Week 6 - Financial Planning

Question 1

Why should you make a financial planning

Answer 1

To map out:

1. Profitability
2. Efficiency
3. Liquidity
4. Risk

Question 2

How do you track Profitability and Risk?

Answer 2

Via an income statement, which provides an overview of all the costs and revenue within a certain time frame.

Question 3

How do you track Efficiency?

Answer 3

1. Income Statement

2. Balance sheet (an overview of different ownings of the company and how these ownings are financed.)

Question 4

How do you track Liquidity?

Answer 4

Cashflow statement (All the money that goes in to the company and that goes out)

Question 5

What is part of an income statement?

Answer 5

	Gross margin
•	- Services and other goods 
•	- remunerations and other social costs
•	- depreciations
•	- Provisions
	Operational result (EBIT)
•	+ Financial results
•	+ Exceptional result
	Results before taxes
•	- Taxes
	Results after taxes

Question 6

What are the (8) bases for sales?

Answer 6

	Product sale
	Renting/leasing
	Service package
	Licensing
	Usage fee
	Brokerage fee
	Subscription fee
	Advertising

Question 7

What are the two pricing structures?

Answer 7

1. Fixed pricing

2. Dynamic pricing

Question 8

When to apply fixed pricing?

Answer 8

• Product feature based
• Customer segment based
• Volume based

Question 9

When to apply dynamic pricing

Answer 9

• Negotiation
• Yield management
o Uses price elasticity, based on supply and demand (airline)
• Real-time-market

Question 10

What are the four parts of the cost structure?

Answer 10

	Direct + Variable
•	            Flour for biscuit
	Direct + fixed
•	            Machine rent biscuit X
	Indirect + variable
•	             Electricity for machine biscuit x, y, z
	Indirect + fix
•	             Rent of factory

Question 11

What is a cash flow statement

Answer 11

• Cash flow statement is a projection of the future cash ins and cash-outs

Question 12

How is it different from an income statement?

Answer 12

o While income statement = A projection of future revenues and costs
o Not all cash-ins are revenues, and vice versa, same goes for cash-outs and costs

Question 13

What are the two principles that affect a cashflow statement?

Answer 13

1. Matching principle
   o Cashout depends on the moment when you buy the product, costs are spread
   over a period (difference between costs and cashout)
2. Operational Principle
   o Need for networking capital to bridge this cap (customer pays later while supplier requires money earlier than payment)

Question 14

From the operational costs onward, what comes in a cashflow statement?

Answer 14

o	Operational Results
	+/- operational results
	+ depreciations
	– change in NWC
o	Cash flow from operations
	- Reimbursements
	- Interests
	- investments
	+ Capital raised
	+ financing from other sources
o	Cash flow for period

Question 15

What does a balance sheet exist of?

Answer 15

1. left side, assets

2. Right side, Equity & liabilities

Question 16

Balance sheet, How are assets ordered? and what are the points being ordered?

Answer 16

ordered based on speed on cash conversion (liquidity)

	Formation expenses
	Intangible fixed assets
	Tangible fixed assets
	Financial fixed assets
	Stocks and work in progress
	Accounts receivable

Question 17

Balance sheet, how are equity and liabilities ordered, and what are the factors that are ordered?

Answer 17

ordered based on possibility to claim repayment (low to high)

	Capital
	Reserves
	Accumulated P&L
	Debts payable > 1 year
	Debts payable < 1 year
	Accounts payable

Question 18

What are the sources of funding?

Answer 18

1. Equity
2. Long- and medium-term loans
3. Crowdfunding (equity or loan)

Question 19

What are the advantages and disadvantages of Angles & VC? What are their main considerations?

Answer 19

o	Advantages
	   Secure & longterm
	   Larger amount
	   Added value investor
	   No interest or capital repayments
	   Business > security

o	Disadvantages
	   Growth prospects
	   Share value
	   Exit route (5-10 years)
	   Time & effort
	   Interference

o Main consideration of angel & VC
 Risk and return
• Typically, 30% to 60% p.a. return
 Exit route
• Typically, liquidation of investment within 5 to 10 years

Question 20

How to sell equity?

Answer 20

1. 3F’s (family, friends, fools)

2. Angles & Venture Finance

Question 21

What are the advantages and disadvantages of 3F’s with regards to equity?

Answer 21

o Advantages
 Security unlikely to be required
 Loans maybe informal
 Interest payments may not be required or may be deferred

o Disadvantages
 Can strain relationships if repayments not made as expected
 If business fails, family friends may suffer
 May interfere in the business

Question 22

How to get loans?

Answer 22

1. Personal, family, friends

2. bank

Question 23

What are the advantages and disadvantages of 3F’s with regards to loans? And what are their considerations?

Answer 23

o Advantages
 Term is fixed
 Capital repayments fixed
 Interest: fixed or variable, but lower than overdraft

o Disadvantages
 Collateral
 Good cash flow and break even forecast

•	Bank considerations:
o	Loan
	Purpose, amount and repayments terms
o	Financial
	Cash flow, breakeven and gearing
o	Personal
	Character ability

Question 24

How to make sales? What are the approaches to make a reliable estimation of sales?

Answer 24

1. bottom-up approach

2. top-down approach

Question 25

What is the bottom up approach?

Answer 25

1. means at hand 2. sales pipe 3. sales ----- it is field research

Question 26

What is top-down approach?

Answer 26

1. potential market 2. total available market 3. served available market 4. made sales ------ desk research

Question 27

Advantages & disadvantages of top-down approach?

Answer 27

 Advantages • Cheap • Quick • Good for background information  Disadvantages • Not specific for your business • Can be incomplete or inaccurate • Can be out-of-date

Question 28

Advantages & disadvantages of bottom-up approach?

Answer 28

 Advantages • Reflects your needs • You control quality • Up-to-date  Disadvantages • Expensive (unless you do it yourself) • Takes time • Can tell competition what you are up to

Question 29

What steps to take to make an reliable sales pipe estimation? and why does this need to be done?

Answer 29

``` Q1 • Estimate the effort needed to sell ….. o Identify leads  Calls  First contact  Meeting ``` Q2 o To avoid  Overestimation of sales  Underestimating costs needed to generate sales

Question 30

What depends on the buyer and what buyers are there (context: sales pipe)?

Answer 30

Q1 How long it will take and how much effort it takes to sell Q2 1. economic buyer 2. user buyer 3. technical buyer (4. sometimes a coach)

Question 31

What is an economic buyer?

Answer 31

```  Gives final approval to buy  Decision criteria • ROI • Bottom line impacts the organization  Challenges • Identifying • Get to the person ```

Question 32

What is an user buyer?

Answer 32

``` Uses the product:  Makes judgement about impact on job performance, can block  Criteria • Will it make my job easier?  Challenges • Key user buyers cannot be neglected ```

Question 33

What is a technical buyer?

Answer 33

 Sceptical gatekeeper (manager/maintain)  Criteria • Judge quantifiable aspects  Challenges • Can say no based on "objective parameters"