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!