Financial Requirement
Session 22-23
J0704-Business Plan
Give them the reasons to invest
in you
The best we can do is size up
the chances, calculate the risk
involved, estimated our ability
to deal with them, and then
make our plans with
confidence – Henry Ford II
J0704-Business Plan
The Elements of Financial
Requirement
•Financial requirement summary
•Start up cost
•Fund raised and fund needed
•Investment offering
•Potential risk
•Exit option
J0704-Business Plan
Financial Summary
•Key assumption
•Break even point
•Expectation of overall in the first year
•Expectation of growing after peak performance reached
•Peak performance of:
•Sales
•Cost of sales
•Non cost sales operating expenses
•Profit
J0704-Business Plan
Financial Sources
•
Two methods of financing :
– Debt
– Equity
J0704-Business Plan
Financial requirement summary
•
•
Write an opening summary entitled Loan
Request Summary or Investment Offering
Summary
Loan Request Summary :
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How much money do you need ?
What do you plan to use it for ?
How can the money improve your business?
How are you going to pay it back ?
If your plan for the above doesn’t work, what is your
back up plan ?
J0704-Business Plan
Financial requirement summary
•
Investment Offering Summary
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Describe the equity offering and the structure for the
investors’ involvement
Exit option. For the investors’ possible exit, there
are several options. The owner of funding partner
will eventually :
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Purchase the investors’ interest at certain point
Replace their interest with bank loan at specified point
Sell share via second round private offering or to a larger
company
Go public
Use other exit options
J0704-Business Plan
Start up cost
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Describe the total start up costs,
explaining major items or anything that is
not easily identifiable in the schedule of
start up cost.
Include a schedule, or table, detailing of
the items, the estimated amount of each
expense, actual cost and dates paid and
the balance to be paid and the dates the
items will be paid
J0704-Business Plan
Fund Raised and Fund Needed
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Total start-up cost
Total amount raised so far, with a
breakdown of individual amounts from
different sources, identifying the sources
in general terms
Total amount needed, which should be
the difference between the total start-up
cost and the total amount raised, listing
the anticipated source and payback
J0704-Business Plan
Potential Risk
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For both lenders and investors, it is better to
address your business risks in the beginning,
because it will make the lenders and investors
more confident that you have weighed and
mitigated the downside as well as the upside
potential of your business
The most common risk :
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Company – as a start-up, the risk of uncertainty
Industry – the risk of changing trends
J0704-Business Plan
Potential Risk
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Market & competition :
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the risk of market change
The risk that market acceptance may take longer than
planned
The risk of competing with better, well-established
competitor
The risk of new competition
Strategies – the risk that new strategy may not
receive the expected buyer response
Products or services :
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the risk that buyers do not accept the products or service
The risk that competitors will make changes to their
products or services
J0704-Business Plan
Potential Risk
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Marketing & sales :
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Management & Organization :
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The risk that the marketing plan is not effective
The risk that sales do not meet the market share
The risk that the management & personnel cannot meet
the challenges of your business plan
Operations :
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The risk of losing supplier or distributors
The risk of competitors developing new technology or
production technique
The risk of poor inventory control or cash flow control
J0704-Business Plan
Potential Risk
– Financial pro forma – the
risk that projections cannot
match reality
– Financial requirement
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•
the risk that the funds you
seek cannot obtained
The risk that the funds
requested are insufficient for
the venture to succeed
J0704-Business Plan
Exit options
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A hand down – turning the company over to
your heirs
A buyout – selling your shares to other
stockholders
A sale – selling your business to individuals
An acquisition – selling your business to
another existing company
An IPO (initial public offering) – selling shares
in the company to the public
J0704-Business Plan