1. Vietnam Master in Management – HCMC dec 2003 Business Plan 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 The Business Plan Basic Principles

2. 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  Describes Facts in a coherent Vision  Quantifies Figures in a coherent Framework  Long term Extended period of time 3 to 10 years  Of the management Motor role  For the company

3. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. 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  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. 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  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. 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  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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. 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

16. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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. 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 ?  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. Vietnam Master in Management – HCMC dec 2003 Business Plan 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