Business plan evaluation
- A Banker’s Perspective
May 2013
Philosophy of a business plan

VentureBean Consulting Private Limited

2
Purpose of business
Purpose of an commercial enterprise is to make money
…. by taking acceptable risks

VentureBean Consul...
Success in business
•  Most entrepreneurs start an enterprise around a domain knowledge
that they are comfortable with
•  ...
Key elements for success in business
Manufacturing
Procurement

Quality

Domain
knowledge

Human resource
management

Afte...
Purpose of business plan
•  Business plan must articulate the
–  Domain knowledge proposed to be leveraged
–  Other necess...
Business plan evaluation

VentureBean Consulting Private Limited

7
Banking - Defined
Bank - Any Body Corporate authorised under law engaged in the
business of collecting deposit from the ge...
Banking - Regulation
• 

Governed by Banking Regulation Act

• 

Operations monitored by Reserve Bank of India

• 

Comes ...
Banking – Risk Profile
•  Low risk profile
–  Determined by risk profile of investors (depositors)
–  Social implication –...
Banker’s Guiding Philosophy ....
“I have been up and down this business, and
there is still no substitute for…
‘What do yo...
What does a Banker look for?
•  Intention
•  Ability
….. to repay
But how does a Banker assess these?

VentureBean Consult...
Intention to repay
• 
• 
• 
• 
• 

Past track record
Bankers’ references
Market references
Borrower’s stake in the venture...
Ability to repay
•  Cash flows .. Cash flows .. Cash flows
•  Evaluation of
Certainity &
Sustainability
of Cash flows
….. ...
Business plan evaluation
–  Industry attractiveness
•  Industry structure
•  Drivers of business & profitability
•  Compet...
Business plan evaluation
Collaterals are integral part of a Banker’s risk evaluation
– assures him downside protection

Ve...
Business plan evaluation
•  To determine
–  The ability of the company to leverage its resources to take
advantage of the ...
Business plan evaluation
•  All the understanding and “feel” is then converted into a
profitability and cash flow projecti...
Some Suggestions
•  Importance of a sound business plan
–  Identification of drivers of business
–  Company’s ability to l...
Please follow us on
http://www.linkedin.com/company/venturebean-consulting-private-limited

VentureBean Consulting Private...
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Business plan evaluation-A Bankers' Perspective

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Business plan evaluation-A Bankers' Perspective

  1. 1. Business plan evaluation - A Banker’s Perspective May 2013
  2. 2. Philosophy of a business plan VentureBean Consulting Private Limited 2
  3. 3. Purpose of business Purpose of an commercial enterprise is to make money …. by taking acceptable risks VentureBean Consulting Private Limited 3
  4. 4. Success in business •  Most entrepreneurs start an enterprise around a domain knowledge that they are comfortable with •  Domain knowledge may be a necessary but not a sufficient requirement for success of the enterprise VentureBean Consulting Private Limited 4
  5. 5. Key elements for success in business Manufacturing Procurement Quality Domain knowledge Human resource management After sales Finance Sales •  •  Domain knowledge needs to be layered with expertise in other functions for an enterprise to succeed. The environment also impacts the success/failure of the enterprise VentureBean Consulting Private Limited 5
  6. 6. Purpose of business plan •  Business plan must articulate the –  Domain knowledge proposed to be leveraged –  Other necessary expertise that the organisation has created for the success of the enterprise –  How the domain knowledge and other expertise create a value proposition for the customers –  How much money the organisation would make from the current investment … profit need not translate into “making money” … a business that makes money generates positive cash flows VentureBean Consulting Private Limited 6
  7. 7. Business plan evaluation VentureBean Consulting Private Limited 7
  8. 8. Banking - Defined Bank - Any Body Corporate authorised under law engaged in the business of collecting deposit from the general public for the purpose of lending Deposits are repayable either on demand or after a fixed period Loans need to be repaid on time to meet deposit repayments VentureBean Consulting Private Limited 8
  9. 9. Banking - Regulation •  Governed by Banking Regulation Act •  Operations monitored by Reserve Bank of India •  Comes under the Ambit of Foreign Exchange Maintenance Act (FEMA) VentureBean Consulting Private Limited 9
  10. 10. Banking – Risk Profile •  Low risk profile –  Determined by risk profile of investors (depositors) –  Social implication – bank failures –  Regulation – capital adequacy requirements Unlike an equity company, banks have short maturity funds & conservative investors (depositors) VentureBean Consulting Private Limited 10
  11. 11. Banker’s Guiding Philosophy .... “I have been up and down this business, and there is still no substitute for… ‘What do you want the loan for? How are you going to pay it back? And what are you going to do to pay me back if your theory doesn't work?’ “ George Scott, First National City Bank VentureBean Consulting Private Limited 11
  12. 12. What does a Banker look for? •  Intention •  Ability ….. to repay But how does a Banker assess these? VentureBean Consulting Private Limited 12
  13. 13. Intention to repay •  •  •  •  •  Past track record Bankers’ references Market references Borrower’s stake in the venture Personal meetings …. Very difficult to access with first time borrowers Gut feel assumes importance VentureBean Consulting Private Limited 13
  14. 14. Ability to repay •  Cash flows .. Cash flows .. Cash flows •  Evaluation of Certainity & Sustainability of Cash flows ….. Debts can get repaid only out of free cash flows of the company ….. Business plan is the document that aims to demonstrate the certainity & sustainability of company’s cash flows VentureBean Consulting Private Limited 14
  15. 15. Business plan evaluation –  Industry attractiveness •  Industry structure •  Drivers of business & profitability •  Competitor analysis •  Margins –  Company attractiveness •  Promoters •  Strength of Management Team •  Competitive advantages/USP •  Marketing and sales plan •  Past performance –  Project attractiveness •  Benefits •  Identification of risks •  Risk mitigation steps VentureBean Consulting Private Limited 15
  16. 16. Business plan evaluation Collaterals are integral part of a Banker’s risk evaluation – assures him downside protection VentureBean Consulting Private Limited 16
  17. 17. Business plan evaluation •  To determine –  The ability of the company to leverage its resources to take advantage of the target market –  Ability is enhanced by better •  Talent pool in the company •  Understanding of industry structure •  Understanding of drivers of business and profitability –  Very subjective •  Interaction with promoters and management key to get the “comfort” •  Gut feel play significant part in final decision VentureBean Consulting Private Limited 17
  18. 18. Business plan evaluation •  All the understanding and “feel” is then converted into a profitability and cash flow projections which –  Are realistic –  Have high probability of occurrence •  The understanding of the company’s strengths give comfort on sustainability of the cash flows VentureBean Consulting Private Limited 18
  19. 19. Some Suggestions •  Importance of a sound business plan –  Identification of drivers of business –  Company’s ability to leverage its resources to take advantage of market opportunities •  Technology •  Talent •  Detailing of business plan helps –  Identify pitfalls in business strategy –  Avoid surprises once investment is made •  Presentation –  Enables articulation of critical aspects of the business plan –  Builds confidence with lenders VentureBean Consulting Private Limited 19
  20. 20. Please follow us on http://www.linkedin.com/company/venturebean-consulting-private-limited VentureBean Consulting Private Limited 20
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