For many years, I have taught entrepreneurship to high school students in Canada’s flagship Shad Valley program. One of the major components of the program is a project in which teams of students develop a product concept in response to a specific challenge. They then craft a business plan for an entrepreneurial venture to commercialize the product. Most of the students have limited or no knowledge of finance and accounting, yet have to prepare financial projections as part of their business plan.
The Shad Valley Business Planning Model that I have developed with these students the past several years simplifies the process of translating into financial projections the many assumptions and choices that inevitably have to be made in the design of a business model. Students learn through the process of using the model that financial projections are necessary in order to evaluate and demonstrate the potential viability of their venture as well as to determine how much capital they will have to raise from investors for their venture.
Exhibit 1: Sales Forecast Worksheet Exhibit 2: Net Cash Flow/Closing Cash
The model is structured so that students work sequentially through a series of worksheets (Exhibit 1), each representing one of the components of business model design (e.g. sales forecast, promotion, production, staffing, etc.). Assumptions and choices expressed numerically are entered in the grey cells of the worksheets. As entries are made, the pro forma income statements, balance sheets, and cash flow statements are generated. And, the good news is that the balance sheet always balances! Pop-up help windows are available throughout the model to assist the user with the entries.
When the business model design process is complete, the user returns to the assumptions sheet where critical assumptions are made about important factors such as pricing, product costing, collection of receivables, interest rates on borrowings, size of market, market share, etc. A graph of cash flow and cash balance (Exhibit 2) is also available from which students can determine the minimum amount of share capital needed. Once the share capital amount is entered on the same page, the students can proceed to a dashboard where key financial ratios are displayed to help them assess whether their business model is economically viable and will generate sufficiently attractive returns to investors in order to raise the required amount of equity capital. Students can then refine their business model design by changing some of the sensitive grey cell entries. They also can perform “what if” scenario analysis.
The model can be used in tandem with one of the many business planning templates that are available on the Web to assist with writing a business plan. A number of brief audio-visual tutorials explaining how to use each worksheet in the model are available at my website. Since I often receive suggestions for enhancements to the model, it continues to be a work in progress. You will always be able to find the latest version on my website.
Although I developed the model for high school students I also have found it to be effective in university undergraduate and graduate courses that I have taught. I hope you find it useful and I would welcome any feedback and suggestions by email.