How to make your own financial projections

How to make your How to make your own financial own financial projectionsprojections

TechBATechBA

September 2006September 2006

ObjectivesObjectives

• Define general concepts of a financial business model

• Do an exercice _ Ejemplo, Inc.

Conceptual FrameworkConceptual Framework

• To access this offerings the entrepreneur needs to:– Define a Business Model– Create a Business Plan– Make the Financial Projections– Build a sound business

credibility• Have a powerful Value Offer• Deliver a clear message• Gather evidence of success• Deliver successfully

Financial ProjectionsFinancial ProjectionsDefinitionDefinition

A Financial Projection Model reflects “The Business Concept” with numbers

• Business Model• Business Plan

– Comercial– Operation

Business ModelBusiness ModelWhat are you offering and how are you going to sell it

– Product• Market• Price

– Competence– Cost / Benefit Analysis

• Complementary offering– How to sell it

• Direct sale• Through distribution channels• Internet

– Sources of Revenue• Direct sales• Lease• Additional services• Maintenance• Upgrades

– Commercial & Operation Strategy & Process• Manufacture in Mexico• Finish product in USA• Manufacture in USA

Business PlanBusiness Plan

• Customers Pain• Your Solution (Products / Services)• Target Markets• Main Competition• Competitive Advantages• Intelectual Property• Business Model• Commercial and Operational Process• Management• Financials (Historic & Projections)• Funds (Sought & Utilization)• Investment (Terms and Conditions)• Return on Investment

Uses of Financial Uses of Financial ProjectionsProjections

1. Validate your Business Plan2. Evaluate business options and

projects1. New products2. New markets3. New technology

3. Estimate your company value4. Request loans and funding5. Seek for investors

Main Financial ReportsMain Financial Reports

• Income Statement• Balance Sheet• Sources & Uses of

Funds• Cash Flow

TimelineTimeline

Periodo 1 Periodo 2 Periodo 3

Fech

a 1

Fech

a 2

Fech

a 3

Fech

a 4

Estado de Resultados Estado de Resultados Estado de Resultados

Flujo de Efectivo Flujo de Efectivo Flujo de Efectivo

Balance

Balance

Balance

Balance

HistóricoPronóstico

Presupuesto

Origen y Aplicación Origen y Aplicación Origen y Aplicación

c c

Financial Projections Financial Projections ModelModel

RevenueRevenueModuleModule

HeadcountHeadcountModuleModule

CapExCapExModuleModule

Cost &Cost &ExpensesExpensesModuleModule

IncomeIncomeStatementStatementModuleModule

Cah FlowCah FlowModuleModule

BalanceBalanceSheetSheetModuleModule

AnnualAnnualSummarySummaryModuleModule

Techba_Forecast.xls

FinancingFinancingModuleModule

Revenue ModuleRevenue ModuleRevenueRevenue

Per Main Product Line• Market

– Size– Growth rate

• Penetation (Market Share)• Volume (Units sold)• Price• Revenue• Commercial discounts• Sale commisions• Revenue Sharing programs• Net Revenue

Revenue ModuleRevenue ModuleRevenueRevenue

Revenue ModuleRevenue ModuleRevenueRevenue

Activities Validate Volume & PricesIdentify key sources of incomeDistribute income in timeIterate

Revenue ModuleRevenue ModuleAccounts ReceivableAccounts Receivable

• Invoices• Commercial Terms

– Days of credit

• Accounts Receivable• Collection

Revenue ModuleRevenue Module Accounts ReceivableAccounts Receivable

Revenue ModuleRevenue Module Accounts ReceivableAccounts Receivable

Activities Estimate Working Capital

Fund usesIterate

Headcount ModuleHeadcount ModuleHeadcount, Salaries & Headcount, Salaries & PayrollPayroll• Headcount

– By Department & Key position• Salaries

– Base salary– Fringe benefits– Taxes– Period terms

• Payroll– To personel– To taxes

• Incentive Plans– Bonus– Stock option

• Labor expense– Productivity– Capacity

RevenueRevenueModuleModuleLink with

Headcount ModuleHeadcount ModuleHeadcount, Salaries & Headcount, Salaries & PayrollPayroll

Headcount ModuleHeadcount ModuleHeadcount, Salaries & Headcount, Salaries & PayrollPayroll

Activities Estimate headcount

needs (capacity + productivity vs volume)

Identify impact of incentive programs

Iterate

CapEx Module CapEx Module (Capital (Capital Expenditures)Expenditures)Equipment, Facilities, Tools Equipment, Facilities, Tools & other& other• Operational Process

– Asset employed• Equipment• Facilities• Tools

– Utilization– Capacity– Future asset requirements

• Fixed Assets– Base asset investment– Depreciation

RevenueRevenueModuleModuleLink with

HeadcountHeadcountModuleModule

CapEx ModuleCapEx ModuleEquipment, Facilities, Tools Equipment, Facilities, Tools & other& other

CapEx ModuleCapEx ModuleEquipment, Facilities, Tools Equipment, Facilities, Tools & other& other

Activities Estimate Fixed assets &

tools (capacity + efficency vs volume)

Determine future investments

Iterate

Cost & Expenses ModuleCost & Expenses ModuleFixed Costs & ExpensesFixed Costs & Expenses

• Operational Process– Facilities rent– Electricity expense– Communication expense

• Commercial Process– Facilities rent– Electricity expense– Communication expense

• Administrative Process– Facilities rent– Electricity expense– Communication expense– Services (Lawyer, GL)

• Modular growthRevenueRevenueModuleModuleLink with

HeadcountHeadcountModuleModule

Cost & Expenses ModuleCost & Expenses ModuleFixed Costs & ExpensesFixed Costs & Expenses

Cost & Expenses ModuleCost & Expenses ModuleFixed Costs & ExpensesFixed Costs & Expenses

Activities Estimate cost overheadDetermine capacity

growth needs (modular growth of fixed resources)

Iterate

Financing ModuleFinancing ModuleBank loans, Leases & other Bank loans, Leases & other financing expensesfinancing expenses

• Bank Loans– Amount– Interest rate– Principal payment & amortization

program– Other fees

• Asset lease– Amount– Payment program– Purchase options

• Other financing expenses

Results ModuleResults ModuleIncome StatementIncome Statement

• Revenue

• Operating Cost

• Selling Expenses

• Adminstrative Expense

• Financing Expense

• Taxes• Net Income

RevenueRevenueModuleModule

Link with

HeadcountHeadcountModuleModule

CapExCapExModuleModule

Cost &Cost &ExpensesExpensesModuleModule

RevenueRevenueModuleModule

HeadcountHeadcountModuleModule

CapExCapExModuleModule

Cost &Cost &ExpensesExpensesModuleModule

HeadcountHeadcountModuleModule

CapExCapExModuleModule

Cost &Cost &ExpensesExpensesModuleModule

RevenueRevenueModuleModule

FinancingFinancingModuleModule

Results ModuleResults ModuleIncome StatementIncome Statement

Results ModuleResults ModuleIncome StatementIncome Statement

Activities Estimate net profitsAdjust projection to

achieve goalsCalculate ROI & other

ratesIterate

Cash Flow ModuleCash Flow ModuleCash FlowCash Flow

• Cash Flow from

– Operations

– Investment

– Financing & Equity

• Cash needs

RevenueRevenueModuleModule

Link with

CapExCapExModuleModule

FinancingFinancingModuleModule

IncomeIncomeStatementStatementModuleModule

Cash Flow ModuleCash Flow ModuleCash FlowCash Flow

Cash Flow ModuleCash Flow ModuleCash FlowCash Flow

ActivitiesEstimate Cash Flow

needsEvaluate financing

alternativesEvaluate equity fundingEstimate Company ValueAdjust operations to

achieve goalsIterate

Balance ModuleBalance ModuleBalance SheetBalance Sheet

• Assets– Current Assets

– Fixed Assets

• Liabilities– Current Liabilities

– Long Term Liabilities• Equity

– Common Stock– Prefferred Stock

– Net Income

RevenueRevenueModuleModule

Link with

CapExCapExModuleModule

FinancingFinancingModuleModule

IncomeIncomeStatementStatementModuleModule

Cash FlowCash FlowModuleModule

FinancingFinancingModuleModule

RevenueRevenueModuleModule

Annual ModuleAnnual ModuleSummarySummary

• Income Statement– Dollar– Percentage

• Cash Flow Statement

• Balance Sheet

Link with

IncomeIncomeStatementStatementModuleModule

Cah FlowCah FlowModuleModule

BalanceBalanceSheetSheetModuleModule

Annual ModuleAnnual ModuleSummarySummary

To Do´s (next steps)To Do´s (next steps)• Actions

– Define your Business Model– Develop your Business Plan– Make your Financial Proyections

• Participants– Company

• CEO• CFO

– TechBA• Business Development Consultant

• Calendar– First activity tomorrow morning– Duration - about a month - first draft– Iterate – Continuos process

• Deliverable– Business Model– Business Plan– Financial Projections

Final Q&AFinal Q&A

??

About the AuthorAbout the Author• Education

– MBA in Babson College (Wellesley, MA) (Business School for Entrepreneurs)

– Industrial Engineering La Salle University• Labor Experience

– Mexicana de Aviación• Chief Financial Officer (Debt re-estructuring, project

evaluation, budget)– AeroMéxico

• Treasurer (Evaluate aircraft leases, manage working capital & bank loans)

– Grupo Nacobre• Strategic Planning Manager (Develop business strategies,

evaluate companies strategic position)– Consultoría Directiva

• Business Consultant (Develop & evaluate Business Plans)– SONRICS (Sabritas’ Candy & Sweet Snack Division)

• Author of PRONOSTIC - a financial projection modeling software tool (more than 16,000 copies sold)

• Contact : luis.villegas@techba.com

How to make your How to make your own financial own financial projectionsprojections

TechBATechBA

September 2006September 2006

“There is no favorable wind for those who do not

know where to go”Christopher Columbus

The Most Important The Most Important Financial ToolFinancial Tool

“A model for Financial Projections is the

most important tool for business analysis and decision making”

TechBA SV Financial Projection TechBA SV Financial Projection ModelModel

TechBA has developed a financial projection model

that is helping the companies to analyze and

evaluate their business plans, estimate its company value and compare action

plan options

Conceptual FrameworkConceptual Framework

• Historic financial information is limited on estimating future performance of the company

• It‘s like driving a car just using the front mirror

Common development steps Common development steps for a Company for a Company

Idea &Idea &TechnologyTechnologyDevelopmentDevelopment

Company Company EstablishmentEstablishment

Commercial Commercial & Service& ServiceDevelopmentDevelopment

GrowthGrowth

MaturityMaturity

Common development steps Common development steps for any Company for any Company

Etapas del desarrollo de una empresa

Startup o Startup o InicialInicial

Early StageEarly Stage

TempranaTempranaGrowthGrowth

CrecimientoCrecimientoMezzanineMezzanine

Características 1)Desarrollo del concepto de negocio

2)Desarrollo o selección del producto o servicio

3)Creación de prototipos y pruebas

4)Adquisición de inventario

1)Creación de procesos

2)Desarrollo organizacional

3)Desarrollo de ventas locales

4)Desarrollo de atención a clientes

1)Crecimiento de ventas

2)Incremento del capital de trabajo (Inventarios, Cartera, cuentas por pagar)

3)Expansión de la capacidad

1)Búsqueda de nuevos productos o servicios

2)Fusión o adquisición de otras empresas

3)Búsqueda de mercados internacionales

Special path for Technology Special path for Technology CompaniesCompanies

• Some technology companies may follow an accelerated growth path.– Product or product like services– Scalable products– Masive consumption

Cellular phone

Copier

Spread sheet

IP phone

Technology Adoption Technology Adoption ModelModel

Tipos de usuarios

Entusiastas Tecnológicos

Visionarios ABISMO

Pragmáticos

Conserva-dores

Escépticos

Características

1)Buscan novedades para probar

2)No necesitan estar terminadas

3)El precio no es importante

4)Es un segmento muy chico

1)Buscan soluciones con potencial

2)Soluciones que tengan potencial de ser estándar

3)El precio no es importante

4)Es un segmento chico

Es crítico para una empresa brincar el abismo si desea crecer y participar en los segmentos de mercado grandes

1)Deben soluciones probadas y terminadas

2)Es importante costo / beneficio

3)Debe haber otros usuarios grandes (peers) que usen la solución

1)Debe ser una solución estándar

2)El precio debe ser bajo

3)Debe ser muy fácil de usar

4)Debe ser muy fácil de aprender

5)Es un segmento grande

1)Debe ser una oferta

2)Es un producto genérico

3)Es un segmento chico

Special Path for Special Path for Technology Co.Technology Co.

StepsBefore Before startingstarting Startup o Startup o

InitialInitialEarly StageEarly Stage AcceleratedAccelerated

GrowthGrowthMezzanineMezzanine

1) Investiga-ción y desarrollo de producto

2)Desarrollo de prototipos

1) Investiga-ción y desarrollo de producto

2)Desarrollo de prototipos

3)Primeros clientes

4)Adecuación de producto

1)Mantener a la empresa con bajo nivel de ventas, mientras se consigue brincar el abismo

1)Crecimiento explosivo del capital de trabajo

2)Fuerte incremento de capacidad

3)Desarrollo de proveedores

4)Desarrollo de canales

Financial Needs Financial Needs

Etapas del desarrollo de una empresa

Startup o Startup o InicialInicial

Early StageEarly Stage

TempranaTempranaGrowthGrowth

CrecimientCrecimientoo

MezzanineMezzanine

Necesidadesde Financiamiento

1)Desarrollo del producto o servicio

2)Creación de la empresa (gastos de arranque)

3)Capital de arranque

- Equipo- Local- Adecuación4)Adquisición

de inventario

1)Operación del negocio

2)Reposición de inventario

3)Periodos de estacionalidad o intermitencia en ingresos (proyectos)

1)Financiar capital de trabajo

- Inventario- Cartera2)Incrementar

capacidad de producción

3)Abrir nuevos canales de comercialización

4)Desarrollo de la fuerza de ventas

1)Financiar nuevos proyectos

2)Compra de empresas

3)Compra de nueva tecnología

4)Apertura de canales en el extranjero

Financial Offering in MéxicoFinancial Offering in México

Stages

Startup o Startup o InicialInicial

Early Early StageStage

TempranaTemprana

GrowthGrowth

CrecimientoCrecimientoMezzanineMezzanineType of Funding

Fondos del gobierno

Crédito CONACYT – Credito/Estimulo Fiscal (Proy.Tecnológicos)

Capital CONACYT - Fondos Mixtos y Sectoriales (Proy.Tecnológicos)

CONACYT – Ultima Milla

FONDO PYME –+ OI (1) Creación y Fortalecimiento de empresas

FONDO PYME + OI (4) Apoyo al financiamiento

BID(2) + Intermediario(BID / MIF) (3) + Intemediario(BID / IIC) (4) + Intermediario

Fondos Privados

Crédito F,F & F F,F & F Créditos bancariosArrendamientosFactoraje

Créditos bancariosArrendamientosFactoraje

Capital F,F & FEmprendedor

Angel Capital VentureCapital,Fondos privados (AMEXCAP(1))

IPOPrivate equityM&A

Fondos Mixtos

Crédito CONACYT/NAFIN ( Fondo de Garantias + Línea de crédito bancario)

Capital NAFIN ( Programa de apoyo a Emprendedores + Inversionistas angel)