1. Business Plan Preparation
Frank Moyes Leeds College of Business
University of Colorado Boulder, Colorado
Financial Plans

2. Tonight Financial Plan Customer acquisition costs
In the Fire – preliminary Customer Survey results
Team meetings
Financial Plans

3. Next Week In the Fire - Marketing plan Hand-in: Prepare 6 slides
10 minutes
2 marketing experts
Hand-in:
Marketing Plan - draft
Customer surveys & summary of results
Financial Plans

4. Marketing Plan Outline
Customer Research
Target Market Strategy
Channel Strategy
Positioning
Product/Service Strategy
Pricing Strategy
E-commerce
Communications Strategy
Sales Strategy
Revenue Model
Financial Plans

5. Business Plan Elements
Executive Summary
Company Overview
Product or Service Description
Industry and Marketplace Analysis
Marketing Plan
Operations Plan
Development Plan
Management
Financial Plan
Offering, Funding Requirements, Valuation
Financial Plans

6. Financial Plan Financial Projections Key Assumptions Business Risks
Financial Plans

7. Business Plan Perspective
“People write-up their business plan with a top-down mentality. They invariably talk about a particular vertical market that has X billions of dollars in sales each year. They’ll tell us that they can get 10% of that market. But when we ask them for the average sale or the cost of customer acquisition, the answer almost always is “I’ll get back to you.”
Dan Beldy, Hummer Winblad Venture Partners
Financial Plans

8. Financial Projections
Income Statement
By years for 5 years
By months for years 1-2 & by quarters for years 3-5
Balance Sheet by years for 5 years
Cash Flow
By months for years 1-2 and by quarters for years 3-5
Break-even Analysis
Financial Plans

9. Focus Your Attention On
Revenue Model
Cost of Revenue
Operating Expenses
Personnel
Extraordinary income & expense
Taxes
Property & Equipment
Working Capital
Funding
Step 5 says Timeline, Switch with Step 6
Financial Plans

10. Financial Assumptions
Describe ~ 5 assumptions critical to success of your business
Revenue model, e.g. prices, market share, new products
Margins
Operating Expenses – key expenditures Sales & Marketing, R & D and General & Administrative
Capital Expenditures
Working Capital – Accounts Receivable, Inventory & Accounts Payable
Funding
Do not be resource constrained at the beginning
Financial Plans

11. Common Weaknesses Profitability Assets & Liabilities
Gross margins are too high
Operating expenses are too low
Assets & Liabilities
Working Capital must be based on industry
Fixed Assets & Capital Expenditures not addressed
Seasonality not addressed
Growth not anticipated
Financial Plans

12. Risks I What major risks does the venture face? How mitigate?
What can go wrong?
What must go right
How mitigate?
Financial Plans

13. Risks II Market Strategic - establishing strategic partnerships
Size of market
Competitor’s response
Sales cycle
Closing window (12 VC funded companies)
Strategic - establishing strategic partnerships
Operational - large number of interrelated components
airlines, toothpaste (Tom’s of Maine)
; government
Financial Plans

14. Risks III Technology Financial Macro-economic Will it work
Time and cost to development
Scalability
Financial
Risk/return
Dilution
Macro-economic
Volatile industry
Government approval
Exchange rates
Financial Plans

15. Financial Plan Section
Financial Projections
Summary goes in Plan
All Financial Statements go in Appendix
Assumptions
~5 key assumptions go in Plan
Detailed assumptions go in Appendix
Business Risks
Financial Plans

16. Break-even
Financial Plans

17. Summary of Financial Projections
Financial Plans

18. Customer Acquisition Costs
Costs to Get a Customer
Number of Customers
Costs to get a customer
Sales salaries & commissions
Advertising & promotion
Customer & tech support
Website
Travel & entertainment
Number of customers
Financial Plans

19. Financial Drivers Location – lease cost & traffic
Banner ad click throughs
Market share
Unit cost objective
Revenues per store, per employee
Minimum number of customers per day
Capital expenditure
Financial Plans

20. Financial Driver Examples
Grateful Dead
Commercial Bank
Paintball business
Pig farm
Semiconductor company
Software company
Catalog business
Response rate
Financial Plans

21. Business Plan Perspective
Business Plan Perspective
“Entrepreneurs have got to display a clearly articulated vision for what they want to do. And they must tell their story from the bottom up. A bottom-up approach means that they know with absolute certainty whom they’ll sell to, how much it will cost, and what the sales per week will be next March. Sure, a lot of assumptions are involved, but entrepreneurs need to break their business down to the molecular level. That information leads logically to the next step which is saying to an investor, ‘I am going to take this money and do X, Y, and Z with it and here’s what will happen in the end.’ Your survival depends on knowing that stuff cold.”
Dan Beldy, Hummer Winblad Venture Partners
Financial Plans

22. Critical Mistakes I “Let’s go smoke something”
“These trees sure are pretty”
“We can get orders in a month”
Sales cycle
No one knows you
“We can whip this puppy out in 6 months”
Development time-line longer
More expensive
“Look at how much they spend on marketing! We won’t have to spend that much”
Smoke: virus- reason disappears
Trees: get caught in the detail
Sales
time to get orders
need to revise product or service
Hi growth effects
Financial Plans

23. Critical Mistakes II
“Sure, operating expenses are high at the beginning, but then they will go down.”
Operating expenses don’t decline
Salaries must be realistic
Growth requires spending money
“ “We’ll lean on our suppliers and not pay them for 90 days.”
“Our customer will pay us in 30 days.”
Development
Rapid prototyping
Flexible Product Development
Growth: requires investment in systems
Funding: on-going process
day you close one round is the day you start the next
Full time
Find investors
Negotiate Term Sheet
Due diligence
Sign agreement
Financial Plans

24. Financial Dynamics Who does the financial projections?
Financial Dynamics
Who does the financial projections?
Should my projections be optimistic or pessimistic?
Investor questions
Questions
Why does GP increase from 45% to 52% in yr 2?
If we reduce the investment in year 3 from $3KK to $1KK?
OR, increase from $3KK to $5KK?
Optimism vs Pessimism
Investors
VC's want size
Angels want to be involved & a return
Friends and Family want you to succeed
Hostage to fortune
VIDEO show
Financial Plans