The financials are the most important area of any Offering or Plan.  You want your financials to look professional and be easily read.  The spreadsheets that you find in the templates section covers the first year projections, shown month-by-month. 

The basics you need for your plan are as follows:  Description of capital expenses (use of proceeds), projected profit & loss statements (year 1 and a 5 year), p&l assumptions, break-even analysis and a balance sheet (if appropriate).  A balance sheet is not appropriate if you are a start-up with no assets or major liabilities.  A full Excel template file is available for download on our Services page. 

 Check out a set of restaurant financials we recently completed.

Capital Expenses (use of proceeds)

This is the first sheet I begin with.  This is the list of how you will spend the money you are raising for the company, or start-up costs.  In most cases you have equipment, deposits (lease, utilities, insurance), marketing materials, services (design, website, etc.), renovations, inventory, working capital, etc.  I tend to separate the equipment from the rest - shown in the example below.

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Projected Profit & Loss Statements

Generally there are 2 P&L projections: a 1-Year and a 5-Year.  The 1-Year should be broken down by months and the 5-Year as an annual representation.  Basically you have revenue, cost of goods and fixed expenses.  These numbers can be difficult to assume since you will probably have no historical sales to base your figures on.  I have an example of a 1-Year projection in the sample Financials section of the site. 

For the 5-Year P&L the going gets easier.  Most of your Year 1 numbers can be factored for the following years.  For instance, you assume that after the first year, revenue should increase if all is going well.  Perhaps you factor a 10% increase in sales for the second year; and maybe for (or less) for each subsequent year.  For cost of goods, they will represent a percentage of sales similar to your first year.  But, COG's can be reduced if time decreases 'spoilage' or because increased sales equates to better buying power.  Also, labor can be a COG to an extent; as the business progresses, the staff improves on productivity.  Therefore, labor can also be reduced through the years, but this is not always the case.  It is better to project conservatively with your numbers.

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P&L Assumptions

The 'Assumptions' portion of the Profit and Loss worksheet is very important.  Here you define, or explain, how you came up with the sales and expense projections (validating your educated guesses).  Also, the assumptions section acts as the anchor for most of your formulas in the P&L section.  Some leave the assumptions in the same worksheet as the P&L; easier to deal with formulas - going back and forth.  I will create a separate worksheet since there will probably require sales assumptions and labor assumptions.  By connecting formulas from the P&L to these worksheets, you are able to play with various scenarios by changing the assumption numbers.

For instance, say you are going to sell pizzas.... You assume that your busy hours are 5pm - 8pm where you will sell 40 pizzas per hour at $10.00 each.  The rest of the 6 open hours, you guess that you will average 15 pizzas per hour.  So you are talking an average day's gross income of (40*3)+(6*15)=210 pizzas or $2,100 per day.  These are some of your assumptions.

That is the type of information you must include in your assumptions section.  Even though 99% of the investors will not pay much attention, you must include it.  

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Break-Even Analysis

The Break-Even Analysis can get tricky.  Sometimes the formula trips you up, and other times it is the average sale number (BES).   Remember in high school when you said you'd never need algebra in real life?

The formula for a B/E is: BES = FC+ VC

Where the BES is Break-Even Sales
                    FC is Fixed Costs
                    VC is Variable Costs

Here is a sample P&L for a pizza parlor...

So, if your fixed costs (electricity, rent, advertising, etc.) are projected to total $200,000 for the 1st year.  And,  your variable costs (food, to-go boxes, etc.) are $2.85 per pizza.  Because we are trying to figure the break-even number, the BES for now is BESx (where x is an unknown variable).  And, BESx is equal to the average sale times x.  For the pizza parlor, the average pizza sale is $10.00. 

So here is our formula for now:

10x = 200,000 + 2.85x

From that you get:

7.15x = 200,000

And then you do this:

x = 200,000/7.15      or    x = 27,972

This means that to break-even, the pizza place must sell 27,972 pizzas per year, or 72 pizzas per day.

For a restaurant, the key is figuring out your average 'cover'.  A cover is what each person will spend.  Some of this is shown in the assumptions screen shot above.  You figure the average food (appetizer, entree and dessert) sale per person; and the average drink sale per person.  Add both figures and you have your average 'cover'.  For other companies it may be easier.  For example, if you sell a widget and is comes in 3 sizes, the average sale price between the 3 items is your BES.  But be realistic - if you figure to sell more of the smaller widgets, skew your BES accordingly.

Finishing Touches

Once you have completed your financial spreadsheets, there are some 'finishing touches' you want to never forget.  I call this stage the 'making it pretty' part of the numbers.  You want to double check each worksheet for consistency and printing range.

Consistency refers to the font, font size, borders and colors.  Make sure each worksheet looks the same.  Each sheet should have a title (I tend to include the company name in each title).  Be aware of how the borders are working with the information you are providing.  There is a bunch of numbers to take in, you want the borders to help guide the reader, not distract or confuse them.  For colors, I keep them at a minimum unless they help with understanding revenue streams, etc.  Most important, make sure to be consistent with the font type.  I prefer Arial because it presents clear and is 'sans serif' unlike Times Roman.

 The last thing I check is the print view for each sheet.  Because one looks good, do not assume the rest will print as well. Make sure to get each worksheet to print on a single page (if at all possible).  This is most important for the 1-year P&L.  It is impossible to follow these numbers from one page to the next.  You may have to change the font size in the 1-year to 8pt., where the rest of your sheets are at 10 or 12.  That is not a big issue, as long as you get it on one page.

That is all there is to it... Simple, right?  For some it is simple; the formulas are second nature.  For some, this may be the first time dealing with such an involved spreadsheet.  We do offer a full Excel template file available for download on our Services page.  The formulas are in place, as is the formatting; you just change the text and numbers.  The screenshots placed in the above guide are taken directly from the template.  It is very easy to adapt this template to any business venture. Check out a set of restaurant financials we recently completed.