Business Plan Preparation

Frank MoyesLeeds College of Business

University of ColoradoBoulder, Colorado

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Tonight Financial Plan Customer acquisition costs In the Fire – preliminary Customer

Survey results Team meetings

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

example

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November 12 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

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Title Slide Name of venture Team member names Date Introduce team

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Introduction Grab investor’s attention Describe the venture

Elevator speech (not on slide) Value proposition (not on slide)

3 key points want investors to remember

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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

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Attractive Market (Example) Low barriers to entry Large market and growing Favorable trends

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Attractive Market Fragmented, no brand loyalty Addressable market $100 million, 10%

growth Trends aging baby boomers, social

networking, cost of oil

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

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Business Plan Elements

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

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Financial Plan Financial Projections Key Assumptions Business Risks

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Business Plan Perspective

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“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

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Financial Projections 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

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Focus Your Attention Profitability Assets (resources) Cash Flow Funding

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Focus Your Attention

Profitability

Assets (resources)

Cash Flow

Funding

RevenueMargins – prices vs. costsMajor operating expensesCap Ex - Property & EquipmentWorking capital

Increase/(Decrease) in Cash

Equity & Debt

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Common Weaknesses 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

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Financial Drivers (2-3 Key) 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

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Risks I What major risks does the venture face?

What can go wrong? What must go right

How mitigate?

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Risks II 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

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Risks III Technology

Will it work Time and cost to development Scalability

Financial Risk/return Dilution

Macro-economic Volatile industry Government approval Exchange rates

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Financial Plan Sections 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

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Summary of Financial Projections

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Break-even

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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

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Business Plan Perspective

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“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

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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”

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“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

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Financial Dynamics Who does the financial projections? Should my projections be optimistic or

pessimistic? What kind of questions do investors ask &

why?

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