1 building the business plan workshop. innovation, creativity, ingenuity @ palestine © 2 questions...
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Building The Business PlanBuilding The Business PlanWorkshopWorkshop
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2INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Questions for the GroupQuestions for the Group
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3INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
How Many of You…How Many of You…
• Have prepared a business plan in the past?
• Have prepared financial statements for a business plan?
• Have taken accounting?
• Are familiar with the concepts of income statements, balance sheets and cash flow statements?
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Business Plan EssentialsBusiness Plan Essentials
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5INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is a Business Plan?What is a Business Plan?
• A comprehensive, stand-alone document that:– Describes a viable market need– Describes how your business will meet that need– Highlights required resources
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6INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is the What is the Purpose of a Purpose of a
Business Plan?Business Plan?
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7INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
The Purpose of A Business PlanThe Purpose of A Business Plan
• Capture the essence of your business idea• Raise awareness• Raise capital• Identify priorities, risks and opportunities for you
and potential investors• Help recruit early customers and employees
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8INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Your Initial Your Initial Blueprint for Blueprint for
GatewayGateway
Your Business Plan is:Your Business Plan is:
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9INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
One of Your First One of Your First Marketing and Marketing and
Sales ToolsSales Tools
Your Business Plan is:Your Business Plan is:
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10INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
A Business Plan OutlineA Business Plan OutlineEXECUTIVE SUMMARY
OVERVIEW
Introduction
Mission
Objectives
Products and Services
Competitive Edge
Keys to Success
Ownership
Legal Structure
Copyright / Intellectual Property
PRODUCTION REQUIREMENTS
Locations and Facilities
Suppliers
Capacity
Resources availability
Production Plan
Product / Service Development
Patents, Copyrights, Trademarks
MARKET SITUATION ANALYSIS
Industry Analysis
Market Segments
Competition Analysis
Product Cost Analysis
Pricing Analysis
Niche Market Analysis
MARKETING
Marketing Strategy
Distribution
Sales Forecast: Sales/Collection cycle/timeframe
Partnership
MANAGEMENT
Organizational Structure
Management Team
Personnel Plan
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11INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
A Business Plan OutlineA Business Plan OutlineSWOT / RISK ANALYSIS
Business Model
Business Planning
Commercializing Strategy
IP Strategy
Financial Planning
Market Research
The Team
Revenue Model
Assess Potential Sources of Revenue
Pricing Strategy for each source of revenue
Execution and Rollout
Business Incorporation Key Milestone
Product Development Key Milestones
Marketing and Sales Key Milestones
Critical Success Factors
FINANCIAL
Financial Plan
Key Assumptions
Projected Balance Sheet
Projected Income Statement
Projected Cash Flow
Ratios Analysis
Net Present Value/ Internal Rate of Return
Financial modeling – running alternative scenarios
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12INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Mission StatementMission Statement
• A brief description of the project concept. In particular, the following question should be addressed: – Why should this business exist? – What is the value to its users? – Will the users be significantly better off because of
the business? – State specific measurable objectives – State revenue/profitability objectives
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13INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Strategy / Approach & Org StructureStrategy / Approach & Org Structure
• The overall approach towards meeting the goals defined in the mission statement– understanding the market– developing the content on that basis– focussed roll out, revenue and costs, etc.
• Appropriate corporate and legal structure of the venture
• Mechanisms for coordinating the relationships among the various stakeholders
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• Description of approvals/permits required or potential regulatory hurdles
• Organization structure
• Establishing for profit company
• Overall management structure
Strategy / Approach & Org StructureStrategy / Approach & Org Structure
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15INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
MarketMarket
• Clear definition of the market, potential customers within each market segment and their key characteristics
• geographic concentration, location, language, age, professional background, fragmentation
• size of the market– potential users, total volume of business
• major growth trends, factors driving this growth, significant barriers to entry, etc.
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16INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
MarketMarket
• Niche market identification– define needs of each type of audience– assess what value Your business brings to them
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17INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Product/ServiceProduct/Service
• Various products to meet target market needs– Within each product segment, a detailed
description of the type of service/product – Do other vendors/competitors provide this
product/service in the specific market? – How does this product/service differentiate itself
from that supplied by other competitors/vendors?
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18INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Product/ServiceProduct/Service
• What will be needed to bring each product to the market?– Define how long will it take to develop these
products/services? – What resources will be required? – How much will it cost? – How should the products be priced?– How should these products be rolled out?
• Keep in mind the mission of Your business and its profitability
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19INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Competition Competition
• Who are the competitors (direct and indirect)? • What are their strengths and weaknesses? • How does their product or service differ from Your
business?• What are their business models?
• What can be learnt from their operations? • How do they market themselves? • Does it make sense to partner with them? • What was their service/product roll out strategy?
• What are our competitive advantages?
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20INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
ComparablesComparables
• Companies that have comparable products/service
• Compare their • success, type of service, users, costing, pricing,
profit/loss, staffing/resources, partnerships, execution/timing, market capture, cash burn rate, etc.
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21INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Marketing PlanMarketing Plan
• What marketing mediums will be used to reach the target audience?
• What will be the marketing budget?
• What are the components for building a credible brand equity?
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22INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
TechnologyTechnology
• Open access, replicability and scalability of the technology solution is critical for success
• In order to define the technology platform, analyze the various technology solutions and associated costs and benefits of each of these solutions – Examples of comparable companies and their
technological solution will be critical in assessing how Your business should proceed in this area
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23INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
PartnershipsPartnerships• The kinds of partnerships that will be
required to make Your business a reality
• What value would they bring?
• Key partners in each area should be identified
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24INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
PartnershipsPartnerships• How should the business be set-up
• Partnership• Joint Venture • Private sector only, etc.
• A strategy for raising funds via the partnership route should be explored.
• What value does the funding organization/company sector see in the business?
• which companies/organizations should be targeted for funding
• what kinds of returns would investors seek?
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25INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Revenue ModelRevenue Model
• Assess the potential sources of revenue– franchise/co-branding/referral fees– focussed advertising– specific content sales– fees from e-commerce transactions, etc. – direct sales
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26INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Revenue ModelRevenue Model
• Pricing strategy for each source of revenue– What is the pricing strategy of the direct or
indirect competitors? – What level of gross margins (revenue less cost of
the product/service) would be reasonable? – How should the pricing of the competitors be
monitored? – How does the pricing reflect the brand image of
the product/service?
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27INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Project Costs and Financial PlanProject Costs and Financial Plan
• The budget, financing requirements and potential revenue generation. – Define the actual amount of money needed to set-
up the business operation (capital costs) – and the amount needed to keep it going (operating
costs)
• Capital costs should include – all initial development costs
• personnel, technology, legal/professional services, and marketing
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28INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Project Costs and Financial PlanProject Costs and Financial Plan
• Forecasts of the different sources for meeting these capital costs
• Pro-forma income projections (profit and loss statement) and pro-forma cash flow projections – based on revenue generation and cost assumptions– income statement and cash flow projections should
cover up to 5 years of operations
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29INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Management and StaffingManagement and Staffing
• What Staff Resources (including senior management) will be needed and at what cost?
• What should be the backgrounds of the senior team and what expertise should they have?
• What are the plans for hiring and training personnel? Any incentives?
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30INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
The TeamThe Team
• Where possible list key management and staff by name
• Include previous accomplishments to show these are people with a record of success
• Summarize number of years of experience in this field
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31INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Execution/Roll outExecution/Roll out
• The steps necessary for a successful implementation of the business– How should the development of the business be
phased? – What are the key milestones and their timing?– What are the critical success factors?
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32INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Potential RisksPotential Risks
• Key risks of the plan
• Details on mitigating factors to these potential risks– staffing, budget/financing, marketing,
service/product focus.
• What is the window of opportunity?
• What are the foreseeable legal and regulatory roadblocks?
• What other vulnerabilities exist?
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33INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Key IssuesKey Issues
• Near Term– Isolate key decisions and issues that need
immediate or near-term resolution
• Long Term– Isolate issues needing long-term resolution– State consequences of decision postponement
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Business Plan Business Plan FinancialsFinancials
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35INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is the What is the Purpose of Purpose of
Your Business Your Business Plan Plan
Financials?Financials?
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36INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Business Plan FinancialsBusiness Plan Financials
• Helps you:– test various potential business models– isolate critical assumptions– determine whether this is a viable business
opportunity– determine how much money you’ll need– persuade investors to invest
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37INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Business Plan FinancialsBusiness Plan Financials
• Helps potential investors: – test the viability of your business model– evaluate your critical assumptions
• Are they credible?• Do you understand your business?
– evaluate you as someone who understands how business works from a financial perspective
– determine whether the investment is potentially attractive
– evaluate your true financial needs
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““The Taste Test”The Taste Test”
Can you taste the revenues?
Is the revenue scenario credible or will you have to achieve miracles to hit your forecast numbers?
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39INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
So, how do you So, how do you convince someone convince someone that your revenue that your revenue
scenarios are scenarios are credible?credible?
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40INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Tips for CredibilityTips for Credibility
Show your assumptions and be
able to back them up with FACTS based on market research
and/or some compelling rationale
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41INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Showing a Potential MarketShowing a Potential Market
Enterprize, Inc.Market share required to achieve Revenue Goals
Gizmo Unit Sales Price 2,500$ 25% of competitor price; greater value
Market Opportunity in Units 150000 According to Gartner Group;
Market Opportunity in Revenue to Enterprize 375$ $ million
Yr Yr Yr Yr Yr1 2 3 4 5
Enterprise, Inc. Yearly Objectives ($ millions) 3.50$ 7.00$ 14.00$ 28.00$ 56.00$ Growth Rate 100% 100% 100% 100%Required Unit Sales 1400 2800 5600 11200 22400Required Market Share to Achieve Objective 0.93% 1.87% 3.73% 7.47% 14.93%
Note: Enterprise will achieve this required market share because of:1) Partnership with xyz will yield . . .2) ajsadfjkdfsajkl adfjkldsfkl, etc.
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42INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Mistakes to AvoidMistakes to Avoid
• Assumptions you can’t justify– Too high a market share
• Too much detail
• Too little detail
• Not enough growth
• Too much profit (in later years)
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Summary FinancialsSummary Financials
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44INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Income Income StatementStatement
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45INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is an Income Statement?What is an Income Statement?
• Shows financial results of a company over a given period of time
• Includes: – Revenues– Cost of Sales (costs directly attributable to the products/services
sold)– Other Operating Expenses
• Marketing, Sales• Research and Development• General and Administrative
– Earnings before Tax– Operating Income– Tax– Earnings after Tax
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46INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Sample Income StatementSample Income StatementSimple Income StatementEnterprize, Inc.Jan-Dec, 1999
Revenues $60,000
Cost of Goods Sold $30,000
Gross Margin $30,000
Research & Development $35,000Sales and Marketing $40,000General and Administrative $10,000
Total Operating Expenses $85,000
Operating Profit -$55,000Tax 35% 0
Profit After Tax -$55,000
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47INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Income Statement QuestionsIncome Statement Questions
• What is Revenue?• What is Cost of Goods sold?• What are some of the components of
operating expenses?• What is operating profit?
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48INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Pro-forma Income StatementPro-forma Income Statement
Income Statement ($m)
21.4%20.6%17.3%-12.2%-201.2%
Operating Margin
$68.8$47.4$24.8-$6.6-$26.3Operating Income
$140.3$100.4$64.5$32.1$23.8Other Operating Expenses
$112.1$82.4$54.1$28.8$15.6Cost of Goods Sold
$321.2$230.2$143.3$54.3$13.1Revenues
54321Years
A
B
C
D=A-B-C
E=D/A
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Detailed Financials (“Appendix”)Detailed Financials (“Appendix”)
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50INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Exhibits for Detailed FinancialsExhibits for Detailed Financials
• Typically: 5 years on an annual basis and month-to-month for the first year
• Components:– Assumptions and Outcomes Page– Income Statement – Detailed Revenue– Detailed Expenses– Headcount– Return on Investment– Balance Sheet– Cash Flow
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51INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Assumptions and OutcomesAssumptions and Outcomes
• Shows key assumptions and the outcomes in terms of profits, etc.
• Helps show the reasonableness of your analysis
• Tells the story in summary form, in case someone only looks at this page
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52INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Income StatementIncome Statement• Revenues
– Summarizes components of revenue
• Expenses– Cost of goods sold– Other major components of operating expenses
• Sales, marketing, general and administrative• Research and Development, etc.
• Earnings before income and tax (or operating income)
• Tax• Profit after tax
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53INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Detailed RevenueDetailed Revenue
• Shows revenue over time divided into key components:– Product areas– Geographies– Any components that make sense
• Documents assumptions and their effects
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54INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Detailed ExpensesDetailed Expenses
• Summarizes key expense categories in major detail
• Documents assumptions not summarized elsewhere
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55INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Payroll and HeadcountPayroll and Headcount
• Who are you going to hire
• When will they start?
• How much will they earn?
• Cost of benefits, etc.
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56INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Return on InvestmentReturn on Investment
• Expected investment• Expected share of ownership• Change in share of ownership due to other
investments• Returns on the investment, including
dividends and some “terminal value”• Discount cash flows to show Internal Rate of
Return and Net Present Value
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57INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Balance SheetBalance Sheet
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58INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is a Balance Sheet?What is a Balance Sheet?
• A snapshot of a company’s financial position at a moment in time
• Left hand side = Assets
• Right hand side = Liabilities and Equities
• Assets must equal liabilities plus equities (hence it is a “balance” sheet)
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59INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Balance SheetBalance Sheet
Simple Balance SheetEnterprize, Inc.6-Jan-00
Liabilities &Assets Equity
Cash 25,000$ Accounts Payable 5,000$ Accounts Receivable 10,000$ Prepaid royalties 25,000$ Inventory 15,000$ Current portion of notes payable -$
Total Current Assets 50,000$ Total Current Liabilities 30,000$
Property, Plant & Equipment 25,000$ Long term debt -$
Total Liabilities 30,000$
Paid-in Capital 100,000$ Retained Earnings (cumulative deficit) (55,000)$
Total Assets 75,000$ Total Liabilities and Equities 75,000$
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60INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is an Asset?What is an Asset?
Assets are valuable resources owned by an entity and
include:– Cash– Things that are likely to become
cash soon (inventories, accounts receivable)
– Valuable things that help the business produce revenues over a longer period (property, plant, and equipment, etc.)
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61INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is a Liability?What is a Liability?
Liabilities are the claims of creditors and include:
– Accounts payable– Notes payable this year– Longer term
obligations, such as long term debt
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62INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
What is an Equity?What is an Equity?
Equities reflect the “claims” of investors and include:
• Paid in capital• “Retained Earnings” or the sum total
of profits after tax that haven’t been paid out through dividends
Note: You can’t cash in equities—they represent a claim on the business not an asset.
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63INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Cash Flow Cash Flow StatementStatement
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64INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Cash Flow StatementCash Flow Statement
• Records the Flow of Cash during a given period• Cash inflows include:
– Profits– Sale of assets– Reduction in:
• Accounts Receivables• Other assets
• Cash outflows include:– Losses– Purchase of assets– Increase in:
• Accounts Receivables• Other assets
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65INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©
Cash Flow StatementCash Flow Statement
Simple Cash Flow StatementEnterprize, Inc.Jan-Dec, 1999
Sources of Cash Uses of CashCash from Operations: Increase in accounts receivable 10,000$
Increase in Inventory 15,000$ Net Income (loss) (55,000)$ Purchase of property, plant 30,000$ Depreciation 5,000$ & equipment
Net cash from operations (50,000)$
Other Sources of Cash:
Sale of Stock 90,000$ Increase in accounts payable 5,000$ Increase in prepaid royalties 25,000$
Total Sources of Cash 70,000$ Total Uses of Cash 55,000$ Increase (decrease) in cash 15,000$
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66
Q and AQ and A
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67
Thanks andThanks and