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Financial Modeling for Business Owners and Entrepreneurs: Developing Excel Models to Raise Capital, Increase Cash Flow, Improve Operations, Plan Projects, and Make Decisions

Book Description

Financial Modeling for Business Owners and Entrepreneurs: Developing Excel Models to Raise Capital, Increase Cash Flow, Improve Operations, Plan Projects, and Make Decisions may be one of the most important books any entrepreneur or manager in a small or medium-sized enterprise will read. It combines logical business principles and strategies with a step-by-step methodology for planning and modeling a company and solving specific business problems. You’ll learn to create operational and financial models in Excel that describe the workings of your company in quantitative terms and that make it far more likely you will avoid the traps and dead ends many businesses fall into.

Serial entrepreneur and financial expert Tom Y. Sawyer shows how to break your company down into basic functional and operational components that can be modeled. The result is a financial model that, for example, you can literally take to the bank or bring to local angel investors to receive the funding you need to launch your business or a new product. Or it might be a model that shows with startling clarity that your new product development effort is a likely winner—or loser. Even better, you’ll learn to create models that will serve as guideposts for ongoing operations. You’ll always know just where you are financially, and where you need to be. The models you will learn to build in Financial Modeling for Business Owners and Entrepreneurs can be used to:

  • Raise capital for startup or any stage of growth
  • Plan projects and new initiatives
  • Make astute business decisions, including go/no-go assessments
  • Analyze ROI on your product development and marketing expenditures
  • Streamline operations, manage budgets, improve efficiency, and reduce costs
  • Value the business when it is time to cash out or merge
  • In addition to many valuable exercises and tips for using Excel to model your business, this book contains a combination of practical advice born of hard-won lessons, advanced strategic thought, and the insightful use of hard skills. With a basic knowledge of Excel assumed, it will help you learn to think like an experienced business person who expects to make money on the products or services offered to the public. You’ll discover that the financial model is a key management tool that, if built correctly, provides invaluable assistance every step of the entrepreneurial journey.

    Tom Y. Sawyer has used the principles this book contains to create financial models of numerous startup and early-stage companies, assisting them in planning for and raising the capital that they needed to grow their businesses and ultimately exit with multiples of their initial investment. Financial Modeling for Business Owners and Entrepreneurs, a mini-MBA in entrepreneurship and finance, will show you how you can do the same.

    Note: This book is an updated version of Sawyer's 2009 title, Pro Excel Financial Modeling.

    Table of Contents

    1. Cover
    2. Title
    3. Copyright
    4. Dedication
    5. Contents at a Glance
    6. Contents
    7. About the Author
    8. About the Technical Reviewer
    9. Acknowledgments
    10. Introduction
    11. Part 1: The Foundations of Financial Modeling
      1. Chapter 1: Business Thinking and Financial Modeling: Success Starts with the Right Mindset
        1. Analyzing, Demonstrating, and Explaining the Value of the Financial Model
          1. Attracting the Resources You Need to Grow Your Business
          2. The Big Questions
        2. Strategies That Build Value and Credibility
          1. Performance and Execution Strategies
          2. People and Process Strategies
          3. Ownership and Control Strategies
        3. Common Ways of Getting Stuck
        4. Looking at Your Company from the Perspective of Value
          1. The Value-Based Enterprise Perspective
          2. Four Primary Value Events
        5. Critical Thinking about the Business and Financial Model
          1. Financial Model Design Principles
          2. Financial Model Design Dimensions
          3. Major Functions Performed by the Model
        6. Summary
      2. Chapter 2: The Company Business Model: Envisioning and Realizing Your Future
        1. Designing a Company
        2. Business Thinking About Financial Modeling
          1. Applying the Project Planning View
          2. Applying the Software Development View
          3. Creating the Company Business Model
        3. Using the Top-Down Approach
          1. Deriving the Model Structure
          2. Organizing the Sequence of the Models
          3. Developing the Models’ Design and Functionality
        4. Summary
      3. Chapter 3: Green Devil Control Systems: Our Business Case
        1. Founding Green Devil Control Systems
        2. Giving Birth to the Idea
        3. Getting the Company Started
          1. Testing Market Feasibility
          2. Assessing Technical Feasibility
          3. Validating Resource Feasibility
        4. Designing the Company
          1. Stating the Company Purpose
          2. Defining the Product
          3. Establishing the Value Proposition
          4. Identifying the Target Market
          5. Assessing the Market
          6. Developing a Marketing Strategy
          7. Creating the Sales Strategy
          8. Defining the Scope
          9. Establishing Naming Conventions
          10. Identifying Assumptions and Risk
          11. Developing the Production Approach
          12. Assigning Roles and Responsibilities
          13. Company Deliverables
          14. Master Schedule, Critical Milestones, and Earned Value Criteria
        5. Summary
    12. Part 2: Financial Modeling in Action
      1. Chapter 4: The Staffing Model: Make the Most of Human Resources
        1. Business Thinking About Staffing: Evolution or Intelligent Design?
          1. Staffing the Startup Phase
          2. Staffing the IOC Phase
          3. Staffing the FOC Phase
          4. Moving Through the Phases
        2. Reviewing the Staffing Business Case
          1. Exploring the Market
          2. Exploring the Product
        3. Understanding the Critical Components of the Staffing Model
        4. Planning the Staffing Model
          1. Planning the Organizational Structure
          2. Creating the Staffing Plan
          3. Defining Cost Assumptions and Key Planning Variables
        5. Using the Building Blocks of the STAFF Model
          1. Understanding the Staffing Plan Worksheet
          2. Understanding the Staff Calculation Worksheet
          3. Understanding the Executive Dashboard
          4. Understanding the Executive Chart Data
        6. Summary
      2. Chapter 5: Sales and Revenue Model: Chart Your Financial Future
        1. Business Thinking About Sales and Revenue
          1. Validating the Value Proposition
          2. Analyzing the Market
          3. Positioning the Product
          4. Planning for Product Availability
          5. Crafting the Sales Strategy
          6. Making Sales Assumptions
        2. The Products, Services, and Sales Strategy Business Case
          1. The ECS Value Proposition
          2. The ECS Market
          3. The ECS Product
          4. ECS Product Availability
          5. ECS Sales Strategy
          6. ECS Sales Forecast Assumptions
        3. Planning the Sales and Revenue Model
          1. Defining the Product Configuration and Component Revenue and Cost Assumptions
          2. Developing Sales Forecast Assumptions
          3. Developing Methods for Forecasting Revenue
          4. Developing Cash Collection Assumptions Based on Revenue
        4. Exploring the Building Blocks of the REV Model
          1. Understanding the Sales Forecasting Worksheet
          2. Understanding the Product Pricing and Margin Worksheet
          3. Exploring the Revenue Calculation Worksheet
          4. Exploring the Recurring Service Rev and Maintenance Rev Worksheet
          5. Understanding the Accounts Receivable Worksheet
          6. Exploring the Revenue Summary Dashboard
          7. Exploring the Revenue and COGS Chart Data
        5. Summary
      3. Chapter 6: Cost of Goods Sold and Inventory Model: Plot Your Costs and Margins
        1. Using Business Thinking About COGS
          1. Defining “Cost of Goods Sold”
          2. Defining “Inventory”
          3. Assessing Profitability and Contribution to Margin
        2. Considering the Green Devil Control Systems Product Offering and Sales Strategy
          1. Product
          2. Product Development
          3. Making Product Availability Fulfillment and Inventory Assumptions
          4. Product Pricing and Variable Cost
        3. Planning the COGS Model
          1. Defining Product Configuration Assumptions Related to Component Revenue and Costs
          2. Developing Cost of Goods Sold and Profitability Assumptions for Each Year
          3. Developing Inventory Assumptions
          4. Developing an Inventory AP Model and Assumptions
        4. Examining the COGS Model’s Building Blocks
          1. Understanding the Product Pricing and Margin Worksheet
          2. Understanding the Revenue Calculation Worksheet
          3. Understanding the Contribution to Margin Analysis Worksheet
          4. Understanding the Inventory and Inventory AP Worksheet
          5. Understanding Revenue and COGS Chart Data
        5. Summary
      4. Chapter 7: Cost of Sales and Marketing Model: Calculate the Cost of Doing Business
        1. Business Thinking about the Cost of Sales and Marketing
          1. Completing the Market Assessment
          2. Developing the Value Proposition
          3. Understanding Sales and Marketing Strategy
        2. Exploring the Sales and Marketing Strategy Business Case
          1. Exploring the Product
          2. Assessing the Market
          3. Creating a Resonating Offer to the Customer
          4. Capturing the Market
        3. Planning the COSM Model
        4. Using the Building Blocks of the COSM Model
          1. Understanding the Staff Calculation Worksheet
          2. Understanding the Bonus and Sales Commission Worksheet
          3. Understanding the Trip Type Calculation Worksheet
          4. Understanding the Trip Plan Calculation Worksheet
          5. Understanding the Cost of Sales and Marketing Calculation Worksheet
          6. Understanding the Capital Plan Calculation Worksheet
          7. Understanding the Cost of Sales and Marketing Dashboard
          8. Understanding the Cost of Sales and Marketing Chart Data Worksheet
        5. Summary
      5. Chapter 8: Cost of Product Development Model: Ensure a Return on Your Investment
        1. Business Thinking About Product Development
        2. Product Development Objectives, Strategies, and Tactics
          1. Creating Product Concept and Design
          2. Planning
          3. Optimizing the Time to Market
          4. Adopting Agile Product Development and Production
          5. Forming the Team
          6. Managing the Product Life Cycle
          7. Building in Quality
          8. Sustaining Development Capacity
          9. Taking Care of Your Customers
          10. Know Your Suppliers
          11. Capture Intellectual Property
        3. Developing the Green Devil Control Systems Product Development Strategy
          1. Product
          2. Scheduling Product Development
          3. Targeting Operational Dates for Product Availability and Inventory
          4. Strategizing Product Development
          5. Considering Other Product Development Strategies
        4. Planning the DEV Model
        5. Exploring the Building Blocks of the DEV Model
          1. Using the Staff Calculation Worksheet
          2. Using the Bonus and Sales Commission Worksheet
          3. Using the Trip Type Calculation Worksheet
          4. Using the Trip Plan Calculation Worksheet
          5. Using the Cost of Product Development Calculation Worksheet
          6. Using the Capital Plan Calculation Worksheet
          7. Using the Cost of Product Development Dashboard
          8. Using the Cost of Product Development Chart Data Worksheet
        6. Summary
      6. Chapter 9: Operating and Capital Expenditures Models: Manage Your Budget
        1. Business Thinking About Cash Flow
        2. Criteria for Capital Expenditures
        3. Calculating Depreciation
        4. Defining Expensed Items
        5. Considering Categories of Expense
        6. Planning the Operating Expenditure (OPEX) Model
        7. Planning the Capital Expenditure (CAPEX) Model
        8. Building and Using the OPEX and CAPEX Models
        9. Exploring the Building Blocks of the OPEX Model
          1. Developing the Operational Expenditure Calculation Worksheet
          2. Using the Operational Expenditure (Monthly) Worksheet
          3. Reviewing the Operational Expenditure (Yearly) Dashboard
          4. Utilizing the OPEX and CAPEX Chart Data Worksheet
        10. The Building Blocks of the CAPEX Model
          1. Understanding the Capital Plan Calculation Worksheet
          2. Understanding the Depreciation Calculation Worksheet
          3. Understanding the Fixed Assets Calculation Worksheet
          4. Reviewing the Capital Plan and Fixed Assets Dashboard
        11. Summary
      7. Chapter 10: Making Business Decisions Using Quantitative Models: Decision Analysis Best Practices
        1. Business Thinking About Decision Making
        2. Financial Models and Decision Making
        3. Variables
          1. Variables Conducive to Financial Modeling
          2. Variables Not Conducive to Financial Modeling
        4. Financial Modeling Tools Used in Decision Making
          1. Decision Support Tools
        5. Uncertainty and Risk
          1. Risk Mitigation
        6. Pitfalls
          1. The Anchoring Trap
          2. The Sunk Cost Trap
          3. The Confirming Evidence Trap
          4. The Framing Trap
          5. The Overconfidence/Prudence Trap
        7. The Decision Process: From Uncertainty to Action
          1. State the Decision
          2. Develop Decision Objectives
          3. Generate Alternatives
          4. Classify Objectives Into MUSTs and WANTs
          5. Screen Alternatives Through the MUSTs
          6. Compare Alternatives Against the WANTs
          7. Identify Adverse Consequences
          8. Make the Best Balanced Choice
        8. Summary
      8. Chapter 11: Statements of Profit and Loss and Cash Flow: Plan for Profits and Ready Money
        1. Business Thinking about Profit, Loss, and Cash Flow
          1. Understanding the Profit and Loss Statement
          2. Understanding the Statement of Cash Flows
        2. Exploring Cash Flow Impacts of the Product Development Strategy Business Case
          1. Defining the Product
          2. Planning Operating Activities
          3. Charting Investment Activities
          4. Reflecting Financing Activities
        3. Planning the FIN Model
        4. Understanding the Building Blocks of the FIN Model
          1. Understanding the Profit & Loss Statement Worksheet
          2. Understanding the Statement of Cash Flows Worksheet
          3. Understanding the Value and Investment Worksheet
          4. Understanding the Value and Investment Dashboard
          5. Understanding the Company Balance Sheet Worksheet
          6. Understanding Financial Reporting Model Chart Data
        5. Summary
    13. Part 3: Valuation and Financial Reporting
      1. Chapter 12: Modeling Valuation and Investment with the FIN Model: Can You Cash Out?
        1. Business Thinking about Valuation and Investment
          1. Understanding Valuation and Investment
          2. Assessing the Value of Events and Risk
        2. Exploring the Valuation and Investment Strategy Business Case
          1. Defining the Product
          2. Creating a Strategy to Build Value and Credibility
          3. Devising the Investment and Valuation Strategy
        3. Planning the FIN Model
        4. Understanding the Building Blocks of the FIN Model
          1. Understanding the Profit & Loss Statement Worksheet
          2. Understanding the Balance Sheet Worksheet
          3. Understanding the Financial Reporting Model Chart Data Worksheet
          4. Understanding the Company Master Schedule
          5. Understanding the Statement of Cash Flow Worksheet
          6. Understanding the Value and Investment Worksheet
          7. Understanding the Value and Investment Dashboard
        5. Summary
      2. Chapter 13: Financial Reporting and Analysis Using the FIN Model: Do Better and Better
        1. Business Thinking About Financial Reporting and Analysis
          1. Understanding the Balance Sheet
          2. Creating the Balance Sheet
          3. Using Financial Ratios to Analyze Financial Statements
        2. Understanding the Business Case Impact on Financial Results
          1. Impact of Operating Activities
          2. Planned Investment Activities
          3. Targeted Financing Activities
        3. Planning the FIN Model
        4. Understanding the Building Blocks of the FIN Model
          1. Understanding the Profit & Loss Statement Worksheet
          2. Understanding the Statement of Cash Flow Worksheet
          3. Understanding the Balance Sheet Worksheet
          4. Understanding the Value and Investment Worksheet
          5. Understanding the Value and Investment Dashboard
          6. Understanding the Financial Statements and Analysis Dashboard
          7. Understanding the Financial Reporting Model Chart Data Worksheet
        5. Summary
    14. Index
    15. Other Apress Business Titles You Will Find Useful