1. Financial Requirement
Session 22-23
J0704-Business Plan

2. Give them the reasons to invest in you
The best we can do is size up the chances, calculate the risk involved, estimated our ability to deal with them, and then make our plans with confidence – Henry Ford II
J0704-Business Plan

3. The Elements of Financial Requirement
Financial requirement summary
Start up cost
Fund raised and fund needed
Investment offering
Potential risk
Exit option
J0704-Business Plan

4. Financial Summary Key assumption Break even point
Expectation of overall in the first year
Expectation of growing after peak performance reached
Peak performance of:
Sales
Cost of sales
Non cost sales operating expenses
Profit
J0704-Business Plan

5. Financial Sources Two methods of financing : Debt Equity
J0704-Business Plan

6. Financial requirement summary
Write an opening summary entitled Loan Request Summary or Investment Offering Summary
Loan Request Summary :
How much money do you need ?
What do you plan to use it for ?
How can the money improve your business?
How are you going to pay it back ?
If your plan for the above doesn’t work, what is your back up plan ?
J0704-Business Plan

7. Financial requirement summary
Investment Offering Summary
Describe the equity offering and the structure for the investors’ involvement
Exit option. For the investors’ possible exit, there are several options. The owner of funding partner will eventually :
Purchase the investors’ interest at certain point
Replace their interest with bank loan at specified point
Sell share via second round private offering or to a larger company
Go public
Use other exit options
J0704-Business Plan

8. Start up cost
Describe the total start up costs, explaining major items or anything that is not easily identifiable in the schedule of start up cost.
Include a schedule, or table, detailing of the items, the estimated amount of each expense, actual cost and dates paid and the balance to be paid and the dates the items will be paid
J0704-Business Plan

9. Fund Raised and Fund Needed
Total start-up cost
Total amount raised so far, with a breakdown of individual amounts from different sources, identifying the sources in general terms
Total amount needed, which should be the difference between the total start-up cost and the total amount raised, listing the anticipated source and payback
J0704-Business Plan

10. Potential Risk
For both lenders and investors, it is better to address your business risks in the beginning, because it will make the lenders and investors more confident that you have weighed and mitigated the downside as well as the upside potential of your business
The most common risk :
Company – as a start-up, the risk of uncertainty
Industry – the risk of changing trends
J0704-Business Plan

11. Potential Risk Market & competition :
the risk of market change
The risk that market acceptance may take longer than planned
The risk of competing with better, well-established competitor
The risk of new competition
Strategies – the risk that new strategy may not receive the expected buyer response
Products or services :
the risk that buyers do not accept the products or service
The risk that competitors will make changes to their products or services
J0704-Business Plan

12. Potential Risk Marketing & sales : Management & Organization :
The risk that the marketing plan is not effective
The risk that sales do not meet the market share
Management & Organization :
The risk that the management & personnel cannot meet the challenges of your business plan
Operations :
The risk of losing supplier or distributors
The risk of competitors developing new technology or production technique
The risk of poor inventory control or cash flow control
J0704-Business Plan

13. Potential Risk
Financial pro forma – the risk that projections cannot match reality
Financial requirement
the risk that the funds you seek cannot obtained
The risk that the funds requested are insufficient for the venture to succeed
J0704-Business Plan

14. Exit options A hand down – turning the company over to your heirs
A buyout – selling your shares to other stockholders
A sale – selling your business to individuals
An acquisition – selling your business to another existing company
An IPO (initial public offering) – selling shares in the company to the public
J0704-Business Plan