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MGT602 - Entrepreneurship - Lecture Handout 30

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THE FINANCIAL PLAN

LEARNING OBJECTIV ES

  1. To understand why positive profits can still result in a negative cash flow.
  2. To understand the role of budgets in preparing pro forma statements.
  3. To learn how to prepare monthly pro forma cash flow, income, balance sheet, and sources and uses of funds statements for the first year of operation.
  4. To explain the application and calculation of the break-even point for the new venture.
  5. To illustrate the alternative software packages that can be used for preparing financial statements.

THE FINANCIAL PLAN

A. The financial plan provides a complete picture of:

  1. How much and when the funds are coming into the organization.
  2. Where the funds are going.
  3. How much cash is available?
  4. The projected financial position of the firm.

B. The financial plan provides the short-term basis for budgeting and helps prevent a common problem-lack of cash.


C. The financial plan must explain how the entrepreneur will meet all financial obligations and maintain its liquidity.


D. In general, the financial plan will need three years of projected financial data for outside investors.

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MGT602 - Entrepreneurship - Lecture Handout 27

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THE ORGANIZATIONAL PLAN

LEARNING OBJECTIVES

  1. To understand the importance of the management team in launching a new venture.
  2. To understand the advantages and disadvantages of the alternative legal forms of incorporation.
  3. To explain the S Corporation and limited liability company as alternative forms of incorporation.
  4. To learn how to prepare a job analysis, job description, and job specification.
  5. To illustrate how the board of directors or board of advisors can be used to support the management of a new venture.

DEVELOPING THE MANAGEMENT TEAM

Potential investors are interested in the management team and its ability and commitment to the new venture. Investors usually demand that the management team not operate the business part- time while employed full time elsewhere. It is also unacceptable for the entrepreneurs to draw a large salary. The entrepreneur should consider the role of the board of directors and/or a board of advisors in supporting the management of the new venture.

LEGAL FORMS OF BUSINESS

There are three basic legal forms and one new form of businesses. The three basic forms are:

  1. Proprietorship.
  2. Partnership.
  3. Corporation

A new form is the limited liability company, which is now possible in most states. The entrepreneur should evaluate the pros and cons of each of the legal forms prior to submitting a business plan. He should determine the priority of several factors discussed below. It is also necessary to consider intangibles such as image to suppliers, existing clients, and prospective customers.

Read more: MGT602 - Entrepreneurship - Lecture Handout 27