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

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

4. November 10 & 11 Financial Projection Model Workshop Room 302 6:00 to 7:00pm Download model v6.8.9 & play with example 3 Financial Plans

5. November 12 In the Fire - Marketing plan Prepare 6 to 10 slides (this is not a DECK) 10 minutes 2 marketing experts Hand-in: Marketing Plan - draft Customer surveys & summary of results Customer acquisition costs 4 Financial Plans

6. Title Slide Name of venture Team member names Date Introduce team 5 Financial Plans

7. Introduction Grab investor’s attention Describe the venture Elevator speech (not on slide) Value proposition (not on slide) 3 key points want investors to remember 6 Financial Plans

8. Presenting the Marketing Plan Show that you really understand the target customer Make it real - tell a story Show prototypes, exhibits, short videos Focus on the key strategies that you want the investor to remember Less is better - use graphs & charts Put content in bullets, not a marker 7 Financial Plans

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10. Attractive Market (Example) Low barriers to entry Large market and growing Favorable trends Financial Plans 9

11. Attractive Market Fragmented, no brand loyalty Addressable market $100 million, 10% growth Trends aging baby boomers, social networking, cost of oil Financial Plans 10

12. Marketing Plan Customer Research Target Customer Strategy Channel Strategy Positioning Product/Service Strategy Pricing Strategy Internet Strategy Communications Strategy Sales Strategy Revenue Model 11 Financial Plans

13. 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 12 Financial Plans

14. Financial Plan Financial Projections Key Assumptions Business Risks 13 Financial Plans

15. Business Plan Perspective 14 “ 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

16. 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 years for 5 years By months for years 1-2 and by quarters for years 3-5 Break-even Analysis 15 Financial Plans

17. Focus Your Attention Profitability Assets (resources) Cash Flow Funding 16 Financial Plans

18. Focus Your Attention Profitability Assets (resources) Cash Flow Funding Revenue Margins – prices vs. costs Major operating expenses Cap Ex - Property & Equipment Working capital Increase/(Decrease) in Cash Equity & Debt Financial Plans 17

19. Common Weaknesses Gross margins are too high Operating expenses are too low Working Capital (must be based on industry) Fixed Assets & Capital Expenditures not addressed Seasonality Growth not anticipated 18 Financial Plans

20. Financial Drivers (2-3 Key) Revenue model – roll out, market share, new products, customers/day Margins (price/labor+materials) – cost goal Operating Expenses – hire 10 sales persons, prototype cost, legal expenses, etc. Capital Expenditures – major Working Capital – A/R days, Inventory days (turns) & A/P days 19 Financial Plans

21. Risks I What major risks does the venture face? What can go wrong? What must go right How mitigate? 20 Financial Plans

22. Risks II Market Size of market Competitor’s response Sales cycle Closing window (12 VC funded companies) Strategic - establishing partnerships or agreements Operational - large number of interrelated components 21 Financial Plans

23. Risks III Technology Will it work Time and cost to development Scalability Financial Risk/return Dilution Macro-economic Volatile industry Government approval Exchange rates 22 Financial Plans

24. Financial Plan Sections Financial Projections Summary goes in Plan All Financial Statements go in Appendix Assumptions 2-3 key assumptions go in Plan Detailed assumptions go in Appendix Business Risks 23 Financial Plans

25. Summary of Financial Projections 24 Financial Plans

26. 25 Break-even Financial Plans

27. 26 Customer Acquisition Costs Costs to get a customer Sales salaries & commissions Advertising & promotion Customer & tech support Website Travel & entertainment Number of customers Costs to Get a Customer Number of Customers Financial Plans

28. Business Plan Perspective 27 “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

29. 28 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” Financial Plans

30. 29 “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.” Critical Mistakes II Financial Plans

31. 30 Financial Dynamics Who does the financial projections? Should my projections be optimistic or pessimistic? What kind of questions do investors ask & why? Financial Plans