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Business Plan Writing

    Hj Arriffin Mansor
    012-2786282




04/14/12                 arriffin   1
7 steps in business planning




04/14/12      arriffin         2
7 steps in business planning




04/14/12      arriffin         3
The Purpose of business plans

 Pre-venture Counseling              Loan Packaging

 Business Planning                   Market Research

                                     New Product
 Financial Analysis
                                     Commercialization
 Franchise Evaluation                Strategic Planning

 International Trade                 Human Resource Mgmt


04/14/12                  arriffin                         4
Ingredients for business Success

   competent PERSON
   POTENTIAL BUSINESS OPPORTUNITY
   BUSINESS PLAN
   SUFFICIENT CAPITAL
   All the above



04/14/12        arriffin            5
THE BUSINESS PLAN


THE BUSINESS PLAN IS A WRITTEN
 DOCUMENT WHICH DESCRIBES YOUR
 BUSINESS IN TERMS OF . . .




04/14/12          arriffin       6

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Business plan writing

  • 1. Business Plan Writing Hj Arriffin Mansor 012-2786282 04/14/12 arriffin 1
  • 2. 7 steps in business planning 04/14/12 arriffin 2
  • 3. 7 steps in business planning 04/14/12 arriffin 3
  • 4. The Purpose of business plans Pre-venture Counseling Loan Packaging Business Planning Market Research New Product Financial Analysis Commercialization Franchise Evaluation Strategic Planning International Trade Human Resource Mgmt 04/14/12 arriffin 4
  • 5. Ingredients for business Success competent PERSON POTENTIAL BUSINESS OPPORTUNITY BUSINESS PLAN SUFFICIENT CAPITAL All the above 04/14/12 arriffin 5
  • 6. THE BUSINESS PLAN THE BUSINESS PLAN IS A WRITTEN DOCUMENT WHICH DESCRIBES YOUR BUSINESS IN TERMS OF . . . 04/14/12 arriffin 6
  • 7. THE BUSINESS PLAN WHO YOU ARE WHAT YOU DO WHERE YOU ARE HEADED HOW AND WHEN YOU EXPECT TO GET THERE WHY YOU WILL BE SUCCESSFUL 04/14/12 arriffin 7
  • 8. WHY YOU NEED A BUSINESS PLAN 04/14/12 arriffin 8
  • 9. A Business Plan is: Your First Marketing and Sales Tool 04/14/12 arriffin 9
  • 10. Typical Business Plan Outline (First Time Entrepreneurs) I. Overview (Summary) II. The Opportunity III. The Solution IV. The Business Model V. Operations VI. Financials VII. Required Capital, Equity Structure and Rate of Return VIII.Management Team 04/14/12 arriffin 10
  • 11. TO ENCOURAGE YOU TO BE SPECIFIC TO EVALUATE THE FEASIBLITY OF YOUR IDEAS TO PROVIDE PLANNING, OPERATING, AND POLICY GUIDES TO IMPROVE DECISION-MAKING, EFFICIENCY, AND CONTROL 04/14/12 arriffin 11
  • 12. TO IMPROVE YOUR CHANCES OF SUCCESS TO PERSUADE POTENTIAL LENDERS AND INVESTORS YOU WILL SUCCEED NOTE: DO NOT WRITE A BUSINESS PLAN JUST TO OBTAIN FINANCING, WRITE IT FOR YOUR BENEFIT. 04/14/12 arriffin 12
  • 13. COMPONENTS OF A BUSINESS PLAN NARRATIVE FINANCIAL DATA SUPPORTING DOCUMENTS 04/14/12 arriffin 13
  • 14. STATEMENT OF PURPOSE WHO IS ASKING FOR THE MONEY? WHAT IS THE BUSINESS STRUCTURE? HOW MUCH MONEY? WHAT IS THE MONEY NEEDED FOR? HOW WILL THE FUNDS BENEFIT THE BUSINESS? WHY DOES THE LOAN MAKE SENSE? HOW WILL THE FUNDS BE REPAID? 04/14/12 arriffin 14
  • 15. DESCRIPTION OF BUSINESS BUSINESS FORM? -PROPIETORSHIP -PARTNERSHIP -CORPORATION TYPE OF BUSINESS? -MERCHANDISING -MANUFACTURING -SERVICE 04/14/12 arriffin 15
  • 16. DESCRIPTION OF BUSINESS (cont.) WHAT IS THE PRODUCT AND/OR SERVICE? IS IT A NEW BUSINESS, TAKEOVER, OR EXPANSION? WHY WILL THE BUSINESS BE PROFITABLE? 04/14/12 arriffin 16
  • 17. DESCRIPTION OF BUSINESS (cont.) WHEN WILL YOUR BUSINESS OPEN? IS IT A SEASONAL BUSINESS? WHAT HAVE YOU LEARNED ABOUT YOUR BUSINESS FROM OUTSIDE SOURCES? 04/14/12 arriffin 17
  • 18. PRODUCT/SERVICE WHAT ARE YOU SELLING? WHAT BENEFITS ARE YOUR CUSTOMERS BUYING? WHICH PRODUCTS ARE RISING STARS, STEADY CASH COWS, IN DECLINE (INVESTMENT EGOS)? WHAT IS DIFFERENT ABOUT YOUR GOODS AND SERVICES? 04/14/12 arriffin 18
  • 19. MARKET WHO BUYS FROM YOU? DEFINE YOUR TARGET MARKETS. ARE YOUR MARKETS GROWING, STEADY, OR DECLINING? IS YOUR MARKET SHARE GROWING, STEADY, OR DECLINING? 04/14/12 arriffin 19
  • 20. MARKET (cont.) HAVE YOU SEGMENTED YOUR MARKETS? HOW? ARE YOUR MARKETS LARGE ENOUGH FOR EXPANSION? HOW WILL YOU ATTRACT, HOLD, AND INCREASE YOUR MARKET SHARE? 04/14/12 arriffin 20
  • 21. MARKET (cont.) ARE YOU PLANNING TO ENTER OR LEAVE ANY MARKETS? HOW DO YOU PRICE YOUR PRODUCTS? 04/14/12 arriffin 21
  • 22. COMPETITION WHO ARE YOUR DIRECT COMPETITORS? WHO ARE YOUR NEAREST INDIRECT COMPETITORS? HOW ARE THEIR BUSINESSES SIMILAR TO AND DIFFERENT FROM YOURS? WHAT HAVE YOU LEARNED FROM THEIR OPERATIONS, ADVERTISING? 04/14/12 arriffin 22
  • 23. LOCATION OF BUSINESS WHERE ARE YOU (OR SHOULD YOU BE) LOCATED? WHY IS IT A DESIRABLE AREA OR BUILDING? WHAT KIND OF SPACE DO YOU NEED? ARE ANY DEMOGRAPHICS OR OTHER MARKET SHIFTS GOING ON? 04/14/12 arriffin 23
  • 24. MANAGEMENT HOW DOES YOUR BUSINESS EXPERIENCE HELP YOU IN THIS BUSINESS? WHAT RELATED WORK EXPERIENCE DO YOU HAVE? WHO IS ON THE MANAGEMENT TEAM? 04/14/12 arriffin 24
  • 25. MANAGEMENT (cont.) WHAT ARE THEIR STRENGTHS AND WEAKNESSES? WHAT ARE THEIR DUTIES? ARE THESE DUTIES CLEARLY DEFINED? HOW? WHAT ADDITIONAL RESOURCES ARE AVAILABLE TO YOUR BUSINESS? 04/14/12 arriffin 25
  • 26. PERSONNEL WHAT ARE YOUR CURRENT PERSONNEL NEEDS? WHAT SKILLS WILL YOUR EMPLOYEES NEED? IN FIVE YEARS? WHAT ARE YOUR PLANS FOR HIRING AND TRAINING PERSONNEL? 04/14/12 arriffin 26
  • 27. APPLICATION/EXPECTED EFFECT OF THE LOAN (INVENSTMENT) HOW WILL THE LOAN (INVESTMENT) MAKE YOUR BUSINESS MORE PROFITABLE? WILL YOU BUY OR LEASE (EQUIPMENT, PLACE OF BUSINESS)? DO YOU NEED THIS MONEY? 04/14/12 arriffin 27
  • 28. FINANCIAL DATA SOURCES ANDAPPLICATIONS OF FUNDING ASSUMPTIONS WAGE/REVENUE SCHEDULE BALANCE SHEET THREE YEAR INCOME STATEMENT THREE YEAR CASH FLOW STATEMENT 04/14/12 arriffin 28
  • 29. Goal for Session Quick Introduction to Business Plan Financial Analysis  Help you understand what is important Not a class in accounting! 04/14/12 arriffin 29
  • 30. What should it be ? What is the Purpose of Business Plan Financials? Passing the “Taste Test” Executive Summary Financials Detailed (Appendix) Financials 04/14/12 arriffin 30
  • 32. What is the Purpose of Your Business Plan Financials? 04/14/12 arriffin 32
  • 33. Business Plan Financials Phase I Helps you:  test various potential business models  isolate critical assumptions  determine whether this is a viable business opportunity  determine how much money you’ll need 04/14/12 arriffin 33
  • 34. Business Plan Financials Phase II Helps potential investors:  test the viability of your business model  evaluate your critical assumptions  Are they credible?  Do you understand your business?  evaluate you as someone who understands how business works from a financial perspective  determine whether the investment is potentially attractive  evaluate your true financial needs 04/14/12 arriffin 34
  • 36. Job 1: Pass the “Taste Test” Tom Canfield of Equity Catalysts: “Can you taste $25-$50 million in revenues?” Is the revenue scenario credible or will you have to achieve miracles to hit your forecast numbers? 04/14/12 arriffin 36
  • 37. So, how do you convince someone that your revenue scenarios are credible? 04/14/12 arriffin 37
  • 38. Tips for Credibility Show your assumptions and be able to back them up with FACTS based on market research and/or some compelling rationale 04/14/12 arriffin 38
  • 39. Showing a Potential Market Enterprize, Inc. Market share required to achieve Revenue Goals Gizmo Unit Sales Price $ 2,500 25% of competitor price; greater value Market Opportunity in Units 150000 According to Gartner Group; Market Opportunity in Revenue to Enterprize $ 375 $ million Yr Yr Yr Yr Yr 1 2 3 4 5 Enterprise, Inc. Yearly Objectives ($ millions) $ 3.50 $ 7.00 $ 14.00 $ 28.00 $ 56.00 Growth Rate 100% 100% 100% 100% Required Unit Sales 1400 2800 5600 11200 22400 Required Market Share to Achieve Objective 0.93% 1.87% 3.73% 7.47% 14.93% Note: Enterprise will achieve this required market share because of: 1) Partnership with xyz will yield . . . 2) ajsadfjkdfsajkl adfjkldsfkl, etc. 04/14/12 arriffin 39
  • 40. Mistakes to Avoid Assumptions you can’t justify  Too high a market share Too much detail Too little detail Not enough growth Too much profit (in later years) 04/14/12 arriffin 40
  • 42. Summary Financials Pro-forma Income Statement Pro-forma Return to Investors 04/14/12 arriffin 42
  • 44. What is an Income Statement? Shows financial results of a company over a given period of time Includes:  Revenues  Cost of Sales (costs directly attributable to the products/services sold)  Other Operating Expenses  Marketing, Sales  Research and Development  General and Administrative  Earnings before TaxOperating Income  Tax  Earnings after Tax 04/14/12 arriffin 44
  • 45. Sample Income Statement Simple Income Statement Enterprize, Inc. Jan-Dec, 1999 Revenues $60,000 Cost of Goods Sold $30,000 Gross Margin $30,000 Research & Development $35,000 Sales and Marketing $40,000 General and Administrative $10,000 Total Operating Expenses $85,000 Operating Profit -$55,000 Tax 35% 0 Profit After Tax -$55,000 04/14/12 arriffin 45
  • 46. Income Statement Questions What is Revenue?  How would a magazine account for a subscription?  How would a software company account for a software license? What is Cost of Goods sold? What are some of the components of operating expenses? What is operating profit? 04/14/12 arriffin 46
  • 47. Pro-forma Income Statement Summary Table showing 3-5 years of  Revenues  Cost of Sales  Other Operating Expenses  Operating Income Plus: Brief text on how can you support these financials  The key assumptions 04/14/12 arriffin 47
  • 48. Pro-forma Income Statement Income Statement (MM) Years 1 2 3 4 5 Revenues $13.1 $54.3 $143.3 $230.2 $321.2 Cost of Goods $15.6 $28.8 $54.1 $82.4 $112.1 Sold Other Operating $23.8 $32.1 $64.5 $100.4 $140.3 Expenses Operating Income -$26.3 -$6.6 $24.8 $47.4 $68.8 Operating Margin -201.2 -12.2 17.3% 20.6% 21.4% % % 04/14/12 arriffin 48
  • 49. Required Capital, Equity Structure and Rate of Return How much cash will you need? What is the value of the company? How much will the management team contribute, if any? What is the rate of return on capital for the investors? 04/14/12 arriffin 49
  • 50. Rate of Return Assumptions Assumptions for ROI Calculation Investment by Partner $ 25.0 million Valuation of the company after the investment $ 100.0 million Equity from Investment 25% Equity from Strategic Relationship 5% Total percent of equity 30% Year 5 Operating Profit $ 69 million Assumed multiple of operating profit at sale 7 Assumed value of the company after 5 years $ 483 million Return to Partners $ 145 million Assumed dividends during 5 years 0 04/14/12 arriffin 50
  • 51. Rate of Return Calculation Yr Yr Yr Yr Yr 1 2 3 4 5 Initial Investment $ (25) $ - $ - $ - $ - Dividends $ - $ - $ - $ - $ - Return from Sale $ 145 Net Cash Flows $ (25) $ - $ - $ - $ 145 Internal Rate of Return 55% Net Present Value at 35% $13.82 04/14/12 arriffin 51
  • 53. Exhibits for Detailed Financials Typically: 5 years on an annual basis and month-to-month for the first year Components:  Assumptions and Outcomes Page  Income Statement  Detailed Revenue  Detailed Expenses  Headcount  Return on Investment  Balance Sheet  Cash Flow 04/14/12 arriffin 53
  • 54. Assumptions and Outcomes Shows key assumptions and the outcomes in terms of profits, etc. Helps show the reasonableness of your analysis Tells the story in summary form, in case someone only looks at this page 04/14/12 arriffin 54
  • 56. Income Statement Revenues  Summarizes components of revenue Expenses  Cost of goods sold  Other major components of operating expenses  Sales, marketing, general and administrative  Research and Development, etc. Earnings before income and tax (or operating income) Tax Profit after tax 04/14/12 arriffin 56
  • 57. Detailed Revenue Shows revenue over time divided into key components:  Product areas  Geographies  Any components that make sense Documents assumptions and their effects 04/14/12 arriffin 57
  • 58. Detailed Expenses Summarizes key expense categories in major detail Documents assumptions not summarized elsewhere 04/14/12 arriffin 58
  • 59. Payroll and Headcount Who are you going to hire When will they start? How much will they earn? Cost of benefits, etc. 04/14/12 arriffin 59
  • 60. Return on Investment Expected investment Expected share of ownership Change in share of ownership due to other investments Returns on the investment, including dividends and some “terminal value” Discount cash flows to show Internal Rate of Return and Net Present Value 04/14/12 arriffin 60
  • 61. Balance Sheet 04/14/12 arriffin 61
  • 62. What is a Balance Sheet? A snapshot of a company’s financial position at a moment in time Left hand side = Assets Right hand side = Liabilities and Equities Assets must equal liabilities plus equities (hence it is a “balance” sheet) 04/14/12 arriffin 62
  • 63. Balance Sheet Simple Balance Sheet Enterprize, Inc. 6-Jan-00 Liabilities & Assets Equity Cash $ 25,000 Accounts Payable $ 5,000 Accounts Receivable $ 10,000 Prepaid royalties $ 25,000 Inventory $ 15,000 Current portion of notes payable $ - Total Current Assets $ 50,000 Total Current Liabilities $ 30,000 Property, Plant & Equipment $ 25,000 Long term debt $ - Total Liabilities $ 30,000 Paid-in Capital $ 100,000 Retained Earnings (cumulative deficit) $ (55,000) Total Assets $ 75,000 Total Liabilities and Equities $ 75,000 04/14/12 arriffin 63
  • 64. What is an Asset? Assets are valuable resources owned by an entity and include:  Cash  Things that are likely to become cash soon (inventories, accounts receivable)  Valuable things that help the business produce revenues over a longer period (property, plant, and equipment, etc.) 04/14/12 arriffin 64
  • 65. What is a Liability? Liabilities are the claims of creditors and include:  Accounts payable  Notes payable this year  Longer term obligations, such as long term debt 04/14/12 arriffin 65
  • 66. What is an Equity? Equities reflect the “claims” of investors and include: Paid in capital “Retained Earnings” or the sum total of profits after tax that haven’t been paid out through dividends Note: You can’t cash in equities—they represent a claim on the business not an asset. 04/14/12 arriffin 66
  • 68. Cash Flow Statement Records the Flow of Cash during a given period Cash inflows include:  Profits  Sale of assets  Reduction in:  Accounts Receivables  Other assets Cash outflows include:  Losses  Purchase of assets  Increase in:  Accounts Receivables  Other assets 04/14/12 arriffin 68
  • 69. Cash Flow Statement Simple Cash Flow Statement Enterprize, Inc. Jan-Dec, 1999 Sources of Cash Uses of Cash Cash from Operations: Increase in accounts receivable $ 10,000 Increase in Inventory $ 15,000 Net Income (loss) $ (55,000) Purchase of property, plant $ 30,000 Depreciation $ 5,000 & equipment Net cash from operations $ (50,000) Other Sources of Cash: Sale of Stock $ 90,000 Increase in accounts payable $ 5,000 Increase in prepaid royalties $ 25,000 Total Sources of Cash $ 70,000 Total Uses of Cash $ 55,000 Increase (decrease) in cash $ 15,000 04/14/12 arriffin 69
  • 70. Business Plan Financial Projection Workshop Handout Example Statements and Recommended Readings 04/14/12 arriffin 70
  • 71. Q and A 04/14/12 arriffin 71
  • 72. Thanks and ABM Consult 04/14/12 arriffin 72