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Business Model and Financial Goals

Business Model and Financial Goals

The business model of my venture company is subscription-based. We plan to offer our customers a unique and valuable service regularly and charge them a monthly or annual fee to access it. This business model allows us to generate a steady revenue stream and build a loyal customer base. Additionally, it aligns well with our mission of providing ongoing support and resources to our customers.

Our five-year revenue projection is based on market research and historical data. We have conducted extensive research on the size and growth of the market for our service and the potential demand for our specific offering. We have also analyzed the performance of similar companies in the industry to gain insight into their revenue growth patterns. Using this information, we calculated a projected growth rate for revenue and added it to our initial revenue numbers to make a five-year revenue forecast.

In our five-year pro forma P&L statement, we have made assumptions about our costs, including expenses such as employee salaries, marketing and advertising, and product development. We have also considered potential changes in the market and our business operations that may affect our revenue and expenses. Our market research, industry analysis, and our knowledge and experience led us to make these assumptions.

Our five-year pro forma cash flow statement is based on our projected revenue and expenses and other cash inflows and outflows, such as investments and debt repayment. We have also considered potential changes in our business operations and the broader market that may affect our cash flow. These assumptions are based on our market research, historical data, and industry analysis.

Our five-year pro forma balance sheet shows our projected assets, liabilities, and equity at the end of each year. It relates to the other two financial statements in that it is derived from the projected income and expenses in the P&L statement and the cash flow in the cash flow statement. The balance sheet also reflects any changes in assets, liabilities, and equity that may occur due to investments or debt repayment.

Because it specifies how a company intends to turn a profit, the “business model” is an essential component of any business strategy. When analyzing a new business idea, venture capitalists place a significant amount of weight on the company’s business model because it connects the company’s overall strategy and its financial projections. In this instance, the business model for the endeavor is centered on subscriptions.

Customers pay a monthly price to have access to a product or service under the terms of a business model known as a subscription-based model. This business strategy enables a company to develop a dedicated customer base and generate a consistent money flow. Because of the growing trend among customers to place a higher value on access than ownership, subscription-based business models are becoming increasingly important in today’s digital economy (Rao, 2020). Because it is perfectly aligned to provide continuing assistance and resources to clients, this business model is perfect for the venture because it can be used to accomplish that mission.It is vital to construct a revenue prediction for the next five years to accurately project the enterprise’s financial performance and the requirements it will need. The forecasted figures were derived from market research and data analysis. According to findings from recent studies, the subscription-based business model is gaining popularity and is anticipated to see annual growth rates of twenty percent between 2019 and 2024. (Mordor Intelligence, 2020). In addition, a  McKinsey & Company (2019)study discovered that firms based on subscriptions have a more significant customer retention rate compared to models based on one-time purchases. Based on these findings, the subscription-based business model could be an alternative for the enterprise.Market research is carried out to evaluate the size and growth of the market for the venture’s service, in addition to the prospective demand for the particular offering, so that the five-year revenue projection may be developed. In addition, the historical data of comparable companies operating within the industry is reviewed to get insight into trends in revenue growth. To construct a five-year revenue estimate, initial revenue figures are multiplied by an anticipated revenue growth rate. This is then applied to the total expected revenue for the five years.

After establishing the revenue prediction, a pro forma income and expense statement for the next five years will be created to protect the business’s income and expenses. In this statement, assumptions are made concerning costs, including product development, marketing and promotion, and personnel wages. These hypotheses are derived from market research, an analysis of the relevant industry, and the venture’s prior experience and expertise. It is essential to remember that the profit and loss statement is only an estimate and that the actual results may differ.

In addition, a pro forma cash flow statement for the next five years is created to forecast the cash flows associated with the endeavor. This statement is derived from the anticipated income and expenditures, in addition to other cash inflows and outflows, such as investments and debt repayment. It is essential to consider the possibility that the cash flow will be impacted by changes in the business operations and the market as a whole. These hypotheses are derived from a study of the market, an analysis of historical data, and an examination of the industry.

Last but not least, a pro forma balance sheet for the next five years is created to display the anticipated assets, liabilities, and equity after each year. The expected income and expenses in the income and expense statement, and the cash flow in the cash flow statement, are used to create the balance sheet. It also considers any changes that have happened to the company’s assets, liabilities, and equity because of investments or the paying off of debt.

In conclusion, a business model based on subscriptions is the most suitable model for the venture because it perfectly aligns to provide continuous support and resources to clients. The pro forma profit and loss statement, cash flow statement, and balance sheet are all based on assumptions about costs, revenue, and cash flow, respectively. The five-year revenue projection is derived from market research and historical data. These financial statements are vital for recruiting investors and making educated company decisions. They are essential instruments for evaluating the financial performance and requirements of the endeavor.
It is essential to remember that the financial predictions and assumptions utilized in the preparation of the pro forma financial statements should be routinely reviewed and updated to reflect any shifts that may have occurred in the conditions of the business or the market. Also, these statements should be looked at alongside other financial and non-financial metrics, such as customer acquisition costs, lifetime value of a customer, and customer retention rate, to get a complete picture of how well the business is doing.

Also, it’s important to remember that the pro forma financial statements are based on estimates and assumptions, and the actual results may differ from what was predicted. These assertions should not be interpreted as forecasts of future performance; instead, they should serve more as a guide for decision-making than as a promise of specific outcomes. It is essential to carry out routine evaluations of the company’s business model and financial projections to confirm that they are correct and in line with the organization’s objectives.

In addition, it is essential to have a solid comprehension of the organization’s key performance indicators (KPIs) and how these KPIs correspond with the financial goals. The number of subscribers, the subscriber churn rate, the revenue per subscriber, and the lifetime value of a subscriber could be considered some of the most important metrics to track for a business built on subscriptions. The enterprise can ensure that it is on track to meet its monetary objectives if it monitors these metrics and makes any necessary improvements to the business model and financial predictions in response to these findings.

In conclusion, a well-defined business model and financial predictions are essential elements that should be included in a business plan. The venture’s subscription-based business model, and its five-year economic predictions, have been built based on market research, historical data, and industry analysis. These models are intended to correspond with the organization’s goals and mission. Nevertheless, it is essential to conduct regular reviews and updates of these predictions and assumptions to confirm that they are correct and in line with the company’s objectives. In addition, it is essential to monitor key performance indicators to ensure the company is on the right track to accomplish its monetary objectives.

References

McKinsey & Company. (2019). The subscription economy. Retrieved from https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-subscription-economy

Mordor Intelligence. (2020). Global Subscription Business Model Market – Analysis and Forecast (2019-2024). Retrieved from https://www.mordorintelligence.com/industry-reports/subscription-business-model-market

Rao, V. (2020). The Subscription Business Model: A Complete Guide. Retrieved from https://www.shopify.com/blog/subscription-business-model

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Question 


An integral part of the business plan is to develop a business model. 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 the financial goals of the venture. A venture capitalist will want to know the numbers and how those were derived.

Business Model and Financial Goals

Business Model and Financial Goals

We will develop a business model and financial goals for your new venture. Use the following information to solve the problem.

Define your venture company’s business model, explaining why you have selected this business model as the ideal model for your venture.

A five-year revenue projection and illustrate how you have created 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 message.

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).

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