Children's Website Business Plan

This is an Internet venture that, of course, depends on the developing financial prospects of the growing Internet world. To make it work financially, we need to increase valuation on schedule to bring in substantial additional capital. The following table defines the investment offering for investors. Specifically:

1. The exit strategy is acquisition in 2003, valuing the company at more than $20 million.
2. Equity plan and valuations at time of exit are detailed in the section that follows, “Exit Strategy.” The plan assumes an ending valuation of $20 million based on market trends, with IRR of more than 100% for all investors.

Important Assumptions

The general assumptions are listed in the following table. Obviously these are detailed financial assumptions, trivial compared to the underlying critical assumptions, which include:

1. Continued growth of Internet usage. We accept published forecasts that say 4% of the world’s population presently uses the Internet, and that will grow to 11% by 2005. That’s strong growth.
2. No e-commerce disaster scenarios. We’ll have no huge problems with credit card authorization, shipping, etc.
3. Continued support of financial markets, which means continued rise in valuations of Internet companies, even Internet companies losing money. The increase in valuation is critical to our financial strategy.

Key Financial Indicators

The following benchmarks chart indicates a very ambitious increase in sales and matching increases in operating expenses. We expect to improve ratios of inventory, payable days, and collection days.

One of the more important assumptions is that we can increase sales at a very high rate without corresponding increase in operating expenses.  This is because of the leverage available in use of Internet technology as our main marketing and sales channel.

Break-even Analysis

The break-even analysis is a good financial indicator.  The following table and chart show break-even based on sales level per month and a high monthly fixed cost.  Given those assumptions, we reach steady-state break-even by the end of this first year.

Projected Profit and Loss

Despite the present trend towards investors encouraging losses for website businesses, we believe that we can turn a profit by the third year.  We also intend to reduce losses significantly in the second year, as shown by the following table. Nevertheless, the investment in on-line and off-line advertising is substantial, and the traffic justifies the loss.

Projected Cash Flow

As is to be expected in this kind of venture, the cash flow is supported mainly by new capital from new investment in the company. We’ve scheduled additional rounds of financing to make that realistic.

Projected Balance Sheet

The balance sheet shows our projected financial position during the next three years. Obviously the key variable during this period, overall valuation, isn’t shown.

Business Ratios

Our ratios, as projected here, are typical of the kind of growth company we project.  The comparisons are based on NAICS code 454111, Electronic Shopping.  We do expect our gross margin and sales per employee to be much higher than standard retail.

Exit Strategy

Details of the exit strategy are included in two following tables:

1. The Investment Analysis table details how we expect valuation to proceed over time, linked in to the planned rounds of financing.
2. The table included here shows how we plan to distribute equity and shares over time, and planned ending valuation of $23 million and investment yield for three rounds of investment.

Equity Shares and Investment Return