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Objectives

This Guideline outlines why and how to introduce a structured system of financial management into incubator operations.

Like all enterprises, an incubator has revenues and expenses. Consequently, financial management consists of planning, overseeing and controlling the incubator funds, whether they are brought in through services or provided by partners and investors. Mechanisms need to be developed that allow the incubator manager to know accurately the amounts available, the needs and the investment capacity. Additionally, financial management should focus on bringing in new sources of funds for the incubator.

Key Issues

For good financial management, it is necessary to develop and use documents for incoming and outgoing funds, in order to identify critical points and investment requirements. Listed below are some important stages for the effective administration of the incubator funds:

1. Preparation of Investment Spreadsheet. This is designed to bring together information on the uses and disbursement periods of the funds for investments needed to establish or develop the incubator. (for further details, please see the Guidelines Feasibility Study, Resources Identification, Planning the Incubator and Business Plan). In order to oversee the funds required during the various phases of the incubator program, the investments should be separated into:
   1. Pre-operating expenditures: disbursements prior to the actual inauguration of the incubator (shown in the initial Business Plan)
   2. Physical facilities: disbursements required for the adaptation, construction and conservation of the physical facilities of the incubator;
   3. Equipment: disbursements required for the purchase of equipment to start up and continue the operating activities of the incubator;
   4. General expenditures: as this can involve capital investments, this item can include the initial expenditures that may be required for the implementation and inauguration of the incubator;
   5. Reserves: these are the amounts set aside to build up cash reserves (See attachment Cash Flow Related Table).
2. Preparation of Costs and Expenditures Spreadsheet. This spreadsheet provides information on the uses and disbursement periods, separated into Costs and Expenditures. In order to prepare it, two principles should be taken under consideration:
   1. Core business: the main activities of the enterprise, where cuts would curb its development;
   2. Level of involvement of the disbursement with the activity of the enterprise (See attachment Cash Flow Related Table)
3. Preparation of Revenues Spreadsheet. This spreadsheet should include all revenues brought in by the incubator, including its own income (brought in through services rendered by the incubator, fees, etc.) and from third parties (provided by backer institutions, development agencies and investors).
   Forms: Revenue Spreadsheet
4. Incubator Cash Flow. The Cash Flow is an ancillary document that is crucial to the successful financial administration of the enterprise. This document should be linked to the budget plan in order to monitor the financial performance of the enterprise.

   The cash flow concept is quite simple. The activities of the business result in income or expenditures. The projection of these variables onto future cash on hand generates the cash flow or financial cycle of the enterprise.

   Despite the simplicity of the cash flow concept, its application to a business may result in some difficulties, arising from the following aspects:

   • In a new business, it is hard to forecast the income and expenditures resulting from some activities;
   • It is hard to foresee future cash income and expenditure amounts, due to the uncertainties of the projected scenario; and
   • It is hard to quantify the impact on the cash income and expenditures due to the business risks.

   The preparation of an incubator cash flow table will allow its manager to keep a close watch on its bottom line, with a high level of certainty, in order to plan ahead for covering investment requirements and the need to bring in fresh funding.

   Hints: Cash flow analysis allows the incubator to:

   • Be fully aware of the availability or shortage of funds, allowing it to:
     • Inject funds / make short-term financial investments.
     • Postpone commitments.
     • Bring projects forward.
     • Draw up alternative strategies.
     • Prepare the investment and operating budgets.
   • Monitor the budget and consequently keep a sharp eye on progress towards financial sustainability.
   • Monitor the accounts payable and accounts receivable on a regular basis, establishing an efficient dual control system.
   • Develop a strategic approach for controlling bank balances and reserves and investing funds.
   • Require all operational areas to be familiar with their activities and needs. (See Attachment Cash Flow Related Table)

Responsible Parties

Management and technical staff of the incubator.

Indicators

• Higher incubator revenues and savings through controlling expenditures.
• Level of self-sustainability: percentile value of its own revenues in relation to the incubator’s total volume of revenues.
• Cost for square meter: is the minimum amount to be charged by the enterprise for the square meter of occupied area, in order to have the incubator generating the revenue required for coping with its expenses.
• Incubator’s Capacity for Generating Taxes (CG2I): stands for how much the incubators generate in taxes for each monetary unit invested in the incubator.
• Taxes Generation by the Graduated Enterprises (CGIG): stands for the total amount of taxes annually paid by the graduated enterprises.
• Cost of Employment Generation (CGE): stands for the amount required for the incubated enterprises to create a vacancy.

Results

Effective oversight of the financial flow of the incubator, identifying needs and sources for bringing in funds.

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