1. November 19, 2000, MIT – TPP dmatias@mindspring.com Developing a Business Plan Presentation to TPP November 2000 D.B. Matias

2. November 19, 2000, MIT – TPP dmatias@mindspring.com 2 Overview of Last Discussion Know your audience –Who is your reader –What is their risk profile (risk/reward analysis) –Why would they invest in you (synergies) Know your forms of funding –Private equity –Bank lending/asset securitization –Alternative funding (JV’s, alliance) –Government subsidies Know your risks

3. November 19, 2000, MIT – TPP dmatias@mindspring.com 3 Risk/Reward Profile Reward Risk T-Bill Bond Common Equity S&P 500 5% 8-10%12%20-40% Ke Kd

4. November 19, 2000, MIT – TPP dmatias@mindspring.com 4 Key Elements to Business Plan Market Assessment Product Differentiation Market Penetration Sustainability Operations Management team Funding

5. November 19, 2000, MIT – TPP dmatias@mindspring.com 5 Financial Statements Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows

6. November 19, 2000, MIT – TPP dmatias@mindspring.com 6 Basic Accounting Assumptions Fiscal period Conservatism Quantifiable items or transactions Matching of revenues to expenses Materiality “Going Concern” concept

7. November 19, 2000, MIT – TPP dmatias@mindspring.com 7 Balance Sheet Relationship ASSETS = LIABILITIES + EQUITY

8. November 19, 2000, MIT – TPP dmatias@mindspring.com 8 Balance Sheet Components Cash and liquid securities Accounts Receivable – related to customers Prepaids – amounts paid in advance of service/good Fixed assets – equipment used in providing service Current liabilities – debts incurred in operation of business Long term debt – form of funding with defined repayment Paid in capital – form of funding without defined repayment Retained earnings – increase/decrease in assets from prior periods

9. November 19, 2000, MIT – TPP dmatias@mindspring.com 9 Income Statement Components Revenue – supported by assumptions developed in business plan Cost of Goods Sold – variable cost associated with providing service Research and Development – sunk costs used to create or improve technology/intangible assets General & Administrative – all costs associated with creating and running “the business” Interest expense – dependent on funding

10. November 19, 2000, MIT – TPP dmatias@mindspring.com 10 Cash Flow/Shareholder’s Equity No new entries created – simply recalculation of existing data Focus on two items most important to running of business: cash and equity Lower priority for this assignment?

11. November 19, 2000, MIT – TPP dmatias@mindspring.com 11 Ratio Analysis Liquidity –Available cash to cover current debts and interest Leverage –Use of forms of funding –Return to various stakeholders (debt or equity) Profitability –Viability of business

12. November 19, 2000, MIT – TPP dmatias@mindspring.com 12 Conclusion Follow PWC guide for structure Use results of model to justify business plan Develop funding proposal to match business requirements Need for further discussion on mechanics of accounting?