ENTREPRENEURIAL FINANCE
FROM THE IDEA TO THE
BUSINESS PLAN
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Chapter 2: Learning Objectives
 Understand the components of a sound business model
 Identify some of the best practices for high growth, high performance firms
 Understand the importance of timing in getting from the idea to the opportunity
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Chapter 2: Learning Objectives
 Identify the types of questions that a reasonable feasibility assessment should address
 Identify quantitative criteria that assist in helping assess a new venture’s feasibility and its attractiveness to investors
 Describe the primary components of a typical business plan
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Components of a Sound Business
Model 企业商务模式构成成分
 Generate Revenues (You must have customers & sell them something) 产生销售收
入
 Make Profits (You must eventually have revenues that exceed the expenses of generating those revenues) 产生利润
 Produce Free Cash Flows (You must generate cash inflows that exceed net working capital & capital expenditures) 产生净
现金流
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Types of Small Business
Firms 小企业类型
 Entrepreneurial firms (broadly): 创业型企业
（广义）
 small business including both high-growth, low-growth or stationary (lifestyle) businesses
Entrepreneurial ventures (narrowly): 创业型企
业（狭义）： entrepreneurial firms that are flows and performance oriented as reflected in rapid value creation over time
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Best Practices of High Growth,
High Performance Firms 高增长、
高绩效企业的最佳实践环节
Three Areas:
 Marketing Practices 营销实践

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Financial Practices 融资惯例
Management Practices 管理实践
[Note: While Operations/Production practices are not listed separately, they go hand-inhand with high quality products & services, as well as on-time delivery]
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Best Practices: Marketing
最佳 营销实践
 Deliver high quality products or services
 Develop new products or services that are considered to be the “best”
 Offer products or services that command higher prices & margins
 Develop efficient distribution channels & superior service support facilities
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Best Practices: Financial
最佳 融资惯例

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Prepare monthly financial plans for the next year & annual plans for five years
Anticipate & obtain multiple rounds of financing as the venture grows
Efficiently & effectively manage the firm’s assets, financial resources, & operating performance
Plan an exit strategy consistent with the entrepreneur’s objectives & business plan
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Best Practices: Management
最佳管理实践


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Assemble a management team balanced in functional area coverage & industry/market knowledge
Employ a decision-making style that is viewed as being collaborative
Identify & develop managers that support entrepreneurial endeavors 发现和培养支持创业精神的管
理人才
Assemble a board of directors balanced in terms of internal & external members
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Time-to-Market and Other
Timing Implications

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Business opportunities exist in real time
Most ideas have a relatively narrow window of opportunity to become a successful business venture
Sometimes ideas are ahead of their time
Of course, being “first to market” does not necessarily ensure success
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Screening Venture
Opportunities 筛选创业机会
 A viable venture opportunity: 可行的创业机会 creates or meets a customer need, provides an initial competitive advantage, is timely in terms of time-to-market, and offers the expectation of added value to investors
 Venture opportunity screening: 创业机会的筛选 assessment of an idea’s commercial potential to produce revenue growth, financial performance, and value
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Qualitative Screening: Interview
定性筛选：面试
Four Factor Categories Initially Evaluating a
Potential Venture’s Attractiveness:
1. The Big Picture
2. Know Thy Customer
3. Production and Development Challenges
4. Financial Fortune-Telling
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Quantitative Screening:
VOS TM Indicator
定量筛选：间接指标
 Attempt to quantify the following areas
•
Industry/Market
•
Pricing/Profitability
•
Financial/Harvest
•
Management Team
 Supplement to, rather than replacement of, basic qualitative Q&A approach
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Factor Category:
Industry/Market 行业与市场指标
Potential Attractiveness:
 Market Size Potential
Average: $20-$100 million
 Venture Growth Rate
Average: 10%-30%

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Market Share (Year 3)
Average: 5%-20%
Entry Barriers Average:
Timing/Size
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Factor Category:
Pricing/Profitability
价格与盈利能力指标
Potential Attractiveness:
 Gross Margins
Average: 20%-50%
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After-Tax Margins
Average: 10%-20%
Asset Intensity （ T otal assets divided by revenues
）
Average: 1.0-3.0 turnover
Return on Assets
Average: 10%-25%
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Selected Accounting Terms
会计指标
 Cost of Goods Sold: direct costs of producing a product or providing a service
 Gross Profit: revenues less the cost of goods sold
 Gross Profit Margin: gross profit divided by revenues
 Net Profit: dollar profit left after all expenses, including financing costs & taxes, have been deducted from the firm’s revenues
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Return on Assets (ROA) Model
投资报酬率
 Net Profit Margin (NPM): net profit divided by revenues
 Asset Intensity: total assets divided by revenues, the reciprocal of asset turnover
 Return on Assets (ROA): net after-tax profit divided by total assets
 ROA Model:
ROA = NPM x ATO
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ROA Model Considerations
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Case 1: High Profit Margins & Low Asset Turnovers
Examples: products & services based on technological innovations
Case 2: Low Profit Margins & High Asset Turnovers
Examples: commodity-type products & services
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Factor Category:
Financial/Harvest 融资与收益
Potential Attractiveness:
 Cash Flow Breakeven
Average: 2-4 years
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Rates of Return Average:
20%-50% per year
IPO Potential Average:
2-5 years
Founder’s Control
Average: High Minority
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Selected Financial Terms

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Operating Cash Flow: 经营活动产生的现金流 cash flow from producing and selling a product or providing a service
Free Cash Flow to Equity: 分配给股东的现金流 cash remaining after operating cash outflows, financing and tax cash flows, investment in assets needed to sustain the venture’s growth, and net increases in debt capital
 Internal Rate of Return (IRR): compound rate of return that equates the present value of the cash inflows received with the initial investment
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Factor Category:
Management Team
Potential Attractiveness:
 Experience/Expertise
Average: General/General
 Functional Areas Average:
Most Covered
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Flexibility/Adaptability
Able to Adapt
Entrepreneurial Focus
Average: Founder
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VOS Indicator™ Average Scores
 High Potential (average scores of 2.34-3.00)
• ideas that have the potential to become high-growth, highperformance ventures or “home runs”
 Average Potential (average scores of 1.67-
2.33)
 Low Potential (average scores of 1.00-1.66)
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Key Elements of a
Business Plan 商业计划书的要素
 Business Plan: written document that describes the proposed product or service opportunity, current resources, & financial projections
 Cover Page: should identify the venture & provide the name, address, & phone number of the entrepreneur or other contact person
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Key Elements of a
Business Plan 商业计划书的要素
 Confidentiality Statement:
Example: “This business plan contains information that (the firm) considers proprietary. By accepting this business plan the recipient acknowledges the proprietary nature of this information contained herein and agrees to keep confidential all such information.”
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A Typical Business
Plan Outline 商业计划书大纲
I. Executive Summary 执行摘要
II.Business Description 业务描述
A. Description of the product/service
B. Industry background
C. Venture or firm background
D. Goals and milestone objectives
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Business Plan Outline (cont’d)
III. Marketing Plan and Strategy
A. Target market and customers
B. Competition and market share
C. Pricing strategy
D. Promotion and distribution
IV. Operations and Support
A. Quality targets
B. Technology requirements
C. Service support
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Business Plan Outline (cont’d)
V. Management Team
A. Experience and expertise
B. Organizational structure
C. Intellectual property rights
VI. Financial Plans and Projections
A. Income statements & balance sheets
B. Statements of cash flows
C. Break-even analysis
D. Funding needs and sources
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Business Plan Outline (cont’d)
VII. Risks and Opportunities
A. Possible problems and risks
B. Real option opportunities
VIII. Appendix
A. Detailed support for financial forecasts
B. Timeline and milestones
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