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The Business Plan Basic Principles

The Business Plan Basic Principles. 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.

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The Business Plan Basic Principles

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  1. The Business PlanBasic Principles • 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

  2. The Business Plan • The Business Plan describes and quantifies the long term project of the management for the company • Describes • Facts in a coherentVision • Quantifies • Figures in a coherent Framework • Long term • Extended period of time • 3 to 10 years • Of the management • Motor role • Forthe company

  3. Scope and context • The Project = All dimensions • Products • Marketing • Production • Research and development • Human resources • Finance • The Project depends of the business context • Integrating the overall and industry business trends • Integrating the present and future competition

  4. Use of the Business Plan • The Business Plan is a key work in the life of a company • Start-up or existing businesses • The BP gives guidelines for the management • The BP is an assessment tool for the shareholders in investment decisions • 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 • Are the goals achieved or not ?

  5. Financial planning is a part of the Business Plan • The Financial Plan is the translation in financial terms of the content of the BP • 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 • see if you can change the assumptions of the BP • do not invest in the company

  6. Elaborating the PlanAn Iterative Process • Permanent discussions between the CFO (financial director or chief finance officer) and the rest of the management • 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

  7. Assumptions for the Business Plan • 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

  8. What does the company ? • Business • today and tomorrow • Which products ? • product mix • life-cycle of products • Where are they sold ? • new markets ? • Who are the customers ? • Competitive advantages ?

  9. Economic Environment • 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

  10. The Markets • Size of the markets • today and in the future • Major customers • Why and how are the markets changing ? • taste of the customers • innovative products and new technologies • Segmentation of the markets • Use of market studies

  11. The Competitors • Who are they ? • What is their market share ? • New entrants ? • Why should the customers go to competitors ? • Comparison of the products • price • quality • What are the projects of the competitors • innovation • price strategy

  12. The Costs and The Sale Prices • What are the prices asked by the suppliers ? • Today and tomorrow • Can we buy cheaper or better ? • How fast will the salaries increase ? • Can we use new technologies ? • To improve the productivity and to reduce the costs • To improve the quality • At what price can we sell our products ? • Price elasticity of the volume sold • Reactions of the competitors • Consequences on the margins

  13. The Capital Expenditures (Capex) • Which new fixed assets do we need ? • amount • timing • flexibility • Research & Development ? • Commercial Investments • advertising • start-up losses • Consequences on the P&L • depreciation duration vs. life-time

  14. Changes in the Working capital • 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 • just-in time • zero inventories • factoring

  15. SWOT Analysis

  16. Risks Assessment • Review of all assumptions to determinate the risks • The Market ? • How is it changing ? • What will be the impact on our sales ? • The Technologies • How fast are they changing ? • Are these changes Threats or Opportunities ? • Can other technologies destroy our market ? • Etc.

  17. The Business Plan on the computer • Put the BP in an Excel Workbook • Advantages • quicker calculation • check that everything is OK • Assets = Liabilities • Cash flow Statement equation • easy modification of one or some assumptions • Disadvantages • no direct knowledge of the figures • “black-box”

  18. Sensibility studies • We can see immediately all the consequences of changing one assumption • occupancy rate or load factor • unit price • additional capital expenditures • more rooms, more planes, more shops • fixed and variable costs • interest rate • exchange rate • etc.

  19. Optimizing the Financial Structure • How much equity and how much debt to finance the business ? • 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 • Minimize the capital needs • Optimize the use of fixed assets (productivity) • Minimize the working capital • Minimize the equity • Leverage effect • Lesson 3 • Use the Financial Plan to seek the best structure

  20. Optimizing the Value Creation • Value creation is the goal of all entrepreneurs • How to take the good investment decisions ? • To make and investment or not ? • Buy new airplanes ? • To choose the best investment to do ? • Which airplane suits best your needs ? • Lesson 4 • How to measure value creation ? • Short term and long term • Lesson 5

  21. Conclusions of the lesson • The Business Plan is a powerful decision and assessment tool • 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

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