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Financial Plan

Financial Plan. Company profitability {Income statement} Affects viability of the business Affects financability of the venture How much is the company worth {Balance sheet} Can you pay your bills? {Cash Flow} Timing of the inflows and outflows Where to get the money from {Fund raising}

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Financial Plan

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  1. Financial Plan • Company profitability {Income statement} • Affects viability of the business • Affects financability of the venture • How much is the company worth {Balance sheet} • Can you pay your bills? {Cash Flow} • Timing of the inflows and outflows • Where to get the money from {Fund raising} • Next financable milestone • Financing requirements for the opportunity • Sources of financing • Plan to obtain financing 96.503 Issues in Telecommunications

  2. Financial Plan (cont) • Income statement reflects the viability (profitability) of the business • Cash flow focus on the timing of the inflows and outflows • Balance sheet reflects current value and solvency of the business • Information required: • For past years • Budget for coming years (coming 5 years or at least for while the required fund last ) • In more details (monthly or quarterly for coming year) • Report assumptions for (interest, tax,.. ) 96.503 Issues in Telecommunications

  3. Income Statement • Gross revenue on Sales • Cost of sales • SG&A (incl. Marketing), R&D • Depreciation • Non-operating income • Non-operating expense • Taxes Gross Profit Operating Profit Profit before Tax Net profit 96.503 Issues in Telecommunications

  4. Balance Sheet • Current assets • Cash, short term investments, account receivable, inventory, prepaid expenses • Fixed assets • Land, building, capital equipment, furniture. . . - accumulated depreciation • Current liability • Account payable, accrued expenses & salary payable • Fixed Liability • Long term loans, retained (re-invested) earning 96.503 Issues in Telecommunications

  5. Cash Flow • If all inflow • Materializes • Materializes on the first day of the year • We wouldn’t need a cash flow statement • What can be problematic: • Large inventory for quick to ship • Early expenses and late revenue • Heavy fixed assets expenses 96.503 Issues in Telecommunications

  6. Cash Flow (cont) • (Cash + short term investments) + • + Inflow • Gross revenue on Sales • Other income • Fund raised (new investments) • - Outflow • Cost of sales • SG&A (incl. Marketing), R&D • Other expenses • Taxes • Capital (building, land, equipments,..) • Loan principal payment • Dividend distribution 96.503 Issues in Telecommunications

  7. Cash Flow (cont) • Rent/lease but not buy fixed assets • Layoff • Defer next generation development • Call for account receivables • Pay on the 60th day of receiving invoices • Contract installments negotiation 96.503 Issues in Telecommunications

  8. Example 96.503 Issues in Telecommunications

  9. CFO - VP, Engineering Dialogue • For early phases of hi tech companies, R&D is > 70% of expenses • Phased development vs. one release • Short term vs. long term development • For fund raising • For cash flow • Release dates (dates that maters: GA) • Cost reduction availability (phased or not) • Expenses timing (& year end boundaries ) • Develop, license, partner • Application for R&D Tax incentive rebate & research grants 96.503 Issues in Telecommunications

  10. CFO - VP, Operation Dialogue • Inventory • Of components • Of finished goods • Purchasing & manufacturing lead time • General & admin expenses • Net 30 vs. net 60 vs. net 90 payment for sales and for supplies • Product proper costing • Outsource manufacturing ?? • Contracts payment breakdown 96.503 Issues in Telecommunications

  11. CFO - VP, Marketing Dialogue • Cost vs. Price • Margin • Price structure • Volume forecast • Invest or not in Release n+1 & when 96.503 Issues in Telecommunications

  12. CFO - VP, Sales Dialogue • Sales forecast • Cost of customer trials • Discounts vs. SRP • Direct sales vs. channel sales margins 96.503 Issues in Telecommunications

  13. CFO - Investors Dialogue • Shareholder equity • Balance sheet, income statement, cash flow • Dilution • Exist strategy • Term sheet 96.503 Issues in Telecommunications

  14. Sensitivity analysis • Uncertainty of funding & sales timing • Uncertainty of funding & sales amount • Expenses trigger points 96.503 Issues in Telecommunications

  15. Other Issues • Budget • Poor forecast • Financial ratios 96.503 Issues in Telecommunications

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