Financial Planning. Jean-Pierre Vuilleumier Managing Director Swiss Startup Invest

Transcription

1 Financial Planning Jean-Pierre Vuilleumier Managing Director Swiss Startup Invest Why Financial Planning? Find out early if your business idea is profitable and/or sustainable Find out how much money you need: Capital Need Translate your businessplan into monetary units Have financial statements for fund raising Have a controlling base to find out about deviations 2 1

2 Recommandation Start from Day 1 Do not waste your time writing a great businessplan Do not waste your time and talent to develop your own financial tool with Excel 3 3 Key Questions in Financing (1) 1. How much money? 2. What for? 3. From Whom? 4 2

3 3 Key Questions in Financing (2) 1. Capital Need 2. Use of Funds 3. Investors 5 Capital Need: How to find out? -Mgt by Surprise or -Financial planning Important: Process more important than Result. Replace coincidence by error! 6 3

4 Capital Need: Fundamental question BIG Small is beautiful International Markets External Financing Aggressive Growth Regional Markets Autonomous Financing Organic Growth Star Life Style Company 7 Scenarios -Base Case What you believe in, but do not want to show to investors. -Best Case! Your wildest dreams! Show it to investors. -Worst Case What might actually happen, so be prepared for it. 8 4

5 The magic triangle of finance Profitability Net profit (Income Statement, Profit&Loss Statement) Survive Substance Equity (Balance Sheet) Liquidity CASH (Cash Flow Statement) 9 Overview Substance Equity Long-term Balance Sheet Income Statement Profitability Net profit Mid-term FOOD Cash Flow Statement Swiss legal obligation Liquidity CASH is King Short-term OXYGEN /

6 Balance Sheet Investments (Assets) Financing BUSINESS RISK Current assets and Fixed assets Current liabilities Payables (suppliers) Bank Long term liabilities Loans Equity Paid-in capital Earned surplus (past) Net Profit (+) / Loss (-) current period FINANCIAL RISK TOTAL RISK TOTAL RISK = BUSINESS RISK + FINANCIAL RISK 11 Financing: Debt and Equity Criteria Debt (Short or Long term Liability) Legal relation Creditor Owner Equity Risk Duration Return Flexibility (amount) Collaterals Guarantees Short- and Long-term Interests Repayment Floating possible No protection Notice not possible Long-term Dividends? EXIT? Legal constraints 12 6

7 Choice of legal form (Equity) GmbH, Sarl, llb CHF (all must be paid-in, new law) AG, SA, Ltd CHF (minimum of 1/2 paid-in) For any external investor, only the AG,SA, Ltd is acceptable! Options: -Start with GmbH, Sarl, llb and then convert to AG, SA, Ltd -Start directly with AG, SA, Ltd (if you can afford it) 13 Cash Cycle and structure Operating CF - Payables, Cash expenses Inventory build-up - Receivables Investing CF - CAPEX (Fixed Assets) + Devestment (Fixed Assets) + Financing CF + - Equity & Debt increase Dividends Repayment Debt 14 7

8 Cash Flow Statement Operating CF Investing CF + Cash inflow from receivables (Customers) - Cash outflow to payables (Suppliers) - Wages and social costs (Employees) - Interests and Taxes (Banks and Government) Cash Flow from operations - Investments in fixed assets (Equipment, CAPEX) Cash Flow from investments FREE Cash Flow = Capital need Financing CF Change in CASH + Increase of debt (bank, loan) - Repayment of debt + Increase in equity (paid-in capital) Cash Flow from financing Cash beginning period Cash ending period 15 Cash is King! Capital Need Cash Flow from operations + Cash Flow from investing FREE CASH FLOW (FCF) / Capital Need or Capital Surplus For Start-up this FCF is usually negative, a Capital Need. FCF = Capital need of the company Cumulated FCF = Total Capital need of a company over time. Most important information: 1. Operating Cash Flow (if negative => Cash Drain) 2. Capital Need of the company (Free Cash Flow) 3. Cash at the end of period (for burn rate calculation) 16 8

9 Burn and Run Rate To be calculated on a monthly basis, with the following assumptions: -no cash-in from customers -all cash-out for suppliers -Salaries of all FTE, including social costs -Rent and Leases -Interest and Taxes -other fixed cash-costs (telecom, traveling etc) If you divide the CASH at hand with this figure, you will find out, how many months your company can survive. Example: Burn rate: CHF 50 p/month Cash at end of period: CHF 250 Run rate: 5 months (250/50) 6-12 months would just be great, why? 17 How to save CASH? Some ways to save cash: -Leasing to be preferred (pay as you earn) -Fly economy -Buy second hand furniture (or IKEA) -Buy second hand equipment -Tight control on receivables and payables -negotiate payment terms, upfront from customers -Deferred payment to suppliers -Success fees (consulting) -Reduced inventory level -Flexible work force (freelancer to start with) -Low fixed salaries, partly kept as loan (especially for founders, can be converted later into equity) 18 9

10 Operating Cash Cycle How many days your customers take to pay for their purchases How long you have to pay your suppliers How quickly you turn inventory 19 Length of the Operating Cash Cycle (150 days) Operating Cash Cycle (80 days) Days Holding Inventory (70 days) Days of Accounts Receivable 20 10

11 Length of the Operating Cash Cycle (150 days) Operating Cash Cycle Inventory Received (30 days) Days of Accounts Payable (80 days) Days Holding Inventory Payment for Inventory Goods Sold (70 days) Days of Accounts Receivable (120 days) Duration Cash is Tied Up Payment Received 21 Length of the Operating Cash Cycle 22 11

12 Financial Planning Planning replaces coincidence by ERROR. Planning is a systematic process looking at possible future developments You may learn from ERRORS. Process is more important than Outcome! Planning and controlling speed up the learning process. Over time the process and the outcome will improve (learning)! 23 Financial Planning Approach TOP-DOWN BOTTOM-UP Draft Business Model Refined Business Model Annual Planning years (normally) Monthly Planning 1-24 months (mandatory) PROFIT FOCUS CASH FOCUS Income Statements Balance Sheets Cash Flow Statements Cash Flow Statements 24 12

13 Prospects and Crystal ball Sales Income Statement CF Statement Balance Sheet 24 months CF Statement 24 Months Year 3-5 Prospects Projectlist Crystal ball t 25 Financial Planning Process Outer circle Input Business Model Starting Balance Sheet Income Planning Personnel Planning Working Capital Investment (Capex) Capital Need FREE CASH FLOW Inner circle Financial actions Fund raising and timing Output Normal procedure Possible iterations 26 13

14 Planning process FINTOOL 27 Process in detail (1) Step 1 : Intro and Accounting plan (Intro & ACC) Company Data Starting Date (Calendar = Businessyear) Define Businesslines Define Account names (can be done anytime during the process) Change Language (anytime during process) Use other currency for the output Step 2 : BUSINESS MODEL (FS1-9) Must be done by the company, no TEMPLATE, but many Free Sheets (FS) It is all about Sales and COG (Cost of Goods) Best to Link into the Businessline Sheets 28 14

15 Define your Businessmodel -What is your offering (product) -Who are your customers (endusers) -Where are your customers (geography) -Who helps you to reach them (Distribution) -Who are your suppliers -Pricing -Quantity 29 Business Model Sales Model Product Mix (Offering) Customers Countries Distribution Channels Life cycle Decision time Frequency Churn rate Pricing & Quantity =>> S A L E S Resources Model Suppliers Pricing Quantity Production time Time of storage Inventory Human resources (for Production) =>> C O G S Costs of Goods Sold 30 15

16 Process in detail (2) Step 3 : Initial Balance Sheet (SBS) Intermediate Balance Sheet is ok (final figures can be inputed later) No other info of the Past of interest Step 4 : P/L Planning (BL1-4, OVER), Personnel (HRP, HR) Max 4 Businesslines, Bottom line is Gross Margin Overhead Costs (R&D, Marketing, Management), including financing costs and taxes Seperate Planning of FTE, since very sensitive (2 additional sheets) 31 Process in detail (3) Step 5 : Working Capital (WC) Define the payment terms for Customers but also Suppliers Inventory is already automatically done in the Businesslines (BL1-4) Very powerful sheet to simulate Cash needs according to terms Step 6 : Capital Expenditures (CAPEX) Investments into Fixed Assets (Furniture, Machines) Define depreciation period (years) Activation of costs can be inputed (done at the end of the process and only if needed!) 32 16

17 Process in detail (4) Step 7: FREE CASH FLOW (FA) Automatic calculation of the Capital Need (Free Cash Flow) In addition also the highest capital need on a monthly basis is shown! Step 8: Financial Action (FA) Planning of the possible financing, e.g. Debt or Equity Checking the basic Decision Rules for Financial Planning (Cash and 725) Step 9 and 10: Output (PL, CF, BS, OVER) All needed financial statements are available: Profit/Loss, CF Statement, Balance Sheet All available in annual, quarterly and annual figures In addition a very useful Financial Overview is provided 33 Cash Flow Statement on monthly basis: a MUST Translate the annual figures into monthly figures (1-24 months): -Cash fluctuations during a year can be considerable -Gives a better view on how you want to develop your business Capital Need t (years) Monthly development Capital Need at year end 17

18 Monthly Capital Need is important Min with annual figures 20xx 20x1 20x2 Min with monthly figures 35 Basic Rules for Financial Planning 1. Capital Need vs Sales Target 2. Have Cash during planning period 3. Respect the law, OR/CO

19 Decision Rules Financial Planning Cash (and cash reserves) Equity (debtor protection) Sudden death Slow death Cash Flow monitoring Burnrate control Equity monitoring Legal consequences OR/CO OR / CO 725 and 725a (1) Balance Sheet Current Asset Debt* Fixed Assets Equity -130 Cum. Loss Total Total 50 % of Equity (170) > Cum. Loss (130) => Unterbilanz ohne gesetzliche Folgen. => Le bilan déficitaire sans conséquences juridiques. *If the Debt is subordinated it is viewed as equity

20 OR / CO 725 and 725a (2) Balance Sheet Current Asset 290 Fixed Assets Debt 340 Equity -200 Cum. Loss Total Total 50 % of Equity (170) < Cum. Loss (200) => Unterbilanz mit gesetzliche Folgen. => Le bilan déficitaire avec conséquences juridiques. The Board of Directors must immediately organize a Shareholder Meeting to present urgent recovery actions. 39 OR / CO 725 and 725a (3) Balance Sheet Current Asset 130 Fixed Assets Debt 340 Equity -360 Cum. Loss Equity < Cum. Loss Total Total => Assets do not cover the Debts anymore! => Ueberschuldungsbilanz / Le bilan de surendettement The Judge declares Bankrupcy. If the Board of Directors can convince the judge that there is a chance to save the company the judge may delay the bankrupcy

21 OR / CO 725 tactics (4) Start with a high enough Equity for initial operations -The company will need the money anyway -Contribution in kind (if possible and acceptable) -Subordinate the loans, especially shareholder loans Who could take action against your company? -Pay your creditors, especially governmental debts (for Board members) -AHV/AVS / PK/CP / VAT/MwSt/TVA / Taxes -Negotiation ahead of time with your creditors Convincing business plan -When appearing in front of the judge -When raising additional money to close the gap 41 Subordinated Debt Assets XX Financing CURRENT ASSETS 100 FIXED ASSETS 180 LIABILITIES / DEBT Loan* 380 EQUITY Paid-in Capital 100 Cum. Loss -200 Total 280 Total 280 *If the loan is subordinated, the company is not overindebted! Subordinated debt is considered as equity

22 Financial Sources Founders Family Friends Fools Foundations Family Offices Business Angels Venture Capitalists Mio. Seed Mio. Seed and Early Stage >1 Mio. Later Stage 43 FFF vs Business Angel vs Venture Capitalist Criteria Family Friends Fools Business Angel Foundations Family Offices Venture Capitalist Source of money Own Own Third parties Amounts in Mio. (deal size) Risk-capital background < CHF 0.1 CHF > 1.0 > CHF 1 Mio. Amateurs Semiprofessionals Professionals Develop. Phase Seed and Early Early Later, Growth Time horizon Unlimited? Limited? Limited, 5-7 years Expected return No idea From modest to high? Focus Anything Depending on own background High (Business model VC) Clearly defined 44 22

23 Investment criteria BA and VC 1. Market potential 2. Winning business model 3. Management Team quality and potential 4. Clear and sustainable technology edge (IP) (5. Exit Scenario) 45 Speaker After having received his Master Degree in Business Administration at the University of Fribourg (CH) he became Professor for Finance at SEBA Bern (School of Economics and Business Administration) which is part of the University of Applied Sciences in Bern. In 2000 JP Vuilleumier was appointed CEO of a Swiss Venture Capital Company. In spring 2002 he joined CTI Start-up as Project-leader Financial and Investor Support for Start-up Companies until 2014 ( In addition, in spring 2003 he became Managing Director of the Swiss Startup Invest ( In 2009 he was nominated Managing Director of the W.A. de Vigier Foundation ( before leaving in Jean-Pierre Vuilleumier He is also teaching Entrepreneurship classes at the Venturelab program ( and at ETH Zurich. He is also a Jury member at Venture Kick ( He founded the newschannel Startupticker.ch for the Swiss Startup ecosystem and still is its Vice-Chairman (