12. Business Plan

8/13/2019 12. Business Plan

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Business

Plans


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Project #3BusinessPlans

You will be required to hand in a business plan

as your final project.This will be a lot of fun !Personalize your plan (no cookie cutter

approach please)Basic Requirement: How are you going to

make money ?Best to leverage off your product proposal

(Project #1).


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Business

Plan

Resourceswww.sbaonline.sba.gov U.S. Small Business Administration

www.paloaltosoftware.com Business Plan Software


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What is a Business Plan ?A business plan is awritten statement thatdescribes and analyzes

your business concept andgives detailed projectionsabout it future.

It also covers the financialaspects of starting orexpanding your business


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Why Prepare aBusiness Plan ?

InvestorsFunding

Proceedor Stop

Identify warningsignals

Improveconcept& definegoalsImprove

your odds

Stay ontr

ack,anticipateproblems,

achieve goals


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Define Business

Begin Brainstorming


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Types ofBusinesses

RetailWholesale

Service

ProjectDevelopment

Manufacturing


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General BP Quest ions to Ask Yoursel f

What problem do I solve for

my customer base?

Who is my target customer?

How will I communicate with

my target customer?What products/services will Iprovide?

Where will my business be

located?

Where will I buy theproducts that I need?

What hours will I operate?

Who will work for me and how

will they be paid?

Who will handle critical taskslike selling, ordering,bookkeeping, marketing and

shipping?

How will I advertise andpromote my business?

What are my competitionsstrengths?

How am I different from thecompetitors, as seen through

my customers eyes?


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Quest ions fo r Retai l

How will I keep abreast with fashion and taste?

Is my location accessible, do I need a heavyadvertising campaign?

Location - high rent shopping center or lower rentlocation where there is less walk and drive by

traffic?

How much inventory will I need in comparison tomy expected sales and revenues?


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Quest ions for

Wholesale

Which product lines will I carry in my inventory andwhich will I order as required?

How will I carry accounts for my customers?

Are their any EXCLUSIVE distributorships available

to me?Will I market the products myself or will the

manufacturers have marketing programs?


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Quest ions fo r Service

Oriented Bus iness

Are my credentials or skills equal to or better thanothers in the field?

Can I sell my service as well as I perform it?

Do I have a client list to begin with or will I have to

start off cold?Am I better off associating with others or is it better

to be independent?


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Quest ions for

Manufacturers

Does my manufacturing process create toxic orpolluting materials - how do I deal with it?

Is there a labor pool available (skilled, unskilled)?

Will I manufacture per order or have an inventory?

Will I manufacture one product or a family forthem?

Is my competition from small or large firms?


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Quest ions for

Pro ject Development

Am I sure of the selling price of my project?Am I sure of the project cost?

What happens if costs exceed predicted costs?

Am I sure of the time factors involved?

Is there a buyer for my project?


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Taste

Trends

Technology

Future

Bus iness Plan: Need to Deal w ith Changes


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Bus iness Plans

Misconception- The only thing standingbetween entrepreneurs and success is

(Sahlman, HBR 97409):Glossy five color charts

Bundle of complicated spreadsheets

A decade of month by month financialprojections.

NOT So !


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What is Wrong w ith

Bus iness Plans

Too much time is wasted on numbers

Too little time on information that reallymatters to intelligent investors

Month-by-month predictions over severalyears are an act of imagination

Sahlman (HBR 97409)

Business Plan


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Numbers in terms of model (demonstrate that

you have thought through the problem)

Key drives of venture success

Address break even issue (when do I make aprofit?)

Cash Flow > 0

Sahlman (HBR 97409)

Bus iness Model Rather

Than A lot o f Numbers


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Cri tical Facto rs to

Every New Ventu re

The People: the core team members andoutside parties providing key services

The Opportunity: profile of business; how will

it grow; what can stand in the way of success

The Context: the BIG picture - regulatory, environmental,interest rates, demographic trends, inflation, etc., thefactors that will change but cannot be controlled by

the entrepreneur

Risk and Reward: an assessment of what can go wrong (risk)and what can go right (pay-off). How can the teamrespond to problems and uncertainties?

Sahlman HBR 97409


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. GREAT businesses have attributes that are easy to identify but hard toassemble.

The teams members have skills and experiences directly related to theopportunity

Ideally, they have worked together in the past

The opportunity has an attractive and sustainable business model; it ispossible to create a competitive edge and defend it

Many options exist for expanding the scope and scale of the business

Value can be extracted positive harvest event (a sale) or by scalingdown or liquidating

The context is favorable - both regulatory and economic environment

RISK is understood, and team understands how to mitigate the impact of

difficult events Sahlman (HBR 97409)

Great Business Ideas


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Who are the People Responsible forthe Business Plan ?

Sahlman (HBR 97409)

Without the right people and the right team, none of theother parts of the business plan really matter.

Why do some venture capitalists read

the resume section first ?


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Every business plan should answer theFollowing about the personnel !

Sahlman (HBR 97409)

Where are the founders from ?Where have they been educated ?

Where have they worked ? For whom ?

What are their accomplishments ?

What is their reputation within the

business/technical community?What is their relevant experience ?

What are their skills, abilities, knowledge ?

How realistic are they ?

Any essential team members missing ?

Can they attract/recruit high quality people ?How will they respond to adversity ?

Do they have the stomach to make difficult

choices ?

How committed are they to the venture ?

What are their motivations ?


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The opportunityor is it ?

Can you answer the following basic questions ?

(1) Is the total market for the venture large,growing, or both ?

(2) Is the industry now, or can it become,

structurally attractive for the venture ?


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The opportunity of a

lifetime or is it ?

Entrepreneurs or investors look for rapidly growing

markets because it is often easier to obtain a share

of a growing market than to fight with entrenched

competitors for a small piece of a mature market.


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The oppo rtuni ty of

a l i fet ime or is i t ?Can your business plan answer these questions?

Who is the new ventures customer ?How does the customer make decisions about buying the

product ?Is the product a compelling purchase to the customer ?How will the product or service be priced ?How will the venture reach all of the identified customer

segments ?How much does it cost (time and resources) to acquire a

customer ?How much does it cost to produce and deliver a product ?How much does it cost to support a customer ?

How easy is it to retain a customer ?


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When does the business have to buy resources, suchas supplies, materials, and personnel ?

How does your business have to pay for them ?

How long does it take to get a customer ?How long before the customer sends the business a check ?How much capital is needed ?

What are the cash flow implications:Can your plan answer the following ?


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Who are the new ventures current competitors ?What resources do they control ?What are their strengths and weaknesses ?How will they respond to your market entry ?

How can your new venture respond to the competitions response ?Who else can exploit the same opportunity ?

Compet i t ion:

Can you r plan answerthe fo l low ing ?


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Business is very much like chess - you need toanticipate your competitors next move.

Dont be naive and pitch an insurmountable lead.

You may have a proprietary lead, can you keep it ?All opportunities have promise !All opportunities have VULNERABILITIES !You need to identify all of your vulnerabilities !

Compet i t ion


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Opportunities exist in context

Contex t !

Economy, interest rates,inflation, exchange rates

Govt regulations


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Government Regulations

More than 100 newcompanies formed when

the airline industryderegulated in the late1970s.

Con text !


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The Economy

Recession in early 1990s mad it hard to get

venture financing. However, as capitalmarkets in the middle 1990s heated up,

these companies had a high rate of return.

Con text !


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Context

Unforeseen Shift

After the Tylenol incident (tampering),the packaging industry flourished.Prior to that the packaging industry

was declining.


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Context

Every business plan shouldcontain certain pieces ofevidence of CONTEXT

- Show heightened awarenessof new ventures context

- Demonstrate that you understand thatthe venture may change and describe

how changes can affect the business

- How will management deal withunfavorable changes in context?


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Risk & RewardsOne of the greatest myths

about entrepreneurs is thatthey are risk seekers --All sane people avoid risk?

William Sahlman (HBS, 79409)


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Risk & Reward

How to Manage Risk??

Taking a picture of the unknown -- a businessplan is a snapshot of an event in the future.

opportunity

context

people

Form

coherent

story

Unfold possibilities ofaction and reaction


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Risk & Reward

Good business plans discuss people,opportunity and context as a moving target

These categories are fluid and willchange over time

- key people will leave

- opportunities will vanish

- economy will fluctuate


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Risk & Reward

Fortune is hard to predict,

but you have to convinceinvestors that you have asense of the risk and rewardsinvolved

It is up to the management to increasethe likelihood of success andconsequences of success


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True entrepreneurs want to capture all

the reward and give all the risk to others.Yet risk is unavoidable.

Howard Stevenson (HBS)


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Risk & RewardYour business plan should confront risk head on

- in terms of people, opportunities andcontext

Try and understand scenarios:

- what happens if a key team leader leaves?

- what if competition responds more

ferociously than expected?

- what happens if there is a revolution in

Namibia, a source of key raw material?


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Risk & Reward

Your business plan should address

candidly how the investor will get

back his / her money

Venture capitalists like a wide range of exit

strategies

- IPO

- sell company outright

- split up company and sell parts


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Risk & RewardInvestors feel better

about risk if it is up front

Cover all possibilities


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If you dont know

where you are going,any road will get youthere.

FOR ENTREPRENEURS--

You better know where you will end up and

have a map for getting thereA business plan should be the place where themap is drawn, a journey is less risky when you

have directions

Vi li i Ri k d R d


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Visualizing Risk and Reward

- What is the depth and duration of negative cash flow?

- ideal, cash flow early and often

- possibly generate this curve from a sensitivity spreadsheet

Vi li i Ri k d R d


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Visualizing Risk and Reward

- Flat portion reveals a negligible chance of losing a small amount of money

- There is a significant chance of earning between 15% and 45%

- Small chance of a killer app > 20%

- Possible to predict with Monte Carlo

t)


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Final Thoughts

A business plan is a call for action,

must be proactive

Risk management is a key, often tilting

the venture in favor of reward and awayfrom risk

Should be a coherent document

Th F t f B i Pl


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The Format of a Business Plan

There are all kinds of help out there, use it!

Also, lots of books:

- Complete Business Plan by Adams (ISBN 1-55850-645-7)

- How to Write a Business Plan by McKeever (ISBN 0-87337-5440)

- BusinessPlan.com by Ross (ISBN 1-55571-455-2)- The Business Planning Guide by Bangs (ISBN 1-547410-099-8)

- Model Business Plans by Richter (ISBN 0-7352-0024-6)


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It is a good is idea to

invest in a business

plan book -- go the

local bookstores and

library and find one youlike.


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Formal Business Plan

Here, a sample structurewill be provided

I provide a sample, it isnot intended to bea one size fits all document

Personalize your plan - be creative


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Format Skeleton of a

Business Plan

Main Body

Executive Summary

A. Program OverviewB. Management & StrategyC. Products

D. Market & SalesE. CompetitionF. OperationsG. Risks & Rewards

H. Financial Models

Appendix

A.1. Primary Final Objective

A.2. Supportive FinancialProjections

A.3. Historical Financial Data

A.4. Organization

A.5. Resources

Table of Contents


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Table of Contents

Executive Summary

A. Program Overview

Introduction

HistoryProductsMarketMarketing and salesCompetitionLocationFunding requirementsFinancial goals

Return to investors

B. Management and StrategiesCorporate missionBusiness development strategyGoalsManagement teamConsultant

C. ProductsConceptProduct approachProduct designProduct, trademark, and regulatory

status

Future products

D.Marketing and SalesMarketing plan overviewSales plan overviewMarket size

Marketing researchMarketing for the initial

E. CompetitionPerspectiveSpecific competitive products

Anticipated competition

F. OperationPerspectiveProduct R&DProduct designManufacturingQuality

G. Risks and Rewards

RisksBenefitsStockholders

H. Financial Models

Appendixes

Executive Summary (1 page only)


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Executive Summary (1 page only)

Overview:Name the organization and generically describeits nature, mission, long-term objectives, and products.

Compet i tive produc ts :Describe product types availablefrom competitors and their weaknesses compared to yourproducts, as lead-in to the next topic.

Your pro ducts :Depict your existing and future products andhow they improve competitive shortcomings.

Added produ ct issues:Describe additional benefits of yourproducts and also honestly mention any weaknesses and how

they are being addressed.

Business development status:Briefly outline the status ofboth product and business development, the latter oneindividually of each of three divisions (administration,

technology and marketing).

Executive Summary cont


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Executive Summary con t

Market(s) and shares:Profile the market(s) (the nature andsize) your products address, extracting summary data from

the program overview and the marketing and sales section.

Project s treng ths:List the major strengths of the project(e.g., management team, product features and acceptance,patent status, technical prowess, marketing prowess).

Funding requirements:Describe the funding sought, how itis to be used, how it relates to total long-range funding plans,and what is offered in return. In a brief table below the endingtext, summarize for each year of the 5-year model: (1) therequired investment, (2) sales, (3) market share and (4) pretaxprofit.

A Program Overview


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A. Program Overview

In t roduct ion:The introduction provides an orientation tothe broad industry or industry group, describes the more

specific industry of the company product, depicts the basetechnologys state of the art and its strengths and

weaknesses, and closes by reviewing the product and howit exploits or extends the technology. (2 - 4 paragraphs)

History:Include here a non-detailed list of peoplerecruited and goals achieved to date, such as pertinenthistory, technical marketing development, managementteam status, facilities, patent status, and project

recognition. (1 - 2 paragraphs)Products :Describe what the product accomplishesfunctionally (not what it is), summarize the products

technical rationale, and list product attributes labeled

important by industry representatives. (1-3 paragraphs)

A Program Overview cont


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A. Program Overview con t

Market:Depict the market size, supported (if possible) byreferences, market share estimates, future expansion of

markets with the same or other products, and why themarket is considered appropriate for the product.(2 - 3 paragraphs)

Market ing and sales:Summarize marketing objectives,

strategies and their rationale, near-term promotion andsales activities and their assessment measures, productimaging and positioning details and associated rationale,and the expected long-term sales growth profile and its

rationale. (2 - 4 paragraphs)Compet i t ion:This topic is a substantially condensedversion of the full section on competition. Modify thepresentation format to avoid redundancy.

(1 - 2 paragraphs)



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A. Program Overview con t

Locat ion:The primary discussion of facility location ishere, so cover future plans as well as past and current

data. (1 paragraph)

Funding requirements:An overview paragraphintroduces a table that shows, by project quarter, fundingneeds and a condensed summary of principle company

activities. Breaking up the narrative with a table, a figure, ora list aids readability.(1 paragraph)

Financial goals:Provide intro paragraph citing thefinancial model as source and briefly list key model

assumptions and provide a tabular summary of thefollowing key financial goals for each year of the plan:revenue, expenses, pretax profit, taxes, after-tax profit,number of outstanding stock shares, and earnings per

share.



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A. Program Overview cont

Return to investors:Summarize the general distributionof stock among investors and management, on the basis of

the data in the appendix on the organization. List andbriefly discuss three mechanisms identified bymanagement as exit strategies feasible several years out(e.g., company stock buyback, private offering, public

offering, company borrowing, merger, company sale).Design the program overview section so that discussion

does not duplicate discussion elsewhere. Many general

topics are specified repeatedly in the plan, but each

occurrence calls for a different approach or distinct level ofdetail. No direct rehashes of previously presented material

should occur anywhere in the plan (except perhaps the

executive summary).

B Management and Strategies Section


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B. Management and Strategies SectionCorporate m iss ion:In one or two sentences, state thecorporate mission exactly as needed for ongoing strategicplanning. (1 paragraph)

Business development strategy :Outline company andproduct development and underlying rationale, describeindustry reception or pre-introduction marketing research to

date, discuss how you have applied the strategy of customer-driven design approach, and outline future product developmentplans and their dependence on the same principles. (2 - 4paragraphs)

Goals:State the models fifth-year sales goals, followed by abulleted list identifying at least three reasons why it shouldmaterialize (e.g. your unique technology, extensive teamindustry knowledge, current market position, new or extendedmarketing approaches planned, future products and markets).

(1 paragraph)


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C Products


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C. Products

Concept:Describe the fundamental concepts that underlieearly products, features that embody said concepts, and

expected customer reactions. Outline any significant futureenhancements or additional concepts. (1 paragraph)

Produc t approach:Review the specific design approach ingeneral terms. (1 paragraph)

Produc t design:Describe the initial product design in somedetail (without revealing proprietary elements) as follows:general nature of product design status, intended use,configuration of various models, a bulleted list of major industry

design and functional improvements accomplished (e.g., simplemechanisms, easily produced, reliable components, extendedguarantee) and means of production. (3 - 6 paragraphs)

C Products cont


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C. Products con t

Patent, trademark, and regulatory status :Review patentstatus of near-term products, singly or collectively as

appropriate; in turn, do the same for trademarks, service marks,and regulatory issues. (1 - 3 paragraphs)

Future produ cts :Thoroughly describe the philosophy,organization, budget weight, and leadership of R&D and

present its long-term project plans. How will company grow. (1 -2 paragraphs)

D. Marketing and Sales


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D. Marketing and Sales

Market ing p lan overview :Begin by stating your ultimaterealistic industry goal (e.g., leader, prominent or general

participant, number two player). Name the functions under thecontrol of the marketing division (probably program design;customer analysis; product imaging, positioning, promotion,pricing , and delivery; competitive analysis; forecasting; newproduct planning; sales management; and customer service)and give a brief description of each in bulleted list form (1paragraph plus the list). Address the marketing portion ofcorporate strategic management, directed to the strategic andtactical planning to develop, design, implement, and control all

marketing and sales functions, and who will control that function(1 paragraph).

D. Marketing and Sales cont


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Marketing plan overview cont:Address productmarketing, the function that defines system features,

customers and their needs and desires, product imaging andpricing, sales leads, forecasts, product and technicalliterature, and other promotional tools and who will controlthat function (1 paragraph). Next, address promotion and

advertising by describing current or planned elements, thetarget marketplaces, and how your marketing properlyconforms to said markets (1 paragraph). Finally, mentionsales and service purely by defining management namesand titles. (1 paragraph)

D. Marketing and Sales con t



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Sales p lan overview :Review the general nature, structure,leadership, and makeup of the sales function (1 paragraph);

outline the general approach and steps to consummatetypical sales (1 paragraph); and describe customer servicefunction leadership, structure, size, makeup, methods, andhow data are collected to aid product design. (1 paragraph)

Market s ize:Define market size and relevant assumptions;present a table of market size, company sales, and companymarket share of each plan year; discuss reasonableness ofsuch company market share achievement; and end by listing

three strong attributes of your product fostering marketpenetration (e.g., value, low cost, improved efficiency). (4paragraphs)




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Market ing research :Review company and productadvantages from a different perspective. Introduce and

display a bulleted list of primary concerns expressed byindustry reps (or customers), then present the list, choosingitems that accentuate your positives as learned frommarketing research (e.g., customer needs, desires,

concerns, and shortcomings; appropriateness of industrysophistication, diversity, and maturity; environmental orregulatory issues where you shine), and finally close with abrief description of how well your product meets list attributes(so list only items where you excel). (2 paragraphs plus list)




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Future markets and their approaches:Briefly describefuture product and/or marketing approach concepts. Keep

this subsection short, to avoid imbalance and a dreamerimage, but it is critical to show your essential commitment toongoing product development and future growth.(1 paragraph)


E. Competition


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Perspect ive:Provide an overview of the global market(size, growth, trends, nature of customer, product turnover

rate and so forth). Then describe how the material to follow isorganized, for example, by product within one market (as isassumed in the next item), by niche within one market, or bymarkets.

Speci f ic compet it ive prod ucts :Whatever organizationalapproach is chosen, discuss each competitor by name,addressing size, company age, spectrum of products,competitive strengths and weaknesses (e.g., product

development, innovation, design, quality, marketing),products specifically competitive to yours, and the good andbad of theirs versus yours. (1 paragraph per competitor)

E. Competition

E. Competition cont


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An t ic ipated com pet it ion:Describe company preparednessfor competition in general, including future new market

entrants. It is best to emphasize (and actually conduct)continuous marketing research, in-house R&D, aggressiveproduct development and market entry, and any other factorsrelevant to sound, responsive business and product

management.

C p

F. Operations Section


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Perspect ive:Introduce and define in logical order eachmajor company technical function for later discussion. Wetreat functions in order of product development, with qualitylast to emphasize its central attention. (1 paragraph)Produc t R&D:Describe product development organization,

its leader, to whom the leader reports, facilities andequipment, functions included here, sources of ideas, andother key data concisely conveying how R&D works andmeshes with other company functions. (1 - 2 paragraphs)

Manufactur ing:Treat the same basic topics as R&D, plushow key elements (parts, materials, progressing product,finished product, nonconforming material) flow through thesystem, inventory management, packaging and shipping.(1 - 2 paragraphs)

p

Information on Internal Technical Operations

F. Operations Section cont


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Qual i ty:Discuss the same basic topics as R&D,emphasizing how quality is a distinct function and how it iskept relatively independent of management of theadministration division and the technology division (1paragraph). The latter treatment concerns quality at the

departmental level. Then treat each of the two major qualityfunctions, such as quality control, in some detail, describingtheir organization, leadership, functions, facilities andequipment and other key issues.

p

Information on Internal Technical Operations

G. Risks and Rewards


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Risks:Begin by asserting that it is essential formanagement to identify and assess both the risks and the

rewards of the companys venture, to aid informed planning.Then state that the plan does not constitute a solicitation oroffer of investment--the presented treatment is for purposesof planning and information only, and detailed investment

data will be provided during relevant deliberations. Includethe same statement on the front most cover or title page ofthe business plan as well (1 paragraph). Next, include abulleted list, with each item formed as follows: Identify onemajor project risk, followed by a brief explanation of how theproject is addressing that risk (1 paragraph for each list item).Risk examples include managements ability to affect

successful administration, marketing, sales, and products;the degree to which administration, marketing, sales and

products;

G. Risks and Rewards cont


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Risks cont:the degree to which company products will beaccepted by customers and bring them benefits;

managements ability to provide adequate external fundingand proper financial management; unexpected social,economic regulatory, or legal perturbations; the advent ofcompetitive responses, products, and copying of company

products or technology.

Benefi ts:Briefly discuss or list potential benefits to founders(e.g., salary and benefits, entrepreneurial satisfaction,security, stockholder benefits), employees (e.g., salary andbenefits, job satisfaction, advancement and professionaldevelopment opportunities), and stockholders (e.g., potentialequity growth, potential dividends, entrepreneurialsatisfactions). How are you going to keep your employees!

G. Risks and Rewards cont


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Stockholders:To elaborate stockholder risks versusrewards, investment in startups or young firms usually

accesses potentially growth in net worth.

H. Financial Model


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Key assumptions used to develop the sales projections;Marketplace and competitive assumptions;Pricing and discount policies and rationale;Rationale for salaries, benefit levels, and other compensation;

Average time lag between a sale and actual money receipt;Average time lag between incurring and paying of bills;Major bills or expense categories that cannot be postponed;Functions that are contracted rather than conducted in-house;

Rationale for leasing or purchasing large-ticket items;Time-dependent relationships, such as volume purchases;Relevant environmental, social, economic, political, andregulatory issues.

Include barebones of financials here

What are your assumptions?

H. Financial Model


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Income Statement

The income, or profit-and-loss (P&L), statementsummarizes income versus expenses. To hold thisstatement to one page, many data are summarized,which often dictates the need for additional statementsextending beyond the three primary ones to present

supporting detail. Otherwise, readers of the businessplan may erroneously judge primary statement numbersas too arbitrary.

RevenueNet salesOther revenue

Total of all money receivedA net sales breakdown by component is possible


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Total revenue

Cost of Goods SoldContract manufacturingPurchased materialsManufactured materialsLabor

Total COGSGross margin

Direct Selling Costs

Sales expensesCommissions

Ads/meetings/shows

Selling costs

General and Administrative

Administration laborAdministration expenseTechnology laborTechnology expenseMarketing/sales labor

Marketing/sales expenseRent, utilities, phoneLegal, insurance, accountingOther

Total G&AProfit & LossProfit before taxLess tax @ 37%

Profit after tax

y p pTotal of all money to the company

Whole product or subassembliesAll purchased parts and materialsAll parts or materials made in-houseAll direct/support labor involved in manufacturingTotal of all COGSTotal revenue less total COGS

All direct expenses of sellingSales commissions and bonusesSelf-explanatory; add rows for finer breakdownTotal of all direct selling costs

Labor + personnel overhead for admin. DivisionAll non-labor expenses for administration divisionsLabor + personnel overhead for technology division

All non-labor expenses for technology divisionLabor + personnel overhead for marketing division

All non-labor expenses for marketing divisionInclude equipment under appropriate divisionSelf-explanatoryBreak into additional line items as needed for clarityTotal of all G&A expenses

Algebraic sum of all category headingsConsult an accounting professional for the correctpercentageThe infamous bottom line

H. Financials


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Balance Sheet

Presented immediately after the income statement, thebalance sheet shows the relative balance among assets,liabilities, and company equity. A balance sheet isorganized to equate assets with the sum of liabilities andequity, the latter term being the companys net worth.

Thus the balance sheet summarizes the companysgeneral financial health, its history, and its projectedfuture evolution.

Current Assets

Cash Cash, typically the checking account balance


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Accounts receivableRaw materials inventoryWork-in-progress inventoryFinished product inventoryShort-term notes receivable

Total current assetsLong-Term and Fixed Assets

Technological rightsEquipmentLess depreciationImprovementsLong-term-notes receivable

total L/T&F Assets

total assetsCurrent and Long-Term Liabilities

Accounts payableShort-term loansTax, payrollTax, other

Total current liabilitiesLong-term liabilities

total L-T liabilitiesTotal liabilities

Equity

Common stockPreferred stockRetained earnings

total equityTotal liability & equity

Money due the company in normal business conductInventory as parts and materialsInventory of partially assembled goodsInventory of finished product fully ready for saleShort-term notes payable to the company

Self-explanatory

Non-cash value conveyed by founders, for stockPurchased large-ticket itemsDepreciation of equipment (a negative entry)Improvements made to facilitiesLong-term notes payable to the companySelf-explanatory

Total of all assets; equals liabilities + equity

Money owed by company in normal commerceShort-term loans received by the companyPayroll taxesOther taxes; break down if needed for clarityTotal current liabilities

Long-term liabilities owed by the companyTotal current + total long-term liabilities

Founders stock + stock in return for investmentOften this is zero for all time periodsCumulated excess earnings, per income statement

Algebraic sum of all equityAlgebraic sum of all liabilities and equity

F Y P j t


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For Your Project:

The financials described here are prettysophisticated.

At a minimum, it should be at a level that waspresented by Professor Suuuuuuuberg.

It is really important for you to also show a break-

even time. When do you make money? Year 2?Year 3?


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Appendixes:

Include supporting data andinformation in appendixes, such as:

Details

Supporting financial data

Historical financial data

Company organization in gory detail

Resumes of management team and board ofdirectors

These are not required for your project, but please

include them if you have the data.

S


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Summary

A business plan is a map to success.

This will really show you the ropes to do aprofessional job.

You can look back on it in 20 years when youare the CEO of Xerox.

A Glossary of Business Plan Terms


80/80

What They Say And What They Really Mean

We conservatively project We read a book that said we had to be a $50 millioncompany in five year, and we reverse-engineered thenumber.

We took our best guess and divide by 2 We accidentally divide by 0.5.

We project a 10% margin. We did not modify any of the assumptions in the businessplan template that we downloaded form the Internet.

The project is 98% complete. To complete the remaining 2% will take as long as it took to create the initial 98% but will cost twice as much.

Our business model is proven If you take the evidence form the past week for the best ofour 50 locations and extrapolate it for all the others.

We have a six-month lead. We tried not to find out how many other people have a six-month lead.

We only need 10% market share. So do other 50 entrants getting funded.

Customersare clamoring for our product. We have not yet asked them to pay for it. Also, all of ourcurrent customers are relatives.

We are the low-cost producers. We have not produced anything yet, but we are confident thatwe will be able to.

We have no competition. Only IBM, Microsoft, Netscape, and Sun have announced

plans to enter the business.

Our management team has a great deal ofexperience

Consuming the product or services.

A select group of investors is considering the We mailed a copy of the plan to everyone in the Pratts Guide.

We seek a value-added investor. We are looking for a passive, dumb-as-rock investor.

12. Business Plan

Documents

Transcript of 12. Business Plan