Business Plans

1
Business Plans

• Part 4
• Taken from http//www.bplans.com/hurdleonline
• http//www.sba.gov/starting/indexbusplans.html

2
Assignments to Date

• Preliminary Mini Plan
• Mission/Objectives
• Keys to success
• Target Market
• Competitive Advantage
• Basic Strategies
• Initial break-even chart
• Company Summary Product Description
• Start-up Funding Table
• Market Analysis Summary Management Summary
• Sales Forecast and Assumptions
• Personnel Plan

3
Simplified Business Plan Outline

• Executive Summary
• Company Summary
• Product Description
• Market Analysis Summary
• Strategy and Implementation Summary
• Management Summary
• Financial Plan

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Strategy and ImplementationStrategy is focus

• What are you main marketing and sales priorities?
  
• Keep this list short
• Use Strategy Pyramid to make it real

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Strategy Pyramid Example
Strategy
Tactics
Program(s)
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Strategy and Implementation Making it Real -
Milestones Table
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Financial PlanComponents

• Important assumptions
• Key financial indicators
• Breakeven
• Profit and loss
• Projected cash flow (most critical projection)
• Projected balance sheet
• Business ratios

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How Tables and Charts are Linked
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Points About CashCash is King

• Profitable companies go broke because their money
  is tied up in assets
• Need to understand the difference between profit
  and cash (can spend cash)
• The time to solve cash flow problems is up front
• An understanding of this is important to your
  business plan

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Cash vs. ProfitsStarting Numbers
Income
Balance
Sales
0
Assets
Cost of Sales
0
Bank Balance
100
Profit
0
Total
100
Liabilities
Capital
Paid-In
100
Earnings
0
Total
100
11
Cash vs. ProfitsSell a Widget
Income
Balance
Sales
150
Assets
Cost of Sales
100
Bank Balance
150
Profit
50
Total
150
Liabilities
Capital
Paid-In
100
Earnings
50
Total
150
12
Cash vs. ProfitsSell Another
Income
Balance
Sales
300
Assets
Cost of Sales
200
Bank Balance
200
Profit
100
Total
200
Liabilities
Capital
Paid-In
100
Earnings
100
Total
200
13
Cash vs. ProfitsAnd Still Another
Income
Balance
Sales
450
Assets
Cost of Sales
300
Bank Balance
250
Profit
150
Total
250
Liabilities
Capital
Paid-In
100
Earnings
150
Total
250
Whats wrong with this picture?
14
Cash vs. ProfitsAdding Realism - Selling on Terms
Income
Balance
Sales
150
Assets
Cost of Sales
100
Bank Balance
0
Profit
50
Accounts Receivable
150
Total
150
Liabilities
Capital
Paid-In
100
Earnings
50
Total
150
15
Cash vs. ProfitsBuying on Terms
Income
Balance
Sales
150
Assets
Cost of Sales
100
Bank Balance
0
Profit
50
Accounts Receivable
150
Inventory
100
Total
250
Liabilities
Accounts Payable
100
Total Liabilities
100
Capital
Paid-In
100
Earnings
50
Total
250
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Cash vs. ProfitsBuying on Terms Short Term Debt
Income
Balance
Sales
450
Assets
Cost of Sales
300
Bank Balance
0
Profit
150
Accounts Receivable
450
Inventory
100
Total
550
Liabilities
Accounts Payable
100
Short-term debt
200
Total liabilities
300
Capital
Paid-In
100
Earnings
150
Total
550
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Cash vs. ProfitsLesson Business looks a lot
better with 400 in starting capital
Income
Balance
Sales
450
Assets
Cost of Sales
300
Bank Balance
300
Profit
150
Accounts Receivable
450
Inventory
100
Total
850
Liabilities
Accounts Payable
100
Short-term debt
200
550 in working capital
Total liabilities
300
Capital
Paid-In
400
Earnings
150
Total
850
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Case Examples
Baseline Computer store 6 million annual
sales 8 net profit on sales
Cash Flow
Cash Balance
Only change is adding 15 days, on average, to
receive money on invoices
Only change from baseline is going from two to
three month inventory
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Profit and Loss Statement

• What owners are most interested in
• Uses sales forecast and personnel plan numbers
• Good idea to link the profit and loss to other
  sheets so revisions in numbers are automatically
  updated
• You will do a pro forma profit and loss one
  that projects the future

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Profit and Loss Example(Income Statement)
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Returning to Cash and Balance Sheet Focus

• Different point of view than profit and loss
• We are following the money in and money out
• Sources of money
• Cash sales
• Payments from receivables
• New loan money
• New investment
• Expenditures
• Buying widgets in cash
• Paying interest
• Paying bills
• Paying loans

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Sample CaseSee Cash is King section of Hurdles
for information on entries
Cash Balance
Balance Sheet
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Key Cash Flow Points

• Profits are very important to cash (though this
  does not tell the whole story)
• An increase in assets decreases cash
• An increase in liabilities increases cash
• Extra dollars in receivables or inventory as
  assets are dollars that you dont have in cash
• Dollars that you have in payables are dollars you
  have in cash

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Balance Sheet
Start-up cost
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Business Ratios
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Business Ratios
Gross Margin sales cost of sales Net Profit
Margin net profit/sales Return on Assets net
profit/total assets Return on Equity (ROI) net
profit/net worth Current Ratio short-term
assets/short-term liabilities Quick Ratio
(short-term assets inventories)/short-term
liabilities Net Working Capital short-term
assets short-term liabilities Interest Coverage
profit before interest and taxes/total interest
payments Acid test (short-term assets
accounts receivable inventory)/short term
liabilities
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Executive Summary

• Most important of your chapter summaries the
  doorway to the rest of the plan
• One-page, written last
• Example format
• Opening paragraph
• One highlight graphic
• A list of two to four measurable objectives
• Ex. Net income more than 10 of sales by the
  third year
• A mission statement defining your business
  concept
• A list of two to three keys to success

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SummaryImplementation of Plan Must Be
Communicated