1. Business Plans Part 4 Taken from http://www.bplans.com/hurdleonline http://www.sba.gov/starting/indexbusplans.html

2. Assignments to Date Preliminary Mini Plan –Mission/Objectives –Keys to success –Target Market –Competitive Advantage –Basic Strategies –Initial break-even chart Company Summary & Product Description –Start-up Funding Table Market Analysis Summary & Management Summary –Sales Forecast and Assumptions –Personnel Plan

3. Simplified Business Plan Outline Executive Summary Company Summary Product Description Market Analysis Summary Strategy and Implementation Summary Management Summary Financial Plan

4. Strategy and Implementation “Strategy is focus” What are you main marketing and sales priorities? Keep this list short Use “Strategy Pyramid” to make it real

5. Strategy Pyramid Example Strategy Tactics Program(s)

6. Strategy and Implementation Making it Real - Milestones Table

7. Financial Plan Components Important assumptions Key financial indicators Breakeven Profit and loss Projected cash flow (most critical projection) Projected balance sheet Business ratios

8. How Tables and Charts are Linked

9. Points About Cash “Cash is King” Profitable companies go broke because their money is tied up in assets Need to understand the difference between profit and cash (can spend cash) The time to solve cash flow problems is up front An understanding of this is important to your business plan

10. Cash vs. Profits Starting Numbers IncomeBalance Sales$0Assets Cost of Sales$0Bank Balance$100 Profit$0Total$100 Liabilities Capital Paid-In$100 Earnings$0 Total$100

11. Cash vs. Profits Sell a Widget IncomeBalance Sales$150Assets Cost of Sales$100Bank Balance$150 Profit$50Total$150 Liabilities Capital Paid-In$100 Earnings$50 Total$150

12. Cash vs. Profits Sell Another IncomeBalance Sales$300Assets Cost of Sales$200Bank Balance$200 Profit$100Total$200 Liabilities Capital Paid-In$100 Earnings$100 Total$200

13. Cash vs. Profits And Still Another IncomeBalance Sales$450Assets Cost of Sales$300Bank Balance$250 Profit$150Total$250 Liabilities Capital Paid-In$100 Earnings$150 Total$250 What’s wrong with this picture?

14. Cash vs. Profits Adding Realism - Selling on Terms IncomeBalance Sales$150Assets Cost of Sales$100Bank Balance$0 Profit$50 Total$150 Liabilities Capital Paid-In$100 Earnings$50 Total$150 Accounts Receivable$150

15. Cash vs. Profits Buying on Terms IncomeBalance Sales$150Assets Cost of Sales$100Bank Balance$0 Profit$50 Total$250 Liabilities Capital Paid-In$100 Earnings$50 Total$250 Accounts Receivable$150 Inventory$100 Accounts Payable$100 Total Liabilities$100

16. Cash vs. Profits Buying on Terms & Short Term Debt IncomeBalance Sales$450Assets Cost of Sales$300Bank Balance$0 Profit$150 Total$550 Liabilities Capital Paid-In$100 Earnings$150 Total$550 Accounts Receivable$450 Inventory$100 Accounts Payable$100 Total liabilities$300 Short-term debt$200

17. Cash vs. Profits Lesson: Business looks a lot better with $400 in starting capital IncomeBalance Sales$450Assets Cost of Sales$300Bank Balance$300 Profit$150 Total$850 Liabilities Capital Paid-In$400 Earnings$150 Total$850 Accounts Receivable$450 Inventory$100 Accounts Payable$100 Total liabilities$300 Short-term debt$200 $550 in working capital

18. Case Examples Baseline: Computer store $6 million annual sales 8% net profit on sales Only change is adding 15 days, on average, to receive money on invoices Cash Flow Cash Balance Only change from baseline is going from two to three month inventory

19. Profit and Loss Statement What owners are most interested in Uses sales forecast and personnel plan numbers Good idea to link the profit and loss to other sheets so revisions in numbers are automatically updated You will do a pro forma profit and loss – one that projects the future

20. Profit and Loss Example (Income Statement)

21. Returning to Cash and Balance Sheet Focus Different point of view than profit and loss We are following the money in and money out Sources of money –Cash sales –Payments from receivables –New loan money –New investment Expenditures –Buying widgets in cash –Paying interest –Paying bills –Paying loans

22. Sample Case See “Cash is King” section of Hurdles for information on entries Cash BalanceBalance Sheet

23. Key Cash Flow Points Profits are very important to cash (though this does not tell the whole story) An increase in assets decreases cash An increase in liabilities increases cash Extra dollars in receivables or inventory as assets are dollars that you don’t have in cash Dollars that you have in payables are dollars you have in cash

24. Balance Sheet Start-up cost

25. Business Ratios

26. Gross Margin = sales – cost of sales Net Profit Margin = net profit/sales Return on Assets = net profit/total assets Return on Equity (ROI) = net profit/net worth Current Ratio = short-term assets/short-term liabilities Quick Ratio = (short-term assets – inventories)/short-term liabilities Net Working Capital = short-term assets – short-term liabilities Interest Coverage = profit before interest and taxes/total interest payments Acid test = (short-term assets – accounts receivable – inventory)/short term liabilities

27. Executive Summary Most important of your chapter summaries – the doorway to the rest of the plan One-page, written last Example format: –Opening paragraph –One highlight graphic –A list of two to four measurable objectives Ex. Net income more than 10% of sales by the third year –A mission statement defining your business concept –A list of two to three keys to success

28. Summary Implementation of Plan Must Be Communicated