How to Prepare Financial Plans

HOW TO PREPARE FINANCIAL PLAN

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2/15/2016 2BIC Angels Investments

1. Why do you need to know Financials?

2. Pre-Investment

3. Post-Investment

WH

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? GENERAL VISION OF STARTUPS ON FINANCE & BUSINESS PLAN


& finance

But, REAL WORLD is:


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WHAT INVESTOR WANTS TO SEE FROM PROJECTIONS?


• 3-4 year forecast

• Neither conservative; nor aggressive

• How investment will be spent

• High returns SOON

• Having idea on how to exit

WHAT WE NEED TO AWARE OF?

• Returns can take longer than estimations

• Cost can be higher than estimations

• Non of entrepreneur thinks of everything

BEST REPORT MODEL


• Easy to understand

• Well documented

• Easy to update

• GİVE DECISION IDEA!!

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Key components of Financial Analysis


• Revenue & Expense forecast

• KPIs

• Cash flow statement

• Break-even analysis

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Revenues Estimation

2/15/2016 8Entrepreneurship

Revenue Estimation

- Top down

- «Market is known to be 200m USD. The leader has 15%. We can get 5% of it.

- Bottom- up

- We will start with 1 restaurant in the first year. It will have 50 covers. Occupancy will go from 40% - 80% over a period of 12 months. We’ll make 200USD per cover per day. So we will generate 50*60%* 200* 365=2,19MUSD. Next year, I will open 2 additional branches.

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Seasonality and Sales Growth


Seasonality

• The monthly profile of sales, profits and cash flow will depend on

the industry, e.g. ice-cream manufacturer (high sales in the

summer)

• Seasonality is important for our work due to

• Understand cash flow profile

• Review of current trading

• Working capital requirements of the business

• Different industries will have different trends

J F M A M J J A S O N DJ F M A M J J A S O N D

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Cost Estimation


• There are a variety of ways we can analyse costs:

• Absolute change year-on-year and monthly

• As a percentage of sales/unit/site, etc

• Fixed vs. variable

• Recurring vs. non-recurring

• We need to understand the cost structure/drivers of the company

Fixed vs. variable costs

• Variable costs are those that vary with business activity (e.g. sales)

• Fixed costs are those that are not variable in the short term

• Variable costs

• e.g. material costs, selling and distribution costs

• Fixed costs

• e.g. personnel, rent, audit fees

• An analysis of fixed vs. variable costs is key for our analysis of projections.

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Cost Estimation


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Contribution Margin


SALES – VARIABLE COSTS = CONTRIBUTION

• Common metrics include contribution per unit or contribution margin % (contribution/sales)

• Contribution margin is a measure of profit margin that focuses on what proportion of sales revenue is left over after paying associated variable costs

• This is the amount that is left over to cover fixed costs, or to add to profits

• Businesses often calculate the contribution of an individual product line or department

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Margins


• Typical margins we review are:• Contribution margin (Contribution / sales)

• Gross margin (Gross profit / sales)

• EBITDA margin (EBITDA / sales)

• We use margins since absolute figures can be misleading

• We can compare margins to prior periods or peer group companies

• Margin analysis helps us gain an understanding of the performance of the business and identifies areas we want to investigate further

• The understanding we gain here will also be helpful in building a profit bridge.

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Margins (continued)


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Margins (continued)


• Falling gross margin, possible reasons:• Pressure on prices / price war• Discounts offered• Rise in costs (e.g. raw materials)• Change in product mix• Inefficiency in production

• Rising gross margin, possible reasons: • Economies of scale • Price increase • Cost cuttings / savings• Increase in sales with certain element of costs fixed• Change in product mix• Efficiency improvements

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Completion of Pro-Forma Income Statements


• Other Operating Expenses

• Other Operating Income

• Gross margin – operating expenses + other operating income = EBIT

• EBITDA = EBIT + depreciation / amortization

• Calculation of financial result

• EBIT +/- financial result = EBT (earnings before taxes)

• Calculation of taxes on income

• Net Profit / Loss = EBT ./. Taxes on income

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Statutory Income Statements - Summary

TL k

Budget Actual PY Actual CY

Dıfference

BU-CY

Dıfference

PY-CY Budget Actual PY Actual CY

Dıfference

BU-CY

Dıfference

PY-CY

Sales, net

Direct COS

Contribution Margin I

Indirect COS

Gross profit (CM II)

Other operating income

Other operating expenses

EBIT (CM III)

Finance income

Finance expense

Contribution Margin IV (CM IV)

Extraordinary income

Extraordinary expense

Profit before tax (CM V)

Provision for tax

Net profit

Depr. & Amor.

EBITDA

Contribution margin I (CM I) %

Gross profit margin (CM II) %

EBIT margin (CM III) %

EBITDA margin %

PBT margin %

OPEX / net sales %

YTDPrevıous Month Current year

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Summary Balance Sheet

TL k 31-Dec-13 Month

Cash and cash equivalents

Trade receivables

Inventories

Other current assets

Total current assets

Tangible fixed assets

Intangible fixed asset

Non-current assets

Total non-current assets

Total assets

Borrowings short terms

Trade payables

Other current liabilities

Total current liabilities

Borrowings Long terms

Total non-current liabilities

Capital

Total liabilities and equity

Assets: What you got

Liabilities: What you owe

Equity: What’s left over

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Cash flow analysis

TL 31- Dec-13 31-Jan-2014 28-Feb-2014

EBITDA

Non-cash items

Cash EBITDA

Change in Net Working Capital

- Change in trade receivables

- Change in inventories

- Change in trade payables

- Change in other current assets

-Change in other current liabilities

Operational Cash Flow

Investing activities

Capex

Gain on sales fixed assets

Other

Investing activities

Cash Flow after Investing activities

Financing activities

Change short term bank loans

Change in long term bank loans

Changes in equity

Change in other financial activities

Financing activities

Free cash flow

Cash and cash equivalents- Previous month

Cash and cash equivalents - end of period

Where cash comes

from;

Where cash goes to

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Working capital


• What is working capital ?

• Comprises items relating to normal trading activity that will crystallise into cash inflows and outflows in the short-term

• Working capital = current assets - current liabilities

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(600,0)

(400,0)

(200,0)

0,0

200,0

400,0

600,0

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1.000,0

1.200,0

1.400,01

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Cumative CF

340,9 TL

Cash requirement

General problem on Financial reports


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-- Not meaningful financial results and KPIs.- Not able to take reaction when stg goes wrong.- High cashburns / miss higher opportunities

- Underestimate accounting records- Underestimate tax issues- Underestimate measurement

Main points for KPIs


- There should not be too many KPIs

- KPIs can be built around 3-5 KRAs

- KPI should change according to their goals.

- KPIs should be linked to strategy

- KPIs have to provide answer to most important questions.

- KPIs should be designed to empower Founders and provide them with relevant information to learn

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For startups, it is not

generally about numbers;

qualitative KPIs should be

evaluated as well.

References

• Tomasz Tunguz – Venture capital at readpoint

• Cayenne Consulting – Budgeting for startups

• Martin Zwilling, Startup proffessional musings

• KPMG- Utopia – Key analysis of companies

• Joachim Behrendt – Entrepreneurship presentation

• BIC Angels templates

• Bygrave, W.D. / Zacharakis, A., The Portable MBA in Entrepreneurship


+90 (212) 328 19 39

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