Building Financial Projections (15.390, Wednesday, Week 11)
new-enterprisesyear-twoVentures cut corners on "accredited investor" paperwork in angel rounds. Your investors just have to sign on the dotted line; how are you supposed to know whether they're actually worth over $2M...
Most common "errors" in pro-formas:
-- Revenue obviously too high in year 4 (or year 5, or whatever).
-- Profit margin obviously too high in year 4/5 (usually because you didn't think about new hires required when sales picked up, etc.).
Random rules of thumb:
-- Do quarterly pro-forma P&Ls; month is way too hard to check for mistakes and usually just adds false precision.
-- Increase salaries by 6-8% per year.
-- Typical commission on sales: 5%.
-- Average employee salary: $80-90K plus 15% in benefits.
-- Sales staff cost $100-200K per year, depending on the industry.