An Integral Part Of The Business Plan Is To Develop A 986634

An Integral Part Of The Business Plan Is To Develop 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. Using chapters 5 and 9 of your textbook for reference, 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).

Paper For Above instruction

The development of a coherent and strategic business model is fundamental to establishing a successful enterprise. For this analysis, I have selected the subscription-based model for my venture, an approach that aligns with current market trends emphasizing recurring revenue streams. This model involves customers paying a regular fee—monthly or annually—to access products or services, fostering ongoing relationships and predictable cash flows. This choice is driven by the versatility of subscription services across various industries, including technology, health, and entertainment, which have demonstrated sustainable growth patterns (Osterwalder & Pigneur, 2010).

The subscription business model is particularly effective for my venture because it aligns with customer preferences for convenience and flexibility. It also facilitates better revenue forecasting and customer retention strategies (Magretta, 2002). This model allows the firm to generate steady income, reduce customer acquisition costs over time, and improve lifetime value per customer. Moreover, the predictable revenue stream simplifies financial planning and attracts investment, especially from venture capitalists who prioritize stable cash flows and growth potential.

Based on market research and industry benchmarks, I project the first-year revenue at $500,000, with annual growth rates of approximately 25% over the subsequent four years. This projection considers market size, target customer base, pricing strategies, and planned marketing initiatives (Zimmerman & Marie, 2018). Methodologically, these figures are derived by estimating initial customer acquisition (targeting 1,000 subscribers at an average monthly fee of $50), with expected increases in customer base driven by increased marketing efforts and product enhancements. The growth assumption accounts for market penetration rates and customer retention initiatives, which I estimate at 80% renewal annually.

The five-year pro forma profit and loss statement reflects these revenue projections alongside estimated costs: cost of goods sold (COGS), operational expenses, marketing, and administrative costs. I assume COGS to be approximately 20% of revenue, aligning with industry standards for digital subscription services (Katz & Shapiro, 1994). Operating expenses include staffing, marketing, technology infrastructure, and administrative overheads, which are projected to increase proportionally with revenue but at controlled rates to maintain profitability. Initial net profit margins are expected to be modest at 5%-10%, improving as customer base expands and operational efficiencies are realized (Higgins, 2012).

The cash flow projection considers the timing of revenue recognition, payment cycles, and expenses. Given the subscription model, cash inflows are relatively predictable, occurring monthly as customers pay their fees. Disbursements include onboarding costs, ongoing service delivery, and marketing expenditures. I assume initial cash outflows are higher in the first year due to setup costs but stabilize over time. The forecast indicates positive cash flows from year two onward, supporting reinvestment and growth initiatives (Brigham & Ehrhardt, 2016).

The balance sheet projections illustrate asset growth through investments in technology, customer data, and working capital. Liabilities primarily reflect accrued expenses and deferred revenue, which aligns with revenue recognition patterns under subscription models. Equity reflects retained earnings and potential funding rounds. The interrelation among the financial statements demonstrates that revenue growth supports expanding assets, which in turn enhances the company's value and financial stability (Ross, Westerfield, & Jaffe, 2019).

Overall, these financial projections underscore the viability of the subscription-based business model and provide a comprehensive roadmap for achieving strategic objectives. The logical consistency among the revenue, profit, cash flow, and balance sheet projections ensures that the business remains financially sustainable while pursuing scalable growth opportunities.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Higgins, R. C. (2012). Analyze, Plan, and Control: Financial Strategy for Business. McGraw-Hill Education.
• Katz, M., & Shapiro, C. (1994). Systems Competition and Network Effects. Journal of Economic Perspectives, 8(2), 93–115.
• Magretta, J. (2002). Why Business Models Matter. Harvard Business Review, 80(5), 86–92.
• Osterwalder, A., & Pigneur, Y. (2010). Business Model Generation. John Wiley & Sons.
• Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
• Zimmerman, J. F., & Marie, G. (2018). Quantitative Methods in Business. Routledge.