Business Plan Preparation

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Business Plan Preparation

• Frank MoyesLeeds College of Business
• University of ColoradoBoulder, Colorado

2
Tonight

• Financial Plan
• Customer acquisition costs
• In the Fire preliminary Customer Survey results
• Team meetings

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April 2

• In the Fire - Marketing plan
• Prepare 6 slides
• 10 minutes
• 2 marketing experts
• Hand-in
• Marketing Plan - draft
• Customer surveys summary of results

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Marketing Plan Outline

• Customer Research
• Target Market Strategy
• Channel Strategy
• Positioning
• Product/Service Strategy
• Pricing Strategy
• E-commerce
• Communications Strategy
• Sales Strategy
• Revenue Model

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Business Plan Elements
0

• Executive Summary
• Company Overview
• Product or Service Description
• Industry and Marketplace Analysis
• Marketing Plan
• Operations Plan
• Development Plan
• Management
• Financial Plan
• Offering, Funding Requirements, Valuation

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Financial Plan

• Financial Projections
• Key Assumptions
• Business Risks

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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. Theyll 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 Ill
get back to you.
Dan Beldy, Hummer Winblad Venture Partners
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Financial Projections

• Income Statement
• By years for 5 years
• By months for years 1-2 by quarters for years
  3-5
• Balance Sheet by years for 5 years
• Cash Flow
• By years for 5 years
• By months for years 1-2 and by quarters for years
  3-5
• Break-even Analysis

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Focus Your Attention On

• Revenue Model
• Cost of Revenue
• Operating Expenses
• Personnel
• Property Equipment
• Working Capital
• Funding

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Common Weaknesses

• Profitability
• Gross margins are too high
• Operating expenses are too low
• Assets Liabilities
• Working Capital must be based on industry
• Fixed Assets Capital Expenditures not addressed
• Seasonality not addressed
• Growth not anticipated

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Financial Assumptions (5 critical)

• Revenue model, e.g. prices, market share, new
  products
• Manufacturing costs, e.g. labor material
• Operating Expenses Sales Marketing, R D and
  General Administrative
• Capital Expenditures
• Working Capital Accounts Receivable, Inventory
  Accounts Payable
• Funding

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Risks I

• What major risks does the venture face?
• What can go wrong?
• What must go right
• How mitigate?

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Risks II

• Market
• Size of market
• Competitors response
• Sales cycle
• Closing window (12 VC funded companies)
• Strategic - establishing partnerships or
  agreements
• Operational - large number of interrelated
  components

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Risks III

• Technology
• Will it work
• Time and cost to development
• Scalability
• Financial
• Risk/return
• Dilution
• Macro-economic
• Volatile industry
• Government approval
• Exchange rates

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Financial Plan Section

• Financial Projections
• Summary goes in Plan
• All Financial Statements go in Appendix
• Assumptions
• 5 key assumptions go in Plan
• Detailed assumptions go in Appendix
• Business Risks

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0
Summary of Financial Projections
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Break-even
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Customer Acquisition Costs
Costs to Get a Customer Number of Customers

• Costs to get a customer
• Sales salaries commissions
• Advertising promotion
• Customer tech support
• Website
• Travel entertainment
• Number of customers

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Business Plan Perspective
0
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 theyll 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
heres what will happen in the end. Your
survival depends on knowing that stuff cold.
Dan Beldy, Hummer Winblad Venture Partners
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Critical Mistakes I

• Lets go smoke something
• These trees sure are pretty
• We can get orders in a month
• Sales cycle
• No one knows you
• We can whip this puppy out in 6 months
• Development time-line longer
• More expensive
• Look at how much they spend on marketing! We
  wont have to spend that much

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Critical Mistakes II

• Sure, operating expenses are high at the
  beginning, but then they will go down.
• Operating expenses dont decline
• Salaries must be realistic
• Growth requires spending money
• Well lean on our suppliers and not pay them
  for 90 days.
• Our customer will pay us in 30 days.

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Financial Dynamics
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• Who does the financial projections?
• Should my projections be optimistic or
  pessimistic?
• What kind of questions do investors ask why?