• What is it? What is it used for?
• Is it a new idea? Has it been protected by patent, copyright, or other legal means?
• Describe unique or innovative features.
• How soon could it be expected to become obsolete?
• Do you have plans to modify or up-date it in the future?

The Market

• Who are your potential customers?
• How does your product or service satisfy their needs?
• Size of market. Support this figure with market research data, statistics, etc.
• Market growth potential. Support with factual data. Look at local, national, and international markets.
• Your market share and the share you hope to obtain in the first year. (See Appendix A)
• Pricing: How will you make a profit yet remain competitive?
• Sales forecast for the next five years (pessimistic, optimistic, and expected).

Competition

• Major competitors: names and market shares.
• Are competitors sales increasing, decreasing, steady? Why?
• Strengths and weaknesses: Compare your company with theirs (size, reputation, location, distribution channels, etc.).
• Strengths and weaknesses: Compare your product/ service with theirs (warranty, quality, price, image, etc.).
• What have you learned from watching their operations?

Promotion/Sales

• How will your product/service be sold (personal selling, mail order, etc.)?
• How will it be advertised and promoted?

VI. PRODUCTION

Investor's question:

• How will this business operate?

Location

• What makes your location suitable (proximity to markets, suppliers, transportation, labour, etc.)?

Facilities

• Are your facilities owned or leased? State the term.
• Briefly describe your facilities. You may wish to include sketches or floor plans.
• Will renovations be required? At what cost? Include quotes from more than one contractor in the appendix.
• What is your current capacity? What is your current percent usage of plant and equipment? For how long will this be sufficient?

Materials/Supplies

• Describe any risks associated with your materials/supplies. Can any supplies be obtained from only one source? Are your supplies perishable? Do you have adequate storage facilities?

Personnel

• What are your current personnel needs? You may include an organizational chart in the appendix to show how your staff will be organized. (See Appendix C)
• What skills and training are required? What will be the cost of training?
• List the compensation and benefits that will be provided for each position. Include salaries, wages, overtime, fringe benefits.

Set up

• What special environmental, municipal or other governmental approvals may be required. How long can these be expected to take?
• How long will it take to acquire facilities, equipment, personnel, etc. and to set up operations?
• For manufacturing companies: How long after the operation has been set up will the first production run be completed?

VII. FINANCIAL DATA

Investor's question:

• Is this an attractive investment?

Required Investment

• Total amount of funding required?
• List applications of funds (equipment, renovations, inventory, working capital, etc.) A detailed expense breakdown is not required.
• List sources of funds (owner's investment, mortgage loan, term loan, etc.).
• When can investors expect repayment?

Break Even Analysis (see Appendix D)

Balance Sheet (see Appendix E)

• Opening balance sheet.
• Pro Forma monthly balance sheets for year 1.
• Optional: Pro forma quarterly balance sheets for years 2 and 3.

Pro Forma Income Statement (see Appendix F)

• Monthly income statement for year 1.
• Optional: Quarterly income statement for years 2 and 3.

Pro Forma Cash Flow (see Appendix G)

• Monthly cash flow for year 1.
• Optional: Quarterly cash flow for years 2 and 3.

Historical Financial Reports

• Income statement for past year.
• Optional: Income statements for past 3-5 years.
• Balance sheet for past year.
• Optional: Balance sheets for past 3-5 years.

APPENDIX A - MARKET SHARE
Market share is determined by dividing a firm's sales by total market sales.

EXAMPLE:

Market share of Company A:= $50,000 / $295,000 = .17
Multiply by 100 to determine percentage
Market share of Company A = 17%.
Sales of Company A account for approximately 17% of total market sales.
To determine sales volume: To determine the sales volume of each firm, you should contact suppliers, retailers, trade associations, or others who may be in a position to help you to form an estimate.

Other sources of information:

• Annual reports for each company
• Government reports on industry, market trends, etc.
• Trade publications or journals

NOTE: You may find it useful to display market share values in a pie chart as shown below.

ABC COMPANY
MARKET SHARE

APPENDIX B - RETURN ON INVESTMENT
"Return on investment" indicates the efficiency of use of the firm's assets. It also allows comparison of businesses with different capital structures.

The following formula is used to calculate return on investment:

ROI =	Net Income + Interest
	Equity

Note: Interest is added back to remove the effect of borrowed funds.

APPENDIX C - THE ORGANIZATIONAL CHART
You may wish to use an organizational chart to illustrate the way in which your staff will be organized. Below is an example of such a chart.

APPENDIX D - BREAKEVEN ANALYSIS
The breakeven analysis determines at which sales volume your firm will start making money.

The breakeven formula:

Fixed Costs

(Revenue per unit - Variable costs per unit)

• Fixed costs: Costs that must be paid whether or not any units are produced. These costs are fixed only over a specified period of time or range of production.

• Variable costs: Costs that vary directly with the number of products produced. (Typically: materials, labour used to produce units, percentage of overhead)

EXAMPLE:

Fixed cost	$50,000/year		10,000-30,000 unit production range
Variable cost	$1.60	materials
	3.00	labour
	.60	overhead
	$5.20		10,000-30,000 unit production range
Selling Price	$9.00/unit
No of Units to break even	$50.000/year ($9.00/unit-$5.20/unit)
	13,160 units/year

In this example, 13,160 units must be sold for a price of $9.00 before the firm will begin to realize a profit.

A breakeven analysis is most clearly illustrated in a chart such as the one shown on the next page.

You may use the breakeven analysis to determine how price changes, sales level changes, or cost increases or decreases will effect profitability.

APPENDIX E - THE BALANCE SHEET
WHAT IS A BALANCE SHEET?

The balance sheet is a "snapshot" of what you own and what you owe on a specific date. A "Pro Forma Balance Sheet" shows how things will be under given conditions rather than how they are.

A balance sheet follows a standard format, however, it may contain additional items depending on circumstances relating to the business for which it is prepared.

HOW IS A BALANCE SHEET PREPARED?
THE HEADING:

LEGAL NAME OF BUSINESS
Balance Sheet
Date

It is understood that the balance sheet was prepared as of the close of business on the date that appears in the heading.

THE BODY: The body of the balance sheet is divided into two sections:

• Assets
  
• Liabilities and Owners' Equity (ie. who supplied the assets)
  
• Obviously, both sections must be equal or "balanced".

WHAT DOES A BALANCE SHEET LOOK LIKE?

ABC COMPANY
Balance Sheet
December 31,2006

Assets
Current assets:
Cash		$1,000.
Accounts receivable		400.
Merchandise inventory		13,980.
Office supplies		120.
Store supplies		3,060.
Prepaid insurance		190.
Total current assets:			$18,750.
Plant and Equipment
Office Equipment	$1,800.
Less: Accumulated Depreciation	480.	1,320.
Store Equipment	$3,800
Less: Accumulated Depreciation	850.	2,950.
Buildings	95,000.
Less: Accumulated Depreciation	9,300.	85,700.
Land		33,000.
Total Plant and Equipment			122,970.
Total assets			141,720.
Liabilities
Current liabilities:
Accounts payable		$2,700.
Wages payable		3,000.
Sales tax payable		900.
Total Liabilities			$6,600.
Owner's Equity
Jane Doe, capital		$45,040.
Sue Smith, capital		90,080.
Total owner's equity			135,120.
Total Liabilities and owner's equity			$141,720.

NOTE:Under each of the following headings, several examples of commonly found items are listed, however, these examples are by no means exhaustive.

Assets
(The economic resources owned by the business) Current Assets (Generally realized within one year)

• Current assets are listed first, in the order of their liquidity (the order in which they would normally be converted into cash).
• Cash (on hand and in bank).
• Temporary investments of cash
• Notes receivable
• Accounts receivable
• Inventory
• Supplies
• Prepaid expenses
• Deterred income Tax

After current assets are totalled, other assets are usually listed under the following headings:

Long-term Investments (Held for more than one year)

• Stocks
• Promissory notes
• Bonds

Plant and Equipment

• Furniture and Fixtures
• Plant
• Equipment
• Land
• Natural Resources

Accumulated depreciation is deducted for certain assets. Depreciation represents the decline in usefulness of an asset as it ages. You may wish to consult a book on basic accounting to if you are not familiar with the methods used to calculate depreciation.

Intangible Assets

• Patents
• Trademarks

Other Assets

• Finally, all of the assets are totalled

Liabilities
(Amounts owed to creditors)
Current liabilities, like current assets, are listed first.

Current liabilities (Generally due within 12 months)

• Accounts Payable (amounts owed to creditors for goods & services bought on credit)
• Salaries & wages owed employees
• Taxes payable
• Notes payable
• Interest payable

The total of current liabilities is followed by long-term liabilities.

Long-term liabilities (Due beyond one year)

• Mortgages payable
• Bonds payable

Finally, all of the liabilities are totalled.

Owners Equity (or Net Worth)
(Derived by subtracting total liabilities from total assets)
If the business is owned by one individual, owner's equity is recorded as follows:

	Owner's equity
Mr. John Doe, capital		$xx.xx

If the business is in a partnership, a capital account for each partner is listed:

	Partners' Equity
Mr. John Doe, capital		$xx.xx
Mr. John Smith, capital		$xx.xx
Ms. Jane Brown, capital		$xx.xx

For a corporation, the names of each owner are not mentioned, rather the following form is used:

	Shareholder's Equity
Share capital		$xx.xx
Owners' Contribution		$xx.xx
Retained Earnings		$xx.xx

"Total Owner's Equity" (or "Partners' equity" or "Shareholder's equity") is recorded and is followed by the sum of "Total Liabilities and Owners Equity". This final figure will be the same as the sum of the assets.

APPENDIX F - THE INCOME STATEMENT
WHAT IS AN INCOME STATEMENT?
The income statement is a financial statement that reveals whether or not a business has earned a profit or has suffered a loss after a specified period.

An income statement may also be referred to as a "profit and loss statement" (or "PNL") or an "operating statement".

A "Pro Forma Income Statement" is used to show how things will be under given conditions rather than how they are at present.

WHAT DOES AN INCOME STATEMENT LOOK LIKE?

ABC COMPANY
Income Statement for the Year Ended January 1, 2006

Gross revenue			$100,000.
Less: Returns and allowances				1,000.
Net revenue			99,000.
Cost of goods sold
Opening inventory		2,000.
Purchases	29,000.
Less: Purchases returns and allowances	1,500.
Net purchases	27,500.
Add: Transportation-in	500.
Cost of goods purchased		28,000.
Cost of goods available for sale		30,000.
Less: closing inventory		1,500.
Cost of goods sold			28,500.
Gross profit				70,500.
Operating expenses:
Selling expenses:
Sales salaries expense	$20,000.
Advertising expense	1,100.
Store supplies expense	350.
Depreciation expense, store equipment	120.
Total selling expense		21,570.
Administrative Expenses:
Office salaries expense	15,000.
Insurance expense	300.
Office supplies expense	200.
Depreciation expense, office equipment	100.
Total administrative expense		15,600.
Total operating expenses			37,170.
Operating profit			33,330.
Financial expense:
Mortgage interest expense:			7,000.
Before tax profit			26,330.
Less: Income tax expense			9,000.
Net Profit			$17,330.

HOW IS AN INCOME STATEMENT PREPARED?

LEGAL NAME OF THE BUSINESS
Income Statement
Ending date of the period covered

Gross Revenue

• (Money received from selling goods or providing a service-before deductions)
  
• Less: Returns and Allowances Discounts
  

Net Revenue

• Determined by subtracting Discounts and


• Returns and Allowances from "Gross Revenue".

Cost of Goods Sold

• Cost of materials and labour actually used to manufacture your product, or to provide your service, cost of sub-contracting, or cost of goods purchased for sale).

Gross Profit

• Net Revenue minus Cost of Goods Sold.

Operating Expenses

• Selling expenses:

  all expenses required to market your product or service- sales personnel, salaries and commissions, promotion, advertising, rent expense for selling space, telephone, etc.

  Administrative expenses:

  clerical staff, management, accounting, rent for office space, general telephone, utilities, office supplies, depreciation on assets, etc.

Total Operating Expenses Operating profit Financial Expense

• Interest payments.

Before-tax profit

• Gross Profit minus Expenses.

Less: Income Taxes expense

• Tax rate multiplied by Before-tax Profit.

Net Income (loss) after tax

• Before-tax Profit less Income Taxes Expense.

APPENDIX G - THE CASH FLOW STATEMENT
WHAT IS A CASH FLOW STATEMENT?

• A cash flow statement identifies monthly inflows and outflows of cash. It reveals whether a company will have enough money to meet its needs on a monthly basis.

HOW IS A CASH FLOW STATEMENT PREPARED?

• The cash flow statement is displayed in the following format. You may add different receipts or disbursements which are appropriate for your business.
• The cash receipts for each month of the first year should be provided. The heading notes the date of the end of the period covered by the cash flow statement.

ABC COMPANY
Cash Flow Forecast
For the Year Ended December 31,2006

Opening Cash Balance	JAN	FEB	MARCH
RECEIPTS
Cash Received from Sales* Cash from Receivables Collected Loan Proceeds** Personal Investment Sales of Assets (specify others...) TOTAL RECEIPTS
DISBURSEMENTS
Accounts Payable*** Supplies Rent Utilities Purchase Fixed Assets Insurance Professional Fees Advertising & Promotion Wages Salaries Long Term Debt Taxes (specify others...) TOTAL DISBURSEMENTS
SURPLUS (DEFICIT)
* Method for recording sales Some sales will be made for cash while others may be made on credit. Because sales made on credit will not result in the receipt of cash until a later date, they must not be recorded until the month in which the cash will actually be received. Therefore, the percentage of sales to be made for cash and the percentage to be made on credit must be estimated. The percentage of credit sales should be further broken down according to the business's different collection periods (30 days, 60 days, etc.). The following example will illustrate this. Sales of ABC Company are 10% cash received immediately, 65% received in 30 days, and 25% in 60 days. 1. January's sales are expected to be $100,000. $10,000 (10% of 100,000) is recorded in January, under "Cash Received from Sales". $65,000 (65% of 100,000) is recorded in February, under "Cash from Receivables Collected". $25,000 (25% of 100,000) is recorded under "Cash from Receivables Collected" in March. JAN FEB MAR APR Cash Received from Sales 10,000 0 0 0 Cash from Receivables Collected 0 65,000 25,000 0 2. Sales in February are expected to be $200,000. $20,000 (10% of 200,000) is recorded under "Cash Received from Sales" in February. $130,000 (65% of 200,000) is recorded in March under "Cash from Receivables Collected". $25,000 from January sales has already been recorded in March so the two figures are added together and the total is recorded (25,000 + 130,000 = 155,00. Therefore, $155,000 is recorded in March under "Cash from Receivables Collected". $50,000 from February sales is recorded in April under "Cash from Receivables Collects". JAN FEB MAR APR Cash from Sales 10,000 20,000 0 0 Cash from Receivables Collected 0 65,000 155,000 50,000 **Loan Proceeds When a deficit appears on the final line, the amount of the deficit will need to be borrowed. Record the amount appearing on the deficit line on the loan proceeds line, then, change the deficit to zero. This shows investors when you will have a cash shortage that will require you to borrow additional funds. ***Method for recording "Accounts payable" Accounts payable must be broken down according to your suppliers terms of payment For example, items purchased in January may have to be paid in 30 days or 60 days-meaning that the actual cash disbursement would not occur until March and April respectively. Accounts payable are recorded in the month that they will actually be paid.