Transcript

HOW TO PREPARE FINANCIAL PLAN

IND

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1. Why do you need to know Financials?

2. Financial Planning

3. Main Financial statements

1. Income statement

2. Balance sheet

3. Cash flow

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YOU CANT MANAGE WHAT YOU CANT MEASURE

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PLAN

FORECAST

EXECUTE

MEASURE

Goals vs. Actuals!!

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WHAT INVESTOR WANTS TO SEE FROM PROJECTIONS?

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• 3-4 year forecast

• Neither conservative; nor aggressive

• How investment will be spent

• High returns SOON

• Having idea on how to exit

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WHAT WE NEED TO AWARE OF?

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• Returns can take longer than estimations

• Cost can be higher than estimations

• No entrepreneur thinks of everything

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BEST REPORT MODEL

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• Easy to understand

• Well documented

• Easy to update

• GİVE DECISION IDEA!!

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The components of Financial Section

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• Start with sales forecast

• Create an expenses of budget

• Income projections

• Deal with assets and liabilities

• Develop cash flow statements

• Break-even analysis

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Revenues Estimation

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Revenue Estimation

• Identify all sources of revenues

• Estimate future revenues after establishment per day (or month, depending on industry)

• Understand revenue drivers

• Number of customers

• Number of products / average ticket per customer

• Average Revenue per customer (net, after VAT)

Methodologies

- 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

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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

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• 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

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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

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• 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)

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• 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

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• Other Operating Expenses (indirect production cost, marketing + sales, gen.admin.cost)

• Personnel cost

• Other time-dependent operating expenses

• Set up costs

• Depreciation / amortization based on investment plan / depreciation plan

• Cost on monthly basis for years 1-3

• Other Operating Income

• Other operating income positions

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

• EBITDA = EBIT + depreciation / amortization

• Calculation of financial result

• Consideration of interest expenses for long-term loans or other types of debt

• If applicable, calculation of other regular financial income / financial expenses

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

• Calculation of taxes on income

• Normally in % of EBT, if applicable consideration of losses carried forward

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

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Statutory Income Statements - Summary

TL k

Budget Actual PY Actual CY

Dıfference

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Dıfference

PY-CY Budget Actual PY Actual CY

Dıfference

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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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Completion of Pro-Forma Financial Statements

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• Balance sheet at beginning of venture

• Normally only initial equity + cash

• Balance sheet at end of each period

• Consideration of income statement for period

• Consideration of changes in working capital (accounts receivables, inventories, accounts payables) in balance sheet at end of period

• Consideration of investments and depreciation in balance sheet at end of period

• Consideration of loan repayments / additional loans in balance sheet at end of period

• Consideration of equity measures / dividend payouts in balance sheet at end of period

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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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Determination of Operative Cash Flow

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• Indirect calculation of operative cash flow: Starting point net profit / loss of period

• + adding back: depreciation / amortization of that period

• +/- changes in working capital

• - increases in accounts receivables

• - increases in inventories

• + increases in accounts payables

• Alternative: direct calculation of operative cash flow

• Consideration of cash-effective revenues in month of cash effectiveness

• Example: 70% cash, 20% credit card = 1 month later, 10% per invoice with 5% payment within one month, 5% payment within two months after purchase

• Consideration of cash-effective expenses in month of cash effectiveness

• Example: standard payment term for suppliers of 30 days = consideration of cash outflow one month after purchase

• No consideration of non-cash-effective expenses, e.g. depreciation

• = Operative cash flow

Working Capital

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Working capital

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• 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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Determination of Complete Cash Flow Statements

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• Calculation of investment plan

• Calculation of all investments in fixed assets for full five-year period (material, immatierial, financial investments)

• If applicable, consideration of desinvestments

• All investments / desinvestments with full cash amounts

• Calculation of financing plan

• Consideration of long-term loans for financing the venture

• Consideration of interest expenses in income statement

• Consideration of principal repayments

• Consideration of equity measures (increases / decreases)

• Consideration of dividend payouts

• Cash Flow Statement Structure

• Cash at beginning of period

• +/- Operative cash flow

• +/- Cash flow from investment activities

• +/- Cash flow from financing activities

• = Cash at end of period

• Cumulative cash flow statement (for full five years) is used for iterative funds required calculation / funds planning

LAST

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(600,0)

(400,0)

(200,0)

0,0

200,0

400,0

600,0

800,0

1.000,0

1.200,0

1.400,01M

2M

3M

4M

5M

6M

7M

8M

9M

10M

11M

12M

13M

14M

15M

16M

17M

18M

19M

20M

21M

22M

23M

24M

25M

26M

27M

28M

29M

30M

31M

32M

33M

34M

35M

36M

Cumative CF

340,9 TL

Cash requirement

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

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+90 (212) 328 19 39

www.bicangels.com

www.facebook.com/BICAngelInvestments

@bicangels

[email protected]


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