Financial

Planning

Get The Cash

You Need!

Video Lecture
Transcription
 Introduction

In this video we’ll walk you through the

contents of your financial plan.

Let’s go to the first part.

We call this part pre-launch capital. It in-

cludes what you need to buy one-time big-
time for starting your business. It’s com-
posed of the capital expenditure or CAPEX,
legal registrations, and the rent for the first
three months. CAPEX are expenses where
the benefit continues over a long period,
rather than being exhausted in a short pe-
riod.

Money is like gasoline during

These are mostly fixed assets, ones pur-
a road trip. You don’t want to chased for long-term use. This includes the
run out of gas on your trip, land, buildings, machinery and equipment.
but you’re not doing a tour of
“
gas stations.
- Tim O’Reilly
 In the key budget excel file, which you’ll see
later in the video Key Budget, these are the
equipment and other physical assets.

The second part is working capital. This is

a breakdown of your expenses in the first 6
months of your business. The first compo-
nent of this is the operating expenses or
OPEX. It’s an expense for
normal daily, weekly, or monthly business
operations.

That’s the rent, inventory costs, marketing,

salaries and wages, and all other
overheads and administrative expenses.

In the key budget file these are the

overhead expenses, salaries, and profes-
sional fees.

A second component of the working

capital is your cost of goods for
manufacturing businesses and cost of
service for service-oriented businesses.

Cost of Goods Cost of goods is the total amount of

money needed to produce your product.
This includes all the materials, labor for
production, and other miscellaneous
expenses like transportation of raw
materials, etc.

Price is what you pay.

“
Value is what you get.
- Warren Buffett
Cost of While cost of service is the total amount of
money needed to come up with your

Service service for a certain period of time.

In the third part, working capital for the

next 6 months is shown, but this time with
the monthly sales needed for the business
to start earning, or reach return on invest-
ment, after 6 months.

Does the costing always have to be for 6

months? Not really. It could be for a year,
18 months, etc. Six months is just the
usual duration that can be funded by your
investor.

The PDF file that accompanies this video

shows an example of costing with different
durations before return on investment is
attained based on the amount of monthly
sales.

The fourth part shows the projected in-

come statement. Most income statements
are for a monthly period, but this one is
unique since it’s for a 6-month period, due
to the projected possible return on
investment.

As you can see this includes the

Total Sales after six months, from which
the Cost of Goods or Cost of Service is
Save money
“
and money will save you.
- Jamaican Proverb
deducted to get the Gross Profit.
Next, Operating Expenses are deduct-
ed from the gross profit to get the Oper-
ating Income. Minus the tax, this gives us
the net profit after tax. The net profit
after tax is the earnings divided among the
owners.

Now let’s talk about offering equity to your

investor.
Put simply, equity is the percentage of
ownership an individual has in a company.
Business owners include you the founder,
and all the investors.

We have to understand that:

1. One’s equity is determined by one’s

amount of investment. The bigger the
investment the higher their equity, or the
more of the company they own.

2. Equity determines how much of the net

profit goes to an owner. The bigger their
equity, the bigger their share of the
earnings.
Strictly speaking, you can offer any amount
of equity for any amount of money an
investor is willing to put into your business.

So if someone will invest P200,000, this

money can be equivalent to any amount of
equity, from 1%, where 99% equity remains
yours up to 99% where only 1% equity
remains yours. But these extreme numbers
seldom take place.
In a scenario where an investor is funding
all of your initial capitalization, a common
practice is to give them between 49% to
67% equity. The rest will be yours.

Of course you can also have many

investors; with all their money amounting
to your initial capitalization. In this case, it’s
always wise to retain at least 51% equity,
while the investors get their specific shares
of the remaining 49%.
Here’s an example:

If your initial capitalization is 1 million pe-

sos, you can give between 49% to 67% eq-
uity to an investor willing to invest 1 million
pesos. Again, there are no rules on this,
49% to 67% is just the sensible range but at
the end of the day the equity will depend
on your negotiation.

Let’s say the two of you agree that you’ll

give 55%. This means the investor gets
55% of the net profit and 45% is yours.
Dividends Dividends, which is the net profit giv-
en back to the owners, can be distributed
monthly, quarterly, or every 6 months.
If for instance your company earned 1.2
million pesos after the first quarter,
P 660,000 of this goes to the investor and
P 540,000 to you.

If for instance you have 3 investors funding

that initial capitalization of 1 million
pesos, and you want to retain 55% of the
equity for yourself, that 1 million will be
worth 45% equity.

If one has P 500,000 to invest, then the

investor gets 22.5% equity. And if the oth-
er two each have P 250,000 to invest, they’ll
get 11.25% each.

The less you give away for a certain

amount of money, the better off you’ll be,
because you get the investment you want,
while retaining a high amount of equity for
yourself.

However, it’s important to give your

funders a fair offer. It’s both ethical and
professional.

Making money is art and work-

ing is art and good business is the
“
best art.
- Andy Warhol
Conclusion
We know that this part can be quite tricky. It might help
if you watch this video a couple more times to get the
hang of it. The PDF will also help you a lot.

Next! We’ll tackle one of your big guns for getting an

investor, the blue print of your business, the Startup
Business Sketch!

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