20150215 bootcamp suwe_ageingpopulation_financialplanstepbystep_part1

Financial Plan

Building a financial plan for an innovative project step by step

(I will make you love finance )

Azèle Mathieu, Ph.D.

Business background:

• Manager cluster lifetech.brussels

• Financial Advisor @ impulse.brussels

• Coach @ MIC Boostcamp, BSE Academy

• Business Development Manager @ Bone Therapeutics

• Business Development Manager @ ULB Technology Transfer

Office

Academic background:

• PhD in Economics and Management

• Professor Technology Transfer & Business Planning @ SBS-

EM

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Azèle Mathieu

- Is your project financially

sustainable?

- What are your financing needs “How much money do I need to develop this new project?”

- To show how the money of third parties will be used

- To mitigate your risk

- To identify drivers of your business

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Why making a financial a plan?

- Is the project financially

sustainable? - What are your financing needs “How

much money do I need to develop this new project?”

- To show how the money of third

parties will be used

- To mitigate your risk - To identify drivers of your business

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Why making a financial a plan?

Profit & Loss statement (P&L)

Balance sheet (BS)

Cash-flow statements (CFS)

OUTPUTS:

= FINANCIAL PLAN

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By what do we start?

? ? ?

? ? ?

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Financial modelling:

Profit & Loss statement (P&L)

Balance sheet (BS)

Cash-flow statements (CFS)

OUTPUTS:

= FINANCIAL PLAN

INPUTS:

Sales / Revenues

Operating expenses (opex)

Capital expenditures (capex)

Paymen

t con

ditio

ns + sto

cks (W

CR

)

COS or COGS

Cost of Customer Acquisition (COCA)

INTERMEDIARY OUTPUTS:

Earning Before Interest & Taxes

(EBIT)

Operational Cash Flow

Working Capital Requirement

Gross Margin

1) Inputs

- Expenditures: • Operating Expenditures (-)

• Capital Expenditures (-)

• Cost of Customer Acquisition (-)

• Cost of sales (-)

- Income • Sales (+)

• Life-time value of customer acquisition (+)

2) Outputs

- Profit & Loss statement

- Cash flow statement

- Asset & Liabilities

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Today’s agenda

2014 2015 2016 2017

Research -

Development -

Production - -

Marketing - -

Commercialisation +

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How far your project is from the market?

Importance of taking into account:

- Milestones of the project

- Timing of each phase

- Risks and factors of success for each phase

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What is the difference between these types of expenditures?

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What is the difference between these types of expenditures?

Operating expenses Capital expenditures

For each phase:

• Operating expenditures (OPEX) – per category

‒ Human resources: gross salary + social security + benefits in kind

‒ Cars: all-in

‒ Experts fees: accounting, payroll, legal,…

‒ Overhead: rent, services, communication, IT

‒ …

• Capital expenditures (CAPEX)

For each item:

• unitary cost

• number

• timing

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Start with your expenditures

• CAPEX: funds used by a company to acquire physical long-term assets,

generating positive value for the company, still existing after their first

use.

• It generates differences between:

– P&L: Depreciation as a cost

– CFS: Acquisition cost as an outflow

– BS: Net value of the asset (= acquisition cost – cumulated

depreciation)

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Capital expenditures

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Year 1 Year 2 Year 3

Amount 80

Date (quarter number) 3

Depreciation period (in years) 2

Investment CFS 0 0 80 0 0 0 0 0 0 0 0 0 80 0 0

Depreciation P&L 0 0 10 10 10 10 10 10 10 10 0 0 20 40 20

Net asset value BS 0 0 70 60 50 40 30 20 10 0 0 0 60 20 0

- You are hired as a financing advisor by a family business that wants to diversify its line of textile products for old persons by developing a new intelligent textile.

- They know they will need 4 persons to work on the project, lasting 8 months, starting in October 2015. 2 persons already work in the company and one of them is an independent. They both want to be paid 2.000€ (gross revenue), the independent will attribute 25% of his time on the project, the other 50%.

- The 2 remaining persons are experts: an innovation expert, cost per day: 500€ and a conception expert, 700€/day. They will both be needed for only 50% of the period.

- They will need to buy a textile machine at 50.000€, lifespan: 5 years, the machine will be used at 50%.

- Overheads are estimated at 10% of the material costs and human resources costs.

- They also need to buy material: textiles (5k€), cables (3k€), tools (2k€), box (5k€), electricity (5k€).

• => Do you have any questions?

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How would you organize the following information?

1) Inputs







2) Outputs




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Today’s agenda

Target: 1000

Calls: 800

Interested: 500

Meetings: 100

First sale: 30 (3%)

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The sales funnel - Cost of Customer Acquisition (COCA)

€?

- Using about 2 hours of our time, evaluated at 54€/hour, i.e. 108€

- We reached a total of ~1.500 people in our target customer population

- Of these, we consider that 49 are likely buyers

COCA in this case amounts to….?

• “Assuming that each of our customers would buy 5 products Z, our

forecasts plan for ~120.000 products Z in total over 4 years, hence

~24.000 customers. Put in relation with a total of 186.000€ of

marketing costs planned over these 4 years, we reach a COCA of

….?”

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Measure the Cost of Customer Acquisition (COCA)

• How much resources (time, €, HR) does it require?

• Includes unsuccessful prospects

• To be taken into account in your P&L, CF

• Essential step for your sales assumptions

• Choice of channel financially sustainable?

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COCA

1) Inputs







2) Outputs




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Today’s agenda

• Revenues (REV) – Cost of Services (COS) or Cost of Goods Sold (CoGS) = Gross Margin (GM)

• COS & COGS =

– ALWAYS: Direct variable costs (proportional to revenues) e.g. cost of material, subcontractors, packaging & delivery costs

– SOMETIMES: Indirect semi-variable costs e.g. full cost of the factory (rent, depreciation, services…), full cost of the consultants (salary + overhead)

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COS & COGS & Gross Margin

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Disappear or adapt?

+

=

1) Inputs







2) Outputs




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Today’s agenda

Sales?

What? When? How much? Price? How?

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Sales (1/4)

• Total Addressable Market (TAM)

– Bottom-up from primary market research

– Validate top down: Economy > Industry > Market > Segment > … > Your business

• Market share?

– Top-down : TAM x market share

– Bottom-up : Resources x ‘Usage’ (preferred approach)

Combine both approaches

• Growth rate?

• One-off/recurring/bundled sales?

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Sales – How much?

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Sales – How much? Top down approach

Tupperware market in Belgium

(a) Population 10.000.000

(b) # Tupperware sold annually 250.000 2,5% x (a)

(c) Average price/Tupperware 10€

(d) TAM 2.500.000€ (b) x (c)

(e) Targeted market share 10%

(f) Potential market size 250.000€ (d) x (e)

(g) Targeted # Tupperware to be sold/month

2.083 ((f)/(c))/12

Can you really make it?

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Sales – How much? Bottom up approach

2013 2014 2015

Sales Volume

Number of sales representatives

1 2 3

Number of Tupperware sessions/month

20 20 20

Number of sold Tupperware/session

5 5 5

Total monthly sales 100 200 300

Will they achieve it? Still profitable?

Patent expirations may be one of the factors impacting growth rate/selling price…

… disastrous for some companies

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Sales – How much? Growth rate?

• Pricing of alternative solutions

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

Quantified value proposition (ex.: Railnova)

• Price:

– Not too low

– Not too high

– Coherent

• Evolution of the selling prices?

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Sales – Price?

../../References/Prop de valeur quantifiée - ROI Railnova v2.pdf

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Sales – Price? Quantified value proposition

Alpha Technology

• Sales map process

– Sales channels:

• Direct?

• Indirect?

– Impact on the cost of customer acquisition (COCA)

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Sales – How?

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Sales – How?

Alpha C

1) Inputs







2) Outputs




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Today’s agenda

• Cost of Customer Acquisition (COCA)

• Life time value of an acquired customer (LTVOAC)

Compute

Monitor over time

Impact on:

‒ Business model (VP, distribution channel,…)

‒ Cost structure

‒ Pricing decisions

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Life Time Value Of an Acquired Customer

COCA = Sales & Marketing Costs / Customers

LTVOAC = revenue over life time x gross margin

• 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)

Allowable acquisition cost?

How to optimize LTVOAC?

Discount while managing CF

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LTVOAC: example

Source: www.entrepreneur.com

http://www.entrepreneur.com/

• Rule of thumb*

• Depending on the industry and the period

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Link between LTVOAC & COCA

LTVOAC > 2 COCA

(a) order average 25 €

(b) margin 12%

(c) targeted orders / month / restaurant 75

(d) Restaurant Acquisition Cost € 500

(e) Restaurant Lifetime value (5 years) ?

• Rule of thumb*

• Depending on the industry and the period

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Link between LTVOAC & COCA

LTVOAC > 2 COCA

(a) order average 25 €

(b) margin 12%

(c) targeted orders / month / restaurant 75

(d) Restaurant Acquisition Cost € 500

(e) Restaurant Lifetime value (5 years) € 13.500 (a) x (b) x (c) x 12 x 5

1) Inputs







2) Outputs => See Part 2




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Today’s agenda

20150215 bootcamp suwe_ageingpopulation_financialplanstepbystep_part1

Small Business & Entrepreneurship

Transcript of 20150215 bootcamp suwe_ageingpopulation_financialplanstepbystep_part1