Download - Financial Plan Business Plan Preparation
1Financial Plan
Business Plan PreparationBusiness Plan Preparation
Financial PlanFinancial Plan
Business Plan PreparationBusiness Plan Preparation
Financial PlanFinancial Plan
Frank MoyesFrank MoyesLeeds School of Business Leeds School of Business University of ColoradoUniversity of ColoradoBoulder, ColoradoBoulder, Colorado
2Financial Plan
TonightTonight
Plan presentation examplesPlan presentation examples Financial PlanFinancial Plan In the Fire – Customer SurveysIn the Fire – Customer Surveys Hand-in: prelim customer surveysHand-in: prelim customer surveys Team meetingsTeam meetings
3Financial Plan
Next WeekNext Week Management PlanManagement Plan In the Fire - Marketing planIn the Fire - Marketing plan
Prepare 6 slidesPrepare 6 slides 10 minutes10 minutes 4 entrepreneurs4 entrepreneurs
Amber Hickory, Greenhouse PartnersAmber Hickory, Greenhouse Partners Katarina Brown, Brand JuiceKatarina Brown, Brand Juice Scott Heinemann, AweidaScott Heinemann, Aweida David Parkhurst, Alpine AccessDavid Parkhurst, Alpine Access
Hand-in: Hand-in: Marketing Plan - draftMarketing Plan - draft Customer surveys & summary of resultsCustomer surveys & summary of results
4Financial Plan
Marketing Plan OutlineMarketing Plan Outline Customer ResearchCustomer Research Target Market StrategyTarget Market Strategy Channel StrategyChannel Strategy PositioningPositioning Product/Service StrategyProduct/Service Strategy Pricing StrategyPricing Strategy E-commerceE-commerce Communications StrategyCommunications Strategy Sales StrategySales Strategy Revenue ModelRevenue Model
5Financial Plan
Financial PlanFinancial Plan
Financial ProjectionsFinancial Projections Key AssumptionsKey Assumptions Business RisksBusiness Risks
6Financial Plan
Business Plan PerspectiveBusiness 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
7Financial Plan
ApproachApproach
Download v6.8.6Download v6.8.6 Learn color codesLearn color codes NotesNotes Play with examplePlay with example Before start, erase all green dataBefore start, erase all green data Don’t mess with the PurpleDon’t mess with the Purple
8Financial Plan
Financial ProjectionsFinancial Projections
Income StatementIncome Statement By years for 5 years By years for 5 years By months for years 1-2 & by quarters for years 3-5By months for years 1-2 & by quarters for years 3-5
Balance Sheet by years for 5 yearsBalance Sheet by years for 5 years Cash Flow Cash Flow
By years for 5 yearsBy years for 5 years By months for years 1-2 and by quarters for years 3-5By months for years 1-2 and by quarters for years 3-5
Break-even AnalysisBreak-even Analysis Financial CompsFinancial Comps
9Financial Plan
ArchitectureArchitecture
OutputsOutputs InputsInputs Funding & ValuationFunding & Valuation
10Financial Plan
Architecture - OutputsArchitecture - Outputs
5-year Income Statement5-year Income Statement 5-year Balance Sheet5-year Balance Sheet 5 year Cash Flow5 year Cash Flow Break-even AnalysisBreak-even Analysis Income Statement by months & quartersIncome Statement by months & quarters Cash Flow by months & quartersCash Flow by months & quarters SummarySummary ValuationValuation
11Financial Plan
Architecture - Inputs Architecture - Inputs
Revenue ModelRevenue Model Cost of RevenueCost of Revenue Operating ExpensesOperating Expenses PersonnelPersonnel ExtraordinaryExtraordinary TaxesTaxes Property & EquipmentProperty & Equipment Working CapitalWorking Capital FundingFunding
12Financial Plan
Architecture – Funding & ValuationArchitecture – Funding & Valuation
Look at Cash Flow to determine funding requirementsLook at Cash Flow to determine funding requirements Decide how you will fundDecide how you will fund
EquityEquity What % of company will you offer? What % of company will you offer? Valuation approaches – will cover week 13Valuation approaches – will cover week 13
Debt – what are the repayment terms & interestDebt – what are the repayment terms & interest
13Financial Plan
Financial AssumptionsFinancial Assumptions
Describe assumptions critical to success of Describe assumptions critical to success of youryour business business DriversDrivers
Revenue model, e.g. prices, market share, new productsRevenue model, e.g. prices, market share, new products Cost projections, e.g. sourcing agreement, process developmentCost projections, e.g. sourcing agreement, process development
Capital ExpendituresCapital Expenditures Working CapitalWorking Capital Funding?Funding?
Do not be resource constrained at the beginningDo not be resource constrained at the beginning
14Financial Plan
Suggested ApproachSuggested Approach
Top down vs. bottoms upTop down vs. bottoms up Keep record of key assumptionsKeep record of key assumptions COMP’s provide reality check COMP’s provide reality check Revenue projections by months & quarters is key. Revenue projections by months & quarters is key.
DETERMINES:DETERMINES: Cost of RevenueCost of Revenue Operating ExpensesOperating Expenses Working CapitalWorking Capital Monthly & Quarterly projectionsMonthly & Quarterly projections
XYZ CompanyPeer Company Comparisons
Select BestCompany A Company B Company C Comparison Projections
RatiosAccounts Receivable % of RevInventory % of RevAccounts Payable % of RevWorking Capital % of RevNet Fixed Assets % of Rev
Current Ratio Debt to Capital (LT Debt + Equity)
ProfitabilityGross Profit % of RevOperating Expenses % of RevEarnings from Operations % of RevEBIT % of RevDepreciation % of RevEBITDA % of RevNet Earnings % of Rev
ReturnsReturn on AssetsReturn on EquityReturn on Capital (LT Debt + Equity)
Growth Revenue Growth Rate - CAGR: Net Earnings Growth Rate - CAGR:
16Financial Plan
IssuesIssues
ProfitabilityProfitability Gross marginsGross margins Operating expensesOperating expenses
Assets & LiabilitiesAssets & Liabilities Working CapitalWorking Capital Fixed Assets & Capital ExpendituresFixed Assets & Capital Expenditures
SeasonalitySeasonality GrowthGrowth
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Powerful ToolPowerful Tool
Upfront effortUpfront effort What if? questionsWhat if? questions Sensitivity analysisSensitivity analysis How tell if projections make sense?How tell if projections make sense?
18Financial Plan
Risks IRisks I
What major risks does the venture face?What major risks does the venture face? What can go wrong?What can go wrong? What must go rightWhat must go right
How mitigate?How mitigate?
19Financial Plan
Risks IIRisks II
MarketMarket Size of marketSize of market Competitor’s response Competitor’s response Sales cycleSales cycle Closing window (12 VC funded companies)Closing window (12 VC funded companies)
Strategic - establishing strategic partnershipsStrategic - establishing strategic partnerships Operational - large number of interrelated componentsOperational - large number of interrelated components
20Financial Plan
Risks IIIRisks III
TechnologyTechnology Will it workWill it work Time and cost to developmentTime and cost to development ScalabilityScalability
FinancialFinancial Risk/returnRisk/return DilutionDilution
Macro-economicMacro-economic Volatile industryVolatile industry Government approvalGovernment approval Exchange ratesExchange rates
21Financial Plan
Financial PlanFinancial Plan
Financial ProjectionsFinancial Projections Summary goes in PlanSummary goes in Plan All Financial Statements go in AppendixAll Financial Statements go in Appendix
AssumptionsAssumptions ~5 key assumptions go in Plan~5 key assumptions go in Plan Detailed assumptions go in AppendixDetailed assumptions go in Appendix
Business RisksBusiness Risks
Summary of Financial Projections
23Financial Plan
Critical Mistakes ICritical Mistakes I ““Let’s go smoke something”Let’s go smoke something” ““These trees sure are pretty”These trees sure are pretty” ““We can get orders in a month”We can get orders in a month”
Sales cycleSales cycle No one knows youNo one knows you
““We can whip this puppy out in 6 months”We can whip this puppy out in 6 months” Development time-line longer Development time-line longer More expensiveMore expensive
““Look at how much they spend on marketing! We Look at how much they spend on marketing! We won’t have to spend that much”won’t have to spend that much”
24Financial Plan
““Sure, operating expenses are high at the beginning, Sure, operating expenses are high at the beginning, but then they will go down.”but then they will go down.” Operating expenses don’t declineOperating expenses don’t decline Salaries must be realisticSalaries must be realistic Growth requires spending moneyGrowth requires spending money
““This equipment should last us for years.” This equipment should last us for years.” Assets must be replaced Assets must be replaced
““We’ll lean on our suppliers and not pay them for 90 We’ll lean on our suppliers and not pay them for 90 days.”days.”
““Our customer will pay us in 30 days.”Our customer will pay us in 30 days.”
Critical Mistakes IICritical Mistakes II
25Financial Plan
Financial DynamicsFinancial Dynamics
Who does the financial projections?Who does the financial projections? Should my projections be optimistic or pessimistic?Should my projections be optimistic or pessimistic? Investor questionsInvestor questions
26Financial Plan
Business Plan PerspectiveBusiness 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.”
Dan Beldy, Hummer Winblad Venture Partners