Business Plan Preparation Financial Plan Frank Moyes Leeds
Business Plan Preparation Financial Plan Frank Moyes Leeds School of Business University of Colorado Boulder, Colorado Financial Plan 1
Tonight Ø Plan presentation examples Ø Financial Plan Ø In the Fire – Customer Surveys Ø Hand-in: prelim customer surveys Ø Team meetings Financial Plan 2
Next Week Ø Management Plan Ø In the Fire - Marketing plan 4 Prepare 6 slides 410 minutes 44 entrepreneurs s s Amber Hickory, Greenhouse Partners Katarina Brown, Brand Juice Scott Heinemann, Aweida David Parkhurst, Alpine Access Ø Hand-in: 4 Marketing Plan - draft 4 Customer surveys & summary of results Financial Plan 3
Marketing Plan Outline Ø Customer Research Ø Target Market Strategy Ø Channel Strategy Ø Positioning Ø Product/Service Strategy Ø Pricing Strategy Ø E-commerce Ø Communications Strategy Ø Sales Strategy Ø Revenue Model Financial Plan 4
Financial Plan Ø Financial Projections Ø Key Assumptions Ø Business Risks Financial Plan 5
Business Plan Perspective “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 Plan 6
Approach Ø Download v 6. 8. 6 Ø Learn color codes Ø Notes Ø Play with example Ø Before start, erase all green data Ø Don’t mess with the Purple Financial Plan 7
Financial Projections Ø Income Statement 4 By years for 5 years 4 By months for years 1 -2 & by quarters for years 35 Ø Balance Sheet by years for 5 years Ø Cash Flow 4 By years for 5 years 4 By months for years 1 -2 and by quarters for years 3 -5 Ø Break-even Analysis ØFinancial Comps Plan 8
Architecture Ø Outputs Ø Inputs Ø Funding & Valuation Financial Plan 9
Architecture - Outputs Ø 5 -year Income Statement Ø 5 -year Balance Sheet Ø 5 year Cash Flow Ø Break-even Analysis Ø Income Statement by months & quarters Ø Cash Flow by months & quarters Ø Summary Ø Valuation Financial Plan 10
Architecture - Inputs Ø Revenue Model Ø Cost of Revenue Ø Operating Expenses Ø Personnel Ø Extraordinary Ø Taxes Ø Property & Equipment Ø Working Capital Ø Funding Financial Plan 11
Architecture – Funding & Valuation Ø Look at Cash Flow to determine funding requirements Ø Decide how you will fund 4 Equity s What % of company will you offer? s Valuation approaches – will cover week 13 4 Debt – what are the repayment terms & interest Financial Plan 12
Financial Assumptions Ø Describe assumptions critical to success of your business Ø Drivers 4 Revenue model, e. g. prices, market share, new products 4 Cost projections, e. g. sourcing agreement, process development Ø Capital Expenditures Ø Working Capital ØFinancial Funding? Plan 13
Suggested Approach Ø Top down vs. bottoms up Ø Keep record of key assumptions Ø COMP’s provide reality check Ø Revenue projections by months & quarters is key. DETERMINES: 4 Cost of Revenue 4 Operating Expenses 4 Working Capital 4 Monthly & Quarterly projections Financial Plan 14
Financial Plan 15
Issues Ø Profitability 4 Gross margins 4 Operating expenses Ø Assets & Liabilities 4 Working Capital 4 Fixed Assets & Capital Expenditures Ø Seasonality Ø Growth Financial Plan 16
Powerful Tool Ø Upfront effort Ø What if? questions Ø Sensitivity analysis Ø How tell if projections make sense? Financial Plan 17
Risks I Ø What major risks does the venture face? 4 What can go wrong? 4 What must go right Ø How mitigate? Financial Plan 18
Risks II Ø Market 4 Size of market 4 Competitor’s response 4 Sales cycle 4 Closing window (12 VC funded companies) Ø Strategic - establishing strategic partnerships Ø Operational - large number of interrelated components Financial Plan 19
Risks III Ø Technology 4 Will it work 4 Time and cost to development 4 Scalability Ø Financial 4 Risk/return 4 Dilution Ø Macro-economic 4 Volatile industry 4 Government approval 4 Exchange rates Financial Plan 20
Financial Plan Ø Financial Projections 4 Summary goes in Plan 4 All Financial Statements go in Appendix Ø Assumptions 4~5 key assumptions go in Plan 4 Detailed assumptions go in Appendix Ø Business Risks Financial Plan 21
Summary of Financial Projections Financial Plan 22
Critical Mistakes I Ø “Let’s go smoke something” Ø “These trees sure are pretty” Ø “We can get orders in a month” 4 Sales cycle 4 No one knows you Ø “We can whip this puppy out in 6 months” 4 Development time-line longer 4 More expensive Ø “Look at how much they spend on marketing! We won’t have to spend that Financial Plan much” 23
Critical Mistakes II Ø “Sure, operating expenses are high at the beginning, but then they will go down. ” 4 Operating expenses don’t decline 4 Salaries must be realistic 4 Growth requires spending money Ø “This equipment should last us for years. ” 4 Assets must be replaced Ø “We’ll lean on our suppliers and not pay them for 90 days. ” Ø “Our customer will pay us in 30 days. ” Financial Plan 24
Financial Dynamics Ø Who does the financial projections? Ø Should my projections be optimistic or pessimistic? Ø Investor questions Financial Plan 25
Business Plan Perspective “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. ” Financial Plan Dan Beldy, Hummer Winblad Venture Partners 26
- Slides: 26