Building Business Plans

The course requires that you are comfortable with financial statements.

Undergrad ACCT-UB 65 Concentrations

• Accounting
• Entrepreneurship

Overview

This course will be offered only for undergrads; it will not be cross-listed.

Takeaways

You will learn to do the following:

• Incorporate the drivers of sales and sales growth into business plans

• Incorporate expense drivers into business plans

• Incorporate drivers of operating working capital and fixed capital into business plans

• Tie the components of a business plan together into a cohesive set of financial statements

• Identify causes of variance between forecasts and actuals

Prerequisites

Financial Accounting. The course requires that you are comfortable with understanding financial statements.

Exams and Grading

There are no in-class quizzes, midterms, or final exams.

• Please read about the penalty for missing classes below.
  
• Assignments: 50%
• Final project: 50%

Penalty for missing classes and unapproved use of devices in class

Paper and pencil

Please bring paper and pen/pencil to take notes in class.

Unapproved device usage

Most of us are now addicted to devices, which impedes learning. You are allowed to use devices only when I ask you to use your computer in class. Otherwise, ALL device use is strictly prohibited, unless you have a qualified disability which allows you to use devices in class. Students using devices when not approved will be asked to leave the classroom. Each time you are asked to leave the class, you will be marked absent. This is very painful, awkward, and disruptive, and I hope I never have to do this, but I will not hesitate to enforce this policy.

Reasons for requiring attendance

Attendance is required for several reasons. First, you incorrectly assume you can catch up on a missed class by watching a recording (if available). Videos do not engage your brain as much as a live class. Second, less than 20% of you watch the recording (if available). You are then lost in class, which provides the wrong signals to me as an instructor. Third, your absence hurts class discussions. Fourth, you miss out on feedback if you do not work through the questions I pose in class. Fifth, I lose the feedback since there are fewer questions.

Attendance policy enforced after the add/drop period

The attendance policy below will be in effect only after the add/drop period.

Attendance sheet

After entering the class, please mark yourself present on the OneDrive sheet within the first 20 minutes (link posted on Brightspace after the add/drop period). You will be marked absent if you are more than 20 minutes late, unless it is due to factors beyond your control (traffic, subway delays, or interviews running late). You will also be marked absent if you leave the class early unless you have my permission or get it afterward. You will get an F in the course if you are caught cheating on the attendance sheet.

Mark yourself excused on the attendance sheet for excused absences

Without mandatory attendance, attendance is often below 50%. Therefore, though I dislike doing this, I penalize absences. If you anticipate being absent for good reasons, please email me well in advance. Please enter Excused on the attendance sheet described below to avoid the penalty if approved. You must update it; I will not mark you excused. If you miss a class due to emergencies and cannot tell me in advance, do not panic. Take care of the emergency first, and then email me. I will permit you to change the Absent to Excused. But if you miss a class without a valid reason, there is a penalty, as stated below.

Penalty for missing classes

For sections meeting in 150-190 minute sessions, you will lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY missed session unless you were explicitly excused via email. Thus, if you miss two class sessions, you will lose two grades, and so on.

For sections meeting in 75-80 minute sessions, you will lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY TWO missed sessions unless you were explicitly excused via email. Thus, if you miss four class sessions, you will lose two grades, and so on.

Seating and name tags

Please sit in the same seat in every class and display your name tags. For Zoom classes, you must keep your video on AT ALL TIMES. You must also have a good working headset or mic, as it is extremely rude to be inaudible and force me to ask you to repeat yourself.

Almaris Assignments

• When and how to access the tests: After the first week of class, you can view the online assignments at https://www.almaris.com/assess/ using your official NYU email (no aliases) and the most recent password emailed to you by Almaris. The Almaris password is different from NYU or Stern passwords.
• Support: Almaris staff will reply to your emails only if they pertain to technical issues with the Almaris system, not deadline extensions. Please contact Stern IT for technical issues with your network.
• Password retrieval: To retrieve the password, use your full email with the domain name as it appears in Brightspace. The domain name could be @nyu.edu for some of you, while it could be @stern.nyu.edu for others. I do not control this mess.
• Length: Some assignments are short; others are long. Please manage your time.
• Deadlines: Almaris tests list the deadlines. I may update the deadlines as the course progresses.
• NO EXTENSIONS will be granted for any reason except medical or family emergencies. If you have religious or personal conflicts, please submit the assignments early. The related materials are covered well in advance of the assignments. Please do not email me to request extensions unless you have a medical or family emergency.
• Late: Assignments are marked LATE if you do not meet or exceed the passing score described below before the deadline. There is no additional penalty for lateness other than a low score.
• Passing score: Assignments have a passing score of 100% or less.
  • Passing score 100%: I set the passing score to 100% on an assignment if I want you to ace it. In reality, there is no passing score. Whatever score you get on your last attempt is your final score. You are graded on accuracy but not the number of attempts. There is a difference between passing a test and getting full credit. If you get 80/100 on your final attempt, you pass, but you do not score 100.
  • Passing score less than 100%: I set the passing score to less than 100% on an assignment if I do not require you to ace it. Any score above that score is rounded up to 100%. For example, if the passing score is 90%, and you get 93%, your score is rounded up to 100%. I do the rounding up in a separate spreadsheet. You will see only the raw score online.
• Free to you and NYU: Almaris is not affiliated with Stern in any way. It is offering these tests to Stern at no charge.
• Data privacy and no marketing: Your data is not shared with any third party. It is not used for any promotion or marketing.
• No data retention: Your data is not retained. It is deleted in approximately two weeks after the end of the course.

NYU Stern Policies

Please read the NYU Stern Policies for this course.

Help and Office

• Me: dgode@stern.nyu.edu, 212-998-0021, Office: KMC 10-86.
• Teaching assistant: Please check NYU Brightspace.

Administrative and System Requirements

Videotaping

Classes are normally not videotaped, except for EMBA classes. If the class is videotaped, the link is posted to Brightspace by NYU Stern IT within a day.

Registered Students Only

Only registered students can attend classes. I cannot override this NYU Stern rule. We do not allow unregistered students to "audit" a class.

Albert and NYU Brightspace

You must be in Albert and NYU Brightspace before starting the first class. If you register late, there might be a delay of a day before you appear in these systems. If you cannot access these systems after a day, please contact the relevant REGISTRAR. I cannot add you to these systems regardless of what someone in IT tells you.

Computer Requirements

You need to bring a computer to every class. If you have any technical questions, please contact Stern IT at (212-998-0180) or servicedesk@stern.nyu.edu, or NYU IT at +1 (212) 998-3333 or askit@nyu.edu. I cannot help you with your computer issues.

Excel 365 Desktop Version Required

The desktop version of Excel 365 is required. Excel Online and Google Sheets are NOT OK. Read this page regarding Excel 365 Desktop access for NYU students.

Materials

• I use my materials. Therefore, no textbook is required, and you need not purchase anything.

Topics

Session 1: An overview of the business planning process

Inputs

• Internal and external data sources
• Business intuition and strategic analysis

Outputs

• Operating metrics such as quantity
• Financial statements

Session 2: Revenue metrics

We will discuss revenue metrics across a wide range of industries. Some of the examples are provided below.

Software service and product-based

• Number of paying customers or subscribers
• Average revenue per user
• Customer retention rate

Advertising-based

• Number of active users
• Pageviews, time spent per visit, price per click, number of clicks
• Number of advertisers
• Average revenue per user

Consulting-based

• Revenue per employee: Billable hours per employee, Price per billable hour
• Commission rate

Product or location-based

• Sales per square foot
• “Same-store” growth: This definition can be modified to mean “same product growth.”
• Ramp up rate

Session 3: Revenue growth

Growth metrics

• Compounded annual growth rate, Year-over-year growth, Quarter-over-quarter growth
• Organic growth versus acquisitive growth
• Constant currency growth
• Seasonality

Product life cycles

• Diffusion and the S-curve
• Cyclicality

Session 4: Integrating forecasts of revenue drivers

Market share and pricing

• Superior products
• Control of scarce resources
• Branding
• Network effects
• Switching costs

Incorporating revenue drivers into the business plan

• Selecting key revenue drivers based on business intuition
• Tying projections of these revenue drivers to revenue: We will discuss the integration of forecasts into financial statements; we will not discuss statistical forecasting techniques.

Session 5: Relationship between revenues and operating expenses

We strongly recommend that you take Managerial Accounting for an in-depth treatment of these

Cost behavior

• When it makes sense to link expenses to revenues: Variable costs
• When the relationship between expenses and revenues is nonlinear: fixed costs and semi-fixed costs

Long-run versus short-run

• How do these relationships between revenues and costs change over the short-run versus the long-run

Session 6: Operating expense metrics and drivers

Operating expense ratios and margins

• COGS/Sales and gross margin
• R&D/Sales; Marketing/Sales: When investments are booked as expenses
• SG&A/Sales
• EBITDA and EBIT margins

Expense drivers

• Experience effects
• Economies of scale
• Economies of scope

Forecasting expenses

• Selecting key expense drivers
• Collecting forecasting data from internal and external sources
• Tying expense forecasts to net operating profit after tax

Session 7: Prepayments and payables

How prepayments require financing: Operating assets

• Inventories: Days of inventories
• Prepaid advertising, insurance, and rent: Days of prepayments
• Long-term prepayments
• Property, plant, and equipment: Capacity planning, PP&E turnover

How payables mitigate the need for financing: Operating liabilities

• Suppliers: Days of payables
• Employee salary and bonuses: Days of accrued expenses
• Uncertain liabilities such as warranties

Session 9: Receivables and deferred revenues

How receivables increase the need for financing: Operating assets

• Receivables: Days of receivables
• Bad debts and allowances: Dealing with defaults

How deferred revenues provide financing: Operating liabilities

• Deferred revenues: Days of advance

Session 10: Meeting financing needs partially with debt

Ensuring liquidity: Financial assets

• Liquid assets
• Liquidity needs in the upside and the downside

Understanding corporate loans using personal finance examples

• Secured versus unsecured
• Private versus public
• Fixed versus floating
• Long term versus short term

Assessing borrowing capacity: Financial liabilities

• Debt/EBIT and Debt/EBITDA ratios
• EBIT/Interest expense ratio
• Debt/value ratio and collateral quality

Session 11: Meeting residual needs with equity

Raising equity

• Common shares
• Preferred shares
• Convertible preferred shares

Sweat equity and incentive structures

• Share-based compensation

Backup sources

• Undrawn revolvers

Session 12: Sensitivity analysis

Building scenarios

• Data table and scenario analysis tools in Excel
• Other tools for scenario building
• Identifying which drivers are dominant