Business Plan Preparation

1. Business Plan Preparation Frank MoyesLeeds College of Business University of ColoradoBoulder, Colorado Financial Plans

2. Tonight Financial Plans Financial Plan Customer acquisition costs In the Fire – preliminary Customer Survey results Team meetings

3. November 10 & 11 Financial Plans Financial Projection Model Workshop Room 302 6:00 to 7:00pm Download model v6.8.9 & play with example

4. November 12 Financial Plans • In the Fire - Marketing plan • Prepare 6 to 10 slides (this is not a DECK) • 10 minutes • 2 marketing experts • Hand-in: • Marketing Plan - draft • Customer surveys & summary of results • Customer acquisition costs

5. Title Slide • Name of venture • Team member names • Date • Introduce team Financial Plans

6. Introduction Financial Plans • Grab investor’s attention • Describe the venture • Elevator speech (not on slide) • Value proposition (not on slide) • 3 key points want investors to remember

7. Presenting the Marketing Plan • Show that you really understand the target customer • Make it real - tell a story • Show prototypes, exhibits, short videos • Focus on the key strategies that you want the investor to remember • Less is better - use graphs & charts • Put content in bullets, not a marker Financial Plans

8. Financial Plans

9. Attractive Market (Example) Financial Plans Low barriers to entry Large market and growing Favorable trends

10. Attractive Market Financial Plans Fragmented, no brand loyalty Addressable market $100 million, 10% growth Trends aging baby boomers, social networking, cost of oil

11. Marketing Plan Financial Plans Customer Research Target Customer Strategy Channel Strategy Positioning Product/Service Strategy Pricing Strategy Internet Strategy Communications Strategy Sales Strategy Revenue Model

12. 0 Business Plan Elements Financial Plans 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

13. Financial Plan Financial Plans Financial Projections Key Assumptions Business Risks

14. 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. They’ll 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 “I’ll get back to you.” Dan Beldy, Hummer Winblad Venture Partners Financial Plans

15. Financial Projections Financial Plans • 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

16. Focus Your Attention Financial Plans Profitability Assets (resources) Cash Flow Funding

17. Focus Your Attention • Profitability • Assets (resources) • Cash Flow • Funding Revenue Margins – prices vs. costs Major operating expenses Cap Ex - Property & Equipment Working capital Increase/(Decrease) in Cash Equity & Debt Financial Plans

18. Common Weaknesses Financial Plans Gross margins are too high Operating expenses are too low Working Capital (must be based on industry) Fixed Assets & Capital Expenditures not addressed Seasonality Growth not anticipated

19. Financial Drivers (2-3 Key) Financial Plans Revenue model – roll out, market share, new products, customers/day Margins (price/labor+materials) – cost goal Operating Expenses – hire 10 sales persons, prototype cost, legal expenses, etc. Capital Expenditures – major Working Capital – A/R days, Inventory days (turns) & A/P days

20. Risks I Financial Plans • What major risks does the venture face? • What can go wrong? • What must go right • How mitigate?

21. Risks II Financial Plans • Market • Size of market • Competitor’s response • Sales cycle • Closing window (12 VC funded companies) • Strategic - establishing partnerships or agreements • Operational - large number of interrelated components

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

23. Financial Plan Sections Financial Plans • Financial Projections • Summary goes in Plan • All Financial Statements go in Appendix • Assumptions • 2-3 key assumptions go in Plan • Detailed assumptions go in Appendix • Business Risks

24. 0 Summary of Financial Projections Financial Plans

25. Break-even Financial Plans

26. Customer Acquisition Costs Costs to get a customer Sales salaries & commissions Advertising & promotion Customer & tech support Website Travel & entertainment Number of customers Costs to Get a Customer Number of Customers Financial Plans

27. 0 Business Plan Perspective “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 they’ll 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 here’s what will happen in the end.’ Your survival depends on knowing that stuff cold.” Dan Beldy, Hummer Winblad Venture Partners Financial Plans

28. Critical Mistakes I “Let’s 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 won’t have to spend that much” Financial Plans

29. “Sure, operating expenses are high at the beginning, but then they will go down.” Operating expenses don’t decline Salaries must be realistic Growth requires spending money “ “We’ll lean on our suppliers and not pay them for 90 days.” “Our customer will pay us in 30 days.” Critical Mistakes II Financial Plans

30. Financial Dynamics Who does the financial projections? Should my projections be optimistic or pessimistic? What kind of questions do investors ask & why? 0 Financial Plans