1. Business Plan Writing
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2. The Purpose…… Pre-venture Counseling Business Planning
Financial Analysis
Franchise Evaluation
International Trade
Loan Packaging
Market Research
New Product Commercialization
Strategic Planning
Human Resource Mgmt
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3. Ingredients for Success
QUALIFIED PERSON
POTENTIAL BUSINESS OPPORTUNITY
BUSINESS PLAN
SUFFICIENT CAPITAL
LUCK
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4. THE BUSINESS PLAN
THE BUSINESS PLAN IS A WRITTEN DOCUMENT WHICH DESCRIBES YOUR BUSINESS IN TERMS OF . . .
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5. 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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6. WHY YOU NEED A BUSINESS PLAN
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7. Your First Marketing and Sales Tool
A Business Plan is:
Your First Marketing and Sales Tool
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8. Typical Business Plan Outline (First Time Entrepreneurs)
Overview (Summary)
The Opportunity
The Solution
The Business Model
Operations
Financials
Required Capital, Equity Structure and Rate of Return
Management Team
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9. 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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10. 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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11. COMPONENTS OF A BUSINESS PLAN
NARRATIVE
FINANCIAL DATA
SUPPORTING DOCUMENTS
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12. 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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13. DESCRIPTION OF BUSINESS
BUSINESS FORM?
-PROPIETORSHIP
-PARTNERSHIP
-CORPORATION
TYPE OF BUSINESS?
-MERCHANDISING
-MANUFACTURING
-SERVICE
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14. 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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15. 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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16. 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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17. 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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18. 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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19. MARKET (cont.) ARE YOU PLANNING TO ENTER OR LEAVE ANY MARKETS?
HOW DO YOU PRICE YOUR PRODUCTS?
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20. 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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21. 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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22. 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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23. 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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24. 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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25. 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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26. 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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27. 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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28. 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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29. Business Plan Financials
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30. What is the Purpose of Your Business Plan Financials?
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31. Business Plan Financials Phase I
Helps you:
test various potential business models
isolate critical assumptions
determine whether this is a viable business opportunity
determine how much money you’ll need
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32. Business Plan Financials Phase II
Helps potential investors:
test the viability of your business model
evaluate your critical assumptions
Are they credible?
Do you understand your business?
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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33. “The Taste Test”
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34. 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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35. So, how do you convince someone that your revenue scenarios are credible?
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36. 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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37. Showing a Potential Market
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38. Mistakes to Avoid Assumptions you can’t justify Too much detail
Too high a market share
Too much detail
Too little detail
Not enough growth
Too much profit (in later years)
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39. Summary Financials
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40. Summary Financials Pro-forma Income Statement
Pro-forma Return to Investors
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41. Income Statement
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42. What is an Income Statement?
Shows financial results of a company over a given period of time
Includes:
Revenues
Cost of Sales (costs directly attributable to the products/services sold)
Other Operating Expenses
Marketing, Sales
Research and Development
General and Administrative
Earnings before TaxOperating Income
Tax
Earnings after Tax
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43. Sample Income Statement
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44. 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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45. Pro-forma Income Statement
Summary Table showing 3-5 years of
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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46. Pro-forma Income Statement
Income Statement (MM)
Years 1 2 3 4 5
Revenues
$13.1
$54.3
$143.3
$230.2
$321.2
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
Operating Income
-$26.3
-$6.6
$24.8
$47.4
$68.8
Operating Margin
-201.2%
-12.2%
17.3%
20.6%
21.4%
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47. 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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48. Rate of Return Assumptions
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49. Rate of Return Calculation
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50. Detailed Financials (“Appendix”)
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51. Exhibits for Detailed Financials
Typically: 5 years on an annual basis and month-to-month for the first year
Components:
Assumptions and Outcomes Page
Income Statement
Detailed Revenue
Detailed Expenses
Headcount
Return on Investment
Balance Sheet
Cash Flow
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52. 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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53. Income Statement and Related Exhibits
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54. Income Statement Revenues Expenses
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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55. Detailed Revenue Shows revenue over time divided into key components:
Product areas
Geographies
Any components that make sense
Documents assumptions and their effects
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56. Detailed Expenses Summarizes key expense categories in major detail
Documents assumptions not summarized elsewhere
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57. 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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58. 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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59. Balance Sheet
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60. 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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61. Balance Sheet
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62. Assets are valuable resources owned by an entity and include:
What is an Asset?
Assets are valuable resources owned by an entity and include:
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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63. Liabilities are the claims of creditors and include:
What is a Liability?
Liabilities are the claims of creditors and include:
Accounts payable
Notes payable this year
Longer term obligations, such as long term debt
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64. 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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65. Cash Flow Statement
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66. 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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67. Cash Flow Statement
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68. Business Plan Financial Projection Workshop Handout
Example Statements and Recommended Readings
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69. Q and A
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70. Thanks and
from Heinz .Com
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