Transforming Financial Planning: From Optimizing Budgets to Final Statements in a Nutshell

 

Hi all!

In the last blog, we learned about determining the perfect markup to achieve optimal prices for your product portfolio. With this crucial step complete, you're ready to construct a manufacturing unit and have it operational by New Year's Eve.

In this session, I demonstrated how my budget Excel can serve as your ultimate financial statement. Simply input the correct sales units into my model, and it will tally the balance sheet without any additional price setting required. You might notice that the Bank & PAT are occasionally negative, but this can be addressed by adjusting prices or leveraging pre-existing working capital.

Be confident and build your future using my unprecedented techniques. Here's an example of a dialogue with a CEO to illustrate the model:

Director David: What is this model that you're selling me?

Yasaswi Gomes: I have developed a budgeting technique that ensures the balance sheet balances using either the solver tool or manual adjustments, primarily by tweaking the working capital first. For every markup, it tallies the balance sheet. When actual sales occur, you can update the figures with the actual reported sales units, whether they are higher or lower. This method ensures that the balance sheet remains balanced, with any discrepancies falling below the 0.5% audit threshold (materiality) for any level of sales.

 

David: All markups?

Me: Yes! Whether you plan a 20%, 30%, or 10% markup, my methods ensure that your balance sheet will tally.

 

David: Interesting! Assuming the profits will be negative for lower markups?

Me: Yes! The markup sets the price, and if it is not adjusted, the profits will be negative. This will also impact the bank balance, showing a negative balance.

 

David: What is your logical explanation for setting the prices?

Me: Simple! If a 20% markup doesn't tally the balance sheet, profits and the bank will be negative. I arrange the data as shown in this video and adjust the markup until all negative balances are resolved. Working capital supports the optimization as the revenue itself increases the markup and price during optimization. I start with half the working capital and fund the rest of the operations from revenue.

 

David: Why did you adjust the working capital to 400,000 at the start?

Me: The solver sometimes suggests an abnormal amount in the last year. Skillful manual management of this variable ensures the rest of the optimization gives good results.

 

VIEW/DOWNLOAD EXCEL

David: From your final optimization chapter, I understand that we have set a price budget by tallying the balance sheets. What happens when my new plant starts operating?

Me: The same Excel model can be used to identify differences. Here's how:

• First, I copied the actual sales units from the blue dashboard and inserted them into the first column of our previously built units budget. You can watch this process in my video.
• Then, I solved the data to analyze the outcomes.
• You can clearly see the difference between assets and liabilities, which is a small amount.
• After solving the data and the balance sheet, you'll notice that while working capital and prices remain constant, profit and bank balance fluctuate.
• Finally, I carried the same treatment forward by inserting actual sold units data into the yellow budget previously used for budgeting prices in my last blog, sorted for every year, and ensured the balance sheet tallied.

 

David: If we are solving for the 5th year, what happens to the previous years?

Me: The results from previous years remain unchanged. I ensure the profit from the first year carries forward for the next 20 years, demonstrating the model's strength. You may have noticed zeroes in the balance sheet for previous years, which I highlighted by moving my cursor over them. Rest assured, the previous data remains undisturbed.

 

David: Why do I see only a few line items?

Me: Additional line items like receivables, payables, employee obligations/assets, inventory etc., can be incorporated and the prices won’t budge. Only the bank balance and profits will be impacted.

 

David: Why must I believe your technique is the optimal price setting in the world?

Me: I ensure prices are set below competitors, avoid excessive bank balances, adjust working capital efficiently, and confirm optimal pricing. The model is resilient to adverse sales quantities, making it a robust solution. You have witnessed that in the video that balance sheet did not tally by mere 5-10$ only and falls below the audit thresholds. 

 

David: Why are you offering this for free?

Me: With millions of new startups, I can't consult for all of them. My goal is to reach anyone interested in understanding their startup plans.

 

David: Is this content genuinely yours?

Me: Yes! I took a lawyer's advice and copyrighted it to ensure the integrity and protection of the information shared.

 

David: What if the model malfunctions?

Me: I built the model and will take full responsibility for its accuracy of my techniques employed legally.

David: Do you believe that this excel price budget is stable?

Me: Today is 20-12-2024, and some people mentioned that solved numbers might change after a few days. Therefore, I'll monitor it for a year to see if anything changes. In the meantime, I'll plan alternative strategies and check if the results vary. If they do change, I'll provide an updated Excel file and video here. Otherwise, there won't be any further updates if the Excel model works perfectly 100%. It's a common myth in the optimization world that the solver adjusts itself or doesn't at all. Here’s the screenshot of prices. For budgeted quantity and actual sold quantity, the price per unit remains the same.

David: What about inflation per annum changes?

Me: 1. Whether there's no inflation, moderate inflation, or hyperinflation (up to 1000% & above price inflation), the model remains effective with the Statement of Financial Position (SOFP) differences staying below the materiality threshold of 0.5%. This is achievable when the Net Sales Value (NSV) per unit increases, leading to a rise in the Maximum Retail Price (MRP).

2. Conversely, if the NSV per unit price is fixed according to the budget, the company will inevitably incur losses, rendering it an unfeasible strategy. Click here to Analyse how it doesn't work in this scenario.

Lifecycle Price Optimization is a cutting-edge technique I’ve developed to transparently set your financial goals. Why spend money on financial planning services when you can master it yourself? Take control and excel with confidence!

"Remember, this section assesses the efficiency of optimal pricing. If it's not clear, consider the significant impact on the balance sheet from traditional pricing compared to the small difference resulting from optimization."

Does this work for you? It must! 

 

That’s all, folks! I have shared the techniques needed to make this model work and provided an in-depth demonstration of how your budget can become your final statements when actual sold quantities are inputted. Do your simulations thoroughly and finalize the price according to your needs. Despite criticisms and underestimations on me from many, I have proven the efficacy of these optimization techniques and overcome all obstacles.

Thank you all for your dedication and engagement throughout this journey. It's been a pleasure sharing this knowledge with you. Keep pushing the boundaries of your financial planning skills!

Goodbye and best of luck in all your future endeavors!

 

© Yasaswi Gomes 2024.

Disclaimer

This publication presents unprecedented methods and techniques in financial optimization and management. Readers are free to conduct further research based on the content provided. The information contained herein can be used for both personal and professional gains.