New Venture Strategies - 2

Financial Management

deals with two things: raising money and managing a company's finances in a way that achieves the highest rate of return.

Historical Financial Statements

Reflect past performance and are usually prepared on a quarterly and annual basis.

Pro Forma Financial Statements

Are projections for future periods based on forecasts and are typically completed for two to three years in the future.

Income Statement

Reflects the results of the operations of a firm over a specified period of time. It records all the revenues and expenses for the given period and shows whether the firm is making a profit or is experiencing a loss.

Balance Sheet

Is a snapshot of a company's assets

Statement of Cash Flows

Summarizes the changes in a firm's cash position for a specified period of time and details why the changes occurred.

Profits

Total Sales (Revenues) - Total expenses.

Net Sales

Total sales minus allowances for returned goods and discounts.

Cost of Sales

All direct costs associated with the production.

Operating Expenses

Include marketing; administration; and other expenses not directly related to the production of a product/service.

Current Assets

Include all assets that are relatively liquid (cash) such as accounts receivable and inventories.

Current Liabilities

Money you need to pay within 12 months; which includes accounts payable; accrued expenses; short-term notes.

Long-term Liabilities

Loans that are repayable beyond 12 months; which includes mortgages and loans associated with equipment.

Owner's Equity

The money that the owners invest in the business.

Forecasts

Predictions of a firm's future sales; expenses; income; and capital expenditures.

Percentage-of-Sales Method

A method for expressing each expense item as a percentage of sales.

Constant Ratio Method of Forecasting

All expense items on your pro forma income statement will grow at the same rate of sales.

Pro Forma Income Statement

A firm's pro forma financial statements are similar to its historical financial statements except that they look forward rather than track the past.

Pro Forma Balance Sheet

A firm's pro forma financial statements that provide a forward-looking snapshot of assets

Pro Forma Cash Flow Statement

A firm's pro forma financial statements that project future cash inflows and outflows.

New Venture Fitness Drinks

A fictitious sports drink company used to illustrate how financial statements are prepared.

Growth Rate

The company is profitable and is growing at a rate of 25% per year.

Assumption Sheet

A document created to outline the assumptions on which forecasts are based.

Financial Statements Templates

Templates available on Score.org for various financial statements.

Projected Balance Sheet

A template for creating a future balance sheet.

12 Month Cash Flow Statement

A template for projecting cash flows over a 12-month period.

12 Months Sales Forecast

A template for forecasting sales over a 12-month period.

Start-Up Expenses

Expenses incurred during the start-up phase of a business.

Business Plan

A 25-35 page narrative outlining business goals.

Dual-Use Document

Serves internal strategy and external investment purposes.

Road Map

Guides execution of strategies and plans internally.

Investor Introduction

/ Presents business opportunity to potential investors.

Perfect Business Plan Fallacy

/ Ideal plans often fail in real-world application.

Adaptation in Start-ups

Successful start-ups continuously learn and iterate.

Seed Money

Initial funding required to start a venture.

Executive Summary

Brief overview of the business plan's key points.

Industry/Market Analysis

Examines competition, barriers, and market dynamics.

Company Description

Details history, mission, and legal status of the firm.

Market Analysis

Analyzes customer segmentation and buyer behaviors.

Economics of Business

Includes break-even point and revenue streams.

Marketing Plan

Outlines product, price, promotion, and distribution strategies.

Design and Development Plan

Addresses intellectual properties and development challenges.

Operations Plan

Covers logistics, quality control, and inventory management.

Management Team Structure

Describes organizational hierarchy and board of directors.

Overall Schedule

Timeline for business milestones and deliverables.

Financial Projections

Forecasts income statements, balance sheets, and cash flows.

Appendices

Supplementary materials supporting the business plan.

Barringer and Ireland Template

Structured format for creating a business plan.

Score.org Template

Business plan template for start-ups and established firms.

SBA Online Template

Government resource for business plan creation.

Cover Page Requirements

Includes company name, founder, and contact information.

Table of Contents

Lists sections and page numbers for navigation.

Business Concept

Explanation of the business's unique idea.

Target Market

Specific audience the business aims to serve.

Industry Analysis

Description of industry size and growth trends.

Market Segmentation

Breaking down the market into specific segments.

Buyer Behavior

Analysis of customer purchasing habits.

Mission Statement

Company's guiding principles in 30 words or fewer.

Legal Status

Type of business structure (e.g., corporation).

Break-even Point

Total fixed costs divided by profit per unit.

Sales Forecast

Projected sales based on various factors.

Value Chain Analysis

Framework for analyzing business activities and efficiencies.

Management Team

Key personnel leading the business venture.

Milestones

Critical events necessary for business success.

Fixed Costs

Expenses that do not change with production volume.

Variable Costs

Expenses that vary directly with production volume.

Start-up Expenses

Initial costs incurred before business launch.

Intellectual Property

Legal rights to inventions and creative works.

Key Partnerships

Collaborations that support business operations.

Sales Channels

Methods used to sell products/services to customers.

Pro Forma Statements

Projected financial statements for future periods.

Ethical Organizational Culture

A strong ethical culture established by founders through leading by example.

Code of Conduct

A formal statement of an organization's values on certain ethical and social issues.

Ethics Training Program

Programs that teach business ethics to help employees deal with ethical dilemmas.

Ethical Dilemma

A situation that involves doing something beneficial to oneself or the organization

Founders' Agreement

A written document that addresses equity splits

Nondisclosure Agreement

An agreement that binds an employee or party to not disclose a company's trade secrets.

Noncompete Agreement

An agreement that prevents an individual from competing against a former employer for a specific period.

Business Licenses and Permits

Local; state; and/or federal licenses and permits required for a business to operate.

Federal Licenses and Permits

Licenses required for certain businesses; such as those selling alcohol or firearms.

State Licenses and Permits

Categories of licenses required by states

Local Licenses and Permits

Licenses required to operate certain types of businesses or engage in specific activities at the local level.

Fictitious Business Name Permit

A permit allowing a business to operate under a fictitious name.

Federal Employee Identification Number (EIN)

A number required for all businesses

Sole Proprietorship

The simplest form of business entity involving one person; where the individual and business are the same.

Advantages of Sole Proprietorship

Easy and inexpensive to create

Disadvantages of Sole Proprietorship

Unlimited liability for the owner and reliance on the skills of a single owner for success.

General Partnership

A partnership where all partners share responsibilities and liabilities.

Limited Partnership

A partnership consisting of one or more general partners and one or more limited partners.

C Corporation

A legal entity that is separate from its owners; providing limited liability to its shareholders.

Subchapter S Corporation

A special type of corporation that meets specific Internal Revenue Code requirements.

Limited Liability Company (LLC)

A flexible form of enterprise that blends elements of partnership and corporate structures.

Unlimited Liability

Owner is personally responsible for all business debts.

Raising Capital

Process of obtaining funds for business operations.

Partnership

Business owned by two or more individuals.

General Partner

Partner with unlimited liability and management authority.

Limited Partner

Partner with liability limited to their investment amount.

Shareholders

Individuals who own shares in a corporation.

Board of Directors

Group elected by shareholders to govern a corporation.

Double Taxation

Income taxed at both corporate and shareholder levels.