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BusinessPlans

Project #3Business Plans

• You will be required to hand in a business planas your final project.

• This will be a lot of fun !• Personalize your plan (no cookie cutter

approach please)• Basic Requirement: How are you going to

make money ?• Best to leverage off your product proposal

(Project #1).

BusinessPlan

Resourceswww.sbaonline.sba.gov U.S. Small Business Administration

www.paloaltosoftware.com Business Plan Software

What is a Business Plan ?• A business plan is awritten statement thatdescribes and analyzesyour business concept andgives detailed projectionsabout it future.

• It also covers the financialaspects of starting orexpanding your business

Why Prepare a Business Plan ?

InvestorsFunding Proceed or Stop

Identify warningsignals

Improveconcept& definegoals Improve

your odds

Stay ontrack,

anticipateproblems,

achieve goals

• Define Business

• Begin Brainstorming

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Types ofBusinesses

Retail Wholesale

Service

ProjectDevelopment

Manufacturing

General BP Questions to Ask Yourself• What problem do I solve formy customer base?

• Who is my target customer?

• How will I communicate withmy target customer?

• What products/services will Iprovide?

• Where will my business belocated?

• Where will I buy theproducts that I need?

• What hours will I operate?

• Who will work for me and howwill they be paid?

• Who will handle critical taskslike selling, ordering,bookkeeping, marketing andshipping?

• How will I advertise andpromote my business?

• What are my competitions’strengths?

• How am I different from thecompetitors, as seen throughmy customers’ eyes?

Questions for Retail

• How will I keep abreast with fashion and taste?

• Is my location accessible, do I need a heavy advertising campaign?

• Location - high rent shopping center or lower rent location where there is less walk and drive by traffic?

• How much inventory will I need in comparison to my expected sales and revenues?

Questions forWholesale

• Which product lines will I carry in my inventory andwhich will I order as required?

• How will I carry accounts for my customers?

• Are their any EXCLUSIVE distributorships availableto me?

• Will I market the products myself or will the manufacturers have marketing programs?

Questions for ServiceOriented Business

• Are my credentials or skills equal to or better than others in the field?

• Can I sell my service as well as I perform it?

• Do I have a client list to begin with or will I have to start off cold?

• Am I better off associating with others or is it betterto be independent?

Questions forManufacturers

• Does my manufacturing process create toxic or polluting materials - how do I deal with it?

• Is there a labor pool available (skilled, unskilled)?

• Will I manufacture per order or have an inventory?

• Will I manufacture one product or a family for them?

• Is my competition from small or large firms?

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Questions forProject Development

• Am I sure of the selling price of my project?

• Am I sure of the project cost?

• What happens if costs exceed predicted costs?

• Am I sure of the time factors involved?

• Is there a buyer for my project?

Taste

Trends

Technology

Future

Business Plan: Need to Deal with Changes

Business Plans

Misconception - The only thing standingbetween entrepreneurs and success is(Sahlman, HBR 97409):

• Glossy five color charts

•Bundle of complicated spreadsheets

• A decade of month by month financial projections.

NOT So !

What is Wrong with

Business Plans

• Too much time is wasted on numbers

• Too little time on information that really matters to intelligent investors

• Month-by-month predictions over several years are an “act of imagination”

Sahlman (HBR 97409)

Business Plan

• Numbers in terms of model (demonstrate thatyou have thought through the problem)

• Key drives of venture success

• Address break even issue (when do I make aprofit?)

• Cash Flow > 0Sahlman (HBR 97409)

Business Model RatherThan A lot of Numbers

Critical Factors toEvery New Venture

• The People: the core team members andoutside parties providing key services

• The Opportunity: profile of business; how willit grow; what can stand in the way of success

• The Context: the BIG picture - regulatory, environmental, interest rates, demographic trends, inflation, etc., the factors that will change but cannot be controlled by the entrepreneur

• Risk and Reward: an assessment of what can go wrong (risk)and what can go right (pay-off). How can the team respond to problems and uncertainties?

Sahlman (HBR 97409)

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• “… . GREAT businesses have attributes that are easy to identify but hard toassemble.”

• The team’s members have skills and experiences directly related to theopportunity

• Ideally, they have worked together in the past

• The opportunity has an attractive and sustainable business model; it ispossible to create a competitive edge and defend it

• Many options exist for expanding the scope and scale of the business

• Value can be extracted … positive harvest event (a sale) or by scalingdown or liquidating

• The context is favorable - both regulatory and economic environment

• RISK is understood, and team understands how to mitigate the impact ofdifficult events Sahlman (HBR 97409)

Great Business Ideas Who are the People Responsible for the Business Plan ?

Sahlman (HBR 97409)

“Without the right people and the right team, none of the other parts of the business plan really matter.”

Why do some venture capitalists read the resume section first ?

Every business plan should answer theFollowing about the personnel !

Sahlman (HBR 97409)

• Where are the founders from ?• Where have they been educated ?• Where have they worked ? For whom ?• What are their accomplishments ?• What is their reputation within the

business/technical community?• What is their relevant experience ?• What are their skills, abilities, knowledge ?• How realistic are they ?• Any essential team members missing ?• Can they attract/recruit high quality people ?• How will they respond to adversity ?• Do they have the ‘stomach’ to make difficult

choices ?• How committed are they to the venture ?• What are their motivations ?

The opportunityor is it ?

Can you answer the following basic questions ?

(1) Is the total market for the venture large, growing, or both ?

(2) Is the industry now, or can it become, structurally attractive for the venture ?

The opportunity of alifetime or is it ?

Entrepreneurs or investors look for rapidly growingmarkets because it is often easier to obtain a shareof a growing market than to fight with entrenched competitors for a small piece of a mature market.

The opportunity ofa lifetime or is it ?

Can your business plan answer these questions?

• Who is the new venture’s customer ?• How does the customer make decisions about buying the

product ?• Is the product a compelling purchase to the customer ?• How will the product or service be priced ?• How will the venture reach all of the identified customer

segments ?• How much does it cost (time and resources) to acquire a

customer ?• How much does it cost to produce and deliver a product ?• How much does it cost to support a customer ?• How easy is it to retain a customer ?

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• When does the business have to buy resources, suchas supplies, materials, and personnel ?

• How does your business have to pay for them ?• How long does it take to get a customer ?• How long before the customer sends the business a check ?• How much capital is needed ?

What are the cash flow implications: Can your plan answer the following ?

• Who are the new venture’s current competitors ?• What resources do they control ?• What are their strengths and weaknesses ?• How will they respond to your market entry ?• How can your new venture respond to the competitions’

response ?• Who else can exploit the same opportunity ?

Competition: Can your plan answer the following ?

• Business is very much like chess - you need to anticipate your competitors next move.

• Don’t be naive and ‘pitch’ an insurmountable lead.• You may have a proprietary lead, can you keep it ?• All opportunities have promise !• All opportunities have VULNERABILITIES !• You need to identify all of your vulnerabilities !

Competition Opportunities exist in context

Context !

Economy, interest rates,inflation, exchange rates Gov’t regulations

Government Regulations

More than 100 newcompanies formed whenthe airline industryderegulated in the late1970’s.

Context ! The Economy

Recession in early 1990s mad it hard to getventure financing. However, as capitalmarkets in the middle 1990’s heated up,these companies had a high rate of return.

Context !

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ContextUnforeseen Shift

After the Tylenol incident (tampering),the packaging industry flourished.Prior to that the packaging industrywas declining.

Context

Every business plan shouldcontain certain pieces ofevidence of CONTEXT

- Show heightened awarenessof new ventures context

- Demonstrate that you understand thatthe venture may change and describehow changes can affect the business

- How will management deal with unfavorable changes in context?

Risk & Rewards

“One of the greatest mythsabout entrepreneurs is thatthey are risk seekers --All sane people avoid risk?

William Sahlman (HBS, 79409)

Risk & RewardHow to Manage Risk??

Taking a picture of the unknown -- a businessplan is a snapshot of an event in the future.

opportunity

context

peopleForm

coherentstory

Unfold possibilities ofaction and reaction

Risk & Reward

• Good business plans discuss people,opportunity and context as a moving target

• These categories are fluid and willchange over time

- key people will leave

- opportunities will vanish

- economy will fluctuate

Risk & Reward

• Fortune is hard to predict,

but you have to convince investors that you have a sense of the risk and rewards involved

• It is up to the management to increasethe likelihood of success andconsequences of success

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“True entrepreneurs want to capture all the reward and give all the risk to others. Yet risk is unavoidable.”

Howard Stevenson (HBS)

Risk & Reward

Your business plan should confront risk head on

- in terms of people, opportunities and context

Try and understand scenarios:

- what happens if a key team leader leaves?

- what if competition responds more ferociously than expected?

- what happens if there is a revolution in Namibia, a source of key raw material?

Risk & Reward

Your business plan should addresscandidly how the investor will getback his / her money

Venture capitalists like a wide range of exitstrategies

- IPO

- sell company outright

- split up company and sell parts

Risk & Reward

• Investors feel betterabout risk if it is up front

• Cover all possibilities

“If you don’t knowwhere you are going,any road will get youthere.”

FOR ENTREPRENEURS--

•You better know where you will end up andhave a map for getting there

•A business plan should be the place where themap is drawn, a journey is less risky when youhave directions

Visualizing Risk and Reward

- What is the depth and duration of negative cash flow?

- ideal, cash flow early and often

- possibly generate this curve from a sensitivity spreadsheet

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Visualizing Risk and Reward

- Flat portion reveals a negligible chance of losing a small amount of money

- There is a significant chance of earning between 15% and 45%

- Small chance of a killer app > 20%

- Possible to predict with Monte Carlo

t)

Final Thoughts

• A business plan is a call for action,must be proactive

• Risk management is a key, often tiltingthe venture in favor of reward and awayfrom risk

• Should be a coherent document

The Format of a Business PlanThere are all kinds of help out there, use it!

Also, lots of books:- “Complete Business Plan” by Adams (ISBN 1-55850-645-7)

- “How to Write a Business Plan” by McKeever (ISBN 0-87337-5440)

- “BusinessPlan.com” by Ross (ISBN 1-55571-455-2)

- “The Business Planning Guide” by Bangs (ISBN 1-547410-099-8)

- “Model Business Plans” by Richter (ISBN 0-7352-0024-6)

It is a good is idea toinvest in a businessplan book -- go thelocal bookstores andlibrary and find one youlike.

Formal Business Plan

• Here, a sample structurewill be provided

• I provide a sample, it isnot intended to be“a one size fits all” document

• Personalize your plan - be creative

Format Skeleton of aBusiness Plan

Main Body

Executive Summary

A. Program OverviewB. Management & StrategyC. ProductsD. Market & SalesE. CompetitionF. OperationsG. Risks & RewardsH. Financial Models

Appendix

A.1. Primary Final Objective

A.2. Supportive Financial Projections

A.3. Historical Financial Data

A.4. Organization

A.5. Resources

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Table of ContentsExecutive Summary

A. Program Overview Introduction History Products Market Marketing and sales Competition Location Funding requirements Financial goals Return to investors

B. Management and Strategies Corporate mission Business development strategy Goals Management team Consultant

C. Products Concept Product approach Product design Product, trademark, and regulatory

status Future products

D.Marketing and Sales Marketing plan overview Sales plan overview Market size Marketing research Marketing for the initial

E. Competition Perspective Specific competitive products Anticipated competition

F. Operation Perspective Product R&D Product design Manufacturing Quality

G. Risks and Rewards Risks Benefits Stockholders

H. Financial Models

Appendixes

Executive Summary (1 page only)

•Overview: Name the organization and generically describeits nature, mission, long-term objectives, and products.

•Competitive products: Describe product types availablefrom competitors and their weaknesses compared to yourproducts, as lead-in to the next topic.

•Your products: Depict your existing and future products andhow they improve competitive shortcomings.

•Added product issues: Describe additional benefits of yourproducts and also honestly mention any weaknesses and howthey are being addressed.

•Business development status: Briefly outline the status ofboth product and business development, the latter oneindividually of each of three divisions (administration,technology and marketing).

Executive Summary con’t

• Market(s) and shares: Profile the market(s) (the nature andsize) your products address, extracting summary data fromthe program overview and the marketing and sales section.

• Project strengths: List the major strengths of the project(e.g., management team, product features and acceptance,patent status, technical prowess, marketing prowess).

•Funding requirements: Describe the funding sought, how itis to be used, how it relates to total long-range funding plans,and what is offered in return. In a brief table below the endingtext, summarize for each year of the 5-year model: (1) therequired investment, (2) sales, (3) market share and (4) pretaxprofit.

A. Program Overview

•Introduction: The introduction provides an orientation tothe broad industry or industry group, describes the morespecific industry of the company product, depicts the basetechnology’s state of the art and its strengths andweaknesses, and closes by reviewing the product and howit exploits or extends the technology. (2 - 4 paragraphs)

•History: Include here a non-detailed list of peoplerecruited and goals achieved to date, such as pertinenthistory, technical marketing development, managementteam status, facilities, patent status, and projectrecognition. (1 - 2 paragraphs)

•Products: Describe what the product accomplishesfunctionally (not what it is), summarize the product’stechnical rationale, and list product attributes labeledimportant by industry representatives. (1-3 paragraphs)

A. Program Overview con’t

•Market: Depict the market size, supported (if possible) byreferences, market share estimates, future expansion ofmarkets with the same or other products, and why themarket is considered appropriate for the product.(2 - 3 paragraphs)

•Marketing and sales: Summarize marketing objectives,strategies and their rationale, near-term promotion andsales activities and their assessment measures, productimaging and positioning details and associated rationale,and the expected long-term sales growth profile and itsrationale. (2 - 4 paragraphs)

•Competition: This topic is a substantially condensedversion of the full section on competition. Modify thepresentation format to avoid redundancy.(1 - 2 paragraphs)

A. Program Overview con’t

•Location: The primary discussion of facility location ishere, so cover future plans as well as past and currentdata. (1 paragraph)

•Funding requirements: An overview paragraphintroduces a table that shows, by project quarter, fundingneeds and a condensed summary of principle companyactivities. Breaking up the narrative with a table, a figure, ora list aids readability. (1 paragraph)

•Financial goals: Provide intro paragraph citing thefinancial model as source and briefly list key modelassumptions and provide a tabular summary of thefollowing key financial goals for each year of the plan:revenue, expenses, pretax profit, taxes, after-tax profit,number of outstanding stock shares, and earnings pershare.

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A. Program Overview con’t•Return to investors: Summarize the general distributionof stock among investors and management, on the basis ofthe data in the appendix on the organization. List andbriefly discuss three mechanisms identified bymanagement as exit strategies feasible several years out(e.g., company stock buyback, private offering, publicoffering, company borrowing, merger, company sale).

Design the program overview section so that discussiondoes not duplicate discussion elsewhere. Many generaltopics are specified repeatedly in the plan, but eachoccurrence calls for a different approach or distinct level ofdetail. No direct rehashes of previously presented materialshould occur anywhere in the plan (except perhaps theexecutive summary).

B. Management and Strategies Section• Corporate mission: In one or two sentences, state thecorporate mission exactly as needed for ongoing strategicplanning. (1 paragraph)

•Business development strategy: Outline company andproduct development and underlying rationale, describeindustry reception or pre-introduction marketing research todate, discuss how you have applied the strategy of customer-driven design approach, and outline future product developmentplans and their dependence on the same principles. (2 - 4paragraphs)

•Goals: State the model’s fifth-year sales goals, followed by abulleted list identifying at least three reasons why it shouldmaterialize (e.g. your unique technology, extensive teamindustry knowledge, current market position, new or extendedmarketing approaches planned, future products and markets).(1 paragraph)

B. Management and Strategies Section con’t• Management team: List the current team and relevantbackground or an overview to lead into the following bulleted list(1 paragraph). List each team member, followed by a briefsummary of his or her professional field, specialty, majorstrengths, education and role (1 paragraph per team member).Finally, include a closing paragraph summarizing the timecommitment and strength of project conviction of all players,individually or collectively. (1 paragraph)

•Consultants: If you agree, add something akin to this: “[nameof company] ascribes to the concept of using consultant insteadof employees for certain tasks in the onset to save money. Thisreduces long-term commitments and therefore costs forirregular or low-level activities and , if relevant, allowsevaluation for potential hire. Funds for many in-houseadministrative, technical, and marketing/sales tasks may behandled using consultants rather than staffing.” (1 paragraph)

C. Products• Concept: Describe the fundamental concepts that underlieearly products, features that embody said concepts, andexpected customer reactions. Outline any significant futureenhancements or additional concepts. (1 paragraph)

•Product approach: Review the specific design approach ingeneral terms. (1 paragraph)

•Product design: Describe the initial product design in somedetail (without revealing proprietary elements) as follows:general nature of product design status, intended use,configuration of various models, a bulleted list of major industrydesign and functional improvements accomplished (e.g., simplemechanisms, easily produced, reliable components, extendedguarantee) and means of production. (3 - 6 paragraphs)

C. Products con’t• Patent, trademark, and regulatory status: Review patentstatus of near-term products, singly or collectively asappropriate; in turn, do the same for trademarks, service marks,and regulatory issues. (1 - 3 paragraphs)

•Future products: Thoroughly describe the philosophy,organization, budget weight, and leadership of R&D andpresent its long-term project plans. How will company grow. (1 -2 paragraphs)

D. Marketing and Sales• Marketing plan overview: Begin by stating your ultimaterealistic industry goal (e.g., leader, prominent or generalparticipant, number two player). Name the functions under thecontrol of the marketing division (probably program design;customer analysis; product imaging, positioning, promotion,pricing , and delivery; competitive analysis; forecasting; newproduct planning; sales management; and customer service)and give a brief description of each in bulleted list form (1paragraph plus the list). Address the marketing portion ofcorporate strategic management, directed to the strategic andtactical planning to develop, design, implement, and control allmarketing and sales functions, and who will control that function(1 paragraph).

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•Marketing plan overview con’t: Address productmarketing, the function that defines system features,customers and their needs and desires, product imaging andpricing, sales leads, forecasts, product and technicalliterature, and other promotional tools and who will controlthat function (1 paragraph). Next, address promotion andadvertising by describing current or planned elements, thetarget marketplaces, and how your marketing properlyconforms to said markets (1 paragraph). Finally, mentionsales and service purely by defining management namesand titles. (1 paragraph)

D. Marketing and Sales con’t

•Sales plan overview: Review the general nature, structure,leadership, and makeup of the sales function (1 paragraph);outline the general approach and steps to consummatetypical sales (1 paragraph); and describe customer servicefunction leadership, structure, size, makeup, methods, andhow data are collected to aid product design. (1 paragraph)

•Market size: Define market size and relevant assumptions;present a table of market size, company sales, and companymarket share of each plan year; discuss reasonableness ofsuch company market share achievement; and end by listingthree strong attributes of your product fostering marketpenetration (e.g., value, low cost, improved efficiency). (4paragraphs)

D. Marketing and Sales con’t

•Marketing research: Review company and productadvantages from a different perspective. Introduce anddisplay a bulleted list of primary concerns expressed byindustry reps (or customers), then present the list, choosingitems that accentuate your positives as learned frommarketing research (e.g., customer needs, desires,concerns, and shortcomings; appropriateness of industrysophistication, diversity, and maturity; environmental orregulatory issues where you shine), and finally close with abrief description of how well your product meets list attributes(so list only items where you excel). (2 paragraphs plus list)

D. Marketing and Sales con’t

•Future markets and their approaches: Briefly describefuture product and/or marketing approach concepts. Keepthis subsection short, to avoid imbalance and a “dreamer”image, but it is critical to show your essential commitment toongoing product development and future growth.(1 paragraph)

D. Marketing and Sales con’t

•Perspective: Provide an overview of the global market(size, growth, trends, nature of customer, product turnoverrate and so forth). Then describe how the material to follow isorganized, for example, by product within one market (as isassumed in the next item), by niche within one market, or bymarkets.

•Specific competitive products: Whatever organizationalapproach is chosen, discuss each competitor by name,addressing size, company age, spectrum of products,competitive strengths and weaknesses (e.g., productdevelopment, innovation, design, quality, marketing),products specifically competitive to yours, and the good andbad of theirs versus yours. (1 paragraph per competitor)

E. Competition

•Anticipated competition: Describe company preparednessfor competition in general, including future new marketentrants. It is best to emphasize (and actually conduct)continuous marketing research, in-house R&D, aggressiveproduct development and market entry, and any other factorsrelevant to sound, responsive business and productmanagement.

E. Competition con’t

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•Perspective: Introduce and define in logical order eachmajor company technical function for later discussion. Wetreat functions in order of product development, with qualitylast to emphasize its central attention. (1 paragraph)•Product R&D: Describe product development organization,its leader, to whom the leader reports, facilities andequipment, functions included here, sources of ideas, andother key data concisely conveying how R&D works andmeshes with other company functions. (1 - 2 paragraphs)•Manufacturing: Treat the same basic topics as R&D, plushow key elements (parts, materials, progressing product,finished product, nonconforming material) flow through thesystem, inventory management, packaging and shipping.(1 - 2 paragraphs)

F. Operations SectionInformation on Internal Technical Operations

•Quality: Discuss the same basic topics as R&D,emphasizing how quality is a distinct function and how it iskept relatively independent of management of theadministration division and the technology division (1paragraph). The latter treatment concerns quality at thedepartmental level. Then treat each of the two major qualityfunctions, such as quality control, in some detail, describingtheir organization, leadership, functions, facilities andequipment and other key issues.

F. Operations Section con’tInformation on Internal Technical Operations

•Risks: Begin by asserting that it is essential formanagement to identify and assess both the risks and therewards of the company’s venture, to aid informed planning.Then state that the plan does not constitute a solicitation oroffer of investment--the presented treatment is for purposesof planning and information only, and detailed investmentdata will be provided during relevant deliberations. Includethe same statement on the front most cover or title page ofthe business plan as well (1 paragraph). Next, include abulleted list, with each item formed as follows: Identify onemajor project risk, followed by a brief explanation of how theproject is addressing that risk (1 paragraph for each list item).Risk examples include management’s ability to affectsuccessful administration, marketing, sales, and products;the degree to which administration, marketing, sales andproducts;

G. Risks and Rewards

•Risks con’t: the degree to which company products will beaccepted by customers and bring them benefits;management’s ability to provide adequate external fundingand proper financial management; unexpected social,economic regulatory, or legal perturbations; the advent ofcompetitive responses, products, and copying of companyproducts or technology.

•Benefits: Briefly discuss or list potential benefits to founders(e.g., salary and benefits, entrepreneurial satisfaction,security, stockholder benefits), employees (e.g., salary andbenefits, job satisfaction, advancement and professionaldevelopment opportunities), and stockholders (e.g., potentialequity growth, potential dividends, entrepreneurialsatisfactions). How are you going to keep your employees!

G. Risks and Rewards con’t

•Stockholders: To elaborate stockholder risks versusrewards, investment in startups or young firms usuallyaccesses potentially growth in net worth.

G. Risks and Rewards con’t

•Key assumptions used to develop the sales projections;•Marketplace and competitive assumptions;•Pricing and discount policies and rationale;•Rationale for salaries, benefit levels, and other compensation;•Average time lag between a sale and actual money receipt;•Average time lag between incurring and paying of bills;•Major bills or expense categories that cannot be postponed;•Functions that are contracted rather than conducted in-house;•Rationale for leasing or purchasing large-ticket items;•Time-dependent relationships, such as volume purchases;•Relevant environmental, social, economic, political, andregulatory issues.

H. Financial ModelInclude “barebones” of financials here

What are your assumptions?

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H. Financial ModelIncome Statement

The income, or profit-and-loss (P&L), statementsummarizes income versus expenses. To hold thisstatement to one page, many data are summarized,which often dictates the need for additional statementsextending beyond the three primary ones to presentsupporting detail. Otherwise, readers of the businessplan may erroneously judge primary statement numbersas too arbitrary.

Revenue Net sales Other revenue Total revenue

Cost of Goods Sold Contract manufacturing Purchased materials Manufactured materials Labor

Total COGSGross margin

Direct Selling Costs Sales expenses Commissions Ads/meetings/shows

Selling costs

General and Administrative Administration labor Administration expense Technology labor Technology expense Marketing/sales labor Marketing/sales expense Rent, utilities, phone Legal, insurance, accounting Other

Total G&AProfit & Loss Profit before tax Less tax @ 37%

Profit after tax

Total of all money receivedA net sales breakdown by component is possibleTotal of all money to the company

Whole product or subassembliesAll purchased parts and materialsAll parts or materials made in-houseAll direct/support labor involved in manufacturingTotal of all COGSTotal revenue less total COGS

All direct expenses of sellingSales commissions and bonusesSelf-explanatory; add rows for finer breakdownTotal of all direct selling costs

Labor + personnel overhead for admin. DivisionAll non-labor expenses for administration divisionsLabor + personnel overhead for technology divisionAll non-labor expenses for technology divisionLabor + personnel overhead for marketing divisionAll non-labor expenses for marketing divisionInclude equipment under appropriate divisionSelf-explanatoryBreak into additional line items as needed for clarityTotal of all G&A expenses

Algebraic sum of all category headingsConsult an accounting professional for the correctpercentageThe infamous “bottom line”

H. FinancialsBalance Sheet

Presented immediately after the income statement, thebalance sheet shows the relative balance among assets,liabilities, and company equity. A balance sheet isorganized to equate assets with the sum of liabilities andequity, the latter term being the company’s net worth.Thus the balance sheet summarizes the company’sgeneral financial health, its history, and its projectedfuture evolution.

Current Assets Cash Accounts receivable Raw materials inventory Work-in-progress inventory Finished product inventory Short-term notes receivable

Total current assets

Long-Term and Fixed Assets Technological rights Equipment Less depreciation Improvements Long-term-notes receivable

total L/T&F Assetstotal assets

Current and Long-Term Liabilities Accounts payable Short-term loans Tax, payroll Tax, other

Total current liabilities Long-term liabilities

total L-T liabilitiesTotal liabilities

Equity Common stock Preferred stock Retained earnings

total equityTotal liability & equity

Cash, typically the checking account balanceMoney due the company in normal business conductInventory as parts and materialsInventory of partially assembled goodsInventory of finished product fully ready for saleShort-term notes payable to the companySelf-explanatory

Non-cash value conveyed by founders, for stockPurchased large-ticket itemsDepreciation of equipment (a negative entry)Improvements made to facilitiesLong-term notes payable to the companySelf-explanatoryTotal of all assets; equals liabilities + equity

Money owed by company in normal commerceShort-term loans received by the companyPayroll taxesOther taxes; break down if needed for clarityTotal current liabilities

Long-term liabilities owed by the companyTotal current + total long-term liabilities

Founders stock + stock in return for investmentOften this is zero for all time periodsCumulated excess earnings, per income statementAlgebraic sum of all equityAlgebraic sum of all liabilities and equity

For Your Project:

• The financials described here are prettysophisticated.

•At a minimum, it should be at a level that waspresented by Professor Suuuuuuuberg.

•It is really important for you to also show a break-even time. When do you make money? Year 2?Year 3?

Appendixes:

Include supporting data andinformation in appendixes, such as:

•Details

•Supporting financial data

•Historical financial data

•Company organization in gory detail

•Resumes of management team and board ofdirectors

These are not required for your project, but pleaseinclude them if you have the data.

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Summary

•A business plan is a map to success.

•This will really show you the ropes to do aprofessional job.

•You can look back on it in 20 years when youare the CEO of Xerox.

A Glossary of Business Plan Terms

What They Say … And What They Really Mean

We conservatively project … We read a book that said we had to be a $50 millioncompany in five year, and we reverse-engineered thenumber.

We took our best guess and divide by 2 We accidentally divide by 0.5.

We project a 10% margin. We did not modify any of the assumptions in the businessplan template that we downloaded form the Internet.

The project is 98% complete. To complete the remaining 2% will take as long as it took tocreate the initial 98% but will cost twice as much.

Our business model is proven … If you take the evidence form the past week for the best ofour 50 locations and extrapolate it for all the others.

We have a six-month lead. We tried not to find out how many other people have a six-month lead.

We only need 10% market share. So do other 50 entrants getting funded.

Customers are clamoring for our product. We have not yet asked them to pay for it. Also, all of ourcurrent customers are relatives.

We are the low-cost producers. We have not produced anything yet, but we are confident thatwe will be able to.

We have no competition. Only IBM, Microsoft, Netscape, and Sun have announcedplans to enter the business.

Our management team has a great deal ofexperience…

Consuming the product or services.

A select group of investors is considering the We mailed a copy of the plan to everyone in the Pratt’sGuide.

We seek a value-added investor. We are looking for a passive, dumb-as-rock investor.

If you invest on our terms, you will earn a 68% rate of return.

If everything that could ever conceivably go right does goright, you might get your money back.