1 Building The Business Plan Workshop. INNOVATION, CREATIVITY, INGENUITY @ PALESTINE © 2 Questions for the Group

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Building The Business PlanBuilding The Business PlanWorkshopWorkshop

2INNOVATION, CREATIVITY, INGENUITY @ PALESTINE ©

Questions for the GroupQuestions for the Group


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


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


What is the What is the Purpose of a Purpose of a

Business Plan?Business Plan?


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


Your Initial Your Initial Blueprint for Blueprint for

GatewayGateway

Your Business Plan is:Your Business Plan is:


One of Your First One of Your First Marketing and Marketing and

Sales ToolsSales Tools

Your Business Plan is:Your Business Plan is:


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


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


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


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


• 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


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.


MarketMarket

• Niche market identification– define needs of each type of audience– assess what value Your business brings to them


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?


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


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?


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.


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?


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


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


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?


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


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?


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


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


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?


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


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?


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?


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


What is the What is the Purpose of Purpose of

Your Business Your Business Plan Plan

Financials?Financials?


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


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?


So, how do you So, how do you convince someone convince someone that your revenue that your revenue

scenarios are scenarios are credible?credible?


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


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.


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


Income Income StatementStatement


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


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


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?


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”)


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


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


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


Detailed RevenueDetailed Revenue

• Shows revenue over time divided into key components:– Product areas– Geographies– Any components that make sense

• Documents assumptions and their effects


Detailed ExpensesDetailed Expenses

• Summarizes key expense categories in major detail

• Documents assumptions not summarized elsewhere


Payroll and HeadcountPayroll and Headcount

• Who are you going to hire

• When will they start?

• How much will they earn?

• Cost of benefits, etc.


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


Balance SheetBalance Sheet


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)


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$


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.)


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


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.


Cash Flow Cash Flow StatementStatement


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


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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Q and AQ and A

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Thanks andThanks and