I am graduating in 4 weeks, and am quite impressed by the cash flows I projected before starting the MBA. Though there were lots of deviations along the way, I had estimated that I should end the MBA with a balance of approximately 0, and this is what happened. I am disclosing my "profit and loss statement" for the 21 months of my MBA at London Business School. It is obviously rounded and approximated to the nearest 1000, and I have omitted holidays, clothes shopping etc.
Overall, you can see that I have managed to end the MBA without any debt. Actually the balance is higher than what I show because in reality my husband found a good job here after a while and we split the rent and other living expenses. So if you are coming to London Business School and want to make estimates, here's my recommendation for adapting the numbers to your situation:
- obviously, most of you won't be lucky enough to be paid by McKinsey without obligation to return ;-)
- if you have a partner, expect him/her to find a job after 3-6 months and enjoy :-)
- most banks and consultancies pay the sign on bonus tax free, somehow my bank refused to, so it was taxed which makes a big difference unfortunately
- Rent is one very big factor which will change the outcome. Even though I came here with my husband, we started off sharing, since he didn't have a job yet and we also didn't find studios that were cheap enough (we were willing to pay up to 230 pounds per week). I only knew one other couple that did that for the first year, and I think we were the only ones who did that for the two years. It's not easy of course, but that way we paid a rent of 837 pounds per month instead of 1200-1500 that we would have had to pay for a studio/1bedroom in this area. There were a lot of couples who had no income (and no McKinsey sponsorship and no scholarship) but opted for a 350 per week 1 bedroom. Of course it is more comfortable, but then I would have had about 15,000 pounds debt upon graduation, and now I am debt free, which feels great
So you see what to focus on: on the income side, internship salary, scholarships and bonuses are very important (I did two internships and obviously earned more than others), on the cost side, rent in London is the major factor (given that tuition fees are beyond your control).
I hope this helps. All numbers are given in GBP.
Net Income
McKinsey living expenses 15,000
Scholarship for tuition 20,000
Internship salary (20 weeks) 22,000
Internship bonus (so far) 15,000
Second year project 2,500
Total income 74,500
(excludes around 7,000 GBP in outstanding summer bonus and relocation allowance)
Cost
Tuition fees 41,000
Rent 17,640
Living expenses 18,900
Bills, phone etc. 1,050
Transport 1,050
Sum 79,640
Showing posts with label financing your MBA. Show all posts
Showing posts with label financing your MBA. Show all posts
Monday, June 02, 2008
Saturday, August 05, 2006
MBA financing through equity instead of debt!
If you're one of those not excited about finishing the MBA programme with $100,000 of debt, there is an alternative way to finance your MBA, or any form of tuition fees for that matter. Why not use (private) equity? A guy named Lars Stein from the Swiss elite university St. Gallen has done just this and has been hugely successful in raising money. There are plenty of articles on him in the German speaking press, but I haven't found any in the anglophone press, so I'll explain what he did.
He was about to initiate his studies of business administration and didn't want to take on debt. So he decided to go public and created shares in his future income. He created a share that would, for example, cost $1,000 per unit, and would give the holder the right to 0,5% of his annual income over the first 5 years of his professional life. With an expected annual income of $80,000 over the five years, the holder of the share could get back $2,000 (I am ignoring the time value of money here for illustration purposes, I'm sure he devised it in a more savvy and complicated way). In this example, you could for example raise $30,000 by selling 30 shares, and would then have to use 15% of your annual income over the first five years of your career to pay back your shareholders, i.e. to buy back your shares.
Obvious questions/concerns that could come up...
How do I convince investors?
You need to show that you are likely to receive a minimum income of $x upon graduation. The easiest way to do this is to show your achievements to date and refer investors, for example, to the LBS employment report quoting average starting salaries for MBA students :-).
Is equity going to be cheaper than debt?
As in real life, debt is can be used as a tax shield and is usually much lower effectively than what it looks like (I don't know what the regulations are in the UK but I assume interest expense can be written off?). Interestingly enough, equity will be much more expensive the more you earn - so if you think you are likely to secure that KKR job, your shareholders will benefit tremendously while you might get upset about your financing decision. On the other hand, if you decide to take that fundraising job for an NGO in Africa, your equity will turn out to be much cheaper than debt - but with those plans, who is likely to buy your shares?
So overall, a boring bank loan might not be such a bad alternative. But keep in mind that interest rates are rising and predicted to continue rising, so private equity might turn out to be a good financing alternative for your MBA after all...
He was about to initiate his studies of business administration and didn't want to take on debt. So he decided to go public and created shares in his future income. He created a share that would, for example, cost $1,000 per unit, and would give the holder the right to 0,5% of his annual income over the first 5 years of his professional life. With an expected annual income of $80,000 over the five years, the holder of the share could get back $2,000 (I am ignoring the time value of money here for illustration purposes, I'm sure he devised it in a more savvy and complicated way). In this example, you could for example raise $30,000 by selling 30 shares, and would then have to use 15% of your annual income over the first five years of your career to pay back your shareholders, i.e. to buy back your shares.
Obvious questions/concerns that could come up...
How do I convince investors?
You need to show that you are likely to receive a minimum income of $x upon graduation. The easiest way to do this is to show your achievements to date and refer investors, for example, to the LBS employment report quoting average starting salaries for MBA students :-).
Is equity going to be cheaper than debt?
As in real life, debt is can be used as a tax shield and is usually much lower effectively than what it looks like (I don't know what the regulations are in the UK but I assume interest expense can be written off?). Interestingly enough, equity will be much more expensive the more you earn - so if you think you are likely to secure that KKR job, your shareholders will benefit tremendously while you might get upset about your financing decision. On the other hand, if you decide to take that fundraising job for an NGO in Africa, your equity will turn out to be much cheaper than debt - but with those plans, who is likely to buy your shares?
So overall, a boring bank loan might not be such a bad alternative. But keep in mind that interest rates are rising and predicted to continue rising, so private equity might turn out to be a good financing alternative for your MBA after all...
Tuesday, June 13, 2006
Stream of great news!
After a relaxing weekend watching world cup matches and lying in the sun, I'm back at work in Munich for the final 3 weeks of my consulting life. So far, this week has been surprisingly excellent.
On the holiday front, based on advice from Benny and others I've decided to go on two trips in July, one to San Sebastian (Spain) to spend a few days on the beach and another one hiking in Switzerland. I dropped the Portugal option because I used to go to the Basque Country many times and somehow I missed going to San Sebastian, it's such a beautiful place, so bye Portugal but hello Basque Country!
- I have been promoted with a 50% salary increase (which unfortunately I'll only enjoy in July since I'm leaving for the MBA in August)
- I have been offered a contract to return as a Senior Associate after my MBA (as some of you might know, my inclination to sign it is quite low, but it's still nice to have it in my pockets)
- I just received a call that I won the scholarship I applied for, relieving me of big financial worries (at least for the first year ;-) ). Thanks again to those who gave me advice for the application essay!
On the holiday front, based on advice from Benny and others I've decided to go on two trips in July, one to San Sebastian (Spain) to spend a few days on the beach and another one hiking in Switzerland. I dropped the Portugal option because I used to go to the Basque Country many times and somehow I missed going to San Sebastian, it's such a beautiful place, so bye Portugal but hello Basque Country!Saturday, April 29, 2006
LBS scholarship applications
I am writing this one week later than announced since I worked a lot this week, even more than the day I complained about another 17 hours day. I worked till 3 am Wednesday and Thursday and got up at 6:30 the next morning. At least I got to take the flight back home at lunchtime on Friday already so the weekend has been relaxing.
The first thing I want to do is to welcome my future class mate Ellen Ke to the ever growing group of the LBS2008 bloggers! We have been e-mailing each other for a few weeks now and it's nice to keep updated through blogs.
My main task this weekend will be to finish my scholarship application for the Deutsche Bank Women Scholarship and I hope some of my readers with experience in the financial services industry can give me some advice! The list of scholarships offered for LBS students this year is incredibly long. Basically, there are two types of scholarships, the London Business School Annual Fund Scholarships and the Class and Company Scholarships. Annual Fund Scholarships are awarded at the same time you receive your admissions decisions and one doesn't need to apply for those. The Class and Company scholarships in turn require a couple of additional essays that need to be submitted by May 26th. As far as I know, only admits from Rounds 1, 2 and 3 are eligible for these scholarships.
The most attractive scholarships are those covering roughly 50% of fees. Assuming you haven't received a school scholarship, the most generous company scholarships are those offered by Vodafone (eligible to all "who would otherwise not be able to do so" - probably not directed at German management consultants!) and Deutsche Bank (women only). I need to hand in the following two essays:
1. What are current/likely key developments in the global financial services industry and how do you think these will affect Deutsche Bank?
2. How do you see yourself being an ambassador for Deutsche Bank if you were to be awarded a Deutsche Bank Women's Scholarship?
I'm not so worried about the second question, I assume there are ample ways of representing your donor on campus through clubs, societies, speaker events, summer internships and so on. But I'm a bit worried about the first one. I have brainstormed some ideas but I'm afraid to miss some important trend! Also, "the global financial services industry" is a VERY ample industry, including insurance companies, tax advisory firms and so on.
So here's my brainstormed list of bullet points about current/likely key developments, and if anyone out there has come across such questions in interviews, articles or anything like that please share you thoughts. So, what's happening in the "global financial services industry"on a "bullet point level"? The format of the list will be "trend-recommendation for DB":
The first thing I want to do is to welcome my future class mate Ellen Ke to the ever growing group of the LBS2008 bloggers! We have been e-mailing each other for a few weeks now and it's nice to keep updated through blogs.
My main task this weekend will be to finish my scholarship application for the Deutsche Bank Women Scholarship and I hope some of my readers with experience in the financial services industry can give me some advice! The list of scholarships offered for LBS students this year is incredibly long. Basically, there are two types of scholarships, the London Business School Annual Fund Scholarships and the Class and Company Scholarships. Annual Fund Scholarships are awarded at the same time you receive your admissions decisions and one doesn't need to apply for those. The Class and Company scholarships in turn require a couple of additional essays that need to be submitted by May 26th. As far as I know, only admits from Rounds 1, 2 and 3 are eligible for these scholarships.
The most attractive scholarships are those covering roughly 50% of fees. Assuming you haven't received a school scholarship, the most generous company scholarships are those offered by Vodafone (eligible to all "who would otherwise not be able to do so" - probably not directed at German management consultants!) and Deutsche Bank (women only). I need to hand in the following two essays:
1. What are current/likely key developments in the global financial services industry and how do you think these will affect Deutsche Bank?
2. How do you see yourself being an ambassador for Deutsche Bank if you were to be awarded a Deutsche Bank Women's Scholarship?
I'm not so worried about the second question, I assume there are ample ways of representing your donor on campus through clubs, societies, speaker events, summer internships and so on. But I'm a bit worried about the first one. I have brainstormed some ideas but I'm afraid to miss some important trend! Also, "the global financial services industry" is a VERY ample industry, including insurance companies, tax advisory firms and so on.
So here's my brainstormed list of bullet points about current/likely key developments, and if anyone out there has come across such questions in interviews, articles or anything like that please share you thoughts. So, what's happening in the "global financial services industry"on a "bullet point level"? The format of the list will be "trend-recommendation for DB":
- Consolidation within markets - eat or be eaten
- Cross border mergers - eat or be eaten
- New/emerging markets (esp. China/India) - don't miss the opportunity (every Western bank seems to be moving to Asia now, but when are Asian banks going to come to the West to compete? Will they ever?)
- Increasing complexity of markets/products - risk management
- Increasing regulatory pressures - corporate governance
Friday, March 31, 2006
Tuition fees are going down!!
I have been hoping for the sterling to go down significantly for years and now it seems it might finally be happening, just in time before the first BIG chunk of tuition fees is due. The strong sterling killed me in my student years in St Andrews (ever tried to get by on a budget of £270 per month in the UK?) and now there is hope it won't hurt me another time!According to an FT article , a list of bad news about the UK economy is pushing the sterling down:
- a record £10.96bn current account deficit in the fourth quarter of 2005, or 3.6 per cent of gross domestic product
- a decline in mortgage approvals
- US short-term rates rising above the UK's for the first time since January 2001
Obviously, I don't want the UK economy to go down too much since I want to stay in London after the MBA. But still I think the end of the strong sterling is good news for all international students at LBS, alleged to make up 91% of the class.
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