The Business Plan
Basic Principles
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The Business Plan
The Financial Plan is a part of the Business Plan
How to build the Financial Plan
Assumptions for the Business Plan
Risks Assessment
Sensibility studies
Optimizing the Financial Structure
Optimizing the Value Creation
Vietnam Master in Management – HCMC dec 2003
Business Plan
The Business Plan
• The Business Plan describes and quantifies the long
term project of the management for the company
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Describes
• Facts in a coherent Vision
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Quantifies
• Figures in a coherent Framework
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Long term
• Extended period of time
• 3 to 10 years
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Of the management
• Motor role
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For the company
Vietnam Master in Management – HCMC dec 2003
Business Plan
Scope and context
• The Project = All dimensions
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Products
Marketing
Production
Research and development
Human resources
Finance
• The Project depends of the business context
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Integrating the overall and industry business trends
Integrating the present and future competition
Vietnam Master in Management – HCMC dec 2003
Business Plan
Use of the Business Plan
• The Business Plan is a key work in the life of a
company
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Start-up or existing businesses
• The BP gives guidelines for the management
• The BP is an assessment tool for the shareholders in
investment decisions
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It shows the profitability prospects
It shows how much value can be created
• The BP is a tool to evaluate the performances of the
management
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Are the goals achieved or not ?
Vietnam Master in Management – HCMC dec 2003
Business Plan
Financial planning is a part of
the Business Plan
• The Financial Plan is the translation in financial terms of
the content of the BP
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forecasts for P&L, BS and Cash flow Statement
• Its quality relies on the quality of the assumptions for
the Business Plan
• If the results of the Financial Plan do not meet the
expectations of the shareholders
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see if you can change the assumptions of the BP
do not invest in the company
Vietnam Master in Management – HCMC dec 2003
Business Plan
Elaborating the Plan
An Iterative Process
• Permanent discussions between the CFO (financial
director or chief finance officer) and the rest of the
management
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What happens from the financial point of view when we want to
change some assumptions ?
Why is interesting or impossible from the financial point of view
to make other assumptions ?
• Frequent discussions between the management and the
shareholders
Vietnam Master in Management – HCMC dec 2003
Business Plan
Assumptions for the Business
Plan
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What does the company ?
Economic Environment
The markets
The competitors
The cost and sale prices
The capital expenditures
Changes in the working capital
→ SWOT Analysis
Vietnam Master in Management – HCMC dec 2003
Business Plan
What does the company ?
• Business
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today and tomorrow
• Which products ?
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product mix
life-cycle of products
• Where are they sold ?
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new markets ?
• Who are the customers ?
• Competitive advantages ?
Vietnam Master in Management – HCMC dec 2003
Business Plan
Economic Environment
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General Economic prospects for the markets
Influence of these prospects on our business
Inflation prospects
Interest rates
Exchange rates
Political situation
Legal framework
Fiscal situation
Vietnam Master in Management – HCMC dec 2003
Business Plan
The Markets
• Size of the markets
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today and in the future
• Major customers
• Why and how are the markets changing ?
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taste of the customers
innovative products and new technologies
• Segmentation of the markets
• Use of market studies
Vietnam Master in Management – HCMC dec 2003
Business Plan
The Competitors
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Who are they ?
What is their market share ?
New entrants ?
Why should the customers go to competitors ?
Comparison of the products
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price
quality
• What are the projects of the competitors
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innovation
price strategy
Vietnam Master in Management – HCMC dec 2003
Business Plan
The Costs and
The Sale Prices
• What are the prices asked by the suppliers ?
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Today and tomorrow
Can we buy cheaper or better ?
• How fast will the salaries increase ?
• Can we use new technologies ?
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To improve the productivity and to reduce the costs
To improve the quality
• At what price can we sell our products ?
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Price elasticity of the volume sold
• Reactions of the competitors
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Consequences on the margins
Vietnam Master in Management – HCMC dec 2003
Business Plan
The Capital Expenditures (Capex)
• Which new fixed assets do we need ?
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amount
timing
flexibility
• Research & Development ?
• Commercial Investments
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advertising
start-up losses
• Consequences on the P&L
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depreciation duration vs. life-time
Vietnam Master in Management – HCMC dec 2003
Business Plan
Changes in the Working capital
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How can we reduce the inventories ?
Are we able to let the customers pay quicker ?
Can we pay the suppliers later ?
New techniques to reduce the Working Capital
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just-in time
zero inventories
factoring
Vietnam Master in Management – HCMC dec 2003
Business Plan
SWOT Analysis
Strengths
Internal : can be controlled
Weaknessess
Internal : can be improved
Opportunities
External : can be used to improve
the situation in the future
Threats
External : can endanger the future
Vietnam Master in Management – HCMC dec 2003
Business Plan
Risks Assessment
• Review of all assumptions to determinate the risks
• The Market ?
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How is it changing ?
What will be the impact on our sales ?
• The Technologies
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How fast are they changing ?
Are these changes Threats or Opportunities ?
Can other technologies destroy our market ?
• Etc.
Vietnam Master in Management – HCMC dec 2003
Business Plan
The Business Plan on the
computer
• Put the BP in an Excel Workbook
• Advantages
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quicker calculation
check that everything is OK
• Assets = Liabilities
• Cash flow Statement equation
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easy modification of one or some assumptions
• Disadvantages
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no direct knowledge of the figures
“black-box”
Vietnam Master in Management – HCMC dec 2003
Business Plan
Sensibility studies
• We can see immediately all the consequences of
changing one assumption
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occupancy rate or load factor
unit price
additional capital expenditures
• more rooms, more planes, more shops
• fixed and variable costs
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interest rate
exchange rate
etc.
Vietnam Master in Management – HCMC dec 2003
Business Plan
Optimizing the Financial
Structure
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How much equity and how much debt to finance the
business ?
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Minimize the capital needs
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Optimize the use of fixed assets (productivity)
Minimize the working capital
Minimize the equity
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1st goal : maximize the profitability for the shareholders
2nd goal : be able to pay the interests and to repay the debt
3rd goal : minimize the risks
Leverage effect
Lesson 3
Use the Financial Plan to seek the best structure
Vietnam Master in Management – HCMC dec 2003
Business Plan
Optimizing the Value Creation
• Value creation is the goal of all entrepreneurs
• How to take the good investment decisions ?
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To make and investment or not ?
• Buy new airplanes ?
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To choose the best investment to do ?
• Which airplane suits best your needs ?
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Lesson 4
• How to measure value creation ?
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Short term and long term
Lesson 5
Vietnam Master in Management – HCMC dec 2003
Business Plan
Conclusions of the lesson
• The Business Plan is a powerful decision and assessment
tool
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for the shareholders
for the management
• The Financial Plan is a part of the Business Plan
• The BP relies on the assumptions made on the Business
• Utility of sensibility studies
Vietnam Master in Management – HCMC dec 2003
Business Plan