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ProjectionHub

Indiana Innovation Showcase Elevator Pitch

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Today we are hard at work preparing for the 2012 Innovation Showcase on July 12th.  Trying to figure out how to put together a decent exhibitor display on a shoestring budget isn’t easy!

The most difficult thing about the entire event is probably the 1 minute elevator pitch.  We only get 60 seconds to pitch to a group of investors, developers, and startup VIPs.  It is a real challenge to distill our message down to 60 seconds, but here is what I have so far:

“I manage an SBA microloan program, and for the last 2 years we have been requiring many of our loan applicants to produce a set of financial projections.

This spring while working on my personal taxes, I thought, why isn’t there a TurboTax for financial projections?

So my brother and I built ProjectionHub, which is a web application that helps users input sales and expense projection data, and then download a complete set of financial projections as an Excel file.

We have a working version where individual business owners can pay a 1 time fee to create and download a set of projections.

We are currently working with 5 SBA microlenders to create a custom version of the tool specifically for their organization.  

This fall we plan to start selling the application directly to lenders for a monthly fee which will give their loan applicants the ability to create a set of complete and accurate financial projections that meet the lender’s standards every time.”

What do you think, is that a decent pitch?  Here are some of the main points that I am trying to convey:

  • My background
  • How we came across this problem
  • How our solution is different than competitors
  • That we have a working application
  • We have some “traction” with our 5 beta testing organizations
  • Our goal is to develop a monthly, recurring revenue business model

We will just have to see how it goes!

Use Quickbooks to Create Future Financial Projections

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If your bank has asked you to create a set of financial projections for your loan application, and you are hoping to use your Quickbooks data to help project your future financials, I have 2 things to say:

  1. You are out of luck 
  2. You are not alone

Unfortunately Quickbooks does not have a decent solution for business owners attempting to create financial projections based on past accounting data.  In the screenshot below of the Intuit Community you can see that Quickbooks users have been asking question after question to figure out how to create a set of financial projections.  There are 798 results for “financial projections.”

So what are your other options right now?

Basically, the only option you have is to use the Quickbooks budget tool which is fairly limited in functionality, OR you can create your own financial projections from scratch.  Typically you end up finding and using a Excel spreadsheet template that someone has published on the internet.  The problem is that the average business owner doesn’t have a PhD in spreadsheet modeling, and really has no idea if their forecasts are realistic or accurate.

Doesn’t it seem like there has to be a better way?  Intuit is also the maker of TurboTax which takes a complicated subject like taxes and makes it simple through software.  Why isn’t there a TurboTax for financial projections?

We are working on it!

We thought that there has to be a better way, so we are building a better way.

ProjectionHub is a web application that helps entrepreneurs create financial projections without the need to have a PhD in spreadsheet modeling.

Right now the tool is fairly basic, it walks you through the process of creating up to a:

  • 3 year Cash Flow Forecast
  • 3 year P&L Forecast

But we have big time ambitions!  We believe that data can truly change the way business owners project the future success or failure of their company, and that data can help banks better analyze the creditworthiness of a business.

So what exactly does this mean practically?   

Imagine that you can connect your own Quickbooks data to ProjectionHub.  ProjectionHub then looks at the past couple years of data and notices trends in both sales and expenses.  ProjectionHub then automatically forecasts what your financial statements would look like if those trends were to continue.

Pretty cool, but that is only the start!

Quickbooks Aggregate Data

Now this could get really interesting when ProjectionHub pulls in aggregate data from the millions of businesses around the world that use Quickbooks.  The app could look at trends by Country, State, and City.  We could find trends by industry.  Or let’s say you open a cafe and you have been in business for 2 years.  The application would be able to look at financial data from other cafes in their second year of business, and then look what they did over the next 3 years.  If the average 2 year old cafe grew 20% per year for the next 3 years, that would make a strong case for your projected growth.

On the other hand, the application might be able to see that 50% of 2 year old cafes fail within the next 3 years.

As you create your own financial projections the tool should be able to tell you when you get out of line.  Let’s say that only the top .01% of businesses grow as fast as you are predicting.  That should be a warning sign to you and your banker that you are being unrealistic with your financial projections.

At ProjectionHub we truly believe the possibilities are endless when it comes to utilizing data to help entrepreneurs better predict the future success or failure of their company.

What do you think?  How can we improve the financial projection process to make it easier and more accurate for you and your company?

Is your Startup 98.82% Likely to Succeed? If Not, No Loan for You

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recently reported that delinquencies for business loans are now down to 1.18%.  In my opinion, this is truly incredible!  Only 1% of businesses with loans from banks fail to make their loan payments on time.  This means that you must convince your lender that you are 99% likely to make your loan payments.

Based on this data, it is no surprise that startups and early stage businesses have a nearly impossible time securing loans from banks.  When you look at the data for small businesses, you will find that there is a significant percentage of businesses that will cease to exist in 5 years.  Let’s say 25% of the small businesses with less than $1 million in annual sales will be out of business in 5 years.  That means that banks are going to be incredibly unlikely to lend to these small businesses because they need to feel 99% confident that you will still be around in 5 years.

That rules out startups and early stage small businesses in technology industries like software, mobile computing, alternative energy etc because technology moves so incredibly fast that 5 years is a lifetime.

Unfortunately for small business owners banks can be selective.  There are still plenty of credit-worthy, established businesses that will take loans.  The banks don’t need to lend to small businesses in order to make a profit right now.  In fact, the top 10 banks in the United States only approve approximately 10% of loan applications.

If you are a startup, what do you do?

I believe there are still some great options.  There are 3 places I encourage you to look for a loan:

  1. Lendio – Matches you with lenders that best fit your needs and stage of business
  2. On Deck Capital – Unique way of lending to “Main Street” businesses.  Lends even if your credit score is low
  3. Prosper – A peer-to-peer lender where you may be able to build up to a loan capacity of $25,000.

Of course these options will have higher interest rates than your traditional bank, but if you are able to utilize other funding sources during the early stages of your business, you may be able to reach a point in time where you can actually convince your local banker that you are 98.82% likely to pay them back, and pay them on time.

Have you been successful finding other sources of funding since the banks don’t lend?  If so, leave us a comment, and share with other entrepreneurs who are looking to grow and expand.

ProjectionHub Announces Free Financial Projection Tool For Student Entrepreneurs

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ProjectionHub, a web application that helps entrepreneurs create realistic financial projections without the need for a PhD in spreadsheet modeling, has announced the availability of the ProjectionHub web application for student entrepreneurs.  Now, any college student with a .edu email address can create a set of financial projections using the ProjectionHub web application at no cost.

Student entrepreneurs can simply answer questions about their business, input sales and expense projection data, and the tool will automatically create a bank or investor ready set of financial projections.  Students can create a 1 to 3 year cash flow or profit and loss projection.  The projections will automatically be delivered to the student via email as an Excel Spreadsheet that can be edited or revised in the future.

24 year old Co-Founder Adam Hoeksema explained, “I wanted to offer ProjectionHub as a free tool for university entrepreneurship programs and student entrepreneurs to utilize as they complete business plan financial projections for class, business plan competitions, and potential investors.  I want ProjectionHub to become the leading educational resource on how to create realistic financial projections for startups and small businesses, and I think this is a great first step.”

ProjectionHub is a web application that helps entrepreneurs create financial projections for their business without the need to have a PhD in spreadsheet modeling.  For more information visit ProjectionHub or email Adam Hoeksema adam@projectionhub.com.

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How to Create Financial Projections for an SBA 7(a) Loan Application

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The Small Business Administration works with thousands of local banks around the country to offer loan products to small businesses including:

  • Microloans
  • Express Loans
  • 504 Loans
  • 7(a) Loans

In 2011, the SBA 7(a) loan program provided $19.6 billion in loans to small business through nearly 38,000 loans.  If you are applying for an SBA 7(a) loan you will be required to provide the bank, at least, a 12 month profit and loss financial projection.

There are a number of Excel spreadsheet templates available on the internet that are meant to help you create a 12 month profit and loss projection, but after reviewing dozens of templates, I believe that spreadsheet templates are fundamentally limited, and will never be the best way to create financial projections.  So, my brother and I created ProjectionHub.

If you are small business owner looking to apply for an SBA 7(a) loan, then I encourage you to give our application a try.  You can create your projections and download a completed Excel Spreadsheet file.  Get started today.

3 Ways to Value Your Business

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By Adam Hoeksema

For many entrepreneurs there is a desire to know the true value of their business.  Unfortunately, business valuation for early stage companies is both art and science.  A great example is the recent $1 billion acquisition of Instagram.  This valuation makes any business valuation expert scratch their head.  I think there are essentially 3 techniques that can be used to value a business.

1.   Textbook Business Valuation – If you are an MBA student you will learn a couple different formulas and techniques for valuing a business.  These textbook equations will put a fair value on your business in many cases.  Rather than explain the details of each equation in this blog post I am simply going to point out two valuation options:

These are two of the most common valuation techniques you might learn in business school.

2.  Comparables Valuation – If you ever watch those TV shows where homeowners are trying to place a value on their house in order to sell it, you might hear the realtor talking about the price of comparable homes in the neighborhood.  Similarly you can value your business based on the sales price of a comparable business in your industry.  For example, if you own a McDonalds franchise that generates $2.5 million in annual sales, and a Burger King Franchise store with $2.5 million in sales that is located next door just sold for $6 million, then you should be able to make a strong case that your McDonalds store is worth at least $6 million.

3.  Defensive Valuation – I believe that Instagram was valued defensively.  What do I mean by this?  Some analysts suggest that 1/3 of Facebook page views and potentially 1/3 of Facebook revenues come from photos.  If you haven’t noticed, there are advertisements in the bottom right corner of the picture viewer on Facebook.

So here is my hunch.

Facebook realized that a rapidly increasing number of pictures viewed on Facebook came from Instagram.  If Facebook generated $1 Billion per year from advertisements in the picture viewer, and by the end of 2012 one third of those pictures viewed would come from Instagram, then Instagram would hold immense power.  What if Instagram decided to close off the ability to post photos to Facebook?  Instantly, Facebook would lose over 330 million in annual revenue due to lost ad clicks.  That is a HUGE risk that shareholders would not be willing to live with.  Facebook had to buy Instagram to stay in a position of control.  Even though Instagram had not earned a dime in revenue, it was a threat to Facebook.  They had to pay a premium because Instagram was a threat, and they were growing incredibly fast!

At Instagram’s current growth rate they might be worth $330 million in annual revenue in 2012, but they might double to $660 million in 2013.  Now the acquisition price starts to make sense.  The purchase of Instagram at $1 Billion will essentially breakeven in 2 years if those prior assumptions are correct.  That is the power of a defensive valuation.

Unfortunately, the value of your business is ultimately whatever a buyer is willing to pay.  Good luck as you work to determine the true value of your business!

About the Author:  Adam Hoeksema is the Co-Founder of ProjectionHub.  ProjectionHub helps entrepreneurs create financial projections without the need to have a PhD in spreadsheet modeling.

ProjectionHub App Aims to Help Entrepreneurs Predict the Future

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06/07/2012 – ProjectionHub has a big vision.  Utilize data to help entrepreneurs, banks, and investors predict the future success of a company.  Currently ProjectionHub is focused on creating the best way for entrepreneurs to create financial projections.  The U.S. Small Business Administration requires a 12 month profit and loss projection to be included with each SBA loan application.  ProjectionHub is already simplifying that process for loan applicants.

Co-Founder Adam Hoeksema says, “If we can improve the accuracy of financial projections for small businesses, we can help banks and investors make better funding decisions.”  He went on to say, “right now there is a disconnect between the over optimism of small business owners when it comes to the potential of success of their business, and the ultra-conservative mindset of the traditional banks who don’t want to take another risk.  A business owner’s personal credit is not always the best predictor of a potentially successful business, but a data-driven set of financial projections can help banks and investors uncover potentially successful businesses.”

With mountains of new small business data being released by giants like Quickbooks, it will become increasingly easier to predict the future success of a small business based on the past financial data provided by similar businesses in their geography and industry.  Aggregate data on millions of small businesses will make it a simple task to estimate expenses for small businesses, and better project sales based on how similar businesses have performed in the past.  ProjectionHub aims to capitalize on this trend and make a positive impact for small businesses looking to secure a loan.

ProjectionHub is a web-based application that helps entrepreneurs create financial projections without the need to have a PhD in spreadsheet modeling.  For more information contact Adam Hoeksema at adam@projectionhub.com.