A well-thought-out business plan is the first step in starting your business,
as well as in securing financing. The business model should be summarized
passionately and succinctly in the executive summary. The vision statement
should describe the problem the business is being formed to solve and lay out
the framework for success. The body of the plan should include a discussion
of the management team, the market and competitive analysis, an overview
of operations and sales, and a financial analysis that will form the basis for
valuation of the company.
The financial section of the business plan should include historical finan-
cial statements for the past 3 to 5 years, as well as projected statements for
the next 5 years. The pro forma financial statements are the income state-
ment, the balance sheet, and the statement of cash flows. Most items in the
income statement and balance sheet are a function of sales, so great care
should be taken in estimating the sales number. In addition, a capital
expenditure budget and a capitalizati on table, establishing who owns what
stock, are part of the financial section.
The analysis of the financial statements should include a break-even
analysis, as well as a scenario analysis describing the best- and worst-case
scenarios. You should be sure the relationships in your statements are in line
with industry averages to pass the reasonableness test.
1. Check several business plan sites on the Internet and draft the outline for
a sample business plan. Are there differences in your sample sites?
2. How would you go about forecasting sales for your start-up? Be specific.
3. Why do investors frown on a capitalization table that includes many
4. Think abo ut the Amazon.com case. Amazon ca nnot survive many more
years of negative cash flow. What viable options are open to Amazon to
improve its cash flow?
CASE 4.1 NEW TECH (H): IS MANAGEMENT READY?
HE CHALLENGE:IS MANAGEMENT READY?
. Do New Tech’s managers have the skills and experience to take the business
to a new level?
. Is the management team up to the task?
136 Determining the Amount Needed—The Business Plan
Investors will only be interested in New Tech Distributors Corp. if the
company is led by a skilled, professional management team. That is the
message Grant Argent delivers to Stuart Chip. Grant, New Tech’s financial
advisor, tells Stuart, the company’s owner and president, that investors will
be looking for management that can achieve New Tech’s ambitious growth
objectives. That means a team with the right experience, skills, and qualifi-
cations—and the commitm ent to succeed.
What Investors Want
Grant explains that the management team’s past track record is very
important to investors. They will want to scrutinize the management
team’s business credentials and qualifications. Also, they will ask how the
company resolved earlier busines s and management problems. Investors will
be looking for evidence of a strong and cohesive management team that
compares favorably to its competitors.
Grant suggests that New Tech perfor m an audit of management capabil-
ities that will identify both strengths and weaknesses. Grant argues that
highlighting weaknesses will push the team to take the necessary steps to
improve. It will also provide investors with convincing evidence that New
Tech is fully committed to its growth potential and objectives.
THE CHALLENGE:AUDITING THE MANAGEMENT TEAM
Grant Argent, New Tech’s advisor on growth capital, carries out an
assessment of the management team’s capabilities using a Management
Audit tool to guide him. He reviews the job descriptions of all members of
the management team and all key employees. He then interviews each
member of the management team.
Elizabeth Pratt, 37, is the company’s in-house accountant. She is good at
her job, but Grant is concerned that she may not have the skills required to
take New Tech to the next stage of development. She obtained a general arts
degree from a local university and is now taking evening courses in account-
ing. Her previous employment was with a software company where she
worked in the controller’s department.
Elizabeth may not have the skill or experience needed in three key areas:
cost accounting, financial analysis, and equity financing. First, her lack of
knowledge in cost accounting may be a problem for New Tech when the new
product line is launched. Second, other members of the management team
have commented on her lack of experience in providing them with useful
Determining the Amount Needed—The Business Plan 137