How to Prepare Financial Plans - 15.11.2016

HOW TO PREPARE FINANCIAL PLAN

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05/02/23 2BIC Angels Investments

1.Why do you need to know Financials?

2.Pre-Investment

3.Post-Investment

WHY

DO

YO

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TO K

NO

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INAN

CIAL

S? GENERAL VISION OF STARTUPS ON FINANCE & BUSINESS PLAN


& finance

But, REAL WORLD is:


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

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TO K

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OR

What did we think would

happen?

What actually happened?

Why the difference?


WHY

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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

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TO K

NO

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S?


Sell

Thanks to competitive advantage

Sell

- Channels?- Prices?- # of unit?- Etc.

Profitable

- Lower cost?- Personnel?- Licences?- Warehouse?- Etc.

WHY

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YO

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TO K

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S?


INCOME STATEMENT

CASH FLOW STATEMENT

BALANCESHEET


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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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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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

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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Seasonality and Sales Growth


• 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 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


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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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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• 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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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


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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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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- - 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


Management Dashboard

Cash Product development

Marketing Sales Operations Finance

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S • Daily basis• Weekly basis• Monhly basis

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• Bill Reichert– Kauffman Founders Schools


+90 (212) 328 19 39

www.bicangels.com

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