Writing and Presenting Effective Business Plans

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Writing and Presenting Effective Business Plans
Nebraska EPSCoR Innovation Forum March 21, 2007

• Dr. Anne S. York
• Associate Professor of Entrepreneurship
• Creighton University

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Agenda for Today

• Why write a business plan?
• Mystery product exercise
• The importance of cash flow
• Presenting your business plan
• Resources at Creighton and in Omaha

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Business Plan Components

• Executive summary
• Concept statement (position, industry)
• Industry analysis
• Marketing (research, pricing, promotion)
• Operations (start-up and ongoing growth)
• Management (team)
• Financial (profit, cash flow, funding)
• Critical risks and milestones

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Business Plan for Mystery Product.

• What is your product?
• Who are your likely competitors?
• Who are your target customers?
• How will you price and promote it?
• What skills do you need on your team?
• How and where will you produce?
• How much money do you need?
• Critical risks?

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Why Forecasting Cash Flow Is Important!

• PL Summary

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What Happened? Signs of Rapid and Unplanned Growth

• Sales Growth major awards
• Operations scheduling impact
• Staffing increasing and turnover
• Inventories increasing and outsourcing
• Equipment unfamiliar, distant
• Receivables increasing
• Capital needed!!!!!

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Cash Flow
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Options

• Improve earnings
• Borrow more money
• Capital investment

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Financial Forecasting

• Purposes
• Planning for start-up
• Adjusting for changes in plans
• What-if exercises, sensitivities
• Point Need Something That Can Be Easily Changed!
• Tools Excel Mostly
• Often Used to Create Financial Statements, but
  Best Used for Cash Flow Budgeting

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Cash Flow Budgets

• Simpler, More Logical than Financial Statements
• Purpose To Determine How Much Cash You Need and
  When
• Involves Same Forecasting Tools as Financials
• Elements
• Assumptions
• Initial Investment/Startup Costs
• Cash Receipts (record when cash comes in)
• Cash Disbursements (record when cash goes out)

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Questions that Affect Cash Flow

• What initial investments are required before you
  open the door?
• What are your ongoing sales and costs?
• How and when will people pay you?
• How and when will you pay suppliers?

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More Questions

• What choices can you make to improve your cash
  flow?
• What options do you have if you need more cash?
• Can your business fail if you are making a profit?

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Example

• Assume you want to start a restaurant
• Initial investment
• Ongoing sales and costs
• Sources of capital loans, investors, savings
• Where do you get this information?
• Ask people
• Do research at the CU/UNO library, SBA
• Internet

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Cash Flow vs. Profit

• Cash Flow
• Sales (cash/credit/terms)
• Bank Loan
• - Eqpt./Invent. (lease/buy)
• - Materials (cash/credit)
• - Labor (plus training)
• - Interest/Principal
• - Taxes
• - Advertising and admin.
• Only record when cash
• comes in or goes out !

• Accounting Profit
• Revenue
• Expense
• Supplies and materials
• Labor
• Depreciation
• Advertising and admin
• Interest and taxes
• Asset (eqpt./inventory)
• Liability (loan)
• Expenses must be matched with revenues!

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Assumptions

• You purchase your eqpt./invent. for 9,000.
• Month 1 you sell 25,000.
• Your sales are doubling every month.
• You make 50 of sales to corporate customers, who
  take 30-45 days to pay.
• Your direct costs (labor,materials) are 50 of
  sales.
• Your suppliers require cash on delivery.
• You lease your building for 1,000 per month.
• You need two weeks to get your restaurant ready
  to go and help trained.

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Accounting Income Statement
June July August Revenues 25.0 50.0 100.0
Cost of goods sold 12.5 25.0 50.0 Gross
margin 12.5 25.0 50.0 Adv/admin
5.0 10.0 20.0 Operating profit 7.5 15.0
30.0 Depreciation (3 yr.) .3 .3
.3 EBIT 7.2 14.7 29.7 Interest
0.0 0.0 0.0 Taxes (40) 2.9 5.9
11.9 Net profit 4.3 8.8 17.8
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Cash Budget
May June July August Cash Sales 0
12.5 25.0 50.0 Corp. Sales 0 12.5
25.0 Net Cash In 0 12.5 37.5 75.5
Labor/Mtls. 12.5 25.0 50.0
100.0 Equipment 9.0 Adv./Admin. 5.0
10.0 20.0 40.0 Interest/Principal ?
? ? ? Taxes 2.9 5.9 11.9 Net
Cash Out (26.5) (37.9) (75.9) (151.9)
Net cash flow (14.0) (25.4)
(38.4) (76.4) Loan Needed 14.0
39.4 77.8 153.8
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Why Are the Two So Different?

• Same Reason as First Case
• Inventory/Materials Paid Ahead of Sales
• Corporate Accounts Receivable
• Equipment Paid Ahead of Sales
• Training Paid Ahead of Work
• Employee Turnover

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What You Can Do.

• Credit Policy/Discounts for Cash
• Lease Equipment
• Reduce Employee Turnover
• Slow Growth Rate (less advertising)

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Common Presentation Issues

• Using common language to describe product/service
• Identifying the target market
• Describing how product adds value
• Knowing how you compare with your competition
• Identifying alternative markets

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Common Presentation Issues

• Being realistic about adoption hurdles
• Estimating longevity of the product
• Clarifying role of founder/inventor
• Understanding what will excite customers
• Identifying interim sources of funding

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AI, Inc.
Business Plan Presentation Example
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AI, Inc.

• Concept Statement
• Business Plan Objectives
• Industry Need
• Dairy
• Beef
• Market Potential
• Competition
• Positioning
• Business Model
• Company Status
• Milestones
• Management
• Financial
• Projections
• Requirements

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AI, Inc. Concept Statement

• Mission to be the premier supplier of sperm
  sorting technology for gender selection in the
  livestock industry.
• Patented technology will allow AI, Inc. to claim
  the position of superior product provider at
  equal or lower cost.

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Business Plan Objectives

• To describe the current market and the growth
  potential for the market
• To define the competition within the market
• To outline the research and business development
  milestones to be met for commercial availability
  of the technology
• To demonstrate the financial viability of AI,
  Inc. for success in the market

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Cattle Industry Need

• Standard breeding techniques result in 50 male
  and 50 female offspring
• Sorted semen/sperm allows producer to select the
  sex of the offspring

Sperm Offspring Sector
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Need for Sorting Dairy
Got Milk?
Heifer Calf
Bull calf
Sperm

• Selective breeding of high-producing lactating
  cows
• Increased calf income- half no. of cows bred
• Herd management- biosecure easier calving
• Faster progress- meeting breeding goals

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Need for Sorting Beef
Wheres the Beef?
Superior Heifer
Superior Bull
Sperm

• Males for steers for commercial unit
• Replacement females from select population of
  herd
• Female breeding to reduce calving difficulties
• Males for bulls for seed stock producers

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The Market Immediate

• 2005 Inventory
• Dairy 9 million
• Approximately 5.9 million (65) bred by AI
• Beef 33 million
• Approximately 3.3 million (10) bred by AI
• 2004 Total Semen Sales by Sector
• Dairy 26.8 million units _at_ 5/unit
• 134,116,710
• Beef 3.9 million units _at_ 10/unit
• 39,212,180
• Source National Association of Animal Breeders
• March 11, 2005

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The Market Long-term

• Increased use of AI creates access to
• 35 of Dairy sector
• 90 of Beef sector
• Technology RD efforts to develop gender
  selection capabilities for additional sectors of
  livestock industry including
• Swine
• Sheep
• Equine

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The Market Competition
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The Market AI, Inc.

• Market research
• 20 National Association of Animal Breeders
  members
• 8 Certified Semen Services members
• Nebraska Resources
• Feed lot owners
• Seed stock suppliers
• Cattle breeders
• Trade association representatives
• Congressmans office

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The Market AI, Inc.
Ready Customers

• AI Suppliers
• Genex Cooperative (CRI Intl)
• Select Sires, Inc.
• Accelerated Genetics
• Androgenics
• Taurus Service, Inc.
• Seed Stock Supplier
• Vogler Semen Centre
• Reagent Supplier
• Minitubes of America

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Business Model Franchising

• Quick entry into market
• Expect FY2006
• Multiple revenue sources
• Technology license fees
• Proprietary reagent sales
• Potential for royalty income
• Compatible with Industry
• Consolidation trends
• Uses existing infrastructure
• Shared risk

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AI, Inc. Milestones

• Technology RD
• Demonstrate proof of principle
• Field trials with AI Industry partners
• Establish improved separation approach
• Develop technology for different species
• Business Development
• Negotiate license for technology rights
• Submit SBIR/STTR funding proposals
• Formalize AI subsector partnerships
• Establish first franchise
• Identify and secure management team
• First round of fundraising

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AI, Inc. Team

• XXXX, PhD founder, inventor, Medical School
  faculty, 30 yrs research experience,
  scientific advisory role
• CEO position open, entrepreneur experienced in
  launching company products in high technology
  agriculture business environment, and fundraising
  
• Research Scientist position open for PhD in
  biochemistry
• XXXX. business development support, equity
  partner, technology licensor

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AI, Inc. Financials
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AI, Inc. Funding Needed

• Pessimistic - 400,000
• 100 from angel investors and venture capitalist
  for a of ownership in the company
• Optimistic - 400,000
• 100 from grants.
• Expected - 400,000
• 75 from grants
• 25 from investors for ownership in the company (
  Approximately 100,000)

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AI, Inc.
For Additional Information XXXXXXXXXXX Office
phone Direct phone Email
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Creighton Options

• Ask to be considered as an outside project
  (semester time frame, call early)
• Take an elective course
• Undergrad entrepreneurial planning (fall,
  spring)
• Grad entrepreneurial planning (spring), business
  innovation consulting (fall), technology
  commercialization (spring), technology
  entrepreneurship (fall)

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Omaha Options.

• Nebraska Business Development Center
• Small Business Administration/Score
• Internet
• The Successful Business Plan Secrets and
  Strategies, Abrams
• Other?
• Search http//entrepreneurship.creighton.edu
• anneyork_at_creighton.edu
• 402-280-2440