MIC 2014 Workshop Finance

Xavier Corman | Martin van Wunnik 107/02/2012 Xavier Corman | Martin van Wunnik 117/04/2012

MIC boostcamp - Finance workshop

Convert your business model into figures

Key parts and logic behind your financial plan

Catherine Blondiau

Rodolphe d'Udekem d'Acoz

Martin van Wunnik

13 Feb ’14

Xavier Corman | Martin van Wunnik 207/02/2012

Who are we ?

Martin van Wunnik

Catherine Blondiau

Rodolphe d'Udekem d'Acoz

13 Feb ’14

Xavier Corman | Martin van Wunnik 307/02/2012

This presentation is available for free:

http://www.slideshare.net/FinanceCoach24

13 Feb ’14


Morning session

13 Feb ’14


Why a Financial Plan ?

If you don't think about the future,

you cannot have one. John Golsworthy

where you want to go

how you are supposed to get there

You need to know

13 Feb ’14

Xavier Corman | Martin van Wunnik 607/02/2012 Xavier Corman | Martin van Wunnik 617/04/201213 Feb ’14


Financial Plan

Content

– Assumptions

– Profit & Loss

– Balance Sheet / Investment

– Cash-Flow -> Cash needed

– Valuation of the project

– Profitability / return of the project

13 Feb ’14


Accounting: Profit & Loss (P&L)

Revenues (Sales…)

COGS (Cost of Sales)

General Expenditures

Personnel Costs

Depreciation

Financial cost

Profit

Taxes

EB

IT

13 Feb ’14


Accounting: Balance Sheet

Non Current Assets

(Actifs Immobilisés/

Vast Activa)

Equity + Reserves

(Capital/Kapitaal)

LT Debts

ST Debts

Current Assets

(Actifs circulants/

Vlottend Activa)

ACTIVE PASSIVE

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Required Cash-Flow

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How to finance your startup ?

Equity

LT Debts

ST Debts

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Sales

13 Feb ’14


Financial assumptions

How to estimate your Sales?

Catherine Blondiau

Rodolphe d’Udekem d’Acoz

Business and Finance Advisors @ IMPULSE.Brussels

Xavier Corman | Martin van Wunnik 1707/02/2012 Xavier Corman | Martin van Wunnik 1717/04/2012 17

SALES

Market potential = (Average Purchase * How Much * How Often)Market potential = (Average Purchase * How Much * How Often)


What ?


Price?

� Pricing of alternative solutions

� How much is the customer ready/willing to pay?

� Price:

- Not too low

- Not too high

- Coherent

� Evolution of the selling prices?

� What is the average amount per purchase?

Test it!Test it!


How Much?

� 2 methods to evaluate How Much you will be able to sell

Top Down

approach starts

with market and

industry data.

Top Down

approach starts

with market and

industry data.

Bottom Up

approach starts

with your

customers and

your resources

Bottom Up

approach starts

with your

customers and

your resources


How Much? – Top Down

� A Top Down analysis is calculated by determining the total market, then estimating your share of that market.

� It works in 3 steps :

1. Total Available Market (TAM) : How large is the market if all customers buy your product ?

2. Serviceable Available Market (SAM) : Focus on your owntechnology/services

3. Serviceable Obtainable Market (SOM) : Which realistic marketshare can be obtained by myself, considering competition, countries, my sales/distribution channels and other marketinfluences?


How Much? – Top Down : Example

� You want to sell internet access in Europe

� Each account will yield €250 per year.

� Expected revenue : € 1 billion (4 millions ×€250/customer)

TAM Total population of Europe 500 millions

SAM% of the population who want

internet access

80%

400 millions

SOM

Based on your market study, you

expect to achieve 1% of that potentiel

audience

1%

4 millions


How Much? – Bottom-Up

� This approach allow you to estimate the sales consideringthe client and your resources.

� The idea is to understand how much you will be able to sellconsidering the resources of your company :

- Time

- People

- Money


How Much? – Bottom Up: Example

� You want to sell internet access in Europe

� Each account will yield €250 per year.

� Expected revenue : € 150 000 (600×€250/customer)

We can bring on board five salespeople 5 salespeople

Each salesperson can make ten phone sales calls a day

that get through to a prospect.10 calls/day

There are 240 working days per year. 240 days

5% of the sales calls will convert within six months 5%

Estimated sales 600


How Much?

� Combine both approaches

- Use top-down analysis to estimate the market opportunity for your company—to decide whether you want to try it in the first place

- Use bottom-up analysis to get a realistic and testable estimate of what you can achieve within the first years of your startup

� Challenge both approaches and present a coherent global perspective of your estimated sales

� One-off/recurring/bundled sales?

� What are the supporting trends of your market ?

� How fast will the market grow?


When & How ?

� How and When are you going to sell your products ?

� Sales channels: Direct / Indirect – focus may shift over time


When & How ? - COCA

� Impact on the cost of customer acquisition (COCA)

€?


When & How ? - COCA

� Impact on the cost of customer acquisition (COCA) :

- It costs money to achieve each sales

- How much resources (time, €, HR) does it require (cfBottom Up approach)?

- Includes unsuccessful prospects

- To be taken into account in your financial plan

- Choice of channels :

� Financially sustainable?


When & How ? - COCA & LTVOAC

� COCA & Life time value of an acquired customer

- Cost of Customer Acquisition (COCA)

- Life time value of an acquired customer (LTVOAC)

- Each acquired customer will provide you with revenues during his life time (as a client of your company)

- Put those revenues in perspective with the COCA

COCA = Sales & Marketing Costs / Customers

LTVOAC = revenue over life time x gross margin


When & How ? - COCA & LTVOAC

� Lifetime value of a gym member who spends €20 every month for 3 years?

- €20 X 12 months X 3 years = €720 in total revenue (or €240 per year)

� How much will it cost you to acquire this client? Allowable acquisition cost?

� How to optimize LTVOAC?

� Discount while managing CF


Don’t Forget …

� Probably one of the most important parameters … and

certainly the most difficult to estimate !!

� Consider different (sub)categories of products and/or

services

� Consider the volume of units (products/services) sold and the

respective selling prices

� Outputs

– Per product (category)

– Per client / market / segment

– Per channel

– Combine ?


Don’t Forget …

� Gross sales or Net sales (e.g. after commission, bad debts…)

� Consider the initial volumes and the growth rates for each line of products/services without forgetting the market’s dynamic (seasonality, evolution of the selling prices, growth…)

� Be aware of potential delays and lower (initial) volumes &

growth rates than expected.

� Consider the sales without VAT (unless you do not

recuperate it !)


Don’t Forget …

� The sales data should be based on tangible elements andhypothesis directly linked to the business plan

� In no circumstances should the volume of sales be based on the costs … : “ spontaneous sales creation ” in order to achieve break even or benefit on paper does not help and could possibly endanger your credibility in the eyes of third parties

� To keep in mind:

- User friendliness, avoid too much items

- Internal logic : price, discount, cost of sales, payment conditions… & cycle


Impulse template

13 Feb ’14


Afternoon session

13 Feb ’14


Accounting: Profit & Loss (P&L)

Revenues (Sales…)

COGS (Cost of Sales)

General Expenditures

Personnel Costs

Depreciation

Financial cost

Profit

Taxes

EB

IT

13 Feb ’14


Costs

13 Feb ’14


Costs assumptions

Catherine Blondiau

Rodolphe d’Udekem d’Acoz

Business and Finance Advisors @ IMPULSE.Brussels


• Sales

• Costs of goods/services sold

• (Other) Operating Costs


• = Cost of Sales

• Variable costs directly linked to the goods / services sold and highly or totally proportional to the sales

• Can be close to zero for some kind of activities

• Much easier to predict than the volume of sales itself(should logically be based on tangible elements)

COGS : Cost of Goods / Services sold


• Two main categories:

a) goods purchased and/or manufactured

NB: attention point: means a potential inventoryand an additional financial need

b) other costs, linked to sales, with no impact on inventory

NB: eg. Transport, paiment or packaging costs



• Deducted from the sales, it will give the grossmargin or gross revenues

NB: often an important parameter, notably to monitor the evolution of profitability & to makecomparison with company in similar business

• In some cases, there is a grey zone whethersome costs « should » be integrated in the COGS or the general expenses, with some freedom to choose



• Do not forget that the cost per unit sold canchange following different parameters such as inflation or the evolution in the volume of sales (bargaining power with suppliers)



• A margin is a relative concept ! Be aware that it’s all about points of view. Otherwise, it could lead to misinterpretation.

for example, for the gross margin, it could be expressedin terms of:

- an amount in currency

- a percentage of the sales (without VAT), which is the most commonly used approach

- but also sometimes as a percentage of the costs(quite unusual for gross margin but stil …)

Margin : relative notion


Cost of goods / services sold: 100 €

Sales: 150 €

- Margin expressed in €: 50 €

- Margin expressed as % of costs: 50%

- Margin expressed as % of sales: 30%

Margin : relative notion


• Sales

• Costs of goods/services sold

• (Other) Operating Costs


• General Expenses

• Or « fixed » costs

• Or selling, general & administrative exp. (SGA)

• Rent & Maintenance expenses

• Utilities, Telephone, Internet & Licences, etc

• Insurance & Bank fees (not the financial interests !)

• Third parties / subcontracters, notably : Accountants, Lawyer fees, External sales, etc

General Expenses or « Fixed » costs


• Marketing & Communication expenses

NB: not to be underestimated !

• Travel & representation expenses

• HR costs other than salary and related costs

• Taxes (not the taxes on profit)

• … Unexpected expenses !



• R&D (if not integrated in the investments)

• Use of tangible assets (if not integrated in investments)

• Expenses versus Investments

• Profit & Loss account versus Treasury

• Consider what could/should be considered as pure costs, to be opposed to costs than can or have to be« activated » (on the balance sheet) & amortized



• Employees versus Workers

• Director (self-employed) versus staff under contract

NB: social costs linked to the shareholder of a company working for it under a self-employed statusis not to be included in the FP of the company, unless specifically foreseen

The differences in the fiscal status and in the costs berd by the company for bothcategories are quite significant(eg multiplication effect x 1.34 x 13.92 !)

General Expenses : HR costs


Amortization, Depreciation & Provisions :(= costs not implying a direct cash out)

Amortization is automatically calculated in the template based on the investments (and the amortization tenor)

Depreciation & Provisions are not included at thisstage (not relevant for a starter)

Costs with no impact on treasury


IMPULSE

Too many things to list them all here! We inform you, we guide you and we

accompany you in a whole range of areas such as creating an

enterprise, financing, innovation, town planning, environmental

permits, partnerships … by means of newsletters, websites, seminars or

tailored coaching.

Briefly, we create a complete ecosystem in which you can grow as an

entrepreneur!

More info on our websites : www.impulse.irisnet.be - www.entreprendreabruxelles.bewww.ecosubsibru.be – www.monstarterkit.be – www.brutrade.be

[email protected] - [email protected]


Martin van Wunnik

0475 / 96.95.91

[email protected]

13 Feb ’14

MIC 2014 Workshop Finance

Business

Transcript of MIC 2014 Workshop Finance