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Developing a Business Plan

Developing a Business Plan. Presentation to TPP November 2000 D.B. Matias. 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 Private equity

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Developing a Business Plan

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  1. Developing a Business Plan Presentation to TPP November 2000 D.B. Matias

  2. 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 • Private equity • Bank lending/asset securitization • Alternative funding (JV’s, alliance) • Government subsidies • Know your risks

  3. Risk/Reward Profile Risk Common Equity Ke S&P 500 Kd Bond T-Bill Reward 5% 8-10% 12% 20-40%

  4. Key Elements to Business Plan • Market Assessment • Product Differentiation • Market Penetration • Sustainability • Operations • Management team • Funding

  5. Financial Statements • Balance Sheet • Income Statement • Statement of Retained Earnings • Statement of Cash Flows

  6. Basic Accounting Assumptions • Fiscal period • Conservatism • Quantifiable items or transactions • Matching of revenues to expenses • Materiality • “Going Concern” concept

  7. Balance Sheet Relationship ASSETS = LIABILITIES + EQUITY

  8. Balance Sheet Components • Cash and liquid securities • Accounts Receivable – related to customers • Prepaids – amounts paid in advance of service/good • Fixed assets – equipment used in providing service • 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

  9. 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

  10. 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?

  11. 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

  12. 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?

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