Developing a Business Plan
Presentation to TPP
November 2000
D.B. Matias
November 19, 2000, MIT – TPP
dmatias@mindspring.com
Overview of Last Discussion
• Know your audience
– Who is your reader
– What is their risk profile (risk/reward analysis)
– Why would they invest in you (synergies)
• Know your forms of funding
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Private equity
Bank lending/asset securitization
Alternative funding (JV’s, alliance)
Government subsidies
• Know your risks
November 19, 2000, MIT – TPP
dmatias@mindspring.com
2
Risk/Reward Profile
Risk
Common
Equity
Ke
S&P 500
Kd
Bond
T-Bill
Reward
5%
November 19, 2000, MIT – TPP
dmatias@mindspring.com
8-10%
12%
20-40%
3
Key Elements to Business Plan
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Market Assessment
Product Differentiation
Market Penetration
Sustainability
• Operations
• Management team
• Funding
November 19, 2000, MIT – TPP
dmatias@mindspring.com
4
Financial Statements
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Balance Sheet
Income Statement
Statement of Retained Earnings
Statement of Cash Flows
November 19, 2000, MIT – TPP
dmatias@mindspring.com
5
Basic Accounting Assumptions
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Fiscal period
Conservatism
Quantifiable items or transactions
Matching of revenues to expenses
Materiality
“Going Concern” concept
November 19, 2000, MIT – TPP
dmatias@mindspring.com
6
Balance Sheet Relationship
ASSETS = LIABILITIES + EQUITY
November 19, 2000, MIT – TPP
dmatias@mindspring.com
7
Balance Sheet Components
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Cash and liquid securities
Accounts Receivable – related to customers
Prepaids – amounts paid in advance of service/good
Fixed assets – equipment used in providing service
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Current liabilities – debts incurred in operation of business
Long term debt – form of funding with defined repayment
Paid in capital – form of funding without defined repayment
Retained earnings – increase/decrease in assets from prior
periods
November 19, 2000, MIT – TPP
dmatias@mindspring.com
8
Income Statement Components
• Revenue – supported by assumptions developed in
business plan
• Cost of Goods Sold – variable cost associated with
providing service
• Research and Development – sunk costs used to
create or improve technology/intangible assets
• General & Administrative – all costs associated with
creating and running “the business”
• Interest expense – dependent on funding
November 19, 2000, MIT – TPP
dmatias@mindspring.com
9
Cash Flow/Shareholder’s Equity
• No new entries created – simply recalculation of
existing data
• Focus on two items most important to running of
business: cash and equity
• Lower priority for this assignment?
November 19, 2000, MIT – TPP
dmatias@mindspring.com
10
Ratio Analysis
• Liquidity
– Available cash to cover current debts and interest
• Leverage
– Use of forms of funding
– Return to various stakeholders (debt or equity)
• Profitability
– Viability of business
November 19, 2000, MIT – TPP
dmatias@mindspring.com
11
Conclusion
• Follow PWC guide for structure
• Use results of model to justify business plan
• Develop funding proposal to match business
requirements
• Need for further discussion on mechanics of
accounting?
November 19, 2000, MIT – TPP
dmatias@mindspring.com
12