FINANCIAL PLANNING

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ENTREPRENEURSHIP KNOWLEDGEVICENZA, ITALY

DAY 2 – JANUARY, 15th 2014

©2009-2014 Piercarlo Cuccia

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WHAT IS THE MAIN ACTIVITY OF THE BUSINESS?

What kind of business is the enterprise running? What does it mean “value for customer”? Which is the strategic approach within the enterprise is

proposing itself to the market? Which is the profile of your classic customer? What are the economics variables of a business as it?

the business can be defined on volumes or on margins? which is the framework of the costs of a business as it? are the business owners satisfied about their revenues?

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WHAT MARK SHOULD YOU GIVE TO YOUR BUSINESS?

Which is the main level of satisfaction of your business activity?

What about sales? Which are the main business area where you can get an

improvement? Number of customers and prices? Are you improving your products/services or the wideness of

your offer? More sales or more relationship management? What about your marketing activities? Is the enterprise

customer oriented or product oriented? What about your organization? And your execution? What mark should you give to your revenue account? Are we enough capable to understand and manage business

accounts?

THE ESSENTIAL MEANING OF DOING BUSINESS

1. businesses want profits and still living during time2. customers allow business to get profits3. customers have got needs, necessity and wishes: business

must understand and anticipate those needs and wishes…4. offer a reply of value to customers needs 5. the entrepreneur is the one who have to command and direct

all the activities6. entrepreneur is the key figure for business success7. obviously the performance of people working all over the

activity of the business is very important: they must work like in a team and alone, their performance depends on the kind of leadership used by entrepreneur (the ability to guide, manage, delegate, attract, motive,…)

Value for Customers

=

Offered benefits

Asked sacrifices

CUSTOMERS LOOK FOR “VALUE SOLUTION”

Everyone of us can have different ideas about evolutions of markets and what to do with our business… all kind of strategies must be able to create value and to share it with customers

> 1

Value for the customer

= Intrinsic quality + functional benefits + emotional

benefits

price + other acquisition costs

LA “FORMULA” DEL VALORE PER IL CLIENTE

Customers want reply of value to their needs and wishes. This “value” can be offered in different ways.

> 1

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THE MAIN STRATEGIC APPROCHEAS

TO GIVE MORE AT LESS: to accept the iper-competition and to look for ways to get the lowest price possible (the risk: to be in a “red sea” situation).

TO GIVE MORE FOR MORE: to look for excellence, quality and innovation; the goal is to be knew as the best. It became necessary to be able to give something more and to be paid more (leader ambition).

TO OFFER SARTORY AND MAX SERVICE: personalization and service to create loyalty

TO GIVE SPECIALITY, ORIGINALITY, UNICITY: be special, unique; be different to e competitive ... (“purple cow”)

BE A TREND RIDER: green, web, social, ethic, brain, tech, ... bio, slow, ...

TO DEVELOP PARTNERSHIP WITH OTHER BUSINESS: together to cut some managing cost, to cover more competences and to promote marketing initiative more attractive...

TO GIVE NEW SOLUTIONS: product innovations, service innovations combined with new ways to operate and to organize; often it allows to set more affordable prices because managing costs get down: if it happens it can be possible to attract new customers e recover marginality. (“Blue ocean strategy”)

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REVENUES – COSTS = PROFITS

CU

ST

OM

ER

SS

UP

PLU

IER

S

Production Cycle

ProductsServices

Resources

Services

ECONOMICAL CYCLE OF A BUSINESS

INVESTED CAPITAL and FUNDING

ECONOMICS and FINANCIAL DINAMICS

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BALANCE SHETT

INVESTED CAPITAL

year n

DEBTsfirst year (n)

EQUTYyear n

SELF FINANCING . +/-

COMMERCIAL POLITICS EFFECTS+/- NEW INVESTMENTS +/-

NEW FUNDINGS OR PAY BACK

= GENERATED CASH

FINANCIAL FLOWS

MANAGING

BALANCE SHETT

INVESTED CAPITAL year n + 1 +/-GENERATED CASH

DEBTs year n+1

EQUITYyear n + 1

OPERATING RESULT

+/-

REVENUES-

COSTI

= RESULT

ECONOMIC FLOWS

BEGINNING GOALS

- taxes

=NET PROFIT

pluralità di schemidi riclassificazione

GROSS REVENUES

- Deductions (discount; ecc.)

= NET OPERATING REVENUES

-operating monetary costs

GROSS MARGIN

- Operating non monetary costs= OPERATING INCOME

+/- financial proceeds/burdens

+/- proceeds/burdens accessorial business

+/- additional income/burdens

= EARNING BEFORE TAXES

TAX MANAGEMENT

ADDITIONAL MANAGEMENT

ACCESSORIAL MANAGEMENT

ORDINARY OPERATIONS

FINANCIAL MANAGEMENT

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MACROVOCI del CONTO ECONOMICO

INCOME STATEMENT VALUE-ADDED

REVENUES- consumes

- external services- other running costs

ADDED VALUE

EBITDA

=EBIT

- labour cost

- amortizations

Market appreciation

Business size

Operating cash flow

Earning from core business

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INCOME STATEMENT – MARGIN OF CONTRIBUTION

REVENUES

MARGIN OF CONTRIBUTION

EBIT

- Variable costs

- Fixed Costs

Ability to pay fixed cost of the business

structure

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Market appreciation

From core business

INCOME STATEMETN AT SELLS COSTS

REVENUES

- Industrial Costs

GROSS MARGIN

EBIT

- Commercial Costs-

Amministration and general

Costs

Market appretiation

Industrial Result

Income from core business

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INVESTED CAPITAL COMPONENTS

BU

SIN

ES

S

INV

ES

TM

EN

TS

Capital Assets

Working capital

TANGIBLE

INTANGIBLE

FINANCIAL

STOREHOUSE

CREDITS TO CUSTOMERS

CASH

OTHER OPERATING CREDITS

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FINANCIAL SOURCES

FIN

AN

CIA

LS

OU

RC

ES

OPERATING SOURCES

FINANCIAL SOURCES

EQUITY - OWN RESOURCES

DEBTS to SUPPLIERS

SEVERANCE PAY

OTHER OPERATING DEBTS

BANK DEBTS

LEASING DEBTS

DEBT TO PARTNERS

SHARE CAPITALE

RESERVES AND EARNINGS

EARNINGS

… GOING TO THE MANAGING – FINANCIAL BALANCE SHEET : FOCUS ON NATURE OF DEBTS

NET INVESTED CAPITAL

Where the business put the money?

How much has it

invested?

How can be juded the

investment structure?

CURRENT ASSETS

(this amount should return

in 1 year)

NON-CURRENT ASSETS

(more than 1 year)

EQUITY

Who give money to the

business?

How much money need

the business?

How can be judge the financial

structure of the financial

sources?

OPERATING DEBTS

EQUITY FINANCING

FINANCIAL DEBTS

CURRENT LIABILITIES

Trade Paybles, employess,…

NON-CURRENT LIABLITIES

- retirement, deferred taxation provisions, …

CURRENT FINANCIAL LIABILITIES

- Banks (short terms financial borrowing)

NON – CURRENT

FINANCIAL LIABILITIES- Long-terms

borrowings >12 months

EQUITY- Share capital- reserves

ASSETS LIABILITIES

CASH FUNDs

Cash and cash equity

TRADE RECEIVABLE

S

highlighting the amount expected to

be recovered over twelve

months

INVENTORIES

Property, plant & equipment Capitalized development costs Goodwill Other intangible assets Investments in associates Available-for-sale investments Deferred tax assetsLong-term loans receivable

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CLASSI BALANCE SHEET – FOCUS ON DEADLINES

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NET INVESTED CAPITAL

Where the business put the money?

How much has it

invested?

How can be juded the

investment structure?

CURRENT ASSETS

(this amount should return

in 1 year)

NON-CURRENT ASSETS

(more than 1 year)

EQUITY

Who give money to the

business?

How much money need

the business?

How can be judge the financial

structure of the financial

sources?

OPERATING DEBTS

<12 MONTHS

EQUITY FINANCIN

G

FINANCIAL DEBTS

> 12 MONTHS

CURRENT LIABILITIES

Trade Paybles, employess,…

NON-CURRENT LIABLITIES

- retirement, deferred taxation provisions, …

CURRENT FINANCIAL LIABILITIES

- Banks (short terms financial borrowing)

NON – CURRENT

FINANCIAL LIABILITIES- Long-terms

borrowings >12 months

EQUITY- Share capital- reserves

ASSETS LIABILITIES

CASH FUNDs

Cash and cash equity

TRADE RECEIVABLE

S

highlighting the amount expected to

be recovered over twelve

months

INVENTORIES

Property, plant & equipment Capitalized development costs Goodwill Other intangible assets Investments in associates Available-for-sale investments Deferred tax assetsLong-term loans receivable

NET FIXED

ASSETS

FINANCIAL – MANAGING BALANCE SHEET ( 4 zones)

WORKING CAPITAL

EQUITY

FINANCIAL NET DEBTS

OPERATING FINANCIAL LIABILITIES

NON-OPERATING FINANCIAL LIABILITIES

EQUITY- Share capital- reserves

ASSETS LIABILITIES

TRADE RECEIVABL

ES

INVENTORIES

FIXED ASSETS

- Financial

- - Tangible

- - Intangibl

e

LIQUIDITYCash and bank

accounts-

NON-OPERATING

S LIABILITIES

-

OPERATING LIABILITIES-

++

= =F.N.F. =N.I.C.NET INVESTED CAPITAL=N.I.C

=

=

=

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DEBTS AND ECONOMIC CYCLE

DE

First of all debt must be sustainable and it means that business must show an operating revenue able to pays at least passive interests… After it, it must be observed the economic cycle that the business is living:• growth: it increase the necessity of liquidity and so it would try to

pay just interests• stability: it should be to generate liquidity and to pay back the

capital.

In every case it must be a general financial equilibrium, due to business size and its characteristic; the financial system, after the crisis nowadays does not like the excess of debts [ D/E ratio]

Equity

Financial DebtsNFA

NICEquity

Financial Debts

=

WHEN DEBTS ARE TOO MUCH?

REVENUE CLASSES (Euro)

FROM TOBUSINESS

DIMENSIONGOOD ENOUGH PRE ALARM ALARM WARNING

tutte tutte QUOTED < 1 1<D/E<1,5 1,5<D/E<2 2<D/E<2,5 D/E>2,5

50/100 ml oltre big(n.q.) < 1 1<D/E<1,5 1,5<D/E<2 2<D/E<2,5 D/E>2,5

10 ml 50/100ml media(n.q.) < 2 2<D/E<3 3<D/E<4 4<D/E<6 D/E>6

2 ml 10 ml small(n.q.) < 3 3<D/E<4 4<D/E<5 5<D/E<7 D/E>7

0 2 ml micro(n.q.) high values can be allowed: their are easy to warrant

Patrimonio netto

Debiti finanziariAFN

CCNPatrimonio netto

Debiti finanziari

= DE

FINANCIAL STATEMENTS INDICATOR

FINANCIAL AND

PATRIMONIAL EQUILIBRIUM

PROFITABILITY DURATION

Current Assets

Financial liquidity

NFAN/NIC e NCA/NIC

ROS

ROI; RONA

ROE

i

TURNOVERInventory

days

ROI – i; RONA - i

The reciprocal of 365 are index

Days of grace

days before cash in

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D/E

Net ROE

RNPN

RONA

ROCIN

Debts Loads

CINPN

No – core business weight

RNRO

ROS

RORevenues

Invested Cap.

Rotation

RevenuesCIN

IS %

BS%

x

x

x5

1 – profitability intrinsic in the invested capital

2 - Debts loads:

if CIN=PN = no debt

if PN=0 = all debt

3- usually in the financial framework is used the D/E ratio

4 e 5- they show operating efficiency

2- 3

4

REVENUE INDEX

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1

Variable costs are those ones that change in order to variation on

the volume of activity

Example: materials

Variable Costs

Tota

l C

ost

s (Y

)

Activity volume (X)0

Variable costs can be not proportionally linear at the growth

of units

Cost

Quantity

VARIABLE COSTS

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Fixed costs are those ones that don’t change at the variation of the activity volume

Fixed Costs

Tota

l C

ost

s (Y

)

Activity Volume (X)0

Example: ammortizations

Cost must be considere fixed in:- A given timeline - In a relevant range of activities- They move in a “stairs” way

FIXED COSTS

Numbers of units

Am

ort

izati

on

s

200100 300

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COST ANALYSIS: TOTAL AND UNIT

Activity Volume x

Costs Fixed a

Variable Costs(b=300) b . x

Total CostsY = a + bx

10.00020.00030.00040.00050.000

1.000.0002.000.0002.000.0002.000.0003.000.000

3.000.0006.000.0009.000.000

12.000.000 15.000.000

10010066,65060

300300300300300

400400

366,6350360

y = a + b . x

y/x = a/x + b

4.000.0008.000.00011.000.00014.000.00018.000.000

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Fixed unit cost a/x

Variable unit costb

Total unit costy/x

UNIT COST

TOTAL COSTS

Variables costs

costi fissi

Total costs

revenues

Numbers of units

EU

RO

Break even point

Revenues = total costs

Margin of Contribution = Fixed Costs

BREAK EVEN POINT

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PRODUCT A B TOTAL % (x/Sales Volume.)

Sales Volume 200 300 500 100,0%

Variable production and selling costs 110 140 250 50,0%

EBITDA for each product 90 160 250 50,0%

Fixed costs 200 40,0%

OPERATING INCOME 50 10,0%

DIRECT COSTING, SOME NUMBERS

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PRODUCT A B TOTAL % (x/sales.)

Volume sales 200 300 500 100,0%Variable production and selling costs 110 140 250 50,0%Gross Margin Contribution (1° GMC)

90 160 250 50,0%

Specific fixed costs (direct) 40 110 150 30,0%Second Gross Margin Contribution (2°GMC)

50 50 100 20,0%

Common fixed costs (indirect) 50 10,0%

OPERATING INCOME 50 10,0%

DIRECT COSTING WITH DIRECT FIXED COSTS

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PRODUCT A B TOTAL % (x/sales.)

Volume sales 200 300 500 100,0%Variable production and selling costs 110 140 250 50,0%Gross Margin Contribution (1° GMC)

90 160 250 50,0%

Specific fixed costs (direct) 40 110 150 30,0%Second Gross Margin Contribution (2°GMC)

50 50 100 20,0%

Common fixed costs (indirect) 20? 30? 50 10,0%

OPERATING INCOME 30? 20? 50 10,0%

FULL COSTING

PLANNING THE BUSINESS DEVELOPMENT…

Prior experinces

Dreams … Passions

Markets opportunitie

s

IDEA

The development of the idea

Strategy and business model

BUSINESS PLAN

INV

ES

TM

EN

TS

PARTNERS

BANKS

REVENUES

-costs (variables, fixed)

= OPERATING INCOME

-passive interests

= RESULT BEFORE TAXES

-taxes

= NET RESULTS

INPUTS

-OUTPUTS

= GENERATED CASH FLOWS ?

START MANAGEMENT

REVENUES?

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THE BUSINESS MODEL

THEBUSINESS MODEL shows how a business

create value for his customers

involve them and how distribute value

receive value from his clients

THE BUSINESS PLAN can be intended as the way as a company want to realize his own business model

POINTS OF BUSINESS MODEL:1. To identify target clients, to hear, to understand and to speak with them

2. To phrase a value approach as answer to their needs

3. To develop contacts, to build relations and to communicate

4. To chose the best sale channels and sale ways

5. Revenues structures and ways to get it

6. To identify key activities

7. To identify key resources

8. To identify key partners and to focus on cooperation modes

9. How to sustain costs and its structure

Il MARKETING MIX – LE 4 P

WHAT IS OFFERED Product

IN CHANGE OF WHAT Price

IN WHICH CHANNELS Distribution

IN WHICH WAY Communication

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brand, packaging, choises

conditions, promotions, lists

Channels, sales network

Public relations, advertising, direct marketing

MARKETING MIX – 4 C

CUSTOMER VALUE Offered value

CUSTOMER COMMUNICATION

How we hear customers? How we face them?

CUSTOMER EXPERIENCE

Buying experiences

CUSTOMER COST Asked sacrifices

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How will we solve his needs?

hearing, communication, involvement, new media

All the buying experiences

Price and other acquisition costs

BUSINESS PLAN: WHAT IS IT? HOW DOES IT WORK?

BUSINESS PLAN IS:

An effective tool useful for owners: it promotes the market

analysis that look for opportunities and threats

It allows to be focused on objectives and to define strategies

It helps to underline business weakness and strengths

It allows a feasibility study on economic and financial

variables

It is the document supporting financing requests, the

investors research, partnerships development.

IL BUSINESS PLAN (1)

THE TEAM AND THE IDEAS (NO MORE THAN 1 PAGE) Who we are: how is composed our entrepreneurial team Business idea, goals and times What is demanded – what is offered?

SCENARIO AND MARKET ANALYSIS Macro - environment analysis: what is happening in the

political, economic, social, technologic world? Can it has a strong impact on our business??

Demand analysis: who are our customers? What they need? How they behave?

Supply analysis: who are competitors? Where they are stronger and where they have got weakness? Where we can compete?

Opportunities and threats summary

IL BUSINESS PLAN (2)

PROGETTAZIONE STRATEGICA … synthesis of threats and opportunities: which is your vision of

the future? Which strategy can allow to catch the most interesting

opportunities and fight threats? How to build and irresistible offer for the customer? Which marketing plan can best prepare to first sales? Sales Budget and sales goals definitions

ORGANIZATIONAL PLANNING Who decide? Who does? Who checks? Organization structure: who does what and when? With which

resources? To who he/she must report? What is done inside the business and what outside? How we select our suppliers?

BUSINESS PLAN (3)

Feasibility study on economic and financial aspect (excel)

Investment planning economic forecasts Financial feasibility and cash budget Choice of the financial funds and financial equilibrium

CONCLUSIONS Things to do immediately First issues to meet and to fight

FINANCIAL INVESTMENT LOGIC - 1

Flows

....

FnF3

F2

F1

F0-1.000.000

-500.000

0

500.000

1.000.000

time

€

F0= initial exiting cash flow for the investment

F1, F2, F3 = Net cash flows during the time

Fn = Final Project Value a the ending of the managing activity

FINANCIAL INVESTMENT LOGIC - 2

FLOWS

....

FnF3

F2

F1

F0-1.000.000

-500.000

0

500.000

1.000.000

time

€

F0= initial exiting cash flow for the investment

F1, F2, F3 = Net cash flows during the time

Fn = Final Project Value a the ending of the managing activity

? : too much optimism through the blue line in the graphic?

CASH FLOW of a NEW PROJECT

t1 t2 t3 t4 t5 t6 t7 t8

First times with negative

cash flows

Positive cash flows

equilibrium of cash

flows

Bu

sin

ess

Pla

nn

ing

I

X?

€

t0

I = initial investiment

X = negative peak

CASH FLOW: Buying activity

t1 t2 t3 t4 t5 t6 t7 t8

Initial Investments

POSITIVE CASH FLOWS

G = goodwill

Bu

sin

ess

Pla

nn

ing

I

G

€

t0