An integral part of the business plan is to develop a business model.
Sample Solution
My new venture is a software company that develops and sells a cloud-based customer relationship management (CRM) platform. My business model is based on a subscription fee, which customers pay on a monthly or annual basis to access the CRM platform.
I have selected this business model for my venture because it is a recurring revenue model, which means that I can generate predictable and reliable revenue over time. Additionally, the subscription model allows me to scale my business quickly and efficiently.
Five-Year Revenue Projection
The following table shows my five-year revenue projection for my software company:
| Year | Revenue |
|---|---|
| 1 | $1 million |
| 2 | $2 million |
| 3 | $3 million |
| 4 | $4 million |
| 5 | $5 million |
I have derived these projected numbers by considering a number of factors, including:
- The size and growth of the CRM market
- The competitive landscape
- My company's pricing strategy
- My company's marketing and sales strategy
I believe that these revenue projections are realistic and achievable based on my company's strengths and the market opportunity.
Five-Year Pro Forma P&L Statement
The following table shows my five-year pro forma P&L statement for my software company:
| Year | Revenue | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income |
|---|---|---|---|---|---|
| 1 | $1 million | $250,000 | $750,000 | $500,000 | $250,000 |
| 2 | $2 million | $500,000 | $1.5 million | $750,000 | $750,000 |
| 3 | $3 million | $750,000 | $2.25 million | $1 million | $1.25 million |
| 4 | $4 million | $1 million | $3 million | $1.25 million | $1.75 million |
| 5 | $5 million | $1.25 million | $3.75 million | $1.5 million | $2.25 million |
I have made the following assumptions in developing my pro forma P&L statement:
- Cost of goods sold will be 25% of revenue.
- Operating expenses will be 50% of revenue in the first year and will decrease to 40% of revenue in subsequent years.
- Net income will be 25% of revenue in the first year and will increase to 45% of revenue in subsequent years.
I believe that these assumptions are realistic and achievable based on my company's business model and the market opportunity.
Five-Year Pro Forma Cash Flow Statement
The following table shows my five-year pro forma cash flow statement for my software company:
| Year | Net Cash Flow from Operating Activities | Net Cash Flow from Investing Activities | Net Cash Flow from Financing Activities | Net Change in Cash and Cash Equivalents |
|---|---|---|---|---|
| 1 | $250,000 | ($250,000) | $250,000 | $0 |
| 2 | $750,000 | ($500,000) | $0 | $250,000 |
| 3 | $1.25 million | ($750,000) | $0 | $500,000 |
| 4 | $1.75 million | ($1 million) | $0 | $750,000 |
| 5 | $2.25 million | ($1.25 million) | $0 | $1 million |
I have made the following assumptions in developing my pro forma cash flow statement:
- Net cash flow from operating activities is equal to net income.
- Net cash flow from investing activities is equal to capital expenditures.
- Net cash flow from financing activities is equal to debt and equity financing.
I believe that these assumptions are realistic and achievable based on my company's business model and the market opportunity.
Relationship Between the Three Financial Statements
The three financial statements - the pro forma P&L statement, the pro forma cash flow statement, and the pro forma balance sheet - are all interrelated.
The pro forma P&L statement shows how the company expects to generate revenue and expenses over time. The pro forma cash flow statement shows how the company expects to generate and use cash over time. The pro forma balance sheet shows the company's financial position at a specific point in time