Vietnam Master in Management – HCMC dec 2003Business 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 PlanBasic Principles

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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 ?

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business Plan

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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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 ?

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business Plan

SWOT Analysis

StrengthsInternal : can be controlled

WeaknessessInternal : can be improved

OpportunitiesExternal : can be used to improve the situation in the future

ThreatsExternal : can endanger the future

Vietnam Master in Management – HCMC dec 2003Business 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.

Vietnam Master in Management – HCMC dec 2003Business 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”

Vietnam Master in Management – HCMC dec 2003Business 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.

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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

Vietnam Master in Management – HCMC dec 2003Business 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