December 19, 2013 Cisco Quick Hit Briefing Financial Selling for Dummies Brian Avery Partner Development Manager – Cisco Systems Connect using the audio conference box or by calling into the meeting: 1. Toll-Free: (866) 432-9903 2. Enter Meeting ID: 206 796 773 3. Press “1” to join the conference. © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 1 Agenda Introduction Quick Hit Overview Why Learn, Objectives The Cost of Capital Brian J Avery Partner Development Manager bravery@cisco.com Cisco Sales and Channels (8 yrs) Financial Selling Tutorial and Case Study The Power of Cisco Capital Priors: IRS Section 179 President and CEO (6 yrs) Cisco Premier Partner Tools and Calculators Director of Sales (2 yrs) Cisco Silver Partner Call To Action, Next Steps Financial Analyst (7 yrs) Sprint Corporation © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 2 What Is a Quick Hit Briefing? • A weekly partner briefing series designed for Cisco Commercial Territory partners • Concise, relevant updates on: Cisco products and solutions Partner programs and promotions Partner Enablement – Demand Generation, Selling Skills, Closing Tools, etc. Next Quick Hit Briefing Cloud Opportunities for Cisco Partners Thursday January 9th, 2013 at 9:30 ET Check http://cs.co/quickhit for registration links and replays © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 3 Financial Selling for Dummies (No offense intended!) © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 4 Why Learn Financial Selling? 1. To impress your friends at parties 2. To improve your love life 3. To close more deals and make more money © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 5 The Cost of Capital • Every business deals with the “cost of capital” whether they pay cash, lease or use credit. • Cost of Capital (n) a) the opportunity cost of funds employed as the result of an investment decision; b) the rate of return that a business could earn if it chose another investment with equivalent risk • The value and cost of Capital Cash in the bank – earns interest $$ Cash deployed in the business – generates revenue $$ Debt (bank loan, line of credit) – costs interest $$ Lease – costs interest $$ (but generally less than debt) © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 6 Cost of Capital • Popeye’s Friend – J. Wellington Wimpy “I’ll gladly pay you Tuesday for a hamburger today!” • Is it better to pay now or pay later? • Is it better to receive a dollar today or a dollar in a year? • What is a dollar that you will receive a year from now worth to you if you could get it TODAY? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 7 Evaluating Capital Choices • Which choice (cash purchase, debt purchase, lease purchase) will offer the maximum benefit? • How much can you earn if you keep your cash and invest it in the bank or the financial markets? • How much revenue can you generate if you invest the cash in your business? • How much will borrowing money cost you? • Is leasing or financing a better choice? • All of these questions should be considered when making a capital purchase © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 8 Today’s Objectives • Help you to understand the importance of Financial Selling in today’s economic environment • Share with you techniques on how to apply Financial selling techniques • Share with you ways you can improve their Financial selling skills • Enable you to have CFO / Procurement team engagements • Help you to position both the business and financial benefits of a Cisco solution in order to prove the value of a potential Cisco premium © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 9 The Old Days Are Over Where it was once “nice” to understand the business (financial) justification for what the customer is buying… You now need to know in order to: • Be relevant or remain relevant • Address what is top of mind for your customers daily • Continue to successfully sell © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 10 WHY FINANCIAL SELLING IS IMPORTANT… THE FACTS 1. Whether you’re aware or not, all proposals will at some point land on the desk of a CFO 2. CFO’s / Finance / Purchasing will assess and appraise any proposal and ultimately approve or reject the solution or suggest alternatives that offer better value to the company 3. Whether you’re involved or not, many companies & government departments apply some form of financing to most of their solutions and projects 4. You need to be a part of the financial discussion to move up the value chain/secure sales Est. Product Pen Rates: © 2012 Cisco and/or its affiliates. All rights reserved. HP IBM EMC Cisco ~15% ( *overall, estimated 30% in DC) ~31% 30%+ ~11% (*overall) Cisco Confidential 11 Why does a Customer buy a Cisco solution? Why does a Customer buy a Cisco solution? a) b) c) d) e) Performance Security Quality / Industry Standard Features Other Reasons © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 12 Why does a Customer buy a Cisco solution? Why does a Customer buy a Cisco Borderless Networks solution? a) b) c) d) e) Performance Security Quality / Industry Standard Features Other Reasons © 2012 Cisco and/or its affiliates. All rights reserved. 1. Cost savings and / or 2. Revenue generation The motivation to purchase is, first and foremost, a financial decision Cisco Confidential 13 Getting This Right Means $$ • Getting access to more Influencers within your accounts • Positioning solutions that meet the company’s business objectives AND their financial metrics • Assessing if proposals will pass the CFO / Financing / Purchasing test to save you time and increase credibility • Anticipating customer objections by building the business / financial case before the proposal • Financing can equal upgrades every 3 years • Expanding the overall deal size and/or creating deals out of budget that doesn’t currently exist • Overcoming the “Cisco is too expensive” challenge and competitive threats © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 14 What financial tools do finance DMs use to assess an investment? What financial tools do CFO \ Financing \ Purchasing staff usually use to assess an investment? a) b) c) d) ROI IRR TCO NPV © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 15 What financial tools do finance DMs use to assess an investment? What financial tools do CFO \ Financing \ Purchasing staff usually use to assess an investment? a) b) c) d) ROI IRR TCO NPV © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 16 What is Net Present Value? What is Net Present Value? a) b) c) d) The net present worth of a time series of incoming cash flows The cost of buying a net as a present for the angler in your family. The net present worth of a time series of outgoing cash flows A standard method for using the time value of money to appraise a series of incoming and outgoing cash flows © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 17 What is Net Present Value? What is Net Present Value? a) b) c) d) The net present worth of a time series of incoming cash flows The cost of buying a net as a present for the angler in your family. The net present worth of a time series of outgoing cash flows A standard method for using the time value of money to appraise a series of incoming and outgoing cash flows © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 18 What is Return on Investment? What is Return on Investment? a) The internal rate of return on any given investment b) When you make a withdrawal from the bank c) The ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested d) The ratio of money gained and realized on an investment relative to the amount of money invested © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 19 What is Return on Investment? What is Return on Investment? a) The internal rate of return on any given investment b) When you make a withdrawal from the bank c) The ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested d) The ratio of money gained and realized on an investment relative to the amount of money invested © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 20 What is Payback? What is Payback? a) A cheesy 1990’s movie with Mel Gibson b) The period of time required for the return on an investment to "repay" the sum of the original investment c) The positive return from an investment after the original investment has paid itself off d) The period of time required for the positive return from an investment after the original investment has paid itself off © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 21 What is Payback? What is Payback? a) A cheesy 1990’s movie with Mel Gibson b) The period of time required for the return on an investment to "repay" the sum of the original investment c) The positive return from an investment after the original investment has paid itself off d) The period of time required for the positive return from an investment after the original investment has paid itself off © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 22 ROI, PAYBACK, NPV, IRR HOW A CFO / FINANCE OR PURCHASE OFFICER APPRAISES AN INVESTMENT © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 23 4 SIDES TO THE EQUATION © 2012 Cisco and/or its affiliates. All rights reserved. NET INVESTMENT NET BENEFITS • Incremental net investments • Incremental profits • Incremental savings • Incremental costs TIMING ALTERNATIVES • When do the above occur • How do they compare against alternatives Cisco Confidential 24 The New Normal – Some Stats Percentage of CFOs Who Always Use–or Almost Always Use–a Given Technique* Investment Appraisal Technique % Always or Almost Always Internal Rate of Return (IRR) 76 Net Present Value (NPV) 75 Payback period 57 Return On Investment (ROI) 30 * Source: “The Theory and Practice of Corporate Finance: Evidence from the Field”, Journal of Financial Economics 60, Figure 2 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 25 RETURN ON INVESTMENT (“ROI”) The simplistic view used by many accountants Net return from an investment = Net investment Total benefits received from an investment – net investment Net investment Example: A company invests $75,000 in a machine that will save $18,000 per year over the 5-year life of the machine. Total savings = $90,000 ($18,000 x 5) Net return = $15,000 ($90,000 - $75,000) ROI = 20% ($15,000 / $75,000) Is this a good return? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 26 PAYBACK How long it will take a particular investment to pay for itself Annual savings x P = Net Investment Example: A company invests $75,000 in a machine that will save $18,000 per year over the 5-year life of the machine. Net investment = $75,000 Annual savings = $18,000 Payback = 4.2 years Is this a good payback? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 27 Total Cost of Ownership • Useful for comparing competing offerings • Factors in the total costs over the life of ownership Purchase Cost Financing Cost Maintenance costs, Upgrade costs Services, Warranty costs Move/Add/Change costs Costs of required ancillary items Savings or costs avoided Productivity Gains Revenues Generated • Simpler, easier to understand • Lowest TCO Wins! © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 28 TCO Ideas and Calculators • Productivity and the Business Case for SMB - Sage Research 2005 study of 65 mid-sized organizations focused on measured productivity gains from the deployment of Unified Communications • Soft Cost and Benefits Increased # of calls handled or orders placed Faster response times Reduced processing times Increased productivity • Telecommunications Savings – SIP trunking, branch connectivity • Energywise Cost Savings Calculator © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 29 Time Value of Money Albert Einstein was once asked what is the most powerful force on Earth… What was his answer? 20 year old Britney makes a one-time $5,000 contribution to a retirement fund that grows at 8% per annum. If she never touches it until she retires at 65, how much will she have? $159,000 If she waited until she was 39 to make her one-time $5,000 contribution, how much would it grow to? E=MC2? ANSWER: Compound Interest Atomic Bomb? A Woman Scorned? $37,000 ‘A Dollar today is worth more than a Dollar tomorrow’ Compound interest is an example of growth that we all understand Discounted Cash Flow is it’s opposite… © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 30 Net Present Value Net present value is the monetary value today of all future cash flows discounted at some compound interest rate (the ‘discount rate’) plus any immediate cash flows Investment Savings Net Benefits Discount Factor @ 10% NPV (75,000) 1.00 (75,000) Year 0 75,000 Year 1 - 18,000 18,000 0.91 16,364 Year 2 - 18,000 18,000 0.83 14,876 Year 3 - 18,000 18,000 0.75 13,524 Year 4 - 18,000 18,000 0.68 12,294 Year 5 - 18,000 18,000 0.62 11,177 Net Present Value Present Value accounts for the time value of money. ‘A dollar tomorrow is worth less than a dollar today’ © 2012 Cisco and/or its affiliates. All rights reserved. (6,765) QUESTION: Would a CFO or Financing Officer approve this? Cisco Confidential 31 Net Present Value Net present value is the monetary value today of all future cash flows discounted at some compound interest rate (the ‘discount rate’) plus any immediate cash flows Investment Savings Net Benefits Discount Factor @ 10% NPV (75,000) 1.00 (75,000) Year 0 75,000 Year 1 - 18,000 18,000 0.91 16,364 Year 2 - 18,000 18,000 0.83 14,876 Year 3 - 18,000 18,000 0.75 13,524 Year 4 - 18,000 18,000 0.68 12,294 Year 5 - 18,000 18,000 0.62 11,177 Net Present Value Present Value accounts for the time value of money. ‘A dollar tomorrow is worth less than a dollar today’ © 2012 Cisco and/or its affiliates. All rights reserved. (6,765) ANSWER: No Cisco Confidential 32 NPV DEPENDS HEAVILY ON THE DISCOUNT RATE • The Discount Rate: The opportunity cost of Capital = the potential return the company could have made if it had invested in something else • Weighted Average Cost of Capital is the rate that a company is expected to pay on average to all its security holders to finance its assets © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 33 Weighted Average Cost of Capital (WACC) Invested Capital $ Weighting % Cost of Capital % WACC Shareholders' funds 2,000 50% 30% 15% Long term borrowings 2,000 50% 10% 5% 4,000 20% ROI Total Risk © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 34 Cost of Capital By Industry Sector • http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ wacc.html.htm © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 35 Net Present Value Net present value is the monetary value today of all future cash flows discounted at some compound interest rate (the ‘discount rate’) plus any immediate cash flows Investment Savings Net Benefits Discount Factor @ 10% NPV (75,000) 1.00 (75,000) Year 0 75,000 Year 1 - 18,000 18,000 0.91 16,364 Year 2 - 18,000 18,000 0.83 14,876 Year 3 - 18,000 18,000 0.75 13,524 Year 4 - 18,000 18,000 0.68 12,294 Year 5 - 18,000 18,000 0.62 11,177 Net Present Value What should this be compared against? © 2012 Cisco and/or its affiliates. All rights reserved. (6,765) Decision Rule 1. Positive NPV = value created, investment should be made Cisco Confidential 36 Case Study – Phase 1 • Gerus rents flexible office space for small and medium sized businesses and includes in their offer a range of services from access to servers and telephony to catered lunches and boardroom facilities. • Gerus is exploring whether to set up Video Conferencing Units in 10 locations around the world offering collaboration services to its tenants. • Gerus has asked Cisco to submit a solution with costing and they would prefer the Cisco solution, given its branding and quality, which would drive adoption. • Cisco submitted a Statement Of Work that included the following: Hardware for the 10 locations - US$1,400,000 payable within 30 days Installation services - US$600,000, payable on installation Maintenance services - US$150,000 per annum, payable in advance A managed call service contract from a SP partner - US$90/ hour, decreasing 5% per year The CFO has rejected your offer! You want the deal. How would you respond? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 37 Case Study Scenario - Phase 2 After repeated phone calls the CFO has agreed to provide you with her assessment of the Cisco offering, including the financial model she developed for Gerus: • In year 1, Gerus would sell 3,000 hours of Telepresence time increasing the usage by 20% annually for the next 5 years. • Gerus would charge US$300 per hour for a Telepresence session in year 1 but due to commoditization this rate would fall by 5% per year, as would the SP call costs of $90 per hour. • Above Cisco’s costs, Gerus expects space and administration costs to be US$70,000 per year. • Gerus’ Weighted Average Cost of Capital (WACC) is 20%. • The residual value of the equipment at the end of year 5, when Gerus expects to replace the equipment, is deemed to be US$70,000. © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 38 Customer Financials – Phase 2 Customer cashflow Day 0 Net Investment in Telepresence ($2,000,000) Revenues from Telepresence Call costs Maintenance costs ($150,000) Other costs Net cashflow ($2,150,000) Year 5 $0 $0 $0 $0 $70,000 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 ($270,000) ($307,800) ($350,892) ($400,017) ($456,019) ($150,000) ($150,000) ($150,000) ($150,000) ($70,000) ($70,000) ($70,000) ($70,000) ($70,000) $410,000 $498,200 $598,748 $713,373 $1,064,045 TOTAL ($1,930,000) $5,949,094 ($1,784,728) ($750,000) ($350,000) $1,134,366 Customer income statement Revenues Costs Depreciation Year 1 Year 2 Year 3 Year 4 Year 5 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 ($490,000) ($527,800) ($570,892) ($620,017) ($676,019) ($386,000) ($386,000) ($386,000) ($386,000) ($386,000) $24,000 $112,200 $212,748 $327,373 $458,045 TOTAL $5,949,094 ($2,884,728) ($1,930,000) $1,134,366 Net profit Year 1 Year 2 Year 3 Year 4 • This is what she sent you. This looks great as it produces a profit. So what’s the problem with the CFO? • As you have no idea, you have now got your financial accountants on the case. © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 39 Investment Appraisal Techniques © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 40 Customer Investment Appraisal – Phase 3 ROI Payback NPV 59% 3yrs 10 mths ($344,221) IRR 13.54% The financial accountants say this is not good. What should they be? • ROI? • Payback? • NPV? • IRR? You have asked your financial people to explain how these metrics are calculated. © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 41 Return on Investment (ROI) – Phase 3 The simplistic view used by many accountants Customer income statement Revenues Costs Depreciation Net profit Net profit Net Investment Return On Investment Year 1 Year 2 Year 3 Year 4 $900,000 $1,026,000 $1,169,640 $1,333,390 ($490,000) ($527,800) ($570,892) ($620,017) ($386,000) ($386,000) ($386,000) ($386,000) $24,000 $112,200 $212,748 $327,373 Year 5 TOTAL $1,520,064 $5,949,094 ($676,019) ($2,884,728) ($386,000) ($1,930,000) $458,045 $1,134,366 $1,134,366 $1,930,000 59% Why is this ROI not acceptable? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 42 Payback – Phase 3 The duration it will take for an investment to be repaid by the incremental net benefits Customer cashflow Net Investment in Telepresence Revenues from Telepresence Call costs Maintenance costs Other costs Net cashflow Accumulated cashflow Payback Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 ($2,000,000) $0 $0 $0 $0 $70,000 $0 $900,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 $0 ($270,000) ($307,800) ($350,892) ($400,017) ($456,019) ($150,000) ($150,000) ($150,000) ($150,000) ($150,000) $0 $0 ($70,000) ($70,000) ($70,000) ($70,000) ($70,000) ($2,150,000) $410,000 $498,200 $598,748 $713,373 $1,064,045 ($2,150,000) ($1,740,000) ($1,241,800) ($643,052) $70,321 $1,134,366 62.93 41.91 24.89 10.82 - 0.79 - 12.00 Payback is 3 yrs 10.82 mths Why is this Payback not acceptable? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 43 Net Present Value (NPV) – Phase 3 Today’s value of all cash flows after taking into account the time value of money Customer cashflow Year 0 Net Investment in Telepresence Year 1 ($2,000,000) Year 2 Year 3 Year 4 Year 5 $0 $0 $0 $0 $70,000 $1,026,000 $1,169,640 $1,333,390 $1,520,064 Revenues from Telepresence $0 $900,000 Call costs $0 ($270,000) ($307,800) ($350,892) ($400,017) ($150,000) ($150,000) ($150,000) ($150,000) ($70,000) ($70,000) ($70,000) ($70,000) $410,000 $498,200 $598,748 $713,373 Maintenance costs ($150,000) Other costs $0 Net cashflow Discount Rate ($2,150,000) $0 ($70,000) $1,064,045 20% Discount Factor 100% Discounted cashflow ($2,150,000) Accumulated Discounted cashflow ($2,150,000) Net Present Value ($456,019) 83% $341,667 ($1,808,333) 69% $345,972 ($1,462,361) 58% $346,498 ($1,115,863) 48% 40% $344,026 $427,616 ($771,837) ($344,221) ($344,221) Why is this NPV not acceptable? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 44 Internal Rate of Return (IRR) – Phase 3 Discount Rate used to arrive at an NPV of 0 Customer cashflow Net Investment in Telepresence Revenues from Telepresence Call costs Maintenance costs Other costs Net cashflow Internal Rate of Return 13.54% Discount factor Discounted cashflow Accumulated Discounted cashflow Net Present Value Year 0 ($2,000,000) $0 $0 ($150,000) $0 ($2,150,000) Year 1 Year 2 Year 3 Year 4 $0 $0 $0 $0 $900,000 $1,026,000 $1,169,640 $1,333,390 ($270,000) ($307,800) ($350,892) ($400,017) ($150,000) ($150,000) ($150,000) ($150,000) ($70,000) ($70,000) ($70,000) ($70,000) $410,000 $498,200 $598,748 $713,373 100% 88% 78% ($2,150,000) $361,116 $386,482 ($2,150,000) ($1,788,884) ($1,402,402) 68% $409,103 ($993,299) 60% $429,307 ($563,993) Year 5 $70,000 $1,520,064 ($456,019) $0 ($70,000) $1,064,045 53% $563,993 $0 $0 IRR = 13.54% Why is the IRR not acceptable? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 45 Investment Appraisal Techniques Case Study – Phase 3 You now understand why she has rejected your proposal. ROI Payback NPV IRR 59% 3yrs 10 mths ($344,221) 13.54% So what are you going to do now? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 46 Potential Answers 1. Negotiate for better outcomes • • Revenues Other costs 2. Restructure the deal • • • Finance lease Operating lease Consumption model 3. Improve the costs from Cisco • • • Hardware discount Services discounts Timing of payments Now get Cisco Capital involved! © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 47 Case Study – Phase 4 • You have asked Cisco Capital if they can rescue the deal. You think the customer’s problem is they do not have the money to finance the deal. • Cisco Capital says: They can finance the deal with a cost of capital of 5%. Over 5 years this will mean six annual payments of US$403,417 with the first payment due on signing. They tell you this is not a CAPEX to OPEX deal. • You ask them if that will achieve the customers investment hurdles. They tell you to figure that out. What gives you hope? © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 48 Financial Outcomes – Phase 4 Hardware, professional services, and the up-front payment for maintenance is being financed by Cisco so no investment required by the customer. © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 49 Payback – Phase 4 The duration it will take for an investment to be repaid by the incremental net benefits Customer cashflow Year 0 Net Investment in Telepresence Finance lease payments Year 1 $0 ($403,417) Year 2 $0 ($403,417) Year 3 $0 ($403,417) $0 ($403,417) $0 ($403,417) $70,000 ($403,417) $900,000 Call costs $0 ($270,000) ($307,800) ($350,892) ($400,017) Maintenance costs $0 ($150,000) ($150,000) ($150,000) ($150,000) Other costs $0 ($70,000) ($70,000) ($70,000) ($70,000) ($70,000) $6,583 $94,783 $195,331 $309,956 $660,628 ($302,050) ($106,719) $203,237 $863,865 Accumulated cashflow ($403,417) Payback 735.34 ($396,833) 50.24 18.56 4.13 $1,333,390 TOTAL $0 ($403,417) $1,169,640 Year 5 Revenues from Telepresence Net cashflow $1,026,000 Year 4 $1,520,064 ($456,019) $0 $70,000 ($2,420,500) $5,949,094 ($1,784,728) ($600,000) ($350,000) $863,865 - 3.69 Payback is now 3 yrs, 4.13 months Nearly there! © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 50 Net Present Value (NPV) – Phase 4 Today’s value of all cash flows after taking into account the time value of money Now positive! © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 51 Internal Rate of Return (IRR) – Phase 4 Discount Rate used to arrive at an NPV of 0 IRR = 32.65% - Makes it! © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 52 Case Study – Phase 4 You have now WON THE DEAL by leveraging the power of financing and Cisco Capital! © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 53 The Power of Cisco Capital Helping you sell more 70% Agree the availability of financing was critical in choosing their IT supplier 48% Said their companies use leasing to balance project costs with future benefits, accelerating ROI 58% Said leasing is a way to free up capital for other uses © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 54 Why We’re Here A Finance or “How to Buy” decision occurs for EVERY purchase, especially Larger Ones. If you don’t participate in these discussions early, with the right people, you risk that the decision will be made based on factors outside of your control. © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 55 Don’t Take Our Word for it… A 2008 IDC survey of 153 IT organizations that lease/finance their IT equipment found that over 70 % reported the following leasing/financing benefits: • Aids in protection against obsolescence • Means to balance project cost with benefits • Faster approval process • Budget flexibility and equipment disposal/decommissioning services © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 56 Enhance YOUR Selling Power What’s in it for YOU? Act and Bain Findings for Cisco Capital Close Ratio: Deal Size: Sales Cycle: Profit Margin © 2012 Cisco and/or its affiliates. All rights reserved. +12.4% +25 – 30% Close 5X Faster +.5% Cisco Confidential 57 Looking for Clues • Project Delays: Technical or Financial? • Unique Features of Business: cycles/seasonality • Are they planning for an event? Going public/capital infusion, downsizing or expanding • Obsolete equipment they can’t get rid of? • Financial Challenges: Cash flow, profitability • Budget Restraints: Is a project delayed because of something financial? • Can we fix it? • This isn’t going to be solved from a brochure • Be Creative: Build the Financial Solution © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 58 Cisco Capital FY14 Offers http://www.cisco.com/web/ordering/ciscocapital/channel_partners/offers.html Three Month Deferral US SMB Customer Financing US SMB Game Changer Cisco Mid-Market Collaboration Customer Financing Cisco Collaboration Breakaway PLUS Financing 3-month, interestfree payment deferral for all Cisco hardware, software, and bundled services 3-year, 3.5% ($1 buyout) financing up to $250K for U.S. small and mid-sized customers for all Cisco hardware, software, and bundled services 3-year Fair Market Value (FMV) lease. up to $250K per customer – U.S, SMB. For all Cisco, hardware, software and bundled services Cisco collaboration solutions based on the Business Edition 6000 with attractive rates as low as: 0% for 2 yrs.; 1% for 3 yrs.; 2% for 4 yrs.; 3% for 5 yrs. Cisco collaboration solutions via competitive replacement with attractive rates as low as: 0% for 2 yrs.; 1% for 3 yrs.; 2% for 4 yrs.; 3% for 5 yrs. Expires: July 26, 2014 Expires: January 25, 2014 Expires: July 26, 2014 Expires: July 26, 2014 Expires: January 25, 2014 z © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 59 IRS Section 179 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 60 IRS Section 179 What Is Depreciation? • When a business buys certain items of equipment, it can write them off a little at a time through depreciation. • Example: Company spends $50,000 on a machine, it gets to write off $10,000 a year for five years (your situation may vary) • Section 179 allows for a faster write off and more immediate tax savings • The goal is to motivate the American businesses to invest in themselves, grow and generate more profits. • Learn more at: http://www.section179.org/section_179_deduction.html © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 61 IRS Section 179 What Is the IRS Section 179? • Section 179 allows businesses to: • Deduct the 100% of the FULL PURCHASE PRICE of qualifying equipment and/or software purchased or financed during the tax year on their CURRENT YEAR TAXES! • Customers can SIGNIFICANTLY LOWER their tax bill and generate positive cash savings • Equipment CAN BE LEASED • The 2013 limit is $500,000. The 2014 limit? Only $25,000 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 62 IRS Section 179 Purchase Cost of Equipment, Vehicles, and/or Software: $650,000 Section 179 Deduction: $500,000 50% Bonus Depreciation Deduction: (on remaining amount above $500,000) $75,000 Normal 1st Year Depreciation: $15,000 Total First Year Deduction: Cash Savings on your Purchase: (assuming a 35% tax bracket) Lowered Cost of Equipment, Vehicles, and/or Software after Tax Savings: $590,000 ($206,500) $443,500 So if a customer is looking to make a capital purchase within the next year, educate them on Sec. 179 and encourage them to DO IT NOW © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 63 IRS Section 179 Recap 1. Deduct the FULL purchase price of qualifying equipment and/or software purchased or financed during the tax year 2. A customer can purchase up to $500,000 and write off 100% of it in the current tax year instead of depreciating it over 3-7 years 3. Can be combined with Cisco Capital financing, making for net positive cash flow in the first year! 4. In 2014, the total Section 179 allowable deduction will be reduced from $500,000 to only $25,000 5. So if a customer is looking to make a capital purchase within the next year, encourage them to DO IT NOW 6. Visit http://cs.co/sec179/ for more information © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 64 Tools and Calculators © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 65 Financial Calculator App • iTunes App Store • Google Play Store © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 66 NPV Calculator NPV Calculator • http://office.microsoft .com/enus/templates/netpresent-valuecalculatorTC010015268.aspx © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 67 Cisco Capital • http://www.cisco.com/web/ordering/ciscocapital/docs/quote_calcul ator_tool.xls © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 68 @onceFinance • Online credit application and approval tool • @oncefinance is directly linked to automated credit scoring, enabling: submission of applications online management of pipeline business virtual review of portfolios • Contact Cisco Capital to request access (800) CISCO-80 • www.oncefinance.com © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 69 Cisco Capital Financial Calculator • Cisco Capital Financial Calculator is a tool in which Partners can use to receive indicative financing quotes when registering a deal in Cisco Commerce Workspace Generate an instant indicative financing quote Save Time - calculate a finance quote 24/7 • Request access - capitalfinancecalculator@cisco.com © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 70 Call To Action, Next Steps © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 71 Call To Action www.cisco.com/go/growit/ • Revisit and become familiar with the concepts and language that CFOs and financial decision makers use • Engage with Cisco Capital early and as often as possible – use financing instead of a price discount! • Try it: Find a deal over 100K at an early stage in your funnel and engage in proving Payback, ROI, NPV and adding a financing offer Find your Cisco Capital Financial Solutions Manager and engage with them © 2012 Cisco and/or its affiliates. All rights reserved. Start engaging, asking questions about customer’s ability to execute and finance Understand where they are in the buying process Don’t be afraid to ask about the budget/ financing question Cisco Confidential 72 Cisco Capital Engagement Cisco Capital Finance helps you expand customer relationships, accelerate and grow deals, create account control, and enhance cash flow. • Include finance quotes with your proposals – use financing to overcome budget and cost barriers up-front! • If you have any questions, please contact your Cisco Capital: Financial Solutions Manager or Alice Cullison @ aculliso@cisco.com • Great resources available via Cisco Capital partner portal - www.ciscocapital.com/partner/us © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 73 For Your Reading Pleasure • Corporate Finance For Dummies By Michael Taillard • http://www.barnesandnoble.com/w/corpor ate-finance-for-dummies-michaeltaillard/1111631814?ean=978111841279 4 © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 74 Join Us Next Week! Next Quick Hit Briefing Cloud Opportunities for Cisco Partners Thursday January 9th, 2013 at 9:30 ET Check http://cs.co/quickhit for registration links and replays © 2012 Cisco and/or its affiliates. All rights reserved. Cisco Confidential 75 Thank You!