Sami Aly Issues in Telecommunications15 January 2002 Financial Plan Company profitability{Income statement} –Affects viability of the business –Affects financability of the venture How much is the company worth{Balance sheet} Can you pay your bills?{Cash Flow} –Timing of the inflows and outflows Where to get the money from{Fund raising} –Next financable milestone –Financing requirements for the opportunity –Sources of financing –Plan to obtain financing

Sami Aly Issues in Telecommunications15 January 2002 Financial Plan (cont) Income statement reflects the viability (profitability) of the business Cash flow focus on the timing of the inflows and outflows Balance sheet reflects current value and solvency of the business Information required: –For past years –Budget for coming years (coming 5 years or at least for while the required fund last ) –In more details (monthly or quarterly for coming year) Report assumptions for (interest, tax,.. )

Sami Aly Issues in Telecommunications15 January 2002 Income Statement Gross revenue on Sales Cost of sales SG&A (incl. Marketing), R&D Depreciation Non-operating income Non-operating expense Taxes Gross Profit Profit before Tax Net profit Operating Profit

Sami Aly Issues in Telecommunications15 January 2002 Balance Sheet Current assets Cash, short term investments, account receivable, inventory, prepaid expenses Fixed assets Land, building, capital equipment, furniture... - accumulated depreciation Current liability Account payable, accrued expenses & salary payable Fixed Liability Long term loans, retained (re-invested) earning

Sami Aly Issues in Telecommunications15 January 2002 Cash Flow If all inflow –Materializes –Materializes on the first day of the year We wouldn’t need a cash flow statement What can be problematic: –Large inventory for quick to ship –Early expenses and late revenue –Heavy fixed assets expenses

Sami Aly Issues in Telecommunications15 January 2002 Cash Flow (cont) (Cash + short term investments) + + Inflow –Gross revenue on Sales –Other income –Fund raised (new investments) - Outflow –Cost of sales –SG&A (incl. Marketing), R&D –Other expenses –Taxes –Capital (building, land, equipments,..) –Loan principal payment –Dividend distribution

Sami Aly Issues in Telecommunications15 January 2002 Cash Flow (cont) Rent/lease but not buy fixed assets Layoff Defer next generation development Call for account receivables Pay on the 60 th day of receiving invoices Contract installments negotiation

Sami Aly Issues in Telecommunications15 January 2002 Example

Sami Aly Issues in Telecommunications15 January 2002 CFO - VP, Engineering Dialogue For early phases of hi tech companies, R&D is > 70% of expenses Phased development vs. one release Short term vs. long term development –For fund raising –For cash flow Release dates (dates that maters: GA) Cost reduction availability (phased or not) Expenses timing (& year end boundaries ) Develop, license, partner Application for R&D Tax incentive rebate & research grants

Sami Aly Issues in Telecommunications15 January 2002 CFO - VP, Operation Dialogue Inventory –Of components –Of finished goods Purchasing & manufacturing lead time General & admin expenses Net 30 vs. net 60 vs. net 90 payment for sales and for supplies Product proper costing Outsource manufacturing ?? Contracts payment breakdown

Sami Aly Issues in Telecommunications15 January 2002 CFO - VP, Marketing Dialogue Cost vs. Price Margin Price structure Volume forecast Invest or not in Release n+1 & when

Sami Aly Issues in Telecommunications15 January 2002 CFO - VP, Sales Dialogue Sales forecast Cost of customer trials Discounts vs. SRP Direct sales vs. channel sales margins

Sami Aly Issues in Telecommunications15 January 2002 CFO - Investors Dialogue Shareholder equity Balance sheet, income statement, cash flow Dilution Exist strategy Term sheet

Sami Aly Issues in Telecommunications15 January 2002 Sensitivity analysis Uncertainty of funding & sales timing Uncertainty of funding & sales amount Expenses trigger points

Sami Aly Issues in Telecommunications15 January 2002 Other Issues Budget Poor forecast Financial ratios