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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.

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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.

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.

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