Business Plan, Financing & Financial Statements

First prerequisite for creating a company is an idea, not money.
- Clarify what you will produce, sell, or the service you will offer.
The raw idea must be validated and refined:
- Market analysis: size, growth, segments, trends.
- Competitor ("competency") analysis: direct, indirect, potential entrants.
- Customer analysis: needs, pain points, willingness to pay, demographics.
- Resource analysis: human, technological, physical, intangible.
All findings are documented in a Business Plan (BP).
- Acts as a master document summarizing every relevant aspect of the venture.

Executive Summary: 2–3-page snapshot placed at the front of the BP.
- Purpose: allow busy stakeholders to grasp the essence quickly.
Evolved into the modern “Pitch”—a concise, engaging document (or slide deck) aimed at investors.
Elevator Pitch: ultra-brief version you could deliver between floors in an elevator.
- Forces founders to distill the project’s value proposition, market, and funding ask into <1 minute.
- Popular in tech start-ups where attention spans are short and opportunities to meet investors are fleeting.

A core financial output of the BP: “How much money is needed?” aka Initial Investment.
- Example from lecture: Requirement = €50,000.
This figure drives fundraising strategy and timeline.

Traditional sources (banks, venture capital, family offices) usually avoid very early, risky projects.
Typical early-stage funding hierarchy:
1. Founder’s own money (skin in the game).
2. Three F’s:
- Friends
- Family
- Fools (enthusiasts willing to take outsized risk, often for personal reasons).
1. Business Angels: affluent individuals providing capital plus mentoring/network.
Assumption used in example: founder self-finances entire €50,000.

Money put into the company by its owners is Equity (Capital).
Balance Sheet (BS) structure:
- Left side = Assets → where money is invested (e.g., cash, equipment, IP).
- Right side = Liabilities & Equity → where money comes from (financing sources).
- Fundamental identity: \text{Assets} = \text{Liabilities} + \text{Equity}
In the €50,000 example:
- Equity (right side) = €50,000.
- Assets purchased (left side) = €50,000.

After assets are operating for a year, performance is assessed via the P&L Statement.
Net Income (NI) = Profit After Tax, located on the bottom line of the P&L.
- Belongs to shareholders/equity holders.
- Positive NI indicates successful operations; negative NI signals losses.

Company has two choices with NI:
1. Retain within the company (Retained Earnings, RE) to reinvest in growth (common for start-ups).
2. Distribute to shareholders as Dividends.
Accounting flow: \text{RE}t = \text{RE}{t-1} + \text{Net\ Income} - \text{Dividends}
Dividend decision balances shareholder cash-out vs future expansion funding.

Investment Decisions
- What assets/projects to buy.
- Capital budgeting, ROI, risk assessment.
Financing Decisions
- How to obtain funds (equity vs debt, investor mix, cost of capital).
Dividend (Dividend Policy) Decisions
- Whether to retain earnings or pay dividends; signals health, affects share value.

Balance Sheet: snapshot of financial position (assets vs sources of funds) at a point in time.
Profit & Loss Statement: flow report of revenues, expenses, taxes, and resulting net income over a period.

Investors scrutinize the initial investment number and the pitch before deeper due diligence.
Clear mapping of “Money In” (liabilities & equity) to “Money Used” (assets) builds credibility.
Demonstrating a logical dividend policy shows understanding of shareholder value creation.
Mastery of the three decision categories equips managers to navigate growth, funding rounds, and payout strategies seamlessly.