how to prepare financial plans - 15.11.2016
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HOW TO PREPARE FINANCIAL PLAN
INDE
X
05/02/23 2BIC Angels Investments
1.Why do you need to know Financials?
2.Pre-Investment
3.Post-Investment
WHY
DO
YO
U N
EED
TO K
NO
W F
INAN
CIAL
S? GENERAL VISION OF STARTUPS ON FINANCE & BUSINESS PLAN
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& finance
But, REAL WORLD is:
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Financial tools help you manage your day-to-day
What has happened in your
company?
What currently happening in
your company?
What do you expect in your
company?
Early warning to see what will happen in your company
before it happens!WHY
DO
YO
U N
EED
TO K
NO
W F
INAN
CIAL
S?
OR
What did we think would
happen?
What actually happened?
Why the difference?
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WHY
DO
YO
U N
EED
TO K
NO
W F
INAN
CIAL
S?
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Some samples for Business Model questions: Value proposition: -What benefit you offer for target customers.Competitive advantage-Key to success of your business
- What we have to pay to keep competitive advantage.
- What we have to keep investment in our technology, people,etc to sustain competetive advantage.
Cost structure-What cost of service, sell, support the product.Revenue/Growing Structure-What price model would be.Marketing& Sales stragy-How much you will spend for marketing strategy.-What return will be.-What you spend for sales.-How much cost for acquire customer.- etc.
FinancialTranslate to
WHY
DO
YO
U N
EED
TO K
NO
W F
INAN
CIAL
S?
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Sell
Thanks to competitive advantage
Sell
- Channels?- Prices?- # of unit?- Etc.
Profitable
- Lower cost?- Personnel?- Licences?- Warehouse?- Etc.
WHY
DO
YO
U N
EED
TO K
NO
W F
INAN
CIAL
S?
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INCOME STATEMENT
CASH FLOW STATEMENT
BALANCESHEET
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INCOME STATEMENT
Revenue - R
Cost of good sold- C
GROSS PROFIT – GP=R-C
Operating expenses– E-R&D-Marketing-Admin
OPERATING PROFIT (EBIT) – GP-E
Finance income / expenses (+/-)Extraordinary icome exp (+/-)Tax provisions (+/-)
NET INCOME – NI
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– IN
COM
E ST
ATEM
ENTS
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Statutory Income Statements - Summary
TL k
Budget Actual PY Actual CYDıfference BU-CY
Dıfference PY-CY Budget Actual PY Actual CY
Dıfference BU-CY
Dıfference PY-CY
Sales, netDirect COSContribution Margin IIndirect COSGross profit (CM II)Other operating incomeOther operating expensesEBIT (CM III)Finance incomeFinance expenseContribution Margin IV (CM IV)Extraordinary incomeExtraordinary expenseProfit before tax (CM V)Provision for taxNet 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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ANN
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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
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
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• Easy to understand
• Well documented
• Easy to update
• GİVE DECISION IDEA!!
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ANN
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Key components of Financial Analysis
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• Revenue & Expense forecast
• KPIs
• Cash flow statement
• Break-even analysis
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ANN
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Revenues Estimation
05/02/23 14Entrepreneurship
- 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.
50 table
60% occupacy
200 USD per cover
365 days
2,19m USD
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ANN
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Seasonality and Sales Growth
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• 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 companyFixed 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)
05/02/23 21Entrepreneurship
• 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
05/02/23 22Entrepreneurship
• 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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LAN
CE S
HEET
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AssetsLiabilities +
Shareholder equity
BALANCE SHEET
Current Assets-Cash -Accounts receivable-InventoryLong Term Assets-Fixed assets-Long term receivables
Current Liabilities-Payables-Accrued Liabilities
Long Term Liabilities-Debt
Shareholder Equity
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05/02/23 24Entrepreneurship
• 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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LAN
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HEET
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Summary Balance Sheet TL k 31-Dec-13 Month
Cash and cash equivalentsTrade receivablesInventoriesOther current assetsTotal current assets
Tangible fixed assetsIntangible fixed assetNon-current assetsTotal non-current assets
Total assets
Borrowings short termsTrade payablesOther current liabilitiesTotal current liabilities
Borrowings Long termsTotal non-current liabilities
CapitalTotal liabilities and equity
Assets: What you got
Liabilities: What you owe
Equity: What’s left over
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CASH FLOW
Net Income NI-Change in Account Receivables +/- AR-Change in Account Payables +/- AP-Change in Inventories +/- Inv.
Cash Flow from Operations OP
- Capital Expenditures +/- Capex-Financing Activities +/- FN
Free Cash Flow FCFCash at hand – Previous month +
Cash at hand – End of month
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SH F
LOW
STA
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Cash flow analysisTL 31- Dec-13 31-Jan-2014 28-Feb-2014
EBITDANon-cash itemsCash EBITDAChange in Net Working Capital- Change in trade receivables- Change in inventories- Change in trade payables- Change in other current assets-Change in other current liabilitiesOperational Cash Flow
Investing activitiesCapexGain on sales fixed assetsOtherInvesting activitiesCash Flow after Investing activities
Financing activitiesChange short term bank loansChange in long term bank loansChanges in equityChange in other financial activitiesFinancing activitiesFree cash flowCash and cash equivalents- Previous monthCash and cash equivalents - end of period
Where cash comes
from;
Where cash goes to
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ST B
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T L
IMIT
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(600,0)(400,0)(200,0)
0,0200,0400,0600,0800,0
1.000,01.200,01.400,0
1M 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
General problem on Financial reports
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RE
PORT
S
- - 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
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Management Dashboard
Cash Product development
Marketing Sales Operations Finance
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RE
PORT
S • Daily basis• Weekly basis• Monhly basis
Main points for KPIs
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- 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• Bill Reichert– Kauffman Founders Schools
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+90 (212) 328 19 39
www.bicangels.com
www.facebook.com/BICAngelInvestments
@bicangels
bic@bicangels.com
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