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Business Planning in Uncertain Times
For
Vermont Specialty Food Association &Vermont Retail & Grocers Association
April 3, 2020Bryan Ducharme
www.venture7advisors.com (802) 489-7700 2
This is different
Strong economy deliberately shut down to save lives.
Unprecedented government support.
Long-term economic and psychological impact.
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Unprecedented Business Uncertainty
Decisions are inherently emotional.
Analytical planning tools can help.
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Step 1 – survival
Manage cash flow aggressively.
Take advantage of any credit available to you.
Reduce expenses aggressively.
How long can you last under various revenue, spending and investment scenarios?
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13 Week cash flow forecast
Source: Marty Mooney of Equity38, published on CFO.University
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Data-driven decision making
Predict
MeasureAdjust
A detailed understanding of the business.
What-if analysis.
Bring hard data into an inherently emotional process.
Questions?
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Adapting your business model post-covid-19
Economic headwinds.• Geopolitical instability?• Unemployment and reduced discretionary spending.• Budget deficits, higher taxes, slower growth.
Changes in business and consumer behavior.• Acceleration of digital vs. in-person business.
• Remote work policies.• Distance learning.• Telemedicine.• Ecommerce.
• Changes in medical systems and availability?
There will be opportunities too.• Migration away from dense cities?• Hiring flexibility.• Low interest rates.• Government stimulus spending. • Distressed equipment sales.• Business acquisition opportunities.
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Financial Sensitivity “What If” analysis
Testing business assumptions.
Assumption
Selling price per unit $12
Variable cost per unit $5
Fixed Cost per year $200,000
Forecast sales (units) 50,000
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Financial Sensitivity “What If” analysis
Assumption
Selling price per unit $12
Variable cost per unit $5
Fixed Cost per year $200,000
Forecast sales (units) 50,000
What if your assumptions are off?
Forecast
Revenue: $600,000
Variable Costs: $250,000
Fixed Cost: $200,000
Profit: $150,000
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Assumption(Prediction)
Assumption(10% worse)
Selling price per unit $12 $10.80
Variable cost per unit $5 $5.50
Fixed Cost per year $200,000 $220,000
Forecast sales (units) 50,000 45,000
Financial Sensitivity “What If” analysis
What’s the impact of each change in assumption?
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Assumption(10% worse)
Forecast Profit
Profit Difference(vs. $150,000)
Selling price per unit $10.80 $90,000 -40%
Variable cost per unit $5.50 $125,000 -17%
Fixed Cost per year $220,000 $130,000 -13%
Forecast sales (units) 45,000 $115,000 -23%
Impact of changing one variable by 10%.
Financial Sensitivity “What If” analysis
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Financial Sensitivity “What If” analysis
Advantages
• An easy way to test business model assumptions.
• Identify the assumptions with the greatest impact on profit.
Limitations
• Aggregate level data may not reveal all issues.
• This approach can only test one assumption at a time.
Questions?
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financial Modeling
Income Statement
Balance Sheet
Cash Flow
Revenue Projections• Product/Category• Volume• Price
Cost of Goods Sold• Volume• Raw materials• Equipment• Labor
Cash timing• AR• AP• Investment
Multi-variable “what if” testing & financial projections.
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financial Modeling – Example spreadsheet
Management Buyout of a Consulting Company (simplified)• Projected various scenarios• Business improvement ideas• Deal value / negotiation• Deal structure • Operating performance
Focus on “Rev Worksheet”• Staff• Billing rate• Utilization• Direct vs. indirect labor
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financial Modeling EXAMPLE: Strategic PivotFast growing manufacturer of specialty tools.
• Bad experience with vendors.
• Decision to make parts in-house.
• Growing factory with CNC machine tools & staff.
• Just began $3 million capital raise for new factory.
Then COVID-19 happened.
Revisited all assumptions
• Vendors are hungry (including big ones).
• Make key parts and source the rest.
• Postpone factory by 1 year or more (look for deals).
• Increase revenue 2.5x in current footprint/fixed costs.
• Owners equity forecast to be almost twice as high in 3 years.
Complete strategic pivot planned in about 3 weeks with business modeling!
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Business Planning in uncertain times
Survive by preserving cash and securing additional capital.
Test your business assumptions with sensitivity analysis.
Complex plan changes call for more complex financial modeling.
Predict
MeasureAdjust
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LarryChernicoff
Managing Partner Partner,Master Entrepreneur
BryanDucharme
ScottHardy
PartnerCreative Director• Co-founder, Kodiak Group• Founder, GreenHeart Global• Founder Windhorse
Communicatons• Award-winning designer &
musician
• Co-founder, Kodiak Group• Founder, TrueNorth
Construction• CEO, Senix Corporation• Founder, Venture 7
Advisors.
• Founder, New England Overshoe (NEOS)
• Founder, Ulu Boots• Founder, Linckia
Development