Below is a screen shot of the Misc Bal Sheet tab from Sample Mfg., Inc. Looking at the Current Liabilities section, you’ll notice there are 6 available “slots” that can be used to customize the Balance Sheet.

Before we talk about the specifics of Sample Mfg., let’s define the available codes found at the bottom of the Liabilities section shown in the following screen shot:

• CI = Cash In; a debit to Cash and a Credit to the Balance Sheet line item it is entered on
• CO = Cash Out; a credit to Cash and a Debit to the Balance Sheet line item it is entered on
• A=Accrual; This is a one-sided, Balance Sheet ONLY entry. It can be used to manually adjust the Balance Sheet. You might use this reduce Balance Sheet Items that you’ve already entered as expenses on the P&L (for example, you might list “Warranty” expense on the OH.SGA tab, but in fact it’s an accrual for warranty claims to be paid at some point in the future. You could use this code to handle the expense side separate from the Balance Sheet side. This is not the preferred way to handle accruals, but it will work.
• XD = This code is currently not used for the Liabilities section (Do NOT use it)
• XO = Non-Cash Overhead Costs. This was covered in our previous lesson.
• XS = Non-Cash S,G&A Costs. Also covered in our previous lesson
• DR = Deferred Revenue. This code is used to move amounts from customer deposits or other pre-paid revenue items to Sales. More on this below.

OK, back to Sample Mfg., Inc. Looking back at the first screen shot (above), we see that the first two items under Current Liabilities are:

• Deferred Revenue
• Miscellaneous Reserve

Using the Deferred Revenue code DR changes the way Sales and Accounts Receivable are handled. It allows you to separate the Cash side of a transaction from the revenue recognition side of a transaction. It would typically be used in situations where a company receives some “upfront” payment on a project that will take several months or more to complete.

In the case of Sample Mfg. a $25,000 invoice will be sent out for a deposit on a customer project in April, 2007. It is anticipated that the project will be completed in June, 2007, so we show the liability completely removed at that point.

Now, let’s look at the impact of this transaction on Sales and A/R. Below is a screenshot of the Sales tab.

As you can see, the Sales line for “Misc” items has been reduced by $25,000 in April (the invoice went out, but was not yet earned), and increased in by $25,000 in June (the revenue was earned but not invoiced). The “adjusted” total montly Sales from row 39 will flow to the Sales line on the P&L to place revenue in the correct period (when earned).

Now let’s look at the A/R impact of the Deferred Revenue code. The screenshot below shows the AR tab for Sample, Mfg.

As you can see, the amount going into A/R for April is $75,000 (this is the amount invoiced, not the amount earned), and the amount going into A/R in June is $70,000 – - not the $95,000 of earned revenue shown on the P&L.

In summary, the Deferred Revenue code allows you to project out the differences between when you receive Cash vs. when Revenue is recognized.

One variation on the above example would be to code the incoming payment as Cash In (CI as opposed to DR), and use the DR code to relieve the liability in subsequent months as the revenue is earned. This assumes the invoice for the initial deposit or downpayment is not included in the Sales projection.

Miscellaneous Reserve

This example illustrates how to itemize specific liabilities you may want to show on the balance sheet. In our example, Sample Mfg. shows an opening balance for Miscellaneous Reserve of $50,000.

Let’s assume that this is for warranties or customer guarantees. In February, the company anticipates paying out $15,000, so the CO code is used for Cash Out. Alternatively, the company may decided to decrease this reserve, and could use code XS or XO for non-cash expenses (in this case, a reduction of expenses) to increase income.

Expenses accrued on the OH.SGA tab using code “A” will all be “rolled up” into one line item (the Accruals line) on the Balance Sheet. If you wish to itemize certain accruals or liabilities, you can do so in this section of the Misc Bal Sheet tab.

Equity Section

The Equity section of the Misc Bal Sheet tab is shown in the screenshot below. You’ll notice that there are no codes used in this section; all transactions in this section are treated as “cash”.

Sample Mfg. shows an additional capital contribution of $50,000 in February (cash in) and quarterly dividends of $25,000 (cash out).

That concludes our lesson on the Misc Bal Sheet tab.

Dedicated to Your Modeling Success,

 Todd Rammler

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Below is a screen shot of the Misc Bal Sheet tab from Sample Mfg., Inc. Our focus for today is the Asset portion of this tab, which is divided into 2 sections: Current Assets and Other Assets. For each section, there are 6 available “slots” that can be used to customize the Balance Sheet. The 2 sections function exactly the same way. The only difference is where they show up on the Balance Sheet.

Before we talk about the specifics of Sample Mfg., let’s define the codes found at the bottom of the Asset section shown in the following screen shot:

• CI = Cash In; a debit to Cash and a Credit to the Balance Sheet line item it is entered on
• CO = Cash Out; a credit to Cash and a Debit to the Balance Sheet line item it is entered on
• AM=Amortization; This is a one-sided, Balance Sheet ONLY entry. It can be used to manually adjust the Balance Sheet. You might use this reduce Balance Sheet Items that you’ve already entered as expenses on the P&L (for example, you might list insurance expense on the OH.SGA tab, but in fact it’s an “amortization” of pre-paid insurance. You could use this code to handle the expense side separate from the Balance Sheet side. This is not the preferred way to handle prepaid insurance, but it will work).
• XD = Non-Cash Direct Cost. This cost will be transferred to the Direct Costs tab on row 21 as an expense. This type of transaction might be used by a Job Shop setup, where one of the Misc Bal Sheet items is WIP. Costs would be accumulated in WIP until the job is completed and shipped/sold. At that point, the costs are transferred out of WIP and over to the Direct Costs tab using code XD.
• XO = Non-Cash Overhead Costs. This is for costs that will be transferred to the Overhead section of the P&L (through the OH.SGA tab). More on this shortly.
• XS = Non-Cash S,G&A Costs. This is for costs that will be transferred to the S,G&A section of the P&L (through the OH.SGA tab). More on this shortly, as well.
• AP = Transfer to Accounts Payable tab, row 15. This code might be used to handle the payment of pre-paid expenses instead of the CO code. The difference would be using standard payment terms as opposed to immediate cash payment with code CO.

OK, back to Sample Mfg., Inc. Looking back at the first screen shot (above), we see that the first three items under Current Assets are:

• Short Term Investments
• Prepaid Expenses
• Refundable Taxes

Short Term Investments, is the only “slot” on this tab that cannot be changed. This is because of its placement on the Balance Sheet, just below the Cash line. If your company does not have any Short Term Investments, simply leave it blank.

Prepaid Expenses are made up of 3 separate line items for Sample Mfg., Inc. The first is the “amortization” or expensing of the opening pre-paid insurance balance. The company is expensing $2,500/month as shown on the schedule. Code “XS” is used to reduce pre-paid expenses, and increase S,G&A expenses on the P&L. Let’s look at the OH.SGA tab to see where the $2,500/month flows to.

As you can see in the above screenshot, the $2,500/month shows up in row 83 automatically. The only thing that needs to be done is give this row an appropriate P&L code on the OH.SGA tab. In the case of Sample Mfg., this code is already entered in cell D83, which has been coded with an “I” for Insurance Expense. This code is carried down to the summary portion of the OH.SGA tab where we have labeled it as “Insurance”. This is how it will be labeled on the detail P&L.

The next item is Prepaid Maintenance, which in this case is a maintenance contract on Hi-Lo’s. Sample Mfg., is expensing $500/month on this contract under code XO (Non-Cash Overhead). This code follows the same process as XS for pre-paid insurance (above) except it is going to show up in row 28 of the Overhead section of the OH.SGA tab (see below). We have given it a P&L code of “RM” for Repairs & Maintenance expense.

Finally, we see an item called “Prepaid Insurance – Renewal”. This is the up front payment of $50,000 on the following year’s insurance policy, and is coded with “CO” for Cash Out. It will be “amortized” or expensed in a similar fashion in the subsequent year.

Note that some items on the Misc Bal Sheet tab may have no activity for a given year, such as “Deposits” and “Shareholder Receivable” in the case of Sample Mfg., Inc. Remember, the Balance Sheet in XL Projection PRO should be set up to reflect your company’s actual Balance Sheet. That way the projections are much easier to put together.

Next lesson: Misc Bal Sheet tab, part 2: Liabilities & Equity, will be arriving via email in just a few days!

Dedicated to Your Modeling Success,

Todd Rammler

Today we’re going to demonstrate one of the features that makes XL Projection PRO so flexible – the ability to use customized support schedules to feed the model.

For this demonstration we’ll use Sample Advertising, Inc., one of the two sample companies included when you downloaded the file.For today’s illustration, we are going to add a Payroll support schedule to provide more detail and better timing to the expense & cash projection.

Below is a screenshot of a payroll support schedule that I added to Sample Advertising, Inc.

You can see from this screenshot that I have detailed each position within the company as well as an open position (New Account Manager), a year-end bonus accrual, and a budgeted amount for raises that will take effect beginning in July. In this example, the company pays employees bi-weekly, so there are 26 pays per year. That means 2 of the 12 months will have 3 pays per month and all other months will have 2 pays per month. I have detailed this along the top of the schedule.

Using this support schedule will produce a much more accurate projection for Sample Advertising due to the use of bi-weekly pay periods as well as changes in staffing levels and pay rates. Since this is a custom schedule that you create, you could include any amount of detail you like, as long as it results in a final projection amount by month.

Now we’ll link this schedule to the model. (NOTE: You should keep all support schedules within the model file to eliminate complications with “updating links” to external files).

The screenshot below shows the OH.SGA tab for Sample Advertising, Inc. before any changes.

First, we’ll delete the amount entered in Section 1 (cell F53) for Salaries.

Next, we’ll move over to Section 2 of the OH.SGA tab and insert the formula shown in the screenshot below:

To insert this formula, click on cell N53. Type “+”, click on the “PR” tab, click on cell “F24″ and hit “Enter”. Excel has now created the formula for you in cell N53. Now you can “drag” this formula to the right all the way through December.

Obviously you don’t have the “PR” tab in your file, but you would follow the same procedure to link the OH.SGA tab to any customized support schedule you add.

That’s it, pretty simple, but very powerful! Other examples of items you might add a custom support schedule for:

• Sales detail by product or product family
• Detailed Direct Cost/Margin data that feeds the Model Flags tab for various cost relationships
• Other Overhead & SGA categories (Benefits, Repairs & Maintenance, Sales Commissions, etc)
• Fixed Asset purchases/disposals

As you can see, custom support schedules are a relatively easy way of adding another level of accuracy to your projections. Look for your next Modeling Success Strategies e-mail topic in just a few days!

Dedicated to Your Modeling Success,

Todd Rammler

In today’s Modeling Success Tips lesson, we’ll pick up where we left off a few days ago, working our way through the Model Flags tab of Sample Mfg., Inc. A screenshot of the Model Flags tab is shown below.

We’ll begin with the A/P & Accrual Inputs section.

A/P Inputs: These should be staight forward.

Accrual Inputs:

Opening Bal. – Payroll Accrual: Enter the amount of accrued payroll from the companies existing Balance Sheet

Opening Bal. – Other Accruals: Enter the sum of all other accruals here. NOTE: Amounts entered here will be shown on the Balance Sheet as “Accruals” on one combined line including the Payroll Accrual above. If you would like to have one or more classes of accruals segregated and itemized on the Balance Sheet, they should be set up on the Misc Bal Sheet tab, not here.

Accrued Payroll Holdback Period: Enter a “0″ or a “1″. “0″ indicates that there is NO holdback period; when employees are paid, they are paid up through the check date, and therefore there will be no accrual for payroll. (If you enter a “0″ here, there should be no amount on the Opening Bal. – Payroll Accrual line above). “1″ indicates that payroll IS heldback one period, and therefore an accrual will be calculated.

Next up: Revolving Line of Credit. Let’s look at the screen shot below.

The first two questions have to do with a “formula driven” line of credit vs. an open line of credit. A formula driven line generally requires you to calculate the amount you can borrow using a formula provided by the bank. The company would fill out borrowing base reports which are submitted to the bank periodically. Under an open line of credit, there are usually no calculations or reporting requirements.

Advance Rates, Caps and Ineligibles are determined by your borrowing formula provided by your bank. Some of these items may not apply to your company, in which case they can be zero’d out.

Other Collateral and Other Reserves would also be specified in the borrowing formula provided by your bank. Examples might include an investment account or real estate that has been pledged as additional collateral, or reserves for miscellaneous items that the bank cannot “perfect” its lien on (progress or advance billings, construction liens, etc.).Data from this section is carried to the “LOC” tab where the line of credit projection is calculated.

Finally, we’ll look at A/R, Misc Balance Sheet Items, and Taxes

A/R Inputs: Each class of Sales can have a unique collection period. All collection periods (days to collect) must be in 15 day increments.

Misc Balance Sheet Items: We will cover this tab in detail in another lesson. The hyperlinks can be used for quick navigation.

Calculate Current Portion of Long Term Debt (CPLTD): You can choose to show this on the Balance Sheet or not. A portion of Long Term Debt is reclassified into the Current Liabilities section of the Balance Sheet. Tax Inputs:Tax rates are used to accrue income taxes for C Corporations; other entities can enter “0″ for the tax rate. Taxes are accrued monthly and paid as quarterly estimates.

NOL Carryforward and Other Tax Adjustments are taken into consideration before any accruals begin. In the case of Sample Mfg., no taxes are accrued until after the first $100,000 of profit is earned. You can see the result of this by looking at the P&L tab.

Well, that’s it, the Model Flags tab is done! Look for your next Successful Modeling Strategies email topic in just a few days!

Dedicated to Your Modeling Success,

Todd Rammler

This statement looks clean and neat. You’ll notice on the left side, that the row numbers are in blue and that many rows are skipped. Also, the filter dropdown button (in cell C5) is blue. These signs mean that we are “filtering” the worksheet; we’re not displaying all the rows.

If I click on the filter dropdown button and select “All”, the P&L changes to this:

Notice the “x’s” in column B. Because there are more P&L line items available than I needed for this particular company, the unused rows contain an “x”. In fact, we’ve filtered out the entire Overhead and Gross Profit sections of the P&L, because this particular company chooses not to use them. (The Overhead & Gross Profit sections can be seen in the Sample Mfg. company included with your download of XL Projection PRO.)

One important difference between the Balance Sheet and P&L filters: on the Balance Sheet, the user types an “x” in rows that are to be “filtered”. On the P&L, the program automatically places an “x” in any row that does not contain a value in the Totals column.

The automatic “x” on the P&L only applies to rows that could contain values. So in our Sample Advertising company, I manually keyed in an “x” in all the “title” rows of the Overhead & Gross Profit section (to completely filter out these sections). (While we’re looking at it, you’ll also note that Depreciation is shown in both the Overhead and S,G&A sections of the P&L. The user can choose to send Depreciation Expense to either section, or both. This is done on the Fixed Asset tab).To re-filter the sheet, simply click the filter button and select “Blanks” which will display only the “blank” rows (i.e., no “x”).

Important Note: Only filter rows that have no values for the entire projection period. If you filter a row with an amount, the totals will be correct, but the line items will not add up to the total. So it’s a good idea to double check the filters from time to time to make sure you’re not accidentally filtering out the wrong rows!

Dedicated to your Modeling Success,

Todd Rammler

For this lesson, I will be referring to the Sample Mfg. Inc. company, which was included with your download of XL Projection PRO.

O.K., it’s time to get started! We’ll begin by looking at the top portion of the Model Flags tab, seen in the screen shot below (click to enlarge).

SALES INPUTS

Define Sales Classes: Segregate classes of Sales that have different margins or costing methodologies. In Sample Mfg., we use Parts, Services and Misc.

Deferred Revenue: You can use the Deferred Revenue feature with ONE of the 5 different classes of Sales. Most commonly, this would be used when a customer pre-pays, provides an up front deposit, or otherwise sends the company cash that has not yet been earned. The Deferred Revenue code (DR) is used on the “Misc Bal Sheet” tab and the “Sales” tab. If your company does not use Deferred Revenue, leave all the cells blank.

DIRECT COST INPUTS

There are three different direct cost types available for each class of Sales. In Sample Mfg., the cost types are Materials, Labor and Freight. The first and the third are costed as a percentage of the corresponding Sales class. The second cost type (Direct Labor in our example) can be either a percentage of Sales, or a fixed periodic amount (one or the other). If you want to use a customized amount that changes from period to period, you can also enter values directly on the Direct Costs tab on one of the three manual adjustment lines. In this case you would leave the model flags cost input cells blank and go directly to the Direct Costs tab. This is not the preferred approach, but it will work.

Apply Burden? This flag is applicable ONLY if you’re using Direct Cost Category 2 for Labor. If you key in a “Y” for Yes, you will need to enter a burden percentage in cell C46. Now let’s “page down” on the Model Flags tab and discuss the inventory and burden input fields, referring to the screen shot below.

INVENTORY

Define Inventory Class: This field is a description for the user. Class 1 inventory is tied to Class 1 Sales, and so on.

Targeted Days Stock: For each class of Inventory, you may set a targed number of days inventory to keep on hand, for both Finished Goods and Components. If the business resells material, you could simply use the Component portion and set the Finished Goods days to 0.

Opening Inventory: Enter the opening inventory balances for each Inventory Class and type (F/G and/or Components). These totals will populate the opening Balance Sheet, so the should agree with the values on your existing financial statements.

Absorb into Inventory: Absorption applies only to Finished Goods Inventory (not Components). For your first pass at setting up the model, I would suggest setting these flags to “N” for both Labor and Overhead. Once you get the model working and are more comfortable using it, you can come back and change these to “Y” where applicable if you’d like.

Labor: If the flag is set to “Y”, labor is added into Finished Good Inventory at the corresponding percentage of Sales.

Overhead: If the flag is set to “Y”, overhead is added into Finished Goods as a percentage of Sales (calculated by the Model).

VARIABLE BURDEN

Enter the amount of burden to add to labor expense for the various classes of labor (i.e., Direct, Indirect, S,G&A). You may choose to use this feature for Payroll Taxes ONLY; Payroll Taxes + Benefits; or not at all, if you intend to itemize the expenses elsewhere. In the case of Sample Mfg., we are using this field to account for ALL burden on Direct Labor, and only Payroll Taxes on Indirect and S,G&A Labor. Remaining benefit costs are itemized on the OH.SGA tab in the appropriate sections.

Wow, we’ve covered a lot today! We’ll continue through the Model Flags tab in Part 2 of this lesson in just a few days.

Dedicated to Your Modeling Success,

Todd Rammler

We’ll begin by looking at the Balance Sheet of Sample Advertising, Inc. (screenshot below).

This statement looks clean and neat. You’ll notice on the left side, that the row numbers are in blue and that many rows are skipped. Also, the filter dropdown button (in cell C5) is blue. These signs mean that we are “filtering” the worksheet; we’re not showing all the rows.

If I click on the filter dropdown button and select “All”, the Balance Sheet changes to this:

Notice the “x’s” in column B. Because there are more Balance Sheet line items available than I needed for this particular company, I simply typed an “x” in any row that I’m not using in Column B. This allows the flexibility to accommodate various company specific situations, without inserting or deleting rows – which is where formulas often get messed up.

To re-filter the sheet, simply click the filter button and select “Blanks” which will display only the “Blank” rows (i.e., no “x”).

Important Note: Only filter rows that have no values for the entire projection period. If you filter a row with an amount, the totals will be correct, but the line items will not add up to the total. So it’s a good idea to double check the filters from time to time to make sure you’re not accidentally filtering out the wrong rows!

The Cash Flow Statement is filtered in the same fashion as the Balance Sheet. The P&L, however, is slightly different, and this will be the subject of your next Successful Modeling Strategies lesson in just a few days.

Dedicated to Your Modeling Success,

In the screenshot below, I’ve filtered out the unused rows from the OH.SGA tab of the Sample Advertising company.

In Section 1 we can enter expense amounts that are expected to be similar every month. In Sample Advertising, the monthly rent is expected to be $8,000 per month.

There are two methods of entering costs here: monthly or annually. You can use whichever method is more convenient and the model will calculate the amount per month. Do not enter values in BOTH the Monthly AND Annual columns; one or the other. If the monthly expense for a particular line item varies widely and you want to reflect this in your projection, you can do so in one of two ways:

1. Enter a baseline amount in Section 1, and then make adjustments to the baseline in Section 2 to get the total projected amount by month;
2. Leave the amounts in Section 1 BLANK and enter a customized projection by month in Section 2.

Therefore, if you have only a handful of exceptions to the “normal” monthly amount, you may choose option 1. On the other hand, if you’d like to budget for a particular line item individually by month, option 2 would be the preferred method.

Now let’s take a look at Section 2.

As discussed above, this section is used for customizing the expense projections by month. You can see that Sample Advertising, Inc. has only a few adjustments to their basic monthly projections.

To clarify, any amounts in Section 2 are combined with any amounts in Section 1 to arrive at the total monthly projection for that line item.

You will also note that the amounts for Non-Cash expenses (from Misc Balance Sheet and Depreciation) are not adjustable on this schedule. If an adjustment is needed, it must be done on the corresponding source tab. (Follow the formula in the appropriate cell).

Section 3 is used for entering ACTUAL results ONLY. The actuals are simply keyed in, and the model then ignores Sections 1 and 2 in favor of the actuals in section 3. Any amount entered in Section 3 will create a title above the appropriate column displaying “Actual”. I’ve keyed in a sample in the exhibit below.

In order for the model to balance, actuals may need to be entered in all areas – P&L, Balance Sheet, and Cash. Entering actuals in other areas will be covered in another series of Successful Modeling Strategies email lessons.

Finally, in Section 4, all data is summarized across and fed into the P&L. No user entries take place in Section 4. As you can see from the screen shot below, Section 4 now shows one month of “Actuals” and 11 months of projections.

One way to familiarize yourself with this (and other) tabs, is to make a copy of the model under a different file name and clear it out using the Model Reset button. Then you can enter in one piece of data at a time and see where it goes and what the diagnostic codes tell you.

Dedicated to Your Modeling Success,

Todd Rammler