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RESULT The outcomes under two scenarios: A plan for an established business A start-up business
The
NEED
A business plan for a start-up A business plan for raising equity finance A business plan for raising debt finance A business plan for board approval A business plan for a joint venture partner A business plan for the sale of the business A business plan versus a project plan .Business planning as a managerial tool
Peter Drucker RESULT An established business A start up business NEED PREPARATION Research Organisation
An Established business
The Business has a track record, both operational and financial, achieved within a historical, recorded context of market demand, industry competition, strategic positioning and resource deployment. Forecasts will be based as much on fact as on judgement. A good business plan : 1. Clear and concise 2. It is coherent and consistent 3. It tackles risk.
A Start-up business
The structure of the plan remains the same Market reception is largely unknown. It can be researched, assessed and estimated in advance.
A business plan for a joint venture partner These will be written as if for an investor, for in effect your partner is investing in your business and you are investing in theirs. A business plan for the sale of the business
The business plan should be written to address both upside for the investor and
A business plan versus a project plan A project plan makes the business case for a specific investment project. It isolates revenue streams and costs directly attributable to the project and recommends go or no-go accordingly. A business plan considers the future of the whole business. That business may be a division or subsidiary of a much larger company company, but it has its own profit and loss account and it will be forecast in full. Business planning as a managerial tool The truth is that business planning, while often a most useful discipline in large, multi-divisional, multi-country organisations, is largely waste of time for SMEs. To review last years three year plan and prepare this years plan
CREDIBLE
CLEAR
COHERENT
CRISP
CONVINCING
CONCISE
CONSISTENT
RESEARCH
Data on market demand, size, drivers and growth trends Data on competitors A customer survey find out what customers expect from your business, both now and in the future Essential Tip : You had better have credible answers rooted in research or you will have no backer.
2 THE BUSINESS
THE BUSINESS
Contain a brief on the bare essentials of the business
What it does, for whom, why, where, with whom, with what, and how it got to where it is
Established Business
Start-up Business
..where the backer is introduced to the business, where you set out clearly and concisely what makes the business tick
The Opener
BACKGROUND
THE OPENER
Just in one paragraph Consist of all the essential bits of information Established business should be essence of your business Start-up should be your business proposition
Who you are The name (or code name) of your company What products or services it focuses on Its main customer groups Where it based, where else it has operations, and where it sells to With what success and by which year
Goals are directional Objectives are specific Best objectives are SMART
Objective is a target that helps to measure whether that goal has been achieved, and is typically set out in numbers
STRATEGY
.... is where you set out your companys competitive advantage and what strategy you deploy to sustain and enhance it Establised Business Set out how the company has maintained its competitiveness over time, including response to any circumtances
Start-up Business What is your strategy for creating a sustainable competitive advantage in the marketplace you are targeting
RESOURCES
How have the resources deployed developed over time
Start-up Business
Where will it based What space will you require What physical assets How many employees What systems Who will manage
Notable landmarks
Acquisitions
BASIC FINANCIALS
Establised Business
Summarise recent financial history Showing financial impact of key developments at the company or market Contain aggregate numbers (profit and loss)
Start-up Business
Set out incurred costs (initial costs) Self-financed, include how much time you invested
Focus on the segments most relevant to the backing decision, the ones that make the greatest contribution to your operating profit forecasts over plan period
Segmentation in A Start-up
Business Proposition
MARKET DEMAND
Who the buyers are How much they are buying How much they are paying Why they are buying What has been influencing them How those influences may change How much they are likely to buy in the future
MARKET SIZE
How the market size has changed over the last years
Example:
A sold $ 30 million of equipment in 2010. B sold 1/3 higher than A and C 10% below A. D sold much smaller, only 40% A. There were two ot three much smaller players (E). Total market size: = 30 A + 40 B + 27 C + 12 D + 10 E = $ 119 million Estimated market size A = 30/119 x 100% = 25,21%
Make an estimate
MARKET GROWTH
The web of information
www.bbc.co.uk www.economist.com www.timesonline.co.uk
Is demand on your business segment going to grow? Will it be bigger, smaller, or stable in a few years time?
Identify what has Check how market been driving that demand has grown in growth in the past the past 4 Stage for Demand Forecasting
OPPORTUNITIES
Your Competitors
Variation by segment
Indirect competition
Competitive Intensity
how intense competition in your business segments, whether and why it is going to intensify
COMPETITION IN A START-UP
Direct Competition
Indirect Competition
Competitive Response
BUSINESS PLAN
BUSINESS PLAN
Competitive position
Identify, and weight customer purchasing criteria (CPCs) Identify, and weight key success factors (KSFs) Asses your competitive position
BUSINESS PLAN
BUSINESS PLAN
BUSINESS PLAN
Premises
This applies only to those business, typically services, where the buying decision may be influanced by the environtment.
Price
This is the big one. Set your prices sky high and you wont have many customers.
Finally, on customer purchasing criteria, you must find out how your customers needs are likely to change in the future. If they believe one purchasing criterion is to highly important now, will it be as important in few years time?
Key success factors (KSFs) as what producers or service providers need to do succeed in marketplace. They are what you firm needs to get right to satisfy the customer. Typical KSFs are product, quality, consistency, availabiility, range and product development. On the service side, KSFs can include distribution capability, sales and marketing effectiveness, customer service, and technical support.
BUSINESS PLAN
Convert Customer Purchasing Criteria (CPCs) into Key Success Factors (KSFs) Differentation related: This is fairly straightforward for those CPCs that related how competitors differentiate their product or service from other Ex: you go to the city tour bus in Athens, Barcelona, you expect to be able to understand clearly what the tour guide saying > Thats CPC So the customer need is clarify of communication > Thats a KSF The associated KSFs are profiency in the language of delivery and clear communication. Cost - related: Price is CPC, cost competitiveness is a KSF.
BUSINESS PLAN
Asess two more KSFs
Management: You need to identify how important managment is in general in your industry, such as wellmanaged company, with superb sales and marketing team reinforced by an efficient operation teams. Market Share: Market share is an indicator of breadth and depth of your customer relationship and your business reputation. It is more difficult to gain new customer than to do repeat business with an existing customer, the provider with the larger market share typically has a competitive advantage.
BUSINESS PLAN
Strategy
Strategy is how a company deploys it scarce to gain a suistanable advantage over the competition
BUSINESS PLAN
Generic strategies
In essence and in vast majority of cases, a company need to choose between two: Low-cost Ex: a succesfull low cost strategy, easyjet and Ryanair, offer seats at scarcely credible price, compared with those prevailing before they entered the market, and still produce profit Differentiation Ex: a classic of the differentiation strategy would be Aplle, never the cheapest, but always stylistically distinctive and feature-intensive.
Boosting strategic position The degree of market attractiveness should be measured as a blend of four factors: -Market size -Market demand growth -Competitive intensity -Market risk The larger the market and the faster it is growing, the more attractive, other things being equal, the market is.
BUSINESS PLAN
Strategy in a start up
There are number of ways you can try to sustain your competitive advantage: Patent protection of key products Sustained innovation Sustained process improvement Investment in branding Investment, for business to business venture, in customer relationship
It will be affected adversely from the outset by a low rating against all key success factors pertaining to experience
BUSINESS PLAN
and
You have to set out your strategy for strengthening your position in each key segment, as well as your overall strategic position
BUSINESS PLAN
All resources must be competently deployed for your business plan to be successful.
Resources
Its not the size of the dog in the fight, its the size of the fight in the dog -Mark Twain-
Marketing
Dont make the mistake of confusing marketing with advertising. The latter is just one component of a component of the former. Marketing is much bigger than that. It is a mindset. It is about the orientation of a firm towards serving the customer.
Managment
They are looking for managers who can deliver against the plan, who can implement the strategy. They want managers who can not only identify where the firm needs to strengthen its performance against one or another Key Success Factor (KSF), but also execute that performance improvement.
Systems and IT
Purchasing
Regulatory complience
BUSINESS PLAN FINANCIAL FORECAST Content HISTORIC FINANCIAL MARKET-DRIVEN SALES FORECAST COMPETITION-DRIVEN MARGIN FORECAST FUNDING PLAN FULL FINANCIAL FORECAST FORECAST IN A START-UP FINANCIAL RISKS AND OPPORTUNITIES
Data Information Using last 3 years actual financials & the current years budget Exceptional Operating in a highly clyclical industry : 4-5 years of historics Start-up : no historics, just forecast
HISTORIC FINANCIAL
Set out 4 major financial statement (for each year) Sales & profit margin by main business segment Profil & loss (P&L) account Cash flow statement Balance sheet
Anything that didnt perform to trend & cloudnt easily have been predicted and explain why
Describe The highlights that support these financial in 1-2 pages of narrative
The change of operating profit from previous year and the expected ones from this years budget
The change of sales from previous year and the expected ones from this years budget
THE SECRET Lay out sales forecast in a market context. It will give a market-derived prespective on its achievability Top-down approach Bottom-up approach
1. 2.
3.
Make a sales forecast to be credible and convincing Show the degree of consistency of our revenues forecast to the market demand prospect and firms competitive position Show the degree of dependence of our revenues forecast to the new initiative in sales and marketing for ourachievement
1. 2.
THE PROCESS FLOW 1. 2. 3. 4. Business segment Revenues (the business part) Market demand prospects (market demand part) Competitive position (strategiy part) Likely revenue growth Top-down revenues Bottom-up revenues Total revenues
COLUMN 5TH likely revenue growth, must be consistent with : 1. Market demand forecast (market demand part) 2. Our firms competitive position (strategy part) 3. Our firmss track record over the last few years
5. 6. 7. 8.
In 3 years In 3 years 7 8
Lets do some test Table 7.2 A test : how consistent are RandomCos sales forecast? Extra impressive tips Add a couple of extra columns before column 2, setting out revenues for each of the previous years Add a column after column 2 for the average annual growth rate per segment over the last three years Split column 3 into two, showing average annual market demand growth in the last 3 years and the next 3 years ESSENTIAL TIPS
What your backer looking for? Consistency, coherence, and credibility of the Seven Cs Coherent sales forecast will be consistent with market demand forecast, firms competitive position, and bottom-up sales initiatives Coherent margin forecast will be consistent with trends in industry competitive intensity and bottom-up profit imporovement initiatives Then it will be credible
Business segment
Forecast profit
Here in chapter 7
Competition Financial&Forecast
A B C Others Total
How credible your margin forecast in column 7 are? Use these 3 main factor : Pricing pressure from competitive forces int he marketplace (top-down) Initiatives to improve the cost effectiveness of your business (bottom-up) Any initiatives may have to invest i strengthening an existing line of business or in launching another (investment)
ESSENTIAL TIPS What your backer looking for? Consistency in the profit margin forecast
Equity 1. 2. No commitment to pay out anything to shareholders unless the company can afford to do so (ex. Dividen) Expensive. An equity backer expects a rate of return that in line with the perceived risk of the venture. (establised 30-40% per annum, start-up 60-80% per annum) Debt 1. Demands a fixed return which is not in line with the performance of the business Cheaper but less flexible
2.
Funding Plan
Try equty cushion an equity ratchet or early shareholding negotiation Additional assumption assume all the fund come from debt finance. To see how sensitive the cash flow and debt capital structure are, and how much equity cushion will be needed
1. 2. 3.
1.
3.
2. 3.
Advice make sure to specify clearly and throughly out the bases for each of your forecast assumption. It dependent on judgement Draw on evidence where possible Make additional assumption : upside case and downside case
Financial issues
Interest rates exchange rates tax rates
A forecast P&L account A forecast cash flow statement A forecast balance sheet
ESSENTIAL CHECKLIST ON FINANCIAL AND FORECAST
Irrelevant financial detail 1. Do not burden your backer with spurious accuracy in your forecast 2. Do not lay out monthly financial forecast unless your business is a start-up
Definition of Big Risk / Opportunity 1. 2. The likehood of occurrence is medium/high and impact is high The likehood of occurence is high and impact is medium/high
Essential Tip The last Seven Cs that make for a good business plan is to be convincing, it is in your analysis of risk and opportunity that you need to be just that
1. The more likely a risk / opportunity is to happen, the further to the right you should place it along horizontal axis 2. The bigger impact a risk/opportunity would have if it were happen, the higher you should place it up the vertical axis
WHAT THE SUNS AND CLOUDS TELL YOU ? Whether there are any extraordinary risks/opportunities and whether the overall balance of risk and opportuniy is favourable
Bankers and investors see different skies Bankers will focus on the clouds Investors will focus on the suns Bankers like low risk for which they are prepared to accept relatively low return Investor seek a higher return, for which the are prepared to accept higher risk
Upside case Downside case Put together two, three, or more risk and examine their cumulative impact
SENSITIVITY TESTING
Essential tips stay realistic in your sensitivity testing Essential check list Set out and weigh up the big risks and oppurtinities by considering Their likehood of occurrence Their impact on cash flow if they do occur Assure your backer of two fundamentals on the nature of their risk There is no showstopper risk in your plan On balance, opportunities to beat your plan surpass the risks faced
CONCLUSION
CONCLUSION
The overall conclusion on why your business is worthy of backing 1. Market demand prospect 2. Competition 3. Strategy 4. Resources 5. Financial and forecast 6. Risk, opportunity, and sensitivity Each bullet point should be no more than one sentences Take your headline conclusion from each of thise chapters and weave them into a coherent storyline
EXECUTIVE SUMMARY
1. The executive summary, to become chapter 1 of your business plan, is an extended version of the conclusion, no more, no less 2. It should be the same overall conclusion, perhaps even the same one sentence, but instead of one sentence per bullet, it should have a couple of paragraph for each 3. Spend time on it, nurture it, hone it and edit it remorselessly, even give it to a profesional to edit. It may be the best invesment you make
Essential Tip Evaluations work, Lessons are better learnt late than never. Try to get it right next time.
Essential Tip
Evaluations work, Lessons are better learnt late than never. Try to get it right next time.
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