by Tim Berry, President, Palo Alto Software, Inc.

One: Introduction
Business Plan Pro Financial Analysis
Business Plan Pro is built around a very powerful financial
forecasting tool: a set of linked financial tables. All you do is type your
assumptions in the green cells, avoid the black cells, and you don’t have to
program anything. Sales, personnel, income, cash, balance, ratios, and
other tables are linked together already, so a change in one flows logically
to all the others. This financial tool has been developed for more than 18
years now, it has been used with hundreds of thousands of successful
business plans, and it works. It is financially and mathematically correct.
However, like all business models, any projection of the future is, at
best, a very good educated guess. It depends on assumptions. It is a
general tool that can be applied to millions of specific cases. It can always
be improved, tailored, and customized. The objective of this white paper is
to take that basic model and make it better, so it works exactly as you’d
like, for your business.
Business Plan Pro, in fact gives you extensive spreadsheet-like
programmability for your financial tables. Your financials, although they
don’t need to be programmed, are built into a very powerful spreadsheet
tool that includes a complete Microsoft-Excel-compatible spreadsheet. It
supports financial functions that calculate your loan payments,
depreciation, and investment analysis. All of this power is available even
while working within the financial analysis.

About This White Paper

This white paper is about the spreadsheets in Business Plan Pro. It
covers some of the critical assumptions and complex formulas so you can
understand how they work. Receivables, for example, is based on a
complex formula and is also critical to cash flow. Payables and inventory
are critical and relatively complex as well. This white paper will explain
how these formulas work, and why; it will also cover how you might
change them, when you ought to, and what you might change them to. It’s
also about spreadsheet formulas you can use, and how to use them. It
covers many common formulas people use to calculate cost of sales, for
 example, or sales commissions, or loan repayments. It shows you how to
add common formulas and how to create your own. It’s about how to use
built-in functions to supercharge your analysis.
The best way to learn this is by doing it. Therefore, this white paper
takes you through a series of examples. It starts with simple examples that
offer practical tips. It also includes details of more complex formulas, and
practical explanations of formulas you might want to add or change.

Using the Tool Well

Use Business Plan Pro for what it does well. There is a solid, tested,
robust financial model at its core, linking all of the key financial views
into a complete system. Change any one element and all the others change
automatically. Use it to develop your business financials. Use its “what-if”
facilities. Work with your business plan financials to understand the key
assumptions and think about how they might change. What happens if you
sell more or less than planned, and what if you spend more than planned?
What if utilities double, or rent increases? You have to at least consider
these possibilities, and use your business plan to anticipate the
implications. That’s a lot of what Business Plan Pro is about.
Remember, however, that the software is a tool. It is only as good as
the assumptions you put into it. Furthermore, it depends on mathematical
modeling to project some critical elements--receivables, for example--into
the future-based on assumptions. These projections are just projections,
and the math behind them is complex and elegant, but is still subject to
some important assumptions. This white paper will point out some of
those assumptions; it will show you in detail how to work with them, and
how to change them when you think you should. For example:
• For the first three months of the plan, the formula that projects
receivables depends on the assumption that sales are steady,
that the present month’s sales is a good estimate of previous
months.
• For the first 12 months of the plan, the inventory projection
assumes each month’s cost of goods sold is 1/12 of the total
year’s cost of goods sold.
• Taxes are simple math, so unless you make adjustments a
steady loss situation could overestimate your cash by assuming
a negative tax.
• Depreciation depends on simple input, not formulas.
• Loan repayment depends on simple input, not formulas.
 Within this white paper we’ll be looking at these points and showing
you how to adjust and perfect your specific plan, using the knowledge
of Business Plan Pro’s programmability.

Planning with Computers

Computers don’t think, they just do the numbers. Computers are very
dumb contraptions that can be downright dangerous when you expect
them to think for you. They are absurdly literal, and, worse still, literal in
their own very narrowly defined language. Tell a computer to tell you that
2+2=5 and it will swear that 2+2=5 if you want.
Use your financial projections but don’t believe them-- especially
when dealing with computers and software. Because there is something
magical about neatly ordered rows and columns of numbers shining at you
through a computer screen or marching from the printer, you may forget
how meaningless they really are.
So use the dumb thing for what it does well. You do the thinking, let
the computer do the numbers, and the division of labor will work wonders.
Remember the origins of the spreadsheet, back with the pencils and green
lined paper, and think in those terms; you’re still in that realm, now you’ve
got a team of tireless workers to change your numbers instantly. Now
that’s power.
The best analyst uses human judgment to guide the number crunching.
If you accept the great split between rational, analytic thinking, and
intuitive, creative thinking, then you probably realize the best work
requires a little of both. Use your head to guide the analysis.
How do you get the right combination? The simplest way is by doing
the numbers running the spreadsheet models. Change factors repeatedly.
Each new version is another go at understanding a problem, each is
another possibility to be considered. The world is far too complex for
simple answers. Solving problems is akin to recording stereo albums: the
artist sings multiple tracks into a single tape, then magnifies and multiplies
the voice and voice effects. The more angles considered, the better the
understanding of the final product and its alternatives. Look at your
business plan at many different volumes, at many different prices, at many
different kinds and levels of expense, and the set of numbers you finally
accept will be a better representation of the full range of possibility.

There is an irony here. The best market forecasters use a lot of

computer models, but they don’t believe them. Output from different
models stimulates thinking about alternatives, causes and effects, and
different outcomes, but output is not to be believed, just considered.
Planning vs. Accounting
There is a clear distinction between planning and accounting.
Planning begins today and goes forward into the future. Accounting ends
today and goes backward into the past. Planning is for making decisions,
setting priorities, and management purposes. Accounting is also for
information and management, of course, but there are legal obligations
related to taxes. Accounting must necessarily go very deep into detail.
Planning requires a balance between detail and concept, because there are
times when too much detail is not productive.
Many people fail to understand the distinction and put disproportionate
attention, as they develop a plan, into accounting details. For example, tax
reporting and proper accounting requires detailed lists of assets and
depreciation, where for planning purposes a good estimate is more
efficient.
To understand this difference, consider the relative proportion of
uncertainty in a forward-looking estimate of depreciation vs. a sales
forecast. The AMT computer store, one of our Business Plan Pro sample
plans, projects depreciation of approximately $13,000 per year. It expects
sales to rise from $5 million to $9 million in three years. AMT could
develop a plan that lists future assets and purchases and uses depreciation
functions to depreciate each future asset according to accepted formulas.
Doing that would probably reduce the uncertainty built into the
depreciation estimate, but how much uncertainty would be reduced, for
how much effort. A 50% variation in the projected depreciation, either
way, comes to less than $10,000, while a 10% variation in the sales
forecast in the last year is worth $900,000. A good business plan process
maintains proportion between effort and value. Accounting needs detailed
depreciation in this company after the fact; but the business plan, looking
three years ahead, doesn’t.

About Business Numbers

This is the business age of numbers. You can’t get a new company
financed without a business plan built on believable numbers. You can’t
get through your company’s capital budgeting process (that is, you can’t
get your company to invest in your idea) without a business plan, usually
with a discounted cash-flow analysis. Business Plan Pro is intended to
help you meet the numbers demands without getting bogged down in the
mechanics.
Business Plan Pro will help you generate more numbers: linked
financial statements, practical forecasts, milestones with budgets, and
more plans. You can do the whole analysis, from start-up to business
ratios, by taking the tables one at a time and working in your assumptions.
 Basics of Business Analysis
Business analysis is supposed to make good business sense. It does,
when it is done right, But business numbers can be frighteningly fictional,
whether they are used for creative accounting (“where did all the profits
go?”) of forecasting. The key is to recognize the use of business numerical
analysis, which provides the framework for decision making. The numbers
help us to understand what is going on; they are not of any real use in and
of themselves. Even the accounting statement is an enormous semi-
fictional pageant, revolving around how much money is in the bank, how
much we owe, how much they owe us, and how much we’ve spent.
Business analysis, by its very definition, has to have some practical use.
Time is money, and it has to be worth the effort.
The key phrase here is “framework for thinking.” Effective business
planning is not in the numbers, it’s in the decisions and the
implementation; the numbers provide the key framework for
understanding the alternatives, the background, the cause and effect, and
the decision itself.

Two: Simple Examples

Let’s go through some simple examples of Business Plan Pro
spreadsheet formulas. To follow along with the examples:
1. First open your Business Plan Pro and
2. Open the AMT Computers sample plan.
3. Then go to your Tables menu, choose the Table Preferences
command.
4. Set your tables to show row headings and column headings.
Referring to Cells and Ranges
As we work with spreadsheet formulas in Business Plan Pro, we’ll
refer to cells the way most spreadsheet software does, with their row and
column notation. The cell in the fourth column of the fifth row, for
example, is cell D5. We refer to blocks of cells by showing the upper left
first and the bottom right last, separated by a colon. So the range that goes
from B5 to N10 will be written as B5:N10.

Automatic Price Formula for Sales Forecast

Spreadsheets are based on matrix, the mathematical name for a layout
that has rows and columns. There is a fair body of mathematical literature,
plus some tricks in probability and statistics that are based on a matrix
layout. Rows are always horizontal, columns vertical. In formal uses you
can refer to any single cell in the matrix by listing its column letter first
and its row number second. In Figure 1 you see a view of the Sales
Forecast table of the AMT Computers sample plan. Cell D23 is selected.
The formula for cell D23 shows in the Edit bar. That formula is: =C23

Figure 1: Sales Forecast Formula

If you just copy that formula into the rest of the 12 monthly columns,
then you have a nice improvement on the program. Whenever you change
the assumption in the first month, that change automatically ripples
through the whole system.
With this example, you also see a very simple first view of basic
spreadsheet programming. The formula in D23 makes that cell equal
whatever is in C23.
Some additional tips on this:
1. As you copy the formula in D23 and paste it in the following
cells to its right along the row, you can’t paste into cell O23.
That would produce a “locked cell” error. O23 is locked, and
shows in black font, because it doesn’t accept data entry, it
calculates average price for the year by dividing total revenue
by total units sold.
2. You might also go to cell P23 and make its formula “=N23” so
that it picks up the price from the last month of the first year.
3. Select D23. Hold down the shift key while D23 is selected and
then press the right arrow key a few times. That automatically
selects a range of cells to the right along the row. Then use the
Copy Right command in the Edit menu to automatically copy
 D23 to the right along the same row. If your selection includes
O23, which is locked, you’ll get the locked cell error message.
Locked Cells vs. Data Cells
As you probably know, Business Plan Pro prevents accidental errors
by locking important formula cells. As you look at your color monitor, all
black cells are locked, and all green cells are unlocked. You can type into
the green cells, typing data, formulas, or text. However, you can’t type
into the black cells. When you try, an error message tells you that these
cells can’t be changed.
This locking, annoying as it may be at times, is done on purpose and
for your benefit. In Figure 2, for example, the row that sums the sales
rows into a final total has a formula that shouldn’t change. Nobody wants
a row labeled “Total sales” to contain anything except the sum of the sales
rows above it. In Figure 3, the row named “Sales” is locked because it
contains the value for total sales from the appropriate row in the sales
forecast. If the cell weren’t locked, somebody who didn’t know the
software might go first to the Profit and Loss table, before seeing the Sales
Forecast table, and logically type sales estimates straight into the Profit
and Loss. After that, the Sales Forecast would no longer be linked into the
Profit and Loss table, so changes in sales wouldn’t automatically reflect in
other worksheets.
 Figure 2: Formula for Cost of Sales as Percent

Many row labels are locked for the same reason. The row named
“Gross Margin” in Figure 3 contains the gross margin, defined as sales
less cost of sales. Since the formula can’t be changed, the label shouldn’t
be changed either. Nobody would want gross margin to be accidentally
renamed to Net Margin or Profit Margin or Contribution Margin or
anything else.

Make Cost of Sales a Percent of Sales

Next, we create a simple formula to make the direct cost of an item a
percentage of the price of that item. In Figure 2 you see another view of
the modified AMT Computers Sales Forecast. This time cell C38 is
selected and its formula, which shows in the edit bar, is:
=$B38*C23
This formula takes whatever the value in cell B23 and multiplies that
by the value in C23. So the value in B38 is .8 (shown as 80%), the value
in C23 is $2,000, and the value in C38 is $1,600, which is 80% of $2,000.
 You can copy that formula to the right across the other monthly cells,
not to the first year summary cell that is locked in column O, and then to
the other annual cells in columns P and on. That will make all of these
cells automatically equal to whatever value is in B38 multiplied times the
price value in the corresponding column of row 23.
Relative vs. Absolute Values
The $ in the formula “=$B38*C23” makes the reference to B38 an
absolute reference to column B on the spreadsheet. If you copy that cell
and paste it into D38, the formula in that cell will be “=$B38*D23.” The
reference to C23 moved one column to the right, but the reference to
column B in $B38 didn’t change.
If we copied the formula in C38 and pasted it into C39, the formula
would become “=$B39*C24.” In that case, the B column remains
absolute because of the $, but the row number adjusts to the change in
location.
If we had made the formula “=$B$38*C23,” then when we copied to
C39, both row and column number would have remained absolute, making
the formula “=$B$38*C24.”

Make One Cell a Percent of Another

You can also use spreadsheet formulas to calculate any one cell using
any mathematical formula, including the value in any other cell. Figure 3
shows an example. Cell C15 is selected. Its formula is “=.5*C14.” The
value in C14 is 5,000, so the value shown in C15 is 2,500, exactly
.5*5000.
 Figure 3: One Row is a Percent of Another

Make a Cell a Percent of Sales

“Sales” is one of several dozen built-in variables. Figure 4 shows how
you can use this built-in English-language variable to create a formula to
make all the cells in a given row depend on sales. They are calculated as a
percent of sales.
The example shows a Profit and Loss table with cell C6 selected. The
formula for C6 calculates that cell by multiplying the variable “sales” by
the value in B6. As with a previous example, the reference to B6 uses the
$B6 to make sure that the reference to column B is absolute, and the
reference to row 6 is relative. That formula was written into C6 first, then
copied to cells D6:N6 and O6:R6.
 Figure 4: Formula Uses Percent of Sales

Named Ranges as Variables

Just as the formula in Figure 4 uses “sales” as a named range, you can
use dozens of other named ranges as variables. These include sales,
earnings, inventory, gross_margin, and more than 100 other range names
listed at the end of this white paper.
Range names automatically adjust for different columns. The formula
“=sales” in column G will show the value of sales in column G. That
same formula is column D will show the value of sales in column D.
Range names will produce errors when used improperly. For example,
the range named “sales” starts in column C and spreads across multiple
columns. The formula “=sales” in column B produces a #VALUE error
because there is no valid value for that column.
However, a range name that occupies a single cell can be used as a
variable anywhere in the financials. For example, since the range
“starting_year” occupies a single cell, you can use the formula
“=starting_year” anywhere in the financials without getting a #VALUE
error.

Three: Linking Tables

Modular Financial Analysis
Business Plan Pro builds its financial analysis on logical modules,
separate tables all linked together. Figure 5 offers a visual explanation. It
shows how these relationships work in general.
 Figure 5: Modular, Linked, Tables

The key is that changes in any one of these tables will automatically
reflect properly in all the others.
• Your Sales Forecast table should show sales and cost of sales.
These same numbers are the ones you use in the Profit and Loss
table.
• As with sales, you should normally have a separate Personnel Plan
table, but the numbers showing in that table should be the same
numbers that show up for personnel costs in your Profit and Loss
table.
• Your Profit and Loss table should show the same numbers as your
Sales Forecast and Personnel Plan tables in the proper areas. It
should also show interest expenses as a logical reflection of
interest rates and balances of debt.
• Your Cash Flow table reflects your Profit and Loss table, plus
changes in balance sheet items and non-cash expenses, such as
depreciation, which are found in the Profit and Loss table. For
example, when you borrow money, it doesn't affect your profit or
loss (except for interest expenses later on), but it makes a huge
difference to your checking account balance.
• The Balance Sheet table has to reflect both the Profit and Loss and
the Cash Flow tables.
• Your business ratios should calculate automatically, based on the
numbers in the Sales Forecast, Profit and Loss, Personnel Plan, and
Cash Flow tables, as well as the Balance Sheet.
Working with Linked Tables
Figure 6 shows how the links work for the Profit and Loss table in a
sample business plan. The view shows the top of the table, not the whole
table. The actual links showing in the illustration are coming in from both
the Sales Forecast and the Personnel Plan tables.

Figure 6: Working with Linked Tables

• At the top of the table you see Sales and Cost of Sales. These rows
come from the summary rows in the Sales Forecast. The cells are
locked on purpose; they can’t be changed.
• The rows containing the linked information are locked. Users can’t
change them. Otherwise, users might not understand linking and
type over the linking formulas.
• The formulas in linked cells won’t always show easily that they are
linked cells. In the example in Figure 6, the formula for sales in
cell C3, which is shown in the edit bar, uses an IF function and
named ranges. It isn’t immediately obvious that the named ranges
come from another worksheet, one named Sales. That’s clear in
documentation and in help files, but not in the formula itself.
(TTKK)
Building Your Own Links
You can use the spreadsheet power to build your own links to fit your
planning needs. Here are some examples:
Simple Link from Sales to Profit and Loss
Assume AMT plans on paying royalties equal to 10% of sales of
software. We can build a formula that does this automatically. That
formula is in Figure 7. We take a row in Profit and Loss named
“Royalties” and link it to the row in the Sales Forecast that contains
software cells.

Figure 7: Simple Link from Sales to Profit and Loss

The formula for cell C6 in the illustration is “=Sales

Forecast!C25*0.1.” You could either type that formula into your
worksheet, or you could follow these steps:
1. Select cell C6 in the Profit and Loss table. This is going to be
the target cell for the link formula.
2. Use the Edit Row Label command in the Format menu to
change its row label from “Other” to “Royalties.”
3. Type the equals sign (=, just the “=” key, no quotations or
parentheses) into the cell.
4. Go to the Table menu and choose the Sales Forecast table.
5. Find the cell you want to be the source cell, in this case cell
C25, and click to select it. Your formula edit bar should at this
point show the formula “=Sales Forecast!C25.”
6. At this point you could press the <ENTER> key and your
formula would copy the contents of cell C25 in the Sales
Forecast into cell C6 in Profit and Loss. However, in this case
 we want to make royalties equal to only 10% of sales of
software, so we type into the formula “*.1.”
7. Press <ENTER>. Your formula is now correct, as “=Sales
Forecast!C25*0.1.” You are probably looking at Profit and
Loss at this point, with cell C6 selected.
8. Even if you are looking at Profit and Loss, go back to your
Table menu and choose Profit and Loss. This puts your
Business Plan Pro back into the right table, the same one
you’re on.
9. To put this same link into the whole row, copy cell C6 and
paste its formula into cells D6:N6, and P6:S6.
Linking from User-Defined into Sales Forecast
Business Plan Pro uses the User-Defined tables to give you more
spreadsheet power and more flexibility with your business plan. In Figure
8 you see how you can link a cell in your Sales Forecast to a cell in the
User-Defined table.

Figure 8: Linking from User-Defined into Sales

Here’s how it is in detail:

1. Select the target cell in the Sales Forecast. In the example, cell
P15 is selected. That cell contains the projection for unit sales
of systems in 2002.
2. Type the equals sign, “=” into the cell (without quotation
marks, just press the key that has = on it).
3. Use the Table menu to go to the User-Defined table that
contains the source cell.
4. Select the source cell by clicking on it. In the example, that’s
cell C40. The formula becomes “=User 1!C40.”
5. Press <ENTER>.
6. Even though you are seeing the Sales Forecast table, use the
Table menu to return the system pointer to the Sales Forecast
table.
 An IF function in Profit and Loss linked to a Sales Row in Sales
Figure 9 shows an expense row from Profit and Loss linked to a sales
row, with a simple IF function to make the link more effective. What the
formula does is check whether training sales (in cell C33 of the Sales
Forecast in Figure 2) are greater than $10,000. If they are, then the
seminar expense is $5,000. If not, then the seminar expense is $2,000.

Figure 9: The IF Function in a Linking Formula

Here’s how you would create that formula link, in your own plan, step-
by-step and in detail:
1. Select the target cell. In this case it is cell C21 in the Profit and
Loss.
2. Type the equals sign, “=IF(” into the cell (without the quotation
marks).
3. Go to the Table menu and choose the Sales Forecast table.
4. Find the source cell in the Sales Forecast table and click on it
to select it. In this case that cell is C33, the first month of
estimated sales of training in the AMT sample plan. At this
point the edit bar shows the formula “=IF(Sales Forecast!C33”
5. Type, into the edit bar, the rest of the formula as shown in the
example, so it ends up “>10000,2000,5000)” and then press
<ENTER>.
6. Use the Table menu to select the Profit and Loss again-- even
though it’s showing--to set the system pointer back to profit
and loss.
7. Copy the formula in C21 to the rest of unprotected cells in the
row, D21:N21 and P21:R21.

Four: Working with User-Defined Tables

Business Plan Pro’s User-Defined tables give you the option of
developing your own complete tables to add to your business plan.
Pasting to User-Defined Table from an Excel Worksheet
You can copy a range from an Excel worksheet and paste it into a
User-Defined table. Figure 10 shows an example of the Excel worksheet
and the Business Plan Pro User-Defined table. If you want to preserve the
formulas within the worksheet, it is a two-step process.

Figure 10: Pasting to User-Defined Tables

Here are the details:

7. In Excel (the example was developed with Microsoft Excel
2000), select and copy the source area you want to use within
Business Plan Pro.
8. Select Business Plan Pro, choose the User-Defined table in the
Table menu. Select the cell you want to have as the upper left
cell in the target range.
9. Use Paste Special in the Edit menu, the Paste All command.
Your Excel spreadsheet will now be pasted into your Business
Plan Pro User-Defined table.
Tips and Traps with Pasting from Excel to Business Plan Pro
1. A simple copy and paste from Excel to Business Plan Pro
copies values only, not formats or formulas. To copy and paste
spreadsheet information completely, including both formulas
and formats, you need to use the Paste Special command in
Business Plan Pro.
2. If you paste a formula from one worksheet containing an
erroneous reference, you’ll get a #REF error in the target
worksheet. That’s true when using Excel alone, and the same
holds true when you paste from Excel into Business Plan Pro.
For example:
• If you copy the formula “=C9” from cell C10 in Excel
into cell C1 in Business Plan Pro (or Excel), you get a
#REF error. Business Plan Pro wants to reinterpret the
 formula to refer to the relative row number: nine is one
less than ten, but when you paste into row one you
don’t have the possibility of a lower row number.
• Copy a formula “=XYZ” (referring to a range name
not already in Business Plan Pro) from Excel and paste
it into Business Plan Pro. Business Plan Pro will
behave like Excel does in this instance. It creates a
new range named XYZ located in a position relative to
the target cell.
• Copy the formula “=sales” from an Excel spreadsheet
and paste it into Business Plan Pro. Business Plan Pro
will create a new range named “=sales_2” and will
give the target cell the formula “=sales_2”. To make
the cell refer to the Business Plan Pro range named
“sales,” you have to edit the formula manually.

Create a Complete User-Defined Table from Scratch

For this example, the AMT computer store wants to develop a more
detailed sales forecast for computer systems drawing from information,
including its projected market size and its projected market share.
If you wonder where the numbers come from, please refer back to the
book Hurdle: the Book on Business Planning, which is included with
Business Plan Pro. The book offers detailed tips on how to develop
forecast numbers, using a combination of research, analysis, common
sense, and educated guessing.
Section 1: Linking Information from the Market Forecast table
Figure 11 shows the customized AMT sample plan User-Defined table.
Figure 11: Detailed User-Defined Table, Part 1

Here are some of the details:

1. Although the system continues to refer to this table as User 1
for linking purposes, we can rename it to something more
appropriate. In the example we call it “Detailed sales
assumptions” instead of “User 1.”
2. The top row contains years. Cell B1 has the formula
“=starting_year,” which refers to a named range within
Business Plan Pro. C1 contains the formula “=B1+1”.
3. We used the Format Menu command to change fonts and
patterns in the background.
4. The cells in this section of the table link to the Market Analysis
table, which contains projected total market numbers for
different market segments. The illustration below shows the
reference formula to the Market Analysis table. All of the cells
in this block, from A2 through F6, refer to the Market Analysis
table. That means that if you decide to change the Market
Analysis table for any reason, you don’t have to retype.
Section 2: Total Sales Based on Percent of Total Market
In the second table block shown in Figure 12, we project the percent of
total market expected to purchase systems within each give year. As with
the total potential market projections, these are a combination of research,
analysis, common sense, and educated guessing.

Figure 12: More on Detailed User-Defined Table

These cells don’t use formulas; they are manually input. They are
assumptions typed into the cells.
Section 3: Calculated Unit Sales
The third block of cells calculated the estimated unit sales for the
geographic market. For each market segment, it multiplies percent of total
by total market to calculate projected total sales for the segment
The illustration shows the formula for cell B18. It multiplies the unit
number in B2 times the percentage in B10, and uses the Business Plan Pro
ROUND function to round that calculation to even numbers.
 The ROUND Function
The formula shown in Figure 12 (“=ROUND(B10*B2,0)”) rounds the
calculation to the nearest whole number. Here are some more examples of
how this function works:
=ROUND(B10*B2,1) would round to a single decimal.
=ROUND(B10*B2,-2) would round to the nearest hundred.
=ROUND(B10*B2,-3) would round to the nearest thousand.

The SUM function

The formula for cell B23 in Figure 12 isn’t shown, but it is an
excellent example of the classic SUM function in a formula. The actual
formula is:
=SUM(B18:B22)
The formula calculates exactly as it seems: the sum of the cells
included in the summation range. These SUM formulas are common in
spreadsheets, and throughout Business Plan Pro as well. The SUM
formula is used to sum unit sales, total sales, and total cost of sales. It’s
used to sum rows in the Personnel Plan, in the Profit and Loss, the Cash
Flow, and Balance Sheet. It is quite common throughout Business Plan
Pro.
There is an illustration of the SUM function in Figure 13, showing the
formula for cell B40 of the same worksheet, which sums the range
(B35:B39).
Fourth and Fifth Sections: Market Share and Sales
The detailed market model then continues into its fourth section,
which contains percentage assumptions of AMT’s share of the local
market. Figure 13 demonstrates this.
 Figure 13: Finished a Detailed User Table

The fifth, and final, section of the model multiplies the total market
projected sales by the assumed AMT percentage market share, in order to
project AMT sales of systems. The final numbers in row 40 of that model
are then linked back into the Sales Forecast, which was associated with
Figure 8 earlier in this discussion.

An Investment Analysis with IRR, NPV, and Valuation

The InteliChild.com sample business plan, which is included on the
Business Plan Pro main disk, includes an investment analysis in its User-
Defined table that uses the built-in functions for Net Present Value (NPV)
and Internal Rate of Return (IRR). Figures 14 and 15 show this table.
Figure 14: Investment Analysis Table

• In 1999, the first-round investors purchase 500,000 shares of a

total 1 million, for $1 per share. At that point, they own 50% of the
company, as is shown in row 10. The initial founders hold 500,000
shares, the other 50% (in cell B6). The valuation at that point is $1
million (in cell B5).
• The company goes public in 2003 with a market cap of $200
million (cell F5). At that time, those first-round investors hold
only 25%, because their initial 50% has been diluted by new shares
and new investors. Their yield at that point is $50 million (cell
B12, repeated in cell F15), 25% of $200 million. They invested
$500K and received $50 million just a few years later.
• The cash stream for them is in cells B15:F15, which results in the
NPV of $15.984 million, shown in B14. Figure 14 shows the
formula that produces the NPV calculation, using the built-in NPV
function. The function goes:
=NPV(discount rate, cash stream)
so you can see how it is applied in this case.
The formula shows in Figure 14.
 Figure 15: Investment Analysis Table, IRR

• Their IRR is in cell G15, a healthy 216.23%. Figure 15 shows you

the exact formula for calculating IRR, following the function
syntax:
=IRR(cash stream, starting discount
rate)
• In 2000, the company issues 500,000 new shares (note the total
increase in cell C4) and sells them to the second-round investors
for $4 per share. Total valuation is then $6 million (cell C5,
multiplying total shares in C4 times value per share in C9). These
investors purchase 1/3 of the company (C10) for $2 million (C7).
• When the company goes public in 2003, if all goes according to
plan, these investors will have 25% ownership, worth $50 million.
That means their investment yields NPV of $18.88 million (C14)
and IRR of 192.4% (G16). Business Plan Pro produces those
values using the NPV and IRR functions.
• The third- and fourth-round investors purchase additional shares at
higher valuations, as shown in the rest of the worksheet.
The Net Present Value (NPV) Function
Business Plan Pro offers a built-in Net Present Value (NPV) function,
as shown in detail in Figure 14. The formula is shown in the edit bar, for
the cell selected in the illustration the normal way to put this function is:
=NPV(discount rate, cash stream)
 In the example, both the discount rate and the cash stream are
references to a cell and a block of cells. However, you could also use the
function:
=NPV(.25,-500000,0,0,0,50000000)
to generate the same results shown in Figure 14.
The Internal Rate of Return (IRR) Function
Business Plan Pro offers a built-in Internal Rate of Return (IRR)
function as shown in detail in Figure 15. The formula for the cell selected
shows in the edit bar of this illustration. The normal way to put this
function is:
=IRR(cash stream, starting discount rate)
In the example, both the starting discount rate and the cash stream are
references to a cell and a block of cells. However, you could also generate
the same results by citing the block of cells containing the cash flow, and
typing the discount rate, as in
=IRR(B15:F15,.25)

An Example with Assets and Depreciation

Although we recommend a much simpler treatment of assets and
depreciation, Figure 16 shows another User-Defined table that uses
depreciation functions to help manage assets. We also used the built-in
depreciation functions to handle depreciation automatically: Note, for
example, the use of the SYD depreciation function in the edit bar, for cell
C11.
 • We depreciate Machine 2 with the sum of the year's digits (SYD) depreciation
method, a built-in depreciation function compatible with Microsoft Excel
depreciation functions.
• The syntax is as shown: =SYD(purchase price, salvage value, years of life,
period)
• We copied that formula over to the rest of the row to calculate depreciation for
that machine for five years.
• We depreciated Machine 1 according to the straight-line method, another built in
function. The syntax for that function is: =SLN(purchase price,salvage value,
years or life)
• which means that the actual formula in cells B10:F10 is: =SLN($B$2,10000,10)
• We purchase Machines 3 and 4 according to the assumptions shown in the
illustration, using the depreciation functions as well. Machine 3 gets straight-line
depreciation and Machine 4 gets SYD depreciation.
• For the last line, which summarizes all other capital expenses for the various
years, we depreciate by taking 20% of the value of the purchase in each year, for
each of the successive years. The underlying assumption is that all purchases are
assets good for five years, depreciated straight line at 20% per year, with no
salvage value.

Errors and such

1. Locked cells.
2. Absolute reference vs. relative reference
3. How to insert a row
4. The IF function
The IF Function in Business Plan Pro Worksheets
The formula shown in Figure 5 works with an IF function, and
important element of spreadsheet programming used frequently in
Business Plan Pro. Here’s the syntax:
=IF (test, yes, no)
Figure XX offers an example that’s easy to follow. Go to an empty
User-Defined table in Business Plan Pro and select cell B1. Type the
formula “=IF (A1=1,5,7)” into cell B1. If A1 is empty, then the formula in
B1 should make it have the value seven. If A1 were equal to one, then this
IF formula would make B1 equal to five. Try it yourself and you’ll see
how it works. If the test value is true, then the function executes the
formula in its second portion, after the first comma. If not, it executes the
formula in the last part, after the second comma.
 Figure XX: IF Function in Action

So the formula you see in the edit bar in Figure 5, which is “=IF
(SFCA=1,Sales2, Sales3)” tests first whether SFCA is equal to one. If it
is, then the cell picks up the value in a range named Sales2. If it isn’t, the
cell has the value in the range named Sales3. SFCA is a named variable.
We use it in Business Plan Pro to keep track of whether you’ve chosen (in
the Plan Wizard) to forecast sales by units or value. If you’ve chosen the
value forecast, Business Plan Pro sets SFCA to one. If not, it doesn’t.
You wouldn’t need to know this to work with Business Plan Pro, but in
this context it helps you understand the use of the IF function.

5. Range names
Accounts_payable =Balance!$C$18:$BS$18
Accounts_receivable =Balance! $C$6:$BS$6
Accumulated_depreciation =Balance! $B$12:$Q$12
Acid_test =Ratios! $B$29:$Q$29
Administrative_salaries ='P&L'! $B$25:$Q$25
Asset_turnover =Ratios! $B$30:$Q$30
Assets_to_sales =Ratios! $C$26:$C$26
Burden_in_Income ='P&L'! $C$26:$S$26
Capital =Past! $A$25:$D$27
Capital_assets =Balance! $B$11:$AQ$11
Capital_expenditure ='Cash Flow'! $B$16:$AQ$16
Capital_input ='Cash Flow'! $B$10:$AQ$10
Collection_days =Assumptions! $C$6:$AS$6
Cost_of_sales ='P&L'! $C$8:$BS$8
Cost_of_unit_sales ='P&L'! $C$4:$BS$4
Debt_and_equity =Balance! $B$16:$Q$16
Depreciation ='P&L'! $C$27:$BS$27
Dividend_payout =Ratios! $C$32:$Q$32
Dividends ='Cash Flow'! $C$17:$BS$17
Earnings =Balance! $B$28: $AQ$28
Earnings_Year =Balance! $O$28:$Q$28
Fixed_cost ='Break-even'!$B$8
General_and_Administrative_Payroll ='P&L'!$24:$24
General_and_Administrative_percent ='P&L'!$B$35:$BQ$35
Gross_margin ='P&L'!$C$9:$BS$9
Gross_margin_percent ='P&L'!$B$10:$BQ$10
Indexor =Logistics!$C$20:$AN$20
Insurance ='P&L'!$B$32:$Q$32
Interest_expense_LT ='P&L'!$C$46:$BS$46
Interest_expense_ST ='P&L'!$C$45:$BS$45
Inventory =Balance!$C$7:$BS$7
Liabilities =Balance!$C$24:$AQ$24
Long_term_Assets =Balance!$B$10:$AQ$10
Long_term_interest_rate =Assumptions!$C$4:$AS$4
Long_term_liabilities =Balance!$B$23:$AS$23
Net_cash_flow ='Cash Flow'!$B$19:$AQ$19
Net_profit ='P&L'!$C$48:$BS$48
Net_profit_margin =Ratios!$C$4:$Q$4
Net_worth =Balance!$B$31:$AQ$31
New_accounts_payable =Logistics!$C$16:$AQ$16
Other_Operating_Expenses ='P&L'!$B$36:$BQ$36
Other_ST_liabilities =Balance!$B$20:$AQ$20
Paid_in_capital =Balance!$B$26:$AQ$26
Past_Earnings =Past!$B$34:$D$34
Past_Gross =Past!$B$4:$D$4
Past_range =Past!$A$1:$D$41
Past_Sales =Past!$B$3:$D$3
Past_Years =Past!$B$2:$D$2
PastAccDepr =Past!$D$19
PastAP =Past!$D$25
PastAR =Past!$D$13
PastCapital =Past!$D$32
PastCash =Past!$D$12
PastCollectionDays =Past!$D$7
PastGM =Past!$D$5
PastInv =Past!$D$14
PastLTA =Past!$D$18
PastLTL =Past!$D$30
PastOpex =Past!$D$6
PastOthSTA =Past!$D$15
PastOthSTL =Past!$D$27
PastPaymentDays =Past!$D$39
PastSales =Past!$D$3
PastSTL =Past!$D$26
PastTurnover =Past!$D$8
Payables_Percent =Assumptions!$C$9:$AS$9
Payment_days =Assumptions!$C$5:$AS$5
Payroll =Personnel!$C$53:$AS$53
Payroll_burden =Personnel!$C$54:$AS$54
Payroll_Expense ='P&L'!$25:$25
Personnel_burden_percent =Assumptions!$C$11:$AS$11
Personnel_Complex =Personnel!$A$22:$BS$55
Personnel_Medium =Personnel!$A$5:$BS$20
Personnel_Simple =Personnel!$A$1:$BS$3
Price_per_unit ='Break-even'!$B$6
Production_payroll ='P&L'!$5:$5
Profit_before_int_and_taxes ='P&L'!$C$44:$BS$44
Ratio_Analysis =Ratios!$N$2:$Q$32
Ratios_range =Ratios!$A$1:$R$32
Receivables_turnover =Ratios!$C$9:$Q$9
Retained_earnings =Balance!$B$27:$AQ$27
Return_on_Assets =Ratios!$C$5:$AQ$5
Sales ='P&L'!$C$3:$BS$3
Sales_and_marketing_expenses ='P&L'!$B$12:$BQ$12
Sales_and_Marketing_percent ='P&L'!$B$22:$BQ$22
Sales_Breakeven ='Break-even'!$B$3
Sales_Months ='P&L'!$C$3:$N$3
Sales_on_credit =Logistics!$B$15:$AQ$15
Sales_on_credit_percent =Assumptions!$C$10:$AS$10
SalesForecastCostOfSales ='Sales Forecast'!$A$46
SalesForecastDirectCost ='Sales Forecast'!$A$10
SalesForecastTotalSales ='Sales Forecast'!$A$33
SalesForecastUnitCosts ='Sales Forecast'!$A$40
SalesForecastUnitPrices ='Sales Forecast'!$A$27
Short_term_interest_rate =Assumptions!$C$3:$AS$3
Short_term_notes =Balance!$B$19:$AS$19
Start_date =Logistics!$C$1
Start_up_inventory ='Start-up'!$A$14:$D$14
Starting_month =Logistics!$B$7
Starting_year =Logistics!$B$8
StartUpAP ='Start-up'!$B$33
StartUpCapital ='Start-up'!$B$30
StartUpCash ='Start-up'!$B$13
StartUpInventory ='Start-up'!$B$14
StartUpLTA ='Start-up'!$B$18
StartUpLTL ='Start-up'!$B$37
StartUpOtherSTA ='Start-up'!$B$15
StartUpSTL ='Start-up'!$B$34
StartUpSTLO ='Start-up'!$B$35
Subtotal_short_term_liabilities =Balance!$B$21:$AQ$21
Tax_rate_percent =Assumptions!$C$8:$AS$8
p6Taxes_incurred ='P&L'!$C$47:$BS$47
Total_assets =Balance!$B$14:$AQ$14
Total_cost_of_sales ='P&L'!$B$8:$BQ$8
Total_debt_and_equity =Balance!$B$30:$AQ$30
Total_equity =Balance!$B$29:$AQ$29
Total_General_and_administrative_expense
='P&L'!$C$34:$BS$34
Total_Liabilities =Balance!$B$24:$AQ$24
Total_long_term_assets =Balance!$B$13:$AQ$13
Total_Operating_Expenses ='P&L'!$C$43:$BS$43
Total_other_op._exp. ='P&L'!$C$40:$BS$40
Total_Sales ='P&L'!$C$3:$AQ$3
Total_Sales_and_marketing_expense ='P&L'!$C$21:$BS$21
Total_short_term_assets =Balance!$B$9:$AQ$9
Units_Breakeven ='Break-even'!$B$2
Variable_cost_per_unit ='Break-even'!$B$7