Asset Investment Assumptions
With just a few simple inputs, the model will automatically produce a detailed depreciation and amortization table and update the Income Statement, Cash Flow Statement, and Balance Sheet according to your inputs.
How to Enter Assumptions
The input forms in this section are for any capital expenditure you are planning over the life of your business plan and include two types of investments:
Tangible Assets (assets that will be depreciated such as Plant, Property, and Equipment, including any existing property at the time of launch).
Intangible Assets (assets that will be amortized such as Intellectual Property, software, and organizational expenses).
For each tangible and intangible asset, you only need to fill out four fields:
Name – The name of the asset
Month Acquired – The numerical month of your plan in which the asset is purchased. If you will acquire it in the 13th month of the plan, enter 13 here
Total CapEx – This is the total amount of Capital Expenditure
Useful Life in Months – This is the number of months the asset can be used by the business. The asset will be depreciated or amortized over this amount of time.
There is also a field where you can specify the replacement CapEx value for Tangible Assets. An assumption of 100% means that you start to reinvest CapEx at the same level as depreciation in Month 13; since it is highly unlikely that you can buy a tangible asset and never have to replace it, most business plans will assume that ongoing CapEx equals Depreciation, a 100% replacement rate.
How Does Asset Investment Work?
While an expense is recorded immediately and will impact your startup’s Income Statement, an asset investment will show up on your Balance Sheet and the expense of that asset will be spread out over its useful life.
There are two types of assets: Tangible Assets (physical assets that will be depreciated such as Plant, Property, and Equipment, including any existing property at the time of launch) and Intangible Assets (non-physical assets that will be amortized such as Intellectual Property, software, and organizational expenses). Depreciation and Amortization work the same way in that the expense is spread out over the useful life.
Both asset types work the same way, but Tangible Assets show up on your financial statements as a Fixed Assets and Depreciation Expense, but Intangible Assets show up as Other Assets and Amortization Expense.
Here’s an example of a SaaS (Software as a Service) app startup: Let’s say you are developing a SaaS app and are going to spend $250,000 developing the initial version of your app prior to going “live” with subscribers. According to normal accounting rules, you would capitalize your initial development cost of $250,000 (and let’s assume that your useful life of your app is five years) and then you would expense your ongoing development and support thereafter. (See this post R&D Expense Assumptions for a SaaS Startup for more details on pre-launch and post-launch SaaS expenses.)
Your Asset Investment assumption input, in this case, would be entered as an Intangible Asset because it is a software investment and would look like this:
And after calculating your model, your simple entry from above is automatically added to an amortization table and applied to all of your financial statements, financial ratios, investor return summary, key metrics, etc.
Here’s how the CapEx and Depreciation Schedule looks with your assumption from above (you can click on Month to see the monthly detail, also, note that we’ve also entered another $30,000 of hardware expense as a Tangible Asset):
Here’s how the Operating Activities and Investing Activities of your Pro-Forma Cash Flow statement looks with the yellow highlights showing the impact of your assumptions from above:
Here’s how your Pro-Forma Balance Sheet looks when we click into the Other Assets detail – you can see the full value of the Intangible Asset of your SaaS app and the Amortization amount:
Here’s how your Pro-Forma Income Statement looks when we click into the G&A Expenses detail to see the Amortization Expense: