VentureCADTM

Fast Financial Design Tools

VentureEQUITYTM

  Key Modeling Concepts

What concepts are used in the model and its forecasts?

1

Expert System

While VentureCAD is under development, experts, known as VentureARCHITECTS, work with clients and VentureCAD to produce the output deliverable in Acrobat Files. Although VentureCAD seems complex, think of it as POWER to PREDICT and FLEXIBILITY to FUNCTION.

2

Double Entry

VentureCAD is a Sales Driven, Accrual, Double Entry Model where changes in sales are automatically reflected in Cash, Inventory, Payables and Receivables.

3

Resource Allocation

It is the aim of forecasting and modeling to balance growth driven demands on resources while maintaining appropriate levels of liquidity and profitability.

4

Periods

Model covers 66 periods (months) allowing for lead time requirements and produces 5 Year Summaries.

5

Financial Statements

Ultimately, Financial Statements are central to structuring a transaction and an understanding of their relationships with one another is necessary to build a forecast. A course in basic accounting would be helpful, as it is not the objective of this summary to teach accounting, nor is it possible in the space allotted.

6

Income Statement

The Income Statement traditionally has been the focus in unsophisticated forecasting models. While Income is always important, it is the Balance Sheet and related Financial Statements that reflect the allocation of limited resources and determine the speed at which an enterprise can grow without unduly straining its resource base.

7

Balance Sheet

VentureCAD always balances, as long as the Beginning Balances initially balance of which there are 33 that can be entered to portray the financial history of an existing Enterprise. There are two articulation points that continuously monitor the balance of every period.

8

Cash Flows

Summarizes Cash from Operations,Increases and Decreases in Assets and Liabilities and Financing Activities.

9

Detailed Cash Account

Beginning Cash Account less operational cash espenses and Ending Cash Account to reflect the differences.

10

Balance Articulation Points

"VentureCAD generates a Proof of Balance by calculating for the Beginning Balances and each of the 66 periods: (1) the ""Difference Between Total Assets and Total Liabilities & Equity""
(2) the ""Difference between Ending Balance & Cash Account"". If the Beginning Balances originally balance prior to entry, then VentureCAD ALWAYS shows ""Zero"" for the two Articulation Points throughout each of the 66 months. No ""Plugs are ever used"". This is no small feat when examining the complexity and power of VentureCAD's programmable features."

11

Contract Manufacturing

VentureCAD has evolved into a manufacturing model, with three exceptions. The Labor used to build the products is Contract and the construction Lead Time is only one month. Modifications have been build but not yet integrated into VentureCAD that allow up to six (6) periods of construction time to produce a product for sale, allows variable expenditures over the construction period and accounts for Work In Progress (WIP).

Contract Labor occupies an Enterprise Rented Warehouse and as sales grow the space requirements similarly grow for manufacturing and associated Labor. Equipment1.xls calculates the Equipment needed to support the seven (7) different products and can automatically replace fully depreciated equipment. This calculator allows long lead time equipment to be built with variable expenditures during construction.

12

Executives
Mid-Managers
Staffers

All three types of employees are salaried. Executives are manually entered and have percentage of sales bonuses. Mid-Managers and Staffers automatically change to match sales requirements and have percentage of sale bonuses and percentage of salary bonuses respectively.

13

Sales per Mid-Mgr & Staffer

This method drives the number of Mids and Staffers and expenses in the model. It uses a convergence-divergence technique that compares the personnel requirements for each method and then allows adjustments to create balance between Sales per Mid & Staffer and the Task Hour Method.

14

Task Hour Method

Mid-Mgrs and Staffers expend time to Identify Prospects, Fulfill Customers and Maintain Relationships. There are relationships developed that mimic working with a customer base and the number of sales made per customer and the prospecting cycle to raise the customer pool to a sustainable level. Based on Hours worked (net of breaks, holidays, weekends and sick days) and the ratio of Mids to Staffers through time, the model calculates the number of Mids and Staffers needed.

15

Seasonality

With profiling capabilities, Seasonality of Sales or Expenditures can easily be modeled.

16

Brokered Goods and Services

VentureCAD can accurately model the sale of "Brokered" items, defined as those sold for a profit where the Enterprise essentially doesn't take physical procession of the goods, thereby eliminating a use of cash to build and stock an inventory. Brokered Services could apply to an e-commerce site like E-BAY or the proposed rental over the Internet of VentureCAD.

17

Inventory Turns

Currently, VentureCAD allows an extra build up of inventory to handle samples and margin of safety and inventory is purchased or made in the period just prior to sale. Recently, a feature has been added that can measure inventory turns in fractions of a month or period, thereby effectively increasing turns from the standard 12 times to hundreds of times a year. Faster turning of Inventory reduces demands on CASH in improves the CASH Index.

18

Discounted Pricing

Three levels of discount pricing off suggested retail allow pricing analysis of three levels of distribution up from the enterprise, which presumably is the supplier.

19

Products

Seven (7) unique products each with their own COGS and Inventory Model

20

Recurring Services

Seven (7) unique Recurring Services each with their own COGR. While there could be an inventory of Service Manuals, generally services don't require inventories.

21

Unit Prices

Price associated with a product, subject to price attenuation.

22

Unit Sales

Number of Units sold per month not associated or driven by a contract

23

Unit Revenues

The product of Unit Prices and Unit Sales

24

Recurring Unit Prices

Price of the Recurring Service subject to price attenuation.

25

Recurring Unit Sales

Number of Recurring Units sold per month not associated or driven by a contract.

26

Recurring Unit Revenues

There are two (2) variations of Recurring Unit Revenues and both are the product of Recurring Unit Prices and Recurring Unit Sales.

27

     Independent of Unit Sales

Recurring Unit Revenues are independent of Unit Sales. For example the business modeled is the consulting business which sells a long term regular payment contract.

28

     Dependent on Unit Sales

Recurring Unit Sales are related to or driven by Unit Sales. This is the best way, because it is easier to count the number of historical contracts sold. A good example is Pre-Paid Cellular, where the Unit Sale is the Phone and the recurring revenue are the LD cards purchased each month by the client. The recurring revenues are subject to customer decay, which reduces the sum total of aggregated revenues.

29

Product Markets

A Product Market is defined by a single product in each of the seven (7) possible markets, either a different product or the same product in each of the seven. The Market is usually named after the product. This method allows better analysis of the Task-Hour Method in determining required personnel as time spent Identify, Fulfilling and Maintaining accounts are calculated by type of product.

If the alternative Market of Products method is used, then an array of products is sold in a market and the Task Hour Method aggregates the time spent across the entire product line, somewhat blurring specific requirements for a specific product. For example selling paint and tankers into a market obscures the fact that paint does take time to sell, but substantially less than the time spent selling a billion dollar tanker.

30

Market of Products

A Market of Products is defined by the ability to contain up to seven different products and the Market could be designated by geography - Continents, Regions, States, Cities, Counties or Zip Codes. Remember that Task Hour Method is not as accurate in predicting time spent Identifying, Fulfilling and Maintaining accounts due to the aggregation of multiple products, possibly each with widely varying time requirements, into a single market, which for the purposes of the Task Hour Method, acts like a single product.

31

Cost of Goods Sold

Consists of Labor and Materials used in the Product, subject to a cost index, and the Warehouse in which Products are stored prior to sale.

32

Cost of Goods Rented
(The Services Sold)

Consists of Labor and Materials used in the Rental Service subject to a Cost Index and the Warehouse in which, for example, service manuals for the Rental Service are stored prior to delivery.

34

Relative Liquidity

The Cash Index is a powerful, proprietary technology that measures relative liquidity during each each year using a forward moving average of up to 6 months. It assumes that at the end of a period all bills are paid and that for the next several periods (ranging from 1 to 6) there are no cash collections during the periods selected and the business runs as usual without any contractions. The objective it to see how long the business operates in this mode before it runs out of cash. For example a Cash Multiple of 0.80 predicts there is 80% of the cash needed to operate in a 3-mo. Collectionless Sequence. Cash collections improve MULTIPLE. When the Cash Index signals the need to increase liquidity, it can be done in a number of ways as follows: Points 34 through 46.

35

Financing

Includes, Private & Public Equity sales, Loans, Inventory Financing, and Vendor Financing (favorable adjustment of terms to improve Enterprise cash flow). Determining how much cash is needed to execute the growth plan is central to the rational of forecasting. Determining how to finance the cash requirements is the outcome of modeling. Some financing is accomplished internally or through loans, while it may also be feasible to sell equity. Negotiating the price, terms and conditions of the equity sale is greatly facilitated with the knowledge gained from modeling and may actually close more favorable price, terms and conditions than through less quantitative methods.

36

Private Equity Sales

The Enterprise can sell unlimited numbers of Unregistered shares, once during each of five years during any month of that year.

37

Public Equity Sales

The Enterprise can sell unlimited numbers of Registered shares, once during the five years. Proceeds net to the Enterprise

38

Loans

VentureCAD offers five (5) loans, all of which have percentage principal reductions that produce non-constant loan service (as opposed to mortgage style constant payment types of loans), can have infinite terms and ad-hoc principal reductions. Their unique capabilities are listed below. They are all button controlled and the Balance Sheet always remains in balance with any combination of these Loans, whether they are New or Existing.

39

     Loan A

Existing (only) Loan with balloonable Accrued Coupon Interest with a single interest moratorium any time except the first period.

40

     Loan B

Existing or New Loan (any period) with Coupon Interest - a standard Commercial Loan.

41

     Loan C

Existing or New Loan (any period) with Coupon Interest - a standard Commercial Loan.

42

     Loan D
     (used for inventory loans)

Existing (only) Subordinated Convertible Debenture with Interest Contingent upon EBITDA. Can convert into Common Shares and has ad-hoc Principal Increases, too. Has accrued, balloonable Interest and Coupon Interest.

43

     Loan E

Existing or New Loan (any period) with Coupon Interest and a single Moratorium. Principal and Accrued Interest can Balloon any period except the first period..

44

Inventory Financing

With some expert help (no programming needed), Loan D can be set up to perform inventory financing. It is a semi-automatic process whereby the Loan to Inventory Ratio is manually balanced against the Cash Index by increasing the Loan Balance where liquidity is low..

45

Ageing

Ageing can improve Cash Index or the relative Liquidity. Ageing capabilities are global, that is once a profile is set, it remains constant throughout the 66 months of the model. A future enhancement will be to equip these ageing features with the capability of changing the profile through time….i.e. slow down during low liquidity and then speed up to get caught up and then slow a little back to a normal profile.

46

     Payables Ageing

A seven (7) period or 210 day profile representing the distribution of Payables Aging can be adjusted to include a combination of Materials, Labor, Warehouse, Marketing, Overhead and Managerial salaries. Shifting Payables into the future will increase the Cash Index. However, it is recommended that this method of reducing cash demands be done with considerable restraint, because it can result in unrealistic Cash Index improvements that could collapse the company, when for example, salaries are continuously deferred for months, employees tend to quit.

47

     Receivables Ageing

A seven (7) period or 210 day profile representing the distribution of Receivables Aging can be adjusted to improve speed of collections. Keep in mind that this is only an estimate and doesn't guarantee that the customers will actually comply with your expectations....generally depends on a good collection department, industry conditions and the terms of credit advanced to customers. This capability has tremendous effect on the Cash Index or Relative Liquidity.

Click here to return to VentureCAD Details.