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Corporate finance

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Working capital management

Cash conversion cycle
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Economic order quantity
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Factoring (finance)


Capital budgeting

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The investment decision
The financing decision


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A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

The business goals may be defined for for-profit or for non-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit and government agency business plans tend to focus on organizational mission which is the basis for their governmental status or their non-profit, tax-exempt status, respectively—although non-profits may also focus on optimizing revenue. In non-profit organizations, creative tensions may develop in the effort to balance mission with "margin" (or revenue). Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. A business plan having changes in perception and branding as its primary goals is called a marketing plan.

Contents

Audience

Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers.[1] External stake-holders of non-profits include donors and the clients of the non-profit's services.[2] For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the IMF, the World Bank, various economic agencies of the UN, and development banks.

Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.

Operational plans describe the goals of an internal organization, working group or department.[3] Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project's place within the organization's larger strategic goals.[4][5]

Content

Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan should contain whatever information is needed to decide whether or not to pursue a goal.

For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.

Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others.[6] It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.[7]

"... a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure." [7]

Presentation formats

The format of a business plan depends on its presentation context. It is not uncommon for businesses, especially start-ups to have three or four formats for the same business plan:

  • an "elevator pitch" - a three minute summary of the business plan's executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.
  • an oral presentation - a hopefully entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key graphs showing financial trends and key decision making benchmarks. If a new product is being proposed and time permits, a demonstration of the product may also be included.
  • a written presentation for external stakeholders - a detailed, well written, and pleasingly formatted plan targeted at external stakeholders.
  • an internal operational plan - a detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders. Such plans have a somewhat higher degree of candor and informality than the version targeted at external stakeholders.

Typical structure for a business plan for a start up venture[8]

  • cover page and table of contents
  • executive summary
  • business description
  • business environment analysis
  • industry background
  • competitive analysis
  • market analysis
  • marketing plan
  • operations plan
  • management summary
  • financial plan
  • attachments and milestones

Revisiting the business plan

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Cost overruns and revenue shortfalls

Cost and revenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in later cost overruns, revenue shortfalls, and possibly non-viability. During the dot-com bubble 1997-2001 this was a problem for many technology start-ups. However, the problem is not limited to technology or the private sector; public works projects also routinely suffer from cost overruns and/or revenue shortfalls. The main causes of cost overruns and revenue shortfalls are optimism bias and strategic misrepresentation.[9][10] Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls.

Legal and liability issues

Disclosure requirements

An externally targeted business plan should list all legal concerns and financial liabilities that might negatively affect investors. Depending on the amount of funds being raised and the audience to whom the plan is presented, failure to do this may have severe legal consequences.

Limitations on content and audience

Non disclosure agreements (NDAs) with third parties, non-compete agreements, conflicts of interest, privacy concerns, and the protection of one's trade secrets may severely limit the audience to which one might show the business plan. Alternatively, they may require each party receiving the business plan to sign a contract accepting special clauses and conditions.

This situation is complicated by the fact that many venture capitalists will refuse to sign an NDA before looking at a business plan, lest it put them in the untenable position of looking at two independently developed look-alike business plans, both claiming originality. In such situations one may need to develop two versions of the business plan: a stripped down plan that can be used to develop a relationship and a detail plan that is only shown when investors have sufficient interest and trust to sign an NDA.

Open business plans

Traditionally business plans have been highly confidential and quite limited in audience. The business plan itself is generally regarded as secret. However the emergence of free software and open source has opened the model and made the notion of an open business plan possible.

An open business plan is a business plan with unlimited audience. The business plan is typically web published and made available to all.

In the free software and open source business model, trade secrets, copyright and patents can no longer be used as effective locking mechanisms to provide sustainable advantages to a particular business and therefore a secret business plan is less relevant in those models.

While the origin of the open business plan model is in the free software and Libre services arena, the concept is likely applicable to other domains.

Uses

Venture capital

  • Business plan contests - provides a way for venture capitals to find promising projects
  • Venture capital assessment of business plans - focus on qualitative factors such as team.

Public offerings

  • In a public offering, potential investors can evaluate perspectives of issuing company

Within corporations

Fundraising

Fundraising is the primary purpose for many business plans, since they are related to the inherent probable success/failure of the company risk.

Total quality management

Total quality management (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes. TQM has been widely used in manufacturing, education, call centers, government, and service industries, as well as NASA space and science programs.

Management by objective

Management by objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.

Strategic planning

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) and PEST analysis (Political, Economic, Social, and Technological analysis) or STEER analysis involving Socio-cultural, Technological, Economic, Ecological, and Regulatory factors and EPISTELS (Environment, Political, Informative, Social, Technological, Economic, Legal and Spiritual)

Education

K-12

Business plans are used in some primary and secondary programs to teach economic principles.[11] Wikiversity has a Lunar Boom Town project where students of all ages can collaborate with designing and revising business models and practice evaluating them to learn practical business planning techniques and methodology.

Satires

The business plan is the subject of many satires. Satires are used both to express cynicism about business plans and as an educational tool to improve the quality of business plans. For example,

See also

References

  1. ^ Small Business Notes business plan outline for small business start-up
  2. ^ Center for Non-profit Excellence non-profit business plan
  3. ^ State of Louisiana, USA government agency operational plan
  4. ^ Visitask project framework
  5. ^ Tasmanian government project management knowledge base government project plan
  6. ^ Boston College, Carroll School of Management, Business Plan Project The business school advises students that "To create a robust business plan, teams must take a comprehensive view of the enterprise and incorporate management-practice knowledge from every first-semester course." It is increasingly common for business schools to use business plan projects to provide an opportunity for students to integrate knowledge learned through their courses.
  7. ^ a b Eric S. Siegel, Brian R. Ford, Jay M. Bornstein (1993), 'The Ernst & Young Business Plan Guide' (New York: John Wiley and Sons) ISBN 0471578266
  8. ^ Harvard Business School Press-Pocket Mentor, " Creating a Business Plan"
  9. ^ Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2002),"Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295.
  10. ^ Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2005), "How (In)accurate Are Demand Forecasts in Public Works Projects?" Journal of the American Planning Associationsidoo kale ayaa waxaa, vol. 71, no. 2, 131-146.
  11. ^ Pennsylvania Business Plan Competition - competition intended to teach economic principles to K-12 students
  12. ^ Tricia Bisoux, "Funny Business", BizEd, November/December, 2002

Corporate finance

File:Panorama clip3.jpg


Working capital

Cash conversion cycle
Return on capital
Economic value added
Just in time
Economic order quantity
Discounts and allowances
Factoring (finance)


Capital budgeting

Capital investment decisions
The investment decision
The financing decision


Sections

Managerial finance
Financial accounting
Management accounting
Mergers and acquisitions
Balance sheet analysis
Business plan
Corporate action


Finance series

Financial market
Financial market participants
Corporate finance
Personal finance
Public finance
Banks and Banking
Financial regulation


A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.

Business plans may also target changes in perception and branding by the customer, client, tax-payer, or larger community. When managing a business, a business plan, or B-Plan, is often confused with the term Marketing Plan. When the existing business is to assume a major change or when planning a new venture - a 3 to 5 year business plan is essential.

Contents

Audience

Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals. With for-profit entities, external stakeholders include investors and customers.[1] External stake-holders of non-profits include donors and the clients of the non-profit's services.[2] For government agencies, external stakeholders include tax-payers, higher-level government agencies, and international lending bodies such as the IMF, the World Bank, various economic agencies of the UN, and development banks.

Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors. This allows success of the plan to be measured using non-financial measures. Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.

Operational plans describe the goals of an internal organization, working group or department.[3] Project plans, sometimes known as project frameworks, describe the goals of a particular project. They may also address the project's place within the organization's larger strategic goals.[4][5]

Content

Business plans are decision-making tools. There is no fixed content for a business plan. Rather the content and format of the business plan is determined by the goals and audience. A business plan represents all aspects of business planning process; declaring vision and strategy alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal plan, when required. A business plan is a bind summary of those disciplinary plans.

For example, a business plan for a non-profit might discuss the fit between the business plan and the organization’s mission. Banks are quite concerned about defaults, so a business plan for a bank loan will build a convincing case for the organization’s ability to repay the loan. Venture capitalists are primarily concerned about initial investment, feasibility, and exit valuation. A business plan for a project requiring equity financing will need to explain why current resources, upcoming growth opportunities, and sustainable competitive advantage will lead to a high exit valuation.

Preparing a business plan draws on a wide range of knowledge from many different business disciplines: finance, human resource management, intellectual property management, supply chain management, operations management, and marketing, among others.[6] It can be helpful to view the business plan as a collection of sub-plans, one for each of the main business disciplines.[7]

"... a good business plan can help to make a good business credible, understandable, and attractive to someone who is unfamiliar with the business. Writing a good business plan can’t guarantee success, but it can go a long way toward reducing the odds of failure." [7]

Presentation formats

The format of a business plan depends on its presentation context. It is not uncommon for businesses, especially start-ups to have three or four formats for the same business plan:

  • an "elevator pitch" - a three minute summary of the business plan's executive summary. This is often used as a teaser to awaken the interest of potential funders, customers, or strategic partners.
  • an oral presentation - a hopefully entertaining slide show and oral narrative that is meant to trigger discussion and interest potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key graphs showing financial trends and key decision making benchmarks. If a new product is being proposed and time permits, a demonstration of the product may also be included.
  • a written presentation for external stakeholders - a detailed, well written, and pleasingly formatted plan targeted at external stakeholders.
  • an internal operational plan - a detailed plan describing planning details that are needed by management but may not be of interest to external stakeholders. Such plans have a somewhat higher degree of candor and informality than the version targeted at external stakeholders.

Typical structure for a business plan for a start up venture[8]

Revisiting the business plan

Cost overruns and revenue shortfalls

Cost and revenue estimates are central to any business plan for deciding the viability of the planned venture. But costs are often underestimated and revenues overestimated resulting in later cost overruns, revenue shortfalls, and possibly non-viability. During the dot-com bubble 1997-2001 this was a problem for many technology start-ups. However, the problem is not limited to technology or the private sector; public works projects also routinely suffer from cost overruns and/or revenue shortfalls. The main causes of cost overruns and revenue shortfalls are optimism bias and strategic misrepresentation.[9][10] Reference class forecasting has been developed to reduce the risks of cost overruns and revenue shortfalls and thus generate more accurate business plans.

Legal and liability issues

Disclosure requirements

An externally targeted business plan should list all legal concerns and financial liabilities that might negatively affect investors. Depending on the amount of funds being raised and the audience to whom the plan is presented, failure to do this may have severe legal consequences.

Limitations on content and audience

Non disclosure agreements (NDAs) with third parties, non-compete agreements, conflicts of interest, privacy concerns, and the protection of one's trade secrets may severely limit the audience to which one might show the business plan. Alternatively, they may require each party receiving the business plan to sign a contract accepting special clauses and conditions.

This situation is complicated by the fact that many venture capitalists will refuse to sign an NDA before looking at a business plan, lest it put them in the untenable position of looking at two independently developed look-alike business plans, both claiming originality. In such situations one may need to develop two versions of the business plan: a stripped down plan that can be used to develop a relationship and a detail plan that is only shown when investors have sufficient interest and trust to sign an NDA.

Open business plans

Traditionally business plans have been highly confidential and quite limited in audience. The business plan itself is generally regarded as secret. However the emergence of free software and open source has opened the model and made the notion of an open business plan possible.

An open business plan is a business plan with unlimited audience. The business plan is typically web published and made available to all.

In the free software and open source business model, trade secrets, copyright and patents can no longer be used as effective locking mechanisms to provide sustainable advantages to a particular business and therefore a secret business plan is less relevant in those models.

While the origin of the open business plan model is in the free software and Libre services arena, the concept is likely applicable to other domains.

Uses

Venture capital

  • Business plan contests - provides a way for venture capitals to find promising projects
  • Venture capital assessment of business plans - focus on qualitative factors such as team.

Public offerings

  • In a public offering, potential investors can evaluate perspectives of issuing company

Within corporations

Fundraising

Fundraising is the primary purpose for many business plans, since they are related to the inherent probable success/failure of the company risk.

Total quality management

Total quality management (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes. TQM has been widely used in manufacturing, education, call centers, government, and service industries, as well as NASA space and science programs.

Management by objective

Management by objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.

Strategic planning

Strategic planning is an organization's process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) and PEST analysis (Political, Economic, Social, and Technological analysis) or STEER analysis involving Socio-cultural, Technological, Economic, Ecological, and Regulatory factors and EPISTELS (Environment, Political, Informative, Social, Technological, Economic, Legal and Spiritual)

Education

K-12

Business plans are used in some primary and secondary programs to teach economic principles.[11] Wikiversity has a Lunar Boom Town project where students of all ages can collaborate with designing and revising business models and practice evaluating them to learn practical business planning techniques and methodology.

Not for profit businesses

The business goals may be defined for for-profit or for non-profit organizations. For-profit business plans typically focus on financial goals, such as profit or creation of wealth. Non-profit, as well as government agency business plans tend to focus on the "organizational mission" which is the basis for their governmental status or their non-profit, tax-exempt status, respectively—although non-profits may also focus on optimizing revenue.

The primary difference between Profit and Non-Profit organizations is that "For Profit" organizations look to maximize wealth versus Non-Profit Organizations, which look to provide a greater good to society. In non-profit organizations, creative tensions may develop in the effort to balance mission with "margin" (or revenue).

Satires

The business plan is the subject of many satires. Satires are used both to express cynicism about business plans and as an educational tool to improve the quality of business plans. For example,

See also

References

  1. ^ Small Business Notes business plan outline for small business start-up
  2. ^ Center for Non-profit Excellence non-profit business plan[dead link]
  3. ^ State of Louisiana, USA government agency operational plan
  4. ^ Visitask project framework
  5. ^ Tasmanian government project management knowledge base government project plan
  6. ^ Boston College, Carroll School of Management, Business Plan Project The business school advises students that "To create a robust business plan, teams must take a comprehensive view of the enterprise and incorporate management-practice knowledge from every first-semester course." It is increasingly common for business schools to use business plan projects to provide an opportunity for students to integrate knowledge learned through their courses.
  7. ^ a b Eric S. Siegel, Brian R. Ford, Jay M. Bornstein (1993), 'The Ernst & Young Business Plan Guide' (New York: John Wiley and Sons) ISBN 0471578266
  8. ^ Harvard Business School Press-Pocket Mentor, " Creating a Business Plan"
  9. ^ Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2002),"Underestimating Costs in Public Works Projects: Error or Lie?" Journal of the American Planning Association, vol. 68, no. 3, 279-295.
  10. ^ Bent Flyvbjerg, Mette K. Skamris Holm, and Søren L. Buhl (2005), "How (In)accurate Are Demand Forecasts in Public Works Projects?" Journal of the American Planning Associationsidoo kale ayaa waxaa, vol. 71, no. 2, 131-146.
  11. ^ Pennsylvania Business Plan Competition - competition intended to teach economic principles to K-12 students
  12. ^ Tricia Bisoux, "Funny Business", BizEd, November/December, 2002

Study guide

Up to date as of January 14, 2010

From Wikiversity

Welcome to The Business Plan, M&A 5300. This course is designed to introduce the student to essential constructs and uses of the Business Plan.

Contents

Course Outline

Course Outline Course Outline & Syllabus

Sessions

Session 1: The Purpose of a Business Plan
Session 1: Suggested Structure

1. Introduction

1.1 – Introduction 1.2 – Criteria for Feasibility

A successful business or entrepreneur must take in more money than they pay out. A cash flow analysis is a critical piece of preliminary planning. Create a spreadsheet with all anticipated expenses, all sources of capital, and estimated sales curves for the first three years of the proposed business. Analyze the cash balances and cash flow and vary some assumptions such as sales figures and available capital to determine breakeven points and net profits or losses. If you start out day one profitable congratulations, but keep planning. Business conditions and outlooks can change swiftly and an orderly shutdown can be critical to sustaining an overall profit for the venture. Typically successful businesses will take between six months to three years to show their full profit potential. Once you begin operating you can plug real data into your cash flow analysis and begin refining it to demonstrate where errors and inaccuracies exist in your planning assumptions and process.

2. Background

2.1 – Business Type/Set-up
2.2 – Loans and Overdrafts
2.3 – Sources of Finance
2.4 – Law & Legal
2.5 – The Economy

3. Market Research

The purpose of market research is to analyze customers, volumes, and competition.

3.1 – Customer Research
3.2 – Competition Research
3.3 – Current Market Situation

4. Marketing Plan

4.1 - Marketing Mix
4.2 - Advertising Costs
4.3 - Pricing Strategy

5. Property and Location

5.1 – The Area and Location
5.2 – The Property
5.3 – Layout of the Shop

6. Costs and Revenues

This section may be completely redundant to a good detailed cash flow projection as per 7.1
6.1 – Sales and Revenue Predictions
6.2 – Running Cost Predictions
6.3 – Start-Up Cost Predictions

7. Financial Planning

7.1 – Cash Flow Forecasts[1]
7.2 – Balance Sheets -- Sample balance sheet[2]
7.3 – Profit and Loss Accounts
7.4 – Ratio Analysis
7.5 – Investment Appraisal
7.6 – Break Even Analysis

8. Conclusion

8.1 – SWOT Analysis
8.2 – Conclusion from Criteria

9. Bibliography

Appendices A – Economy B – Questionnaires C – Products D – Competitors E – Financial Planning

Session 2: Executive Summary
Session 3: Company Summary
Session 4: Products
Session 5: Marketing Analysis Summary
Session 6: Strategy Implementation Summary
Session 7: Management Summary
Session 8: Financial Summary
Session 9: Exit Strategy

Required Reading

Suggested Media

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