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Startup cash flow management in today's economic climate

Managing Cash Flow in Today’s Economic Climate

How do you handle startup cash flow management in today’s challenging economic climate? Check out our tips to manage your cash flow and get the funding you need.

How is the <a href="https://www.bea.gov/news/glance" rel="noopener" target="_blank">current state of the economy</a> playing into startup cash flow management? In recent years it was relatively easy to find cash if you needed it, whether through debt, <a href="https://www.propellerindustries.com/blog/startup-fundraising">fundraising</a>, or short-term loans. However, circumstances and criteria have changed. That’s why planning and efficiently managing your cash flow is more important than ever.&nbsp;
Here’s what we’ve been hearing from clients about today’s economic concerns:
<ul>
<li aria-level="1">There’s extreme volatility right now – nobody really knows where things are going.</li>
<li aria-level="1">How do we do scenario planning in the face of uncertainty?&nbsp;</li>
<li aria-level="1">How do we maximize cash for more flexibility in unknown times?</li>
</ul>
News headlines about the economy can be troubling, but in reality there are a lot of mixed factors at play. Here’s a snapshot of today’s economy:
<table style="border-collapse: collapse; table-layout: fixed; margin-left: auto; margin-right: auto; border: 1px solid #99acc2;">
<tbody>
<tr>
<td style="border: 1pt solid #000000;">
The Good
</td>
<td style="border: 1pt solid #000000;">
The Bad
</td>
<td style="border: 1pt solid #000000;">
The Ugly
</td>
</tr>
<tr>
<td style="border: 1pt solid #000000;">
<ul>
<li aria-level="1">Very low <a href="https://www.dol.gov/agencies/vets/latest-numbers" rel="noopener" target="_blank">unemployment</a> and record high job openings – there are two job openings for every unemployed person right now</li>
<li aria-level="1">The housing market is slowing but stable</li>
<li aria-level="1">There is still strong consumer spending across many categories, such as the services industry, where others have normalized to pre-pandemic levels</li>
</ul>
</td>
<td style="border: 1pt solid #000000;">
<ul>
<li aria-level="1">Q1 GDP declined 1.6%</li>
<li aria-level="1">Stock markets remain highly volatile</li>
<li aria-level="1"><a href="https://www.usinflationcalculator.com/inflation/current-inflation-rates/#:~:text=The%20annual%20inflation%20rate%20for,at%208%3A30%20a.m.%20ET." rel="noopener" target="_blank">High inflation</a> (+9%)</li>
<li aria-level="1">Fed interest rate hikes of 0.75% are expected to continue&nbsp;</li>
<li aria-level="1">Consumer household debt is at record levels, and consumer savings rates are at a 14-year low</li>
</ul>
</td>
<td style="border: 1pt solid #000000;">
<ul>
<li aria-level="1">No sign of supply chain and economic disruptors easing</li>
<li aria-level="1">Future COVID-19 surges could lead to further global lockdowns and supply chain disruptions</li>
<li aria-level="1">The ongoing conflict between Russia and Ukraine continues to strain the global economy</li>
</ul>
</td>
</tr>
</tbody>
</table>
Trying to fit all these pieces together makes it difficult to understand what the next few years will look like. So let’s go back to basics and set the stage.
<h2>The Basics of Cash Management</h2>
Here are the definitions of terms we’ll be using throughout this blog:
A cash flow forecast is derived from your financial plan and takes your P&amp;L and balance sheet into account to determine how much cash you’ll need over a period of time.
Note: While EBITDA can be an indicator of your cash, don’t forget to consider balance sheet items like A/R, inventory, and A/P. As a CPG company, much of your money will be tied up in working capital. Depending on your business model or structure, this could be more than 50% of your cash usage, so make sure you think through these things.
Cash runway is how many weeks or months you have until you are out of cash.
Cash burn is cash receipts less cash outflows in a given period.
Cash <a href="https://www.propellerindustries.com/blog/how-to-calculate-burn-rate-for-startups">burn rate</a> is the average cash burn over a period of time.
<h2>4 Tips for Managing Cash Flow</h2>
If you’re facing a tight cash situation and need to extend your runway while figuring out funding, consider these four tips to manage your cash flow.
<h3>Tip #1: Build Up Your Cash Reserves</h3>
<ul>
<li aria-level="1">Reduce working capital: Is there old A/R to collect or inventory to liquidate?&nbsp;</li>
<li aria-level="1">Send your invoices electronically and allow them to be paid electronically.</li>
<li aria-level="1">Don’t pay things until they are due – hold onto the extra cash.</li>
<li aria-level="1">Be mindful of future POs, liquidate excess inventory and try to convert it to cash.&nbsp;</li>
<li aria-level="1">Negotiate extended payment terms with suppliers or lenders.</li>
<li aria-level="1">Request deposits in advance for large orders.</li>
</ul>
<ul>
<li aria-level="1">Offer a small discount for early payment.</li>
</ul>
<h3>Tip #2: Manage Costs</h3>
<ul>
<li aria-level="3">Think about headcount and hiring timing. Push out hires where possible, particularly for positions that don’t have an immediate return.</li>
<li aria-level="3">Take a look at the business and understand what’s critical to support your business growth and what is excess or experimental. Instead of spending on experimental categories, double down on areas that are proven to work.</li>
</ul>
<h3>Tip #3: Emphasize Scenario Planning</h3>
What would you do if demand falls off? Or sales decline to half or less of projections? First, you must have a good set of actions for different outcomes. We typically look at a minimum of three types of <a href="https://www.propellerindustries.com/blog/the-importance-of-scenario-planning-in-your-business" style="color: #4a6ee0;">scenario plans</a> with our clients:&nbsp;
Plan A+: Best case scenario, often your fundraising plan. How much market opportunity do you think your business can get if everything goes well over the next several years?
Plan A: Business plan/operating plan: Plan A is more conservative and likely the plan to which you manage your day-to-day business, sequencing out when you can invest in people, processes, and systems based on your best guess of current information and how you think your business will develop.
Plan B: Worst case scenario/bear plan: Plan B considerations include tough decisions like headcount cuts, vendor cuts, and price increases. You want to avoid putting yourself in urgent decision-making scenarios which can cloud your judgment. A blueprint or “lifeboat” ahead of time helps you survive rough waters so you can come out the other side.
We’ve been spending a lot of our time with clients on their Plan B. If you don’t have a “worst case scenario” plan, you should work on one now.
<h3>Tip #4: Focus on Your Gross Margins</h3>
<ul>
<li aria-level="1">Make sure you have appropriate price points to support your business model – many startups are hesitant to make price increases.</li>
<li style="color: #0e101a;" aria-level="1">You want to ride up the wave – everyone is increasing prices for retailers and consumers due to inflation, and it is much easier to implement a price increase when you are not alone in your category in doing so.</li>
<li aria-level="1">Consider your cost structure – negotiate product costs as much as possible to increase your margins. Investors are looking for a minimum of 40% all-in margins in the consumer goods space.&nbsp; In addition to setting yourself up for solid financial metrics for your next fundraise, a healthy margin will extend your cash runway and give you more flexibility to invest in building the business.&nbsp;</li>
</ul>
<h2>3 Common Mistakes in Cash Flow Management</h2>
Here are some common cash flow management mistakes we see startups making in the current economy and environment.
<ul>
<li aria-level="1">Mistake #1: Not having a good understanding of unit economics. Many businesses set their gross margins too low. You must put suitable pricing structures in place, bringing up gross margin and negotiating COGS as much as possible. Growth is nice, but profitability matters right now.</li>
<li aria-level="1">Mistake #2: Not understanding cash in-flow and out-flow timing. How long might it take to sell through inventory and collect accounts receivables? It’s crucial to get more granular with forecasting and gain an understanding of your cash conversion cycle, or the time it takes to convert the dollars invested into your inventory into cash receipts from sales.</li>
<li aria-level="1">Mistake #3: Inventory buildup. Many companies overbuy, tying up cash and making it harder to move excess inventory. This may be due to overestimating demand, supply, or chain issues, resulting in inventory build-up at the wrong time. Some companies also purchase certain inventory levels in order to hit price breaks without the demand to clear that inventory. While this may improve short term margins on paper, it can have the negative effect of tying up large sums of cash and decreasing cash runway. You must develop strategies around excess stock levels, like converting inventory to cash via liquidation, discounts, warehouse sales, planning ahead for BFCM, etc.&nbsp;</li>
</ul>
<h2>What to Do If You’re Facing a Tight Cash Situation</h2>
If your cash runway is less than six months, start looking for investors sooner rather than later. It will take you a lot longer to <a href="https://www.propellerindustries.com/blog/raising-capital-today">raise capital in this environment</a> than in the past. Investors have been spending more time on due diligence, and are slower in writing checks, writing smaller checks, or pausing altogether.&nbsp;
If you were able to get five investors before, you might need to find 10 to 15 to fully close the round now. If you’re a smaller business or don’t have access to funding as an early-stage business (which can be true even in good times), consider the following:
<ul>
<li aria-level="1">Bootstrap- Constraints lead to creativity, and being forced to work with limited to no funding may lead you to discover a business model you may have not thought of otherwise.</li>
<li aria-level="1">Focus on profitability vs. growth – gross margins matter now more than ever. Slow and steady can win the race, especially in a recessionary period. This will allow you to scale the business and position yourself to raise money in the future.</li>
</ul>
<h2>How Can Propeller Help You?</h2>
We help our clients understand their forecasts and budgets, actual costs, and the biggest opportunities for their business. We have a vast portfolio of companies in many industries, enabling us to make accurate predictions and see trends in real-time. Our ability to identify situations as they change in a fast-paced environment is of great value to our clients.&nbsp;
When cash is tight, we can help you hone in on a 13-week cash flow forecast to make sure you’re able to manage through those periods, and our network helps clients meet experienced financing partners.Want to learn more? <a href="https://www.propellerindustries.com/free-consultation">Connect with the experts at Propeller Industries today.</a>

How is the <a href="https://www.bea.gov/news/glance" rel="noopener" target="_blank">current state of the economy</a> playing into startup cash flow management? In recent years it was relatively easy to find cash if you needed it, whether through debt, <a href="https://www.propellerindustries.com/blog/startup-fundraising">fundraising</a>, or short-term loans. However, circumstances and criteria have changed. That’s why planning and efficiently managing your cash flow is more important than ever.&nbsp;

Raising capital for startups in today's economy

Tips for Raising Capital in Today’s Economic Climate

How does today’s economic climate impact raising capital? Our expert CFO talks about the challenges and how to outmaneuver them.

Is your business trying to raise capital and feeling the pinch of current economic uncertainties?&nbsp;
Fundraising has become more challenging recently, including for emerging brands. Just a few months ago a great idea could easily get a $5M – $10M million cash infusion, but today, the landscape has changed with the looming potential of a downturn in the economy. If you do not have demonstrable traction with real revenue growth, it is going to be difficult to get the funding that was previously more readily available.&nbsp;
Your role as an entrepreneur is to preserve cash and make appropriate decisions to remove as much risk as possible from the <a href="https://www.propellerindustries.com/blog/startup-fundraising" rel="noopener">fundraising</a> process. However, today’s economic climate has added complexities that were not a factor just a couple of years ago. In addition, fundraising mistakes can have more severe consequences now, so you may want reassurance that you are focusing on the most important things.&nbsp;
Great companies are going to get financing, but you can no longer count on getting financing on your terms or on your timeline.&nbsp; If you are feeling stressed out, you are not alone. Let’s review some of the challenges business owners face in raising capital today and how to deal with them.
<h2>The Biggest Challenges When Raising Capital Today</h2>
Broadly, the macro environment has made investors more risk-averse.&nbsp; It’s important to distinguish between early-stage investors (Seed, Series A, Series B) – who have a longer investment time horizon (typically 5 – 10 years) – relative to late-stage investors.&nbsp;
While early-stage company fundraising is not immune to macro factors like inflation or rising interest rates, valuations and deal activity are not as dramatically impacted as for later-stage companies.
By contrast, late-stage investors are not as patient. They hope that an IPO or exit is imminent, and require a much quicker return.
To understand the current climate better, let’s look at the trends broadly affecting startup fundraising.
<h3>More Scrutiny</h3>
Investors expect to generate a return on their capital. With greater uncertainty around when and how much capital their investment will return, scrutiny on startups’ financial projections has intensified.&nbsp; The bar is higher.
<h3>Rising Costs</h3>
Increased food and energy prices are hitting many verticals hard right now. For example, wholesale costs for the CPG industry <a href="https://consumerbrandsassociation.org/press-releases/wholesale-prices-show-another-big-increase-signaling-continuing-cost-pressure-on-cpg-companies/#:~:text=Taking%20a%20longer%2Dterm%20view,sharp%20increases%20over%20last%20April." style="color: #4a6ee0;" rel="noopener" target="_blank">have risen 35%</a> since 2019. As about 70% of CPG costs originate from energy and ingredient costs, this has significantly impacted industry economics and threatens to extend the path to profitability.
<h3>Supply Chain Disruptions</h3>
Supply chain disruptions due to COVID-19 and the war in Ukraine have wreaked havoc on many industries. In 2021, <a href="https://www.statista.com/statistics/1267082/supply-chain-disruptions-worldwide/" rel="noopener" target="_blank">11,642 supply chain disruptions</a> were reported worldwide, with North America having the highest share of disruptive events.
<h3>Investors’ Fundraising Timelines Are Stretching</h3>
Given the current economic climate, investors are preserving cash and approaching fundraising opportunities more cautiously. Therefore, you should expect that fundings will take longer as investors take on fewer opportunities.
Rising Interest Rates As the Fed has increased interest rates (and signaled its plan to continue raising them to combat inflation), the cost of capital has gotten more expensive. This, in turn, has raised the required return threshold for investors.&nbsp; It will also be more costly to access debt financing.
<h2>Why There’s Still Room for Optimism</h2>
Despite these challenges, uninvested money (also called <a href="https://pitchbook.com/blog/what-is-dry-powder" rel="noopener" target="_blank">dry powder</a>) is at historically high levels – around $290 billion – across all stages, suggesting there’s still plenty of money available for high-quality companies.
Moreover, according to <a href="https://pitchbook.com/news/articles/us-micro-funds-seed-venture-capital-fundraising-2021" rel="noopener" target="_blank">Pitchbook</a>, micro-funds (investments of $50M or less) have become more common in the last four years, collecting nearly $5 billion across 339 U.S. funds in 2021.
<h2>3 Tips for Raising Capital in Today’s Economic Climate</h2>
Here are our top tips for raising capital for startups today.&nbsp;
<h3>Start Building Your Network Early</h3>
Raising capital always takes longer than you think, so start now to get to know prospective investors before you need their checks. It’s much easier to say yes when investors are already familiar with you and your business, so start building relationships now. Quick tips to keep top of mind:
<ul>
<li aria-level="1">Cast a wide net if you think you need money.&nbsp;</li>
<li aria-level="1">Use your network to look into other options like family offices.&nbsp;</li>
<li aria-level="1">Evaluate whether you have capital available or better terms from vendors and explore debt options if you have not already done so, such as asset-backed lending.&nbsp;</li>
</ul>
<h3>Spend Conservatively&nbsp;</h3>
Outsourcing staff or using fractional teams helps conserve cash while supplying the knowledge and expertise required to run your business efficiently. Propeller specializes in <a href="https://www.propellerindustries.com/services">scalable financial services</a> that support your evolving needs while providing cost-effective solutions.
In this environment, investors are not giving as much credit to you for future goals. The longer you can make your current cash last, the more you control your own choices.
<h3>Plan for Different Scenarios</h3>
Control your destiny by scenario planning — thinking about how you spend your money, exploring your capital options, and staying focused.&nbsp;
We’ve advised many of our clients to do scenario planning. Shift your mindset from time-based fundraising to milestone fundraising, which may preclude you from having to raise again.&nbsp;
For example, you might raise money to get to cash flow positive, enabling you to be the master of your own destiny. Or, you might raise money to get to a set of milestones that make it easier to raise again down the road.
Focus on controlling what you can control. You should do granular scenario planning even if you choose not to extend your runway, or scale back. Get a clear picture of which levers you can pull under which circumstances.
<h2>How Propeller Navigates the Waters&nbsp;</h2>
If you’re feeling overwhelmed by the fundraising process or still have unanswered questions, you’ve come to the right place. Propeller Industries empowers the most ambitious startups to reach their full potential.
We leverage our decades of experience in investment banking, investor relations, and principal investing to give you an insider’s perspective and set you on the path to success. We’ll lead your business through a proven, methodical process that takes you from pitch deck to closing in just a few months.&nbsp;
From providing feedback on pitch materials to facilitating conversations with investors, Propeller is here to help growth-stage companies succeed in raising capital in today’s economic climate.
<a href="https://www.propellerindustries.com/free-consultation">Reach out to us today to learn more.</a>

Is your business trying to raise capital and feeling the pinch of current economic uncertainties?&nbsp;

How to Calculate Burn Rate for Startups

To stoke the fire of your startup, you need to know what you’re burning. Read on to learn how to calculate burn rate for startups. 

Business owners don’t always focus on short-term profitability when a company enters its initial startup phase. Instead, they tend to direct their efforts toward building a customer base and optimizing their product or service.&nbsp;
If the startup is pre-revenue and has raised capital, it will often operate at a loss—which can be a sustainable posture—dictated by its growth strategy. A startup’s burn rate calculations need to be spotless to succeed. Owners need to know exactly how much money they’ll lose over a period of time before they drive profitability.&nbsp;
But what’s the burn rate formula? And how do you ensure it’s down-to-the-dollar accurate?&nbsp;
Read on to learn how to calculate burn rate for startups and the importance of the formula you employ.
<h2 style="font-size: 20px;">What Is a Burn Rate Calculation?</h2>
Burn rate is a metric that illustrates how much money your startup is spending and how quickly it “burns” through its working capital.&nbsp;
In other words, it’s the amount of money a business needs to have on hand over a specific window of time to pay for overhead expenses and liabilities. According to <a href="https://www.thebalancesmb.com/what-does-burn-rate-mean-and-how-is-it-calculated-393196" rel="noopener" target="_blank">The Balance</a>:
“The burn rate is commonly expressed in terms of months, but it doesn't need to be. When a company is experiencing a cash crisis, that company may need to calculate a weekly burn rate—or even a daily burn rate—to see how long it has to turn its financial situation around. On the other hand, a financially stable company may only need to calculate a quarterly or annual burn rate.”
This forecast enables a business to establish realistic goals, strategies, and timelines.​​ Seeing as <a href="https://www.businessinsider.com/why-small-businesses-fail-infographic-2017-8?r=US&amp;IR=T" rel="noopener" target="_blank">eighty-two percent</a> of startups fail due to cash flow disruptions and twenty-nine percent fail from running out of capital, understanding the burn rate formula intuitively is a critical component of your startup’s sustainability.&nbsp;
With an accurate burn rate projection, you will know how long you can remain operational before running out of money. This window is typically referred to as your company’s “cash runway.”&nbsp;
Reaching the end of the runway without hitting revenue targets or usage KPIs (key performance indicators) can be disastrous for startups, as raising more capital due to cash loss is not an easy endeavor.&nbsp;
<h2 style="font-size: 20px;">The Burn Rate Formula</h2>
For startups, there are two flagship “types” of burn rates. Estimating your capital obligations typically depends on your startup’s business model, industry, and growth strategies.&nbsp;
<h3 style="font-size: 18px;">1. Gross Burn Rate</h3>
Gross burn rate is the total operating costs your company incurs each month, also known as its “operating expenses.” You can calculate this rate by summing up your company’s total cash outflows each month.
Gross Burn Rate =&nbsp; Monthly Operating Expenses
Gross burn allows your company to:
<ul>
<li aria-level="1">Calculate its efficiency</li>
<li aria-level="1">Identify primary cost drivers&nbsp;</li>
<li aria-level="1">Understand exactly how much cash you’re&nbsp; spending each month</li>
</ul>
<h3 style="font-size: 18px;">2. Net Burn Rate</h3>
The net burn is the rate at which your company loses its capital and how much cash you require to keep operating over a specific period. You can calculate this rate by subtracting cash on hand from the gross burn rate.&nbsp;
Net Burn Rate = Monthly Operating Losses
Net burn allows your company to:
<ul>
<li aria-level="1">Accurately predict its cash runway</li>
<li aria-level="1">Set a responsible strategic growth plans&nbsp;</li>
</ul>
<h3 style="font-size: 18px;">Applying the Burn Rate Formula</h3>
For instance, let’s review a fictional SaaS company. SaaSy Coders Inc. is:
<ul>
<li aria-level="1">Spending $20,000 per month</li>
<li aria-level="1">Making $15,000 per month</li>
<li aria-level="1">Has $100,000 in cash on hand</li>
</ul>
In this case, SaaSy Coders’ gross burn rate would be $20,000 per month, and their net burn rate would be $5,000 per month ($15k revenue – $20k operating expenses). So, with $100,000 in the bank, SaaSy Coders would have 20 months of runway before the business ran out of cash —if operations and expenses remained static.
<h3 style="font-size: 18px;">Two Key Burn Rate Variables</h3>
The example above showcases burn rate in its simplest form. But for startups—especially those that seek to raise (or have raised) outside capital—it’s important to note that two key variables will likely factor into burn rate:
<ul>
<li style="color: #0e101a;" aria-level="1">Unit economics: This is the money earned from every product or service sale. You calculate this by subtracting the customer acquisition cost (CAC) from the customer’s lifetime value (CLV).</li>
<li style="color: #0e101a;" aria-level="1">Cost of growth: This represents the variable costs that impact operating expenses. The primary factor in the cost of growth tends to be payroll, seeing as a growing company needs to hire more employees at competitive salaries.</li>
</ul>
Accounting for these two variables empowers you to decide how much money your company needs to raise and then spend to cover the burn rate for a long enough period to realize your strategic goals.&nbsp;
<h2 style="font-size: 20px;">What’s an Effective Burn Rate for Startups?&nbsp;</h2>
For startups, there’s no right or wrong burn rate metric. To that end, practically any burn rate is acceptable so long as it's justified by market economics and growth trajectories.&nbsp;
However, most financial experts advise startups to have a targeted cash runway of at least six months at any given time. So, in that case, you would aim for a burn rate that’s one-sixth of your cash on hand.&nbsp;
Remember, the burn rate showcases how quickly and at what volume your company is spending its capital. But it doesn’t demonstrate whether you’re “burning” at a reasonable pace.&nbsp;
High burn rates aren’t necessarily viewed as a negative when it comes to fundraising. On the contrary, venture capitalists and PEs may decline investment if they feel you’re not burning enough cash to justify the size of your request (or realize your vision). When investors participate in a capital raise, they expect you to spend the funds to accelerate growth and build on your strategic initiative—all to turn a profit.&nbsp;
For SaaS companies, Brad Feld, a venture capitalist at Foundry Group, proposed <a href="https://feld.com/archives/2015/02/rule-40-healthy-saas-company/" rel="noopener" target="_blank">the rule of 40%</a>.&nbsp;
This rule states that a healthy SaaS company should have a net profit (net burn rate as a percentage of cash sales) and a growth rate that add up to 40%. So, in this case, if you’re growing at 50%, you can run a burn rate of 10%. Or, if you’re growing at 20%, you should be generating a profit of 20%. So, as long as you’re beating 40%, your company is on the right track.&nbsp;&nbsp;
<h2 style="font-size: 20px;">Track Your Burn Rate with Propeller Industries&nbsp;</h2>
No matter where your startup is in its lifecycle, mastering your burn rate is a vital aspect of financial accountability. It’s paramount for growth forecasts, operational integrity, and your capability of hitting benchmarks.&nbsp;
Regularly calculating your burn rates while accounting for the two key metrics—unit economics and cost of growth—will impact your budgets, strategic initiatives, and fundraising requests. But what if you need guidance to set realistic burn rates and target investors for a capital raise?
That’s where our team of experts at Propeller can assist. For nearly a decade and a half, our team has provided early-stage, high-growth companies with the financial expertise they require to navigate the many challenges of entrepreneurship.&nbsp;
If you need a partner that can accurately account for and predict your burn rate, we’re ready to apply the correct formula and ensure you’re running at a healthy, proactive pace.&nbsp;
<a href="https://info.propellerindustries.com/free-financial-analysis-consultation" rel="noopener">Reach out to us today to learn more.</a>

Business owners don’t always focus on short-term profitability when a company enters its initial startup phase. Instead, they tend to direct their efforts toward building a customer base and optimizing their product or service.&nbsp;

The Ultimate Guide to Startup Fundraising

Fundraising is the lifeblood of a startup. Here’s how to raise money for a startup so you can bolster your enterprise and work towards key goals.

Startups are exciting. They fill you with that entrepreneurial spirit that energizes every thought, action, and fiber of your being—driven by the thrill of creation and possibility.&nbsp;

Deciding Between Top-Down Vs Bottom-Up Forecasting

Before conducting a top down or bottom up forecast for your business, you should understand the differences between the two models a,d what they can do for you.

Companies that conduct financial forecasts typically have two general models from which to choose: They can either opt for top-down or bottom-up forecasting.&nbsp;

The first model starts with a general overview look before drilling down to specific terms, while the latter model does the exact opposite. Both forecasting models can be effective when used properly, but some companies prefer to use one over the other for various reasons.
Before you make your decision on conducting a top-down or bottom-up forecast, it's important to understand the advantages and disadvantages that each provides, as well as the differences between the two models.
<h2>What is Financial Forecasting?</h2>
<a href="https://blog.propellerindustries.com/budgeting_vs_forcasting">Financial forecasting</a> is quite simply the process when a company or individual try to predict future events based on past events and current standing. The idea behind financial forecasting is that you can determine the triggers and assumptions for future results so you can make sound decisions today and continue to measure your performance against those assumptions, updating throughout the year/years as necessary.
Companies should focus their forecasting on revenue, costs, and working capital metrics that drive the business.&nbsp; By accurately forecasting these metrics, a company can make adjustments to its budget to help it accomplish the goals it wants to achieve in the year ahead.
If the forecast shows an increase in sales year-over-year, the company may decide to invest in things such as new equipment or additional employees to support the growth. If the forecast shows a decrease, the company can make moves now to change the trajectory, such as investing more in marketing and outreach. It can also cut back on expenses or hold off on investments until the year plays out.
Financial forecasting is an essential part of running a successful business for the long term.
<h2>What is a Bottom-Up Financial Model?</h2>
A bottom-up forecast goes from the specific to the general, usually with a focus on individual departments first, and combining them to create a company-wide forecast.&nbsp;
<h3 style="font-weight: normal;">Advantages vs. Disadvantages</h3>
This method allows a company to take a department-by-department look ahead so that adjustments can be made at the base level. These changes made at the departmental level can help department leads own the process and make decisions throughout the year.
It also helps to motivate employees, because it involves applicable goals and KPIs. The bottom-up approach focuses on departments rather than goals the company sets that may not be directly relevant to them.
On the flip side, bottom-up forecasting can take a lot of time and organization of the departments to complete and manage throughout the year. You need to leverage the department leads and provide monthly departmental variance reporting throughout the year.&nbsp; The focus on the details can lead to missing some of the grand vision of the company without proper guidance from the CEO and CFO.&nbsp; This method is typically reserved for maturing companies.
<h2>What is Top-Down Forecasting?</h2>
Top-down forecasting works the exact opposite way. It focuses on macroeconomics, which analyzes the big picture first and all the components that comprise it.&nbsp;
Companies that use the top-down forecasting method look at how overarching trends can affect their specific sector. They look at the available market size that's available, weigh it with market trends and then make predictions regarding how their business could perform in that market.
Top-down forecasts will then weigh the weaknesses and strengths of the business as they relate to the overall market.&nbsp;
<h2>Advantages vs. Disadvantages</h2>
Top-down forecasting is the simpler of the two methods. Because it's less granularly focused, businesses are able to forecast with fewer resources, instead using industry and market trends to create high-level assumptions.
It's a lot easier and faster to complete since you won't have multiple department leads analyzing every detail of the company's activities to complete the forecast.
A major disadvantage of top-down forecasting is that sales, inventory, and most relevant data points are averaged. This can make tracking the root of variances from projections difficult to assess. This method is typically reserved for earlier-stage companies lacking the resources to manage a bottom-up approach.
<h2>What is the Difference Between Top-Down and Bottom-Up Forecasting?</h2>
The major difference between top-down and bottom-up forecasting is the approach to forecasting. Top-down focuses on the big picture and doesn't worry as much about granular details such as departmental data. It instead focuses on a company's potential compared to the rest of the market and the opportunity in that market.
Bottom-up forecasting, by contrast, focuses much more on the granular data that's available from each department of a company.
<h2>What is the Best Way to Do Your Financial Forecast?</h2>
There's no one "right" way to conduct your financial forecast, since your specific business, specific industry, and specific product or service line will dictate what's best. That being said, using a hybrid approach of both top-down and bottom-up forecasting has proven to be successful for many businesses.
The top-down aspect would have the company project a sales forecast that's derived from the overarching sales data of the entire organization. It then incorporates bottom-up principles such as using departmental data to model the operating expenses. When weighing the two outcomes, the company can more accurately forecast what the actual sales numbers will be for the coming year.
This hybrid approach is especially great for any business that has a diversified product line, or a product line that has different variations, such as clothes with different sizes.
That being said, all companies can benefit from taking the best parts of top-down forecasting and combining it with the best parts of bottom-up forecasting.
For more information on forecasting, reach out to the Propeller team to see how we can help.
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Companies that conduct financial forecasts typically have two general models from which to choose: They can either opt for top-down or bottom-up forecasting.&nbsp;

Form 3921 - A Guide for the Incentive Stock Option form

Form 3921 is a standard IRS form that must be completed and filed by a company for each tax year during which an employee exercises an ISO. 

Startup companies often incentivize employees by offering stock options.

If these options adhere to a set of specific requirements, then these are known as Incentive Stock Options (ISOs). ISOs have significant tax benefits to employees and employers but also reporting requirements, such as form 3921.&nbsp;
<h2>First, find the right support</h2>
Before getting started, you’ll want to ensure you fully understand the 3921 form and decide how you plan on filing the form.
At Propeller, we provide <a href="https://propellerindustries.com/services/" rel="noopener" target="_blank">fractional finance and accounting services to venture-stage companies</a>, but we are not CPAs so we always recommend having a tax advisor for guidance on tax matters.&nbsp;
Doing the forms yourself may not be too tricky with the right online tool, but for specific tax-related questions, you’ll want to direct those to your tax professional. If you are working with Propeller, our team of accountants is knowledgeable about the online tools out there (such as <a href="http://www.tax1099.com/">Tax1099.com</a> and <a href="http://www.track1099.com/">Track1099.com</a>) and are able to prepare, file, and share form 3921 on your behalf.
<h2>How do I make sure that I have all of the information I need?</h2>
Options (exercised or not) are captured in a well-maintained cap table, so as part of your year-end clean-up, make sure your cap table reflects all activity: all raises of cash, conversions of notes to equity, warrants, RSUs, and of course, stock options.&nbsp;
Propeller does not maintain cap tables on behalf of their clients, but a number of softwares, such as <a href="https://www.carta.com/">Carta</a>, make it easy to self-manage.
Propeller’s knowledge of this software is a resource that many of our clients use when updating this software. But when in doubt, contact your attorney for advice!
<h2>What is Form 3921?</h2>
Form 3921 is a standard IRS form that must be completed and filed by a company for each tax year during which an employee exercises an ISO.
<h2>What is an ISO?</h2>
An ISO is an incentive stock option. It is an option to buy stock, subject to certain terms and conditions. These terms and conditions must be properly drafted in the contract offering the ISO, with one that stands out in particular: an ISO can only be offered to an employee of the company.
<h2> What is an NSO and how does it differ from an ISO?</h2>
An NSO (or NQSO or just “stock option”) is a non-qualified stock option. It is like an ISO, except that it does not adhere to the same terms and conditions that are required. As such, there are a few notable differences:
<ul>
<li aria-level="1">An NSO is available to anyone, not just employees.</li>
<li aria-level="1">An employee can only exercise ISOs up to a maximum value of $100k. If an employee exercises stock options with a value in excess of $100k, this amount will be treated as an NSO.</li>
<li aria-level="1">An NSO is NOT reported on a Form 3921 and does not carry many of the same tax benefits as an ISO. If there is any gain on exercise, this amount must be added to the person’s W-2 or on a 1099.&nbsp;&nbsp;&nbsp;</li>
</ul>
<h2>How could there be a gain on the exercise of an option? </h2>
If a person exercises a stock option at a price that is less than the fair market value of the stock, then the person has received something worth more than they paid for it. This difference is known as the “spread” and is considered a gain for tax purposes.
Think of it like this: an employee is offered to buy stock for $100, but the stock is worth $1,000. As such, by exercising the option, the employee has become enriched by $900 (the “spread” between the $100 and $1,000). If the spread is from an NSO, then the full amount of gain becomes taxable and should be added to the employee’s W-2, or, if the person is not an employee, on 1099.
However, if the spread is from an ISO, it’s possible that not all of this will be taxable to the employee (though it may be taxable for high-income (AMT) earners).
<h2>When is Form 3921 Due?</h2>
Form 3921 is due to the IRS electronically by March 31 in the year following the close of the tax year. This is the most important deadline for businesses to know.
However, there are two additional deadlines to consider. If a business is not filing electronically and plans to file on pre-printed IRS forms, then these must be completed and postmarked by February 28.
Furthermore, businesses are required to provide employees with a copy of their 3921 by January 31 (effectively accelerating the deadline to complete the form).
If any of these deadline days falls on a weekend or legal holiday, then it is extended to be the next business day.
<h2>How Do I File Form 3921?</h2>
Many businesses elect to use approved third-party software, such as Tax1099.com or Track1099.com. These softwares allow a business to file a range of information filings, such as 3921s, 1099s, or even W-2s.
However, some businesses choose to register and file with the IRS directly. If filing online for the first time, you’ll need to file Form 4419 electronically. Once complete, you will be assigned a Transmitter Control Code, or TCC, by the IRS. After you get the TCC, you'll be able to set up an account on the Filing Information Returns Electronically system with the IRS. This is also known as the FIRE system.
When you file Form 3921 by mail, you can fill it out yourself and send it in the mail. However, it must be printed on special paper that is supplied by the IRS. You can <a href="https://www.irs.gov/forms-pubs/order-products" style="color: #0563c1;">order the paper that the IRS uses for Form 3921</a> on their website.&nbsp;
<h2>What do I need to complete the form 3921?</h2>
When completing the form itself, you'll need to provide the legal name of your business, primary address, and FEIN. You’ll also need the employee's name, address, and social security number. In addition, you'll need to provide the following information about the ISOs that were exercised:
<ul>
<li aria-level="1">Date the option was granted</li>
<li aria-level="1">Date the option was exercised</li>
<li aria-level="1">The share price of the exercise</li>
<li aria-level="1">The per-share fair market value on the date of the exercise</li>
<li aria-level="1">The number of shares that were transferred</li>
</ul>
<h2>Failure to File Form 3921</h2>
Businesses may face significant financial penalties if they are late to file Form 3921 by the IRS due dates, and even greater penalties for failing to file at all.&nbsp;
Penalties for filing late are a minimum of $50 per form, ranging up to $290 for severely late forms or $580 for forms that are intentionally disregarded.&nbsp;
If all forms are filed within 30 days, the IRS caps the maximum penalty at $571,000 per year (or $199,500 for “small businesses”).
The most up-to-date penalty information can be found on the IRS website here: <a href="https://www.irs.gov/payments/information-return-penalties">https://www.irs.gov/payments/information-return-penalties</a>
Reach out to Propeller for more information on Form 3921 or any other of your accounting and finance needs.
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Startup companies often incentivize employees by offering stock options.

Headshot of Alyssa Adams + Tips for Successful Year End Planning part 6

Reforecasting to Stay on Track

Learn how to effectively communicate your annual plan to your board of directors. 


Towards the end of each year, you go through an annual planning process, carefully developing a set of goals and assumptions to guide your decision-making throughout the next year. 
<div class="hs-embed-wrapper" data-service="youtube" data-responsive="true" style="position: relative; overflow: hidden; width: 100%; height: auto; padding: 0px; max-width: 750px; max-height: 423.75px; min-width: 256px; display: block; margin: auto;"><div class="hs-embed-content-wrapper"><div style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;"><iframe width="200" height="113" src="https://www.youtube.com/embed/4l6rKbJ1vsU?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;"></iframe></div></div></div>
&nbsp;
<h2>When to Reforecast</h2>
While we don’t know what the next year will bring, we do know one thing: your plan will be wrong. Changes in the economic landscape or upsides or downsides to your business plan will materialize, and you may find yourself with a plan that is no longer relevant to your current business state.
This is where <a href="/budgeting_vs_forcasting" rel="noopener" target="_blank">reforecasting</a> comes in. A forecast is an update to your budget based on your year-to-date actuals and year-to-go projections, with adjustments made to the latter so you can better track your cash runway in real-time.&nbsp;
A detailed reforecast, one in which you are revisiting all of your budget assumptions, typically only is needed when a large change to the business or business environment occurs. A high-level reforecast, where you focus just on a few items such as headcount changes, revenue trends, and other highly material buckets, can be done more regularly and should be a fast exercise to help you understand where you are tracking towards your original budget.&nbsp;
Remember, your forecast serves as your company roadmap.&nbsp;Reforecasting throughout the year will keep you on track to achieve your financial goals.&nbsp;
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Towards the end of each year, you go through an annual planning process, carefully developing a set of goals and assumptions to guide your decision-making throughout the next year.

Headshot of Alyssa Adams + Tips for Successful Year End Planning Part 5

How To Discuss Your Year-End Plan With Your Board

Once you have your annual plan in place, it’s time to share it with your board. But what does this look like? How can you make this conversation productive and strategic and avoid getting lost in the weeds? 
<div class="hs-embed-wrapper" data-service="youtube" data-responsive="true" style="position: relative; overflow: hidden; width: 100%; height: auto; padding: 0px; max-width: 750px; max-height: 423.75px; min-width: 256px; display: block; margin: auto;"><div class="hs-embed-content-wrapper"><div style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;"><iframe width="200" height="113" src="https://www.youtube.com/embed/ZBPvQOylFVM?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;"></iframe></div></div></div>
&nbsp;
&nbsp;
<h2>What to Share With Your Board&nbsp;</h2>
Your objectives going into your year-end meeting with your board should be to align business goals for the upcoming year, highlight areas of strengths and improvements, and determine any financing needs and options you may have.&nbsp;
It’s important to review your 2022 base plan, your scenario analyses, and overall cash implications to your business.
Go into this meeting understanding that your board will want to know what is going on. They have limited knowledge of your day-to-day operations and any challenges you may face. Present your plan with concise data, using clear KPIs for easy performance progress.&nbsp;
Be sure to highlight what you want them to know. Use this time to provide information to them and gain valuable advice.
A former colleague, Ramya Varma coined the heuristic the "4C’s of Board- Readiness" which is a simple and effective framework we continue to leverage.
The 4C's include:
<ul>
<li>Context</li>
<li>Clarity</li>
<li>Consistency</li>
<li>Conciseness</li>
</ul>
<h2>How to Ensure a Successful Board Meeting</h2>
A good board meeting should tell a story about the what, where, why, and how of your business. Frame opportunities and challenges, but still provide potential solutions and ask for input.&nbsp;
A bad board meeting would leave the board feeling lost, full of questions, and provide little time for advice or action.&nbsp;
A helpful way to ensure you have a good meeting is to send out a pre-read for board members to digest on their own time, follow the four Cs of board readiness, and use your financials to tell a story. Also, make sure your financials are error-free. Nothing can derail a great strategic discussion like a glaring formula error.&nbsp;
Reach out today for more advice on year-end planning or any other finance and accounting needs.&nbsp;
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Once you have your annual plan in place, it’s time to share it with your board. But what does this look like? How can you make this conversation productive and strategic and avoid getting lost in the weeds?

Headshot of Alyssa Adams + Tips for Successful Year End Planning Part 4

The Importance Of Scenario Planning In Your Business

Learn how to use scenario planning as part of your year-end planning strategy to better anticipate potential problems and opportunities in your business and create a plan around how to respond. 


We manage uncertainty in the financial planning process through scenario planning. You can use scenario planning as part of your year-end planning strategy to better anticipate potential problems and opportunities in your business and create a plan around how to respond.&nbsp; 
<div class="hs-embed-wrapper" data-service="youtube" data-responsive="true" style="position: relative; overflow: hidden; width: 100%; height: auto; padding: 0px; max-width: 750px; max-height: 423.75px; min-width: 256px; display: block; margin: auto;"><div class="hs-embed-content-wrapper"><div style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;" data-mce-style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;"><iframe width="200" height="113" src="https://www.youtube.com/embed/KsEjP-SUN5U?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="allowfullscreen" style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;" xml="lang" data-mce-src="https://www.youtube.com/embed/KsEjP-SUN5U?feature=oembed" data-mce-style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;"></iframe></div></div></div>
<h2>Why Use Scenario Planning</h2>
The last few years have brought with it a lot of uncertainty, and 2022 is shaping up to be no different. As we go into next year, businesses are facing inflation risk, labor and talent shortages, and many other business-specific risks or opportunities. For consumer goods companies, 2022 also brings with it unprecedented supply chain issues that have led to high inbound freight expenses and inventory delays.
<h2>Plan A</h2>
You’ll want to begin with Plan A, which will be your base plan and your most likely scenario. This plan includes a balanced view of risks and opportunities. If you only created one plan, this would be it. But because you are a savvy financial planner, you aren’t going to create one plan. You are going to create at least three.
<h2>Plan B</h2>
Your second plan is a Plan B. This should be your worst case scenario. It can include things like rising costs, loss of distribution or key customer accounts, and labor shortages. What would you do if these issues arise? How would your business survive? Your goal here is to think about how you would aggressively cut expenses in order to support high costs and low revenue and leave your business with enough cash runway to survive the crisis.
<h2>Plan A+</h2>
Plan A+ on the other hand is your absolute best-case scenario. Costs are reasonable and you are growing at a rapid pace. But new issues arise, such as how to fund the growth, how to hire quick enough, and where to invest in key systems and processes to support a business in hyperspeed. While these sound like “good problems”, they are still in fact problems and planning for this now will allow you to think through solutions so your growth potential does not outpace your ability to deliver your products or services.
These plans and other scenarios will help better prepare you for any unforeseen changes in the business environment, giving you a better handle on what to do should the best, or worst, occur.
 
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We manage uncertainty in the financial planning process through scenario planning. You can use scenario planning as part of your year-end planning strategy to better anticipate potential problems and opportunities in your business and create a plan around how to respond.&nbsp;

Headshot of Alyssa Adams + Tips for Successful Year End Planning Part 3

How to Organize your Annual Planning Process

Learn how to organize your annual planning process to optimize success. 

The year-end annual planning process can be daunting for many venture-stage founders and CEOs. It's important to know how to organize your plan for a successful outcome.&nbsp; 
<div class="hs-embed-wrapper" data-service="youtube" data-responsive="true" style="position: relative; overflow: hidden; width: 100%; height: auto; padding: 0px; max-width: 750px; max-height: 423.75px; min-width: 256px; display: block; margin: auto;"><div class="hs-embed-content-wrapper"><div style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;"><iframe width="200" height="113" src="https://www.youtube.com/embed/HifK-QukdBc?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;"></iframe></div></div></div>
<h2>Getting Started</h2>
Before you even start diving into your numbers, you’ll want to begin planning by first outlining your strategic initiatives.&nbsp;What key hires do you need to make?&nbsp; Are you launching new products or entering new channels?&nbsp; What moats are you building to prevent others from copying your product or service in the future?&nbsp;
Answering the strategic questions before you begin is key because your financial plan will then give you insight into how much cash investment is needed vs. what you can afford to spend to meet your revenue goals.
<h2>What to Include&nbsp;</h2>
What you should include can vary depending on your growth stage and industry.
If you are a seed stage company or later, you’ll want to plan the following:
<ul>
<li>P&amp;L</li>
<li>Balance sheet</li>
<li>Statement of cash flows</li>
</ul>
Your P&amp;L is probably the most straightforward and should include:&nbsp;
<ul>
<li>Revenue</li>
<li>Cost of goods sold</li>
<li>Fixed and variable department expenses</li>
<li>Personnel costs</li>
</ul>
Your balance sheet, however, may be less intuitive to plan. A good finance partner like <a href="https://propellerindustries.com/" rel="noopener" target="_blank">Propeller</a> can help you with this. Whether you are working with a CFO or you are planning it yourself, pay close attention to your working capital.&nbsp;&nbsp;
For a consumer goods company, this will include your accounts receivable, accounts payable, and inventory and could account for almost half of the cash usage of your business. These areas often get overlooked and are critical to understanding your cash runway.&nbsp;&nbsp;&nbsp;
If you are a SAAS company, you may need to not worry about inventory, but you’ll want to think carefully about your deferred revenue and A/R Days when planning your balance sheet.
Regardless of your industry, you’ll want to plan your balance sheet first without any additional debt or funding so you have a good view into what your cash needs are and can start planning a financing strategy.
This is where your operating cash flow comes in, which is simply an output of the planning that you did on your P&amp;L and Balance Sheet. It helps explain the difference in your net income for the period and your change in cash by adding back in non-cash items like depreciation and subtracting out your change in working capital.&nbsp;&nbsp;
If that sentence just sent you back to your college days of stressfully studying for your accounting exams, reach out to us. We are happy to help with this and all of your planning needs.
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The year-end annual planning process can be daunting for many venture-stage founders and CEOs. It's important to know how to organize your plan for a successful outcome.&nbsp;

Headshot of Alyssa Adams and Tips for Year-End Planning Part 2

The Importance Of Tracking Your Actuals

It’s essential to look back in order to plan ahead. Learn the importance of tracking your actuals and the mistakes to avoid. 

It's important to look back in order to plan ahead. Do you know how your actuals are being tracked? Is your information up to date and complete? Can you tell how your business is performing by looking at your books? These are critical questions to ask before you start your year-end planning.
<div class="hs-embed-wrapper" data-service="youtube" data-responsive="true" style="position: relative; overflow: hidden; width: 100%; height: auto; padding: 0px; max-width: 750px; max-height: 423.75px; min-width: 256px; display: block; margin: auto;"><div class="hs-embed-content-wrapper"><div style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;" data-mce-style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;"><iframe style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" xml="lang" src="https://www.youtube.com/embed/P9kD5IjA3a8?feature=oembed" width="200" height="113" frameborder="0" allowfullscreen="allowfullscreen" data-mce-src="https://www.youtube.com/embed/P9kD5IjA3a8?feature=oembed" data-mce-style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;"></iframe></div></div></div>
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Using Your Actuals as Part of the Planning Process
Using your actuals in the planning process allows you to view your progress over time and can help you inform where you are going. Clean actuals will give you a good understanding of your gross margin and contribution margin and will allow you to understand how much room you have to invest in fixed expenses such as headcount.
<h2>Avoid an Unorganized Chart of Accounts&nbsp;</h2>
One mistake we often see in new clients to Propeller is an unorganized chart of accounts. Many people do not realize that Quickbooks actually allows you to customize your chart of accounts to be more meaningful to your business or industry. A good chart of accounts is organized by departments such as Operations, Sales, Marketing, and G&amp;A, with sub-accounts under each. Your sub-accounts should capture enough detail that it provides a view into the cost drivers of each department, without losing the forest through the trees. Travel Expenses is a great sub-account. Travel by each individual in your company is too much detail.&nbsp; &nbsp; &nbsp; &nbsp;
A clean chart of accounts in combination with accrual-based financials and complete and accurate information will help you determine what may be affecting your profit and highlight changes that need to be made for the future. It can also be used as the basis for your year-end planning. By planning in the same way your actuals are organized you can easily track progress against your plan as the year goes on.
Reach out to Propeller for more insight on year-end planning or to discuss any of your finance and accounting needs.
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&nbsp;

It's important to look back in order to plan ahead. Do you know how your actuals are being tracked? Is your information up to date and complete? Can you tell how your business is performing by looking at your books? These are critical questions to ask before you start your year-end planning.

How to Determine What to Include in Your Plan

As a venture-stage entrepreneur, you know financial planning serves as the roadmap to achieve your business's goals. But what should you include as part of your budgeting process and does it change based on the size of your company? 

Your year-end planning process may look different depending on the stage of your company. Follow these tips to determine what you should include.&nbsp;

<div class="hs-embed-wrapper" data-service="youtube" data-responsive="true" style="position: relative; overflow: hidden; width: 100%; height: auto; padding: 0px; max-width: 750px; max-height: 424.5px; min-width: 256px; display: block; margin: auto;"><div class="hs-embed-content-wrapper"><div style="position: relative; overflow: hidden; max-width: 100%; padding-bottom: 56.5%; margin: 0px;"><iframe width="200" height="113" src="https://www.youtube.com/embed/pG7T4waHVdY?feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" style="position: absolute; top: 0px; left: 0px; width: 100%; height: 100%; border: none;"></iframe></div></div></div>
<h2>Pre-Seed Stage&nbsp;</h2>
If you are in the pre-seed stage or just getting started, you likely will not have a lot of history to inform your plan. So planning at this stage will be based on a combination of benchmarks and company goals. You will also likely be planning at a higher level. However, at a minimum, you should plan your revenue, gross margin or unit economics, and your profit &amp; loss report, which will likely be cash-based and focused on cash inflows and outflows of your business. Taken together, this will inform your cash runaway, which is when your business will run out of money and you’ll need to seek new financing options. 
<h2>Seed Stage or Later&nbsp;</h2>
If you are in the seed or later stages, your budget should be based on actual results. This requires a deeper dive into your numbers, including revenue drivers and metrics specific to your industry. For example, a DTC company may consider ad spend and customer acquisition costs when projecting their revenue. At this point, you’ll want accrual-based financials and will plan not just your P&amp;L but your balance sheet and cash flow statement.
<h2>Your Roadmap for Success</h2>
Remember, your <a href="/budgeting_vs_forcasting" rel="noopener" target="_blank">budget or forecast </a>serves as the roadmap to your business’s financial goals. Planning should be done annually, and reforecasting can be done biannually, quarterly, or even monthly depending on your business progress, needs, and goals. Reach out to Propeller for more insight on year-end planning or to discuss any of your finance and accounting needs.
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Your year-end planning process may look different depending on the stage of your company. Follow these tips to determine what you should include.&nbsp;

Freight shipping carrier and shipping containers. Truck on the highway. 

Tips for Small Business to Navigate the Global Supply Chain Crisis

Many small businesses are having to rethink their strategies for integrating and managing the supply chain. 

Supply chain interruption is not uncommon. Natural disasters, human errors, political unrest, and climate change have always impacted procurement throughout history.&nbsp;
Typically, these issues have been localized and easier to fix. The COVID-19 pandemic, however, has forced companies to face a new challenge: disruption on a global scale.&nbsp;

This crisis is causing many small businesses to rethink their strategies for integrating and managing the supply chain. Companies are looking for ways to save money on both products and shipping and improve the efficiency of the process.
Understanding the why behind these challenges and planning for the future is key to mitigating the risks for future supply chain issues.
<h2>Impact On Supply Chain</h2>
While many small businesses have emerged from the continuing pandemic into a very different world, the disruption to supply chains continues to be severe. As economies restart, with <a href="https://www.izba.co/4-ways-the-us-government-could-help-the-supply-chain-woes/">government help</a>, the supply chain will be critical to quickly, safely, and securely supply goods and services.
The repurposed and reshaped supply chains of the future will need to be characterized by resilience and responsibility. These will help communities manage the short-term crisis and enable businesses to build around their customers, and help economies rebound.
<h2>Responding to Supply Chain Challenges</h2>
With the COVID-19 crisis, fundamental changes in consumer behavior, <a href="https://secondmarathon.com/sm-blog/q4-2021">supply chains</a>, and routes to market are knocking companies off balance. Moreover, responding to the pandemic has underscored the need for leaders to accelerate the adoption of agile ways of working and value chain transformation to help outmaneuver uncertainty.
<h3 style="padding-left: 40px;">The Challenge of Rising Costs</h3>
Supply chain and operations are becoming more costly and can often represent a company’s highest costs. As a result, inflation is real, and many companies (large and small) have raised prices.&nbsp;&nbsp;
Luckily, consumers aren’t surprised by these changes, and conversions have stayed relatively stable despite price increases. Nearly 50% of my clients either have raised prices or plan to shortly (average 5-10% increase, focus on those products with lower margin). It’s easier to implement a price increase when it’s happening across the globe.
In the consumer product goods world, wholesale price increases influence retail price points, which require more lead time. So it’s important to plan now for Q1 2022 price increases.
Another way to make up for the costs of supply chain challenges is to start charging for shipping or increase the threshold for free shipping, especially for low AOV products. These costs will continue to rear their ugly heads for quite some time, so implementing a strategy to help prevent being in the red is vital.&nbsp;
<h3 style="padding-left: 40px;">The Challenge of Inventory Management</h3>
Inventory management can be a significant factor in how efficient and cost-effective your supply chain is. If possible, make sure that all inventory levels are easily tracked using barcodes or similar technology to identify items. This will help you manage different product lines and understand how much inventory is coming in from your suppliers. By keeping track of inventory levels, you can determine which products and materials should be outsourced and which items could potentially need a price reduction.
Using a digital platform to manage your inventory is vital to succeeding in the future. <a href="https://www.mckinsey.com/business-functions/operations/our-insights/digital-supply-chain-transformation-with-a-human-face">Digitizing</a> supply-chain management improves the speed, accuracy, and flexibility of supply-risk management. By building and reinforcing a single source of truth, a digitized supply chain strengthens capabilities in anticipating risk, achieving greater visibility and coordination across the supply chain, and managing issues that arise from growing product complexity.&nbsp;
A major challenge in today’s inventory management strategy is the current historic lead times of deliveries which are <a href="https://www.supplychaindive.com/news/lead-time-record-highs-ism-supplier-labor-congestion/602923/">predicted to continue</a>. From port traffic and transportation bottlenecks to <a href="https://www.cnbc.com/2021/11/19/jpmorgan-on-semiconductor-shortage-and-outlook-for-2022-2023.html">material shortages</a> to struggles to replace the upended workforce, having a solid knowledge of your inventory is vital for business continuity.
<h3 style="padding-left: 40px;">The Challenge of Working With Third Parties</h3>
When working with third parties, make sure that they understand your company’s needs upfront. Both sides of the supply chain process need to communicate about what each side is doing and how they can help one another. By working together, you can reduce both time and costs.
When outsourcing the manufacturing or production process to a third party supplier, make sure that this supplier has certain qualities:&nbsp;
<ul>
<li>Good quality control procedures (e.g., ISO certifications)&nbsp;</li>
</ul>
 
<ul>
<li aria-level="1">
Skilled employees with qualifying certifications&nbsp;
</li>
<li aria-level="1">
Experience in the industry and with similar products or services you are outsourcing for&nbsp;
</li>
</ul>
<ul>
<li aria-level="1">
An effective quality assurance process (e.g., ISO/IEC17025) that continuously works to improve their product or service according to your company’s needs
</li>
</ul>
When using a third-party supplier, be sure they order enough materials at one time to avoid running out of supplies. Even if it means spending more money upfront to buy things in bulk, this will save you money and time in the long run. If cash is short, you can finance inventory through cash flow management platforms <a href="https://www.settle.com/">Settle</a> or <a href="https://upsidefinancing.com/">Upside Financing</a>.
<h2>Strategic Guidance</h2>
As the crisis takes its course, constrained supply chains, slow sales, and reduced margins will combine to add even more pressure on earnings and liquidity. Companies will need all available internal forecasting capabilities to stress test their capital requirements weekly and monthly.
Relevant data is key to making good decisions when a supply chain breaks down. In times of crisis, manual data management is neither fast nor flexible. So how do businesses obtain this data?
By using a strategy backed by decades of professional experience. That’s where <a href="https://propellerindustries.com/">Propeller</a> comes in. We help brands navigate this challenging time with teams and technology to help.&nbsp;
If your company needs assistance with inventory management systems, our <a href="https://propellerindustries.com/services/">SysOps</a> team can support you. The SysOps team brings deep knowledge of the Inventory Management Systems (IMS) space to help you evaluate, select, and implement the optimal system for your business’s needs. We collaborate with your operations and accounting teams to ensure the IMS is properly maintained to provide valuable insights that support data-driven decisions.
<h2>Wrapping Up</h2>
Above all else, coordination, cooperation, and communication are critical to avoid supply chain disruptions. Effective management of your supply chain provides several opportunities for your company to improve your profit margins and retain customers, but coordination and cooperation with all contributors to your supply chain are critical.&nbsp;
When your supply chain is operating undisrupted, it’s easy to take it for granted. However, in times of trouble, having a good long-term plan in place (or creating a strong crisis management strategy in the moment) is essential. Know this: your suppliers are ready (and in many cases eager) for change with you—this is a margin-increasing opportunity for them, too.
Supply disruptions are inevitable, but by planning your response carefully, evaluating potential supply chain risks, and diversifying your suppliers, you can help prepare for even the most unprecedented of circumstances.
&nbsp;

Supply chain interruption is not uncommon. Natural disasters, human errors, political unrest, and climate change have always impacted procurement throughout history.&nbsp;
Typically, these issues have been localized and easier to fix. The COVID-19 pandemic, however, has forced companies to face a new challenge: disruption on a global scale.&nbsp;

Giving Back: The Power of Supporting our Communities

Giving back is good for your bottom line. See how Propeller is supporting the community and charitable causes near to our hearts. 

As an outsourced finance and accounting firm, it’s easy to think in terms of the bottom line. Financial numbers are the drumbeat of our daily work. They are the measure of success for ourselves and our clients.

But at Propeller, we believe in the double bottom line. We measure our fiscal performance in terms of profit or loss and our positive social impact. As our firm grew, we created a Social Impact Committee as a platform for our entire organization to be inspired and contribute to the communities we serve. In the same way we're inspired by the potential of emerging companies and helping entrepreneurs to build their companies, we are also inspired by our communities and committed to helping them achieve their full potential.
<img src="https://f.hubspotusercontent10.net/hubfs/5737819/Beige%20and%20Black%20Bold%20and%20Bright%20%20Photo%20Collage%20(1).png" alt="Beige and Black Bold and Bright Photo Collage (1)" width="380" loading="lazy" style="width: 380px; float: right; margin: 0px 25px 20px;">
Our Social Impact Committee meets quarterly. Regular committee members organize opportunities for Propellerheads (what we call our internal team members) to participate in activities and initiatives that empower communities in which we work. The committee also serves as a vehicle to amplify support for causes near and dear to our hearts.
<div>
In the past year, the committee has organized community clean-ups, presented a “Career in Finance” workshop for San Francisco Bay Area Non-Profit <a href="https://www.children-rising.org/" rel="noopener" target="_blank">Children Rising</a>, conducted a <a href="https://www.toysfortots.org/" rel="noopener" target="_blank">Toys for Tots</a> drive, organized a letter-writing campaign for homebound elderly, and more.
&nbsp;
<h2 style="font-size: 20px;">Season of Giving&nbsp;</h2>
The end of the year is always busy, but as the holidays approach, it’s also a wonderful time to give back. Propeller recently announced the Season of Giving campaign, a matching gifts program. A collaboration between our Diversity, Equity, and Inclusion Committee, People of Color Employee Resource Group, and the Social Impact Committee, Propeller will support eight 501(c)3 nonprofits furthering diversity and equity. Between November 1st and December 15th, we will match donations up to $200 per employee.
Propeller has chosen the following organizations to support this year:
<ul>
<li aria-level="1"><a href="https://www.thetrevorproject.org/" rel="noopener" target="_blank">The Trevor Project</a></li>
<li aria-level="1"><a href="https://www.blackgirlventures.org/" rel="noopener" target="_blank">Black Girl Ventures</a></li>
<li aria-level="1"><a href="https://www.naacpldf.org/" rel="noopener" target="_blank">NAACP Legal Defense and Education Fund</a></li>
<li aria-level="1"><a href="https://www.advancingjustice-alc.org/" rel="noopener" target="_blank">Asian Law Caucus</a></li>
<li aria-level="1"><a href="https://eji.org/" rel="noopener" target="_blank">Equal Justice Initiative</a></li>
<li aria-level="1"><a href="https://www.adl.org/" rel="noopener" target="_blank">Anti-defamation League</a></li>
<li aria-level="1"><a href="https://www.splcenter.org/" rel="noopener" target="_blank">Southern Poverty Law Center</a></li>
<li aria-level="1"><a href="https://girlsinc.org/" rel="noopener" target="_blank">Girls Inc.</a></li>
</ul>
We encourage you to consider making a gift to these organizations if you can.
<h2 style="font-size: 20px;">Finding Joy in the Journey - Tiffany Shade and the Joy Martz Foundation</h2>
We are incredibly proud of the work individual team members have done in their communities. Tiffany Shade, Operations Manager, has a personal connection to people diagnosed on the autism spectrum. In 2019, a dear friend unexpectedly lost her younger sister, Joy Martz.<img src="https://f.hubspotusercontent10.net/hubfs/5737819/Greeting%20Photo%20Birthday%20Instagram%20Post%20(1).png" alt="Greeting Photo Birthday Instagram Post (1)" width="256" loading="lazy" style="width: 256px; float: left; margin: 20px 25px 20px 11px;">
“Joy lived just like her name suggests - she brought light and sparkle everywhere she went. Joy was remarkable because she lifted others even though she herself had special needs,” Tiffany shared. “Joy was on the autism spectrum and was non-verbal her whole life. Instead, she communicated with her eyes, her smile, her hugs, her fondness of tiaras and all things sparkly, and her total acceptance of others.”
Over 54 million American men, women, and children have a physical, sensory, or intellectual disability. Tragically, people diagnosed with an autism spectrum disorder die at an average age of just 36.
To honor Joy and to bring awareness to the unique needs of people on the autism spectrum, Tiffany and Joy’s Sister Jill Yisrael co-founded the <a href="https://www.joymartzmemorial.com/" rel="noopener" target="_blank">Joy Martz Foundation</a>. “Our mission is to promote access and opportunity for individuals with special needs, encourage and support the families and caregivers of the special needs community, and celebrate the life of Joy.”
On November 7th, the Joy Martz Foundation held the annual Tiara Trot for Joy. While the foundation focuses on education, awareness, and remembering Joy, they raised over $10,000. They donate all proceeds from the Tiara Trot for Joy to <a href="http://www.eostrc.com/" rel="noopener" target="_blank">Eos Therapeutic Riding Center</a>, a therapeutic horseback-riding non-profit in Bloomsburg, PA, where Joy enjoyed riding.
<blockquote>
“I'm proud of the work we've done in the past two years, and I'm proud to be a voice for those without one. Our motto of 'Finding Joy in the Journey'&nbsp;has permeated into all facets of my life, and I'm glad to share it with others.” Tiffany told us.&nbsp;
</blockquote>
At Propeller, one of our four core values is “we do the right thing” - for our employees, for our clients, and for our communities. We’re always looking for like-minded people to join the team so if you also believe in the double bottom line, check out our<a href="https://propellerindustries.com/careers/" rel="noopener" target="_blank"> open roles</a> to learn more.&nbsp;
</div>

As an outsourced finance and accounting firm, it’s easy to think in terms of the bottom line. Financial numbers are the drumbeat of our daily work. They are the measure of success for ourselves and our clients.

Case Study: Cora's growth skyrocketed with new financial model

When your business begins to take off, it's more important than ever to understand your cost of goods sold, manage inventory, and determine your deferred revenue. We show you exactly how did that for Cora to support their growth.

As business took off for the women’s personal care company <a href="https://cora.life/" rel="noopener">Cora,</a> leadership needed to update their financial models to keep pace with inventory management, determine COGS, and execute deferred revenue schedules

<img src="https://f.hubspotusercontent10.net/hubfs/5737819/About%20CORA-png.png" loading="lazy" style="margin: 20px auto; display: block; width: 931px;" width="931">
Morgen Newman and Molly Hayward founded Cora to modernize period management with natural, healthy products. By 2016 the product had caught on and they were experiencing significant growth. Like many entrepreneurs, Morgen and Molly were moving quickly and doing as much internally as possible.&nbsp; However, as CEO, Morgen realized he was stretching himself too thin. There were areas of the business that needed better expertise and attention than he was able to provide.
Morgen had developed finance and accounting systems and models that had served Cora well. But over time they outgrew some of the company’s accounting and inventory systems. Morgen and the Cora team found it increasingly difficult to understand inventory, maintain account accuracy, pinpoint COGS, and ultimately create deferred revenue schedules. He found himself in a bind and needed a finance and accounting team with specific experience with consumer packaged goods. However, it was too soon to bring that team in-house. Enter Propeller.
<blockquote>
“I knew it would be premature to hire or build an internal finance or accounting team, but I also knew that it wasn't going to serve us best to do it entirely myself,” Morgen said. “I wanted a partner who could flex and scale with us, and who understood the complexities of physical goods.”
</blockquote>
<h2 style="font-size: 20px;">The right team&nbsp;</h2>
Propeller came highly recommended to Morgen, and he was confident Propeller had the chops and CPG experience he was looking for. At the outset, Propeller provided a team with the right skills and expertise to focus specifically on key areas to improve finance and accounting, as well as scale with Cora as they grew. Partner and CFO <a href="https://www.propellerindustries.com/team/jeff-gustafson/" rel="noopener">Jeff Gustafson </a>and Senior Director of Finance <a href="https://www.propellerindustries.com/team/katarina-abri/" rel="noopener">Katarina Abri </a>assembled a team that brought a wealth of experience in the health and beauty sector. As Cora grew and revenue increased, Propeller scaled with them, providing more advisory services including fundraising support.&nbsp;
<blockquote>
“Because Propeller has operators who understand the fundamental elements for the category and business we're in, it means that they're a lot closer to being like internal team members. That’s why we’ve stayed with Propeller over a long period of time,” Morgen told us.
</blockquote>
<h1 style="font-size: 20px; font-weight: bold;">How Propeller took action</h1>
<ul>
<li style="text-align: left;">Created a new financial model and streamlined accounting processes</li>
<li style="text-align: left;">Transitioned and migrated new accounting and inventory software systems
<ul>
<li><a href="https://www.xero.com/us/">Xero</a> &gt;&gt;&gt; <a href="https://quickbooks.intuit.com/">QBO</a>&nbsp;</li>
<li><a href="https://www.skubana.com/">Dear Systems &gt;&gt;&gt; Skubana</a>&nbsp; &gt;&gt;&gt; <a href="https://www.stitchlabs.com/">StitchLabs </a>&gt;&gt;&gt;&nbsp; <a href="https://www.fulfil.io/">Fulfil.io</a></li>
</ul>
</li>
<li style="text-align: left;">Adjusted inputs and reconciliation of the direct to consumer (DTC) business model</li>
<li style="text-align: left;">Developed a detailed retailer revenue and COGS forecast&nbsp;</li>
<li style="text-align: left;">Analyzed marketing KPIs and metrics and uncovered performance inefficiencies</li>
<li style="text-align: left;">Educated ops team on internal improvements and advised on visionary decisions</li>
<li style="text-align: left;">Transaction Advisory team provided comprehensive diligence process and created data rooms for capital raises</li>
<li style="text-align: left;">Identified the need for a full-time in-house finance role and collaborated with Cora to integrate with existing systems and processes </li>
</ul>
{{cta('b41b048f-1f2c-46d0-a8e1-7eff8f439249','justifycenter')}}The positive results
<ul>
<li aria-level="1">An improved inventory reconciliation and management process resulted in more cohesive inventory purchasing.</li>
<li aria-level="1">Better Accounting processes established efficiencies, which improved gross margin trending and identified cost savings opportunities.</li>
<li aria-level="1">New financial model addressed their chief challenges around inventory, managing accounts, COGS, and deferred revenue schedules</li>
<li aria-level="1">With finance and accounting solidified, the CEO could focus on areas of the business he could impact most, resulting in accelerated growth.</li>
<li aria-level="1">The QuickBooks Online migration expanded reporting abilities on a multiclass level and provided a more organized chart of accounts and an understanding of the overall trending of margins spent.</li>
<li aria-level="1">During the successful raises in 2018 &amp; 2019, due diligence revealed missing data and KPIs that were key to understanding their business and made a positive impact on the day-to-day operations.</li>
<li aria-level="1">Business growth skyrocketed due to new systems and processes.</li>
</ul>
 <hr><img src="https://f.hubspotusercontent10.net/hubfs/5737819/Success%20By%20the%20Numbers.png" alt="Success By the Numbers" width="1012" loading="lazy" style="width: 1012px;"> <hr>
<h2 style="font-size: 20px;">&nbsp;</h2>
<h2 style="font-size: 20px;">Continued Growth</h2>
With better systems, processes, and models in place, Cora continues to experience rapid growth, and Propeller has been able to scale and flex to meet the evolving needs of the business. Over time, their internal finance team has successfully taken much of the finance and accounting in-house but still relies on Propeller as a trusted advisor.
<blockquote>
“Had we not chosen Propeller, I think we would have ended up with a small, independent consultant that would have strung things together. We would have been left with a mess for someone else to come clean up a year later,” Morgen explained.
</blockquote>
Are you a growing CPG brand that needs a more sophisticated Financial Model to support your growth?&nbsp;
&nbsp;
{{cta('beb4c96b-44a4-493d-abcd-14744e33b1ce')}}
&nbsp;

As business took off for the women’s personal care company <a href="https://cora.life/" rel="noopener">Cora,</a> leadership needed to update their financial models to keep pace with inventory management, determine COGS, and execute deferred revenue schedules

Case Study: Financial Planning and Analysis Groundwork Paves Way For Securly’s Scale and Acquisition

Having your financials in order are important to scaling and also getting acquired. See how we were able to help Securly scale through financial planning and eventually having them acquired. 

Propeller’s legacy engagement with <a href="https://www.securly.com/" rel="noopener" target="_blank">Securly </a>and deep experience with the company’s financials set their new finance leader on firm footing to manage challenges, fundraising, and eventual acquisition.

<img src="https://f.hubspotusercontent10.net/hubfs/5737819/About%20Securly.png" alt="About Securly" width="931" loading="lazy" style="margin: 20px auto; display: block; width: 931px;">
&nbsp;
For many startups, scaling from $15M to $25M and preparing for an acquisition can be a formidable challenge. Propeller first engaged with education technology startup Securly in 2017 and implemented robust Financial Planning &amp; Analysis (FP&amp;A). Senior Finance VP Scott Cohn joined in 2019 eager to guide the company to the next phase. Propeller helped him quickly onboard, and he was extremely impressed with the financial models, KPI tracking, and reporting that was already in place.&nbsp;
<blockquote>
“Propeller had been with Securly for about two years when I joined so the deep knowledge on how the business operated created a fantastic onboarding experience for me.” Scott said.&nbsp;
</blockquote>
<h2 style="font-size: 20px;">Guidance through a difficult transition period</h2>
In early 2020, Securly faced a short-term cash-flow crunch due to distressed market conditions caused by the global pandemic and disrupted sales due to restructuring its strategic sales team. That’s when Propeller stepped up and supported Scott and his team through a difficult transition period.
<ul>
<li>Upon initial engagement in early 2017, Propeller created best-of-breed accounting and finance systems and processes&nbsp;</li>
<li>Created a new model to account for seasonality of sales, complex payment terms, and factoring</li>
<li>Developed sophisticated metrics and dashboards to highlight KPIs&nbsp;</li>
<li>In fall 2019 expedited new SVP of Finance onboarding process</li>
<li>Addressed multi-entity accounting through migration from QuickBooks to Netsuite</li>
<li>Provided active solutions for navigating a cash flow crunch due to school closures and low Q1 sales as a result of a revamped sales team.</li>
<li>Acted as a trusted advisor and supported all fundraising efforts and eventual acquisition</li>
</ul>
 
<h2 style="font-size: 20px;">The positive results</h2>
With Propeller taking the lead on the Netsuite integration and addressing the cash flow crunch, Scott was able to focus his time and energy on fundraising and eventual acquisition.&nbsp;
<blockquote>
“Knowing that I had trusted experts in our corner was instrumental in allowing me to direct my attention to raising a series B preferred that we closed in January of 2020.” Scott told us.
</blockquote>
Propeller’s support had a positive effect across the business.&nbsp;
<ul>
<li aria-level="1">Better insight into seasonality of the business and expected revenue volume by month and quarter</li>
<li aria-level="1">Reviewing, analyzing, and consulting on KPIs helped leadership track gross and net retention rates, LTV and CAC, operating payback periods, and more</li>
<li aria-level="1">By taking the lead on the Netsuite implementation project, Sr. VP of Finance was freed up and able to focus on successful Series B fundraising in Q1 2020</li>
<li aria-level="1">Provided key insights into working capital and burn rate to help navigate a tricky cash-flow crunch</li>
<li aria-level="1">With Propeller's guidance, expertise, and data, Securly completed a successful multi-million dollar sale</li>
</ul>
 <hr style="padding-left: 40px;"> <img src="https://f.hubspotusercontent10.net/hubfs/5737819/Success%20By%20the%20Numbers%20(1).png" alt="Success By the Numbers (1)" width="806" loading="lazy" style="width: 806px; margin-left: auto; margin-right: auto; display: block;"><hr>
<h2 style="font-size: 24px;">{{cta('b41b048f-1f2c-46d0-a8e1-7eff8f439249','justifycenter')}}</h2>
<h2 style="font-size: 24px;">A Successful exit&nbsp;</h2>
Propeller’s foundational FP&amp;A groundwork helped Securly quickly rebound from significant internal and external challenges. With momentum on their side, Propeller’s Transaction Advisory team positioned Securly to be acquired far ahead of schedule.
<blockquote>
 “Not only do they provide outstanding technical expertise and transaction-level work to supplement our finance and accounting needs, but they are a trusted strategic thought partner who played an instrumental role throughout our M&amp;A process and exit to Golden Gate Capital.” Scott concludes.
</blockquote>
Are you a growing SaaS company that needs a more sophisticated Financial Model to support your growth?
&nbsp;
{{cta('beb4c96b-44a4-493d-abcd-14744e33b1ce')}}
&nbsp;

Propeller’s legacy engagement with <a href="https://www.securly.com/" rel="noopener" target="_blank">Securly </a>and deep experience with the company’s financials set their new finance leader on firm footing to manage challenges, fundraising, and eventual acquisition.

Budgeting vs. Forecasting: What's the difference, How are they used, and why are they important?

If you are a CEO or an entrepreneur, it is important to understand how budgeting and forecasting differ so that you can make more informed business decisions. Here’s what you need to know.


How do you turn a good idea into a great business? While success depends on many factors, ultimately it comes down to a company’s financial health. Budgeting and forecasting are two critical tools for guiding your business. But what’s the difference between the two, how are they used, and why are they important? 
These are common questions for many venture-stage CEOs and founders so let’s break it down.
<h2>What is a budget?</h2>
A budget represents a company’s financial plan for the year. It's a roadmap of what leadership aims to accomplish that details P&amp;L, balance sheet, and cash flow projections. A well-planned budget helps leadership operate within their means, adjust to unforeseen challenges, and increase profitability and revenue. When building a budget, you will want to analyze past trends and market behavior while taking into account anticipated changes to business and company goals. The budgeting process typically occurs at the end of Q4 or very early in Q1 and for equity-backed startups, budgets typically get approved by their BOD (board of directors).
<h2 style="font-size: 20px;">What is a forecast?</h2>
<a href="https://corporatefinanceinstitute.com/resources/knowledge/finance/forecasting/">The Corporate Finance Institute</a> (CFI) defines forecasting as “Predicting what will happen in the future by taking into consideration the events from the past and present.” For venture-stage startups, forecasting and reforecasting is the process of evaluating your budget assumptions and making necessary changes based on actual internal performance year-to-date (YTD) and external factors that were not previously accounted for. CFI explains, “It is a planning tool that enables businesses to chart their next moves and create budgets that will hopefully cover whatever uncertainties may occur.”
The timing and frequency of forecasting and reforecasting will vary depending on several factors, including how your business is funded, whether there are external reporting requirements from 3rd parties (board/investors, banks, or other lenders) and if there are significant shifts in the business climate.
<h2 style="font-size: 20px;">How to develop a budget&nbsp;</h2>
Developing an accurate budget is the first step in effectively managing your finances. When working with my clients, we consider the following factors:&nbsp;&nbsp;
<blockquote>
<ul>
<li>
<div>Actuals from the prior year(s) - Past performance is a strong indicator of future performance. The numbers, grounded in reality, are an excellent stepping-off point. Do you have plans to change your business model? &nbsp;If not, your prior year's financial results and KPIs (key performance indicators) will help you establish a realistic growth goal to budget for. Start by looking at your year-over-year (YOY) revenue growth rate and seasonality from prior periods, and depending on your long-term goals (e.g. exit or acquisition), determine your realistic yet healthy growth rate for the upcoming period.&nbsp;&nbsp;</div>
<div>&nbsp;</div>
</li>
<li>
<div>Market trends - Business and industry trends are important indicators and impact growth expectations and goals, especially for e-commerce and the health and beauty industries. Seasonality can significantly affect sales volume around Valentine’s Day, Mothers Day, and the Q4 holidays. Having a deep understanding of the industry you're in or working with a financial partner who does, gives you a major advantage when it comes to identifying and predicting trends and building them into the budget.</div>
 </li>
<li>
<div>Changes to the business operations - It’s important to assess anticipated changes to the business operation. For example, if a company is thinking about switching suppliers with more favorable terms, this may positively affect your margin as well as cash runway.&nbsp;</div>
 </li>
<li>
<div>Changes to the business model - A founder may learn that despite having a great business idea, the business model as it was initially set up needs to change which inevitably affects the financial projections. Once again, those factors could be internal or external. Many companies were forced to shift or altogether alter their business model in 2020 due to the global pandemic that wreaked havoc on businesses and supply chains worldwide.&nbsp; </div>
</li>
<li>
<div>Cash runway - Simple as it may be, cash is the lifeblood of any functioning business and drives a significant part of planning. The amount of liquid cash available determines how much and what type of expenditures a company can afford. For example, if a company has just raised Series A or Series B funding and is focused on significant growth in the current period, they most likely want to invest that money into people, technology, and marketing to increase revenue by 2x or 3x. That's going to inform the budgeting process differently than if the company’s cash runway is minimal: the company needs to be more conservative and we would work to create a budget that extends the cash runway as much as possible while showing some growth with minimal investment. </div>
</li>
<li>
<div>Long-term goals - Understanding a company’s mid-term and long-term goals is critical in the budgeting process. Creating a budget for a company aiming for continued steady growth will be different from a business whose goal is to exit in two years and needs to reach competitive market revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) thresholds.</div>
</li>
</ul>
</blockquote>
<h2 style="font-size: 20px;">When to reforecast</h2>
Even the best-laid plans don’t always go as expected. Many times founders (or their boards) set aggressive revenue goals in the budget, and as the year progresses, certain factors come into play that requires a more conservative reforecast.&nbsp;
The frequency with which a company reforecasts is driven by internal need and what is an add-on value and a cost of a reforecasting. The primary goal is to understand and adjust to the perpetual external and internal changes to the market. 
<blockquote>
As a general rule of thumb, before the pandemic, I would re-forecast at least twice a year. Given the turbulence and uncertainty of the past year, I recommend my clients re-forecast quarterly, at a minimum. Some clients reforecast monthly to truly understand their cash runway. These companies are typically self-financed, and it helps them determine whether they need to fundraise or bring in debt capital.
</blockquote>
By taking the time to reforecast, company leadership can analyze how it stacks up against projections, evaluate how they are tracking against their plans, stay abreast of their cash position, and make adjustments based upon market trends and internal realities.
<h2 style="font-size: 20px;">Why are they important?&nbsp;</h2>
Company leadership, boards, and lenders will want to know how company performance is shaping up against the budget. This is especially true when approaching a capital fundraise. Martin Zwilling, Founder, and CEO at <a href="https://www.startuproar.com/venture-capital/forecast/?open-article-id=15412148&amp;article-title=4-simple-steps-will-get-startup-financial-projections&amp;blog-domain=startupprofessionals.com&amp;blog-title=startup-professionals-musings">Startup Professionals, Inc.</a> points out: “External investors will demand a financial forecast, but it’s equally valuable to you, even if bootstrapping. How else will you be able to convince yourself and your team that your business is viable? You need these projections to set internal goals and milestones, and to measure your progress toward reasonable success objectives.”&nbsp;
<ol>
<li style="list-style-type: none;">
<ol>
<li aria-level="1">Proactively respond to unpredictable factors - Taking the time to review the company’s actuals against the budget allows leadership to be proactive, respond to unpredictable factors, and create a more realistic reforecast. For example, a company may lose a key employee, forcing them to reassess how the loss impacts the performance of the business. External factors can affect performance as well. In Q2 of 2021, Apple changed its privacy rules. The change had a ripple effect, significantly increasing the price of paid advertising across Google, Facebook, Instagram, TikTok, etc. In turn, that greatly impacted their CAC (customer acquisition cost). </li>
<li aria-level="1">Better understand your current needs - The reforecasting process also helps your BOD and lenders understand your current needs, react proactively, and advise on the overall business strategy. They will help answer questions like how much additional capital may be needed, whether the current facility to finance inventory needs to be increased, etc. They will also want to know how leadership intends to react to internal and external factors and what opportunities to make up for differences and reach the initially projected budget.</li>
</ol>
</li>
</ol>
Budgeting and reforecasting are two essential tools business leaders use to track their financial performance and make strategic adjustments to remain on course for profitability in the long run. It is beneficial to have a CFO with industry knowledge, experience building budget models, and a steady eye when evaluating YTD performance when forecasting.
If you are a venture-stage startup looking to professionalize your finances, we’re here to help.&nbsp;
Let’s start a conversation today.&nbsp;
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How do you turn a good idea into a great business? While success depends on many factors, ultimately it comes down to a company’s financial health. Budgeting and forecasting are two critical tools for guiding your business. But what’s the difference between the two, how are they used, and why are they important? 
These are common questions for many venture-stage CEOs and founders so let’s break it down.
<h2></h2>

Meeting to discuss venture capital fundraising. 

The 7 deadly sins of Venture Capital Fundraising (and How to Avoid Them)

Here are the seven most common fundraising mistakes that can hinder your success. These tips will help you raise equity from investors with increased confidence and more efficiently.

As the founder or CEO of a venture-stage startup, you’ve taken a good, maybe even fantastic, idea, invested your blood, sweat, and tears, and have a business that’s ready to burst onto the market. Now it’s time to fundraise.&nbsp;
If you are new to the process, you’re probably asking yourself: How do I approach a round of VC fundraising? How do I find the right partner? How do I negotiate a deal? How do I protect my ownership?
It can be overwhelming.

<blockquote>
Having worked with many founders and CEOs and having been one myself, I understand that venture capital fundraising is an entirely new challenge. The majority of founders are entrepreneurs. They’re operators and visionaries. They’re focused on making their great idea into a viable business. Very few have actually had the experience raising large amounts of money, and it can be daunting.&nbsp;
</blockquote>
On top of that, there are not many firms that exclusively focus on helping earlier-stage companies fundraise. Unfamiliar with their options, many founders turn to large institutions like investment banks. But generally speaking, investment banks aren’t equipped to work with smaller companies. The return on investment simply isn’t great enough in their eyes, and more importantly, they do not have the expertise.
It’s essential to find a partner that truly understands the process and the key players when it comes to venture-stage fundraising. According to a <a href="https://hbr.org/2021/03/how-venture-capitalists-make-decisions">survey</a> conducted by the Harvard Business Review, “More than 30% of deals come from leads from VCs’ former colleagues or work acquaintances. Other contacts also play a role: 20% of deals come from referrals by other investors, and 8% from referrals by existing portfolio companies. Only 10% result from cold email pitches by company management.” There’s art and subtlety in how to proceed down this path, and in this competitive environment, having a trusted resource with an established network on your side can make all of the difference.&nbsp;
The Propeller Transaction Advisory team leverages our collective experience in investment banking, venture investing, investor relations, and as former business operators, to give founders an insider’s perspective. My team and I have partnered with hundreds of venture-stage startups and helped them successfully find the best partner, negotiate the right deals, and run an efficient process.&nbsp;
We’ve learned a lot along the way about what to do and what not to do. Here's my version of the seven deadly sins - mistakes you'll want to avoid - of venture capital fundraising.&nbsp;
<h2 style="font-weight: bold; padding-left: 40px; font-size: 24px;">1. Raising from a position of desperation (not strength) </h2>
This may seem like a no-brainer, but whenever entering a fundraise, it’s critical to negotiate from a position of strength. Some owners feel like, "Things are going well. I don't want to give up ownership of my company now."
<blockquote>
 When things are going well, but you know that you will need capital sooner than later, that's a great time to raise money. You are entering a transaction with positive momentum and milestones to share that will only help your valuation.
</blockquote>
Rudina Seseri pointed out in a recent <a href="https://www.entrepreneur.com/article/346301">Entrepreneur article</a>: “Equally important to articulating your vision is being able to execute on that and demonstrating traction, real results. Investors are looking for founders who can point to having attained what they said they would achieve (and then some).” Make sure your balance sheet (read cash balance) affords you runway, your sales are strong, and you are meeting strategic objectives. That’s when you will attract the most interest. Conversely, if you go to fundraise with a short cash runway, investors will look at your balance sheet and think, “They need our money.” They will feel like they are in a position of power. Naturally, they will try to get the best deal for themselves. By negotiating from a position of strength, your company presents itself as an attractive business worth investing in.
<h2 style="padding-left: 40px; font-size: 20px;">2. Getting greedy too early</h2>
While founders want to negotiate the best possible deal and minimize dilution today, it’s important to consider the capital needs over the next 12-18 months. You want to make sure you raise enough money to allow you to execute various initiatives and drive value over the long term. It's vital to make sure you're raising the right amount of money. Once again, many owners think, "I don't want to give up a lot of my company." That is a valid point, and no one wants to give up too much too early. At the same time, it's better to have a smaller piece of a big pie than a big piece of nothing. Take a step back and be honest with yourself, and don't get too greedy too early.
<h2 style="padding-left: 40px; font-size: 20px;">3. Having misalignment within your team</h2>
Early-stage startups are partnerships. It’s crucial that your team is aligned. Be sure that your ownership team agrees on long-term goals, risk tolerance, and exit strategy. Any significant disagreement can impede the process or put a deal at risk. Ultimately, you need a board vote, and if voting board members aren’t in agreement, then you can’t make decisions swiftly, which is critical for fast-paced startups.
<blockquote>
Team alignment goes far deeper than just the ownership team. Remember, in the early stages, people are investing in the team - your people. As this Harvard Business Review <a href="https://hbr.org/2021/03/how-venture-capitalists-make-decisions" style="color: #24314d;">survey </a>revealed, while the management team and the business model are both important, “ultimately they deem the founding management team to be more critical...founders were cited the most frequently—by 95% of VC firms—as an important factor in decisions to pursue deals.” If that team isn’t aligned, it can cast doubt about the viability of the business.
</blockquote>
I recently interviewed Propeller Transaction Advisory client Bill Deacon, CEO of Eastern Standard Provisions, at the <a href="https://www.foodedge.co/">Food Edge</a> conference (watch the full interview <a href="https://www.youtube.com/watch?v=D83s_s4vjzk">here</a>), and he put it this way: “Identify those on your team that are all-in versus those who aren’t a good fit. Realize who your core people are and move on from all the others. This includes staff, vendors, and investors.” It’s crucial that your investment partners are aligned with your vision, which is a perfect segue into our next point.
<h2 style="padding-left: 40px;">4. Picking a partner for the money alone </h2>
Don't pick a partner for the money alone - choose a strategic partner. Make sure your investor is someone who can add value to the company. When you are looking for an investor, you are not just looking for the highest valuation. You are looking for a partner who has strategic connections, relevant experience in your space, and someone who can guide you across marketing, sales, operations, etc. You don't just want money; you want smart money.
When looking at venture funding or private equity, you need to make sure the people at the fund understand how to actually operate a company, have relevant experience and connections, and understand what you're doing. You want to be able to bounce ideas off of them and ask, "Hey, does this make sense? If you were in my shoes, what would you do?" In short, make sure their experience can add value and help you grow your business.&nbsp;
<h2 style="padding-left: 40px; font-size: 20px;">5. Being close-minded</h2>
Throughout the process, be open to all of your different options. I’m an unabashed fan of the Bachelor/ette franchise. There’s always the front-runner, “the one” that seems like the perfect match at the outset. But they often do not end up being the winner.&nbsp;Some founders are starstruck by certain funds and their portfolios, which is all fine and well, but you need to be “open to the process,” as the host/hostess would say. Be open to different opinions and to the fact that maybe who you thought was the right partner at one point is no longer the ideal match. Things evolve and you need to evolve with them. And when in doubt, remember point 4.
<h2 style="padding-left: 40px; font-size: 20px;">6. Having unpolished financials</h2>
If you're going out to raise five to ten million dollars, you need to have your act together. Things need to be buttoned up, and you need polished financials. It’s probably a corollary to the first point, but you can't just rush in to raise money. You need to make sure you have the last few years of financials in really good shape. You also need to have a strong, defensible, and thoughtful forward-looking model. Your model will be scrutinized and pressure tested by multiple savvy investors, and you will need to be able to defend your assumptions and answer questions intelligibly. People might not agree with everything you've done, but that’s ok as long as you have a thoughtful explanation as to why you did what you did.
<blockquote>
When I work with clients preparing to fundraise, I look at their model as an investor would and give them candid feedback regarding the things that don't make sense, and offer suggestions about things they may want to reconsider. I ask pointed questions about their sales strategy, marketing strategy, who they will hire to support their growth, etc. It's almost like an audition, or a test run, for when you go out to raise money so that when founders get on calls with interested investors, they’re not blindsided.
</blockquote>
<h2 style="padding-left: 40px; font-size: 20px;">7. Being dishonest</h2>
Don’t blatantly promise things that you know you can’t deliver, and do not lie. As much as you want to sell your business, it is imperative during a capital fundraise that you put out numbers and milestones that are achievable. One of the worst things startups do, and where deals fall apart all the time, is when negotiating a deal (which typically takes three to six months) and companies start missing their numbers throughout the fundraising process. They lose credibility with their potential investors in their ability to project their business and their ability to meet future numbers. As you go out into the later years, you can be more aggressive since everyone understands it is hard to predict a few months down the road, let alone a few years. The most important thing for you is to develop a repertoire with your future investors, and as in all relationships, trust is key. &nbsp; 
Fundraising can be daunting, especially for the uninitiated. However, it’s part of the road map for high-growth startups. The good news? You don’t have to traverse this path alone. Propeller’s Transaction Advisory services team can partner with you for a successful round of fundraising.
Let’s start a conversation today.
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As the founder or CEO of a venture-stage startup, you’ve taken a good, maybe even fantastic, idea, invested your blood, sweat, and tears, and have a business that’s ready to burst onto the market. Now it’s time to fundraise.&nbsp;
If you are new to the process, you’re probably asking yourself: How do I approach a round of VC fundraising? How do I find the right partner? How do I negotiate a deal? How do I protect my ownership?
It can be overwhelming.

Pre-Seed Stage

Seed Stage or Later

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