Accelerate your business with these expert tips on "Economic and financial planning". Analyse and discover this TIP!

Drawing up a roadmap is extremely complicated, but necessary to ensure the survival and expansion of the business project. Acting improvisationally, without planning, can cause serious problems of viability, as we are more exposed to making the wrong decisions.

If in the different action plans, we have reflected the actions we intend to carry out so that the path we are going to take is feasible, now comes the time to quantify these actions, to translate them into monetary terms and to measure them. The objective is to check whether, assuming a reasonable risk, the business project can follow a path of profitable, sustainable and financially sound growth.

It is therefore necessary to continue crunching the numbers and verify "whether or not they work out" and, if not, to see what aspects of this roadmap need to be reconsidered. When we did the calculation of the first numbers treasury (+) we were in a phase of hypothesis validation (+), so it was sufficient to get an approximate result to decide whether to go ahead with the business model (+) designed, or not.

In the current phase, we move from validating hypotheses to validating action plans, and from the result we obtain we will make the most transcendental decision: do we start the project? This means that, unlike when we made the calculation of the result of the first numbers - in which we only took into account two types of elements to obtain it, costs and income -, now we must have more and more rigorous information.

Therefore, at this point, in addition to taking into account the elements that have a purely economic meaning, income and expenses, we must complement this information with that provided by the elements that have a purely financial meaning and function, collections and payments, as well as with the elements resulting from the combination of the two, investment and financing, which reflect the equity situation of the project.

These are the six key elements that represent the numbers of any business project, elements that must be taken into account to analyse the economic and financial viability of the project.

However, in order to make the analysis of them more effective, it is useful to group them according to their meaning and function into the following three essential documents or states:

CORE STATES

• The state of treasury (+), which reflects its movements, receipts and payments, and consequently the balance available. 
• The income statement, which, as its name indicates, reflects the result, loss or profit obtained from the difference between revenues and costs.
• The balance sheet, which reflects the investments and their financing and, therefore, the greater or lesser equity security offered by the project.

Understanding the meaning of these elements and the structure of these statements will help us to operate with them and obtain a series of metrics and indicators that allow us to make strategic decisions in an agile manner, providing answers to questions that arise when analysing the economic-financial viability and scalability of the project.

Some of the metrics and indicators that will provide us with decisive information from an economic-financial point of view, and which we should therefore be aware of, are as follows:

METRICS AND INDICATORS

The different results, or margins, and the scalability indicator (ebitda).

• The ACC (+) and LTV.
• Cash on hand and burn rate.
• Profitability, economic and financial, and break-even.
• The working capital (working capital).

In order to handle the "project numbers", a more complete spreadsheet has been designed than the one proposed for the elaboration of the "first numbers". The aim is that, by inserting them correctly, it will automatically produce the three essential documents.

Based on these documents, we will be able to calculate the necessary metrics and indicators -such as those mentioned above-, which will serve as support to carry out the economic-financial analysis of the projections proposed in a quick and efficient manner. This tool is attached as an annexed document for your reference. download here (+), and is entitled "e-financial plan EOI".

The time horizon of the EOI e-financial plan is two years, and it is designed to "dump" in the corresponding tables, the monetary valuations of all the actions reflected in the other action plans, such as those of the EOI and the EOI, in order to "dump" the monetary valuations of all the actions reflected in the other action plans, such as those of the EOI. marketing plan (+).

USING THE E-FINANCIAL PLAN TOOL EOI, WE WILL BE ABLE TO

KNOW WHAT THE REVENUES OF THE PROJECT ARE - SALES FORECAST:

• What are we going to sell? - products, services, (sheet 1).
• At what prices will we sell? - selling prices, (sheet 1).
• How much will we sell? - estimate number of customers to be invoiced, (sheet 2), (sheet 9).

KNOW HOW MUCH IT COSTS TO RAISE THAT REVENUE - COST AND PROCUREMENT BUDGET:

WHAT COSTS WILL WE BEAR? - COST STRUCTURE

• Direct costs - related to purchases and sales, (sheet 3), (sheet 9).
• Marketing costs on and off, CAC and LTV, (sheet 4), (sheet 9).
• Staff costs(sheet 5), (sheet 9).
• Other fixed or structural costs(sheet 6), (sheet 9).
• Purchases for the period(sheet 3).

DETERMINE WHAT INVESTMENTS WE NEED - INVESTMENT BUDGET:

WHICH ONES DO WE HAVE? WHICH ONES DO WE NEED TO ACQUIRE?

• How is it structured? - % in fixed and current assets, (sheet 7), (sheet 9), (sheet 10).

DETERMINE HOW THESE INVESTMENTS ARE TO BE FINANCED - FINANCING BUDGET:

HOW MUCH DO WE CONTRIBUTE? HOW MUCH DO WE GET INTO DEBT?

• How is it structured? - % in own and third-party - to be repaid in the short and/or long term, (sheet 7), (sheet 9), (sheet 10).

KNOW WHAT THE BREAK-EVEN POINT IS:

• How much needs to be sold to cover costs?(sheet 2), (sheet 10).
• Is there a market to reach it? When is it reached?(sheet 6).

ANTICIPATE POTENTIAL LIQUIDITY PROBLEMS BY DETERMINING WHEN CASH NEEDS OCCUR - CASH FLOW PLANNING

• When are we going to collect sales? - collection periods (% cash, % days of credit granted to customers), (sheet 2).
• How are we going to collect them? - % sales as a means of collection digital medium, (sheet 2).
• When are we going to pay for purchases, and/or direct costs? - payment terms (% cash, % days of credit granted by suppliers), (sheet 3).
• When and how much money is coming in from funding? (sheet 8).
• When and how much money comes out to pay for the investments? (sheet 8).
• How much and how is the money being "burned"? - burn rate, (sheet 8).
• How will the cash deficits be financed? - rethink funding, (sheet 8).

COMPARE CASH VS. EARNINGS - LIQUIDITY VS. PROFITABILITY - INDICATORS

• Profit (+), cash (+) = profitable and liquid. Viable.
• Profit (+), cash (-) = profitable but will not survive, as it has no liquidity. Not viable.
• Profit (-), cash (+) = not profitable, but can survive, as it has sufficient liquidity. "Viable, (sheet 6), (sheet 8), (sheet 9) and (sheet 10).

ANALYSE FURTHER ECONOMIC AND FINANCIAL INDICATORS:

• Gross margin on sales, (sheet 9), (sheet 10).
• Ebitda, (sheet 9), (sheet 10).
• Indebtedness, (sheet 10).
• Ability to repay the debt, (sheet 10).
• Economic and financial profitability, (sheet 10).
• Pay-back, (sheet 10).

CREATE VARIOUS SCENARIOS:

• The probability that the estimate will be met may not be very high, so a contingency plan ("what if") should be prepared.

The number of sheets indicated in brackets refers to those included in the spreadsheet-tool "e-financial plan EOI" which is attached as an auxiliary tool and which can be used to calculate the EOI e-financial plan. consult and download here (see+)