Project #3

Business Plans
• You will be
required to
hand in a
business
planas your
final project.
• This will be a lot of fun !
• Personalize your plan (no cookie
cutterapproach please)
• Basic Requirement: How are you going
tomake money ?
• Best to leverage off your product
proposal(Project #1).

What is a Business Plan ?

Busines • A business plan is
written statement that
a

s describes and analyzes

business concept and
your
gives

Plan
detailed projections about it future.
• It also covers the financialaspects of starting
or expanding your business
Resou
rces
www.sbaonline.sba.gov U.S. Small
Business Administration
www.paloaltosoftware.com Business
Plan Software

• Define Business
• Begin Brainstorming

1
 • What are my competitions’ located? strengths?
• Where will I buy the
• How am I different from the products that I need? competitors, as
seen through
• What hours will I operate? my customers’ eyes?

Questions for Wholesale

• Which product lines will I carry in my inventory andwhich

will I order as required?
• How will I carry accounts for my customers?
• Are their any EXCLUSIVE distributorships availableto me?
• Will I market the products myself or will the manufacturers
have marketing programs?

Questions for Retail

• How will I keep abreast with fashion and taste?

• Is my location accessible, do I need a heavy
advertising campaign? Questions for
• Location - high rent shopping center or lower rent Manufacturers
location where there is less walk and drive by traffic?
• Does my manufacturing process create
• How much inventory will I need in comparison to my
toxic or polluting materials - how do I
expected sales and revenues?
deal with it?
• Is there a labor pool available (skilled, unskilled)?
• Will I manufacture per order or have an inventory?
• Will I manufacture one product or a family for them?
• Is my competition from small or large firms?

Questions for Service

Oriented Business

• Are my credentials or skills equal to or better than

Questions for
others in the field? Project Development
• Can I sell my service as well as I perform it?
• Do I have a client list to begin with or will I have to start
off cold? • Am I sure of the selling price of my project?

• Am I better off associating with others or is it betterto • Am I sure of the project cost?
be independent? • What happens if costs exceed predicted costs?
General BP Questions to Ask Yourself • Am I sure of the time factors involved?
• What problem do I solve for • Who will work for me and • Is there a buyer for my project?
how my customer base? will they be paid?
• Who is my target customer? • Who will handle critical tasks
like selling, ordering,
• How will I communicate with bookkeeping, marketing and my
target customer? shipping?
• What products/services will I
• How will I advertise andprovide? promote my business?
• Where will my business be

2
 Business Plans What is Wrong with Business Plan

Misconception - The only thing standing

between entrepreneurs and success is Business Plans
(Sahlman, HBR 97409):
• Too much time is wasted on numbers
• Glossy five color charts
• Too little time on information that really matters to
•Bundle of complicated spreadsheets
intelligent investors
• A decade of month by month financial
• Month-by-month predictions over several years
projections.
are an “act of imagination”
NOT So !
Sahlman (HBR 97409)

Critical Factors to
Every New Venture
• The People: the core team members and
outside parties providing key services
Business Model Rather Than A lot of Numbers
• The Opportunity: profile of business; how will it
grow; what can stand in the way of success
• Numbers in terms of model (demonstrate thatyou have • The Context: the BIG picture - regulatory,
thought through the problem) environmental, interest rates, demographic trends,
inflation, etc., the factors that will change but cannot be
• Key drives of venture success controlled by the entrepreneur
• Risk and Reward: an assessment of what can go
• Address break even issue (when do I make aprofit?) wrong (risk) and what can go right (pay-off). How can
the team respond to problems and uncertainties?
• Cash Flow > 0
Sahlman (HBR 97409)

Sahlman (HBR 97409)

Great Business
Ideas
• “…. GREAT businesses have attributes that are easy to
identify but hard toassemble.”
• The team’s members have skills and experiences directly
related to theopportunity
• Ideally, they have worked together in the past
• The opportunity has an attractive and sustainable business
model; it ispossible to create a competitive edge and defend it
• Many options exist for expanding the scope and scale of the
business
• Value can be extracted … positive harvest event (a sale) or by
scalingdown or liquidating
• The context is favorable - both regulatory and economic
environment
• RISK is understood, and team understands how to mitigate the
impact of
difficult events Sahlman (HBR 97409)

3
 Every business plan should answer the
Following about the personnel !
• Where are the founders from ?
• Where have they been educated ?
• Where have they worked ? For whom ? The opportunity
• What are their accomplishments ?
• What is their reputation within the or is it ?
business/technical community?
• What is their relevant experience ?
• What are their skills, abilities,
knowledge ? Can you answer the following basic questions ?
• How realistic are they ?
• Any essential team members missing ? (1) Is the total market for the venture
• Can they attract/recruit high quality people ?
• How will they respond to adversity ?
large, growing, or both ?
• Do they have the ‘stomach’ to make difficult
choices ? (2) Is the industry now, or can it
• How committed are they to the venture ? become, structurally attractive for the
• What are their motivations ?
Sahlman (HBR 97409) venture ?

4
The opportunity of a lifetime or The opportunity of a lifetime
is it ? or is it ?
Can your business plan answer these questions?
• Who is the new venture’s customer ?
• How does the customer make decisions about buying the product ?
Entrepreneurs or investors look for rapidly growing markets • Is the product a compelling purchase to the customer ?
because it is often easier to obtain a share of a growing • How will the product or service be priced ?
• How will the venture reach all of the identified customer segments ?
market than to fight with entrenched competitors for a • How much does it cost (time and resources) to acquire a customer ?
small piece of a mature market. • How much does it cost to produce and deliver a product ?
• How much does it cost to support a customer ?
• How easy is it to retain a customer ?

What are the cash flow implications: Competition:

Can your plan answer the following ? Can your plan answer
• When does the business have to buy resources, suchas the following ?
supplies, materials, and personnel ?
• How does your business have to pay for them ?
• How long does it take to get a customer ? • Who are the new venture’s
• How long before the customer sends the business a check ? current competitors ?
• How much capital is needed ? • What resources do they control ?
• What are their strengths and weaknesses ?
• How will they respond to your market entry ?
• How can your new venture respond to the
competitionresponse ?
• Who else can exploit the same opportunity ?

Competition

• Business is very much like chess - you need to anticipate your competitors next move.
• Don’t be naive and ‘pitch’ an insurmountable lead.
• You may have a proprietary lead, can you keep it ?
• All opportunities have promise !
• All opportunities have VULNERABILITIES !
• You need to identify all of your vulnerabilities !

5
 Context !
Government Regulations Context !
The Economy

Recession in early 1990s mad it hard to get

More than 100 new venture financing. However, as capital
companies formed when markets in the middle 1990’s heated up,
the airline industry these companies had a high rate of return.
deregulated in the late
1970’s.

Context
Unforeseen Shift

After the Tylenol incident (tampering),

the packaging industry flourished.
Prior to that the packaging industry
was declining.

Risk & Reward

How to Manage Risk??
Taking a picture of the unknown -- a business
plan is a snapshot of an event in the future.

Form
opportunity people coherent
story
Unfold possibilities of
context action and reaction

6
 Risk & Reward Risk & Reward
• Good business plans
discuss people, opportunity and • Fortune is hard to predict,
context as a moving target
but you have to convince
• These categories are fluid investors that you have a
and willchange over time sense of the risk and rewards
- key people will leave involved

- opportunities will vanish • It is up to the management to increase

the likelihood of success and
- economy will fluctuate consequences of success

Risk & Reward

“True entrepreneurs want to capture all
the reward and give all the risk to others. Your business plan should confront risk head on
Yet risk is unavoidable.”
- in terms of people, opportunities and
context
Try and understand scenarios:
- what happens if a key team leader leaves?
- what if competition responds more
ferociously than expected?
Howard Stevenson (HBS) - what happens if there is a revolution in
Namibia, a source of key raw material?

Risk & Reward Risk & Reward

Your business plan should address
candidly how the investor will get • Investors feel better
back his / her money about risk if it is up front
Venture capitalists like a wide range of exit
strategies
• Cover all possibilities
- IPO
- sell company outright
- split up company and sell parts

7
 Visualizing Risk and Reward
“If you don’t know
where you are going,
any road will get you
there.”

FOR ENTREPRENEURS--
•You better know where you will end up and
have a map for getting there
•A business plan should be the place where the - What is the depth and duration of negative cash flow?
map is drawn, a journey is less risky when you - ideal, cash flow early and often
have directions - possibly generate this curve from a sensitivity spreadsheet

Visualizing Risk and Reward

Final Thoughts
• A business plan is a call for
t) action,must be proactive
• Risk management is a key,
- Flat portion reveals a negligible chance of losing a small amount of money
- There is a significant chance of earning between 15% and 45%
often tiltingthe venture in favor of
- Small chance of a killer app > 20%
reward and away from risk
- Possible to predict with Monte Carlo • Should be a coherent document

The Format of a Business Plan

There are all kinds of help out there, use it!

It is a good
is idea to
Also, lots of books:
- “Complete Business Plan” by Adams (ISBN 1-55850-645-7)
invest in a
- “How to Write a Business Plan” by McKeever (ISBN 0-87337-5440) business plan book -- go
- “BusinessPlan.com” by Ross (ISBN 1-55571-455-2) the local bookstores and
- “The Business Planning Guide” by Bangs (ISBN 1-547410-099-8)
library and find one you
- “Model Business Plans” by Richter (ISBN 0-7352-0024-6)
like.

Format Skeleton of a Business

Plan

Main Body
Executive
Summary

8
 A. Program
Overvie
w
B. Manage
e ment &
Strategy
C. Products
D. Market &
Sales
E. Competit
ion
F. Operatio
ns
G. Risks &
Rewards
H. Financial
ModelsA
ppendix
A.1. Primary Final Objective
A.2. Supportive Financial Projections
A.3. Historical Financial Data
A.4. Organization
A.5. Resources

Table of Contents Executive Summary (1 page only)

Executive Summary D.Marketing and Sales
Marketing plan overview •Overview: Name the organization and generically describe
A. Program Overview Sales plan overview
Introduction Market size its nature, mission, long-term objectives, and products.
History Marketing research
Products
Market
Marketing for the initial •Competitive products: Describe product types available
Marketing and sales E. Competition from competitors and their weaknesses compared to your
Competition Perspective
Location Specific competitive products products, as lead-in to the next topic.
Funding requirements Anticipated competition
Financial goals
Return to investors F. Operation •Your products: Depict your existing and future products and
B. Management and
Perspective
Product R&D
how they improve competitive shortcomings.
Strategies Product design
Corporate mission Manufacturing
Quality
•Added product issues: Describe additional benefits of your
Business development strategy
Goals products and also honestly mention any weaknesses and how
Management team G. Risks and Rewards
Consultant Risks they are being addressed.
Benefits
C. Products Stockholders
Concept
•Business development status: Briefly outline the status of
H. Financial Models
Product approach both product and business development, the latter one
Product design Appendixes
Product, trademark, and regulatory individually of each of three divisions (administration,
status
Future products
technology and marketing).

Executive Summary con’t A. Program Overview

• Market(s) and shares: Profile the market(s) (the •Introduction: The introduction provides an orientation to the
nature and size) your products address, extracting summary data broad industry or industry group, describes the more specific
from the program overview and the marketing and sales section. industry of the company product, depicts the base technology’s
state of the art and its strengths and weaknesses, and closes by
• Project strengths: List the major strengths of the reviewing the product and how it exploits or extends the
project (e.g., management team, product features and technology. (2 - 4 paragraphs)
acceptance, patent status, technical prowess, marketing prowess).
•History: Include here a non-detailed list of people recruited
•Funding requirements: Describe the funding sought, how it is to and goals achieved to date, such as pertinent history, technical
be used, how it relates to total long-range funding plans, and what marketing development, management
is offered in return. In a brief table below the ending text, team status, facilities, patent status, and project recognition. (1
summarize for each year of the 5-year model: (1) the required - 2 paragraphs)
investment, (2) sales, (3) market share and (4) pretax profit.
•Products: Describe what the product accomplishes functionally
(not what it is), summarize the product’s technical rationale, and
list product attributes labeled important by industry
representatives. (1-3 paragraphs)

9
 A. Program Overview con’t A. Program Overview con’t
•Market: Depict the market size, supported (if possible) by •Location: The primary discussion of facility location is here,
references, market share estimates, future expansion of so cover future plans as well as past and current data. (1
markets with the same or other products, and why the market paragraph)
is considered appropriate for the product. (2 - 3 paragraphs)
•Funding requirements: An overview paragraph introduces a
•Marketing and sales: Summarize marketing objectives, table that shows, by project quarter, funding needs and a
strategies and their rationale, near-term promotion and sales condensed summary of principle company activities. Breaking
activities and their assessment measures, product imaging and up the narrative with a table, a figure, or a list aids readability.
positioning details and associated rationale, and the expected (1 paragraph)
long-term sales growth profile and its rationale. (2 - 4
•Financial goals: Provide intro paragraph citing the financial
paragraphs)
model as source and briefly list key model assumptions and
•Competition: This topic is a substantially condensed provide a tabular summary of the following key financial goals
version of the full section on competition. Modify the for each year of the plan: revenue, expenses, pretax profit,
presentation format to avoid redundancy. (1 - 2 taxes, after-tax profit, number of outstanding stock shares, and
paragraphs) earnings per share.

A. Program Overview con’t B. Management and Strategies Section

•Return to investors: Summarize the general distribution • Corporate mission: In one or two sentences, state the
of stock among investors and management, on the basis of corporate mission exactly as needed for ongoing strategic
the data in the appendix on the organization. List and planning. (1 paragraph)
briefly discuss three mechanisms identified by •Business development strategy: Outline company and
management as exit strategies feasible several years out product development and underlying rationale, describe industry
(e.g., company stock buyback, private offering, public reception or pre-introduction marketing research to date,
offering, company borrowing, merger, company sale). discuss how you have applied the strategy of customerdriven
Design the program overview section so that discussion design approach, and outline future product development plans
does not duplicate discussion elsewhere. Many general and their dependence on the same principles. (2 - 4
topics are specified repeatedly in the plan, but each paragraphs)
occurrence calls for a different approach or distinct level of
•Goals: State the model’s fifth-year sales goals, followed by a
detail. No direct rehashes of previously presented material
should occur anywhere in the plan (except perhaps the bulleted list identifying at least three reasons why it should
executive summary). materialize (e.g. your unique technology, extensive team
industry knowledge, current market position, new or extended
marketing approaches planned, future products and markets).
(1 paragraph)

B. Management and Strategies Section con’t C. Products

• Management team: List the current team and relevant • Concept: Describe the fundamental concepts that underlie
background or an overview to lead into the following bulleted list early products, features that embody said concepts, and
(1 paragraph). List each team member, followed by a brief expected customer reactions. Outline any significant future
summary of his or her professional field, specialty, major enhancements or additional concepts. (1 paragraph)
strengths, education and role (1 paragraph per team member).
•Product approach: Review the specific design approach in
Finally, include a closing paragraph summarizing the time
general terms. (1 paragraph)
commitment and strength of project conviction of all players,
individually or collectively. (1 paragraph) •Product design: Describe the initial product design in some
detail (without revealing proprietary elements) as follows:
•Consultants: If you agree, add something akin to this: “[name
general nature of product design status, intended use,
of company] ascribes to the concept of using consultant instead
configuration of various models, a bulleted list of major industry
of employees for certain tasks in the onset to save money. This
design and functional improvements accomplished (e.g., simple
reduces long-term commitments and therefore costs for
mechanisms, easily produced, reliable components, extended
irregular or low-level activities and , if relevant, allows
guarantee) and means of production. (3 - 6 paragraphs)
evaluation for potential hire. Funds for many in-house
administrative, technical, and marketing/sales tasks may be
handled using consultants rather than staffing.” (1 paragraph)

C. Products con’t D. Marketing and Sales

• Patent, trademark, and regulatory status: Review patent • Marketing plan overview: Begin by stating your ultimate
status of near-term products, singly or collectively as realistic industry goal (e.g., leader, prominent or general
appropriate; in turn, do the same for trademarks, service marks, participant, number two player). Name the functions under the
and regulatory issues. (1 - 3 paragraphs) control of the marketing division (probably program design;
customer analysis; product imaging, positioning, promotion,
•Future products: Thoroughly describe the philosophy, pricing , and delivery; competitive analysis; forecasting; new
organization, budget weight, and leadership of R&D and product planning; sales management; and customer service)
present its long-term project plans. How will company grow. (1 2 and give a brief description of each in bulleted list form (1
paragraphs) paragraph plus the list). Address the marketing portion of
corporate strategic management, directed to the strategic and
tactical planning to develop, design, implement, and control all
marketing and sales functions, and who will control that function
(1 paragraph).

10
 D. Marketing and Sales con’t D. Marketing and Sales con’t
•Marketing plan overview con’t: Address product •Sales plan overview: Review the general nature, structure,
marketing, the function that defines system features, leadership, and makeup of the sales function (1 paragraph);
customers and their needs and desires, product imaging and outline the general approach and steps to consummate
pricing, sales leads, forecasts, product and technical typical sales (1 paragraph); and describe customer service
literature, and other promotional tools and who will control function leadership, structure, size, makeup, methods, and
that function (1 paragraph). Next, address promotion and how data are collected to aid product design. (1 paragraph)
advertising by describing current or planned elements, the
target marketplaces, and how your marketing properly •Market size: Define market size and relevant assumptions;
conforms to said markets (1 paragraph). Finally, mention present a table of market size, company sales, and company
sales and service purely by defining management names market share of each plan year; discuss reasonableness of
and titles. (1 paragraph) such company market share achievement; and end by listing
three strong attributes of your product fostering market
penetration (e.g., value, low cost, improved efficiency). (4
paragraphs)

D. Marketing and Sales con’t D. Marketing and Sales con’t

•Marketing research: Review company and product •Future markets and their approaches: Briefly describe
advantages from a different perspective. Introduce and future product and/or marketing approach concepts. Keep
display a bulleted list of primary concerns expressed by this subsection short, to avoid imbalance and a “dreamer”
industry reps (or customers), then present the list, choosing image, but it is critical to show your essential commitment to
items that accentuate your positives as learned from ongoing product development and future growth.
marketing research (e.g., customer needs, desires, concerns, (1 paragraph)
and shortcomings; appropriateness of industry sophistication,
diversity, and maturity; environmental or regulatory issues
where you shine), and finally close with a brief description of
how well your product meets list attributes (so list only items
where you excel). (2 paragraphs plus list)

E. Competition E. Competition con’t

•Perspective: Provide an overview of the global market •Anticipated competition: Describe company preparedness
(size, growth, trends, nature of customer, product turnover for competition in general, including future new market
rate and so forth). Then describe how the material to follow is entrants. It is best to emphasize (and actually conduct)
organized, for example, by product within one market (as is continuous marketing research, in-house R&D, aggressive
assumed in the next item), by niche within one market, or by product development and market entry, and any other factors
markets. relevant to sound, responsive business and product
management.
•Specific competitive products: Whatever organizational
approach is chosen, discuss each competitor by name,
addressing size, company age, spectrum of products,
competitive strengths and weaknesses (e.g., product
development, innovation, design, quality, marketing),
products specifically competitive to yours, and the good and
bad of theirs versus yours. (1 paragraph per competitor)

11
 F. Operations Section F. Operations Section con’t
Information on Internal Technical Operations Information on Internal Technical Operations
•Perspective: Introduce and define in logical order each major •Quality: Discuss the same basic topics as R&D, emphasizing
company technical function for later discussion. We treat how quality is a distinct function and how it is kept relatively
functions in order of product development, with quality last to independent of management of the administration division and
emphasize its central attention. (1 paragraph) the technology division (1 paragraph). The latter treatment
•Product R&D: Describe product development organization, concerns quality at the departmental level. Then treat each of
its leader, to whom the leader reports, facilities and equipment, the two major quality functions, such as quality control, in
functions included here, sources of ideas, and other key data some detail, describing their organization, leadership,
concisely conveying how R&D works and meshes with other functions, facilities and equipment and other key issues.
company functions. (1 - 2 paragraphs) •Manufacturing: Treat
the same basic topics as R&D, plus how key elements (parts,
materials, progressing product, finished product,
nonconforming material) flow through the system, inventory
management, packaging and shipping.
(1 - 2 paragraphs)

G. Risks and Rewards G. Risks and Rewards con’t

•Risks: Begin by asserting that it is essential for management •Risks con’t: the degree to which company products will be
to identify and assess both the risks and the rewards of the accepted by customers and bring them benefits;
company’s venture, to aid informed planning. Then state that management’s ability to provide adequate external funding and
the plan does not constitute a solicitation or offer of proper financial management; unexpected social, economic
investment--the presented treatment is for purposes of regulatory, or legal perturbations; the advent of competitive
planning and information only, and detailed investment data responses, products, and copying of company products or
will be provided during relevant deliberations. Include the technology.
same statement on the front most cover or title page of the
business plan as well (1 paragraph). Next, include a bulleted •Benefits: Briefly discuss or list potential benefits to founders
list, with each item formed as follows: Identify one major (e.g., salary and benefits, entrepreneurial satisfaction, security,
project risk, followed by a brief explanation of how the project stockholder benefits), employees (e.g., salary and benefits, job
is addressing that risk (1 paragraph for each list item). Risk satisfaction, advancement and professional development
examples include management’s ability to affect successful opportunities), and stockholders (e.g., potential equity growth,
administration, marketing, sales, and products; the degree to potential dividends, entrepreneurial satisfactions). How are
which administration, marketing, sales and products; you going to keep your employees!

G. Risks and Rewards con’t H. Financial Model

•Stockholders: To elaborate stockholder risks versus Include “barebones” of financials here
rewards, investment in startups or young firms usually What are your assumptions?
accesses potentially growth in net worth.
•Key assumptions used to develop the sales projections;
•Marketplace and competitive assumptions;
•Pricing and discount policies and rationale;
•Rationale for salaries, benefit levels, and other compensation;
•Average time lag between a sale and actual money receipt;
•Average time lag between incurring and paying of bills;
•Major bills or expense categories that cannot be postponed;
•Functions that are contracted rather than conducted in-house;
•Rationale for leasing or purchasing large-ticket items;
•Time-dependent relationships, such as volume purchases;
•Relevant environmental, social, economic, political, and
regulatory issues.

Revenue
H. Financial Model Net sales Total of all money received
Income Statement Other revenue A net sales breakdown by component is possible

Total revenue Total of all money to the company

The income, or profit-and-loss (P&L), statement
summarizes income versus expenses. To hold this Cost of Goods Sold
statement to one page, many data are summarized, which Contract manufacturing
Whole product or subassemblies
often dictates the need for additional statements extending Purchased materials All purchased parts and materials

beyond the three primary ones to present supporting Manufactured materials All parts or materials made in-house
detail. Otherwise, readers of the business plan may
erroneously judge primary statement numbers as too Labor All direct/support labor involved in manufacturing

arbitrary.
Total COGS Total of all COGS

Gross margin Total revenue less total COGS

Direct Selling Costs
All direct expenses of selling
Sales expenses
Commissions Sales commissions and bonuses

Ads/meetings/shows Self-explanatory; add rows for finer breakdown

12
 Selling costs Total of all direct selling costs

General and Administrative

Administration labor Labor + personnel overhead for admin. Division
Administration expense All non-labor expenses for administration divisions

Technology labor Labor + personnel overhead for technology division

Technology expense All non-labor expenses for technology division

Marketing/sales labor Labor + personnel overhead for marketing division

Marketing/sales expense All non-labor expenses for marketing division

Rent, utilities, phone Include equipment under appropriate division

Legal, insurance, accounting Self-explanatory

Other Break into additional line items as needed for clarity

Total G&A Total of all G&A expenses

Profit & Loss
Profit before tax Algebraic sum of all category headings
Less tax @ 37% Consult an accounting professional for the correct
percentage

Profit after tax The infamous “bottom line”

H. Financials Current Assets Cash Cash, typically the checking account balance
Balance Sheet Accounts receivable Money due the company in normal business conduct

Presented immediately after the income statement, the Raw materials inventory Inventory as parts and materials

balance sheet shows the relative balance among assets,

Work-in-progress inventory Inventory of partially assembled goods
liabilities, and company equity. A balance sheet is
organized to equate assets with the sum of liabilities and Finished product inventory Inventory of finished product fully ready for sale

equity, the latter term being the company’s net worth.

Short-term notes receivable Short-term notes payable to the company
Thus the balance sheet summarizes the company’s
general financial health, its history, and its projected Total current assets Self-explanatory
future evolution. Long-Term and Fixed Assets
Technological rights Non-cash value conveyed by founders, for stock

Equipment Purchased large-ticket items

Less depreciation Depreciation of equipment (a negative entry)

Improvements Improvements made to facilities

Long-term-notes receivable Long-term notes payable to the company

total L/T&F Assets Self-explanatory

total assets Total of all assets; equals liabilities + equity

Current and Long-Term Liabilities

Accounts payable Money owed by company in normal commerce

Short-term loans Short-term loans received by the company

Tax, payroll Payroll taxes

Tax, other Other taxes; break down if needed for clarity

Total current liabilities Total current liabilities

Long-term liabilities

total L-T liabilities Long-term liabilities owed by the company

Total liabilities Total current + total long-term liabilities

Equity
Common stock
Founders stock + stock in return for investment
Preferred stock Often this is zero for all time periods

Retained earnings Cumulated excess earnings, per income statement

total equity Algebraic sum of all equity

Total liability & equity Algebraic sum of all liabilities and equity

13
 For Your Project:
• The financials described here are pretty
sophisticated.
•At a minimum, it should be at a level that was
presented by Professor Suuuuuuuberg.
•It is really important for you to also show a breakeven
time. When do you make money? Year 2?
Year 3?

A Glossary of Business Plan Terms

What They Say … And What They Really Mean
We conservatively project … We read a book that said we had to be a $50 million company in
five year, and we reverse-engineered the number.

We took our best guess and divide by 2 We accidentally divide by 0.5.

We project a 10% margin. We did not modify any of the assumptions in the business plan
template that we downloaded form the Internet.

The project is 98% complete. To complete the remaining 2% will take as long as it took to create
the initial 98% but will cost twice as much.

Our business model is proven … If you take the evidence form the past week for the best of our
50 locations and extrapolate it for all the others.

We have a six-month lead. We tried not to find out how many other people have a sixmonth
lead.

We only need 10% market share. So do other 50 entrants getting funded.

Custom aeres clamoring for our product. We have not yet asked them to pay for it. Also, all of our current
customers are relatives.

We are the low-cost producers. We have not produced anything yet, but we are confident that we
will be able to.

We have no competition. Only IBM, Microsoft, Netscape, and Sun have announced plans to
enter the business.

Our management team has a great deal of Consuming the product or services.
experien…ce

A select group of investors is considering the We mailed a copy of the plan to everyone in the Pratt’s Guide.

We seek a value-added investor. We are looking for a passive, dumb-as-rock investor.

If you invest on our terms, you will earn a 68 % If everything that could ever conceivably go right does go right,
rate of return. you might get your money back.

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