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How to Prepare Financial Plans - 15.11.2016


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BIC Angel Investments

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How to Prepare Financial Plans - 15.11.2016

  2. 2. INDE 11/18/16 2BIC Angels Investments 1.Why do you need to know Financials? 2.Pre-Investment 3.Post-Investment
  3. 3. WHY GENERAL VISION OF STARTUPS ON FINANCE & BUSINESS PLAN 11/18/16 3BIC Angels Investments & finance But, REAL WORLD is:
  4. 4. 11/18/16 4BIC Angels Investments 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 OR What did we think would happen? What actually happened? Why the difference?
  5. 5. 11/18/16 5BIC Angels Investments WHY
  6. 6. 11/18/16 6BIC Angels Investments 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
  7. 7. 11/18/16 7BIC Angels Investments Sell Thanks to competitive advantage Sell - Channels? - Prices? - # of unit? - Etc. Profitable - Lower cost? - Personnel? - Licences? - Warehouse? - Etc. WHY
  9. 9. 11/18/16 9BIC Angels Investments 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
  10. 10. PRE-INCOME STATE 11/18/16 10BIC Angels Investments 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
  11. 11. PRE- PLANWHAT INVESTOR WANTS TO SEE FROM PROJECTIONS? 11/18/16 11BIC Angels Investments • 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
  12. 12. BEST REPORT MODEL 11/18/16 12BIC Angels Investments • Easy to understand • Well documented • Easy to update • GİVE DECISION IDEA!! PRE- PLAN
  13. 13. Key components of Financial Analysis 11/18/16 13BIC Angels Investments • Revenue & Expense forecast • KPIs • Cash flow statement • Break-even analysis PRE PLAN
  14. 14. PREFINANCIAL PLARevenues Estimation 11/18/16 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
  15. 15. PREFINANCIAL PLASeasonality and Sales Growth 11/18/16 15Entrepreneurship • 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
  16. 16. PREFINANCIAL PLACost Estimation 11/18/16 16Entrepreneurship • 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.
  17. 17. PREFINANCIAL PLACost Estimation 11/18/16 17Entrepreneurship
  18. 18. PREFINANCIAL PLAContribution Margin 11/18/16 18Entrepreneurship 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
  19. 19. PREFINANCIAL PLAMargins 11/18/16 19Entrepreneurship • 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.
  20. 20. PREFINANCIAL PLAMargins (continued) 11/18/16 20Entrepreneurship
  21. 21. PREFINANCIAL PLAMargins (continued) 11/18/16 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
  22. 22. PREFINANCIAL PLACompletion of Pro-Forma Income Statements 11/18/16 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
  23. 23. PRE- 11/18/16 23BIC Angels Investments Assets Liabilities + Shareholder equity BALANCE SHEET Current Assets -Cash -Accounts receivable -Inventory Long Term Assets -Fixed assets -Long term receivables Current Liabilities -Payables -Accrued Liabilities Long Term Liabilities -Debt Shareholder Equity
  24. 24. PREFINANCIAL PLA 11/18/16 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
  25. 25. PRE- 11/18/16 25BIC Angels Investments 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
  26. 26. 11/18/16 26BIC Angels Investments 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 FCF Cash at hand – Previous month + Cash at hand – End of month
  27. 27. PRE-IN 11/18/16 27BIC Angels Investments 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
  28. 28. PRE-IN 11/18/16 28BIC Angels Investments (600,0) (400,0) (200,0) 0,0 200,0 400,0 600,0 800,0 1.000,0 1.200,0 1.400,0 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
  29. 29. General problem on Financial reports 11/18/16 29BIC Angels Investments POST REPO - - 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
  30. 30. 11/18/16 30BIC Angels Investments Management Dashboard Cash Product development Marketing Sales Operations Finance POST REPO • Daily basis • Weekly basis • Monhly basis
  31. 31. Main points for KPIs 11/18/16 31BIC Angels Investments - 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 POS
  32. 32. 11/18/16 32BIC Angels Investments POS
  33. 33. 11/18/16 33BIC Angels Investments POS For startups, it is not generally about numbers; qualitative KPIs should be evaluated as well.
  34. 34. 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 11/18/16 34BIC Angels Investments
  35. 35. +90 (212) 328 19 39 @bicangels