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Data Mining&Business Planning of Engineering/Research Projects Presentation 10 Dr. Gábor Pauler, Associate Professor Faculty Data Mining&Business Planning of Engineering/Research Projects Presentation 10 Dr. Gábor Pauler, Associate Professor Faculty of Sciences, University of Pécs Tel: 30/9015 -488 E-mail: [email protected] hu

Content of the Presentation Handling of Pauler. Soft™ Business. Planner 2. 0, Part 2 Content of the Presentation Handling of Pauler. Soft™ Business. Planner 2. 0, Part 2 Time-based costs Investments Capacity planning problem Amortization Interest costs Financing Adding new products Cash flow Theory of managing financing needs of your Project Own Capital/Equity Financing Innovation Found Financing Business Incubators Angel Investors Venture Capital Hungarian situation Debt Financing: Traps: Non-linearity of Interest Process Time Value of Money Loan Payback Schedule Financing of your Customer References

Pauler. Soft™ Business. Planner 2. 0: Time-based costs 1 At Time. Based. Cost|IdőArány. Költs Pauler. Soft™ Business. Planner 2. 0: Time-based costs 1 At Time. Based. Cost|IdőArány. Költs worksheet we collect those cost, which are proportional not with production but with time: Time Based-/ Fixed Costs (Idővel arányos-/Fix költségek). As these can occour BEFORE producing anything, we introduce a 0 th period to store them, before the first financial period given at workseet Settings|Beállítások. Lets see different groups of time-based costs: First group are Company Establishment Cost (Cégalapítási költségek) Second: we cannot produce anything without Invested Assets(Befektetett eszközök): Land(Telek), Real Estate(Ingatlan), Machinery(Gépek), Vehicle(Járművek), IT (Informatika), Licence(Licenszek). Capacity of Machnery and Invetory should be designed at investment that way, that their combination should satisfy demand of all products even at Sell-out Demand their peak! It is quite a difficult EUR| (Készletrő question whether to buy high capacity but units Product. capacity, units l eladás) expensive machinery, and save inventory-, Extra Capacity Stock-up and capital cost, or we should buy low ca. Lease (Fölös kapa(Raktárra pacity but cheap machinery, and rent more citás bérbeadása) termelés) Inventory machines or build bigger warehouse to solcost, EUR ve demand peaks, but in this case rental Consumption period and inventory costs will be higher.

Pauler. Soft™ Business. Planner 2. 0: Time-based costs 2 Also there is a question Pauler. Soft™ Business. Planner 2. 0: Time-based costs 2 Also there is a question what will happen with machinery at the end of a rapid product lifecycle, when it will be still workable, but there won’t be any more demand: We can sell machinery, but only at Remainder Value(Maradványérték) because of wear We can Lend-Lease(Bérbe) it somebody, until we do not need it at another product. Business Planner does not optimize capacity planning because it requires more complex model tha business planning itself. However it provides a simulation tools to simulate effect of bounch of possible solutions very quickly. It makes Rent-Or-Buy (Bérelj/Vegyél) decisions even more difficult, that investment has tax advantage against leasing/rent: As all invested assets gradually looses its value because of wear in usage (eg. physical wear of machinery anv echicles, software become obsolete), we can account Amortization cost (Értékcsökkenési leírási költség) of them. This is not a really occouring cost (we don’t have to pay it to anybody), but it reduces our taxing basis, saving money from taxing, to finance renewing invested assets in the future. However this money can be spent on anything if our assets are still working well (no one checks its usage). However Internal revenue Service, IRS (http: //www. irs. gov ) (Adó- és Pénzügyi Ellenőrzési Hivatal, APEH)(http: //www. apeh. hu) regulates that how rapidly different types of invested assets can loose their value because of amortization, giving the max percentage of their value can be accounted as amortization cost in periods.

Pauler. Soft™ Business. Planner 2. 0: Time-based costs 3 At Time. Based. Cost| IdőArány. Pauler. Soft™ Business. Planner 2. 0: Time-based costs 3 At Time. Based. Cost| IdőArány. Költs worksheet we collect almost all type of costs we already mentioned earlier, but in time -based version: Time based costs can be collected from home pages of our suppliers or thematic comparison shopping sites. For convenience, time based costs can be given not only for financial periods set at Settings|Beállítások sheet, but for days, weeks, months, quarters or yearly, and the system will automatically recompute them into financial period

Pauler. Soft™ Business. Planner 2. 0: Time-based costs 4 If we decide do not Pauler. Soft™ Business. Planner 2. 0: Time-based costs 4 If we decide do not invest but rent machinery, inventory- or office space, their cost should be collected at Rented Offices/ Equipment Cost (Bérelt irodák/ felszerelések költsége). There is only one time based cost which is not filled manually, but computed by the system: estima-ted installments& interests paid (Becsült fizetendő törlesztések és kamatok). It is computed from amount of bank loan necessary to finance the project at worksheet Financing| Finanszí-

Pauler. Soft™ Business. Planner 2. 0: Financing 1 Workseet Financing|Finanszírozás aggregates breakeven/gross profit of Pauler. Soft™ Business. Planner 2. 0: Financing 1 Workseet Financing|Finanszírozás aggregates breakeven/gross profit of all products, and time based costs into Earning Before Interest and Taxes, EBIT (Adó- és kamatfizetés előtti eredmény). We can add further products (max 5 in total) to the analysis in the following way: Select the 4 worksheets describing Product 1 (Prod 1 Param, Prod 1 Data, Prod 1 Demand, Prod 1 Unit. Cost) with Shift+Click on tabs of worksheets (Munkalapfülek) In Edit|Copy/move sheet menu set Create copy, Before sheet: Time. Based. Cost Rename copied sheets with name prefix Prod 2. . . (or Prod 3. . , Prod 4… later) Set Product. ID on worksheet Prod 2 Param as 2 Fill up the 4 worksheets of Product 2 with neccessary data At Financing sheet cop cell range M 6: IV 6 through clipboard into the current product’s row: Select with Shift+Cursor, Edit|Copy, Click on cell M 6 (in case of 3 rd product M 7, 4 th M 8, etc. ), Edit|Paste Press Ctrl+H for Search & Replace panel, and rplace text Prod 1 in copied cels with Prod 2 (at further products Prod 3, Prod 4, etc. ) Subtracting Corporate Profit Tax (Vállalkozási nyereségadó, VÁNYA) from EBIT, we will get Earning After Taxes, EAT (Adózás utáni eredmény)

Pauler. Soft™ Business. Planner 2. 0: Financing 2 In the reality companies frequently try Pauler. Soft™ Business. Planner 2. 0: Financing 2 In the reality companies frequently try to reduce their taxing burden reducing their EBIT creating fictional costs. However in the business plan we always use legal taxing rules! If feasibility of a project depends purely on tax fraud (Adócsalás), it is not worth to launch, regardless how efficiently the copany can do it. In the next step we subtract Change of Working Assets (Forgóeszközök növekedése) from EAT. This item is considered as loss because it shows inefficiency of buyers/inventory of the company: eg. they purchased a truckload of 8 mm bolts because we neeed 30 pieces yearly. They can say that these are really good quality bolts and they will never get corroded or perish, BUT: If we cannot use them for a long time, we have to pay the utility cost of inventory (energy, guards, etc. ) Additionally, it is more serious that we have to pay capital cost of inventory, wich grow exponentially by time because of interests! In the next step, Amortization (Értékcsökkenési leírás) is added (+) to EAT, because this cost did not really occour, just reduced our taxing basis (Adóalap) Summing up all these items, we can get Cash-Flow (Működési pénzáram), which is the freely available money in time the project can generate

Content of the Presentation Handling of Pauler. Soft™ Business. Planner 2. 0, Part 2 Content of the Presentation Handling of Pauler. Soft™ Business. Planner 2. 0, Part 2 Time-based costs Investments Capacity planning problem Amortization Interest costs Financing Adding new products Cash flow Theory of managing financing needs of your Project Own Capital/Equity Financing Innovation Found Financing Business Incubators Angel Investors Venture Capital Hungarian situation Debt Financing: Traps: Non-linearity of Interest Process Time Value of Money Loan Payback Schedule Financing of your Customer References

Managing financing needs of your Project 2029. 01 2028. 01 2027. 01 2026. 01 Managing financing needs of your Project 2029. 01 2028. 01 2027. 01 2026. 01 2025. 01 2024. 01 2023. 01 2022. 01 2021. 01 2020. 01 2019. 01 2018. 01 2017. 01 2016. 01 2015. 01 2014. 01 2013. 01 2012. 01 2011. 01 2010. 01 2009. 01 2008. 01 2007. 01 2006. 01 2005. 01 2004. 01 A project has a lifecycle (Projekt életciklus) across more financing periods (Pénzügyi periódus) (eg. 1 year or quarter). For the manufacturer of a product it starts with an initial investment (Kezdő befektetés) in R&D, design, manufacturing plant As long as these are not finished, the manufacturer cannot sell anything, so cannot generate revenue and any gross profit (Eg. At Miracle Roof: Architects are special cases: costs of a given design are usually covered by the first (and most of the time only) customer, partially in advance. But as long as we are in energy design, and developing special materials and technologies is involved, the situation becomes pretty similar to other industrial business) So projects cannot finance themselves in the beginning, they need external financing: It can be own capital source collected from Family, Friends, Fools (3 F) It can be some international/ state/ local authority/ foundation grant (Ösztöndíj) It can be Equity (Részvénytőke) establishing Corporation (Részvénytársaság) issuing Shares (Részvény-kibocsátás): we have to pay Dividend (Osztalék) only if we have profit (less risky for us, more risk for investors), investors gain Votes (Szavazat) at Board of direc- 30, 000 tors (Igazgatóság) for shares It can be Debt fi- 20, 000 nancing(Kölcsön tőke) in form of Bonds (Kötvény) 10, 000 or Loan (Hitel) of Commercial bank Financing perio (Kereskedelmi EUR 0 Bank): the bank does not interact directly -10, 000 with our mana. Initial. Investment, EUR Gross. Profit, EUR gement. We Cash. Flow, EUR have to pay Ins- -20, 000 Own capital sources, EUR tallments (Rész. Bank loan financing, EUR let) and Interest Installments&interests paid, EUR (Kamat) even if -30, 000

 • • Own Capital/Equity Financing 1 Elements of Own Capital (Saját tőke) financing • • Own Capital/Equity Financing 1 Elements of Own Capital (Saját tőke) financing are called 3 F: • Family (Család): They tend to be less critic and more lenient towards your project (eg. in most cultures, they do not impose interest after loans). If you cannot convince even your family about your project will live, its not worth to start! • Friends (Barátok): Nearly the same applies as to family, with one important exception: in case of failure, your family cannot replace you with another son/grandchild/nephew, but your friends CAN! So financing by friends is a one-shot game! • Fools (Hülyék): They are usually not very well trained, but streetsmart small entrepeneurs who were lucky and made considerable money, and now they would like to invest it, but do not trust on traditional financial institutions, or the money has black origin. Therefore they are willing to invest in similar type of enterprises even without conventional Finacial warrants (Pénzügyi biztosíték). However you should be careful because here the warrant is your and familys’ life… Equity (Tulajdonosi Tőke) financing can have the following legal forms: • Private Entrepeneur, PE (Egyéni Vállalkozó, Ev. ) • Limited Partnership, Ltd. (Betéti Társaság, Bt. ) • Limited Liability Company, LLC (Korlátolt Felelősségű Tátraság, Kft. ) • Corporation/Company, Co. ((Zárt)Részvénytársaság, (Z)Rt. ) • Their legal ruling and partly legal „backdoors” may vary from country to country. In general from PE to Co. they assume less personal responsibility and therefore require more deposited Funds (Alapok) or Apport (Bevitt tőkejavak) to balance it

 • • • Own Capital/Equity Financing 2 One would think that the more • • • Own Capital/Equity Financing 2 One would think that the more own capital you can invest in a project implies: • The less you have to apply for as grant or borrow as loan, • So the less interest and cost you have to pay • This will make you the greatest absolute profit – and this is true! But performance of a project should comply two criteria simultaneously. Eg. consider the following example where you have to decide about investing in 5 mutually exclusive projects. Which one you would chose? Projec Yield, Investment, Net Profit, ROI, t $ $ $ % 1 1500 1150 30% 2 1200 900 33% 3 900 650 250 38% 4 600 400 200 50% 5 300 150 • Absolute (Abszolút) performance 150 100% measure: Net Profit (Nettó profit), $ = Yield (Hozam), $ - Investment, $ (10. 1) Eg. If there are only these 5 investment alternatives on Earth, you would choose Project 1 with highest Net Profit, $. • Relative (Relatív) performance measure: Return On Investment, ROI (Befektetés feletti megtérülés): ROI, % = Net Profit, $ / Invested Capital, $ (10. 2) Eg. In the reality, there are lot of other investment alternatives with very different size (you can make many small investments or a few big ones from the same amount of money), therefore you would select Project 5 with highest ROI and put the rest of the money in other smaller projects with high ROI If there is a strong competition among commercial banks, and loans have favorable conditions, and you have plenty of own capital, there can be a danger that you Over-Finance (Túlfinanszíroz) your project: you could reach better ROI long term using bank loan instead of own capital!

 • • • Innovation Found Financing: Business Incubators 1 In most developed countries • • • Innovation Found Financing: Business Incubators 1 In most developed countries (mainly in USA and Japan, moderately in Western Europe), there is a 3 -level system for financing innovative small businesses: Level 1: Innovative product/service ideas may come up at university researchers or at untrained but creative and streetsmart people. • Usually none of them have any formal business training/business relations. • Most of the time researchers have totally different personality than needed in business: they are not willing to take any personal risk, they can talk only professionally (cannot sell themselves), they want to stay physicists, chemists, matematicians etc. but still want lot of money for their invention. Therefore Business Incubators (Inkubátorházak) are founded by large universities as non-profit organizations to develope innovative enterprises: From Idea To Angel Investor: • Step 1. 1: Inventor presents the idea to Board of Directors, Bo. D of incubator • Step 1. 2: Inventors are tested with PI Test: a psychological test examining fitness for entrepeneurs personality. In case of failing the test but the idea is still good, an experienced, usually freshly retired entrepeneur is assigned to inventor to help him • Step 1. 3: Inventor is required to create a business plan with a popular, easy to use business planning software (Eg. Business Plan Pro http: //www. paloalto. com/ ), • Step 1. 4: Inventor is required to raise own capital of $10, 000 -25, 000 from 3 F to ensure personal involvement and Shared Risk Bearing (Kockázatközösség) with the incubator

 • Innovation Found Financing: Business Incubators 2 Step 1. 5: Then Bo. D • Innovation Found Financing: Business Incubators 2 Step 1. 5: Then Bo. D decides whether to reject it or make a contract with inventor to incubate the idea in limited time range of 3 -5 years. 6 Activities of the incubator: • 1. 5. 1: It is compulsory for the inventor to Rent office space in incubator for medium fee. Why? The incubator tries to select ideas creating Internal Market (Belső piac) for each other: the closer they are, the better chance for it! (Eg. a biotech softwa-re developer can sell its product to pharmacologic researcher next door) • 1. 5. 2: Rent fee includes in-house Business/Legal/Bookeping trainings organized by Bo. D all inventors have to compulsory attend • 1. 5. 3: Incubator gets 5 -10% of Shares of the newly established company, so Bo. D can check its bookkeeping, accounting to prevent madnesses unexperienced entrepeneurs are usually doing (hard tax cheating, black money loans, etc. ) • 1. 5. 4: Incubator is responsible to help Building business relations of inventor and help him applying for government development funds, bank loans • 1. 5. 5: If inventor successfully completes Prototype of Product (Termék. Prototipus) or Proof-of-Concept of a Service (Szolgáltatás Megvalósíthatósági Elemzés) until half of the 3 -5 year period, incubator transmits him to next phase: Angel Investor • 1. 5. 6: Incubator gets 5 -10% Royalty (Jutalék) from sales in rest of incubation time to cover its working expenses and cost of failed incubations (eg. 35%)

 • • Innovation Found Financing: Angel Investors, Venture Capital Level 2: Business Angel, • • Innovation Found Financing: Angel Investors, Venture Capital Level 2: Business Angel, Angel Investor (Üzleti angyal, Angyalbefektető): an already successful businessman with Professional knowledge (Szakmai befektető) in the given area, contested and selected by the incubator: • Step 2. 1: It will invest $1 -5 M if the product reached prototype stage • Step 2. 2: It acquires controling share of the company, and personally involved in management decisions, checks accounting, etc. • Step 2. 3: It takes the product Fit for mass production stage (this includes quantitative Market Research results based on 1000 respondent survey identifying target market segment and expected profit!) Level 3: As traditional commercial banks have very strong risk avoidance (they are willing to take 1 -1. 5% risk of failure instead of 25 -33% required here) and can make considerable profit from almost risk free-services (eg. bank account transfer fees), they are totally unsuitable financing innovative small businesses (regardless their fancy advertisements). Therefore Venture Capital Companies (Kockázati Tőke Társaság) step in: a separate company set up buy consortium of commercial banks: • Step 3. 1: Willing to invest $50 -100 M • Bearing high risk of failure (25 -33%) • Without requesting traditional Financial warrants (Bankári biztosíték) • In a product ready for mass production • And rapidly breaking into an expanding new market, • To havest estimated big ROI (<400%-600%), • Before copiers and competitors step in • Step 3. 2: Usually Buys out (Kivásárol) incubator and angel investor for $10 -20 M (this is how they make profit) acquiring almost 100% share • Step 3. 3: But venture capitalist is a non-professional, Financial investor (Pénzügyi befektető) never participating in managament personally. However it usually replaces the whole management of the company with a professional management team, even buying out/firing the original inventor and his relatives, to prevent the company breaking down on „family affairs” • Step 3. 4: Venture capitalist sells the company when product reaches maturity and rapid profit extraction is no longer possible because of competition/legal ruling

 • • • Innovation Found Financing: Hungarian situation 1 Currently, the Hungarian system • • • Innovation Found Financing: Hungarian situation 1 Currently, the Hungarian system of innovation financing is very disfunctional: • Not only because a poor, under-developed country alone cannot spend such a high % of GDP for innovation as developed countries • Not only because the alternative source of money, the EU has no intrest to creat real competitors of Western Europen products: they finance us only until developing suitable market for them But, the Hungarian social and political culture contradicts the working of the 3 stage system described above. Macrooecoomic (Makrogazdasági) reasons: • In general, Hungarian society is very conservative, crying about our bloody history, and suspicious against novelties: Eg. If you say to an American: „Did you heard about that supercharged pink gizmo is invented? !”, of course he does not know what is it, but he learnt in school that new things are good things so says „Wow, thats cool! Really supercharged? ”While in Hungary: „Isn’t it a new trick of Jews to cheat us? ” • Hungarian political elite (from whatever party) usually supports inventions and high quality education – only in words! • This people usually could not finish university because they went on business/political carreer – studies were failure for them. Usually they held positions by political loyalty without professional insight • They treat innovation financing like financing of arts: instead of being business Investor (Befektető), they are Maecenas (Mecénás): They give money only for their „favorite” scientists and projects But do not expect any business results in return, just praising and popularity Traditionally, Hungarian Academy of Sciences (MTA, www. mta. hu ) was on top of innovation financing, but as retirement (Nugdíjazás) imposes great existential threat on old academists and professors, its main activity is to finance the „feudal hierarchy” of them from research funds, regardless their current performance

 • • Innovation Found Financing: Hungarian situation 2 To eliminate MTA from process, • • Innovation Found Financing: Hungarian situation 2 To eliminate MTA from process, National Development Agency (NFÜ http: //www. nfu. hu/) was founded by government in 2005 to allocate EU financing, but this is even more ineffective: • Highly overcomplicated bureaucratic process used to delay payments for supported companies – to fill holes in state budget – frequently causing them going into bankruptcy • Infested with corruption: 40 -60% of money should be promised back to jury members institutions, otherwise you are out of game • Politically motivated decisions, without real checking how the money was used: there are small firms of gifted young researchers fabricating fake research results routinely for grants got by„big guys”with good connections Microoeconomic (Mikroökonómiai) reasons: • Universities see themselves as „Temple of science: nothing to do with dirty business” based on traditional german model. Founding US-style independent, Self-sustaining (Önfenntartó) incubators is totally rejected • University researchers feel humiliated if they are tested and evaluated any way by businessmen. • Business planning is very weak, budget of even complex projects are made on piece of paper or plain excel tables. From what you learnt in Presentation 7 you can imagine the consequences… • Angel investors, or any professional investors with personal involvement (stage 2) are completely missing • Small entrepeneurs are willing to pay for market research only if it supports their favourite idea, they try to avoid getting real market info • Venture capital is merely a sub-sub department of commercial banks for marketing purposes, so cannot bear serious risk of innovation • However under political pressure, commercial banks tend to approve totally infeasible loans for preferred people of the current system

Content of the Presentation Handling of Pauler. Soft™ Business. Planner 2. 0, Part 2 Content of the Presentation Handling of Pauler. Soft™ Business. Planner 2. 0, Part 2 Time-based costs Investments Capacity planning problem Amortization Interest costs Financing Adding new products Cash flow Theory of managing financing needs of your Project Own Capital/Equity Financing Innovation Found Financing Business Incubators Angel Investors Venture Capital Hungarian situation Debt Financing: Traps: Non-linearity of Interest Process Time Value of Money Loan Payback Schedule Financing of your Customer References

Debt Financing: Traps: Non-linearity of Interest Process Financing your project from Bank loan (Bankhitel) Debt Financing: Traps: Non-linearity of Interest Process Financing your project from Bank loan (Bankhitel) has numerous traps: Interests (Kamatok) you have to pay for it grows non-linearly in time: Eg. If Interest rate (Hitel kamatláb) is 10% per annum, you have to pay EUR 100 interest after borrowing EUR 1000 for one year: EUR 100 = EUR 1000 × (1. 10 -1). Even man-on-the-street knows it! But if you cannot pay back it after 1 year, after 2 years it is already EUR 210 = EUR 1000 × (1. 10× 1. 10 -1), for 3 years EUR 331, for 4 years EUR 464, for 5 years EUR 610 NOT 5× 10% = EUR 500!!! This is what man-on-the-street cannot imagine: most of the people can $ think only linearly, even they learnt about interest in school, and it has terrible consequences: Interest Eg. : Lets imagine you buy a car for 10 years customer loan, paying in „Equal installments (Egyenlő törlesztőrészlet)”. Lets Installments assume somebody crashes the car after 5 years. As you were totally innocent (Ártatlan), you would expect that you can pay t back rest of the loan from the guys Liability insurance (Felelősségbiztosítás). Be surprised: you will have no car, no $ money, and you still have to pay back most of the loan. Why? Banks always compute interest after unpaid part of loan. This Interest would imply that interest cost would be the highest at the start of the loan, when most projects have the hardest costs anyway Install Therefore banks created Even payback schedules (Egyenletes ments törlesztési ütemezés): in the beginning, you pay only interest t while most of the installment is paid back at the end. So at year $ This is what 5 most of the debt is still there, you just paid for using the you assume It is Deb what money long time t you Insurance companies always contract to restore status of the pay insured stuff before the damage was occoured, they will pay price of a 5 -year used car, which is only a fraction of a new cars. Car p rice This is how you go into bankruptcy innocently, just not knowing t non-linear interest processes

Debt Financing: Traps: Time Value of Money The financial value and feasibility of a Debt Financing: Traps: Time Value of Money The financial value and feasibility of a project depends on how much Cash-Flow (CF) it can generate in total: It won’t generate CF forever! Depending on lifecycle of the product, demand/ sales/ profit will decrease if we do not make additional investments to renew the product Moreover, we cannot just simply add up CF from different financial periods because of time value of money (Pénz időértéke): any income/cost arising immediately or in near future will have more weight than one in a distant future: If I get money later, its worth less, because I loose interest income of it, because I cannot deposit in my bank account now If I have to pay something later, its less serious debt, as I can make some interest income meantime depositing it in the bank So Future Value, FV (Jövőbeli érték) of CF CF(t) arise t years later should be Discounted (Diszkontál) with a Discount Factor (Diszkont faktor) [0, 1] expressing decreasing importance ahead of future. Thus we get Present Value, PV (Jelenérték), which already can be summarized to get Net Present Value, NPV (Nettó Jelenérték) of the project. It should be positive for feasible projects: Present. Value, EUR = Cash-flow(t), EUR × Discount. Factor(t), % Where: Discount. Factor, % = ( 1 + Interest, % ) –t NPV, EUR = St Cash-flow(t), EUR × Discount. Factor(t), % However NPV is too short sighted: complex projects (Eg. building a car factory) tend to yield big CF long term (15 -20 years), but NPV considers it less important and values more: Eg. opening a roadside fast food buffet where we put junk in hamburger, water in beer, harvest the money in the first year, then run away from angry customers NPV does not value the Sustainability (Fenntarthatóság) of project CF long term, so we need additional financial measures later (10. 3) (10. 4) (10. 5)

Debt Financing: Traps: Loan Payback Schedule 2029. 01 2028. 01 2027. 01 2026. 01 Debt Financing: Traps: Loan Payback Schedule 2029. 01 2028. 01 2027. 01 2026. 01 2025. 01 2024. 01 2023. 01 2022. 01 2021. 01 2020. 01 2019. 01 2018. 01 2017. 01 2016. 01 2015. 01 2014. 01 2013. 01 2012. 01 2011. 01 2010. 01 2009. 01 2008. 01 2007. 01 2006. 01 2005. 01 2004. 01 Because of non-linear growth of interest cost in time, you will have the first priority to pay back bank loan as soon as possible: The longer you stretch payback, the exponentially more interest you will pay! Therefore as long as the project starts to generate positive cash-flow it is immediately turned to pay back installments and interests to minimize cost of financing. This will keep cash-flow at 0 until the loan is not paid back entirely Moreover, you should NEVER borrow money before you can use it, because there will be nonlinearly increasing interest cost for that time! The problem is that building a manufacturing plant, setting up distribution channels can be a lenghty process with gradually increasing financing need until they are finished and gradually start generating gross profit. However the more difficult the Loan-Payback Schedule (Hitel folyósítási-visszafizetési ütemezés), it is the more administration for the bank, and means less interest income, decreasing its profitability, so it will force you to accept the 30, 000 loan in 1 amount. You could deposit unused part of mo 20, 000 ney in a bank account, but its Deposit 10, 000 Interest Rate (Betéti kamatláb) is lower Financing peri EUR 0 than lending interest rate, because of the banks Margin (Ha- -10, 000 szonkulcs). The lon. Initial. Investment, EUR Gross. Profit, EUR Cash. Flow, EUR ger you cannot use -20, 000 Own capital sources, EUR the money the more Bank loan financing, EUR Installments&interests paid, EUR you loose! -30, 000 If you are sizeble enterprise, you will have the chance to bargain Custom Payback Schedule (Egyedi Visszafizetési Ütemezés) with the bank fitting your financial needs

Debt Financing: Traps: Financing of your Customer 2029. 01 2028. 01 2027. 01 2026. Debt Financing: Traps: Financing of your Customer 2029. 01 2028. 01 2027. 01 2026. 01 2025. 01 2024. 01 2023. 01 2022. 01 2021. 01 2020. 01 2019. 01 2018. 01 2017. 01 2016. 01 2015. 01 2014. 01 2013. 01 2012. 01 2011. 01 2010. 01 2009. 01 2008. 01 2007. 01 2006. 01 2005. 01 2004. 01 When a customer makes its initial investment purchasing a complex product (Eg. Miracle Roof, which provides net savings = benefits – maintenance cost long term) this has also a lifecycle: The good news for the customer that savings can work longer than market lifecycle of the product itself (eg. Miracle Roof, as marketable product can be fashionable for 10 or 15 years, then looses market. But as an installed Miracle Roof system in a given building, it can produce crops for 20 -25 years without major reconstruction assuming regular maintenance) The bad news for the customer that his project will also need external financing in form of bank loan. However as this is a relatively small project for the bank, interest earned from that will not cover th banks expenses to work out individual payback schedule. Except if there is a very strong competition among commercial banks in the country of application banks will offer standardised loans for our customers. These usually contain transferring the whole loan amount once and fixed amount payback schedule afterwards. It means extra interest cost for the customer as probably he/she will not utilize the whole amount immediately: (eg. in the chart 30, 000 you can see that with EUR 5, 000 own capital EUR 20, 000 loan rece- 20, 000 ived. Installing Miracle roof costs EUR 10, 000 in the first and 15, 000 10, 000 in the second year, where customer soon Financing perio have to pay EUR 3000 EUR 0 installments and interest even not utilizing the whole loan!) -10, 000 The highest possible Initial. Investment, EUR Net savings, EUR unit price we can get Cash. Flow, EUR for our product depends -20, 000 Own equity investment, EUR on wether NPV of custo. Bank loan financing, EUR mers project remains Installments&interests paid, EUR positive using that!!!!! -30, 000

References Business Incubators: USA: NBIA: http: //www. nbia. org/resource_center/what_is/index. php Hungary: http: //www. infoparkrt. References Business Incubators: USA: NBIA: http: //www. nbia. org/resource_center/what_is/index. php Hungary: http: //www. infoparkrt. hu/modules. php? name=News&file=article&sid=85 Predictive Index Test: Basic definition: http: //en. wikipedia. org/wiki/Predictive_Index International application: http: //www. piworldwide. com/ In Hungarian: http: //www. praendexeurope. com/magyarorszag/? page=micro/magyaro rszag/intro Cash-flow analysis: Theory: http: //www. cash-flow-analysis. com/ Wheatworks CF-analyzer: http: //www. wheatworks. com/cashflowcalculator. htm Business Planning Software: Business Plan Pro: http: //www. paloalto. com/ps/bp/ Hyperion: http: //www. hyperion. com/products/applications/modeling_optimization/ business_modeling/ Silverrun: http: //www. silverrun. com/bpm. html Computer associates: http: //www 3. ca. com/Solutions/Sub. Solution. asp? ID=3819