S7 E52 Your Financial Plan – bringing it all together with Jeremy Gray

Some experts suggest that potential investors will spend over 30% of their time evaluating the financial page of your pi 20 pages long, you will understand that the numbers get a disproportionate amount of attention. It’s probably only secondary in importance to your executive summary. If your executive summary has not caught their attention then they will not read further and never get to the financial page. Of course, your executive summary should include some high-level financials.

4. The fundamentals of a financial plan. Often referred a three statement financial plan i. Profit and Loss ii. Balance Sheet iii. Cash flow

b. All three are inter-related and all three show a different picture of your business. All three are needed for a complete picture of the financial status of your business.

c. Established companies tend to focus on the P&L and the most easily managed aspects of the balance sheet which are the elements of working capital. Business management usually pay scant regard to the balance sheet

d. As I start up I recommend you make your cash flow statement your highest priority with the P&L a close second. The balance sheet should be reviewed occasionally but as time will be at a premium this need not be your focus. Your cash flow will cover the important element of the balance sheet – your working capital.

Key performance indicators of KPIs are an excellent tool for assessing your financial plan and for tracking your business’s performance. Some KPIs are common to most businesses, some will be more focused on your industry and some maybe specific to your business. These are the crucial metrics for your business. Potential investors will be interested to understand how you will measure progress. KPIs also help your employees know what is critical for your business.

4. Although KPIs will be different for each business some can really help you understand your business value proposition.

a. Customer conversion rate. The number of customers who sign up or buy your product divided by the number of customers who have expressed an interest. If this number is low, potential customers are not seeing the value in your product or service versus the cost. Re-evaluate your pricing model or your offering design.

b. Customer Retention Rate or Churn Rate. These are opposite sides of the same coin. Customer retention rate is the percentage of customers who remain with you. It is often looked at over a year or more. How many customers who bought from you last year are still buying from you this year? Churn rate is the number of customers lost in a given period. Which is appropriate for you depends on your industry. If you are a B2B business retention rate may be more the most useful. Churn rate is maybe more relevant to B2C or SaaS companies. Identify the KPIs that are most important to you. Use them to confirm your financial plan makes sense.

a. If you think your customer conversion rate will be 1 in 10 and your sales cycle will be 3 weeks and you plan on 2 salespeople, then it is unlikely you will have 100 customers at the end of month two after launch.

i. Can be used in reverse to calculate the number of salespeople you need to achieve X number of customers by Y month.

b. Use KPIs as benchmarks against your competitors. Sales per employee for example. If your financial plan shows $500,000 per customer and the industry average is $400,000 it could be that you are being over optimistic.

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