Reference no: EM13914234
Consider the following situation:
You and three of your very best friends have started a consulting firm called "We Guessed and You're Wrong!" WG & YW uses computing technology and data mining software to help people predict the future of their ventures.
You have established a monthly revenue stream of $48,000 per month for the first year from eight customers (two per partner) located in the southwestern US. Your headquarters is Las Cruces, NM but you spend a lot of time traveling. You actually make about 30 trips per partner a year at an average cost of $3,000 per trip to make sales and attend conferences besides consulting. Every year you each buy a new computer and update software at $5,000 per year per partner. You hope to expand to four customers per partner by year 3. Assume revenue per customer is $6,000 per month.
Create a financial plan that governs a five-year planning horizon for WG & YW. The four of you consult, travel, market, make sales calls, attend professional conferences and use computers and Internet access to do your jobs. Do not consider inflation or interest in any part of this analysis.
At the end of year five, a famous entrepreneurship professor who is impressed by your business offers to buy your firm. Name and justify your (the four partners) price. You may make reasonable assumptions to support your analysis. For example, your intellectual property cannot be worth $50 million since your cash flow is, at best, less than about $2 million.
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