The Business Planning Process Business Planning and Execution

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The Business Planning Process Business Planning and Execution

  1. 1. The Business Planning Process
  2. 2. Business Planning and Execution <ul><li>Market Analysis- TAM, SAM and competitive environment </li></ul><ul><li>How to keep score: A=L+OE </li></ul><ul><li>Product Costing </li></ul><ul><li>Building the Plan </li></ul><ul><li>Measuring the Results </li></ul>
  3. 3. The Business Process <ul><li>Start Up Capital, Friends and family, Angel investors </li></ul><ul><li>Venture Capital, round 1, 2 and 3 </li></ul><ul><li>Business structures – Prop.,LLP, Corp. </li></ul><ul><li>A=L+OE </li></ul><ul><li>The Business Plan – year to year </li></ul><ul><li>Standard Cost Accounting </li></ul>
  4. 4. The Marketing Plan <ul><li>Target market </li></ul><ul><li>Market Size and trends </li></ul><ul><li>Competition </li></ul><ul><li>Estimated Market Share </li></ul><ul><li>Marketing Strategy: Sales, Distribution, Pricing, Advertising and promotions. </li></ul>
  5. 5. Marketing Challenge <ul><li>You are in the cell phone business. The TAM(Total Available Market) is $2 Billion in 2002 and your SAM(Share of the Available market) is 5 % each year. Your CAGR (Compound Annual Growth rate ) is projected to be 10% per year. The overall market is growing at 15% each year. </li></ul><ul><li>What is your current dollar volume goal for 2003? </li></ul>
  6. 6. Assets=Liabilities+Owners Equity <ul><li>Double entry Accounting- debits and credits. </li></ul><ul><li>Assets: cash, inventory, accts Rec., Prepaids , Eqpt., Supplies, property </li></ul><ul><li>Liabilities: AP’s, Notes Payable </li></ul><ul><li>Owners’ Equity: Investment, retained earnings, Revenue and Expense accts. </li></ul><ul><li>Balance Sheet, Income Statement, Cash Flow Statement </li></ul>
  7. 7. Accounting Process <ul><li>Accounting Ledger and chart of accounts </li></ul><ul><li>Trial Balance for EOP Income </li></ul><ul><li>Closing Entries to period ( PPV, cutoff, inventory valuation changes). </li></ul><ul><li>Performance vs. Budget or Plan. </li></ul>
  8. 8. Assets = Liabilities + Owners Equity Cash Accts Rec. Equipment Property Accts Pyble Notes Pyble Bank Debt Other Debt Investment Retained Earnings Revenue &Expense Debit (+) Credit (-) Debit (-) Credit (+) Debit (-) Credit (+) Double Entry Accounting – The Balance Sheet
  9. 9. A=L+OE Challenge <ul><li>$1000 is invested in your new company. Describe the balance sheet. </li></ul><ul><li>______= ______+________ </li></ul><ul><li>You borrow $500 to expand further, describe the balance sheet. </li></ul><ul><li>______=______+_________ </li></ul><ul><li>The company made a profit in year 1 of $100. Describe the balance sheet after year end. </li></ul><ul><li>______=______+_________ </li></ul>
  10. 10. Terms to Know and Understand <ul><li>EBITDA- Earnings before Interest, Taxes, Depreciation or Amortization </li></ul><ul><li>Income Statement- P&L- covers a period in time, Month, Quarter, or year </li></ul><ul><li>Balance Sheet is a point in time picture of A=L+OE </li></ul><ul><li>Cash Flow shows EBITDA and changes in working capital ( AR, AP, Inventory) for a period. </li></ul>
  11. 11. Business Structures <ul><li>Proprietorship </li></ul><ul><li>Limited Liability Partnership </li></ul><ul><li>Subchapter S Corporation </li></ul><ul><li>Corporation </li></ul><ul><li>Public Company ( Corporation) SEC rules </li></ul>
  12. 12. Outline of a Business Plan <ul><li>Executive Summary- Brief Highlights </li></ul><ul><li>Company Description </li></ul><ul><li>Product or Service </li></ul><ul><li>Market Analysis </li></ul><ul><li>Strategy and Implementation </li></ul><ul><li>Management Team </li></ul><ul><li>Financial Plan </li></ul>
  13. 13. The Planning Process- Sales and Marketing <ul><li>Sales and marketing projects volume of sales by product by month or quarter. </li></ul><ul><li>Also project price increases and declines. </li></ul><ul><li>The timing of new product introductions is included. </li></ul><ul><li>Changes to selling cost: additions /deletions to sales force, changes in commission structure. </li></ul>
  14. 14. Product Costing- Variable Cost <ul><li>Material cost= standard quantity at standard cost. (adjust for usage variance at end of period). </li></ul><ul><li>Labor cost= standard hours at standard rate. (adjust for rate variance and efficiency variance at end of period). </li></ul><ul><li>Variable Overhead= absorb at standard rate per hour. (adjust for actual at end of period) includes indirect labor, utilities, supplies, etc. </li></ul>
  15. 15. Fixed Cost- Overhead <ul><li>Building Lease or rent </li></ul><ul><li>Salaries of all support staff ( typically excludes the “selling, general and administrative” cost.) </li></ul><ul><li>Utilities, Inform. Systems cost including software leases. </li></ul>
  16. 16. BreakEven Analysis <ul><li>Selling Cost per Unit less VC per unit= Contribution per unit </li></ul><ul><li>Fixed Cost per month= rent, utilities, Salaries, taxes, insurance. </li></ul><ul><li>FC divided by Contribution per unit =Units needed to Break even. </li></ul><ul><li>Selling, General and Admin Cost is an additional Fixed Cost Category(S,G,&A). </li></ul>
  17. 17. Breakeven Analysis Challenge <ul><li>Product A sells for $5 per unit. </li></ul><ul><li>Variable cost is $3 per unit. </li></ul><ul><li>Fixed Cost including S, G &A is $80,000 per year. </li></ul><ul><li>What is the breakeven point? </li></ul><ul><li>You just had a 10% price decline. Now what is breakeven point? </li></ul><ul><li>BE Point= FC/Contribution per Unit </li></ul>
  18. 18. Planning Process - Operations <ul><li>Converts sold units to a manufacturing plan by product line or process. </li></ul><ul><li>Loads volume into a capacity plan by standard units or hours. </li></ul><ul><li>Cost reduction process- Material purchasing( Part of supply chain mgmt.),material usage, labor cost, overhead. </li></ul><ul><li>Capital expenditure plan to meet volume and cost goals. </li></ul>
  19. 19. The Plan- Income Statement <ul><li>Sales by product by month= revenue. </li></ul><ul><li>Variable cost of goods sold by month. </li></ul><ul><li>Fixed cost of goods by month. </li></ul><ul><li>Adjust for cost variance in M, L, OH.(in Actual not Plan) </li></ul><ul><li>Gross Profit. </li></ul><ul><li>S,G, and A. </li></ul><ul><li>Operating Profit( sometimes EBITDA). </li></ul><ul><li>Net Profit (after ITDA) by month. </li></ul>
  20. 20. The Plan – Cash Flow <ul><li>Cash from Operations </li></ul><ul><li>Changes in Working Capital- Inventory, Accounts Payable and Receivable and Capital Expenditures(Capex). </li></ul><ul><li>Interest Cost </li></ul><ul><li>Taxes due </li></ul>
  21. 21. The Balance Sheet <ul><li>Point in time-End of Period </li></ul><ul><li>Changes in Assets, Liabilities, and Owners equity as a result of funding, operations, etc. </li></ul><ul><li>Defines borrowing capability and health of company in details. </li></ul>
  22. 22. Business Plan <ul><li>Marketing Plan-“nothing happens until something is sold” </li></ul><ul><li>Operating plan or budgets </li></ul><ul><li>Cash Flow projection </li></ul><ul><li>Knowing your cost </li></ul><ul><li>Capital allocation- A limited resource </li></ul>
  23. 23. Business Systems - Other <ul><li>Quality Systems. ( TQM, ISO, SPC) </li></ul><ul><li>Information Systems ( client server, real time, web based). </li></ul><ul><li>Human resources management. </li></ul><ul><li>Global marketing – know the global competition first. </li></ul><ul><li>Supply Chain management.( Partnering, Blanket PO’s, joint research, eqpt. Leases) </li></ul>
  24. 24. Top Mistakes in Business Plans <ul><li>Too Long </li></ul><ul><li>Unable to explain the market position well. </li></ul><ul><li>Lack of Focus- “Swiss Army Knife” Plans </li></ul><ul><li>Lack real world Market analysis </li></ul><ul><li>No Business “ gauges” to monitor with. </li></ul><ul><li>Unclear Business Model- How will you make money? </li></ul><ul><li>Weak Team Formation </li></ul>

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