Financial Projections for Startups

David Cummings on Startups

Recently I saw another one of the dreaded financial charts in a startup’s executive summary: $0 revenue today and $25 million in revenue in year three. Whenever I see this, I immediately know that the CEO either a) doesn’t have any startup experience or b) hasn’t done the appropriate homework. Can a company go from $0 to $25 million in three years from a cold start? Yes. Does it make the startup look credible in an executive summary? No.

Here are a few thoughts on financial projections for startups:

  • Study the Inc. 500, especially technology companies. What does the revenue ramp look like there? These are some of the fastest growing companies in the country, and annual revenueslike $1M to $4M to $10M are more the norm (and incredibly high growth).
  • Build a bottom-up forecast based on number of leads generated, conversion from lead to opportunity, number of trained…

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3 Responses


    This is a great essay by David Cummings. So, let’s now put a medical spin on the topic

    Since a start-up medical practice has no historical financial information, simplified Pro Forma production logs, or statements, are forecasted for 2-3 years. They demonstrate the best care, worst case and most likely financial scenarios. Computerized spreadsheets are ideal for this task. Other relevant financial information may be included as needed.

    Pro Forma (Production Log) Statement

    A simple daily production log is shown below, with variance recordings. It may be used on a pro-forma estimated, or on-going concern, basis.

    However, the more sophisticated Profit and Loss (P&L) Statement is a better measure of office performance than the log, for a given period of time

    Pro Forma Net Income (Profit & Loss) Statement

    By allocating a practice’s profit or loss into operating groups, the investor can isolate profitable revenue centers and isolate unprofitable costs drivers. These are then identified in the Net Income Statement (NIS). In certain managed care contracts, an analysis to identify unit or per dollar revenues, gross profits and/or gross margins, is vital. Certain non-cash expenses (i.e., depreciation, amortization and deferred taxes) are then deducted from revenues to determine overall net income.

    Pro Forma Cash Flow Statement

    The Statement of Cash Flow (SCF) is the lifeblood of any medical practice. It projects estimated cash flows by month, quarter and year, along with the anticipated timing of cash receipts and disbursements. The office’s bills and obligations are paid out of cash flow, not net income. It is very important for accrual based accounting practices; especially in terms of Medicare, Medicaid, MCOs, PPOs and HMOs producing insurance payment time delays and other aged accounting methodologies. Cash flow reflects the internal generation of fund available to investors.

    Pro Forma Retained Earnings Statement

    The Statement of Retained Earnings explains the changes in a practice’s retained earnings over the reporting period.

    Pro Forma Balance Sheet

    The Balance Sheet (BS) forecasts the financial condition of an office at a singular point in time. It projects the ability to meet financial obligation and the capacity to absorb financial setbacks without becoming insolvent.

    Finally, there are other miscellaneous considerations when estimating financial statements. For example:

    • Business and service revenues may be seasonal in some areas of the country.
    • What percentages of revenues come from: Medicare, Medicaid, MCOs, HMOs, PPOs or traditional indemnity insurance plans?
    • What are the revenue and cost positions relative to peers? The industry?
    • What are the potential costs and paid-up expenses possible in the future?
    • What credit analysis is used to screen potential-private patients?

    Dr. David Edward Marcinko MBA CMP™ MBBS [Hon]


  2. The fall of tech unicorns not imminent, despite claims to the contrary

    Worldwide, more than 208 unicorns and 21 decacorns represent industries as varied as retail, health tech and enterprise technology infrastructure. Some 40 percent of the 80 new unicorns and one decacorn that sprang up in 2015 came from outside the United States, which shows that high-value startups now are more global.

    Dr. David Marcinko MBA via VentureBeat



    I do believe that start-up plans can succeed in the current market environment. Having said this, failures have been common. My favorite model for successful startups are new health plans serving Medicare Advantage members that are linked to health systems.

    To be successful any health plan has to offer lower costs, higher perceived value and overcome distribution barriers. MA plans linked to health systems offer the possibility of lower costs through integrated care, a “halo of quality” from the associated health system and, since the MA product is sold to the individual market, is intrinsically beyond the confines of the employer-based market.

    Realizing success depends on excellence in execution. Effective execution requires either the rethinking of the health system’s business model, or at least a commitment that the health plan should maintain operating its integrity. That there have been many failures among health system sponsored plans indicates that this is easier said than done.

    Douglas Sherlock CFA
    [Senior Health Care Analyst]
    Sherlock Company


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