2. Agenda
Introduction, Order of the Day and Objectives
Financial Planning
Key Performance Indicators
Financial Statements
Profit & Loss
Balance Sheet
Cashflow
Valuation
Q & A Session
Closing / Feedback
Slide 2
3. Introduction
LBS Alum – Corporate Finance
Business and Strategic Planning for 20+ years
Did work for Tech Hub client and suggested of high value
Practical
Things you can do today and everyday
Generally your FD i th l t person you hi – b t shouldn’t b
G ll is the last hire but h ld ’t be
Slide 3
4. Order of the Day
Expectations on both sides
Informal Setting
Highly Interactive – Relate to your company situation
Presentation and discussion on the 4 main concepts and tie that into
models I’ve worked on to give examples
Questions and Answers
Slide 4
5. Objectives of the Workshop
Provide tools you can take away and apply
Give an appreciation of the financial issues and perspective
Decide when to seek outside assistance – ST or PT Finance Director
Understanding of terminology when you’re dealing with your
accountant
What I won’t talk about
Financing – that’s a whole other session
Strategy development – thi i about th fi
St t d l t this is b t the financial aspects only
i l t l
Slide 5
6. Agenda
Introduction, Order of the Day and Objectives
Financial Planning
Key Performance Indicators
Financial Statements
Profit & Loss
Balance Sheet
Cashflow
Valuation
Q & A Session
Closing / Feedback
Slide 6
7. The Main Premise
You can’t build the strategy without the financial plan
And
You can’t build the financial plan without the strategy
Slide 7
8. The Financial Plan is integral to the BP
Section Relevance of Financial Plan
Summary • Amount of finance required and purpose
• Highlights of financial projections
The Market • Size of market ‐ and by implication your share (an output!)
• Margins versus target segments (large versus small customers)
Competition • Response of potential competitors to your plan (eg. pricing)
Marketing & Sales • Detailed marketing plan: pricing and trends, discounts
• Customer service & support
Production and • Sources of supply / costs and margins
Operations • M k
Make or buy
b
Management • Analysis of shareholdings, control
• Staff plans ‐ hiring, development & retention (option plans)
… and many other links as well
Source: British Venture Capital Association: Business Plans & Financing Proposals
Slide 8
9. The Process of Raising Finance
85% of investment opportunities submitted to VC firms are rejected
at a very early stage; serious consideration given to 15%;
negotiation stage is only reached by 5%
Decision to proceed beyond an initial reading will depend on the
quality of the Business Plan
Any subsequent examination of the business by the investor will
take as its starting point the contents of a well structured and written
plan
The Business Plan is the first, and often best, chance for
management to impress investors
Source: British Venture Capital Association: Business Plans & Financing Proposals
Slide 9
10. How long should the planning horizon be?
3 - 5 years (1st year b month)
by th)
Generally would like to get to a point where the business is established
/ mature
Technically the length of forecast period should be equal to the length
of time management expects new investment rates of return to exceed
the cost of capital - known as extraordinary returns (accuracy is not
determinant), considering the following:
Proprietary technologies
Patented products
Product lifecycles
Established brands
Source: British Venture Capital Association: Business Plans & Financing Proposals
Slide 10
11. Length of Forecast Period
Forces Driving Industry Competitiveness
Potential Entrants
Industry Rivalry /
Suppliers Competition Buyers
y
Substitutes
Slide 11
12. Agenda
Introduction, Order of the Day and Objectives
Financial Planning
Key Performance Indicators (KPIs)
Financial Statements
Profit & Loss
Balance Sheet
Cashflow
Valuation
Q & A Session
Closing / Feedback
Slide 12
13. Key Performance Indicators (KPIs)
Main drivers of value
Indicators of how the business is performing
Things you can touch and feel – customers, expenses
Main issues you should manage in the business
Maintain a “dashboard” to monitor regularly
Slide 13
14. KPIs and Forecasting: How low can you go?
Revenue
# of Customers Rev / Customer
Prepaid Postpaid Initial Recurring
Fixed Usage
Charge
Pricing Discount
Slide 14
15. Understanding Cost Structures
How do costs react to changes in sales volume?
Fixed versus variable costs
Easy to change in a short period of time or adjusts with revenue
Tie into revenue forecast in some way
Make or buy decisions
6,000
5,000
4,000 Outsourced
3,000 Internal
2,000
2 000
1,000
‐
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
Slide 15
16. Considerations in Plan Development
Its a spreadsheet, not the business
Costs can usually be predicted with 100% accuracy, not revenues
Spend ti
S d time on th revenues and understanding th
the d d t di these
Re-visit cost assumptions as they relate to those revenues, especially as
actual results are available
The f
financial plan is a live tool
Slide 16
17. Benchmarking to arrive at final year metrics
Find companies in similar business
Generally public company financials – adjust for costs of being public,
size,
size etc
Other industry sources - informal
Combine with sensitivity analysis
Slide 17
18. Sensitivity Analysis
Involves adjusting key assumptions to assess impacts on:
Cash Needs
Valuation
Realistic, optimistic and pessimistic views for each parameter
Helps to understand risks and develop plans to mitigate these
Helps to identify key value drivers and focus management attention and
resources
There are tools to help perform this analysis – including probabilities
Slide 18
19. Scenario Planning
Usually in complex situations
Link assumptions so that mutually exclusive options are not
considered
Identify interdependencies in the Business Plan – revenues go down,
costs should go down, etc.
Slide 19
20. Agenda
Introduction, Order of the Day and Objectives
Financial Planning
Key Performance Indicators (KPIs)
Financial Statements
Profit & Loss
Balance Sheet
Cashflow
Valuation
Q & A Session
Closing / Feedback
Slide 20
21. Financial Statements
Profit & Loss
– represents a period of time; flows
p p ;
Balance Sheet
– represents a point in time; snapshot
p p ; p
Statement of Cashflows
– sources and uses of cash
Slide 21
22. Profit & Loss
Turnover or Revenue
Cost of Sales or Cost of Goods Sold
Operating Expenses
EBITDA – Earnings Before Interest, Tax, Depreciation and Amortization –
Operating Cashflow
Depreciation & Amortization
PBIT / EBIT or Operating Profit
Interest
PBT or EBT
Taxes
T
PAT or Net Income
Slide 22
23. Balance Sheet
Fixed Assets
Tangible Assets
Intangible Assets (Patents, Start up costs)
Current Assets
Stocks / Inventory
Debtors / Accounts Receivable
Cash at bank and in hand
Current Liabilities / Creditors
Amounts falling due within one year
Net Current Assets
Total Assets less Current Liabilities
Long Term Liabilities / Creditors
o g e ab t es C ed to s
Amounts falling due after more than one year
Net Assets
Share Capital
Equity
Profit & Loss Account
Shareholders Funds
Slide 23
24. Financial Ratios
Performance Analysis
Gross Profit – Sales minus Cost of Sales
Gross Margin % - Gross Profit / Sales
Net Margin – Operating Profit / Sales
Capital Employed – Equity + Debt (Long & Short Term)
Return on Capital Employed – EBIT or PBIT / Capital Employed
Stock Days – Stock / Cost of Sales * 365
Debtor Days – Trade Debtors / Sales * 365
Creditor Days – Trade Creditors / Sales * 365
Capital Structure Ratios
Gearing – Debt / Capital Employed
Interest Cover – PBIT or EBITDA / Interest Payable
Liquidity Ratios
Current Ratio – Current Assets / Current Liabilities
“Acid Test” – Current Assets less Stock / Current Liabilities
Other
Turnover per Employee
Turnover per Marketing Campaign
Customer Acquisition Costs
New Sales or Customers per Sales Person
Overhead Costs per Employee
Slide 24
25. Cashflow / Sources & Uses of Cash
Cash from Operating Activities
Net Income
Add Back: Non cash items such as depreciation
Changes in working capital (Stocks, Debtors, Creditors)
Ch i ki it l (St k D bt C dit )
Cash from Investing Activities
Capital Investment – Tangible Assets
Capital In estment – Intangible Assets
Investment
Cash from Financing Activities
Increase (Decrease) in short term borrowings
Increase (Decrease) in long term borrowings
Increase (Decrease) in shareholders loans
Increase (Decrease) in equity
Increase (Decrease) in Cash
Opening Cash Balance
Closing Cash Balance
Slide 25
27. Agenda
Introduction, Order of the Day and Objectives
Financial Planning
Key Performance Indicators (KPIs)
Financial Statements
Profit & Loss
Balance Sheet
Cashflow
Valuation
Q & A Session
Closing / Feedback
Slide 27
28. Agenda
Introduction,
Introduction Order of the Day and Objectives
Financial Planning
Key Performance Indicators (KPIs)
Financial Statements
Profit & Loss
Balance Sheet
Cashflow
Valuation
Q & A Session
Closing Feedback
Cl i / F db k
Slide 28