Business Planning Process @ YES Webinar Apr. 24-2014

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Business Planning Process

© Del Chatterson, DirectTech Solutions

Learn at Lunch

Presented by:

Del ChattersonDirectTech Solutions

[email protected]


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Presentation Agenda

1. Business Plan – Why, What, for Whom?

2. Initial questions –Strategy, Feasibility?

3. Planning Process

4. Business Plan Outline & Contents

5. Financing and Valuation

6. Ongoing Performance

Management

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Business Plan – Purpose & Process

“It's the process, not the product.”Process:• A thorough evaluation of the business opportunity

and your strategies and plans to realize success. • Testing alternatives and documenting the

conclusions.• Confirming decisions & action plans for you & your

team.

Product: • Documented strategy & operating plans with

projected investment requirements and the expected results.

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The Product

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Creating a Business Plan • Why?

• Purpose: To develop a business idea into a clear business strategic plan that will direct future decision making and operating activity

• For Whom?• Audience: Owners, management team,

lenders, investors, strategic partners• What is it?

• A shared document that confirms the opportunity; defines the business concept & strategy; describes the operating plans and the expected financial results.

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Who needs one & when?

• New Business Start-up• Launch a new

product/service• Enter a new market• Strategic review and

performance analysis of an existing business

• Prepare a business for sale, acquisition or succession

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Business Plan – Process Steps

1. Assess Personal Objectives

2. Identify the Business Opportunity

3. Define your Business Concept & Model

4. Test feasibility

5. Conduct sufficient Market Research

6. Develop the Strategic Plan

7. Define Operating Plans

8. Prepare Financial Projections.

9. Use the plan to start and to manage your business

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Will you succeed?

• Why Owner/Management?• Why now?• Personal expectations – life style, risks &

rewards• Personal characteristics,

strengths/weaknesses• Foundation – family, physical, financial

health?• Additional resources – partners, suppliers,

customers, employees?

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Business Opportunity

• Based on personal knowledge, experience, contacts?

• Market need identified?• Alternative solutions available?• What is the specific opportunity?• Confirmed by market test, customer

feedback?

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Documenting the Business Plan

Recycling is Good – Review, Revise, Repeat• Start with one page – Name & Marketing

Slogan, Concept, Strategic Positioning• Expand to 2 – 3 page draft Executive

Summary• Complete the Outline & key points• Draft the content• Review, Revise, Repeat• Repeat again for new audiences, new

plans

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Initial Strategic Decisions

• Define the Business Concept , Product and Services

• Corporate Image, Strategic Positioning• Corporate Culture – Mission, Vision, Values• Choose the Legal structure

• Sole proprietorship, partnership, incorporate• Decide how to start – buy, build, rent or inherit?• Growth Plan - Local, regional, national, or

multinational?• Set Milestones and timetable

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Feasibility Test & Breakeven

Need to know:• Unit Sales, Revenue and Gross Margin

• Units/month x price = revenue/month• Price/unit – cost/unit = gross margin $/unit• GM$/price = GM%

• Operating Expense, Administration and Overhead, Fixed and Variable Costs

• Break-even Sales Revenue = Fixed Expense / GM%

• Break-even Unit Sales = Fixed Expense / GM$ per unit

• Start-up and Investment Costs

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Example: Breakeven Calculations

• Investment cost $180,000• Average selling price $12.00; Cost $9.00• Average Gross Profit Margin $3.00 per unit (25%). • Monthly fixed operating cost: $24,000/mo.• Operating Break-even:

= $24,000/$3 per unit = 8000 units. ($96,000 sales)• Amortizing Investment cost over 5 years, adds

$3000/mo. • For total cost recovery:

Breakeven = $27,000/$3 = 9000 units. ($108,000 per month)

• Alternatively: B/E = $27,000 per mo./25%GM = $108,000/mo.

• Sales break-even of $108,000/$12 each = 9000 units.

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Cash Flow Breakeven

• Investment of $180,000 requires capital loan payments of $6000 per month.

• Monthly Cash operating cost: $24,000/mo. including interest payments, plus the $6000 capital payments = $30,000/mo.

• Average selling price $12.00; Cost $9.00 • Average Gross Margin $3.00 (25%) per unit. • Cash Break-even:

= ($30,000) / $3 per unit = 10,000 units. ($120,000 Sales)

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Business Plan – Table of Contents

1. Executive summary 2. Concept and business opportunity3. Mission, Vision, Values 4. Market analysis 5. Competition 6. Strategic plan 7. Management team and Organisation

Plan8. Product and Service offering 9. Marketing and Sales plan 10. Operations plan 11. Risk analysis 12. Financial plan & Appendices

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Business Plan – Contents

1. Executive Summary Max. 2-3 pages, as a stand-alone document, may be offered for review prior to full disclosure of the business plan, convinces reader to go further, or not.

• What is your Business? • Business Concept, Plan and Objectives• Current status versus the opportunity• Key success factors, risks, expected results• Financial situation and needs• What do you want ?

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2. Concept and Business Opportunity Describe the need being addressed, how this approach is different, and why it is likely to succeed.

• Market need and current solutions available• Business concept and product/service

differentiation• Initial market feedback

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3. Mission, Vision, Values Generate missionaries! Why should others join the cause – have fun, make money, make a difference?

• Clear & attractive – who and what do you want to be?

• Statement of values and priorities• Milestones and timetable

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4. Market Analysis

Provide relevant, pertinent information to demonstrate your knowledge and competence in this industry.

• The overall market, recent changes • Market segments • Target market and customers• Customer characteristics• Customer needs• Buying and selling process

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5. Competition Demonstrate an awareness of competitors and your ability to compete successfully.

• Industry overview, recent changes• Nature of competition, inside and outside the

industry• Primary competitors• Competitive products/services, relative pricing,

advantages, disadvantages• Opportunities, protection by patents,

copyrights, barriers to entry• Threats and risks, ability of competitors to

respond, imitate or copy.

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6. Strategic Plan Describe your starting point, direction, and plan to get there.

• Company history, background, experience, resources

• Choice of Strategic Positioning• Key competitive strengths & current

weaknesses• Strategy to leverage strengths, reduce

weaknesses• Strategic objectives, timetable• Action plan for implementing strategy

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7. Management team

Usually the most important factor in determining your success and in attracting staff and financing. Emphasize current strengths and plan to fill in the gaps.

• Key personnel, experience & credentials• Staffing plan• Organizational structure

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8. Product & Service Offering

Consider the reader’s familiarity with the industry, avoid technical jargon, relate to the market and competition.

• Product/service description• Positioning of products/services• Competitive evaluation of products/services• Future products/services

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9. Marketing and Sales Plan

Another key to success, too often neglected by owner/managers with strong product, technical, or operations backgrounds. Prove you have a plan that will be affordable and effective.

• Marketing strategy, positioning, presentation• Sales tactics• Advertising, Promotions/incentives• Publicity, public relations, press releases• Trade shows, industry events • Web marketing

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6 P’s of the Marketing Plan

• Strategic• Positioning• Placement• Promotion

• Operational • Product • Pricing • Packaging

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10. Operations plan

Describe the important issues and factors that will affect customer service perceptions and the costs related to capital investment and operations.

• Processes for product/service delivery• Customer service and support• Facilities and staff required

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11. Risk analysis

What can go wrong? What will you do about it?

• External market factors – economic cycle, interest rates, currency, government regulations, trade restrictions.

• Manageable internal business risks – key customer & supplier dependence, labour availability, staff turnover, new competitors, new technology, changing demand.

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12. Financial plan Convert all the preceding words into numbers, next year by month, then three-to-five years annually.

• Summary of Assumptions and Commentary• Starting Balance Sheet• Profit and Loss Projection• Cash Flow Projection• Balance Sheet Projection• Performance Ratios and Analysis • Value of Equity• Financial needs and Sources of funds

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Sample Financial ProjectionsOFFICE SUPPLY STORE Financial Projections

FINANCIAL FORECAST Year 1 Year 2 Year 3 Year 4 Year 5Total Revenue Forecast $1,185 $1,604 $1,765 $1,853 $1,946Gross Margin $429 $580 $638 $670 $704 GM % of Sales 36.2% 36.2% 36.2% 36.2% 36.2%Operating Expense $292 $314 $314 $314 $314 Exp. % of Sales 24.6% 19.6% 17.8% 16.9% 16.1%Operating Profit $137 $266 $324 $356 $390 Profit % of Sales 11.5% 16.6% 18.4% 19.2% 20.0%Net Income $98 $206 $257 $285 $314 Net Income % of Sales 8.3% 12.8% 14.5% 15.4% 16.1%

Year 1 Year 2 Year 3 Year 4 Year 5$0

$500

$1,000

$1,500

$2,000

$2,500Total Revenue Forecast

Gross Margin

Operating Expense

Operating Profit

Net Income

Five -Year Growth of Revenue and Net Income

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Sample Financial ProjectionsOFFICE SUPPLY STORE Financial ProjectionsSummary of Start-Up Financing: Input data shown in yellow is to be replaced by your data.

Investment in Assets: Opening Balances Year 0

Planned Uses of

Funds:

Forecast Balances at Start-up:

Financing (Liabilities}: Opening Balances

Year 0

Planned Sources of

Funds:

Forecast Balances at Start-up:

Cash balance 5,000 169,000 174,000 Accounts payable 0 5,000 5,000

Accounts Receivable 0 0 Bank Line of Credit 0 0 0

Inventory 0 5,000 5,000 Other current 0 0 0

Other Current/Prepaid Exp. 0 0

Current Assets 5,000 174,000 179,000 Current Liabilities 0 5,000 5,000

Capital Costs (per schedule Cap.Ex.): New Financing 0 175,000 175,000

Office equipment 0 2,500 2,500

Computers & Software 0 1,500 1,500 Shareholder Equity

Production Equipment 0 1,500 1,500 Shareholder Loans 0 0 0

Property & Facilities 0 500 500

Vehicles & Other 0 15,000 15,000 Shareholder Capital 5,000 15,000 20,000

Total Capital Costs: 0 21,000 21,000 Retained Earnings 0 0 0

Total Equity: 5,000 15,000 20,000

Total Requirements: $ 5,000 $ 195,000 $ 200,000 Total Financing*: $ 5,000 $ 195,000 $ 200,000

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Sample Financial ProjectionsOFFICE SUPPLY STORE Financial ProjectionsSummary - Net Income: 1000's

Net Income is calculated from other worksheets, only interest and depreciation rates and any tax loss carry-forward are required input here.

Year 1 Year 1 Year 2 Year 2 Year 3 Year 4 Year 5 Q1 Q2 Q3 Q4 TOTAL: Q1 Q2 Q3 Q4 TOTAL: TOTAL: TOTAL: TOTAL:

Total Revenue: $ 182 $ 273 $ 365 $ 365 $1,185 $ 401 $ 401 $ 401 $ 401 $1,604 $1,765 $1,853 $ 1,946 Average $ Revenue per employee 198 267 294 309 324Cost of Sales (Excl. Labour): 116 175 233 233 756 256 256 256 256 1,024 1,126 1,183 1,242

Gross Margin: ($1000's) 66 99 132 132 429 145 145 145 145 580 638 670 704 Average % Gross Margin 36.2% 36.2% 36.2% 36.2% 36.2%OPERATING EXPENSE: Staff Costs 64 64 64 64 256 64 64 64 64 256 256 256 256O/H and Admin Exp. 5 9 5 5 24 11 14 11 11 46 46 46 46Sales & Mktg Exp. 3 3 3 3 12 3 3 3 3 12 12 12 12Operating Expense 72 76 72 72 292 78 81 78 78 314 314 314 314Operating Expense % of Sales 24.6% 19.6% 17.8% 16.9% 16.1%OPERATING PROFIT(EBITDA)

-6 23 60 60 137 67 64 67 67 266 324 356 390

% Operating Profit 11.5% 16.6% 18.4% 19.2% 20.0%

Interest Current Loans 6.50% 0 0 0 0 0 0 0 0 0 0 0 0 0Interest-New Funds 8.50% 4 4 3 3 14 3 2 2 2 9 5 1 0Depreciation 15.00% 0.4 0.4 0.4 0.4 2 0.9 0.9 0.9 0.9 4 3 3 3

NET INCOME Before Tax: -10 19 56 56 121 64 61 64 65 254 317 352 387 Cum. Tax loss cfwd: 0.000 0 - - - - Taxable Income 121 254 317 352 387 Income taxes payable 23 48 60 67 74NET INCOME After Tax: 98 206 257 285 314 % Net Income After Tax: 8.3% 12.8% 14.5% 15.4% 16.1%Return on Total Assets 0.4 0.6 0.6 0.5 0.4Return on Shareholders Net Worth: 2.2 1.6 1.0 0.7 0.5

Estimated Business Value: @ 3 x Net Income after tax of Year 5 = $ 940,933

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Sample Financial Projections

Cash Flow Forecast: SummaryData shown in yellow may be replaced by your data, if the calculated values shown are not

appropriate for your business.

Start

Year 1 Year 1 Year 2 Year 2 Year 3 Year 4 Year 5 Q1 Q2 Q3 Q4 TOTAL: Q1 Q2 Q3 Q4 TOTAL: TOTAL: TOTAL: TOTAL:

Initial cash balance 5 174 217 446 891 1438

Sales receipts 127 243 335 365 1070 389 401 401 401 1592 1738 1838 1930

Additional sources 0 0 0 0 0 0 0 0 0 0 0 0 0

CASH INFLOW: 0 127 243 335 365 1070 389 401 401 401 1592 1738 1838 1930Cost of Sales 78 117 156 156 507 172 172 172 172 686 755 792 832Operating Exp. 72 76 72 72 292 78 81 78 78 314 314 314 314Capital Costs 21 0 0 0 2 2 0 0 3 0 3 0 4 0Add to Receivables 0 60 90 120 120 120 132 132 132 132 132 147 154 162Add to Inventory 5 5 0 0 0 10 0 2 0 0 12 2 2 2Interest - Current 0 0 0 0 0 0 0 0 0 0 0 0 0Interest - New funds 4 4 3 3 14 3 2 2 2 9 5 1 0Dividends paid 50 50 100 100 100 100 100

CASH OUTFLOW: 26 219 287 352 403 995 384 389 387 483 1257 1322 1368 1410

SURPLUS/SHORT: -26 -92 -43 -17 -38 75 5 12 14 -82 336 416 471 520ADDITIONAL FUNDS: Add to Acc. Payable 5 50 64 75 75 75 82 83 82 82 82 89 92 96 Bank Line of Credit 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Other Loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Shareholder loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Shareholder Capital 15 0 0 0 0 0 10 0 0 0 10 0 10 0 New Financing 175 0 0 -15 -15 -30 -15.0 -15.0 -15.0 -15.0 -60 -60 -25 0

NET CASH FLOW(+/-) 169 -42 20 43 22 43 82 80 82 -15 229 445 548 616

CUM. CASH BALANCE: 174 132 152 195 217 217 299 379 461 446 446 891 1438 2054Bal. Current Loans 0 0 0 0 0 0 0 0 0 0 0 0 0 0Bal. New Financing 175 175 175 160 145 145 130 115 100 85 85 25 0 0

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• APPENDICES:• add personalization and realism with

biographies and photos of key executives• product photos, marketing literature, sample

packaging, facility plans • press releases, customer testimonials, initial

orders

• relevant research documents, articles, news items

• financial results to date, personal net worth

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Stages of Financing

1. Personal investment, cold cash2. “Sweat equity” – time and effort,

not paid3. “Love money” – willing friends &

family 4. Bank financing – term loans, line of

credit5. Angel investors – passive, active,

strategic6. Government funding, special loans,

grants 7. Venture capital – private equity8. IPO – Initial Public Offering

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What is your Business Worth?

1. Market capitalization

2. P/E multiple (Price = X times Earnings)

3. Earnings multiplier

4. Asset valuation

5. Goodwill value, intangibles

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Business Valuation

6. Risk factors• Reliability of financial statements • Unreported income or expense, cash deals• Dependence on very few customers or suppliers • Key employee risk• Employee relations• Quality of facilities and equipment • Financial obligations • Competition • Protection of products, trademarks, brand

names, territories • Potential liabilities – product failures, warranty,

recalls.• Regulatory issues – taxes, legal, environmental,

social

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Business Financial Performance

Profitability• Gross Margins• Net Income, % of sales• Net Cash Flow

• Return on investment – equity, assets• Performance ratios

• Receivables, Payables & Inventory turnover

• Expense ratios - % of sales• Debt ratios – debt/equity, debt to total

assets

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Business Operating Performance

Productivity • Staff performance – sales, units, customers • Assets – cash, inventory, plant, equipment

Effectiveness• Service performance – on time, high

quality• Customer satisfaction – surveys,

testimonials• Marketing – brand awareness, response• Sales performance – return on costs• Staff turnover – labour problems • Regulatory – taxes, legal, environmental,

social

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“Elevator Pitch”

Executive Summary• Market opportunity• Business model and concept• Strategy for success• Expected revenue, net income• Start-up costs and financing required • Business valuation

“Elevator pitch” 2-minute version

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Business Planning

You’re good to go! • Complete Business Plan documentation

• Clear description of opportunity, business concept, strategy and operating plans

• Financial projections & Supporting appendices• “Elevator pitch” – Executive Summary • Good luck.• Remember to review and revise regularly.

Questions? Del Chatterson, DirectTech Solutions [email protected] 514-767-9984

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The Complete Do-It-Yourself Guide to Business Plans

Available @ YES Montreal or: • Hardcover $23.99• Softcover $14.95• E-book $ 3.99

Business Planning Process @ YES Webinar Apr. 24-2014

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