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

November 19, 2000, MIT – TPP 2

dmatias@mindspring.com
 Risk/Reward Profile
Risk
Common
Equity Ke

S&P 500
Kd

Bond

T-Bill

Reward
5% 8-10% 12% 20-40%

November 19, 2000, MIT – TPP 3

dmatias@mindspring.com
 Key Elements to Business Plan

• Market Assessment
• Product Differentiation
• Market Penetration
• Sustainability

• Operations
• Management team

• Funding
November 19, 2000, MIT – TPP 4
dmatias@mindspring.com
 Financial Statements

• Balance Sheet
• Income Statement
• Statement of Retained Earnings
• Statement of Cash Flows

November 19, 2000, MIT – TPP 5

dmatias@mindspring.com
 Basic Accounting Assumptions

• Fiscal period
• Conservatism
• Quantifiable items or transactions
• Matching of revenues to expenses
• Materiality
• “Going Concern” concept

November 19, 2000, MIT – TPP 6

dmatias@mindspring.com
 Balance Sheet Relationship

ASSETS = LIABILITIES + EQUITY

November 19, 2000, MIT – TPP 7

dmatias@mindspring.com
 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

November 19, 2000, MIT – TPP 8

dmatias@mindspring.com
 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 9

dmatias@mindspring.com
 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 10

dmatias@mindspring.com
 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 11

dmatias@mindspring.com
 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 12

dmatias@mindspring.com