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Instructions:

Strategy Project: Financial Valuation (6% of course grade)

Executive Summary for this piece of the Week 10 Paper

Resources:
Income statement tutorial: http://www.baruch.cuny.edu/tutorials/statements/
Guidelines for Income Statement
Calculating cost of goods sold:http://ezproxy.umuc.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=26758860&site=eds-live&scope=site
Assignment overview:  The team will produce a simple income statement for just one year of operation, showing projected income and expenses for your proposed business plan..  The above  Guidelines for Income Statement shows a sample template with  a single column for one year of operation .However, the team is expected to develop an income statement forecast for this Business Plan, with two columns: one for START UP COSTS  (show as year 0, with no revenue and can be for any length of time required for market entry up to first sale) and one column for REVENUE  and OPERATING COSTS  for the company's  first year of operation (first year of operation begins with  first sale).  The projected  income statement should be only to the level of EBIT (Earnings Before Interest and Taxes).
The team will submit the current draft of your business plan, up to and including the financials in section 16. Submitting the full draft of the business plan will allow faculty to check that costs of implementing  all requirements of the strategy are captured in the financial plan. 
Assignment Objectives
Your  draft Business Plan to date has already identified the major cost drivers for the recommended entry strategy, except for Cost of Goods Sold, which will be developed for this financial plan.. The major costs already identified are costs of the  organizational structure (people costs in section 14),  and of the the marketing plan  (Section 15).  This is the time to review the plan to consider other expenditures that might be  necessary to implement  your proposed entry strategy.
The team has developed its revenue projections, citing all assumptions underlying the team’s estimations.
A balance sheet is not required, but the team will separately  identify any capital investments required in your proposed strategy (e.g., equipment, purchased real estate, expanded plant facilities).
Assignment Requirements/format. 
Introduction. After the statement of purpose, the Introduction to this paper is the draft business plan, up to section 16 (which you will develop in the body of  this paper). 
The income statement should be developed in Step One, showing  the revenue and categories of expense. In Step Two, the Income statement items and capital expenses are to be described/explained in text:
Step One:  Create the income statement.
Show start up costs as first column:  These are all costs that must be expended in order to start up the business (before the first sale is completed) and should already be identified in your business plan.    These are people costs from the organization chart in  Section 14, including any contracted expenses, such as legal and  translator support;  and from your marketing plan these would be new marketing materials, prototypes or product modifications (Section 15);  as well as any other expenses, such as travel, that must also be incurred before revenue is generated..  Show these  in a  year 0 column on your income statement.

Show  Year of Operations as Second Column:

Costs of good sold (COGS) line item. Estimate these  per unit production costs  for the product or service you are selling.  These are variable costs, with the total line item  based upon the number of units  produced and sold.  
If it is a professional service, or a product or project  that requires professional services to design or deliver to the customer, those people costs would be Costs of Goods sold. 
Manufacturing costs belong here if it is a product.  .
Explain total dollar amount as per unit cost x  the number of units to be sold 
If the units are not to be sold, but must be produced for marketing purposes (e.g., for showrooms, marketing give- away's), they belong in the line item for marketing expenses; not as  COGS (and can either be start-up expenses or operational expenses, depending on when they were to be incurred, as noted in your Marketing Plan (Section 15)
Operational Expense line items:  These line items reflect the annual costs of running the business after the start up  period is completed.  These are on-going expenses  that start with the first sale,  but are likely to be incurred whether or not any additional units are actually sold.  They cover people costs for all the business functions (e.g., strategic oversight, marketing, sales, human resources, legal, finance, technical support),  as reflected in your organizational chart in Section 14; and marketing expenses (including materials, distribution, sales incentives/rewards), as reflected in your marketing plan..  
Consider other administrative/office expenses, such as telecommunications, rent, supplies and equipment (non-capital), 
Specify all assumptions made in developing these line item estimates, and label them so it is clear  which expenses are in each line item. .
You will need to include any expenses associated with monitoring the  progress of your  strategic plan, which you  will specify in your Balanced Scorecard (BSC) (e.g., any surveys,focus groups, employee training, employee benefits/rewards).  Leave a space for those expenses in your income statement  until you have identified them fully in your Balanced Scorecard (next week's assignment).
If you have already identified the people costs of monitoring or employee training by showing those responsibilities in some positions in your organization chart, you don't need to include them as a separate line item on your income statement; however, your BSC should  specify where you have accounted for those costs (how much and which headcount, as reflected in which line item). 
The team will separately  identify capital investments required in your proposal (e.g., equipment, purchased real estate, expanded plant facilities).  The costs of this capital should be identified, but  the interest paid on capital investment need not be included in your income statement, and you  need  not consider depreciation of the capital goods in your income statement.  Please enter a footnote at the bottom of the income statement that shows capital costs, as these balance sheet items would not be part of the calculation of earnings (EBIT).
Include  revenue forecasts, based on the market share estimates and recommended pricing shown in the Section 15 marketing plan.  Show both projected  units sold  and unit price on the income statement. 
Total costs of the plan  will be compared to the potential revenue, to develop an income statement showing EBIT (Earnings Before Interest and Taxes). 
Step Two: Write the formal paper.
Introduction:  Submit the complete Draft Business Plan  through section 15. 
The body of this financial analysis  should be approximately 5-10 pages, including the income statement. 
Structure the body  of this analysis as:
1.  REVENUE Forecast and assumptions (e.g., market share x proposed unit price)
2. COST forecasts and  assumptions (e.g., how COGS has been developed; as well as any administrative/ operational expenses not previously identified in the organizational chart or marketing plan)
3. FINANCIAL results 
4. Conclusions
In your  concluding paragraphs,  specify whether this is a financially viable entry strategy; under what assumptions the team might  consider this project to be financially viable.  
Where are the major risk factors in your projections and assumptions? Which factors must be monitored most closely in the Balanced Scorecard in order to limit risk? (and be sure those critical risk factors are included  in next week's BSC)
5. Include

Title page with name of every contributing member
Approximately a 3 page Executive Summary that summarizes the entire paper