How will the press and the financial markets react to the adoption of the business plan. Will the adoption of this business plan have an impact on other areas of the business.
A BUSINESS PLAN TEMPLATE
What is the likely impact on the overall financial performance of the business in terms of revenue growth, profitability and gearing. What is the scope of the business plan: does it relate to the entire business, a division or geographic region or just a product or service.
LAYOUT AND STYLE
The size of the font is important: nothing smaller than 10 points should be used for the main body of the text; 12 points is probably the ideal. The same structure should be applied to the document as a whole and throughout each section of the document.
THE PROCESS OF WRITING THE BUSINESS PLAN
The contact details of the individual responsible for the business plan should be easily accessible. The executive summary is the most important section of the business plan since it may be.
OVERVIEW OF THE BUSINESS PLANNING PROCESS
The business model can then be used to identify the funding requirement and for how long that funding must be available. On the quantitative side, the business model can be used to identify the variables (such as price) to which the important outputs (such as sales) of the model are most sensitive.
PARTICIPANTS IN THE BUSINESS PLANNING PROCESS
There should be one person with overall responsibility for the business plan, even if others write sections of it. Sections of the business plan and tasks within the business planning process can often be broken down easily along functional lines, and the heads of functional areas such as sales and marketing can be given responsibility for their sections.
MANAGING THE BUSINESS PLANNING PROCESS
Other people whom it is useful to involve in the planning process are those who will decide whether to approve it or not. As the business plan represents a blueprint for the business, all the major disciplines within the organisation should be involved, or at least consulted, on the contents.
OBJECTIVES
APPROACHES TO STRATEGIC PLANNING
PLANNING AT STRATEGIC BUSINESS UNIT LEVEL
THE STRATEGIC REVIEW AND PLANNING PROCESS
Cataclysmic events, such as the collapse of the dotcom bubble, may trigger an urgent review. In such cases, a strategic review can lead to a fundamental reappraisal of the vision, mission and objectives.
STAKEHOLDER ANALYSIS
This should lead to a new round of business planning, for example realigning budgetary and long-term forecasts. Stakeholder Expectation and objectives Power and influence Commonality and conflict Shareholders Share price growth, Appoint board Conflict: bargaining with staff.
VISION, MISSION AND OBJECTIVES
The vision, mission and objectives statements provide a summary of what a business is about and should be included in the executive summary of the business plan. The business should have a set of objectives against which the success of the strategy can be measured.
EXIT STRATEGY
The limitation of managing purely by financial measures is explicitly recognised by techniques such as the “balanced scorecard”, which was developed by Robert Kaplan and David Norton. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer.
JUDGING A STRATEGIC PLAN
For the business plan, the skill lies in determining which factors currently have an impact on the business or may do so in the future, and understanding what the impact is likely to be. It requires an ability to think beyond your current frame of reference in order to identify all the future influences on the business.
SPEED OF ENVIRONMENTAL CHANGE
Businesses are subject to many forces over which they have limited control: government economic policy, attitudinal changes among consumers and the development of new technology, to name a few.
PEST ANALYSIS
These are closely related to the economy’s position within the business cycle but also to the state of the local economy. The rate of growth of the population will have a direct impact on the size of the potential addressable market for a product or service.
SCENARIO PLANNING
Once the basis of the scenario has been determined, additional factors from the upper-right quadrant should be included. The interactions and development paths of the newly introduced factors should be consistent with the overall theme of the scenario.
ENVIRONMENTAL ANALYSIS AND BUSINESS PLANNING
This is the central tenet of the resource- based view of competitive advantage and is analysed using tools such asvrio analysis (see below). The analysis of the firm should answer the question: “What do we have that competitors do not have and cannot replicate?”.
RESOURCE-BASED VIEW OF THE FIRM
To conduct a resource-based analysis of a business, Jay Barney proposed a structured approach based on analysing whether a resource is Valuable, Rare and Imitable, and whether the Organisation is taking advantage of the resource.1. Of course, different businesses can configure the same resources differently to achieve competitive advantage, but this is not the focus of the resource-based view of the firm.
CONFIGURATION OF RESOURCES
A principal use of value chain analysis is to identify a strategy mismatch between different elements of the value chain. The value chain can be used to examine whether a product should be made or bought in.
RESOURCE AUDIT
The value system extends the value chain beyond the boundaries of the business and recognises that a business is dependent on relationships with suppliers and buyers. All aspects of the value chain must be working towards the same generic strategy (see Chapter 10).
USES OF OUTCOMES IN THE BUSINESS PLAN
For example, you may have an excellent logistics system that delivers goods to customers within 24 hours of the order being placed. The industry life cycle analysis provides an understanding of the degree of maturity of the industry.
INDUSTRY OVERVIEW
To develop a sound strategic plan for an existing or a new business it is necessary to understand the industry in which the business will operate and the competitive forces within that industry. Lastly, the main competitors should be analysed in more detail using a key success factor ranking.
THE INDUSTRY LIFE CYCLE
As the industry enters maturity, the power of buyers is increasing because capacity matches or exceeds demand. The industry life cycle is not the same as the product life cycle, because within an industry there is a constant updating of products.
ANALYSING THE STRUCTURE OF THE INDUSTRY
New entrants may seek not to replicate the value chain of existing firms but to focus on certain activities where barriers to entry are lower. The objective of competitive strategy should be to deter new entrants if this is possible.
ANALYSING COMPETITORS
The trusted third party would compute values for the “best in class”, the average and the worst, without identifying the company to which the data relates. An understanding of the strengths and weaknesses of your competitors will help to define your business’s strategic options.
THE EXPERIENCE CURVE AND ECONOMIES OF SCALE
Therefore market share is of overriding importance when assessing the strategic imperatives of product life cycle, portfolio and matrix analysis. An important aspect of portfolio analysis, which is discussed in detail below, is market share.
PRODUCT LIFE CYCLE STAGE ANALYSIS
As a result, it could offer lower prices, thus increasing market share even further (see Chart 8.1). Conceptually, the matrix is similar to the growth-share matrix and directional policy matrix (see below), inasmuch as the market growth rate is an indication of industry maturity and market share is one factor in determining the business position.
GROWTH-SHARE MATRIX
Stars have a high relative market share in a rapidly growing market; they are in the introduction or growth stage of the product life. The growth rate is highest in the early stages of the product life cycle (see Chart 8.7), so all products start at the top of the matrix.
DIRECTIONAL POLICY MATRIX
The same method is used to quantify the business-sector prospects and the business position. The product’s business-sector prospects are bleak, its business position is weak, and it is likely to lose money.
THE BUSINESS/INDUSTRY ATTRACTIVENESS SCREEN
It is unlikely that a high price could be obtained in these circumstances, but at least the cash haemorrhage could be stopped.
THE HOFER MATRIX
USING SOFTWARE FOR PRODUCT LIFE CYCLE AND MATRIX ANALYSIS
LIMITATIONS OF MATRIX PORTFOLIO ANALYSIS
The analysis of strengths, weaknesses, opportunities and threats brings together the results of the analysis of the firm (internal), the environmental analysis (external) and the. Aswotanalysis allows you to look at the strengths and weaknesses in the context of the opportunities and threats.
CONDUCTING A SWOT ANALYSIS
The strengths and weaknesses analysis should be closely related to the analysis of the firm, which is an input into the strengths and weaknesses analysis. You must be aware of the major changes in the environment in which your business operates.
LINKAGE TO PORTFOLIO AND MATRIX ANALYSIS
This chapter addresses the generation of strategic options based on the analysis covered in previous chapters. The advantage is that the strategies for several products orsbus are looked at not in isolation but in the context of a business with limited resources, which should be allocated to the products orsbus that produce the greatest return on investment.
BASIS OF COMPETITIVE ADVANTAGE
Again, the differentiation strategy must be applied consistently at all stages of the value chain. If other businesses can copy the strategy, the competitive advantage will be lost and returns will decline to the industry average.
ALTERNATIVE STRATEGIC DIRECTIONS
Because the new products are sold into existing markets or to existing customers, some aspects of the value chain can be leveraged, notably distribution and customer knowledge. For example, if a diversified company owns businesses in industries with opposing cycles, cash flow can be balanced between industries.
ALTERNATIVE METHODS OF STRATEGY IMPLEMENTATION
In terms of the growth-share matrix, withdrawal may be the only shareholder-value-increasing option for problem children and dogs. The market analysis and strategy are an important part of the marketing plan within the business plan.
UNDERSTANDING MARKETS AND CUSTOMERS
This positions products in the market, based on an understanding of buyer needs, attitudes and behaviour. Segmentation can be simple, using one variable (for example, business versus consumer market, male versus female), or based on preferences.
DEVELOPING THE MARKETING MIX
Trying to promote the product to adventurous single people as well may dilute the brand value in the family market, while not generating many sales in the “adventurous single person” segment. Target marketing could explain convincingly why you hope to achieve a high share in certain segments but obtain hardly any sales in other segments.
PRODUCT POSITIONING AND THE VALUE PROPOSITION
If segmentation is needs-based, the product should score highly against the needs you are targeting. For example, if one element of the value proposition is “convenience”, the convenience of using the product must be matched by the convenience of getting hold of the product in the first place, and the product design should make the product easy to use without consulting a lengthy manual.
THE MARKETING PLAN
The time horizon should be appropriate in the context of the planned investment: for example, up to the point that the business no longer requires any funding (revenue covers operational expenditure and interest . payments) or to payback. Therefore a forecaster should be aware of the organisational and external constraints in which the business has to fit.
THE MARKET FORECASTING PROCESS
8 In many cases iteration is required; that is, you have to revisit the forecast after it has been through the business planning model. In other cases, iteration becomes necessary because the forecast does not pass the reasonableness test.
ESTABLISHING THE SIZE OF THE POTENTIAL MARKET
Closer analysis may reveal that the average household size in the emerging market is 7.0 compared with 2.4 in the developed country. The interviewer types in the responses, and a tabular analysis is available immediately after completion of the last questionnaire.
TOP-DOWN OR BOTTOM-UP FORECASTING
Stated purchase intentions such as “I would buy in the first six months of launch” tend to be unreliable, and judgment has to be exercised in interpreting them.
MARKET SEGMENTATION
They have totally different needs, trends, seasonal demand fluctuations and price elasticity of demand coefficients. To base a forecast of demand for air travel on the average for the two segments would be highly misleading.
REAL OR NOMINAL
MARKET FORECASTING TECHNIQUES
However, techniques such as Monte Carlo analysis can be applied to generate a probability distribution of the forecast. To identify the cycle the moving average should be expressed as a percentage of the trend.
MARKET BEHAVIOUR MODELS
In the context of market forecasting, the most important elasticity is price elasticity of demand. The price elasticity coefficient is the ratio of percentage demand growth of a product to percentage drop in the unit price of the product.
REASONABLENESS CHECKS
LIMITATIONS OF FORECASTING METHODS AND TECHNIQUES
Therefore, while statistical analysis and models are the forecaster’s tools of trade, the forecaster has to stand back and take a broader view. Despite these limitations, the application of available techniques and models will produce a forecast that stands up to scrutiny.
THE MARKETING PLANNING MODEL
To explain how the business will actually carry out its activity, an operational plan is required. The operational plan is the main cost driver, whereas the marketing plan (see Chapter 11) is the revenue driver.
LEGAL FORM OF BUSINESS AND OTHER FORMALITIES
It uses inputs from the marketing plan to scale operations in order to deliver what is set out in the marketing plan, and it includes information about all stages of primary value chain activities as well as support activities. In the context of business modelling, the operational plan is a spreadsheet model which includes most operational and capital expenditure items and the quantification of physical items, such as office space, plant and machinery.
ORGANISATIONAL STRUCTURE
The dichotomy of the product-management approach and functional organisation is resolved by adopting a matrix organisational structure. The functioning of the board should be described and the role of the chairman compared with the managing director orceoshould be explained.
HUMAN RESOURCE MANAGEMENT
It is important, particularly for new businesses, to demonstrate that a management team with the right skills is in place. If appropriate, make reference to guidelines of corporate governance and explain how shareholders exercise control of the board.
PHYSICAL INFRASTRUCTURE
The reasons for location at a particular site should be explained, for example the price of land, the availability of transport links, nearby qualified staff, or government grants. Rent or buy decisions should be based on careful analysis of the financial implications, looking at funding, profitability, tax and liability issues.
CAPITAL AND OPERATIONAL EXPENDITURE
But a business model also allows you to understand better the economics and drivers of the business and helps in the assessment of risk. If sufficiently detailed, it can provide a tool for the day-to- day management of the business.
APPROACHES TO BUSINESS MODELLING
The main reason for developing a business model is to generate the financial forecasts that are a fundamental element of any business plan. It enables you to evaluate quantitatively alternative strategic options as well as assess the funding requirement.
CHARACTERISTICS OF A GOOD BUSINESS MODEL
For large companies considering major investments the payback period may extend many years, and in such cases a ten-year forecast is usually developed. If the business plan is intended to form the basis of the operational budget, a monthly-based forecast will probably be required.
THE BUSINESS PLANNING MODEL
In uncertain markets, even forecasting three or five years is difficult and extending the forecast much beyond this point provides little additional benefit. In these cases it may be necessary to develop the model on a monthly or quarterly basis, especially if the forecast is for only a few years.
USING THE MODEL
The model has been protected so that entries are possible only in the input cells. To access the model set-up page from the main menu, select model set-up.
THE WORKED EXAMPLE
Use the standard Excel scroll bars to ensure that the relevant columns are visible when reviewing results in the model. Nominal forecasts include the effects of inflation such that the price of the widget in year 9 is the price the customer will actually pay in year 9.
USING THE MODEL IN YOUR OWN BUSINESS
Inflation and interest rates are stable as Newberg is part of a trading union, and its currency is the dollar. In contrast, in a real forecast all future figures are quoted in today’s prices and the impact of inflation is excluded.
THE FIVE FUNDAMENTAL ACCOUNTING PRINCIPLES
THE FINANCIAL STATEMENTS
As a result, the interest charges relating to the debts of the business must also be included in the p&l account. Debtors, stock and cash combined are described as the total current assets of the business.
BUILDING UP THE FINANCIAL STATEMENTS
This transaction can be seen in the profit and loss account (main menu➞ financial results➞ profit and loss➞ cell E27) and the cash flow statement (main menu➞ financial results➞ cash flow statement➞ cell E9). The impact can be seen in the profit and loss account (main menu➞ financial results➞ profit and loss➞ cell E19).
DEVELOPING THE PROFIT AND LOSS ACCOUNT
As before, the results will be reflected in the profit and loss account (Chart 16.1), the cash flow statement (Chart 16.3) and the balance sheet as an immediate increase in cash. In the case of Newco, the losses have been fully utilised by year 7 (see row 17 and the losses account from row 28).
COMPLETING THE FINANCIAL STATEMENTS USING LEDGER ACCOUNTS
In the case of Newco, an inspection of the balance sheet reveals that the company has retained losses until year 6 (see row 33 of Chart 16.2). One of the final accounting entries is to calculate the retained profits or losses for the year in the profit and loss account.
ASSESSING PROFITABILITY
The business must be profitable at the operating level in order to cover the depreciation and amortisation charged for assets it employs as well as any financing charges. Although the business is profitable at the pbtlevel in year 4, it is interesting to note that it is not until year 5 that it begins to generate cash.
REVIEWING THE BALANCE SHEET
The business plan should show adequate levels of reinvestment to maintain the asset base of the business. It looks at the level of assets required to support the sales of the business.
