CHAPTER 1
Necessity of planning
1.1.2 FINANCING BY BANK CREDITS
Banks more and more often demand professional business plans when considering
applications for credits.
Banks expect business plans to give qualified insight into: the enterprise strategy,
the management, the organization, the market, the competitors, the products and the
current and future financial and profit situation of the enterprise.
1.1.4 MERGERS AND ACQUISITIONS
Acquisitions present an alternative for company expansion, while selling a company
may be seen as the way out of a solvency crisis.
Companies that are looking for acquisition candidates usually request a detailed
business plan that will support their evaluation and selection of the candidates.
Similarly, the acquisition candidate himself will also be interested in the long-term
plans of any acquiring company, in order to ensure and protect his own interests for
the future. This information is also the subject-matter of a business plan
1.1.5 CUSTOMER AND MARKETING RELATIONS
vWinning a major customer or an agreement with a wholesaler is a particularly
crucial step towards success for many growth companies.
v Most big companies, however, are very reserved and precautious before starting
negotiations with rather small and unknown companies.
v In such cases, a convincing business plan may clear doubts and prove decisive for
inspiring confidence, opening negotiations and making further decisions. Hence,
business plans effectively help to open doors to potential customers, markets and
suppliers.
1.3. BASIC TYPES OF BUSINESS PLANS
1. Short business plan :
ØA short business plan is usually about 10 to 15 pages long.
ØFor a well-established company, a short business plan only makes sense if certain
investment opportunities are to be roughly approved in advance.
vThe final goal is to convince potential investors that you understand your
entrepreneurial business and the market extremely well.
CHAPTER 2
Business Plan Project
PHASES OF THE BUSINESS
PLAN PROJECT
the business plan project is usually structured into five phases:
v Data collection
v Data analysis
v Design of the business plan
v Drawing-up of the business plan
v Presentation of the business plan.
[Link] COLLECTION
The entire business plan project will run more
effectively and faster, if data is collected in a
structured way across all business areas. This
approach would have the advantage that intermittent
data completion during the subsequent project
phases could be almost completely avoided.
The basic data required for a business plan is
represented by the listing below; of course the
specific requirements of a company may vary from
this and require reductions or further extensions.
PRODUCTS AND SERVICES
Product catalogue Sales volume in Revenue in the Costs in the last 3
the last 3 years last 3 years years
Product
Profit margins in descriptions and Planned product Advertising and
the last 3 years technical launches promotion tools
specifications
Patents, licenses
Pricing schedules Competitive Unique selling and trademarks
advantages propositions and their terms of
use
Regulations and
industrial
standards
FINANCE
v Annual financial statements and controls of the last 3
years
v Financial planning, forecast, for the current year with
all respective assumptions
v Required investments and timeline
v Credit lines
v Loan agreements
v Evolution of key performance indicators (KPIs)
within the last 3 years
Business Plan- Ch.3 Executive Summary
Executives Summary : Introduction
The executive summary compiles the essential statements and conclusions of your
business plan in a very concise form. For the majority of readers the executive summary
will present the most important section of the business plan,
Because;
• It ensures a quick introduction into the main topics,
• It gives a short overview of your enterprise.
• It provides the investor with the core statements and conclusions of
your enterprise strategy and success factors.
- Investors, bankers and representatives of investment groups get lots of
business plans on their desks every day. Indeed, they may not read the
whole documents. But they usually read the executive summary first, in
order to quickly check, whether a review of the complete document
would be worthwhile.
The Business Plan
Management and Marketing and
Organization Sales
Business Idea and Research and
Strategic Goals Development
EXECUTIVE SUMMARY
Products and Procurement and
Service logistics
Market and
Finance
Competition
Fig. 3.1. Information sources of the executive summary.
Expected Actions &
Verb
benefit measures
by raising sales
Maximize profit
volume
Maximize profit by increasing prices
by adjusting the
Carry out cost reduction product-portfolio
…... …… ……
Fig. 3.2. Basic scheme for the formulation of the key statements.
• the business has been investigated and planned thoroughly,
• the business model is reasonable and useful,
• a sound understanding of the products’ and services’ contribution to
the value has been created,
• your business plans do in fact produce competitive advantages,
• there exists a profound knowledge of the industry and the target
markets,
• you and your team will tackle the business with enthusiasm, and
• a realistic picture of the business risks has been worked out.
Business idea and stratigic goals
Chapter 4
In order to be able to develop goals and strategies, it is wise to know what you want;
for only if you know what you want, can you formulate a strategic direction.
Therefore, you should develop an idea of your future company outline. From a
strategic point of view this is a vision, a long- term perspective. Long-term
perspectives are always elusive, but one thing is sure: the world is changing and you
want to make money with your business model in future, too. Hence it is important to
think about this long-term perspective. On the basis of your vision, you define your
busi- ness purpose, your mission. Only when you have done this, should you start
formulating your strategic and operative goals.
4.3.1 Vision
A vision describes the future picture of your enterprise. The vision must be
desirable, challenging, but also attainable, otherwise, rather than strengthen
creativity within your enterprise, it will cause frustration.
What do you want to achieve in 5 to 10 years? Develop a future picture of your
enterprise.
4.3.2 Mission
The vision delivers the “subject” of your enterprise. The mission
describes the purpose of the enterprise, its strategies, behaviour
patterns and values.
Mission statement should briefly and precisely describe your
company, explain what you would like to do and how you will be
able to assert yourself in competition with other companies.
4.3.3 Company goals
Strategic goals are usually targets you would like to achieve within the next 3 to 5 years. Such goals
may be:
• profit. • revenue. • growth. • market shares. • specific customers or customer groups •products and services.
• product design • production, capacities and locations • investment • suppliers
Your strategies, as well as your tactical objectives related to products, sales, development,
production etc., are both based on your strategic goals
You should define your goals and targets by means of the following criteria:
A. reasons for these goals and targets,
B. height of these goals and targets,
C. Time schedule for these goals and targets
Business Plan- Ch.5 Management team and
organization
3- The support processes or so called infrastructural processes include information management,
personnel, accounting and finance. Although these processes are not directly linked to the value
chain, they basically support the core processes and facilitate the overall operational
performance of your company. These processes, too, should be frequently assessed, since they
also contribute to overhead costs. The question that could here be posed is whether or not
support processes can be outsourced. For small and medium-sized enterprises (SMEs), for
instance, it could be advantageous to outsource services like financial and payroll accounting to
tax accountants or common service providers. Furthermore, the information management
should be appropriately assessed as to whether or not it can partly or entirely be outsourced.
Founders should seriously consider outsourcing these types of services from the very beginning
in order to concentrate on their core business activities.
Behind your comprehensive presentation of the processes, there exist, of course,
further detailed sub-processes, which become apparent at a further level. Develop
and describe these critical sub-processes in their workflows and activities. This will
help you to efficiently assess and analyze opportunities for further improvement
and optimization.
In (fig. 5.2) a simplified procurement process with related sub-processes is shown.
Following fig 5.2 in particular you could breakdown the existing activity blocks into
further building blocks and conclude the required resources, people and materials.
This approach will help you to gain an idea of how to bundle tasks and activities
around each of the building blocks, in order to derive precise job descriptions.
In order to give you an example, we have developed a personnel plan in
accordance with the example in figure 5.7. The existing situation serves as
a baseline for further planning of resources, dependent on the employees,
the required operations and the transaction volumes.
Table 5.1 shows an example of personnel planning per functional area on a monthly
basis, as well as the development of the number of employees including their
payroll and social costs.
By means of personnel planning the personnel requirements can be determined,
which are presented in job descriptions. The job descriptions of your employees
should include the following essential elements:
However, market success, technological knowledge and business skills are only a
minimum of criteria which should be fulfilled by your management team.
In addition to this you should introduce the very individual and personal profile
of your managers: their name, marital status, age, education, special merits
and experiences etc. Keep in mind that the quality of your management team
is the most critical success factor of your company.
Unfortunately, in practice, technological expertise often is well-profiled, yet a
profound market expertise is missing. Hence, the professional reader will
presume long term revenue and return on investment to be vulnerable.
Check your management team to be sure whether you have established a
balance between market, technology and finance orientation. This not only
applies to start-ups but also to well-established companies.
Applied College
Selected Topics
ECL 281
[Link] @Taibah_APC
Applied College
introduction
As soon as you have outlined your business idea roughly, you should have
a critical look at your products and services – your added value carrier – for these
form the basis of your business model. It is important that your products and
services fit the needs of your customers: only if customers are prepared to pay a
price for your products and services, is business done. Therefore it is necessary to
describe the very unique features and characteristics of your products, the so-
called unique selling propositions.
4
Applied College
Product features
6.1.1 Unique selling propositions
Unique selling propositions are those features and characteristics which
accentuate the uniqueness and excellence of your products on the market in
order to be distinguished and preferred by the customers and to raise
competitive advantages.
We have compiled some general aspects so that you can characterize the unique
selling propositions of your products:
Ø The quality is discernibly higher than that of the competitors.
Ø The quality standard represented by the brand is maintained by constant
product improvements and is never given up.
5
Applied College
Product features
Ø The price is more favourable than that of the competitors while the quality
is the same.
Ø The technological characteristics and features of your product are more
advanced.
Ø The Design is more modern or satisfies the expectations of your customers
much better than your competitors’ do.
Ø The brand or the image of your product is more valuable.
Ø The construction and handling of the product are simpler.
Ø The development and production times are faster and confirmed de- livery
dates are kept.
6
CHAPTER 7
MARKET AND COMPETITION
7.1.2 MARKET SEGMENTATION
• Of course with regard to customer target groups you may distinguish by utilization aspects, local
areas, market penetration, sales and distribution channels. End users can be further distinguished by
their purchasing attitude, age-groups, income and fashion or brand preference.
• When applying segmentation, be sure not to fill too many segments with too many differ- ent
products. The resulting complexity may overtax management capacity and exhaust the financial
resources of the company.
7.2 COMPETITION
• When you have defined your market, you will become aware of the many competitors who are already
active in the same market, thus putting all their efforts into winning the same target customers as you are.
• In order to win the battle, you need to develop successful market strategies.
• It is necessary to first determine the competitors and their market behaviour and tactics.
• You should realize how large the market share of your competitors is and understand the strategic
advantages by which they have obtained their market shares.
• you should assess whether new competitors could penetrate your markets and thus influence market
behaviour.
7.3 MARKET POSITION
• Your market position demonstrates your strength in the market and the outside business world. It is crucial to
benchmark your market position in comparison with your competitors at any time.
• In order to determine your competitive strength on a specific market, the so called relative market share is applied:
• RMS = Own market share
Market share of the main competitor
In terms of a quotient of the market shares, the relative market share indi- cates the gap between you and the main
competitor on the market (tab. 7.1).
• According to table 7.1, if your market share is 25 % and the share of your main competitor 50 %, your relative market share
will be:
RMS = 25 / 50 = 0,5
• However, if your main competitor obtains only 30 %, your relative market share will increase to 0,8; following this rule, if
your main competitor obtains only 20 %, your relative market share will be about 1,25 and so forth.
• Figure 7.5 shows an example of the development of the relative market share. In this way it is possible to compare the market
positions of a company on the different markets and finally present these positions in a portfolio (chapter 6).
Next to your current market share itself the evolution of the
market share over the last years plays an important role
helping you to estimate the future market perspectives of your
company. If you have constantly lost market shares your
investors will ask how you plan to stop the negative trend and
turn it into a positive one.
Chapter 8
Marketing and Sales
Marketing strategy
Your marketing strategy describes your market objective
and marketing goals for the next years. Furthermore, it
should determine the market share which you wish to
achieve in your target market with your particular product
portfolio, as well as the average market growth.
Marketing strategy
From the individual market segments you can derive segment
specific strategies. Thereby e.g. industrial customers,
commercial customers or end users are treated differently,
according to the following criteria:
◦ Advertising and marketing media
◦ Services and auxiliary services
◦ Competitive orientation
◦ Customer profitability
◦ Customer loyalty
◦ Acquisition of new customers.
Marketing plan
The business plan should include at least a three-year marketing
plan, which sums up the sales targets for each product and
product line.
The marketing plan thus represents a roadmap of the marketing
activities which are necessary in order to achieve the strategic
marketing goals
Pricing policy
A key to the success of your business is the appropriate pricing policy.
If your prices are too high, you will not be able to attract customers
and expect orders within your competitive environment. If your prices are
too low, you will risk steering your company into the loss area. You will
only be able to answer the question about the optimal price, if you, on the
one hand, dispose of an internal controlling and cost input system and if
you, on the other hand, regularly observe your competitors
Sales strategy
The sales strategy is based on the marketing strategy and turns it into
operative sales objectives.
You should consider the following questions with respect to the sales
strategy:
• Which customers should be contacted in what frequency?
◦ Which key customers should you pay special attention to?
◦ Have you analysed the causes of customer loss? Which conclusions
◦ have you derived from this?
◦ Do you serve the right customers, those customers possessing the
◦ highest growth potential?
Sales Plan
The business plan should include a sales plan for at least three years which
summarises sales targets according to markets and customers describes the
basic sales activities with their risks along a timeline and contains a reasonable
allocation of distribution expenses.
Sales plan should capture following topics:
◦ planning of the sales,
◦ planning the customers and
◦ planning the sales area.
Chapter 9
Research and development
The assessment of your competitiveness should
be shown in a so- called research and
development portfolio. Figure 9.3 shows an
example of such
a portfolio, where research and development
expenditure was regarded
versus the number of annual new project
introductions.
Fig. 9.3. The research and development portfolio
9.2 Development plan
The business plan should include at least a three-year research and
development plan that summaries the main research and development
objectives, the main development projects and measures, as well as
the related activities and risks (Tab. 9.1). In addition to this, a time
schedule for the planned launching of production and a wise
distribution of the development costs should be included.
Ch.10 Production
10.1 Outline of production
10.2 Production plan
10.3 Key questions
By means of the lead times for an order you can establish the required ma
chine capacity for a certain period of time. If your planned capacity differs
from the real one, additional costs (idle time costs) will arise due to under
utilized machines, whereas over-utilized machines will cause a production
bottleneck.
This will result in your having to buy external services and work overtime in
production.
Describe the technological status quo of the utilization and workload of your
plants and machines in the manufacturing processes. Answer the fol lowing
questions:
• What is the utilization of the machine capacity like?
• Do you have bottleneck machines?
• Are capacity enlargements required?
• Are your rejects rates lower or higher than those of the competitors? What
are the reasons for that?
• Also describe your quality strategy:
• What quality standard have you achieved in comparison with your
competitors?
• Is there a quality management system in your company?
• What standards do you wish to achieve?
If you want to assess your quality strategy, you should analyse the
entire costs that are associated with it. They include not only the costs
of quality
control, but also the expenditure for blunders, to which the following
cost groups belong: rejects, finishing, additional deliveries, guarantees,
commercial and technical fairness.
10.2 Production plan
The business plan should include at least a three-year production plan
which summarises the production strategy and contains a wise
distribution of the production costs. It should show the relevant risks
and the planned investments, and it should describe the essential
measures for an increase in performance (tab. 10.1).
Selected Topics
Chapter 11
Procurement and logistics
11.1 Purchase
• Fig. 11.1. Changes in the share of purchasing costs.
11.1 Purchase
• A key to success in purchasing is focusing on few but excellent suppliers.
• Many issues that are relevant to procurement can only be optimized by a cross-over approach if
there is cooperation between the different departments, research and development, logistics,
production, sales and marketing.
• Next, we will show a cross-functional optimization, taking the machine building industry branch
as an example.
11.2 Logistics
• In order to be able to judge the efficiency of your flow of materials, it is necessary to describe
whether you manufacture made-to-order or make-to-stock. Afterwards you should plan your
material requirements. In order to have minimum stocks on hand at maximum disposition, a
material requirements planning has to be carried out.
• The stock analysis, which is possibly based on specific operation scheduling and production
planning systems, has to be taken into consideration, too. With make-to-stock manufacturing for
instance you should determine in your business plan the stock turnover, the stock interest and
the development of these values in the last years.
11.2 Logistics
• However, be planned very carefully, for it can often lead to target conflicts
between sales, production and logistics: Sales, for instance, is not usually
interested in a small assortment; big assortments, however, are not economical
as a rule and cause considerable costs, among other things logistics:
• storage volume.
• repository value.
• storage area and facilities, as well as.
• storage management expenditures.
FINANCE
CHPTER 12
The basic data can be classified into three categories:
• revenue,
• investments and
• costs.
On the basis of this information you can create the balance sheet, income statement and
cash-flow statement.
The balance sheet :sums up the financial activities of your business at a key date – often
coinciding with the end of the calendar year (Dec 31) – and provides you and the investors
with an insight into your overall financial position. While the assets show the application of
funds, the liability shows the source of funds.
The income statement: presents the results of your business activities. The
sales revenues of your products and services and all the related costs over
the business year are reflected in this income statement, thus directly
showing the investor your company’s profitability.
The cash flow statement: is especially important to the investors. It gives
an idea about the company’s self financing potential, i.e. which means the
company has at its disposal to pay dividends, taxes, loans and interest.
12.3 Analysis of economic development
Investors want to understand the current net asset position and the profitability of your
company in order to gain confidence in you and your entrepreneurial abilities. Usually
investors want to see the full set of financial statements of the last 3 years.
Even more important for them are the planning documents the including balance sheets
and income statements, as the investors can then better evaluate whether you can operate
with the given capital and whether you can acquire an adequate income in the future that
will result in lucrative returns for them.
You therefore start with an analysis of the company’s financial development over the past
three years. The most important tools for the analysis are the balance sheet and income
statement.
In this respect the most important figures to take into consideration include:
The equity ratio shows the percentage of equity in relation to total assets. In general,
the higher the equity ratio is, the more financially stable and independent a company is.
The cash flow statement shows the financial strength. This statement
gives information as to what extent the company has generated liquid assets.
The return on total capital shows the productive efficiency of the company by relating the
net income plus interest expense for the outside capital to the total capital (equity +
liabilities).
The net debt to cash flow shows how many years a company will need to be able to
completely repay its net liabilities from the cash flows of the company.
The more qualified you are in analysing the financial development of your
company, the clearer the measures will become that need to be taken.
12.4 Company’s future development
• Determining the future potential of the company requires intense planning of all your
entrepreneurial activities, which have been described in the preceding chapters.
The estimation of the company’s future earnings, as well as the strength of the
balance sheet, will determine the probability that you are able to pay back creditors,
as well as obtaining future credit through loans and investments. A clear and consistent
development from the past into the future is a prerequisite for qualified planning.
• Your assumptions should be realistic and comprehensible and they should have a clear
and direct relation to the historical data. Take into account that a plan that presents an
overly optimistic development can lead to an investor’s loss of confidence if the
goals presented are not reached.
Planning the sales
Sales planning represents your appraisal of the market for the next years using past history
data as your starting point. The sales data are based on the marketing planning already
determined.
Cost planning
• Instead of planning the costs as a percentage of the sales, you should rather determine
the material, personnel and other operating costs. Your cost planning should be based on
the marketing and production plans that you have already developed and should include
all the detailed cost elements.
• Determine the details of the costs per product on the basis of the estimates of the
production department.
• Market changes and seasonal factors can substantially influence the costs.
With each investment you must be aware of whether and in what period of
time your investment will pay itself off. Therefore you should ask yourself
some important questions with each investment you make:
• How high is the investment?
• How can you finance the investment (out of cash flows, cash resources, borrowed funds)?
• What is the expected yield (return on the asset)?
• How long is the payback period?
• What risks are you taking (technical and financial risks)?
• What are the tax effects?
Planning the balance sheets and the P&L
• You will need the balance sheets over a period of several years.
From this perspective the investor can see how your assets and liabilities have developed
and what financing requirements you will have in future.
• Let us begin with the asset side of the balance sheet which in turn is divided into the
fixed assets and the current assets.
• The funds tied down in current assets should not be underestimated. The current assets
are composed of inventory, receivables, stocks and liquid funds.
• Estimate the inventory required to be prepared for you planned turnovers. The inventory
planning depends on the length of the manufacturing process and can be expressed as
the turnover ratio The cash and bank balances show the liquid assets that you have and
from which you can pay your short-term financial obligations.
THE WAY TO
THE INVESTOR
CHPTER 13
13.1.3 IDENTIFYING THE FINANCING OPTIONS
6
With a strategic plan at hand, that establishes
• where you are positioned
• what you aim at
• what you require
To get the funding you need, consider the best financing options for your business stage. Different
stages of growth require different types of funding.
A company passes through different development stages:
• Seed
• Start-up
• Growth.
Factors to consider when choosing financing for your business:
•Shareholding:
• Are existing owners willing to give up some control?
• Can your company manage debt repayments?
• Is your balance sheet strong enough to handle fluctuations in interest rates and liabilities?
•Value chain:
• How does your company attract and retain talented employees?
• Does your company need special access to customers, suppliers, or strategic partners?
• Are you looking for an investor who can also be a strategic partner?
•Investor relationship:
• What level of commitment and involvement do you expect from your investor?
• Do you want investors who will provide ongoing financial support?
13.2 PREPARING FOR 7
THE FUNDING PROCESS
Once you have a plan and decided on a funding
direction, prepare your company for investor
scrutiny. Analyse your company's profitability
and return on investment (ROI) from an
investor's perspective. This process, called due
diligence, will help you identify areas for
improvement and make your company more
attractive to potential investors.
13.2.1 PRESENTING THE ORGANIZATIONAL STRUCTURE
8
The most important criterion for an investor regarding carrying out the business
plan successfully is, as shown in chapter 5, the “quality of the management team”
• Does the management have the necessary experience which is essential for
successful leadership?
• Can the company attract and retain qualified employees?
13.2.2 ASSESSMENT OF THE BUSINESS MODEL
To attract investors, show them that your company is targeting a profitable, growing
market and has a strong customer base.
•Focus on potential customers even if your product is still in development.
•Demonstrate that existing stakeholders support the company.
13.2.3 VALIDATION OF THE FINANCIAL PACKAGE
To convince investors, provide detailed financial projections that consider their
desired exit timeframe.
•Break down revenue and costs by product, service, region, and sales staff.
•Ensure your financial projections align with investor expectations regarding ROI and
exit timing.
13.3 INVOLVE THE 9
INVESTOR
Negotiating with investors is like being on a roller coaster:
• the intensity of the first interview
• the elation at their confirmation
• the deep satisfaction after concluding the deal
Despite the emotional ups and downs, stay focused and
strategic during the investor involvement process.
•Be selective and don't accept every offer.
•Approach negotiations with the same shrewdness as
shopping for a deal.
•Negotiate the details carefully.
•Close the deal, secure the funding, and reflect on the
process for future endeavours.
