Financial modelling for service businesses has long been a relatively neglected area in the academic and workplace training environments. A possible reason is that as such businesses are relatively sparing in their capex requirements, they do not face such obviously life-threatening financial risks as, say, a utility that passes a point of no return in the construction of a multimillion-pound power plant before discovering that it has seriously overestimated long-term demand for the plant’s output, or underestimated the risk that the plant’s basic technology could become obsolete.
It is also undoubtedly the case that it is less problematic to model projects whose cash outflows occur predominantly at the outset and whose future cash flows are overwhelmingly positive, than projects whose cash flows principally comprise incremental changes to future operating inflows and outflows.
Despite the fact that the strategic financial decisions made by managers of service-based businesses might be less eye-catching than those made by their counterparts in the capital-intensive industries, their decisions are no less complex and no less critical to their firms’ long-term health and even to their survival.
And whereas it might be true that a nuclear power station cannot economically be converted to coal-burning, it is certainly not true that supposedly ‘soft’ human resources are infinitely adaptable – or freely exchangeable in a supposedly efficient market for highly skilled labour.
This course is designed for senior managers of service businesses as well as for their financial and strategy advisers. It will enable them to contribute more positively to the strategic decision making process, not only by refining and formalising their modelling skills which in many cases might have been ‘picked up on the job’, but also by enhancing their ability to communicate financial data, projections and arguments more effectively and persuasively.
The course aims to strike an optimum balance between theoretical rigour and practical utility. On the first day, the more didactic segments are lavishly illustrated with real-world examples, and are frequently interspersed with group exercises (mostly computer-based) and with less formally structured discussions.
On the second day, participants work collaboratively and continuously on a major Excel-based valuation of two real-world service companies or projects, and the course ends with presentations of their findings by two or more of the groups, for critical analysis and discussion by the entire class.
Basics of financial modelling
The modelling process
Special points to watch
Basic tips and tricks for constructing an Excel-based valuation that is at once comprehensive, coherent, consistent and flexible
Extended exercise in comparative valuation of two companies in the same or similar service industries, e.g. IT software and support, facilities management, professional services.
The day will start with a plenary brainstorming session to identify the principal points of interest in the exercise, ranging from the strategic and intangible issues to the down-to-earth practicalities of sourcing data, formulating assumptions and processing the data into a coherent presentation.
Throughout the day, the trainer will be on hand to give individual support as required, and to act as a channel to share individuals’ insights and experiences with the group as a whole.
In the last session of the day, two or more groups will be invited to present their work to the class as a whole, for discussion and critical analysis.
Finally, the trainer will hand out his own ‘model model’, in two contrasting formats, for the participants to compare with their own work.