1. The Business Planning Process

2. Business Planning and Execution
MSU Engineering Entrepreneurship Program
Business Planning and Execution
Market Analysis- TAM, SAM and competitive environment
How to keep score: A=L+OE
Product Costing
Building the Plan
Measuring the Results

3. The Business Process
Start Up Capital, Friends and family, Angel investors
Venture Capital, round 1, 2 and 3
Business structures – Prop.,LLP, Corp.
A=L+OE
The Business Plan – year to year
Standard Cost Accounting

4. The Marketing Plan Target market Market Size and trends Competition
Estimated Market Share
Marketing Strategy: Sales, Distribution, Pricing, Advertising and promotions.

5. Marketing Challenge
You are in the cell phone business. The TAM(Total Available Market) is $2 Billion in 2002 and your SAM(Share of the Available market) is 5 % each year. Your CAGR (Compound Annual Growth rate ) is projected to be 10% per year. The overall market is growing at 15% each year.
What is your current dollar volume goal for 2003?

6. Assets=Liabilities+Owners Equity
Double entry Accounting- debits and credits.
Assets: cash, inventory, accts Rec., Prepaids , Eqpt., Supplies, property
Liabilities: AP’s, Notes Payable
Owners’ Equity: Investment, retained earnings, Revenue and Expense accts.
Balance Sheet, Income Statement, Cash Flow Statement

7. Accounting Process Accounting Ledger and chart of accounts
Trial Balance for EOP Income
Closing Entries to period ( PPV, cutoff, inventory valuation changes).
Performance vs. Budget or Plan.

8. MSU Engineering Entrepreneurship Program
Double Entry Accounting – The Balance Sheet
Assets = Liabilities + Owners Equity
Debit
(+)
Credit
(-)
Debit
(-)
Credit
(+)
Debit
(-)
Credit
(+)
Cash
Accts Rec.
Equipment
Property
Accts Pyble
Notes Pyble
Bank Debt
Other Debt
Investment
Retained Earnings
Revenue &Expense

9. A=L+OE Challenge
$1000 is invested in your new company. Describe the balance sheet.
______= ______+________
You borrow $500 to expand further, describe the balance sheet.
______=______+_________
The company made a profit in year 1 of $100. Describe the balance sheet after year end.

10. Terms to Know and Understand
EBITDA- Earnings before Interest, Taxes, Depreciation or Amortization
Income Statement- P&L- covers a period in time, Month, Quarter, or year
Balance Sheet is a point in time picture of A=L+OE
Cash Flow shows EBITDA and changes in working capital ( AR, AP, Inventory) for a period.

11. Business Structures Proprietorship Limited Liability Partnership
Subchapter S Corporation
Corporation
Public Company ( Corporation) SEC rules

12. Outline of a Business Plan
Executive Summary- Brief Highlights
Company Description
Product or Service
Market Analysis
Strategy and Implementation
Management Team
Financial Plan

13. The Planning Process- Sales and Marketing
Sales and marketing projects volume of sales by product by month or quarter.
Also project price increases and declines.
The timing of new product introductions is included.
Changes to selling cost: additions /deletions to sales force, changes in commission structure.

14. Product Costing- Variable Cost
Material cost= standard quantity at standard cost. (adjust for usage variance at end of period).
Labor cost= standard hours at standard rate. (adjust for rate variance and efficiency variance at end of period).
Variable Overhead= absorb at standard rate per hour. (adjust for actual at end of period) includes indirect labor, utilities, supplies, etc.

15. Fixed Cost- Overhead Building Lease or rent
Salaries of all support staff ( typically excludes the “selling, general and administrative” cost.)
Utilities, Inform. Systems cost including software leases.

16. BreakEven Analysis
Selling Cost per Unit less VC per unit= Contribution per unit
Fixed Cost per month= rent, utilities, Salaries, taxes, insurance.
FC divided by Contribution per unit =Units needed to Break even.
Selling, General and Admin Cost is an additional Fixed Cost Category(S,G,&A).

17. Breakeven Analysis Challenge
Product A sells for $5 per unit.
Variable cost is $3 per unit.
Fixed Cost including S, G &A is $80,000 per year.
What is the breakeven point?
You just had a 10% price decline. Now what is breakeven point?
BE Point= FC/Contribution per Unit

18. Planning Process - Operations
Converts sold units to a manufacturing plan by product line or process.
Loads volume into a capacity plan by standard units or hours.
Cost reduction process- Material purchasing( Part of supply chain mgmt.),material usage, labor cost, overhead.
Capital expenditure plan to meet volume and cost goals.

19. The Plan- Income Statement
Sales by product by month= revenue.
Variable cost of goods sold by month.
Fixed cost of goods by month.
Adjust for cost variance in M, L, OH.(in Actual not Plan)
Gross Profit.
S,G, and A.
Operating Profit( sometimes EBITDA).
Net Profit (after ITDA) by month.

20. The Plan – Cash Flow Cash from Operations
Changes in Working Capital- Inventory, Accounts Payable and Receivable and Capital Expenditures(Capex).
Interest Cost
Taxes due

21. The Balance Sheet Point in time-End of Period
Changes in Assets, Liabilities, and Owners equity as a result of funding, operations, etc.
Defines borrowing capability and health of company in details.

22. Business Plan Marketing Plan-“nothing happens until something is sold”
Operating plan or budgets
Cash Flow projection
Knowing your cost
Capital allocation- A limited resource

23. Business Systems - Other
Quality Systems. ( TQM, ISO, SPC)
Information Systems ( client server, real time, web based).
Human resources management.
Global marketing – know the global competition first.
Supply Chain management.( Partnering, Blanket PO’s, joint research, eqpt. Leases)

24. Top Mistakes in Business Plans
Too Long
Unable to explain the market position well.
Lack of Focus- “Swiss Army Knife” Plans
Lack real world Market analysis
No Business “ gauges” to monitor with.
Unclear Business Model- How will you make money?
Weak Team Formation