how to make your own financial projections
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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)
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