Building Business Plans

The course requires that you are comfortable with financial accounting and financial statements.

Please contact NYU IT (askit@nyu.edu, 212-998-3333) or NYU Stern IT (helpdesk@stern.nyu.edu, 212-998-0180) for all ZOOM/email/NYU Brightspace/Admin/CapitalIQ issues. Please do not copy/contact me. Brightspace sends all emails to the @nyu.edu (not @stern.nyu.edu) address, while Stern class mail lists send emails to @stern.nyu.edu. You must check BOTH emails and use the correct browser profile. Please contact IT to figure this out. Do not write to Almaris or me if you do not get Almaris emails because this issue is between NYU and you.

Undergrad ACCT-UB 65 Concentrations

• Accounting
• Entrepreneurship

Overview

This course will be offered only for undergrads; it will not be cross-listed.

Takeaways

You will learn to do the following:

• Incorporate the drivers of sales and sales growth into business plans

• Incorporate expense drivers into business plans

• Incorporate drivers of operating working capital and fixed capital into business plans

• Tie the components of a business plan together into a cohesive set of financial statements

• Identify causes of variance between forecasts and actuals

Prerequisites

Financial Accounting. The course requires that you are comfortable with understanding financial statements.

Recommended courses

• Managerial Accounting is strongly recommended but not required: Understanding how to compute costs of products and services and incentive issues related to managing costs is crucial to building sound business plans.
• Patterns of Entrepreneurship

Materials

I use my materials. Therefore, there is no required textbook, and you need not purchase anything.

Attendance and penalty for missing classes

Requiring attendance is necessary for several reasons. First, you incorrectly assume that you can catch up on a missed class by watching a recording (if available). Videos do not engage your brain as much as a live class. Second, less than 20% of you watch the recording (if available). You are then lost in class, which provides wrong signals to me as an instructor. Third, your absence hurts class discussions. Fourth, you miss out on feedback if you do not work through the questions I pose in class. Fifth, I lose the feedback since there are fewer questions.

The policy below will be in effect only after the add/drop period.

Without mandatory attendance, attendance is often below 50%. Therefore, though I dislike doing this, I penalize absences. If you anticipate being absent for good reasons, please email me well in advance. Please enter "Excused" on the attendance sheet described below to avoid the penalty if I approve. If you miss a class due to emergencies and cannot tell me in advance, do not panic. Take care of the emergency first, and then email me. I will permit you to change the "Absent" to "Excused." But, if you miss a class without a valid reason, there is a penalty, as stated below.

For sections meeting in 150-190 minute sessions, you would lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY missed session unless you were explicitly excused via email. Thus, if you miss two class sessions, you would lose two grades, and so on.

For sections meeting in 75-80 minute sessions, you would lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY TWO missed sessions unless you were explicitly excused via email. Thus, if you miss four class sessions, you would lose two grades, and so on.

Please sit in the same seat in every class and display your name tags. For zoom classes, you must keep your video on AT ALL TIMES. You must also have a good working headset or mic as it is extremely rude to be inaudible and force me to ask you to repeat yourself. After entering the class, please mark yourself present in the first 20 minutes on the OneDrive sheet (link posted on Brightspace). You will be marked absent if you are more than 20 minutes late unless it is because of factors beyond your control (traffic, subway, interviews running late). You will also be marked absent if you leave the class early unless you have my permission or get it afterward. You will get an F in the course if you are caught cheating on the attendance sheet.

Exams and Grading

There are no in-class quizzes, midterms, or final exams.

• Please read about the penalty for missing classes above.
  
• Assignments: 50%
• Final project: 50%

System Requirements

• You need to be in the following systems before the start of the first class:
  • Albert
  • NYU Brightspace
  • If you are a non-Stern student, Stern automatically creates a Stern account for you when registering for a Stern course. All class emails are sent to your Stern email, not NYU email. Please forward your Stern email to your NYU email.
  • I do not control your access to dgode.stern.nyu.edu. It is linked to whatever Stern has entered in the class roster. I cannot override it.
• If you are blocked from accessing these systems, please ask the administration to expedite matters. Given the complexity of these systems, I cannot manually add you to any system.
• Only registered students can attend. I cannot override this NYU rule.
• You will need a computer in every class. Either MAC or Windows will work.

Help and Office

• Me: dgode@stern.nyu.edu, 212-998-0021, Office: KMC 10-86.
• Teaching assistant: Please check NYU Brightspace.

Assignments

• All assignments are mandatory. I will email you once the assignments are ready. You will then get an email from Almaris with your user id and password. Login to view the online assignments at http://www.almaris.com/assess/. The email is sent to the email official Stern email. The Almaris password is different from the Stern password. You can retrieve the password at any time by entering your official email (no aliases) and leaving the password blank.
• You can learn concepts from others, but you must work on the actual assignment alone. You may be called upon in class to explain your answer to the assignments.
• I might update the deadlines as the course progresses. The deadlines shown at Almaris are the correct deadlines. NO EXTENSIONS will be granted for any reason except medical or family emergencies. If you have religious or personal conflicts, submit the assignments early. The related materials are covered well in advance of the assignments. Please do not email me to request extensions unless you have a medical or family emergency. Some assignments are short; others are long. Please manage your time.
• Assignments are marked “late” if you do not meet or exceed the passing score described below before the deadline. There is no additional penalty for lateness other than the low score.
• I set the passing score at 100% if you should ace the assignment. However, you do not "fail" the assignment if you do not ace it. Whatever you get on your last attempt is your final score.
• Almaris is offering these tests to Stern at no charge since I am a co-founder of Almaris.
• Almaris staff is not authorized to extend deadlines under any circumstances. Only my TAs can do that. Almaris staff will reply to your emails only if they pertain to technical issues with the Almaris system. Please contact Stern IT for technical issues with your network.

Topics

Session 1: An overview of the business planning process

Inputs

• Internal and external data sources
• Business intuition and strategic analysis

Outputs

• Operating metrics such as quantity
• Financial statements

Session 2: Revenue metrics

We will discuss revenue metrics across a wide range of industries. Some of the examples are provided below.

Software service and product-based

• Number of paying customers or subscribers
• Average revenue per user
• Customer retention rate

Advertising-based

• Number of active users
• Pageviews, time spent per visit, price per click, number of clicks
• Number of advertisers
• Average revenue per user

Consulting-based

• Revenue per employee: Billable hours per employee, Price per billable hour
• Commission rate

Product or location-based

• Sales per square foot
• “Same-store” growth: This definition can be modified to mean “same product growth.”
• Ramp up rate

Session 3: Revenue growth

Growth metrics

• Compounded annual growth rate, Year-over-year growth, Quarter-over-quarter growth
• Organic growth versus acquisitive growth
• Constant currency growth
• Seasonality

Product life cycles

• Diffusion and the S-curve
• Cyclicality

Session 4: Integrating forecasts of revenue drivers

Market share and pricing

• Superior products
• Control of scarce resources
• Branding
• Network effects
• Switching costs

Incorporating revenue drivers into the business plan

• Selecting key revenue drivers based on business intuition
• Tying projections of these revenue drivers to revenue: We will discuss the integration of forecasts into financial statements; we will not discuss statistical forecasting techniques.

Session 5: Relationship between revenues and operating expenses

We strongly recommend that you take Managerial Accounting for an in-depth treatment of these

Cost behavior

• When it makes sense to link expenses to revenues: Variable costs
• When the relationship between expenses and revenues is nonlinear: fixed costs and semi-fixed costs

Long-run versus short-run

• How do these relationships between revenues and costs change over the short-run versus the long-run

Session 6: Operating expense metrics and drivers

Operating expense ratios and margins

• COGS/Sales and gross margin
• R&D/Sales; Marketing/Sales: When investments are booked as expenses
• SG&A/Sales
• EBITDA and EBIT margins

Expense drivers

• Experience effects
• Economies of scale
• Economies of scope

Forecasting expenses

• Selecting key expense drivers
• Collecting forecasting data from internal and external sources
• Tying expense forecasts to net operating profit after tax

Session 7: Prepayments and payables

How prepayments require financing: Operating assets

• Inventories: Days of inventories
• Prepaid advertising, insurance, and rent: Days of prepayments
• Long-term prepayments
• Property, plant, and equipment: Capacity planning, PP&E turnover

How payables mitigate the need for financing: Operating liabilities

• Suppliers: Days of payables
• Employee salary and bonuses: Days of accrued expenses
• Uncertain liabilities such as warranties

Session 9: Receivables and deferred revenues

How receivables increase the need for financing: Operating assets

• Receivables: Days of receivables
• Bad debts and allowances: Dealing with defaults

How deferred revenues provide financing: Operating liabilities

• Deferred revenues: Days of advance

Session 10: Meeting financing needs partially with debt

Ensuring liquidity: Financial assets

• Liquid assets
• Liquidity needs in the upside and the downside

Understanding corporate loans using personal finance examples

• Secured versus unsecured
• Private versus public
• Fixed versus floating
• Long term versus short term

Assessing borrowing capacity: Financial liabilities

• Debt/EBIT and Debt/EBITDA ratios
• EBIT/Interest expense ratio
• Debt/value ratio and collateral quality

Session 11: Meeting residual needs with equity

Raising equity

• Common shares
• Preferred shares
• Convertible preferred shares

Sweat equity and incentive structures

• Share-based compensation

Backup sources

• Undrawn revolvers

Session 12: Sensitivity analysis

Building scenarios

• Data table and scenario analysis tools in Excel
• Other tools for scenario building
• Identifying which drivers are dominant