Developing a Business Plan

Developing a Business Plan Presentation to TPP November 2000 D.B. Matias November 19, 2000, MIT – TPP dmatias@mindspring.com Overview of Last Discussion • Know your audience – Who is your reader – What is their risk profile (risk/reward analysis) – Why would they invest in you (synergies) • Know your forms of funding – – – – Private equity Bank lending/asset securitization Alternative funding (JV’s, alliance) Government subsidies • Know your risks November 19, 2000, MIT – TPP dmatias@mindspring.com 2 Risk/Reward Profile Risk Common Equity S&P 500 Kd Bond T-Bill Ke Reward 5% November 19, 2000, MIT – TPP dmatias@mindspring.com 8-10% 12% 20-40% 3 Key Elements to Business Plan • • • • Market Assessment Product Differentiation Market Penetration Sustainability • Operations • Management team • Funding November 19, 2000, MIT – TPP dmatias@mindspring.com 4 Financial Statements • • • • Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows November 19, 2000, MIT – TPP dmatias@mindspring.com 5 Basic Accounting Assumptions • • • • • • Fiscal period Conservatism Quantifiable items or transactions Matching of revenues to expenses Materiality “Going Concern” concept November 19, 2000, MIT – TPP dmatias@mindspring.com 6 Balance Sheet Relationship ASSETS = LIABILITIES + EQUITY November 19, 2000, MIT – TPP dmatias@mindspring.com 7 Balance Sheet Components • • • • Cash and liquid securities Accounts Receivable – related to customers Prepaids – amounts paid in advance of service/good Fixed assets – equipment used in providing service • • • • Current liabilities – debts incurred in operation of business Long term debt – form of funding with defined repayment Paid in capital – form of funding without defined repayment Retained earnings – increase/decrease in assets from prior periods November 19, 2000, MIT – TPP dmatias@mindspring.com 8 Income Statement Components • Revenue – supported by assumptions developed in business plan • Cost of Goods Sold – variable cost associated with providing service • Research and Development – sunk costs used to create or improve technology/intangible assets • General & Administrative – all costs associated with creating and running “the business” • Interest expense – dependent on funding November 19, 2000, MIT – TPP dmatias@mindspring.com 9 Cash Flow/Shareholder’s Equity • No new entries created – simply recalculation of existing data • Focus on two items most important to running of business: cash and equity • Lower priority for this assignment? November 19, 2000, MIT – TPP dmatias@mindspring.com 10 Ratio Analysis • Liquidity – Available cash to cover current debts and interest • Leverage – Use of forms of funding – Return to various stakeholders (debt or equity) • Profitability – Viability of business November 19, 2000, MIT – TPP dmatias@mindspring.com 11 Conclusion • Follow PWC guide for structure • Use results of model to justify business plan • Develop funding proposal to match business requirements • Need for further discussion on mechanics of accounting? November 19, 2000, MIT – TPP dmatias@mindspring.com 12