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.

Full Answer Section

Five-Year Revenue Projection

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

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

I made the following assumptions in generating this projection:

  • I will acquire 1,000 subscribers in the first year and grow my subscriber base by 50% per year thereafter.
  • Each subscriber will pay a monthly subscription fee of $100.

Five-Year Pro Forma P&L Statement

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

Year Revenue Cost of Goods Sold Gross Profit Operating Expenses Net Income
1 $100,000 $25,000 $75,000 $50,000 $25,000
2 $500,000 $125,000 $375,000 $250,000 $125,000
3 $1,000,000 $250,000 $750,000 $500,000 $250,000
4 $2,000,000 $500,000 $1,500,000 $1,000,000 $500,000
5 $5,000,000 $1,250,000 $3,750,000 $2,500,000 $1,250,000

I made the following assumptions in generating this P&L statement:

  • Cost of goods sold will be 25% of revenue.
  • Operating expenses will be 50% of revenue.

Five-Year Pro Forma Cash Flow Statement

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

Year Cash Flow from Operations Cash Flow from Investing Cash Flow from Financing Net Change in Cash
1 $25,000 ($100,000) $100,000 $25,000
2 $125,000 ($50,000) $500,000 $625,000
3 $250,000 ($100,000) $0 $150,000
4 $500,000 ($200,000) $0 $300,000
5 $1,250,000 ($400,000) $0 $850,000

I made the following assumptions in generating this cash flow statement:

  • Cash flow from operations will be equal to net income.
  • I will invest $100,000 in the first year to create my content library.
  • I will not need to raise any additional financing after the first year.

Conclusion

I believe that my business model is sound and that my financial projections are realistic. I am confident that my venture company can be profitable within five years.

Sample Answer

Business Model

The business model of my venture company is to provide a subscription service for educational content. Subscribers would have access to a library of online courses, tutorials, and other learning resources on a variety of topics. I have selected this business model because it is a scalable and recurring revenue model. Once I have created a library of high-quality content, I can continue to add new content and subscribers over time without incurring significant additional costs.