $ 39,055 $ 355,045 Drinks 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% 58.0% $ 205,711 Drink Sales $ 18,533 $ 20,593 $ 20,593 $ 16,474 $ 16,474 $ 16,474 $ 12,356 $ 12,356 $ 12,356 $ 16,474 $ 20,593 $ 22,652 $ 205,926 Food 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% 42% $ 149,334 Food Sales $ 13,421 $ 14,912 $ 14,912 $ 11,929 $ 11,929 $ 11,929 $ 8,947 $ 8,947 $ 8,947 $ 11,929 $ 14,912 $ 16,403 $ 149,119 Monthly Sales $ 31,954 $ 35,504 $ 35,504 $ 28,404 $ 28,404 $ 28,404 $ 21,303 $ 21,303 $ 21,303 $ 28,404 $ 35,504 $ 39,055 $ 355,045 Year 1 Quantity Sold Daily Weekly Monthly Annual Annual Total

11 Projections- expenses Expenses Year #1 Material Cost of Goods Drinks COGS (38%) Food COGS (38%) Total COGS Personnel Expense Owner General Manager Barista Barista Barista Cook Cook 2 Total Salaries Payroll tax (10%) Workers Comp (1.2%) Total Personnel Facilities Expense - Rent Utilities Repairs & Maintenance 0 - Security Permits & Licenses Insurance POS System Total Facilities Total Expenses Operating Income Yr1 $ 5,931 $ 7,780 $ 7,780 $ 3,377 $ 3,377 $ 3,377 $ (4,361) $ (4,361) $ (4,361) $ 41 $ 4,444 $ 6,645 $ 29,669

12 Balance Sheet Also known as the statement of financial position, it serves as a snapshot. Assets = what the business owns (cash, inventory, equipment, etc.) Liabilities = what the business owes (creditors, bank loans, etc.) Equity = the capital that remains after assets have been used to pay liabilities

13 Sample Balance Sheet January 31 ASSETS LIABILITIES Cash $8,932 Accounts Payable $0 Inventory $500 Loan $9,583 Fixed Assets $10,000 EQUITY Total Assets $19,432 Owner's Equity $11,500 Retained Earnings ($651) Total Liabilities & Equity $20,432

14 The Accounting Equation Balance Sheets Always Balance. Assets = Liabilities + Equity What does that mean if you have few assets and a lot of debt? Let s find out.

15 Let s Try it Out Tim s Taco has: $7,500 in assets $2,200 in liabilities What is Tim s equity? Isabel s Ice Cream has: $2,200 in assets $7,500 in liabilities What is Isabel s equity?

16 Uses of the Balance Sheet Assess financial health - gives complete picture of the business Secure credit - this statement is necessary to obtain loans Understand your stake in the business - know your equity portion

17 Income Statement Also known as the Profit & Loss Statement, it is made up of these elements: Income - what you earned through sales Expense - what you spent on costs Net profit/loss - the bottom line!

18 Uses of the Income Statement Identifies how annual overhead costs are being spread out monthly Groups your costs to help with calculating food and labor costs Helps you set targets for cost groups and for net profit, track trends over time and identify changes quickly

19 Cash Flow Statement What goes into this statement? Operating activities - record your net profit/loss from your regular business Investing activities - record cash you spent on equipment or other long term asset investments Financing activities - record cash you spent on debt payments

20 Cash Flow Statement January February March Sales / Month 1,516 1,516 1,516 Memberships 1,000 1,200 1,400 Other Revenue Total Revenue 2,616 2,716 2,916 Cost of Goods Sold Gross Profit 2,616 2,716 2,916 Other Operating Costs (minus principal) (3,267) (2,717) (2,807) Total Expenses (3,267) (2,717) (2,807) Net Profit (or Income) (651) (1) 109

21 Uses of the Cash Flow Statement This statement is a little like balancing your checkbook. Know how much cash you have on hand Make payroll Project out if you can make a large purchase Ensure you don t over-extend yourself Gives a sense of how the business is managed

22 The Statements Fit Together The income statement, the balance sheet and the cash flow statement all fit together to tell a complete story. Income statement- specific period of time of assets and liabilities Cash Flow describes the tides of cash Balance sheet- the big picture and cash on hand

23 Visual of Financial Statements

24 How Often? When should you do each statement? Once a month: Once a year:

25 Breaking Even If Tanya sells cupcakes, the first several batches of cupcakes that she makes and sells will only cover the cost of the ingredients, labor and overhead. But at some point, as she sells more cupcakes, the money she makes begins to contribute to her profit margin. Where is that point? The Break Even Point!

26 Break Even Formula Breakeven Point = Fixed Costs/(Unit Price - Unit Variable Costs) How do you find the unit variable cost? Take all your variable costs for a given period and divide it by how many units were produced in that period. This will always be an estimate.

27 Find Manny s Break Even Use the Financial Statement handouts to find Manny s Break Even point: What are his fixed costs? What are his variable costs? What are his variable costs per unit? What price is he selling his burritos for? How many burritos does he need to sell a month/a day/an hour to break even?

28 Using Break Even to Make Decisions Now Manny knows he has to sell 103 burritos every day. That will help him plan: Inventory Staffing Advertising What if 103 is too many burritos for Manny to sell every day? He can raise his price He can lower his costs

29 Syllabus Course 1: Defining Your Concept- Mission & Vision- 1/23 Course 2: Operating Models- 1/25 Course 3: Consumer Packaged Goods & Foodservice- 1/30 Course 4: Understanding Costs- 2/01 Course 5: Operations- 2/06 Course 6: Marketing & Communications- 2/08 Course 7: Financial Projections- 2/15 Course 8: Legal Requirements & Resources- 2/22 Course 9: Funding Your Company-2/27 Course 10: Your Business Plan- 3/01

#7: Financial Projections

Food Business Entrepreneurial Training Academy #7: Financial Projections Alameda County SBDC DUBLIN, CA 11/13/18 Thank you to Our Sponsor Financial Projections Start-up Budgeting-or Start-up Capital Investment