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
beanie@venturebean.com

At the start
Strategic Financial Planning
Financial Forecasts
MIS: Measure, Analyse, Update
Valuation and Value Creation
In Summary
VentureBean Consulting Private Limited
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
3

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..
6

• 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
7

• 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

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
11

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
13

• 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/entrepren
eur-s-corner/blog_posts/135-business-plan
14

• 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..
15

• 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.
16

• More illustrative indicative parameters
– Key expenses
– Number of employees
– Average cost per employee
– Receivables and payables
– Cash balance
– Key assets
– Loans outstanding
– Equity capital
17

• 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
18

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
20

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
21

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
22

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

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..
25

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
26

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
27

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
28

In Summary
• Take care and plan well ..
• Execute .. Monitor.. Evaluate.. Adjust.. Update..
Execute..
• And Success will come your way
29

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:
beanie@venturebean.com
30

Finance nuances for a scaling venture - SAYes

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