Introduction to Finance Spreadsheets David Scott

Financial planning All business plans are backed by financial forecasts Set out key elements of the business –Costs –Profits –Cash flow Identify how investors interact –Money required –How/when investors will profit –What are the risks Prepare forecasts on an Excel spreadsheet

Final output May look simple, but is the result of a lot of cost and revenue inputs!

Spreadsheet Template We give you a spreadsheet template –Use this to enter your business costs etc –Ensures all the required inputs included –Calculates the key output data It is a tool – not an end in itself –It will calculate the numbers you need –It will not tell you how to present them You won’t win by simply copying the output charts & tables into your presentation!

Spreadsheets Spreadsheets require input data –Sales forecasts How many products to make/sell –Product manufacturing costs –Selling costs –Capital equipment required –Staff costs –Office costs This information can be found –Talk to people –Use the internet You need to think about these things in advance –Come with an idea of how to cost your business –Mentors will help you refine your ideas

Getting Started The template includes a number of sections –Colour-coded tabs Summary sheetsProvide output tables & charts Product-related sheets Covers product-related costs - sales forecasts, selling costs, manufacturing & stocks, licensing Cost/income sheetsGrants, employment & fixed costs, capital expenditure Simplified cash flow sheet Provides a summary of main operating cash needs Full P&L, Balance & Cash-flow sheets Full financial calculations – not needed now (will be explained in detail during the competition) Summary sheetsProvide output tables & charts Product-related sheets Covers product-related costs - sales forecasts, selling costs, manufacturing & stocks, licensing Cost/income sheetsGrants, employment & fixed costs, capital expenditure Simplified cash flow sheet Provides a summary of main operating cash needs Full P&L, Balance & Cash-flow sheets Full financial calculations – not needed now (will be explained in detail during the competition)

Input cells all shown in bold green output cells all shown in black (these all link to other cells) Input product names here Add extra products (if needed) as identical boxes below Input unit costs and prices on this sheet Model allows direct sales and sales under license

Summary data for all products Each product has its own box (add more if needed) Input sales revenues (based on market share) Input production (model calculates stocks) Direct and licensee sales input separately (ignore licensing if not needed)

Input ongoing marketing costs as % sales Input launch costs

Only use this sheet if you are licensing the product for sale somewhere Input fixed payments here Input royalty as % here

Grants can provide a useful source of income – usually to help fund R&D or to help pay for the purchase of capital equipment. Enter it on this sheet

Enter salaries here Model calculates NI and Pensions as % of salaries Enter other costs here

Enter purchase of Brand names etc here (usually 0) Enter purchase of capital items here Model calculates debtors & creditors as % of sales Working capital is money needed to finance the running of the business

This summary calculates annual operating cash flows and gives a good indication of the overall amounts you will have to raise, and when the business starts to generate income. Actual amounts will also include finance charges and will be explained during the competition You will need to raise this sort of money from investors This is when the business starts to generate cash

What’s next? Use the spreadsheet to enter your incomes and expenses –Provides aide memoire to make sure you have not forgotten anything –Gives a good indication if your business is viable Are sales high enough to cover costs? Check the impact of changind the selling price or unit sales Will the business become cash positive quickly enough? Are you able to offer investors a realistic opportunity? Don’t worry about the output sheets, the P&L or Balance sheet –We will explain these in more detail during the competition! For now, concentrate on getting realistic costs for your business, & in justifying realistic revenue streams The better prepared you are, the more tim eyou will have to concentrate on the presentation itself! If you have any questions that really cannot wait – me!