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Developing a business model.

An integral part of the business plan is to develop a business model. Simply put, a business model describes how a company plans to make money. It is not what you do, but how you will make money doing what you do. A solid business model is the link between venture strategy and financial plans. Projecting the financial performance and requirements can be classified as financial goals of the venture. A venture capitalist will want to know not only the numbers, but how those were derived.

For this professional assignment, you will develop both a business model and financial goals for your new venture. develop and submit the following:

Define the business model of your venture company, explaining why it is you have selected this business model as the ideal model for your venture.
Create a five-year revenue projection and illustrate how you have come up with the projected numbers.
Develop a five-year pro forma P&L statement and justify your assumptions within the statement.
Devise a five-year pro forma cash flow statement and justify your assumptions within the statement.
Design a five-year pro forma balance sheet and specify how the balance sheet relates to the other two financial statements in parts (2) and (3).

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Sample Answer

Business Model

The business model for my new venture is a subscription-based service for providing access to online educational courses. I have chosen this business model because it is a scalable and recurring revenue model. This means that once I have created the courses, I can continue to sell them to new subscribers on a monthly or annual basis. This type of revenue model is also attractive to investors, as it provides a predictable stream of income.

Five-Year Revenue Projection

The following table shows my five-year revenue projection for my new venture:

Year Revenue
1 $100,000
2 $250,000
3 $500,000
4 $1,000,000
5 $2,000,000

Full Answer Section

Business Model

The business model for my new venture is a subscription-based service for providing access to online educational courses. I have chosen this business model because it is a scalable and recurring revenue model. This means that once I have created the courses, I can continue to sell them to new subscribers on a monthly or annual basis. This type of revenue model is also attractive to investors, as it provides a predictable stream of income.

Five-Year Revenue Projection

The following table shows my five-year revenue projection for my new venture:

Year Revenue
1 $100,000
2 $250,000
3 $500,000
4 $1,000,000
5 $2,000,000

I have made the following assumptions in developing this projection:

  • I will launch with 10 courses and add 5 new courses each year.
  • I will charge a monthly subscription fee of $29.
  • My customer acquisition cost (CAC) will be $10 per customer.
  • My churn rate will be 10% per year.

Five-Year Pro Forma P&L Statement

The following table shows my five-year pro forma P&L statement for my new venture:

Year Revenue COGS Gross Profit SGA Expenses EBITDA
1 $100,000 $25,000 $75,000 $50,000 $25,000
2 $250,000 $62,500 $187,500 $100,000 $87,500
3 $500,000 $125,000 $375,000 $200,000 $175,000
4 $1,000,000 $250,000 $750,000 $400,000 $350,000
5 $2,000,000 $500,000 $1,500,000 $800,000 $700,000

I have made the following assumptions in developing this projection:

  • COGS will be 25% of revenue.
  • SGA expenses will be 50% of revenue.

Five-Year Pro Forma Cash Flow Statement

The following table shows my five-year pro forma cash flow statement for my new venture:

Year Operating Cash Flow Investing Cash Flow Financing Cash Flow Net Change in Cash
1 $25,000 ($100,000) $100,000 $-75,000
2 $87,500 ($250,000) $250,000 $0
3 $175,000 ($500,000) $500,000 $0
4 $350,000 ($1,000,000) $1,000,000 $0
5 $700,000 ($2,000,000) $2,000,000 $0

I have made the following assumptions in developing this projection:

  • Investing cash flow will be used to develop new courses and acquire customers.
  • Financing cash flow will be used to fund the initial startup costs of the business.

Relationship Between the Three Financial Statements

The three financial statements (P&L, cash flow, and balance sheet) are all interconnected. The P&L statement shows the revenue and expenses of the business, which ultimately determines the company’s net income. The cash flow statement shows the inflows and outflows of cash, which is necessary to fund the company’s operations and investments. The balance sheet shows the company’s assets, liabilities, and equity at a specific point in time.

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