Applying financial skills to real situations
Overview
1.
2.
3.
4.
5.
6.
7.
8.
Position fix
Exploding the strategic model
Examples of detailed projections
Organising information
The two big issues (Sales and Cost of Sales)
Using the data collection “Template”
Projections application demo
Practice
Position Fix
This is the move from big picture strategy to detailed
tactics. We need to explode our summary model to the
multiple sales, expenses, assets and liabilities expected in
business plans. (See next slide)
Business Plan
We will need to use a suitable financial modelling application to deal with the
added detail – a spread sheet or one of the many financial modelling applications
available. We use one called ProfitScout for the exercises in this element.
We have already covered all the financial
concepts, terms and skills we will need.
Expanding the Strategic Model
The strategic financial model expands in depth and width for detailed projections. Month
by month to capture extremes such as the maximum cash needed and into multiple sales
drivers, costs, loans etc. to provide the precision needed for accurate operation planning.
M1
M2
M3
M4
M5
M6
M7
M8
M9
Product/service 1; Product/service 2…Product/service n
Salaries, Rent, Telephones, Light Heat & Power etc.
Multiple bank loans, Directors loans, Financial Leases
Land & Buildings, Plant & Equipment, Patents, Vehicles,
M10 M11 M12
Examples of the expanded plan – sales f’cast
Examples of the expanded plan – P & L (O/Hs)
Examples of the expanded plan – monthly cash flow
Examples of the expanded plan – Annual B. Sheet
The Sales Forecast Issue
The sales forecast is the foundation of the financial model.
If you have only one or a few products/services it is easy to include
them all in the forecast.
But what about businesses with very large product/service ranges.
Using all products may be too cumbersome: too few will limit its
usefulness.
Time to collaborate
with your
accountant
The area of identifying the right product range, pricing,
forecasting and reviewing sales performance can be
immensely complex.
In business colour can differentiate products: in terms
of financial projections products with the same
price/cost structure are identical
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Adapting product ranges for forecasting
Plan using …
Advantages
Disadvantages
One ”typical” product or Simplicity
a simple € based forecast
Simplistic – ignores sales mix and
winners and losers in the range
All items in the
company’s product range
Is unmanageable for large
product ranges
Reflect s the
business reality
Guidance
Match the range in the model to the range you use for practical sales
forecasting in the day-to-day running of the business .
Common work-rounds are: breaking the range into categories or using the
80/20 rule consigning the less important to a catch-all “others” category.
The Sales Forecast – Evidence
You will need evidence to support the
assumptions underlying all aspects of your
plan and particularly to back up the sales
forecast.
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The “Cost of Sales” Issue
The second defining issue for your financial model will be the detail
required for the cost structure of the model.
Time to collaborate
with your
accountant
Obviously the issue does not arise in Service plans and
Retail plans have a simple purchase price/selling price for
each product in the forecast.
But, manufacturing firms can have extensive product cost structures that take
great time and effort to build into a model and can quickly swamp it in detail.
Such detail may be justified In large corporations with specialist staff and
integrated MRP systems but is not justified in 99% of business plans.
Adapting cost structures for forecasting
Unless you can be sure that the extra effort to include detailed cost structures in
the model is justified use the “Retail” format.
Keep the detailed workings/cost sheets on which the summary cost is based as
part of the EVIDENCE supporting the model assumptions.
Template
Contact us
We will use the “Retail” format for the Template
and Exercise
If you need a data collection template for a detailed
manufacturing plan contact:
info@fabeducation.com
Organising the information
Be systematic - use the data collection template to organise the information needed
for the plan.
Template
1.
2.
3.
4.
5.
6.
7.
Product information
Credit phasing
Opening balances (Interest, Vat, bank)
Overhead expenses projections
Fixed Asset details
Financial Leases and Loans
Share Capital, Revenue Grants and other income
Be able to produce evidence to support the data in
each of the seven areas!
Template
1. Product information
Get reliable information/evidence
Think through the issues
Template
2. Credit phasing
Get reliable information/evidence
Think through the issues
Template
3. Opening balances
Get reliable information/evidence
Think through the issues
Template
4. Overheads expenses projections
Get reliable information/evidence
Think through the issues
Template
5. Fixed assets details
Get reliable information/evidence
Think through the issues
Template
6. Financial leases and Loans
Get reliable information/evidence
Think through the issues
Template
7. Share Capital, Revenue
Grants, and Other Income
Get reliable information/evidence
Think through the issues
Demo
Walk through the detailed financial forecasting
application to be made available for the exercise
e.g.
A programmed spread sheet
ProfitScout ® (download from
www.profitscoutsoftware.com )
Another planning application
Exercise 6 – WB Bikes Limited
Explodes our summary model to the multiple sales,
expenses, assets and liabilities expected in business plans.
Projects the business model over twelve months to produce
detailed financial projections and examines new issues
raised by this three dimensional financial model
• A programmed spread sheet
• ProfitScout
• Another planning application
Contact us
If you need exercises for other settings including detailed
manufacturing plans contact:
info@fabeducation.com
Practice 11 – Preparing your own Financial
Model & Projections
Use the Templates to capture the data needed
for your business or study project.
Time to collaborate
with your
accountant
Build the financial model on a spread sheet, ProfitScout
or other application if that is appropriate or collaborate
with your accountant/course leader on theirs.
Use your knowledge of the Business/Financial model
relationship to test What-ifs? and explore, explore and
explore until you have the best possible plan.
Good luck
If you have followed FaBeducation’s course to here you are well prepared to
hold fluent conversations in the language of business and make financially
smart decisions
Please contact us at:
info@fabeducation.com
if you have any suggestions for changes or additions to the programme or If you
need further information and assistance.
Best of luck with you business career.