lecture 4

Question 1

summary business plan

Answer 1

10-15 pages. works best for new ventures in the early stages of development that want to “test the waters” to see if investors are interested in their idea.

Question 2

full business plan

Answer 2

25-35 pages. works best for new ventures who are at the point where they need funding or financing; serves as a “blueprint” for the company’s operations.

Question 3

operational business plan

Answer 3

40-100 pages. meant primarily for an internal audience; works best as a tool for creating a blueprint for a new venture’s operations and providing guidance to operational managers.

Question 4

executive summary

Answer 4

you need to provide fit with long-term growth and profitability of the industry in which you operate (costs and profits need to be reported).

Question 5

top-down forecast

Answer 5

given the existing market and potential market growth, your company can expect to capture a certain market share (percentage).

Question 6

bottom-up forecast

Answer 6

calculate the basic units of your business (initial products sold, customers, etc) and estimate how large you can scale those units. in both top-down and bottom-up you need to find comparable ventures and obtain information, eg. from industry associations, documents of other companies online, etc.

Question 6

operating leverage

Answer 6

fixed costs divided by variable costs.

Question 7

4Ps to 4As model

Answer 7

product, promotion, price, place to acceptability, affordability, accessibility, and awareness.

Question 8

design and development plan

Answer 8

describes how the product or service will be produced or visualised.

Question 9

stability

Answer 9

the overall health of the financial structure of the firm, particularly as it relates to its debt-to-equity ratio.

Question 10

statement of cash flows

Answer 10

summarises the changes in a company’s cash position for a specified period and details why the changes occurred.

Question 11

income statement

Answer 11

reflects the results of the operations of a company over a specified period. it records all revenues and expenses for the given period, showing profit or loss.

Question 12

balance sheet

Answer 12

a snapshot of a company’s assets, liabilities, and owner’s equity at a specific point in time.

Question 13

depreciable asset cost (DA)

Answer 13

cost of the asset minus salvage value of the asset (at the end of the life).

Question 14

year depreciation

Answer 14

DA / useful economic life of the asset.

Question 15

equity ratio

Answer 15

TE/TA

Question 16

net income (present)

Answer 16

retained earnings present minus retained earnings past year.

Question 17

current ratio

Answer 17

current assets / current liabilities

Question 18

debt ratio

Answer 18

TL / TA

Question 19

accrued expenses

Answer 19

payments that a company is obliged to pay in the future for which goods and services have already been delivered.

Question 20

total assets

Answer 20

always equal to total liabilities and shareholders’ equity.

Question 21

accounts payable

Answer 21

a company’s obligation to pay off a short-term debt to its creditors or suppliers.

Question 22

average total assets

Answer 22

beginning total assets + ending total assets / 2

Question 23

average shareholders’ equity

Answer 23

beginning shareholders’ equity + ending shareholders’ equity /2

Question 24

pro forma income statement

Answer 24

shows the projected financial results of the operations of a firm over a specific period.

Question 25

pro forma balance sheet

Answer 25

shows a projected snapshot of a company’s assets, liabilities, and owner’s equity at a specific point in time.

Question 26

pro forma statement of cash flows

Answer 26

shows the projected flow of cash into and out of a company for a specific period.

Question 27

burn rate

Answer 27

the difference between “starting cash balance” and “end cash balance” divided by number of months in the period.

Question 28

business angels

Answer 28

individuals who invest their personal capital directly in start-ups. they make relatively small investments and are looking for companies that have the potential to grow (revenues) between 30% to 40% per year.

Question 29

venture capital

Answer 29

firms searching for start-ups with exceptional growth potential. they invest in “stages”, meaning that not all the money is disbursed at the same time.

Question 30

general partners

Answer 30

the venture capitalists who manage the funds. they receive the fee and the rest of the profits.

Question 31

limited partners

Answer 31

the investors who invest in venture capital funds. they pay a fee and obtain part profits. eg. wealthy individuals, pension plans, insurance companies, foundations, etc.

Question 32

seed stage

Answer 32

business ideas that are able to begin operations but are not yet at the stage of manufacturing and sales (prototype and feasibility analysis).

Question 33

start-up stage

Answer 33

companies organised but have not yet sold their product in the marketplace (there is a business model).

Question 34

first-stage funding

Answer 34

capital is provided to initiate commercial manufacturing and sales. the company has a pilot production.

Question 35

second-stage funding

Answer 35

the product is in production and is commercially available. the company demonstrates significant revenue growth, but may or may not be showing a profit.

Question 36

mezzanine financing

Answer 36

there are profits. financing is necessary to further expand. this stage represents a bridge between expanding the company and the IPO or buyout.

Question 37

buyout stage

Answer 37

funding provided to help one company acquire another.

Question 38

donation-based crowdfunding

Answer 38

donors donate a small amount of money in exchange for gratitude and the feeling of supporting a cause they believe in, eg. GoFundMe.

Question 39

debt crowdfunding

Answer 39

lenders make a loan with the expectation to make back their principal plus interest.