Forecast and Analysis Models for Early Stage Businesses

The Early Stage Business Models provide members with an easy-to-use method for creating financial forecasts for businesses that have very limited (i.e., less than 12 months) historical financial information. The principal models are as follows:

• Early Stage Business Financial Forecast Model

  The model prompts the user to select the SIC (Standard Industrial Classification) code of the industry in which the early stage business competes, and to make a few revenue forecast assumptions. Those assumptions, plus the financial statistics for the SIC code selected, create the first draft of the early stage company's five-year financial forecast. The user can then adjust the draft data to more closely reflect the recent financial performance of the early stage business and the user's expectations of future financial results.

  The output of the model consists of the primary financial statements (annual income statements, balance sheets and cash flow statements); documentation detailing the key assumptions underlying the forecast; and forecasted financial ratio data and statistics which are used by business managers, banks and other providers of capital to evaluate financial performance.

  Once the user has created the five-year forecast for the early stage business, she may chose to estimate the businesses' value to a prospective buyer of the business; and to a minority investor who wishes to invest in the business.

• LBO Valuation Model

  The already-completed five-year financial forecast, plus a few assumptions, are all that is necessary to create a first draft of a comprehensive LBO valuation of the business.

  The valuation of the business from a sale standpoint consists of an LBO valuation of the early stage business from the point of view of a "financial buyer" who owns no other businesses in the firm's industry and, therefore, expects all of its investment return to result solely from the future operations of the early stage business. See the LBO Valuation Model for additional information about this analysis method.

  The output of the model consists of the Business Valuation Summary; primary financial statements (annual income statements, balance sheets and cash flow statements) showing the performance of the early stage business prior to and after the purchase by the financial buyer; several pages of documentation detailing the key assumptions underlying the valuation; and financial ratio data and statistics. You may change any or all of the first draft assumptions, including the financial forecast, to see how the changes impact the valuation of the business.

   

• Private Equity Placement Model

  The already-completed five-year financial forecast, plus a few assumptions, are all that is necessary to create a first draft of a private equity placement analysis of the business.

  The valuation of the business from the minority investor point of view consists of estimating the "pre-money" and "post-money" value of the early stage business, and the reasonable ownership split(s) between existing and new investors immediately after new investors make equity investments in the business. For purposes of the analysis, equity investments include any or all of the following: investments in common stock (or contributed capital); investments in preferred stock; and investments in subordinated debt with equity warrants. See the Private Equity Placement Model for additional information about this analysis method.

  The output of the model consists of the Private Equity Placement Summary; primary financial statements (annual income statements, balance sheets and cash flow statements) showing the performance of the early stage business prior to and after the new equity financing; and several pages of documentation detailing the key assumptions underlying the analysis. You may change any or all of the first draft assumptions, including your five-year forecast, to see how the changes impact the "pre-money" and "post-money" value of the business.

   

• Single-Year Forecast Model

  The single-year model enables the user to create single year forecasts (i.e., split a single year's forecast into twelve (12) individual monthly forecasts) for any year's forecast created with the financial forecast model, the LBO valuation model and the private equity placement model. The already-completed annual forecast, plus a few assumptions concerning business seasonality and cost behavior, create the first draft of a comprehensive twelve (12) month financial forecast by month. See the Single-Year Financial Forecast Model for additional information about this analysis method.

  The output of the single-year financial forecast model consists of the primary financial statements - monthly income statements, balance sheets and cash flow statements; documentation detailing the key assumptions underlying the forecast; and forecasted financial ratio data and statistics.

  Contact tgf@corpfin.net for details concerning how Corpfin.Net can help you interpret and fine-tune your analyses.