financial projections_dec.ppt

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

TechBATechBA

December 2006December 2006

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 : [email protected]

ObjectivesObjectives

• Set the conceptual framework for using financial projections

• Define general concepts of a financial business model

• Present a real case _ MEDIDA, Inc.

“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

process”

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, determine the right track, estimate company´s 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 for any company any company

Stages of a Company StartupStartup Early StageEarly Stage

TempranaTempranaGrowthGrowth

CrecimientoCrecimientoMezzanineMezzanine

Characteristics 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

Type of user Entusiastas Tecnológicos

Visionarios ABISMO

Pragmáticos

Conserva-dores

Escépticos

Characteristic 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

Stages of a Company Startup o Startup o

InicialInicialEarly StageEarly Stage

TempranaTempranaGrowthGrowth

CrecimientCrecimientoo

MezzanineMezzanine

Financial Needs 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)

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. Control the company4. Estimate your company value5. Request loans and funding6. 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

Financial Projections Financial Projections ModelModel• Real Business Case• Medida, Inc.

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


MEDIDA 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

MEDIDA Estimate Working Capital

Fund usesIterate

Revenue ModuleRevenue ModuleVariable Cost & Variable Cost & Accounts Accounts PayablePayable• Materials & other consumptions• Efficiency• Unit cost• Suppliers Invoices• Commercial Terms

– Days of credit

• Accounts Payable• Payment to suppliers

Revenue ModuleRevenue Module Variable Cost & Variable Cost & Accounts Accounts PayablePayable

Revenue ModuleRevenue Module Variable Cost & Variable Cost & Accounts Accounts PayablePayable

MEDIDA Identify key gross marginEstimate Working Capital

Fund sourcesIterate

Break-even AnalysisBreak-even AnalysisVariable costsVariable costs

Los costos que varían con el volumen

• Materiales• Indirectos

– Depreciación– Rentas– Electricidad– Combustibles– Comunicaciones

• Mano de obra– Directa– Supervisión

Break-even AnalysisBreak-even AnalysisGross Gross MarginMargin

Margen = Ingreso – Costo Variable

Contribución = Precio – Costo Var. Marginal unitario

Margen =(porcentual)

Ingreso – Costo VariableIngreso – Costo Variable

IngresoIngreso

Break-even AnalysisBreak-even AnalysisFixed costsFixed costs

Los costos que no varían con el volumen

• Costos de Producción• Costos de Ventas,

Distribución y Promoción• Costos de Administración• Costos Financieros

Break-even AnalysisBreak-even AnalysisCost StructureCost Structure

Volumen 100 500 1,000

Costo Total 1,100 2,100 5,600

Costo Variable 500 2,500 5,000

Costo Financiero 400 400 400Costo Fijo Indirecto 20 20 20Costo Fijo Directo 180 180 180

100 500 1,000

Costo FijoCosto Financiero

Costo Variable

Break-even PointBreak-even Point

100 500 1,000

Costo FijoCosto Financiero

Costo Variable

Punto de Equilibrio=Costo Fijo

(Precio – Costo Variable)

$6.00

600

PEP= 600 =(6 – 5)

600

Sensitivity AnalysisSensitivity Analysis

Precio 6.00 10.00 15.00

Punto de Equilibrio(Unidades)

600 120 60

100 500 1,000

Costo Fijo

Costo Variable

Punto de Equilibrio=Costo Fijo

(Precio – Costo Variable)

$15.00 $10.00

$6.00

$5.00

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

MEDIDA 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


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

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

MEDIDA 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



MEDIDA 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

Financing ModuleFinancing ModuleBank loans, Leases & other financing Bank loans, Leases & other financing expensesexpenses

Financing ModuleFinancing ModuleBank loans, Leases & other financing Bank loans, Leases & other financing expensesexpenses

MEDIDA Estimate Fiancial cost Program payments

Results ModuleResults ModuleIncome StatementIncome Statement

• Revenue

• Operating Cost

• Selling Expenses

• Adminstrative Expense

• Financing Expense

• Taxes• Net Income


Link with














MEDIDA 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


Link with





MEDIDAEstimate 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


Link with




Cash FlowCash FlowModuleModule




MEDIDAReport Assets,

Liabilities & Capital

Annual ModuleAnnual ModuleSummarySummary

• Income Statement– Dollar– Percentage

• Cash Flow Statement

• Balance Sheet

Link with


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

??

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

TechBATechBA

December 2006December 2006

[email protected]

financial projections_dec.ppt

Business

financial business model

financial projections

financial projections

important financial

debe ser una oferta

ser estndar

debe ser muy fcil

technology companies