Financial Planning Jh V2 100202
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Transcript of Financial Planning Jh V2 100202
- 1. Business Planning Financial Budgets
2. Financial Accounts
- Why bother with accounts / accounting?
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- Money is a company resource just like stock
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- Accounting is a filing system for money
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- Make sure you are 'making' money = business
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- Compare performance
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- Previous with present, present with projected
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- Competition
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- Report performance for Taxation
3. Financial MetricsMeasuring Wealth How do you know if you're rich? 4. Types of Wealth INCOME Earn 150k+ / annum ASSETSOwn 1m house Ferrari LIQUIDITY 20k Now or 100k Trust fund? 5. Measures of Wealth Profit(Loss) = Income - Expenses Net Worth(Debt) = Assets -Liabilities Liquidity= Availability of funds 6.
- 3 Basic Financial Statements
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- Profit- Profit & Loss Account (P&L)
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- Trading statement of Income & Expenditure
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- Net Worth -Balance Sheet
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- Statement of Assets (owned) & Liabilities (owed)
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- Liquidity- Cashflow
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- Expected Real Money flowsWITH TIMINGS
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- Most business start-ups fail within 3-5 years, often due to lack of cashflow
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Financial Statements 7. Balance Sheet
- Snapshot of what the company owns & owes categorized by liquidity
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- We own - Assets
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- Fixed (buildings, fixtures, fittings)
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- Current (Cash, Bank Balances, Customer debts 1yr horizon)
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- We owe Liabilities
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- Long term (Finance loans, mortgage)
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- Current (Bank overdraft, Debts to suppliers, 1 yr horizon)
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- Show how company is financed Debt vs Equity
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- - Read in conjunction with P&L profitability vs gearing
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8. Simple Example Balance Sheet 9. Profit & Loss Statement
- Assessment of ability to make money
- Summary of activity to date
- Different versions:
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- Management Accounts
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- Financial vs Tax Accounts
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- Budget
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- Annual vs Monthly
10. Simple P&L Statement Example BlankCo Trading Profit & Loss Statement dated 30th November 2009 (000) INCOME 100 lessCost of Sales (COGS) 25 Gross Profit75 lessGeneral Expenses (Overheads) 62 Net Profit13 11. Budgeting
- Forecasting 1 5 years ahead
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- Balance Sheet annually
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- P&L monthly
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- Cashflow
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- Weekly
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- Monthly
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- Quarterly
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12. Budget P&L
- Purpose
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- Establish targets
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- Break-even sales = minimum sales needed to cover costs(profit = 0)
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- Target profitability
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- Cost controls
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- State assumptions
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- Monitor progress towards achieving targets
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- Sales
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- Profitability
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- Monitor key performance indicators
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13. Building a Budget P&L Sales Prices & Volumes Wages Expenses / Overheads Cost of Sales / Stock Movements Profit & Loss Separate Spreadsheets 14. Sales Forecasting
- Revenue = Price x No. of Sales
- Be as specific as possible
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- Estimate revenues by product & client
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- Use Sales Funnel where possible
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- Estimate of total market share
- Identify separate revenue types / streams
- Be realistic & prepared to justify your estimates!
- Sales commission ( may calculate here )
- Transfer totals to P&L by revenue type
15. Cost of Sales
- Often proportional to sales
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- If so calculate in the same spreadsheet
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- Calculate by product type / revenue type (not client)
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- Design for amendments to establish B/E costs
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- Transfer totals to P&L
16. Wages
- Estimate staff wages
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- By employee name / position
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- Aggregate by department
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- Allow for Employers' NIC (13% approx)
- Allow for your own income!
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- Get advice about how best to extract it (accountant)
- Transfer totals to P&L by department
17. Expenses & Overheads
- Not proportional to Sales
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- Print, post, stationery
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- Heat, light, rent, rates
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- Travel & Entertainment - subsistence
- Use a standard business plan for general expense categories
- Estimate expense by category
- Transfer category totals to P&L
18. Review of P&L Model
- Be prepared to amend the model to assess
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- Breakeven sales volumes & costs
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- Acceptable profitability
- Assess key performance / investment measures
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- % Net profit = Net Profit / Sales x 100
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- Return on Investment
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- ROTA Return on Total Assets = Profit(BIT) / Total Assets
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- RoE Return on Equity = Profit After Tax / Net Worth
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- Scenario Planning what happens if....
19. Budget Cashflow
- Purpose - To avoid insolvency!
- To ensure adequate funds for continued ops
- Built on Budget P&L but differentiated by:
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- Payment timings not Invoices (P&L)
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- Includes Tax payments & receipts
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- CashflowincludesVAT & recognises payment dates
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- Ignores non-cash items (depreciation etc)
- Budget annually
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- - (review day-to-day / weekly)
20. Building Cashflow
- Start with P&L
- Delay sales by avg. settlement (debtor days)
- Delay costs until due for payment
- VAT Tip:
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- Group VATable sales together add one line for VAT
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- Group VATable costs together add one line for VAT
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- Aggregate quarterly
- Add Monthly Net Cashflow to previous balance
21. Review Cashflow
- Cashflow is difficult to predict for startups
- Allow for contingencies (20%)
- Identify periods of shortage and PLAN for them
- Watch out for cyclicality
- Consider factoring etc if necessary
- Credit Control is critical to cashflow
22. Conclusion Remember! You can ignore accounts but not the taxman Advice always costs more in retrospect