0. Introduction to Business Planning
Content:
Business Plan Overview
Financial Plan

1. Business plan overview (1)
The Three « C » to the Business Plan:
CONCEPT
CUSTOMERS
CAPITAL

2. Business plan overview (2)
CONCEPT
What business are you in ?
Why is it the right business for you to be in?
What would you like your business to be famous for?
What do you sell?
Why will people buy from you?
Who are your competitors?
How can you stand out from the crowd?

3. Business plan overview (3)
CUSTOMERS
Who are (and will be) your customers?
What benefits do you (can you) provide them?
How many of them are there?
How many customers do you need?
What are their buying patterns?
Where do they currently buy?
How will they know about you?

4. Business plan overview (4)
CAPITAL (or CASH)
How much capital do you need?
How can you maintain cash flow and liquidity?
How much working capital do you need?
What kind of budgets should you follow?
How can you control your finance?
How much growth can you afford?

5. Business plan overview (5)
OUTLINE OF A BUSINESS PLAN (sample)
0) Cover sheet and confidentiality agreement
1) Executive summary- critical issues
2) Company summary
3) Services
4) Market analysis summary
5) Strategy and Implementation summary
6) Management Summary
7) Financial Plan

6. Business plan overview (6)
WORKING GROUP SESSION (1 hour max)
You are know preparing your own business plan.
Try to define what kind of information,or documents you need for each item as presented in the previous slide :OUTLINE OF A BUSINESS PLAN (sample)

7. Financial plan (1)
It is now time to put all these hypotheses on a calculator to build a financial plan :
Constructing a financial plan does not require only technical competence.
Determining relevant hypotheses demands a sound professional judgment and a good knowledge of the business.

8. Financial plan (2) 1) Financial assumptions 2) Projected P&L
3) Projected Balance Sheet
4) Projected Cash Flow
5) Key Valuation Measures
6) Sensitivity Analysis

9. Financial plan (3) 1)The Financial and Overall Assumptions
a) on Revenues : (P&L)
Tariff evolution
volume,…
b) on Costs : (P&L)
Price evolution
salary, ...
c) other (P&L, CF, BS)
interest rate
tax rate
...

10. Financial plan (4)
Building a financial plan requires the construction over the project ’s life (usually from three to ten years) of :
a P / L,
a balance sheet,
and a cash flow statement.
You must know the general structure of those documents. The figures you use to fill in those documents derive from your assumptions about your business.

11. Financial plan (5)
A P / L (Profit and Loss statement or Income statement) lists all the revenues and the expenses generated by the project.
Revenues and expenses are classified according to their function (operating v.s non-operating; cost of revenue, SGA, depreciation, other).
Five key indicators: Gross Margin, EBITDA, Operating income, EBIT, NI.

12. Financial plan (6)
This general framework can be adapted to take into account the specificities of your business.
Extraordinary expenses and revenues are excluded from this forecasted P / L due to their non predictable nature.

13. Financial plan (7)
Projected Profit & Loss

14. Financial plan (8)
The BS presents on the one hand the assets necessary to carry out the project, and on the other hand, the origin of the funding (liabilities or equity - capital stock or retained earnings; internal versus external).

15. Financial plan (9)

16. Financial plan (10)
Projected Balance Sheet

17. Financial plan (11)
The projected cash flows is document that list year per year the sources of cash inflows and cash outflows :
operating activities
financing activities
investing activities
The cumulative external funding must be null or positive each year.

18. Financial plan (12)
Projected Cash Flows

19. Financial plan (13)
The P / L, the balance sheet and the projected cash flow statement are closely connected :
The issuance of debt has an impact on the BS (liabilities), on the PL (interest) and on the projected cash flow (new resources).
Think also about : dividend policy, sales cut, an increase in inventory prices,…
Constructing financial forecasts is a play - replay game.

20. Financial plan (14)
Constructing forecasted financial statement is helpful to evaluate:
the external funding required,
to have a quick view of the future business.
However, we are not yet able to answer the question: Is it worthwhile, on an economic point of view, to invest in this project ?
This is the objective of the next section.

21. Financial plan (15) Key valuation measures
a first step requires to compute some relevant ratios on the projected financial statements:
Profitability : Gross margin, net profit, return on assets, return on equity...
Activity: Turnover growth, Collection Days,…
Debt ratios : Debt to Capital, Short term liabilities to Short term assets
Liquidity ratios: Current ratios, Cash flow to debt
other ratios
a temporal comparison, a benchmark with leading competitors or comparable firms should help to evaluate the global relevance of the business model.
A break even analysis must also be performed to test the sensitivity of the results to the macroeconomic conditions.

22. Financial plan (16) Valuation method
The evaluation of any investment opportunity involves three discrete steps :
estimate the relevant cash flows
calculate a figure of merit for the investment
compare the figure of merit to an acceptance criterion.

23. Financial plan (17)
A figure of merit is a number summarizing an investment’s economic worth.
Imagine that you know the cash flows generated by a project.
How to transform this sequence in a single figure?
Year
Cash flow ($40)

24. Financial plan (18)
7.5 17 40

25. Financial plan (19) The Net Present Value (NPV) principle:
How much would you like to earn in one year to lend me $ 100 today?
The equivalence principle.
Excel example.

26. Financial plan (20) Sensitivity Analysis and Risk Analysis
OBJECTIVE : to check the impact of variances in assumptions which were used for the projected business plan.
METHODOLOGY : to analyse the most sensible parameters in the business such as price erosion, volume growth, Market share, capital expenditure (Capex) needs, …

27. Financial plan (21) CONCLUSION
IT’s MORE THAN IMPORTANT TO TAKE TIME TO THINK THROUGH YOUR ASSUMPTIONS AND OBJECTIVES.
PLANNING IS THE KEY TO BUSINESS SUCCESS