Transcript Document 7230332

Business Plan Writing
5/22/2016
The Purpose……
Pre-venture Counseling
Loan Packaging
Business Planning
Market Research
Financial Analysis
New Product
Commercialization
Franchise Evaluation
Strategic Planning
International Trade
Human Resource Mgmt
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Ingredients for Success
QUALIFIED PERSON
POTENTIAL BUSINESS OPPORTUNITY
BUSINESS PLAN
SUFFICIENT CAPITAL
LUCK
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THE BUSINESS PLAN
THE BUSINESS PLAN IS A WRITTEN
DOCUMENT WHICH DESCRIBES YOUR
BUSINESS IN TERMS OF . . .
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THE BUSINESS PLAN
WHO YOU ARE
WHAT YOU DO
WHERE YOU ARE HEADED
HOW AND WHEN YOU EXPECT TO GET
THEER
WHY YOU WILL BE SUCCESSFUL
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WHY YOU NEED A
BUSINESS PLAN
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A Business Plan is:
Your First
Marketing
and Sales
Tool
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Typical Business Plan Outline
(First Time Entrepreneurs)
I. Overview (Summary)
II. The Opportunity
III. The Solution
IV. The Business Model
V. Operations
VI. Financials
VII. Required Capital, Equity Structure and Rate
of Return
VIII.Management Team
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TO ENCOURAGE YOU TO BE SPECIFIC
TO EVALUATE THE FEASIBLITY OF
YOUR IDEAS
TO PROVIDE PLANNING, OPERATING,
AND POLICY GUIDES
TO IMPROVE DECISION-MAKING,
EFFICIENCY, AND CONTROL
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TO IMPROVE YOUR CHANCES OF
SUCCESS
TO PERSUADE POTENTIAL LENDERS AND
INVESTORS YOU WILL SUCCEED
NOTE: DO NOT WRITE A BUSINESS PLAN
JUST TO OBTAIN FINANCING, WRITE IT
FOR YOUR BENEFIT.
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COMPONENTS OF A
BUSINESS PLAN
NARRATIVE
FINANCIAL DATA
SUPPORTING DOCUMENTS
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STATEMENT OF PURPOSE
WHO IS ASKING FOR THE MONEY?
WHAT IS THE BUSINESS STRUCTURE?
HOW MUCH MONEY?
WHAT IS THE MONEY NEEDED FOR?
HOW WILL THE FUNDS BENEFIT THE
BUSINESS?
WHY DOES THE LOAN MAKE SENSE?
HOW WILL THE FUNDS BE REPAID?
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DESCRIPTION OF BUSINESS
BUSINESS FORM?
-PROPIETORSHIP
-PARTNERSHIP
-CORPORATION
TYPE OF BUSINESS?
-MERCHANDISING
-MANUFACTURING
-SERVICE
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DESCRIPTION OF BUSINESS
(cont.)
WHAT IS THE PRODUCT AND/OR
SERVICE?
IS IT A NEW BUSINESS, TAKEOVER, OR
EXPANSION?
WHY WILL THE BUSINESS BE
PROFITABLE?
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DESCRIPTION OF BUSINESS
(cont.)
WHEN WILL YOUR BUSINESS OPEN?
IS IT A SEASONAL BUSINESS?
WHAT HAVE YOU LEARNED ABOUT
YOUR BUSINESS FROM OUTSIDE
SOURCES?
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PRODUCT/SERVICE
WHAT ARE YOU SELLING?
WHAT BENEFITS ARE YOUR
CUSTOMERS BUYING?
WHICH PRODUCTS ARE RISING STARS,
STEADY CASH COWS, IN DECLINE
(INVESTMENT EGOS)?
WHAT IS DIFFERENT ABOUT YOUR
GOODS AND SERVICES?
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MARKET
WHO BUYS FROM YOU? DEFINE YOUR
TARGET MARKETS.
ARE YOUR MARKETS GROWING,
STEADY, OR DECLINING?
IS YOUR MARKET SHARE GROWING,
STEADY, OR DECLINING?
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MARKET (cont.)
HAVE YOU SEGMENTED YOUR MARKETS?
HOW?
ARE YOUR MARKETS LARGE ENOUGH
FOR EXPANSION?
HOW WILL YOU ATTRACT, HOLD, AND
INCREASE YOUR MARKET SHARE?
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MARKET (cont.)
ARE YOU PLANNING TO ENTER OR
LEAVE ANY MARKETS?
HOW DO YOU PRICE YOUR
PRODUCTS?
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COMPETITION
WHO ARE YOUR DIRECT COMPETITORS?
WHO ARE YOUR NEAREST INDIRECT
COMPETITORS?
HOW ARE THEIR BUSINESSES SIMILAR
TO AND DIFFERENT FROM YOURS?
WHAT HAVE YOU LEARNED FROM THEIR
OPERATIONS, ADVERTISING?
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LOCATION OF BUSINESS
WHERE ARE YOU (OR SHOULD YOU BE)
LOCATED?
WHY IS IT A DESIRABLE AREA OR
BUILDING?
WHAT KIND OF SPACE DO YOU NEED?
ARE ANY DEMOGRAPHICS OR OTHER
MARKET SHIFTS GOING ON?
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MANAGEMENT
HOW DOES YOUR BUSINESS
EXPERIENCE HELP YOU IN THIS
BUSINESS?
WHAT RELATED WORK EXPERIENCE
DO YOU HAVE?
WHO IS ON THE MANAGEMENT TEAM?
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MANAGEMENT (cont.)
WHAT ARE THEIR STRENGTHS AND
WEAKNESSES?
WHAT ARE THEIR DUTIES?
ARE THESE DUTIES CLEARLY DEFINED?
HOW?
WHAT ADDITIONAL RESOURCES ARE
AVAILABLE TO YOUR BUSINESS?
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PERSONNEL
WHAT ARE YOUR CURRENT
PERSONNEL NEEDS?
WHAT SKILLS WILL YOUR EMPLOYEES
NEED? IN FIVE YEARS?
WHAT ARE YOUR PLANS FOR HIRING
AND TRAINING PERSONNEL?
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APPLICATION/EXPECTED
EFFECT OF THE LOAN
(INVENSTMENT)
HOW WILL THE LOAN (INVESTMENT)
MAKE YOUR BUSINESS MORE
PROFITABLE?
WILL YOU BUY OR LEASE (EQUIPMENT,
PLACE OF BUSINESS)?
DO YOU NEED THIS MONEY?
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FINANCIAL DATA
SOURCES ANDAPPLICATIONS OF FUNDING
ASSUMPTIONS
WAGE/REVENUE SCHEDULE
BALANCE SHEET
THREE YEAR INCOME STATEMENT
THREE YEAR CASH FLOW STATEMENT
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Goal for Session
Quick Introduction to
Business Plan Financial
Analysis

Help you understand
what is important
Not a class in
accounting!
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What should it be ?
What is the Purpose of Business Plan
Financials?
Passing the “Taste Test”
Executive Summary Financials
Detailed (Appendix) Financials
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Business Plan
Financials
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What is the
Purpose of
Your
Business
Plan
Financials?
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Business Plan Financials
Phase I
Helps you:
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test various potential business models
isolate critical assumptions
determine whether this is a viable business
opportunity
determine how much money you’ll need
Business Plan Financials
Phase II
Helps potential investors:
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
test the viability of your business model
evaluate your critical assumptions
 Are they credible?
 Do you understand your business?
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evaluate you as someone who understands how
business works from a financial perspective
determine whether the investment is potentially
attractive
evaluate your true financial needs
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“The Taste
Test”
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Job 1: Pass the “Taste Test”
Tom Canfield of Equity Catalysts:
“Can you taste $25-$50 million in
revenues?”
Is the revenue scenario credible or will you have to
achieve miracles to hit your forecast numbers?
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So, how do
you convince
someone that
your revenue
scenarios are
credible?
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Tips for Credibility
Show your
assumptions and be
able to back them
up with FACTS
based on market
research and/or
some compelling
rationale
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Showing a Potential Market
Enterprize, Inc.
Market share required to achieve Revenue Goals
Gizmo Unit Sales Price
$
Market Opportunity in Units
Market Opportunity in Revenue to Enterprize
2,500 25% of competitor price; greater value
150000 According to Gartner Group;
$
375 $ million
Yr
1
Enterprise, Inc. Yearly Objectives ($ millions) $
Growth Rate
Required Unit Sales
Required Market Share to Achieve Objective
Yr
2
3.50
Yr
4
Yr
5
$ 7.00 $ 14.00 $ 28.00 $ 56.00
100%
100%
100%
100%
1400
2800
5600
11200
22400
0.93%
1.87%
3.73%
7.47% 14.93%
Note: Enterprise will achieve this required market share because of:
1) Partnership with xyz will yield . . .
2) ajsadfjkdfsajkl adfjkldsfkl, etc.
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Yr
3
Mistakes to Avoid
Assumptions you can’t justify

Too high a market share
Too much detail
Too little detail
Not enough growth
Too much profit (in later years)
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Summary Financials
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Summary Financials
Pro-forma Income Statement
Pro-forma Return to Investors
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Income
Statement
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What is an Income
Statement?
Shows financial results of a company over a
given period of time
Includes:
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
Revenues
Cost of Sales (costs directly attributable to the
products/services sold)
Other Operating Expenses
 Marketing, Sales
 Research and Development
 General and Administrative

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Earnings before TaxOperating Income
Tax
Earnings after Tax
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Sample Income Statement
Simple Income Statement
Enterprize, Inc.
Jan-Dec, 1999
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Revenues
$60,000
Cost of Goods Sold
$30,000
Gross Margin
$30,000
Research & Development
Sales and Marketing
General and Administrative
$35,000
$40,000
$10,000
Total Operating Expenses
$85,000
Operating Profit
Tax
Profit After Tax
-$55,000
35%
0
-$55,000
Income Statement Questions
What is Revenue?


How would a magazine account for a
subscription?
How would a software company account
for a software license?
What is Cost of Goods sold?
What are some of the components of
operating expenses?
What
is
operating
profit?
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Pro-forma Income Statement
Summary Table showing 3-5 years of
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Revenues
Cost of Sales
Other Operating Expenses
Operating Income
Plus: Brief text on how can you support
these financials

The key assumptions
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Pro-forma Income Statement
Income Statement (MM)
Years
1
2
3
4
5
Revenues
$13.1
$54.3 $143.3
Cost of Goods
Sold
$15.6
$28.8
$54.1
$82.4 $112.1
Other Operating
Expenses
$23.8
$32.1
$64.5
$100.4 $140.3
-$26.3
-$6.6
$24.8
201.2%
12.2%
17.3%
Operating Income
Operating Margin
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$230.2 $321.2
$47.4
$68.8
20.6% 21.4%
Required Capital, Equity
Structure and Rate of Return
How much cash will you need?
What is the value of the company?
How much will the management team
contribute, if any?
What is the rate of return on capital for
the investors?
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Rate of Return Assumptions
Assumptions for ROI Calculation
Investment by Partner
$ 25.0 million
Valuation of the company after the investment $ 100.0 million
Equity from Investment
Equity from Strategic Relationship
Total percent of equity
25%
5%
30%
Year 5 Operating Profit
Assumed multiple of operating profit at sale
$
69 million
7
Assumed value of the company after 5 years
Return to Partners
$
$
483 million
145 million
Assumed dividends during 5 years
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0
Rate of Return Calculation
Yr
Yr
Yr
Yr
Yr
1
2
3
4
5
Initial Investment
$
(25) $
-
$
-
$
-
$
-
Dividends
$
-
-
$
-
$
-
$
-
$
145
$
145
$
Return from Sale
Net Cash Flows
$
(25) $
Internal Rate of Return
Net Present Value at
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-
$
-
$
-
55%
35%
$13.82
Detailed Financials
(“Appendix”)
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Exhibits for Detailed Financials
Typically: 5 years on an annual basis and
month-to-month for the first year
Components:
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Assumptions and Outcomes Page
Income Statement
Detailed Revenue
Detailed Expenses
Headcount
Return on Investment
Balance Sheet
Cash Flow
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Assumptions and Outcomes
Shows key assumptions and the
outcomes in terms of profits, etc.
Helps show the reasonableness of your
analysis
Tells the story in summary form, in case
someone only looks at this page
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Income
Statement
and
Related
Exhibits
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Income Statement
Revenues

Summarizes components of revenue
Expenses


Cost of goods sold
Other major components of operating expenses
 Sales, marketing, general and administrative
 Research and Development, etc.
Earnings before income and tax (or operating
income)
Tax
Profit after tax
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Detailed Revenue
Shows revenue over time divided into
key components:

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Product areas
Geographies
Any components that make sense
Documents assumptions and their
effects
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Detailed Expenses
Summarizes key expense categories in
major detail
Documents assumptions not
summarized elsewhere
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Payroll and Headcount
Who are you going to hire
When will they start?
How much will they earn?
Cost of benefits, etc.
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Return on Investment
Expected investment
Expected share of ownership
Change in share of ownership due to
other investments
Returns on the investment, including
dividends and some “terminal value”
Discount cash flows to show Internal
Rate of Return and Net Present Value
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Balance
Sheet
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What is a Balance Sheet?
A snapshot of a company’s financial
position at a moment in time
Left hand side = Assets
Right hand side = Liabilities and
Equities
Assets must equal liabilities plus
equities (hence it is a “balance” sheet)
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Balance Sheet
Simple Balance Sheet
Enterprize, Inc.
6-Jan-00
Liabilities &
Equity
Assets
Cash
Accounts Receivable
Inventory
$
$
$
25,000 Accounts Payable
10,000 Prepaid royalties
15,000 Current portion of notes payable
$
$
$
5,000
25,000
-
Total Current Assets
$
50,000 Total Current Liabilities
$
30,000
25,000 Long term debt
$
-
Total Liabilities
$
30,000
Property, Plant & Equipment $
Paid-in Capital
$ 100,000
Retained Earnings (cumulative deficit) $ (55,000)
Total Assets
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$
75,000 Total Liabilities and Equities
$
75,000
What is an Asset?
Assets are valuable resources
owned by an entity and
include:

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
Cash
Things that are likely to become
cash soon (inventories, accounts
receivable)
Valuable things that help the
business produce revenues over a
longer period (property, plant, and
equipment, etc.)
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What is a Liability?
Liabilities are the claims
of creditors and include:
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Accounts payable
Notes payable this
year
Longer term
obligations, such as
long term debt
What is an Equity?
Equities reflect the
“claims” of investors and
include:
Paid in capital
“Retained Earnings” or the sum
total of profits after tax that
haven’t been paid out through
dividends
Note: You can’t cash in equities—
they represent a claim on the
business not an asset.
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Cash Flow
Statement
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Cash Flow Statement
Records the Flow of Cash during a given
period
Cash inflows include:



Profits
Sale of assets
Reduction in:
 Accounts Receivables
 Other assets
Cash outflows include:



Losses
Purchase of assets
Increase in:
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 Accounts Receivables
 Other assets
Cash Flow Statement
Simple Cash Flow Statement
Enterprize, Inc.
Jan-Dec, 1999
Sources of Cash
Cash from Operations:
Net Income (loss)
Depreciation
$
$
Uses of Cash
Increase in accounts receivable
Increase in Inventory
(55,000) Purchase of property, plant
5,000
& equipment
Net cash from operations
$
(50,000)
$ 10,000
$ 15,000
$ 30,000
Other Sources of Cash:
Sale of Stock
$
Increase in accounts payable $
Increase in prepaid royalties $
Total Sources of Cash
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$
90,000
5,000
25,000
70,000
Total Uses of Cash
Increase (decrease) in cash
$ 55,000
$ 15,000
Business Plan Financial
Projection Workshop
Handout
Example Statements and
Recommended Readings
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Q and A
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Thanks and
from Heinz .Com
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