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The Truth about Business Plans
And do we really need one ?
Building blocks of Biz Plan
What is a fundable biz plan ?PerspectiveComprehensive
Why do you need a biz plan ? Who should write a biz plan ?
Why dont we write business plans?
“Why do I need a biz plan its all there in my head “
“ Biz plans are for big companies that hire MBA’s who don’t have work , I am a very small company”
“I don’t have time to write any plans as I am too busy trying to get new customers & paying my bills , any case I am not a CA”
….. Some more
“I can write a business plan but who is going to appreciate it ? Any case no bank is going to give me any money , so why bother”
“ Can you suggest a good book where I can learn how to write business plans ?”
“ Did Dhirubhai write a business plan ?”
……. And some more
Arre business he nahi hai to plan kya karega ?”
I will write it tommorrow …… Can you write it for me , I can even pay
10% commission…….. Etc etc
The real reasons
Don’t see real need for one , or rather believe its not really going to help
We look at the larger picture and have a tendency to miss out the details ( a case of missing the tree for the woods )
Plans are nothing , planning is everything . Tend to think like industrialists.
We are too much in love with our businesses , losing control is a nightmare . We never plan exits.
… and some more real reasons
Cant separate personal wealth from company money
We don’t have real data A hazy view of key financial parameters
Don’t have real data ?
Limited view of the universe around us Market size Market Growth Competitor pricing ( we believe our
products don’t have any real competitor )
Key financial parameters to track
Concept of unit pricing and Break even point
Fixed cost and recurring costs Marginal contribution and profits Cost of own capital and borrowed capital Cash flow and PnL Working Capital Management
Costs – Volume – Profit Analysis
Fixed Costs and Variable Costs Costs are predictable over entire range of
volume Constancy of unit selling price Stability of product mix Volume of sale = volume of production during an
accounting period ( inventory changes are nil )
Break-even Point Sales at which total revenue earned equals total
costs incurred (TR=TC). TR = Selling Price x Quantity TC = Fixed Cost + (Variable Cost/unit x
Quantity) Q = F/P – V Q = Profit + Fixed Cost /Marginal Contr Breakeven Sales in Rs =
Fixed cost/(1-(V/P))
Break Even Analysis
Margin of Safety What is the importance of BeP in
business? What are the shortcomings of BeP
In a complex cost structure not all costs can be classified as direct and indirect
Ignores time value of moneyNon linear relation between P and V
Cash Flow Management
What is Cash Flow ? What are Sources and Uses of Cash in a
business ? How important is Cash Flow Management
in a business ? Relationship between Profit/Loss and
Cash Flow
Working Capital
What does working capital mean?
Working capital = Current Assets – Current Liabilities
What does + ve or – ve working capital indicate ? How much working capital is adequate for a
business ?
Some important indicators of Working capital
Working capital turnover:
Sales / Working capital
Current RatioCurrent Assets / Current Liabilities
Days Sales outstanding
Receivables/ Annual Sales/ 365 days
Inventory Turnover RatioCost of Goods sold/ Inventory
Ratios
Liquidity Ratios - Short term solvency- Current Ratio - Current assets/ Current Liabilities
- Acid Test Ratio (Quick Ratio) =
(Current assets-Inventories)/Current Liabilities
- Average Collection Period =
Average Receivables/ Average per day sales
- Inventory Holding Period =
Average Inventory/Av. COS per day
Why do we need a business plan ?
Business plan is important for all the stake holders Investors / BankEmployees / PartnersSuppliers / Vendors / DistributorsSELF
( Whats in it for me ? )
Need for a business plan
A real blueprint , a map ( If you don’t know where you are , how will you know where to go ? … an old Chinese proverb )
An important benchmarking tool.
Elements of the plan
Executive Summary General Company Description Product & Services Description Marketing Plan Operational Plan Organisational Plan Financial Plan Exit Plan Enclosures
Executive Summary
Documented 3mep Fundamentals of the proposed biz What is your product and service ? Who are your customers ? Outlook for your industry in the future Purpose of the plan
General Biz Description
Mission and Vision Statement Company Goals & Objectives Team Description & Structure Brief about the product/ service Who is your customer? Key Parameters of Success & Biz
Philosophy
Product & Services Description
Detailed description of the product & services. ( What does it do ? )
Product Features Technology and IPR details Competitive benchmarks Pricing , fee , rentals After Sales Services , CRM
Marketing Plan
Market Research ( primary and secondary)
Market Economics ( size of the industry for related products , per capita consumption)
Trends and entry barriers
Marketing Plan ……cont’d
Product details , detailed description of features and benefits
Customer descriptions , geographic , demographic and psychographic
Competition description , SWOT analysis Niche and your reason for choosing it
Marketing plan …… further cont’d
Promotion plan Offline and Online Strategy Promotional Budget
Pricing plan Right pricing Competitive pricing
Distribution plan Sales Forecast
Operational Plan
Production Cost Quality Inventory
Location Space Area Power Regulations Duty Benefits
Operational Plan……… cont’d
Market Access and Logistics Legal Environment Personnel Inventory and distribution Suppliers and Credit policy
Organisational Plan
Top Management Structure Board and Advisory Roles Operational Team and Organogram Bankers and Financiers Legal and Accounting Service Providers Consultants
Financial Plan
One year forecasted P&L Three year forecasted plan Cash flow projections ( 12 month / QoQ) Break Even Analysis
Exit Plan
Whats in it for the investor ? When and how do they cash out ? How does the promoter plan to make
money Private placement and IPO
Enclosures
Incorporation and startup expenses giving details of promoters contribution
Market Research , consultants report Articles reports on industry Product brochure , photographs of prototype Maps of locations , distribution , manufacturing Letters of commitment from suppliers , bankers Any other things that help……..
Ideas Presentation --Format
Learning an effective 3 Mep If you cant get attention in the first 3
minutes you have lost Most investors don’t go beyond the
executive summary page. Be prepared to defend your ideas in front
of a group of professionals from different areas.
6 important questions
1. Name the product / service
2. Who is your market
3. What is your revenue model
4. Who is behind the company
5. Who is your competition
6. What is your competitive advantage
Learnings….
3mep should always have a Hook : Something that grabs attentionPitch : A concise description of the idea or
propositionClosure : A clearly defined value proposition.
Watch this…..
Hmm……
Check out the hook Was there one …… or two ? What is a ‘hook’ Grab attention and hold it .
Now watch this……
Format
Some tips: Don’t waste time on long introductions. Be passionate, convincing, interesting. Tell a story.
Remember
Business plan activity is a process You cant ‘cook it up’ when you need it Its for investor , who is interested in buying the
business not the company It can also be used to
Pitch in for the team Prospective employees Vendors and suppliers
Who is going to write a business plan ?
YOU