TEDROGERS

SCHOOL OFMANAGEMENT

RYERSONUNIVERSITY

Business PlansCreating the document

DEVELOPING THE PLAN

• It doesn’t matter how flashy the document or the presentation, if the ideas are lame or half-baked

• You should want to wirebrush it more than anyone else– Not the case? Then you are wasting your time

The Business Plan

• Audience: people with resources to invest– Financial, talent, relationships

• Help these investors understand the business– Why they should invest their resources

• Typically “poor” and not well-received– Not thought through– Ignores the key questions for investors

• Snapshot view in the face of continuous change

Bizplan Answers

• Why does the market care?– the only problem money can’t solve

• What is your competitive advantage?– how you can sustain it

• Can you handle your Unforeseen Killer Variables?– by definition, you won’t know your UKVs

• Can you make money at it?

Bizplan Contents• Executive Summary• Customer Need & Market Opportunity• Business Strategy & Key Milestones• Marketing Plan• Operations Plan• Management & Key Personnel• Financial Projections & Requirements• Appendices

Some Questions You Need to Think Through

• Market• Competitors• Pricing• Customers• Suppliers• Service

• Regulatory Issues• Location• Risks• Physical Assets• People Assets• Financial

Market

• Size

• Growth rate

• Segment

• Fragmentation

Competitors

• Who?

• How many?

• How big?

• What capabilities & resources?

Pricing

• Industry norms

• Policies

• Practices

Customers

• Who are they?

• Why do they buy?

• How you get to them?

Suppliers

• What do you need to be in business?

• Is there availability?

Service

• What is required to support your product or service?

• Who can provide?

Regulatory Issues

• Licenses, permits, approvals

• Restrictions

• Tariffs and duties

• Patent infringement

Location

• Premises

• Location

• Space availability

• Cost

Risks

• Market Risk– The dogs don’t eat the dog food– Competitors steal your lunch

• Technology Risk– The product doesn’t work– It’s just not good enough

• Operational Risk– You can’t get it done, can’t hire well– Litigation

• Financial Risk– Run out of cash– Unprofitable business model

Preventativesand

Mitigants

Physical Assets

• Equipment

• Costs

• Availability and lead time

People Assets

• Types of people and skills

• Backgrounds

• Recruitment

• Compensation

• Control

Financial

• Operating requirements

• Capital requirements

• Break-even

• Returns

Financial Forecasting• Project your expected sales• Associated COS• Infrastructure ramp-up, staff, and

G&A• Working capital policy implications• Fixed asset requirements• Adjust for timings, depreciation,

interest, taxes• Cashflow with negative balance• Impact of various financing

scenarios

Sensitivity Analysis• What assumptions in your business are

reasonable to vary?– Pricing trends– Duration of sale cycle– Magnitude and timing of revenues– Launch expenses– Cost of key supplies– Lead time to hire staff– Working capital days– Cost and lead time for financing…

Scenarios

• Monthly for first 1 or 2 years• Yearly for 5 years• Most likely case

– Credibility test: how realistic are you?

• Best case– Credibility test: how good can it get without

dreaming in Technicolor?

• Worst case– Credibility test: can you face up squarely?

General Tips• Model the dependencies

– COS= f(sales), G&A = f(staff), Pricing = f(time)

• Investors love/hate hockey sticks– So tell it like it really is

• Stick to standard formats and schedules• Follow GAAP• Avoid specious precision• Summarize into charts

– Sales hockey stick, GM, Profit– Cashflow J curve– Key ratios (which ones do you think?)

Housekeeping

• Document ALL assumptions on separate sheet• Document data sources• Highlight input cells vs calculated cells• Title and label everything• One financial statement per worksheet• Present figures in $000s, rounded where possible• Show “$” at top and bottom of columns• Label as FOFI (YMMV)

Adding Credibility• Real

– Experienced review– Blunt, honest feedback– Consistency between text and models– Past success

• Bogus– Big name letterhead– “ConsultCo says…”– “We only need 1% of the market…”