Finance nuances for a scaling venture - SAYes

Entrepreneurial Finance: Scaling

South Asia Youth Entrepreneurship Summit

(SAYes) - TiE Bangalore

Infosys Campus, Bangalore, 28th October 2014

Anjana Vivek

[email protected]

VentureBean Consulting Private Limited

At the start

Strategic Financial Planning

Financial Forecasts

MIS: Measure, Analyse, Update

Valuation and Value Creation

In Summary

Agenda

2 2


BEFORE YOU START

Do take time out to think/reflect…

Phase 1

• WHAT is the stage of your business today?

• WHERE do you want to go from here?

• WHAT does this growth plan mean in financial terms, because, afterall Finance is the Language of Business and you need to communicate in this language

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AT THE START

Phase 2

• WHAT do you have that you can leverage on, in

the next phase of your growth?

• WHAT do you lack, that may hinder you?

• HOW do you leverage on your strengths and

mitigate risks?

• THESE are the starting points for your Business

Planning Exercise, as you aim, Higher .. Higher

4


At the start


Financial Forecasts



In Summary

Agenda

5 5



• Plan for three dimensions of time: short term, medium term and long term

• For the short term, details are more readily available, assumptions are fewer and relatively easier (typically 1 year; month-wise)

• For the medium term one may look at estimates, it is more of guess work and trend analysis and less of data as we project further into the future (typically 3-5 years, quarterly)

• For the long term, it is almost all assumptions.. dreams and aspirations included (15 years!)

• It is good to periodically go back and forth between these time zones and check for patterns, consistency, thought process..

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• Projections are just projections.. They may soon face a reality check

• Projections need to be achievable and realistic in the immediate term.. and can get into dream zones in the long term

• As you compare your projections with actual performance– You understand yourself better– You get a better sense of how well you can project – You can project better the next time around

– Try to see where the difference between reality and projection is and the reason for this

– Is the difference due to errors in assumptions made, due to ecosystem changes or..??

– Update the projections to reflect reality– This is a continuous and ongoing process

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• Forecasting is like a game of probability.. of scenarios and chance.. with a dose of reality thrown in

• “To Trigger Thinking” you may also like to prepare with different scenarios in mind– Pessimistic, realistic and optimistic

– Boot-strap and funded

– With alternate business models; impacting strategy and cash flow

– And more..

8


At the start


Financial Forecasts



In Summary

Agenda

9 9


Financial Forecasts

• Key elements in a forecast– Revenue

– Costs: operational, sales and general administration

– Capital expenses

– Working capital expenses

– Earnings

– Tax, interest and other costs

– Sources of funding

– Uses of funding

• Reference http://www.financialexpress.com/news/forecast-financials-in-a-business-plan/83853/0

10

http://www.financialexpress.com/news/forecast-financials-in-a-business-plan/83853/0


Financial Forecasts

• Key statements– Balance Sheet

– Profit and Loss Account

– Cash Flow

• Valuation (table) with reference to a potential investment, M&A, JV, equity sharing (sweat/ESOP etc.)

• With assumptions / notes to accounts

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At the start


Financial Forecasts



In Summary

Agenda

12 12


Measure, review, correct.. measure..

• As an entrepreneur you may have prepared a business plan

• What about an action plan?

• Have you reviewed the results of your actions on a regular basis?

• Sometimes, companies do not pay attention to this aspect, thus missing out on signals, that something that has been planned is not working out

• Regular capturing, monitoring and analysis of data can help

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• Design a Management Information System (MIS) to help capture and evaluate– the Key Performance Indices (KPIs)

– Key Value Drivers and

– Key Value Depleters

• Data could be collected on a monthly/fortnightly/weekly basis

• Reference:

• http://bangalore.citizenmatters.in/blogs/entrepreneur-s-corner/blog_posts/135-business-plan

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http://bangalore.citizenmatters.in/blogs/entrepreneur-s-corner/blog_posts/135-business-plan



• For our health checks, we measure age, height, weight, BP, sugar levels etc.. as key parameters indicative of well being

• Similarly there are some key health parameters for business; some Must Measure Parameters– Top Line: Revenue

– Bottom Line: earnings/profits

– Cash Flow

– Value (understand what can be value drivers)

– Number of employees

– Key costs

– More illustrative parameters to follow in next few slides..

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• Illustrative indicative parameters, for sales

– Sales Quantity

– Quality of revenue - in terms of

product/service/vertical/location etc.

– Average revenue per employee

– Number of customers, number of high value

customers

– New customers added

– Customers lost

– Pipeline customers

– Etc.

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• More illustrative indicative parameters

– Key expenses

– Number of employees

– Average cost per employee

– Receivables and payables

– Cash balance

– Key assets

– Loans outstanding

– Equity capital

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• Design the MIS with care, too little information is not

helpful, too much data can be counter productive

• Analyse data, look for patterns and trends, recast

– Check for variances over time, with underlying causes

– Compare with benchmark companies

– Factor learnings into business strategy and action plan

– Recast and redo projections and plan if required

• Periodically revisit the MIS framework and add or

update parameters to be measured

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At the start


Financial Forecasts



In Summary

Agenda

19 19


Strategic Planning – Creating value

• Alliances and partnerships should lead to value creation not value depletion; i.e. beyond– Top line (revenues)

– Bottom line (profits) and

– Cash flow

• Understand financial and non-financial aspects of business and transactions and impact on growth and sustainability

• Factor both an immediate and a long term view

• Most importantly, is it adding to your brand perception in the market or depleting from this

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Strategic Planning – Creating value

• Preparing for alliances and partnerships across the life cycle, this includes– Partner identification

– Due diligence review

– Forecasts and valuation (with and without deal)

– Negotiation, acceptable and non-acceptable terms (deal breaker and deal maker issues)

– Other deal terms and conditions

– Deal closure

– Post deal integration

– Exit plan if required for eg. for VC

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Valuation

• Based on– Tangibles and intangibles

– Data and assumptions

– Subjectivity and objectivity

• Many methods of computation including but not limited to– Multiples of revenue, earning, user base etc

– Cash flow based, discounted

– Cost based

• Factor statutory, accounting, and tax implications

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Valuation

• Driven by markets including flavor of season,

competitive scenario, team at helm etc.

• Driven by percentage of stake offered,

negotiation etc.

• Deals can sometimes be structured to

accommodate valuation perceptions; by linking

to future performance etc.

• For more on valuation: detailed notes are at

http://www.slideshare.net/anjanavivek/valuation-

basics (from the popular set of the TOP 4%

viewed on SlideShare in 2013)

23

http://www.slideshare.net/anjanavivek/valuation-basics


At the start


Financial Forecasts



In Summary: Beyond Finance

Agenda

24 24


MOST IMPORTANTLY

Entrepreneurship needs an understanding of

• People

• Business

• Environment

• Deal issues

• Synergies

In addition to finance..

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Financial Planning

• Finance involves – Financial planning

– Resource allocation

– Funding strategy

– Managing working capital needs

– Managing cash

– Monitoring, measuring, governance systems

– Understanding impact of business model on finance/strategy/cash flow

– Value creation

– And more

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MOST IMPORTANTLY

• Finance is important to survival, sustainability

and success; however finance is not everything

• As …

All the entrepreneurs who have money are

not successful

&

All those with no money or limited money are

not unsuccessful

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MOST IMPORTANTLY

• Finance is important to survival, sustainability

and success; however finance is not everything

• As …

All VC funded companies do not succeed

&

All non-funded companies do not fail

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In Summary

• Take care and plan well ..

• Execute .. Monitor.. Evaluate.. Adjust.. Update..

Execute..

• And Success will come your way

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In Summary

• Wishing you all the Very Best in your Entrepreneurial Journey

• Delighted to invite you to view/follow for periodic insights, class notes & more, from thought leaders, academicians…

@ The VentureBean K.Hub: (Knowledge Hub)

http://www.linkedin.com/company/venturebean-consulting-private-limited

www.slideshare.net/anjanavivek

https://twitter.com/anjana_vivek

• Contact for more information and inputs: [email protected]

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http://www.linkedin.com/company/venturebean-consulting-private-limited

http://www.slideshare.net/anjanavivek

https://twitter.com/anjana_vivek

mailto:[email protected]

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Finance nuances for a scaling venture - SAYes

Small Business & Entrepreneurship