Developing a Business Plan Presentation to TPP November 2000 D.B. Matias November 19, 2000, MIT TPP [email protected] 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 (JVs, alliance) Government subsidies Know your risks November 19, 2000, MIT TPP [email protected] 2 Risk/Reward Profile Risk Common
Equity Ke S&P 500 Kd Bond T-Bill 5% November 19, 2000, MIT TPP [email protected] Reward 8-10% 12%
20-40% 3 Key Elements to Business Plan Market Assessment Product Differentiation Market Penetration Sustainability Operations Management team
Funding November 19, 2000, MIT TPP [email protected] 4 Financial Statements Balance Sheet Income Statement Statement of Retained Earnings Statement of Cash Flows
November 19, 2000, MIT TPP [email protected] 5 Basic Accounting Assumptions Fiscal period Conservatism Quantifiable items or transactions Matching of revenues to expenses
Materiality Going Concern concept November 19, 2000, MIT TPP [email protected] 6 Balance Sheet Relationship ASSETS = LIABILITIES + EQUITY November 19, 2000, MIT TPP [email protected] 7 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 [email protected] 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 [email protected] 9 Cash Flow/Shareholders 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 [email protected]
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 [email protected] 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 [email protected] 12
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