The Business Plan in Software

Painting Denso QR Bar Code in Software The Business Plan

Recognizing that his business plan was somewhat different it included a statement that said he wasn t motivated by profit he knew himself and his company well enough to know that not all venture capitalists would take him seriously He carefully selected one firm Sevin and Rosen Why Because this firm was used to doing business with his type namely, computer programmers They knew him personally, and they also knew the industry It was a good decision He got the financing he sought, even though he had a poorly organized, nontraditional plan The way to find debt and equity providers who have a proclivity for certain types of deals will be discussed in 8

1 Martha Russis, Loans Will Flow, but Less Freely than during 1998, Crain s Chicago Business/Small Business Report, December 14, 1998, p SB4 2 Black Enterprise 3 Fast Company, February March 1998 4 Ibid 5 Bill Sutter, classroom presentation at Kellogg School of Management, March 10, 1999 6 Chicago Sun-Times, April 4, 1996 7 Constance Bagley and Craig Dauchy, The Entrepreneur s Guide to Business Law, 2nd ed (1993), pp 76 77 8 Inc, December 1998 9 Laurie Cohen and Andrew Martin, Theater Plan Not Living Up to Billing, Chicago Tribune, January 15, 1999 10 Business 20, April 2000, p 259 11 The New Yorker, August 11, 1997

INTRODUCTION As stated earlier, one of the most important sections of the business plan is the one that details the firm s financial statements Therefore, the discussion in this chapter is intended as an overview of the main issues of relevance regarding key financial statements The objective is to teach the purpose of the different statements, their components, and their significance to entrepreneurs who are not financial managers This is the final step toward making financial statement analysis, which will be the focus of the next chapter, simple and user-friendly Financial statements are important because they provide valuable information that is typically used by business managers and investors However, it is not necessary for the entrepreneur to be able to personally develop financial statements In this chapter, we will focus on three financial statements: the income statement, the balance sheet, and the statement of cash flows Each of these statements, in one way or another, describes a company s financial health For example, the income statement describes a company s profitability It is a measurement of the company s financial performance over time Is the company making or losing money On the other hand, the balance sheet describes the financial condition of a company at a particular time Does it own more than it owes Can it remain in business

THE INCOME STATEMENT The income statement, also known as the profit and loss (P&L) statement, is a scoreboard for a business and is usually prepared in accordance with generally accepted accounting principles (GAAP) It records the flow of resources over time by stating the financial condition of a business over the course of a period, usually a month, quarter, or year It shows the revenues (ie, sales) achieved by a company during that particular period and the expenses (ie, costs) associated with generating these revenues That is the reason why the income statement, in addition to being known as the P&L statement, is also referred to as the statement of revenues and expenses The difference between a company s total revenues and total expenses is its net income When the revenues are greater than the costs, the company has earned a profit When the costs are greater than the revenues gained, the company has incurred a loss The income statement is used to calculate a company s cash flow, which is also known as EBITDA: earnings (ie, net income or profit) before interest (ie, the cost of debt), taxes (ie, the payments to the government based on a company s profit), depreciation (ie, noncash expenditures for the decline in value of tangible assets), and amortization (ie, noncash expenditures for the decline in value of intangible assets such as patents or goodwill) To determine a company s EBITDA for any period that is, the cash being generated by the company after paying all the expenses directly related to its operations, and therefore the cash available to pay for nonoperational expenses such as taxes and principal and interest payments on debt one must utilize the income statement A sample income statement is provided in Figure 4-1 The income statement is divided into two sections: Revenues, a measure of the resources generated from the sales of products and services, and Expenses, a measure of the costs associated with the selling of these products or services The accounting equation to remember is Equation 4-1

E Q U A T I O N 4-1