Writing and Presenting Writing and Presenting Effective Business Effective Business

PlansPlans

Dr. Anne S. YorkDr. Anne S. YorkAssociate Professor of EntrepreneurshipAssociate Professor of Entrepreneurship

Creighton UniversityCreighton University

Nebraska EPSCoR Innovation Forum

March 21, 2007

Agenda for TodayAgenda for Today

Why write a business plan? Mystery product exercise The importance of cash flow Presenting your business plan Resources at Creighton and in Omaha…

Business Plan ComponentsBusiness Plan Components

Executive summary Concept statement (position, industry) Industry analysis Marketing (research, pricing, promotion) Operations (start-up and ongoing growth) Management (team) Financial (profit, cash flow, funding) Critical risks and milestones

Business Plan for Mystery Business Plan for Mystery Product….Product….

What is your product?What is your product? Who are your likely competitors?Who are your likely competitors? Who are your target customers?Who are your target customers? How will you price and promote it?How will you price and promote it? What skills do you need on your team?What skills do you need on your team? How and where will you produce?How and where will you produce? How much money do you need?How much money do you need? Critical risks?Critical risks?

Why Forecasting Cash Flow Is Why Forecasting Cash Flow Is Important!Important!

P&L SummaryP&L Summary

YearTotal Net Sales

($M)

Net Profit before Tax

($M)% of Net

Sales

1997 $11.9 -$0.60 -5.0%

1998 $13.7 $0.04 0.3%

1999 $17.5 $0.20 1.1%

2000 $20.7 $0.35 1.7%

2001 $22.7 $0.81 3.6%

2002 $23.5 $1.85 7.9%

2003 $24.3 $0.50 2.1%

2004 E $40.2 -$0.30 -0.7%

2005 E $50.3 $2.52 5.0%

What Happened? Signs of What Happened? Signs of Rapid and Unplanned GrowthRapid and Unplanned Growth

Sales Growth: major awardsSales Growth: major awards Operations: scheduling impactOperations: scheduling impact Staffing: increasing and turnoverStaffing: increasing and turnover Inventories: increasing and Inventories: increasing and

outsourcingoutsourcing Equipment: unfamiliar, distantEquipment: unfamiliar, distant Receivables: increasingReceivables: increasing Capital: needed!!!!!Capital: needed!!!!!

Cash FlowCash Flow

Inventory $ $ Increase

12/31/03 1,467,8289/30/04 4,169,778 2,701,950

Accounts Receivable12/31/03 2,306,0809/30/04 4,539,843 2,233,763

Work-in-Process12/31/03 348,2759/30/04 1,456,386 1,108,111

Dies net of Depreciation12/31/03 251,1719/30/04 416,811 165,640

Total Increase 6,209,464

OptionsOptions

Improve earningsImprove earnings

Borrow more moneyBorrow more money

Capital investmentCapital investment

Financial ForecastingFinancial Forecasting

PurposesPurposes Planning for start-upPlanning for start-up Adjusting for changes in plansAdjusting for changes in plans What-if exercises, sensitivitiesWhat-if exercises, sensitivities

Point: Need Something That Can Be Easily Point: Need Something That Can Be Easily Changed!Changed!

Tools: Excel MostlyTools: Excel Mostly Often Used to Create Financial Statements, Often Used to Create Financial Statements,

but Best Used for Cash Flow Budgetingbut Best Used for Cash Flow Budgeting

Cash Flow BudgetsCash Flow Budgets

Simpler, More Logical than Financial Simpler, More Logical than Financial StatementsStatements

Purpose: To Determine How Much Cash You Purpose: To Determine How Much Cash You Need and WhenNeed and When

Involves Same Forecasting Tools as Involves Same Forecasting Tools as FinancialsFinancials

ElementsElements AssumptionsAssumptions Initial Investment/Startup CostsInitial Investment/Startup Costs Cash Receipts (record when cash comes in)Cash Receipts (record when cash comes in) Cash Disbursements (record when cash goes out)Cash Disbursements (record when cash goes out)

Questions that Affect Cash FlowQuestions that Affect Cash Flow

What initial investments are required What initial investments are required before you open the door?before you open the door?

What are your ongoing sales and What are your ongoing sales and costs?costs?

How and when will people pay you? How and when will people pay you? How and when will you pay suppliers?How and when will you pay suppliers?

More Questions…More Questions…

What choices can you make to What choices can you make to improve your cash flow?improve your cash flow?

What options do you have if you What options do you have if you need more cash?need more cash?

Can your business fail if you are Can your business fail if you are making a profit?making a profit?

ExampleExample

Assume you want to start a restaurantAssume you want to start a restaurant Initial investmentInitial investment Ongoing sales and costsOngoing sales and costs Sources of capital: loans, investors, Sources of capital: loans, investors,

savingssavings Where do you get this information?Where do you get this information?

Ask peopleAsk people Do research at the CU/UNO library, SBADo research at the CU/UNO library, SBA InternetInternet

Cash Flow vs. ProfitCash Flow vs. Profit

Cash FlowCash Flow +Sales +Sales

(cash/credit/terms)(cash/credit/terms) +Bank Loan+Bank Loan - Eqpt./Invent. (lease/buy)- Eqpt./Invent. (lease/buy) - Materials (cash/credit)- Materials (cash/credit) - Labor (plus training)- Labor (plus training) - Interest/Principal - Interest/Principal - Taxes- Taxes - Advertising and admin.- Advertising and admin.Only record when cashOnly record when cashcomes in or goes out !comes in or goes out !

Accounting ProfitAccounting Profit RevenueRevenue Expense Expense

Supplies and materialsSupplies and materials Labor Labor DepreciationDepreciation Advertising and adminAdvertising and admin Interest and taxesInterest and taxes

Asset (eqpt./inventory)Asset (eqpt./inventory) Liability (loan)Liability (loan)Expenses must be Expenses must be

matched with revenues!matched with revenues!

AssumptionsAssumptions

You purchase your eqpt./invent. for $9,000.You purchase your eqpt./invent. for $9,000. Month 1 you sell $25,000.Month 1 you sell $25,000. Your sales are doubling every month. Your sales are doubling every month. You make 50% of sales to corporate You make 50% of sales to corporate

customers, who take 30-45 days to pay. customers, who take 30-45 days to pay. Your direct costs (labor,materials) are 50% of Your direct costs (labor,materials) are 50% of

sales.sales. Your suppliers require cash on delivery.Your suppliers require cash on delivery. You lease your building for $1,000 per month.You lease your building for $1,000 per month. You need two weeks to get your restaurant You need two weeks to get your restaurant

ready to go and help trained.ready to go and help trained.

Accounting Income Statement

June July AugustRevenues 25.0 50.0 100.0Cost of goods sold 12.5 25.0 50.0 Gross margin 12.5 25.0 50.0 Adv/admin 5.0 10.0 20.0Operating profit 7.5 15.0 30.0Depreciation (3 yr.) .3 .3 .3EBIT 7.2 14.7 29.7Interest 0.0 0.0 0.0Taxes (40%) 2.9 5.9 11.9Net profit 4.3 8.8 17.8

Cash Budget

May June July August

Cash Sales 0 12.5 25.0 50.0

Corp. Sales 0 12.5 25.0

Net Cash In 0 12.5 37.5 75.5

Labor/Mtls. 12.5 25.0 50.0 100.0

Equipment 9.0

Adv./Admin. 5.0 10.0 20.0 40.0

Interest/Principal ? ? ? ?

Taxes 2.9 5.9 11.9

Net Cash Out (26.5) (37.9) (75.9) (151.9)

Net cash flow (14.0)* (25.4) (38.4) (76.4)

Loan Needed 14.0 39.4 77.8 153.8

Why Are the Two So Different?Why Are the Two So Different?

Same Reason as First CaseSame Reason as First Case Inventory/Materials Paid Ahead of SalesInventory/Materials Paid Ahead of Sales Corporate Accounts ReceivableCorporate Accounts Receivable Equipment Paid Ahead of SalesEquipment Paid Ahead of Sales Training Paid Ahead of WorkTraining Paid Ahead of Work Employee TurnoverEmployee Turnover

What You Can Do….What You Can Do….

Credit Policy/Discounts for CashCredit Policy/Discounts for Cash Lease EquipmentLease Equipment Reduce Employee TurnoverReduce Employee Turnover Slow Growth Rate (less advertising)Slow Growth Rate (less advertising)

Common Presentation IssuesCommon Presentation Issues

Using common language to describe Using common language to describe product/serviceproduct/service

Identifying the target marketIdentifying the target market Describing how product adds valueDescribing how product adds value Knowing how you compare with your Knowing how you compare with your

competitioncompetition Identifying alternative markets Identifying alternative markets

Common Presentation IssuesCommon Presentation Issues

Being realistic about adoption hurdlesBeing realistic about adoption hurdles Estimating longevity of the productEstimating longevity of the product Clarifying role of founder/inventorClarifying role of founder/inventor Understanding what will excite Understanding what will excite

customerscustomers Identifying interim sources of fundingIdentifying interim sources of funding

AI, Inc.AI, Inc.

Business Plan Presentation

Example

AI, Inc. AI, Inc.

Concept StatementConcept Statement Business Plan ObjectivesBusiness Plan Objectives Industry NeedIndustry Need

DairyDairy BeefBeef

Market PotentialMarket Potential CompetitionCompetition PositioningPositioning

Business ModelBusiness Model Company StatusCompany Status

MilestonesMilestones ManagementManagement

Financial Financial ProjectionsProjections RequirementsRequirements

AI, Inc. : Concept StatementAI, Inc. : Concept Statement

Mission: to be the premier supplier of Mission: to be the premier supplier of sperm sorting technology for gender sperm sorting technology for gender selection in the livestock industry.selection in the livestock industry.

Patented technology will allow AI, Inc. to Patented technology will allow AI, Inc. to claim the position of superior product claim the position of superior product provider at equal or lower cost. provider at equal or lower cost.

Business Plan Business Plan ObjectivesObjectives

To describe the current market and the To describe the current market and the growth potential for the marketgrowth potential for the market

To define the competition within the To define the competition within the marketmarket

To outline the research and business To outline the research and business development milestones to be met for development milestones to be met for commercial availability of the technologycommercial availability of the technology

To demonstrate the financial viability of To demonstrate the financial viability of AI, Inc. for success in the marketAI, Inc. for success in the market

Cattle Industry NeedCattle Industry Need

Standard breeding techniques result in 50% Standard breeding techniques result in 50% male and 50% female offspringmale and 50% female offspring

Sorted semen/sperm allows producer to Sorted semen/sperm allows producer to select the sex of the offspringselect the sex of the offspring

XX HeiferHeifer DairyDairy

YY BullBull BeefBeef

Sperm Offspring Sector

Need for Sorting: DairyNeed for Sorting: Dairy

Selective breeding of high-producing Selective breeding of high-producing lactating cowslactating cows

Increased calf income- half no. of cows bred Increased calf income- half no. of cows bred Herd management- biosecure & easier Herd management- biosecure & easier

calvingcalving Faster progress- meeting breeding goalsFaster progress- meeting breeding goals

Got Milk?

XX

YY

Heifer Calf

Bull calfSperm

XX

YY

Superior

Heifer

Superior Bull

Where’s the Beef?

Sperm

Need for Sorting: BeefNeed for Sorting: Beef

Males for steers for commercial unitMales for steers for commercial unit Replacement females from select population Replacement females from select population

of herdof herd Female breeding to reduce calving difficultiesFemale breeding to reduce calving difficulties Males for bulls for seed stock producersMales for bulls for seed stock producers

The Market: ImmediateThe Market: Immediate2005 Inventory2005 Inventory

Dairy 9 millionDairy 9 million

• Approximately 5.9 million (65%) bred by AI Approximately 5.9 million (65%) bred by AI Beef 33 millionBeef 33 million

• Approximately 3.3 million (10%) bred by AIApproximately 3.3 million (10%) bred by AI

2004 Total Semen Sales by Sector2004 Total Semen Sales by Sector

Dairy 26.8 million units @ $5/unitDairy 26.8 million units @ $5/unit$134,116,710$134,116,710

Beef 3.9 million units @ $10/unitBeef 3.9 million units @ $10/unit$39,212,180$39,212,180

Source: National Association of Animal Breeders Source: National Association of Animal Breeders March 11, 2005March 11, 2005

The Market: Long-termThe Market: Long-term

Increased use of AI creates access to:Increased use of AI creates access to: 35% of Dairy sector35% of Dairy sector 90% of Beef sector90% of Beef sector

Technology R&D efforts to develop Technology R&D efforts to develop gender selection capabilities for gender selection capabilities for additional sectors of livestock industry additional sectors of livestock industry including:including: SwineSwine SheepSheep EquineEquine

TransOvaTransOva XY Inc.XY Inc. AI, Inc.AI, Inc.

Commercially Commercially AvailableAvailable FY06FY06

Acceptable Acceptable Conception Conception RateRate

Industry InterestIndustry Interest

Efficient and Efficient and Effective Effective SortingSorting

Affordable PriceAffordable Price

The Market: CompetitionThe Market: Competition

The Market: AI, Inc.The Market: AI, Inc. Market researchMarket research

20 National Association of Animal 20 National Association of Animal Breeders members Breeders members

8 Certified Semen Services 8 Certified Semen Services membersmembers

Nebraska ResourcesNebraska Resources• Feed lot owners Feed lot owners • Seed stock suppliersSeed stock suppliers• Cattle breeders Cattle breeders • Trade association representativesTrade association representatives• Congressman’s officeCongressman’s office

AI SuppliersAI Suppliers Genex Cooperative (CRI Int’l)Genex Cooperative (CRI Int’l) Select Sires, Inc.Select Sires, Inc. Accelerated GeneticsAccelerated Genetics AndrogenicsAndrogenics Taurus Service, Inc.Taurus Service, Inc.

Seed Stock SupplierSeed Stock Supplier Vogler Semen CentreVogler Semen Centre

Reagent SupplierReagent Supplier Minitubes of AmericaMinitubes of America

The Market: AI, Inc.The Market: AI, Inc.Ready Customers:

Quick entry into marketQuick entry into market Expect FY2006Expect FY2006

Multiple revenue sources Multiple revenue sources Technology license feesTechnology license fees Proprietary reagent salesProprietary reagent sales Potential for royalty incomePotential for royalty income

Compatible with IndustryCompatible with Industry Consolidation trendsConsolidation trends Uses existing infrastructureUses existing infrastructure Shared riskShared risk

Business Model: FranchisingBusiness Model: Franchising

AI, Inc.: MilestonesAI, Inc.: Milestones Technology R&D Technology R&D

Demonstrate proof of principleDemonstrate proof of principle Field trials with AI Industry partners Field trials with AI Industry partners Establish improved separation approachEstablish improved separation approach Develop technology for different speciesDevelop technology for different species

Business DevelopmentBusiness Development Negotiate license for technology rightsNegotiate license for technology rights Submit SBIR/STTR funding proposalsSubmit SBIR/STTR funding proposals Formalize AI subsector partnershipsFormalize AI subsector partnerships Establish first franchise Establish first franchise Identify and secure management teamIdentify and secure management team First round of fundraisingFirst round of fundraising

AI, Inc.: TeamAI, Inc.: Team XXXX, PhD: founder, inventor, Medical XXXX, PhD: founder, inventor, Medical

School faculty, 30 + yrs research School faculty, 30 + yrs research experience, scientific advisory roleexperience, scientific advisory role

CEO: position open, entrepreneur CEO: position open, entrepreneur experienced in launching company & experienced in launching company & products in high technology agriculture products in high technology agriculture business environment, and fundraising business environment, and fundraising

Research Scientist: position open for PhD in Research Scientist: position open for PhD in biochemistrybiochemistry

XXXX.: business development support, XXXX.: business development support, equity partner, technology licensorequity partner, technology licensor

AI, Inc.: FinancialsAI, Inc.: Financials

-$5

$45

$95

$145

$195

$245

$295

$345

$395

$ C

ash

Flo

w (

Po

sit

ive /

Neg

ati

ve)

Millions

FY2005 FY2006 FY2007 FY2008 FY2009 FY2010

Years

Cash Flow 2005-2010

Pessimistic

Expected

Optimistic

AI, Inc.: Funding NeededAI, Inc.: Funding Needed

Pessimistic - $400,000Pessimistic - $400,000 100% from angel investors and venture 100% from angel investors and venture

capitalist for a % of ownership in the capitalist for a % of ownership in the companycompany

Optimistic - $400,000Optimistic - $400,000 100% from grants.100% from grants.

Expected - $400,000Expected - $400,000 75% from grants75% from grants 25% from investors for ownership in the 25% from investors for ownership in the

company ( Approximately $100,000)company ( Approximately $100,000)

AI, Inc.AI, Inc.

For Additional Information…

XXXXXXXXXXX

Office phone: Direct phone:Email:

Creighton OptionsCreighton Options

Ask to be considered as an outside Ask to be considered as an outside project (semester time frame, call early)project (semester time frame, call early)

Take an elective courseTake an elective course Undergrad: entrepreneurial planning (fall, Undergrad: entrepreneurial planning (fall,

spring)spring) Grad: entrepreneurial planning (spring), Grad: entrepreneurial planning (spring),

business innovation consulting (fall), business innovation consulting (fall), technology commercialization (spring), technology commercialization (spring), technology entrepreneurship (fall)technology entrepreneurship (fall)

Omaha Options….Omaha Options….

Nebraska Business Development CenterNebraska Business Development Center Small Business Administration/ScoreSmall Business Administration/Score InternetInternet The Successful Business Plan: Secrets and The Successful Business Plan: Secrets and

StrategiesStrategies, Abrams, Abrams Other? Other?

Search Search http://entrepreneurship.creighton.edu anneyork@creighton.edu 402-280-2440402-280-2440