BUSINESS PLAN DEVELOPMENT Financial Plan

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BUSINESS PLAN DEVELOPMENTFinancial Plan

• Dr. Alan L. Carsrud
• The FIU Center for Global
• Entrepreneurship Innovation

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What to Include in a Financial Analysis and Plan
When does the business have to buy resources,
such as supplies, raw materials, and people?
When does the business have to pay for them?
How long does it take to acquire a customer?
How long before the customer sends the business a
check?
How much capital equipment is required to support
a dollar of sales?
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More Questions
For businesses just starting out, the amount of
money available up-front is a key to survival.
For all businesses, long-term financial health
determines health.
Are revenue and profits growing?
Is the companys cash flow being carefully
monitored?
Does the company have ready access to cash
reserves?
Does the company have a budget?
How does the companys financial condition
compare to that of the competition?
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Whats Wrong With Most Business Plans Finance
Sections?

• Waste too much ink on numbers and devote too
  little to the information that really matters
  to investors.
• Financial projections for a new company are an
  act of imagination, especially detailed,
  month-by-month projections that stretch out
  for years
• An entrepreneurial venture faces far too many
  unknowns to predict revenues, let alone
  profits.
• Few entrepreneurs correctly anticipate how much
  capital and time will be required to accomplish
  objectives. They are wildly optimistic.

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Some Numbers Are Essential

• Business plans should contain some numbers.
• Numbers should appear mainly in the form of a
  business model that shows the key drivers of the
  ventures success or failure.
• In manufacturing, this might be the yield on a
  production process in magazine publishing, the
  anticipated renewal rate or in software, the
  impact of using various distribution models.
• The model should also address the break-even
  issue
• At what level of sales does the business begin to
  make a profit?
• When does cash flow turn positive?

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Objectives and Milestones in the Financial Plan
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Purpose of Objectives Milestones
By mapping actual cost to achieve each milestone
against the planned cost, a firm can re-evaluate
its position and predict cash shortfalls in time
to take action. Preparing milestones and
expected cost, a firm shows it intends to track
performance closely against the business plan.
This offers some comfort to potential investors
and may prevent the plan from sitting in a desk
drawer once it has served its initial purpose.
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Milestone Examples
Hiring of a full management team
Completing product specifications
Completing prototype design
Completing prototype
Product testing
Beginning production
First customer shipment
First full quarter of profitability
Attaining 10 million in revenue
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Ownership and Equity Issues in the Financial Plan
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What to Include in Ownership Equity
How will equity in the venture be distributed?
Will the founders retain control?
Will employees be able to earn equity for their
performance?
How much equity will investors have, and how will
that change over time?
How do the investors get their money out, and
when?
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Checklist For The Financial Plan

• 1. Explain the assumptions you have made that
  form the basis for all of the data contained in
  your financial statements.
• Sales
• Production
• Accounts Receivable, Accounts Payable
• Overhead Expenses
• Capital Expenditures and Depreciation
• Etc.

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Checklist For The Financial Plan

• 2. Prepare the following plans for the first year
  budgets
• Sales
• Production
• Operating Expenses
• Number salaries of needed staff members
• Head Count Plan
• Capital Expenditures
• Start-up costs, fixtures, equipment, etc.

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Checklist For The Financial Plan

• 3. Prepare a cash flow until the business reaches
  cash break-even point or through the first year -
  by individual months.
• Some considerations are
• Start-up expenditures
• Accounts payable procedures
• Accounts receivable
• Collection periods

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Checklist For The Financial Plan

• 4. Prepare the five-year cash flow using
  quarterly projections.
• Use a computer spreadsheet
• Pitfall Avoid using straight line projections
• Make sure to identify all business expenses
• 5. Prepare for the first year profit loss
  statement.

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Checklist For The Financial Plan

• 6. Prepare a 5-year Profit Loss (PL)
  Statement.
• First year by quarter
• The remaining years annually
• 7. Prepare a balance sheet for each quarter for
  the first year of operation.
• Make realistic projections and coordinate with
  the Profit Loss Statement

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Checklist For The Financial Plan

• 8. Prepare a yearly balance sheet for the first
  five years of operation.
• Make realistic projections and coordinate with
  the Profit Loss Statement.
• 9. Explain how the projections compare with
  industry norms.
• Are the costs, revenues, profits, etc. higher or
  lower with similar businesses?

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TO FIGURE YOUR COST OF LIVING, TAKE YOUR INCOME
AND ADD TEN PERCENT.

• Steve Forbes

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Remember

• Formulating a Workable Business Plan Requires
• A willingness to change to an entrepreneurial
  orientation
• Continued planning and crafting and revalidation
• An opportunistic disposition
• Commitment of resources not ownership
• Reassessment of measured performance
• Leadership