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FINANCIAL PLANNING 1 ENTREPRENEURSHIP KNOWLEDGE VICENZA, ITALY DAY 2 – JANUARY, 15th 2014 ©2009-2014 Piercarlo Cuccia.

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Presentation on theme: "FINANCIAL PLANNING 1 ENTREPRENEURSHIP KNOWLEDGE VICENZA, ITALY DAY 2 – JANUARY, 15th 2014 ©2009-2014 Piercarlo Cuccia."— Presentation transcript:

1 FINANCIAL PLANNING 1 ENTREPRENEURSHIP KNOWLEDGE VICENZA, ITALY DAY 2 – JANUARY, 15th 2014 © Piercarlo Cuccia

2 2 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?

3 3 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?

4 THE ESSENTIAL MEANING OF DOING BUSINESS 1. businesses want profits and still living during time 2. customers allow business to get profits 3. customers have got needs, necessity and wishes: business must understand and anticipate those needs and wishes… 4. offer a reply of value to customers needs 5. the entrepreneur is the one who have to command and direct all the activities 6. entrepreneur is the key figure for business success 7. 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,…)

5 Value for Customers = Offered benefits Asked sacrifices 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 > 1

6 Value for the customer = Intrinsic quality + functional benefits + emotional benefits price + other acquisition costs 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. > 1

7 7 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”)

8 8 REVENUES – COSTS = PROFITS CUSTOMERS SUPPLUIERS Production Cycle Products Services Resources Services ECONOMICAL CYCLE OF A BUSINESS INVESTED CAPITAL and FUNDING

9 ECONOMICS and FINANCIAL DINAMICS 9 BALANCE SHETT INVESTED CAPITAL year n DEBTs first year (n) EQUTY year n SELF FINANCING. +/- COMMERCIAL POLITICS EFFECTS +/- NEW INVESTMENTS +/- NEW FUNDINGS OR PAY BACK = GENERATED CASH FINANCIAL FLOWS MANAGING BALANCE SHETT INVESTED CAPITAL year n + 1 +/- GENERATED CASH DEBTs year n+1 EQUITY year n + 1 OPERATING RESULT +/- REVENUES - COSTI = RESULT ECONOMIC FLOWS BEGINNING GOALS

10 - taxes =NET PROFIT pluralità di schemi di riclassificazione GROSS REVENUES - Deductions ( discount; ecc.) = NET OPERATING REVENUES - operating monetary costs GROSS MARGIN - Operating non monetary costs = OPERATING INCOME +/- financial proceeds/burdens +/- proceeds/burdens accessorial business +/- additional income/burdens = EARNING BEFORE TAXES TAX MANAGEMENT ADDITIONAL MANAGEMENT ACCESSORIAL MANAGEMENT ORDINARY OPERATIONS FINANCIAL MANAGEMENT 10 MACROVOCI del CONTO ECONOMICO

11 INCOME STATEMENT VALUE-ADDED REVENUES - consumes - external services - other running costs ADDED VALUE EBITDA = EBIT - labour cost - amortizations Market appreciation Business size Operating cash flow Earning from core business 11

12 INCOME STATEMENT – MARGIN OF CONTRIBUTION REVENUES MARGIN OF CONTRIBUTION EBIT - Variable costs - Fixed Costs Ability to pay fixed cost of the business structure 12 Market appreciation From core business

13 INCOME STATEMETN AT SELLS COSTS REVENUES - Industrial Costs GROSS MARGIN EBIT - Commercial Costs - Amministration and general Costs Market appretiation Industrial Result Income from core business 13

14 14 INVESTED CAPITAL COMPONENTS BUSINESS INVESTMENTS Capital Assets Working capital TANGIBLE INTANGIBLE FINANCIAL STOREHOUSE CREDITS TO CUSTOMERS CASH OTHER OPERATING CREDITS

15 15 FINANCIAL SOURCES FINANCIAL SOURCES OPERATING SOURCES FINANCIAL SOURCES EQUITY - OWN RESOURCES DEBTS to SUPPLIERS SEVERANCE PAY OTHER OPERATING DEBTS BANK DEBTS LEASING DEBTS DEBT TO PARTNERS SHARE CAPITALE RESERVES AND EARNINGS EARNINGS

16 … GOING TO THE MANAGING – FINANCIAL BALANCE SHEET : FOCUS ON NATURE OF DEBTS NET INVESTED CAPITAL Where the business put the money? How much has it invested? How can be juded the investment structure? CURRENT ASSETS (this amount should return in 1 year) NON- CURRENT ASSETS (more than 1 year) EQUITY Who give money to the business? How much money need the business? How can be judge the financial structure of the financial sources? OPERATING DEBTS EQUITY F INANCING FINANCIAL DEBTS CURRENT LIABILITIES Trade Paybles, employess,… NON-CURRENT LIABLITIES - retirement, deferred taxation provisions, … CURRENT FINANCIAL LIABILITIES - Banks (short terms financial borrowing) NON – CURRENT FINANCIAL LIABILITIES - Long-terms borrowings >12 months EQUITY - Share capital - reserves ASSETSLIABILITIES CASH FUNDs Cash and cash equity TRADE RECEIVABLES highlighting the amount expected to be recovered over twelve months INVENTORIES Property, plant & equipment Capitalized development costs Goodwill Other intangible assets Investments in associates Available-for-sale investments Deferred tax assets Long-term loans receivable 16

17 CLASSI BALANCE SHEET – FOCUS ON DEADLINES 17 NET INVESTED CAPITAL Where the business put the money? How much has it invested? How can be juded the investment structure? CURRENT ASSETS (this amount should return in 1 year) NON- CURRENT ASSETS (more than 1 year) EQUITY Who give money to the business? How much money need the business? How can be judge the financial structure of the financial sources? OPERATING DEBTS <12 MONTHS EQUITY FINANCING FINANCIAL DEBTS > 12 MONTHS CURRENT LIABILITIES Trade Paybles, employess,… NON-CURRENT LIABLITIES - retirement, deferred taxation provisions, … CURRENT FINANCIAL LIABILITIES - Banks (short terms financial borrowing) NON – CURRENT FINANCIAL LIABILITIES - Long-terms borrowings >12 months EQUITY - Share capital - reserves ASSETSLIABILITIES CASH FUNDs Cash and cash equity TRADE RECEIVABLES highlighting the amount expected to be recovered over twelve months INVENTORIES Property, plant & equipment Capitalized development costs Goodwill Other intangible assets Investments in associates Available-for-sale investments Deferred tax assets Long-term loans receivable

18 NET FIXED ASSETS FINANCIAL – MANAGING BALANCE SHEET ( 4 zones) WORKING CAPITAL EQUITY FINANCIAL NET DEBTS OPERATING FINANCIAL LIABILITIES NON- OPERATING FINANCIAL LIABILITIES EQUITY - Share capital - reserves ASSETSLIABILITIES TRADE RECEIVABLES INVENTORIES FIXED ASSETS - Financial - - Tangible - - Intangible LIQUIDITY Cash and bank accounts - NON- OPERATINGS LIABILITIES - OPERATING LIABILITIES == F.N.F. =N.I.C. NET INVESTED CAPITAL=N.I.C = = = 18

19 DEBTS AND ECONOMIC CYCLE DEDE 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] Equity Financial Debts NFA NIC Equity Financial Debts =

20 WHEN DEBTS ARE TOO MUCH? Patrimonio netto Debiti finanziari AFN CCN Patrimonio netto Debiti finanziari = DEDE

21 FINANCIAL STATEMENTS INDICATOR FINANCIAL AND PATRIMONIAL EQUILIBRIUM PROFITABILITYDURATION Current Assets Financial liquidity NFAN/NIC e NCA/NIC ROS ROI; RONA ROE i TURNOVER Inventory days ROI – i; RONA - i The reciprocal of 365 are index Days of grace days before cash in 21 D/E

22 Net ROE RN PN RONA RO CIN Debts Loads CIN PN No – core business weight RN RO ROS RO Revenues Invested Cap. Rotation Revenues CIN IS % BS% x x x 5 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 REVENUE INDEX 22 1

23 Variable costs are those ones that change in order to variation on the volume of activity Example: materials Variable Costs Total Costs (Y) Activity volume (X) 0 Variable costs can be not proportionally linear at the growth of units Cost Quantity VARIABLE COSTS 23

24 Fixed costs are those ones that don’t change at the variation of the activity volume Fixed Costs Total Costs (Y) Activity Volume (X) 0 Example: ammortizations Cost must be considere fixed in: - A given timeline -In a relevant range of activities -They move in a “stairs” way FIXED COSTS Numbers of units Amortizations

25 COST ANALYSIS: TOTAL AND UNIT Activity Volume x Costs Fixed a Variable Costs (b=300) b. x Total Costs Y = a + bx , , y = a + b. x y/x = a/x + b Fixed unit cost a/x Variable unit cost b Total unit cost y/x UNIT COST TOTAL COSTS

26 Variables costs costi fissi Total costs revenues Numbers of units EURO Break even point Revenues = total costs Margin of Contribution = Fixed Costs BREAK EVEN POINT 26

27 27 DIRECT COSTING, SOME NUMBERS

28 28 DIRECT COSTING WITH DIRECT FIXED COSTS

29 29 FULL COSTING

30 PLANNING THE BUSINESS DEVELOPMENT… Prior experinces Dreams … Passions Markets opportunities IDEA The development of the idea Strategy and business model BUSINESS PLAN INVESTMENTS PARTNERS BANKS REVENUES -costs (variables, fixed) = OPERATING INCOME -passive interests = RESULT BEFORE TAXES -taxes = NET RESULTS INPUTS -OUTPUTS = GENERATED CASH FLOWS ? STARTMANAGEMENT REVENUES?

31 31 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.To identify target clients, to hear, to understand and to speak with them 2.To phrase a value approach as answer to their needs 3.To develop contacts, to build relations and to communicate 4.To chose the best sale channels and sale ways 5.Revenues structures and ways to get it 6.To identify key activities 7.To identify key resources 8.To identify key partners and to focus on cooperation modes 9.How to sustain costs and its structure

32

33 Il MARKETING MIX – LE 4 P WHAT IS OFFERED  Product IN CHANGE OF WHAT  Price IN WHICH CHANNELS  Distribution IN WHICH WAY  Communication 33  brand, packaging, choises  conditions, promotions, lists  Channels, sales network  Public relations, advertising, direct marketing

34 MARKETING MIX – 4 C CUSTOMER VALUE  Offered value CUSTOMER COMMUNICATION  How we hear customers? How we face them? CUSTOMER EXPERIENCE  Buying experiences CUSTOMER COST  Asked sacrifices 34  How will we solve his needs?  hearing, communication, involvement, new media  All the buying experiences  Price and other acquisition costs

35 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.

36 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

37 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?

38 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

39 FINANCIAL INVESTMENT LOGIC - 1 Flows.... Fn F3 F2 F1 F time € 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

40 FINANCIAL INVESTMENT LOGIC - 2 FLOWS.... Fn F3 F2 F1 F time € 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?

41 CASH FLOW of a NEW PROJECT t1t2t3t4t5t6t7t8 First times with negative cash flows Positive cash flows equilibrium of cash flows Business Planning I X? € t 0 I = initial investiment X = negative peak

42 CASH FLOW: Buying activity t1t2t3 t4t5t6t7t8 Initial Investments POSITIVE CASH FLOWS G = goodwill Business Planning I G € t 0


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