FP&A Secrets

How to Forecast Revenue using the A∙R∙S∙R Framework Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- How to Forecast Revenue using the A∙R∙S∙R Framework Let’s do a deep dive on how you can apply these techniques to ANY forecast ➡️ What is the A∙R∙S∙R Framework? The A∙R∙S∙R Framework stands for A → Acquire R → Retain S → Sell R→ Record Each section is a critical component in your ability to forecast sales Let’s have a look at each: 1️⃣ ACQUIRE The first part of the framework focuses on all the different channels that you use to acquire customers this is a BOTTOMS-UP approach, showing how you can get to an ending revenue with the right inputs The most common channels I’ve seen after building 100 revenue builds are: 👥 Sales reps → Each sales rep undergoes a ramp period in order to meet their net quota 📊 Digital Marketing → where you take ad spend/customer acquisition cost to get to new customers 🤝 Partnerships → each partner refers customers each month 🏟️ Conferences → each conference brings a qualified lead, which converts to customers 🌐 Organic & Referral → Prospects visit your website, or are referred to by existing customers, which convert to customers 2️⃣ RETAIN Once you have your build-up for how you can get new customers, it’s time to focus on RETAINING those customers Customers typically fall under one of these categories: 🗓️ Monthly Recurring → Customers continue to buy each month 🗓️ Annual Recurring → Customers get locked into annual contracts 🗓️ Month to Month → Customers can opt-out at any point 🗓️ One time → Customers buy one time only Once you have this figured out, you can move onto the next area: 3️⃣ SELL Now’s when you make your money 🤑 Here you can define your average contract value (ACV), or sales price, and structure things a number of different ways… 💰 Sell to new customers 💰 Sell to net active customers 💰 Sell to customers upon renewal 💰 Upsell to existing customers Which now brings us to the last part… 4️⃣ RECORD Sales affect many areas of the business… such as: 📈 Revenue → amounts earned after delivering your product or service 💸 COGS → cost to deliver your product or service 💲Accounts Receivable → amounts owed to you by customers ⏳ Deferred Revenue → the $$ amounts of goods or services owed to customers 📦Inventory → goods held or sale 👛 Commissions & Sales compensation → amounts owed to your sales team Design your revenue build in a way whereupon each sale, the appropriate actions hit each of these accounts, allowing you to understand the full picture === Revenue builds are COMPLEX…I have yet to see 2 business models that are exactly identical… but with the right framework in place, you can forecast ANY business with accuracy and ease ---- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

Top 9 Profit KPIs Credits to Nathan Liao, CMA, follow him for more practical finance content. Here's the original post ----- 🚨 Top 9 Profit KPIs using CVP Analysis 👇 CVP Analysis, aka break-even point analysis Shows how changes in costs & sales impact profit It offers clarity on the number of units or services To be sold to cover costs completely 1️⃣ Why it’s crucial in business: - Decision Making: From pricing strategies to production volume, CVP provides invaluable data. - Risk Assessment: Identifying margins of safety becomes more straightforward, helping businesses navigate potential risks. - Goal Setting: CVP aids in setting realistic and financially sound sales targets. 2️⃣ CVP analysis relies on certain assumptions: - Sales volume is the only factor that affects costs, and all costs can be categorized as either fixed or variable (or, in the case of mixed costs, can be split into fixed and variable costs). - Sales price, variable cost per unit, and total fixed cost remain constant. - The number of units sold is equal to the number of units produced. - The time value of money is not considered. - The sales mix remains constant. 3️⃣ Top 9 CVP Analysis KPIs: 👉Contribution Margin per Unit: Formula: Selling Price per Unit - Variable Cost per Unit 👉Contribution Margin Ratio: Formula: Contribution Margin per Unit / Selling Price per Unit 👉Breakeven Point in Units: Formula: Fixed Costs / Contribution Margin per Unit 👉Breakeven Point in Sales Dollars: Formula: Fixed Costs / Contribution Margin Ratio 👉Target Net Income in Units: Formula: (Fixed Costs Target Net Income) / Contribution Margin per Unit 👉Target Net Income in Sales Dollars: Formula: (Fixed Costs Target Net Income) / Contribution Margin Ratio 👉Margin of Safety in Units: Formula: Actual Sales Units - Breakeven Sales Units 👉Margin of Safety in Sales Dollars: Formula: Actual Sales Dollars - Breakeven Sales Dollars 👉Margin of Safety Ratio: Formula: Margin of Safety in Sales Dollars / Actual Sales Dollars These formulas are the backbone for CVP analysis Make informed decisions about: ✅ Pricing ✅ Production levels, and ✅ Profit optimization ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

How to Manage Cash Credits to Nicolas Boucher, follow him for more practical finance content. Here's the original post ----- How to Manage Cash I've compiled the most important aspects in managing and improving your cash flow. Here's what you should know: ❇️Managing Cash Flow 1. Create a cash flow forecast 2. Manage accounts receivable 3. Control expenses 4. Manage accounts payable 5. Maintain adequate working capital 6. Monitor cash flow regularly ❇️Cash Do's and Don'ts Do's: - Regularly update cash flow forecasts - Maintain separate accounts for personal & business expenses - Build and maintain a cash reserve for emergencies - Base sales projections on history & sales team insights - Challenge terms and negotiate favorable terms for you - Implement a dunning & escalation process - Develop a cash management plan with your team - Review and cut costs like it’s your own money - Analyze the cycle for insights (use CCC: Cash Conversion Cycle) Don'ts - Undervalue projecting cash flow - Mix personal and business finances - Lack an emergency fund - Set unrealistic expectations on sales projections - Always accept standard payment terms from vendors/suppliers - Ignore overdue and collection processes - Leave cash flow to chance - Spend like it’s not your cash - Ignoring what is your debt repayment plan - Lack of awareness of cash flow patterns ❇️Cash Flow Activities 1. Operating Activities Cash in - Money received from sales - Commission and Fees - Money received from other incomes - Royalties - Subventions Cash-out - Money paid for inventories - Money paid for expenses - Money paid for tax - Payment to creditors - Payment of wages 2. Investing Activities Cash in - Money received from the sale of assets - Fixed deposits maturing - Sale of Investment - Interest received - Dividend received Cash-out - Acquisition of CAPEX - Buying properties - Investing in fixed deposits - Purchase of Investments 3. Financing Activities Cash in - Money received from issuing shares - Money received from obtaining loans Cash out - Money used for repaying loans - Company's stock repurchase - Cash dividend ❇️9 Levers to Improve Cash Flow 1. Sales: Improve payment terms with clients, accelerate the closing of deals 2. Finance: Automate reporting, escalate collection issues, use factoring 3. Collection of Overdues: Automate the dunning process escalate significant issues to management & account manager 4. Project: Compute and monitor the cash balance of each project 5. Sales Administration: Optimize the process between a cash milestone achievement and the issuance of the debit note to your client 6. Procurement: Avoid down payment and push the payment terms as far as possible 7. Inventory: Monitor level of inventory against forecasted sales, reduce lead time 8. Management: Translate cash targets in team & individual objectives ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

How to forecast revenue Credits to Josh Aharonoff, CPA follow him for more practical finance content. Here's the original post ---- How to forecast revenue This is the BIGGEST area of focus in all the financial models I build… and for good reason. Revenue forecasts are like snowflakes ❄️ no 2 forecasts are the same…every company does it differently Here’s my framework that I’ve developed after building over 100 financial models in my career ➡️ Revenue Sources Framework → E•P•N Your revenue can come from one 3 sources: 1️⃣ E→ Existing Customers Here you analyze your current customer contracts Ask yourself the following questions - When will these contracts come up for renewal? - What is the likelihood for renewal? - Will they expand / contract before the contract is up? 2️⃣ P→ Pipeline customers Here you analyze the customers who are warm in your pipeline Ask yourself the following questions: - What is the close likelihood of each contract? - When will the contracts close? You then take the contract value * the close likelihood... and forecast out the sale on the projected close date 3️⃣ N→ New Customers These are customers you’ve never interacted with… but can expect to in the future Here, you move onto the 2nd Framework, the Revenue Growth Framework ➡️ Revenue Growth Framework → A•R•S•R This is all about how you use your business model to close new customers, resulting in new sales 1️⃣ A→ Acquire Here you measure the channels that you use to acquire customers Common ones can be: - Sales reps - Digital marketing - Organic - Partnerships 2️⃣ R→ Retain Now you measure how long this customer will be with you Are they monthly? Annually? Month to month? Once you have this info, you can understand how much you can generate in sales from them 3️⃣ S→ Sell Now that you know how long your customers are with you, you can analyze how often you’ll generate sale from them This can be sales from your New Customers, or sales from your Active Customers 4️⃣ R→ Record Now is when you record all the activity that will hit financial statements Common ones include - Revenue - Deferred Revenue - Cost of Goods Sold - Inventory - Accounts Receivable - Commissions === With this framework in place, you can literally forecast out the details behind ANY business model ---- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

9 Ways to Forecast Revenue Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ---- Learn 9 Ways to Forecast Revenue This is the most important part of many financial models… and no 2 businesses are the same. Each business has a unique way in which they: ➡️ Acquire customers ➡️ Retain customers ➡️ Sell to customers ➡️ Record transactions (revenue, cogs, AR, inventory, etc.) That’s why I’ve developed the Revenue Growth framework for forecasting revenue over here: https://lnkd.in/e9n7gaKH But before you can forecast revenue, you need to understand which group of customers you are forecasting for… See, the way you forecast revenue from your customers will differ from each of these sources: ➡️ EXISTING customers (expansions, renewals) ➡️ PIPELINE customers (close likelihood * contract size) ➡️ NEW customers (can be any method using the revenue growth framework). That’s why I’ve also developed the Revenue sources framework right here: https://lnkd.in/efwAQHqc Today, let’s now talk about 9 ways that you can create a revenue forecast using these principles: 1️⃣ Sales teams This is how many B2B SaaS companies forecast revenue .The idea is you hire a sales rep, and after a ramp period, they get assigned a quota. 2️⃣ Partnerships Partnerships are also common when selling to enterprises. Here, each time you close a partner, that partner will refer you business, while taking a commission. 3️⃣ Product-Led Growth PLG is popular these days, and is one of the lowest acquisition models available, as the product “leads the growth” on its own. 4️⃣ Historical Trends Sometimes, you may want to keep things extra simple and use a historical trend with a growth factor. This can be especially useful with businesses heavy on seasonality. 5️⃣ Upsells & Expansions My favorite contracts are the ones that are not only RECURRING… but also EXPAND as time goes on. 6️⃣ Conferences Conferences can be a great way to grow your business - whether you are going as an attendee, a sponsor, or hosting your own booth. 7️⃣ Paid Marketing Paid Marketing is especially common with e-commerce businesses, where each dollar invested in paid ad results in x leads, which eventually convert to customers 8️⃣ Public Relations PR campaigns can yield a large amount of exposure to your brand, resulting in new leads, followed by converted customers 9️⃣ Influencer Marketing Influencers have a large reach with their audiences, and a small mention of your brand can result in large traffic === These are just 9 ways in which you can forecast revenue, but as mentioned….no 2 businesses are the same. ---- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

4 ways to summarize a Profit & Loss Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ----- Your Profit & Loss is one of the most popular reports to analyze. Every month you produce a new one…. and it’s common to share it with management… investors… and your board of directors. But when presenting your Profit & Loss, it’s pretty rare to present the whole P&L. Why? Because your P&L most likely contains dozens of lines, making it is not feasible to view in a pretty report. That’s where summarizing your P&L comes into play ➡️ What are 4 ways to summarize your Profit & Loss? It ultimately comes down to 2 methods: 1️⃣ Summarizing By CLASS Here you assign a “tag” to each transaction in your accounting software. This in essence creates a new dimension on each transaction… allowing you to evenly divide up a transaction across multiple classes if need be. With this approach, your class will show on your X-axis…. While your P&L will showcase on your Y axis, typically summarized by a grouping With this approach, it’s common to use a class for each department, or location 2️⃣ Summarizing by Chart of Accounts Grouping With this approach, you assign each GL account a specific grouping That grouping can be a cost/income type (payroll, software & tech, etc.)… or a department. The key is that in order to accomplish this approach, your chart of accounts needed to contain this data via a 1 to 1 mapping. So if you want to showcase your Profit & Loss where your operating expenses are grouped by department… and your timeline takes up your X-axis with just 1 column for each period… you’d need to have a GL account as it relates to each department ➡️ What’s my preferred approach? I almost always summarize a Profit & Loss in my presentations via summary groupings, using a simple SUMIFS function. This gives you the ability to get a glimpse of what’s happening at a high level… while inviting the reader to dive deeper into the full P&L offline whenever there are any questions. Using a class can add a lot of extra useful information to your financial reporting… but it comes with its cost. Now, instead of just assigning a GL account to each transaction… You also have to specify a class. And when you have multiple classes for a transaction? (ex: a meal with both Customer Support and HR)…. then you need to divide up the transaction so you can tag each portion to the relevant class. With great power, comes great responsibility 😌 Companies try to resolve this by having a Profit & Loss that has a separate section for each department instead… To me, that gives the most flexibility…as you can then summarize your activity both by department, as well as by summary grouping… while keeping your X-axis to 1 column per period. The only downside? It involves a really lengthy P&L. ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

management reporting template Credits to Bojan Radojicic, follow him for more practical finance content. Here's the original post ----- Do you want a management reporting template for free? Look at this simple management reporting pack. 𝗛𝗼𝘄 𝘁𝗼 𝗯𝘂𝗶𝗹𝗱 𝘁𝗵𝗶𝘀 𝗿𝗲𝗽𝗼𝗿𝘁? 𝗟𝗮𝘆𝗼𝘂𝘁 Create management report layout (tables, lines, graphs, KPIS, actual, FCST, budget...) 𝗨𝗽𝗴𝗿𝗮𝗱𝗲 𝘆𝗼𝘂𝗿 𝗖𝗼𝗔 More simplicity and adding functional cost/revenue centers 𝗘𝘅𝗽𝗼𝗿𝘁 𝗿𝗶𝗴𝗵𝘁 𝗱𝗮𝘁𝗮 Export trial balance of GL with defined cost/revenue centers 𝗖𝗼𝗻𝗻𝗲𝗰𝘁𝗶𝗼𝗻 Lookup trial balance data with Management reports, so GL data to be imported in reports 𝗔𝗹𝗶𝗴𝗻 𝗮𝗻𝗱 𝗽𝘂𝗯𝗹𝗶𝘀𝗵 Align data if needed, Create graphs, and calculate KPIs based on pre-defined formulas, and full PPT presentation 𝗟𝗼𝗼𝘁 𝗮𝘁 𝘁𝗵𝗲 𝗳𝘂𝘁𝘂𝗿𝗲 Update your 12 months rolling forecast _____________ 📌 If you need this 𝗘𝘅𝗰𝗲𝗹 𝗮𝗻𝗱 𝗣𝗣𝗧 𝘁𝗲𝗺𝗽𝗹𝗮𝘁𝗲, here is link for 𝗗𝗢𝗪𝗡𝗟𝗢𝗔𝗗 👉https://lnkd.in/dc3Z5QC7 ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

Departmental Budgeting Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ----- Departmental Budgeting is one of the best ways to build a bottoms-up budget that is both accurate and defensible But the process can be complex & labor intensive, especially if it’s your first time Let’s do a deep dive on how you can create a departmental budget ➡️ What exactly is Departmental Budgeting? Departmental Budgeting is the process of preparing a budget based off of inputs from Department Heads ➡️ When Should You Prepare a Departmental Budget? There’s no right or wrong time, it can all depend on your: ⚫ Size of your company ⚫ Amount of departments ⚫ Transparency level available to Each Department Head ⚫ Tools & systems in place for tracking & forecasting The general idea is that Departmental Budgeting is something that companies start to think about as they grow to a larger number of hires ➡️ How Do You Prepare a Departmental Budget? Step 1 → Start by Understanding the Existing Structure of your Data Do you have your P&L set up so that each department has its own section? Or do you utilize a CLASS feature, allowing you to drill into an added dimension to see departmental figures? Step 2 → Outline Who will do What Once it’s clear how your data is being tracked, make a list of each of your department heads Ask yourself… 🤔 Who will be accountable for each department? 🤔 What information will be shared with them? 🤔 What is their level of knowledge of Finance & Accounting? Step 3 → Export your Existing GL Information In order to best provide a projection… you’ll want to first provide any information on what is CURRENTLY happening in their department Step 4 → Prepare intake forms Now that your department heads have information on what is CURRENTLY happening… it’s time to provide them with a form in which they can enter in new spend for your forecast. This is typically done via what is called an “intake form”. Step 5→ Forecast your Headcount by Department Now that you have your expenses forecasted by department, it’s time to move on to the last and most important area of your opex… Headcount. Here you’ll want to showcase who is currently in each department, and all of the associated details with each hire, leaving room for department heads to enter in new hires. Once you have all of this information collected, you can combine each intake form into your Financial Model === It’s important to remember that Department heads most likely don’t have a strong Finance & Accounting background, so they may need your assistance in completing this process Once you are finished - don’t stop there! Provide ongoing reporting to ensure that the company continues to stay aligned on it’s plan, and it’s progress against that plan. ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

How I build Dashboards Credits to Josh Aharonoff, CPA, follow him for more practical finance content. Here's the original post ----- I’m a total nerd when it comes to this subject… I even have an album on my phone of all the dashboards I’m most proud of creating 😅 But the truth is…it isn’t too challenging to create a good dashboard… and with the right infrastructure, you can create one easily in Excel Let’s jump into my preferred method: 1️⃣ Import your data This can be ANYTHING… but the most common items to start with are your Profit & Loss, and Balance Sheet You can also include other areas such as your customer data… or your headcount data… but the key is to import the information in its native format. This way you can easily copy and paste each month with new data 2️⃣ Clean & Transform with Power Query Before you can work with your data in a flexible & dynamic way… it needs to be structured correctly. That’s where Power Query comes in. If you haven’t used Power Query….oh boy…you are missing out. To summarize…Power Query will allow you to transform your data into any format that’s needed… So that all you need to do is hit “refresh”, and it will present your data in the new format, while maintaining the source data’s format 3️⃣ Define your Variables When designing dashboards, variables play a key piece. Common variables can be ranges (profit & loss accounts)… or specific values (start date, end date) 4️⃣ Enter your Date Selectors The best dashboards are ones where you can easily toggle to different dates… allowing you to see your data update in real-time for whichever period you set to 5️⃣ Outline your first KPI with dummy data Now comes time for the fun. Start by including shapes, and populating raw text with where you want your data to go 6️⃣ Finalize your design Now it’s time to make this prettier, getting it ultimately to the design that you want. Don’t skip this step! We are creatures of design, and it can make a world of difference 7️⃣ Populate your formulas Now it’s time to connect your data correctly using dynamic formulas, My favorite are: ∙ Index / Match ∙ Sumifs ∙ Sum Product 8️⃣ Replicate Once you have it all laid out… you should be able to just copy and paste… allowing you to replicate your pretty dynamic designs with ease That’s how I design Dashboards in Excel…but everyone has their own take What’s yours? ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis

Vertical vs. Horizontal Financial Analysis Credits to Nathan Liao, CMA, follow him for more practical finance content. Here's the original post ----- Vertical vs. Horizontal Analysis How to increase profits👇 Let’s unpack their strengths and when to leverage each one 🔹 Vertical Analysis: The Scoop: It's like looking at your financials with a magnifying glass! Each item on the income statement or balance sheet is expressed as a percentage of a base item (e.g., sales or total assets). When to Use: Great for assessing cost structures, and determining if certain expenses are eating too much into your revenue. Example: If your cost of goods sold (COGS) is 40% of sales this year compared to 35% last year, it might be a sign to renegotiate with suppliers. 🔹 Horizontal Analysis: The Scoop: Time-travel through your financials! Compare line items over multiple periods to identify trends and changes. When to Use: Perfect for spotting long-term trends, understanding cyclicality, and making projections. Example: If your revenue has been growing 10% year-over-year for the past three years, that’s a solid trend to consider when setting future targets. 💡 Why These Tools Are Essential: 1. They provide different lenses to examine your financial health. 2. They're crucial for making informed business decisions. 3. They help in communicating financial insights to stakeholders effectively. --------------- Both are indispensable for mastering your financial analytical skills Got a favorite between the two? ----- Follow our page FP&A Secrets to grow your career in Financial Planning & Analysis