Professional Documents
Culture Documents
Welcome!
Session 3 – July 20, 2004
Agenda – Session 3
Recap from Session 2
Where We Are and What’s Left
Financial Plans
Cash Flow
Tying It All Together
Preparation for Next Session
Recap – Session 2
Industry Analysis
Were you able to identify your NAICS code?
Research? Sources? Surprises?
Competitor Analysis
Number and types?
Business performance data?
Sales Projections
Were you able to define your sales unit(s)?
Can you describe the reasoning behind your projections?
Marketing Plans
Do they closely tie in to sales projections?
How did you select your “marketing mix”?
Copyright © March 2004
Wharton Small Business Development Center
STRATEGIC BUSINESS PLANNING
Financial Plan
Pro Forma
Financial Statements
How will your business make money?
How much? For how long? Risks?
Marketing Expenses
Revenues (Sales)
Book Recommendation
The Interpretation of Financial Statements
by Ben Graham
“Highly practical and accessible, it is an essential
guide for all business people…”
Financial Assumptions
Key sales and cost drivers
Basic information about the market and
opportunities in the environment
Start with:
Unit sales projections
Prices
Cost projections – fixed and variable
Key drivers for each
Financial Projections
“Pro Forma” financial statements
Income Statement – revenue minus expenses
Balance Sheet – assets and liabilities
Cash Flow Statement – actual cash on hand
Critical to you, essential to others
Predictions of business performance
Financing requirements
Sources and uses of cash
Assumptions – Revenue
Market size and opportunity
Number of potential customers
Your particular business cycle
Product/service pricing
Sales growth curve
Avoid the “moving hockey stick”!!!
Assumptions –
Cost of Sales/Goods Sold
Direct inputs to delivery of service
Direct inputs to delivery of product
Examples: materials, parts, labor,
shipping
a/k/a – variable costs
Not your expenses
Copyright © March 2004
Wharton Small Business Development Center
STRATEGIC BUSINESS PLANNING
Gross Profit
+ Revenue
- COGS
EBITDA
Earnings Before Interest Taxes
Depreciation Amortization
Balance Sheet
A “snapshot” of the net worth of your company,
listing assets and liabilities. Important to note that
balance sheets don’t tell you about the ups and
downs of the year, only how things were as of a
certain date, usually the end of the month or the
end of the year.
Spreadsheet Exercise
Spreadsheet Exercise
MONTH
($000) 1 2 3 4 5 6 7 8 9 10 11 12 TOTALS
Revenue 0 0 0 0 0 3 3 7 7 38 38 42 138
Expend- 17 5 8 8 9 9 11 19 19 33 42 40 220
itures
Cash Flow (17) (5) (8) (8) (9) (6) (8) (12) (12) 5 (4) 2 (82)
Cumulative (17) (22) (30) (38) (47) (53) (61) (73) (85) (80) (84) (82)
Spreadsheet Exercise
Spreadsheet Exercise
Sensitivity Analysis
Shows the impact of unplanned results on your
business (higher or lower costs, sales, etc.)
Spreadsheet Exercise
Funding Schedule
Details the amounts of money you expect to need
and when
Typically tied to milestones and achievements
Allows investors to decide on a commitment level
Staffing Plans
Details the titles, salaries/benefits, and timing of
hiring for people you’ll be adding to the company.
Title Hire Date Salary Benefits Bonus Total Expense
President January-04 $80,000 $26,400 $15,000 $121,400
Machine Operator January-04 $35,000 $11,550 $2,000 $48,550
Machine Operator April-04 $35,000 $11,550 $2,000 $48,550
Shipping Clerk April-04 $24,000 $7,920 $1,200 $33,120
Salesperson June-04 $30,000 $9,900 $3,000 $42,900
Salesperson June-04 $30,000 $9,900 $3,000 $42,900
Salesperson October $30,000 $9,900 $3,000 $42,900
Totals $264,000 $87,120 $29,200 $380,320
- 10 Minute Break -
End of Year 1 - $250,000 plus 100% return = $500,000 (current value of investment)
End of Year 2 - $500,000 plus 100% return = $1,000,000
End of Year 3 - $1,000,000 plus 100% return = $2,000,000
End of Year 4 - $2,000,000 plus 100% return = $4,000,000
End of Year 5 - $4,000,000 plus 100% return = $8,000,000 (32X)
End of Year 6 - $8,000,000 plus 100% return = $16,000,000
End of Year 7 - $16,000,000 plus 100% return = $32,000,000
End of Year 8 - $32,000,000 plus 100% return = $64,000,000
End of Year 9 - $64,000,000 plus 100% return = $128,000,000
End of Year 10 - $128,000,000 plus 100% return = $256,000,000
Innovation Philadelphia
http://www.IPphila.com
If you don’t ask, you won’t know if you can get it!
Cash savings
Converting assets
“Sweat equity”
The “apple cart” approach
Private Equity
Sophisticated “Angel Investors”
Professional investors – typically take a
sole investor position in startups
Minimal margin for error and a low
tolerance for underperformance
Generally reserve the right to replace the
management team if projections aren’t met!
Contracts tend to be complex with lots of strings
attached to investment
Debt Financing
Local banks
Small Business Administration loans
Credit cards
Borrowing against home equity
Borrowing against insurance policies
Borrowing against your retirement IRA
Homework Assignments
Develop a draft Financial Plan
Use the discussions from this evening to build a integrated
financial plan for your business.
Revise and refine Financial Projections
Based on your operating, marketing, and sales expenses,
how much money will the company need to get started, what
are your cash flow projections, and how much money will the
business make and when?
Complete the Operating Plan
Go back into your narrative plan and adjust your story based
on the realities of your financial plan.