Overview
Building business plans is crucial to the success of entrepreneurs and executives who are raising funding, launching, or growing businesses. Business plans are also necessary to monitor whether business outcomes are tracking expectations. You will learn how to integrate forecasts of key business drivers into financially viable plans using Excel. This course focuses on building business plans, not financial statement modeling for valuation or statistical forecasting.
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
- Managerial Accounting
Materials
I will not require a textbook. I will distribute handouts in class and have online assignments.
Exams and Grading
There are no in-class quizzes, midterms, or final exams.
- Assignments: 40%
- Attendance: 10%
- Final project: 50%
System Requirements
- You need to be in the following systems before the start of the first class:
- Albert
- NYU Classes
- If you are a non-Stern student, then Stern automatically creates a Stern account for you when you register 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.
- In case 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. This is a school rule that I am not allowed to override.
- 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 Classes.
- Administrative assistant: Justin Pilozo jpilozo@stern.nyu.edu 212-998-4143, Office: Suite 10-185A, KMC 10th Floor, left-hand corne as you enter the department.
Assignments
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
- Page views, 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
Incorpating 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 integration of forecasts into financial statements; we will not discuss statistical forecasting techniques.
Session 5: Relationship between revenues and operating expenses
Cost behavior
- When it makes sense to link expenses to revenues: Variable costs
- When the relationship between expenses and revenues is non-linear: 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
Backup sources
Session 12: Sensitivity analysis
Building scenarios
- Data table and scenario analysis tools in Excel
- Other tools for scenario building
- Identifying which drivers are dominant