FINANCIAL PLANNING
ENTREPRENEURSHIP KNOWLEDGE
VICENZA, ITALY
DAY 2 – JANUARY, 15th 2014
©2009-2014 Piercarlo Cuccia
1
WHAT IS THE MAIN ACTIVITY OF THE BUSINESS?
 What kind of business is the enterprise running?
 What does it mean “value for customer”?
 Which is the strategic approach within the enterprise is proposing itself to the
market?
 Which is the profile of your classic customer?
 What are the economics variables of a business as it?
 the business can be defined on volumes or on margins?
 which is the framework of the costs of a business as it?
 are the business owners satisfied about their revenues?
2
WHAT MARK SHOULD YOU GIVE TO YOUR BUSINESS?
 Which is the main level of satisfaction of your business activity?
 What about sales?
 Which are the main business area where you can get an improvement?
Number of customers and prices?
 Are you improving your products/services or the wideness of your offer? More
sales or more relationship management?
 What about your marketing activities? Is the enterprise customer oriented or
product oriented?
 What about your organization? And your execution?
 What mark should you give to your revenue account?
 Are we enough capable to understand and manage business accounts?
3
THE ESSENTIAL MEANING OF DOING BUSINESS
1.
2.
3.
4.
5.
6.
7.
businesses want profits and still living during time
customers allow business to get profits
customers have got needs, necessity and wishes: business must understand and
anticipate those needs and wishes…
offer a reply of value to customers needs
the entrepreneur is the one who have to command and direct all the activities
entrepreneur is the key figure for business success
obviously the performance of people working all over the activity of the business
is very important: they must work like in a team and alone, their performance
depends on the kind of leadership used by entrepreneur (the ability to guide,
manage, delegate, attract, motive,…)
CUSTOMERS LOOK FOR “VALUE SOLUTION”
Everyone of us can have different ideas about evolutions of markets and
what to do with our business… all kind of strategies must be able to
create value and to share it with customers
Value for Customers
=
Offered benefits
Asked sacrifices
>1
LA “FORMULA” DEL VALORE PER IL CLIENTE
Customers want reply of value to their needs and wishes.
This “value” can be offered in different ways.
Value for the customer
=
Intrinsic quality + functional benefits + emotional benefits
price + other acquisition costs
>1
THE MAIN STRATEGIC APPROCHEAS
TO GIVE MORE AT LESS: to accept the iper-competition and to look for ways to get the lowest
price possible (the risk: to be in a “red sea” situation).

TO GIVE MORE FOR MORE: to look for excellence, quality and innovation; the goal is to be
knew as the best. It became necessary to be able to give something more and to be paid more (leader
ambition).

TO OFFER SARTORY AND MAX SERVICE: personalization and service to create loyalty

TO GIVE SPECIALITY, ORIGINALITY, UNICITY: be special, unique; be different to e
competitive ... (“purple cow”)

BE A TREND RIDER: green, web, social, ethic, brain, tech, ... bio, slow, ...

TO DEVELOP PARTNERSHIP WITH OTHER BUSINESS: together to cut some managing cost,
to cover more competences and to promote marketing initiative more attractive...

TO GIVE NEW SOLUTIONS: product innovations, service innovations combined with new ways
to operate and to organize; often it allows to set more affordable prices because managing costs get
down: if it happens it can be possible to attract new customers e recover marginality. (“Blue ocean
strategy”)
7
ECONOMICAL CYCLE OF A BUSINESS
Resources
Services
Production Cycle
Products
Services
CUSTOMERS
SUPPLUIERS
INVESTED CAPITAL and FUNDING
REVENUES – COSTS = PROFITS
8
ECONOMICS and FINANCIAL DINAMICS
BEGINNING
MANAGING
GOALS
ECONOMIC FLOWS
REVENUES
COSTI
=
RESULT
BALANCE SHETT
INVESTED
CAPITAL
year n
DEBTs
first year
(n)
EQUTY
year n
FINANCIAL FLOWS
SELF FINANCING .
+/COMMERCIAL POLITICS EFFECTS
+/NEW INVESTMENTS
+/NEW FUNDINGS OR PAY BACK
=
GENERATED CASH
BALANCE SHETT
INVESTED
CAPITAL
year n + 1
+/GENERATED
CASH
DEBTs year
n+1
EQUITY
year n + 1
+/OPERATING
RESULT
9
MACROVOCI del CONTO ECONOMICO
GROSS REVENUES
- Deductions (discount; ecc.)
ORDINARY OPERATIONS
= NET OPERATING REVENUES
- operating monetary costs
pluralità di schemi
di riclassificazione
GROSS MARGIN
- Operating non monetary costs
= OPERATING INCOME
+/- financial proceeds/burdens
FINANCIAL MANAGEMENT
+/- proceeds/burdens accessorial business
ACCESSORIAL MANAGEMENT
+/- additional income/burdens
ADDITIONAL MANAGEMENT
= EARNING BEFORE TAXES
- taxes
TAX MANAGEMENT
=NET PROFIT
10
INCOME STATEMENT VALUE-ADDED
REVENUES
-consumes
- external services
- other running costs
ADDED VALUE
Market appreciation
Business size
- labour cost
EBITDA
Operating cash flow
-amortizations
=
EBIT
Earning from core
business
11
INCOME STATEMENT – MARGIN OF CONTRIBUTION
REVENUES
Market appreciation
- Variable costs
MARGIN OF
CONTRIBUTION
Ability to pay fixed
cost of the business
structure
- Fixed Costs
EBIT
From core business
12
INCOME STATEMETN AT SELLS COSTS
REVENUES
Market appretiation
-Industrial Costs
GROSS MARGIN
- Commercial Costs
- Amministration and
general Costs
EBIT
Industrial
Result
Income from core
business
13
INVESTED CAPITAL COMPONENTS
TANGIBLE
BUSINESS
INVESTMENTS
Capital Assets
INTANGIBLE
FINANCIAL
STOREHOUSE
Working capital
CREDITS TO CUSTOMERS
CASH
OTHER OPERATING
CREDITS
14
FINANCIAL SOURCES
FINANCIAL
SOURCES
OPERATING
SOURCES
DEBTS to SUPPLIERS
SEVERANCE PAY
OTHER OPERATING DEBTS
BANK DEBTS
FINANCIAL
SOURCES
LEASING DEBTS
DEBT TO PARTNERS
SHARE CAPITALE
EQUITY - OWN
RESOURCES
RESERVES AND EARNINGS
EARNINGS
15
… GOING TO THE MANAGING – FINANCIAL BALANCE SHEET :
FOCUS ON NATURE OF DEBTS
ASSETS
NET
INVESTED
CAPITAL
Where the
business put the
money?
CASH FUNDs
CURRENT
ASSETS
Cash and cash
equity
TRADE
RECEIVABLES
(this amount should
return in 1 year)
How much has it
invested?
How can be
juded the
investment
structure?
highlighting the
amount expected
to be recovered
over twelve
months
INVENTORIES
LIABILITIES
CURRENT
LIABILITIES
Trade Paybles,
employess,…
EQUITY
OPERATING
DEBTS
Who give money
to the business?
NON-CURRENT
LIABLITIES
- retirement, deferred
taxation provisions, …
CURRENT
FINANCIAL
LIABILITIES
- Banks (short terms
financial borrowing)
How much
money need the
business?
FINANCIAL
DEBTS
NON – CURRENT
FINANCIAL
LIABILITIES
NONCURRENT
ASSETS
(more than 1 year)
Property, plant &
equipment
Capitalized
development costs
Goodwill
Other intangible
assets
Investments in
associates
Available-for-sale
investments
Deferred tax assets
Long-term loans
receivable
How can be
judge the
financial
structure of the
financial
sources?
- Long-terms
borrowings >12 months
EQUITY
-Share capital
-reserves
EQUITY
FINANCING
16
CLASSI BALANCE SHEET – FOCUS ON DEADLINES
ASSETS
NET
INVESTED
CAPITAL
Where the
business put the
money?
CASH FUNDs
CURRENT
ASSETS
Cash and cash
equity
How much has it
invested?
How can be
juded the
investment
structure?
CURRENT
LIABILITIES
Trade Paybles,
employess,…
EQUITY
OPERATING
DEBTS
<12 MONTHS
TRADE
RECEIVABLES
(this amount should
return in 1 year)
LIABILITIES
highlighting the
amount expected
to be recovered
over twelve
months
INVENTORIES
NON-CURRENT
LIABLITIES
- retirement, deferred
taxation provisions, …
CURRENT
FINANCIAL
LIABILITIES
- Banks (short terms
financial borrowing)
How much
money need the
business?
FINANCIAL
DEBTS
> 12 MONTHS
NON – CURRENT
FINANCIAL
LIABILITIES
NONCURRENT
ASSETS
(more than 1 year)
Property, plant &
equipment
Capitalized
development costs
Goodwill
Other intangible
assets
Investments in
associates
Available-for-sale
investments
Deferred tax assets
Long-term loans
receivable
Who give money
to the business?
How can be
judge the
financial
structure of the
financial
sources?
- Long-terms
borrowings >12 months
EQUITY
-Share capital
-reserves
EQUITY
FINANCING
17
FINANCIAL – MANAGING BALANCE SHEET ( 4 zones)
ASSETS LIABILITIES
FIXED
ASSETS
-
NONOPERATINGS
LIABILITIES
=
=
NET FIXED
ASSETS
- Financial
-- Tangible
-- Intangible
-
OPERATING
LIABILITIES
=
Cash and bank
accounts
-
OPERATING
FINANCIAL
LIABILITIES
FINANCIAL
NET DEBTS
NONOPERATING
FINANCIAL
LIABILITIES
+
TRADE
RECEIVABLES
LIQUIDITY
+
WORKING
CAPITAL
EQUITY
INVENTORIES
=
NET INVESTED CAPITAL=N.I.C
EQUITY
-Share capital
-reserves
=
F.N.F. =N.I.C.
18
DEBTS AND ECONOMIC CYCLE
NFA
Financial Debts
Financial Debts
=
NIC
Equity
Equity
D
E
First of all debt must be sustainable and it means that business must show an operating
revenue able to pays at least passive interests…
After it, it must be observed the economic cycle that the business is living:
• growth: it increase the necessity of liquidity and so it would try to pay just interests
• stability: it should be to generate liquidity and to pay back the capital.
In every case it must be a general financial equilibrium, due to business size and its
characteristic; the financial system, after the crisis nowadays does not like the excess of
debts [ D/E ratio]
WHEN DEBTS ARE TOO MUCH?
AFN
CCN
Debiti
finanziari
Debiti finanziari
Patrimonio
netto
Patrimonio netto
=
D
E
REVENUE CLASSES (Euro)
FROM
TO
BUSINESS
DIMENSION
GOOD
ENOUGH
PRE ALARM
ALARM
WARNING
tutte
tutte
QUOTED
<1
1<D/E<1,5
1,5<D/E<2
2<D/E<2,5
D/E>2,5
50/100 ml
oltre
big(n.q.)
<1
1<D/E<1,5
1,5<D/E<2
2<D/E<2,5
D/E>2,5
10 ml
50/100ml
media(n.q.)
<2
2<D/E<3
3<D/E<4
4<D/E<6
D/E>6
2 ml
10 ml
small(n.q.)
<3
0
2 ml
micro(n.q.)
3<D/E<4
4<D/E<5
5<D/E<7
high values can be allowed: their are easy to warrant
D/E>7
FINANCIAL STATEMENTS INDICATOR
FINANCIAL AND
PATRIMONIAL
EQUILIBRIUM
PROFITABILITY
DURATION
D/E
ROE
days before
cash in
ROI; RONA
Financial
liquidity
Current Assets
NFAN/NIC e
NCA/NIC
Days of grace
ROS
TURNOVER
i
ROI – i;
RONA - i
Inventory days
The reciprocal of
365 are index
2
1
REVENUE INDEX
ROS
RONA
1
RO
Revenues
RO
CIN
Debts Loads
RN
PN
CIN
PN
x
No – core
business
weight
RN
RO
IS %
x
Invested Cap. 5
Rotation
x
Net ROE
4
2- 3
Revenues
CIN
BS%
1 – profitability intrinsic in the invested capital
2 - Debts loads:
if CIN=PN = no debt
if PN=0 = all debt
3- usually in the financial framework is used the D/E
ratio
4
e
5- they show operating efficiency
2
2
VARIABLE COSTS
Variable costs are those ones that change in
order to variation on the volume of activity
Variable costs can be not proportionally linear
at the growth of units
Total Costs (Y)
Cost
Example: materials
Variable
Costs
0
Activity volume (X)
Quantity
23
FIXED COSTS
Fixed costs are those ones that don’t
change at the variation of the
activity volume
Cost must be considere fixed in:
- A given timeline
- In a relevant range of activities
- They move in a “stairs” way
Amortizations
Total Costs (Y)
Example: ammortizations
Fixed
Costs
0
Numbers of units
Activity Volume (X)
100
200
300
24
COST ANALYSIS: TOTAL AND UNIT
TOTAL COSTS
y=a+b.x
Activity
Volume x
Costs
Fixed a
Variable Costs
(b=300) b . x
Total Costs
Y = a + bx
10.000
20.000
30.000
40.000
50.000
1.000.000
2.000.000
2.000.000
2.000.000
3.000.000
3.000.000
6.000.000
9.000.000
12.000.000
15.000.000
4.000.000
8.000.000
11.000.000
14.000.000
18.000.000
UNIT COST
y/x = a/x + b
Fixed unit cost
a/x
Variable unit cost
b
Total unit cost
y/x
100
100
66,6
50
60
300
300
300
300
300
400
400
366,6
350
360
25
BREAK EVEN POINT
EURO
revenues
Total costs
Variables costs
costi fissi
Numbers of units
Break even point
Revenues = total costs
Margin of Contribution = Fixed Costs
26
DIRECT COSTING, SOME NUMBERS
PRODUCT
S a le s Volu m e
Va r ia ble pr oduction a nd selling costs
EB ITD A f or e a c h p r od u c t
F ixed costs
O P ER AT IN G IN CO M E
A
B
TOTAL
% (x/Sales
Volume.)
200
110
90
300
140
160
500
250
250
200
50
100,0%
50,0%
50,0%
40,0%
10,0%
27
DIRECT COSTING WITH DIRECT FIXED COSTS
PRODUCT
Vo l u m e s a l e s
Va r ia b le p r o d u ct io n a n d sellin g co st s
Gr o s s M a r g i n Co n t r i b u t i o n ( 1 °
GM C)
S p ecific fixed co st s (d ir ect )
S e c o n d Gr o s s M a r g i n Co n t r i b u t i o n
( 2 ° GM C)
C o m m o n fixed co st s (in d ir ect )
O P E R A T IN G IN C O M E
A
B
TOTAL
% (x/sales.)
200
110
300
140
500
250
100,0%
50,0%
90
160
250
50,0%
40
110
150
30,0%
50
50
100
20,0%
50
50
10,0%
10,0%
28
FULL COSTING
PRODUCT
Vo l u m e s a l e s
Va r ia b le p r o d u ct io n a n d sellin g co st s
Gr o s s M a r g i n Co n t r i b u t i o n ( 1 °
GM C)
S p ecific fixed co st s (d ir ect )
S e c o n d Gr o s s M a r g i n Co n t r i b u t i o n
( 2 ° GM C)
C o m m o n fixed co st s (in d ir ect )
O P E R A T IN G IN C O M E
A
B
TOTAL
% (x/sales.)
200
110
300
140
500
250
100,0%
50,0%
90
160
250
50,0%
40
110
150
30,0%
50
50
100
20,0%
20?
30?
30?
20?
50
50
10,0%
10,0%
29
PLANNING THE BUSINESS DEVELOPMENT…
Dreams … Passions
Prior
experinces
Markets
opportunities
IDEA
The development of the idea
Strategy and business model
BUSINESS PLAN
START
MANAGEMENT
REVENUES?
INVESTMENTS
REVENUES
PARTNERS
-costs (variables, fixed)
= OPERATING INCOME
-passive interests
= RESULT BEFORE TAXES
BANKS
-taxes
= NET RESULTS
INPUTS
-OUTPUTS
= GENERATED CASH FLOWS ?
THE BUSINESS MODEL
THEBUSINESS MODEL shows how a business
create value for his customers
involve them and how distribute value
receive value from his clients

THE BUSINESS PLAN can be intended as the way as a company want to realize his own
business model

POINTS OF BUSINESS MODEL:
1.
2.
3.
4.
5.
6.
7.
8.
9.
To identify target clients, to hear, to understand and to speak with them
To phrase a value approach as answer to their needs
To develop contacts, to build relations and to communicate
To chose the best sale channels and sale ways
Revenues structures and ways to get it
To identify key activities
To identify key resources
To identify key partners and to focus on cooperation modes
How to sustain costs and its structure
31
Il MARKETING MIX – LE 4 P
WHAT IS OFFERED

Product  brand, packaging, choises
IN CHANGE OF WHAT

Price  conditions, promotions, lists
IN WHICH CHANNELS

Distribution  Channels, sales network
IN WHICH WAY

Communication
 Public relations, advertising, direct
marketing
3
3
MARKETING MIX – 4 C
CUSTOMER VALUE

Offered value  How will we solve his needs?
CUSTOMER
COMMUNICATION

How we hear customers? How we face
them?
CUSTOMER
EXPERIENCE

 hearing, communication, involvement, new media
 All the buying experiences
Buying experiences
CUSTOMER COST

Asked sacrifices
 Price and other acquisition costs
3
4
BUSINESS PLAN: WHAT IS IT? HOW DOES IT WORK?
BUSINESS PLAN IS:

An effective tool useful for owners: it promotes the market analysis that look
for opportunities and threats

It allows to be focused on objectives and to define strategies

It helps to underline business weakness and strengths

It allows a feasibility study on economic and financial variables

It is the document supporting financing requests, the investors research,
partnerships development.
IL BUSINESS PLAN (1)
 THE TEAM AND THE IDEAS

(NO MORE THAN 1 PAGE)

Who we are: how is composed our entrepreneurial team
Business idea, goals and times
What is demanded – what is offered?


 SCENARIO AND MARKET ANALYSIS




Macro - environment analysis: what is happening in the political, economic,
social, technologic world? Can it has a strong impact on our business??
Demand analysis: who are our customers? What they need? How they behave?
Supply analysis: who are competitors? Where they are stronger and where they
have got weakness? Where we can compete?
Opportunities and threats summary
IL BUSINESS PLAN (2)
 PROGETTAZIONE STRATEGICA





… synthesis of threats and opportunities: which is your vision of the future?
Which strategy can allow to catch the most interesting opportunities and fight
threats?
How to build and irresistible offer for the customer?
Which marketing plan can best prepare to first sales?
Sales Budget and sales goals definitions
 ORGANIZATIONAL PLANNING




Who decide? Who does? Who checks?
Organization structure: who does what and when? With which resources? To
who he/she must report?
What is done inside the business and what outside?
How we select our suppliers?
BUSINESS PLAN (3)
 Feasibility study on economic and financial aspect (excel)




Investment planning
economic forecasts
Financial feasibility and cash budget
Choice of the financial funds and financial equilibrium
 CONCLUSIONS


Things to do immediately
First issues to meet and to fight
FINANCIAL INVESTMENT LOGIC - 1
Flows
€
1.000.000
F3
Fn
F2
500.000
F1
0
....
-500.000
-1.000.000
F0
F0= initial exiting cash flow for the investment
F1, F2, F3 = Net cash flows during the time
Fn = Final Project Value a the ending of the managing activity
time
FINANCIAL INVESTMENT LOGIC - 2
FLOWS
€
1.000.000
F3
Fn
F2
500.000
F1
0
....
-500.000
-1.000.000
F0
F0= initial exiting cash flow for the investment
F1, F2, F3 = Net cash flows during the time
Fn = Final Project Value a the ending of the managing activity
? : too much optimism through the blue line in the graphic?
time
CASH FLOW of a NEW PROJECT
€
Business Planning
I = initial investiment
0
X = negative peak
t1
t2
t3
t4
t5
t6
I
Positive cash flows
X?
First times with
negative cash
flows
equilibrium
of cash
flows
t7
t8
t
CASH FLOW: Buying activity
Business Planning
€
0
I
G
t1
t2
t3
t4
Initial Investments
POSITIVE CASH
FLOWS
G = goodwill
t5
t6
t7
t8
t