Financial Planning

1. Financial Planning Turning words into numbers… Presented by: The Collaborative for Innovative Social Enterprise Development (CISED)

2. Workshop Objectives • Develop an understanding of relationship between the sales forecast, budgets, & financial statements • Understand the key components of a start-up budget & an operating budget • Introduce the income statement, cash flow statement, & • Introduce the balance sheet • Understand the implications of timing, sales variances, etc. on cash flow, start-up, etc.

3. Attached is an excerpt of the CS marketing plan which I feel is ready for implementation.  The attached includes the objectives, strategies, and related workplans – which are based on the audit that was done in late summer.  If you would like to see the full plan or audit findings, pls let me know. Any feedback is welcome – thx.  Workshop Agenda • Revisit the sales forecast • Go thru the financial planning process: • Start-up budget • Operating budget • Income statement • Cash flow statement • Balance Sheet • Work on different scenarios to practice & incorporate various considerations

4. Steps in the process

5. Sales forecasting The sales forecast shows: • sales by month for the next 12 months • and then for following two years (at least) Forecasting is mainly educated guessing; don’t expect to get it perfect; just make it reasonable and realistic

6. Sales forecasting • Questions from Workshop #5: • Ramp-up period? • Past data to consider? • Monthly capacity? • Seasonal considerations? • Impact of promotional techniques? • Start to make assumptions.

7. Steps in the process

8. Start-up Budget • Income and expenses incurred to get the business to the point it becomes functional (and making sales) • Examples: real estate expenses, licenses, equipment, pre-opening training & recruitment, initial inventory, pre-opening promotion • Grant funding, loans, agency funds • Length of start-up period depends on business

9. Steps in the process

10. Operating Budget • Revenues • Earned income • Agency funds • Grants • Loans • Sponsorships • Donations

11. Operating Budget FIXED COSTS VARIABLE COSTS Change in direct proportion to sales activity ie direct material costs, direct labour costs, sales commissions, shipping Fluctuate with sales levels • Stay the same regardless of sales activity; usually time-related • ie rent, core staff wages, ongoing promotion, insurance, vehicle lease, internet hosting • Have to be paid whether or not sales are made

12. Operating Budget Business Costs social costs Training & recruitment Additional staff Support costs such as job coaching, case mgmt Agency oversight & management Agency operating costs such as blanket insurance policies, IT management, etc. • Purchases • Overhead • Direct Labour • Selling & Administration

13. Steps continued

14. Income Statement Revenues in MINUS expenses out = income (or deficit) • Indicates if you made a profit (or not) • Shows a period of time (monthly, yearly) • Timing: when money earned; debt incurred • Use numbers from start-up and operating budgets • Add in any other numbers: ie depreciation, bad debt

15. Steps continued

16. Cash Flow Statement Money in MINUS money out = cash in the bank (or NSF) • Indicates if you can pay your bills (or not!) • Usually monthly • Timing: when income received; expenses paid • Determine timing for sales & expenditures • Include any grants, loans, capital costs • Profitable business can go bankrupt!

17. The Balance Sheet • Shows: • The value of what you own (assets) • MINUS how much owe (liabilities) • Indicates how much is “yours” (equity) • Snapshot - measured at a point in time • Usually year-end • Changes constantly

18. Financial Planning Considerations • Timing: • What is your year-end? Calendar year end? Seasonality? • Funders: • When are their funding cycles? • Are there any timing considerations? • Stakeholder reporting: • What kind of forecasting & reporting do mgmt & board want? • What kind of reporting do funders want?

19. Considerations cont’d • Your Terms: • Will you offer terms? • Will you accept credit cards? • Supplier terms: • Can you get credit? • Requirements such as deposits, minimum orders, credit checks

20. Bookkeeping & Accounting • Need for up-to-date information & good records • More useful if tracked separately from agency • Consider banking, invoicing, petty cash management • Auditors need a good paper trail

21. Government Requirements • PST / HST • GST considerations • Minimum wage • Mandatory employer payroll contributions • WSIB • Business Name Registration

22. Discussion & Exercise Questions to consider: • Based on the sales forecast and start-up budget, when should this business begin? • Will this business make a profit in the first three months? • Using 3 different cash flow scenarios – will this business survive to the end of the first quarter? • What advice would you give this business?

23. Calculating Break-even • Calculate fixed costs • Determine unit variable costs (VC) • Determine unit selling price (SP) • Calculate break-even • BE (units) = Fixed Costs SP – VC

24. Wrap Up & Questions • Wrap-up • Questions • Evaluation • Next steps