posted 7 Oct 2012, 05:47 by Nils de Witte
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updated 7 Oct 2012, 05:53
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Notes on the financial statementsUsually four simple statements are enough. Planning more than two or three years ahead is pointless.
Investment Budget and Costs CalculationOverview of major expendirures with explanations.Example:| Investment Budget | | pre start | 1st year | 2nd year | etc | | Product developmment | (depriciate) | | | | | | Capitalgoods | (depreciate or lease) | | | | | | Start-up costs | (may be depreciated) | | | | | | Furnishings and equipment | (depreciation or lease) | | | | | | Production or procurement | | | | | | | Marketing and Sales | | | | | | | Logistics | | | | | | | Personnel | | | | | | | Rent | | | | | | | Other overheads | | | | | | | TOTAL | | | | | |
| Cost calculation | | each | 1st year | 2nd year | etc | | The list price minus av. discounts (excl. VAT) | | | | | | | minus costs for service and warranty | | | | | | | Minus margin distribution and sales channel | | | | | | | Minus outbound warehousing, insurance, freight, handling, (import)duties and taxes. | | | | | | | = the selling price | | | | | | | minus costs for sales and marketing | | | | | | | minus inbound storage and logistics | | | | | | | minus production or processing costs | | | | | | | minus purchasing costs | | | | | | | = gross margin | | | | | | | minus overheads | | | | | | | minus depriciation and amortization | | | | | | | minus capital costs | | | | | | | = NET MARGIN | | | | | |
Cash-flow analysisCreate a quarterly overview of all payments (both received and payed). A cash flow analysis is similar to a summary of your the bank statement. Make sure to include payments on investments but also costs for incorporation, rental guarantees, acquisition costs of capital, et cetera. Also plan loan disbursements and repayments and capital disbursements and divident payments. Please make sure you are as conservative as possible with revenues from sales, which have a habit of being dissapointing in the early stages of yiur business. Consider payment periods (delays) and VAT payments.
| Cash Out | | | | Investments (capital goods, R&D, market development etc.) | | | Purchases | | | Fixed and variable cost (overheads excluding depreciation, amortisation and reservations) | | | Guarantees and advances | | | Interest, (loan)repayments and dividend | | | corporate taxes and VAT | | | | Total Cash Out | | | | | Cash In | | | | Revenues from sales and deposits | | | Repaid guarantees and advances | | | Disbursements of loans, subsidy and capital | | | | Total Cash In | | | Net cash per period | | | Cumulative |
Profit and loss accountThe profit and loss account is a statement of operating revenue and expenses, again per quarter. The difference with the cash flow analysis is that loans, capital, guarantees and investments are not included as such. Investments in capital goods are spread by amortization. This means that each time a portion of the amount invested is recorded, untill the entire investment paid off.
A simple profit and loss account is as follows:| Revenues | | | | Sales | | | Other income | | | | | | Expenses | | | | Purchasing and/or production costs | | | | Gross margin = (sales - purchases) / Sales | | Marketing | | | Warehousing and logistics | | | Overheads | | | Other expenses | | | | Operating profit / loss = revenue - expenses (EBITDA) | | Depreciation and amortisation | | | Interest payments | | | Special costs / benefits (reservations) | | | | Profit / loss before tax | | Income tax | | | | Net profit / loss (after tax) |
If you provide profit forecasts or return on investment for investors, these are always based on Net Profits after Tax, unless explicitly stated otherwise.
Balance SheetThe balance sheet provides an overview of the distribution of capital. On one side states what the capital is used for and the other side states where the capital originates (who it belongs to). A balance sheet is a snapshot. It states the situation at a specific moment (unlike the Cash-flow statement and the P/L). An important balance is the opening balance at the start of the company and the balance sheets just before and after new shareholders come on board.
Example of a simple balance sheet:| Assets (property) | Liabilities (financing) | | Real Estate | Equity capital | | Capital goods | from shareholders | | Inventories and orders | Retained profit / loss | | Loans from shareholders | | Money (cash or bank) | | | Bank loans (short and long) | | Accounts receivable | Supplier credit | | Other assets | Other liabilities (lease?) | | Total | Total |
Note that the total assets must equal the total liabilities. Loans from shareholders are not formally regarded as equity, but under particular circumstances they are regarded as “guaranteed capital”. Long-term liabilities such as rent and lease, do not really belong on the balance sheet, but because they are important for the solvency (and thus for the shareholders), they better be included be on the liabilities side of the balance. Investors can calculate ratios themselves. They're usually better at it than the entrepreneurs. One ratio remains important: the ratio between equity (or the guarantee capital) and loans (and long-term liabilities).
Finally, limit the financial annexes to two or three pages. They only serve to illustrate the business model.
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