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Nikhil Agarwal, associate at Insitor Seed Fund and Insitor Impact Fund, Phnom Penh. Photo supplied

Corporate finance over breakfast

Many Cambodian companies, especially SMEs, urgently need capital but are lacking the financial planning skills that would make access to market-based funding easier.

Nikhil Agarwal, associate at Insitor Seed Fund and Insitor Impact Fund, Phnom Penh, believes Cambodian companies can greatly improve their access to capital through planning.

In tomorrow’s edition of the monthly “Breakfast with an expert” seminar that is hosted by the collaborative entrepreneurship organisation, Impact Hub, Agarwal will share his knowledge on financial planning with eager young businessmen and women over coffee and breakfast.

While “Breakfast with an expert” is fully booked, Agarwal sat down with Post Supplements for a preview on what will be covered at the event.

What kind of entrepreneurs will you be advising during tomorrow’s breakfast?
I will be interacting mostly with start-ups and early growth stage entrepreneurs because they are the ones who want to develop financial modelling skills to avoid expensive advisor fees or the cost of hiring dedicated internal resources. The discussion will be around how to create and use financial models as a tool for financial planning and I will give some tips and tricks to make it easier and more effective.

What types of companies have the biggest need for financial planning and capital management?
In general, all companies need to do financial planning and capital management. Start-up companies in particular have limited resources in terms of capital, personnel, and time so they need to be very efficient. Financial planning is very important to help budding entrepreneurs keep both feet on the ground in decision making, giving them realistic outcomes related to cash management and financial returns by forecasting revenues, costs, and other key drivers.

What are some Cambodian entrepreneurs’ biggest problems in finding funding?
Cambodian entrepreneurs have scalable ideas which can be turned into a profitable business. However, Cambodia is behind many others countries when it comes to start-up ecosystems because of a lack of government support, start-up hubs/incubators, technology providers, and mentors who can understand the pulse of the business and guide entrepreneurs to the next level. Speaking about funding things get tricky in Cambodia: bank loans require heavy collaterals, grants are scarce and limited to certain sectors and angel investors are often high net worth individuals that struggle to recognize the potential of an innovative business offering. Because of these conditions, together with the fact that the number of institutional equity investors is still small, there is still a long way to go for Cambodia to become a start-up paradise.

Which sources of funding do entrepreneurs usually use?
Considering the difficulties in the Cambodian start-up ecosystem, entrepreneurs usually self-finance their business by investing their savings, or they raise money through family and friends. In this process they may have to mortgage their real estate assets to insure the investment of lenders. Another potential source of funds, which is not really exploited by Cambodian entrepreneurs, is “crowd-funding platforms” which acts as an alternative to traditional funding. However operators need to learn specific skills to make it successful.

What are the most important aspects of financial modelling?
A good financial model landscapes all the critical aspects of the business and interlinks them to create a robust tool for financial planning. Important aspects of a financial model include – revenue drivers, cost drivers, working capital assumptions, capital expenditure, sources of funds, and other business-specific drivers. These drivers should be realistic and must be backed up by some actual results. All financial models should have different scenarios and sensitivities analysis to understand how outcomes can change according to the change in market, price of products, number of active customers, customer acquisition cost etc.

What are the most common mistakes made in financial planning/modelling in Cambodia?
Entrepreneurs must incorporate realistic operational aspects while doing financial planning and modelling. Areas which are often overlooked include linking operating cost and capital expenditure to the growth of revenues, working capital cycle, drawbacks of investing short-term funds in long-term assets, and basically all the aspects that are connected more with day-by-day business to develop the innovative idea into a real business. We understand that budding entrepreneurs are excited with the new business but not taking into account the realistic issues of operations is a big mistake when building a robust financial model.

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