First EBN Spring UniversityApril 1999

Business and Financial Planning

Principles-Methods-Software

DESMOND RYANDublin Business Innovation Centre

IDA Enterprise Centre,The Tower, Pearse Street,

Dublin 2, Ireland.Tel No: +353-1-671 3111 Fax No: +353-1-671 3330

E-Mail: desryan@dbic.ie WWW: www.dbic.ie

• To Provide an Overview of Strategic Planning

• To Relate Strategic Planning to Business Planning

• To Relate the Business Plan to Financial Planning

• To Show how Software will assist BIC Executives

• To Provide an Overview of Strategic Planning

• To Relate Strategic Planning to Business Planning

• To Relate the Business Plan to Financial Planning

• To Show how Software will assist BIC Executives

Presentation ObjectivesPresentation Objectives

Theme of today's presentationsBasics of BIC Management

Theme of today's presentationsBasics of BIC Management

The essence of a BICThe essence of a BIC

Business PlanningBusiness PlanningAccess to FundsAccess to Funds

Incubation SpaceIncubation Space

BIC DeliverablesBIC Deliverables

“Plans Are Nothing

Planning is Everything”

Dwight D. Eisenhower

BICs must help clients to plan effectively

Business Strategy Planning

Why BIC Clients Need Strategic Planning?

• Truisms of planning

• Framework for planning

• Strategic v operational plans

• Mission statements

• Developing strategies

• Setting long-term objectives

• Assessing strengths & weaknesses

• Determining threats & opportunities

• Implementation

• The Business Plan

Why Do Strategic Planning?

• Provides a framework for management

• Used to communicate about the company

• Serves as a monitor

• Strategic Business Plans are important BIC deliverables

Strategic Business Planning Must....

1. Take a medium term

view, e.g. 2 to 4 years

2. Be developed by

owners/directors

3. Focus on matters of strategic importance

Business Strategy Planning

4. Be separated from day to day issues

5. Be Realistic, Detached & Critical

Business Strategy Planning

6. Not to be viewed as another form of budgeting

7. Be written down

8. Be reviewed periodically

OUR STRATEGIC PLAN DETAILS OUR SALES AND PROFITS FOR THE NEXT FIVE YEARS SO THAT EVERYBODY KNOWS HOW MUCH THEY CAN SPEND

Here Liesthe FourthBusinessPlan ofXYZ Ltd.

Truisms of Planning

BIC Clients should understand

• Planning is a means and not an end

• Planning is not a procedure

• Process is as important as the plan

• Planning must be done by the client from top down

• Think strategically and act operationally

• A plan is a business’s most important document

• The plan belongs to the client not to the BIC

Truism of Planning

• “In this world nothing is certain except death & taxes”

• Murphy’s first law:

‘If anything can go wrong, it will’

• Murphy’s fourth law:

- if there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong

• “If you don’t know where you are going, any road will do”

Strategic Vs Operational Planning

• Strategic planning is :

- Visionary & conceptual

- Directional

- Broad

• Operational planning is:

- Short-term, tactical & specific

- Action orientated

- Focused on Implementation & results

Business Strategy PlanningFramework For Planning

FORMULATE VISION

DEVELOP MISSION

SET OBJECTIVES

PREPARE STRATEGIES

ASSESS INTERNALSTRENGTHS &WEAKNESSES

ASSESS INTERNALSTRENGTHS &WEAKNESSES

DETERMINE EXTERNAL THREATS & OPPORTUNITIES

REDEFINE FUNDAMENTALS& SELECT

REDEFINE FUNDAMENTALS& SELECT

SPECIFY GOALS

PREPARE PROGRAMMES

IMPLEMENT PROJECTS

Mission Statements

• What Business - Industry

- Activity

• Products and Services

• Processes and Technologies

• Customers, Clients and Users

• Markets and Segments

• Channels and Outlets

Take Stock And Redefine

• REFORMULATE YOUR VISION

• REVIEW YOUR MISSION

• REDEFINE YOUR STRATEGIES

• REVISE YOUR OBJECTIVES

BUILD ONSTRENGTHS

EXPLOIT OPPORTUNITIES

MINIMISEWEAKNESSES

AVOIDTHREATS

Assessing Strengths & Weaknesses

Cut through the symptoms and identify

internal strengths and weaknesses in the

following key areas:

• Sales/marketing/distribution

• Product features/range/competitiveness

• Manufacturing efficiency/capacity

• Financial position/resources/performance

Assessing Strengths & Weaknesses(cont’d)

• R&D effort/direction/resources

• Management resources/expertise

• Purchasing and materials - sources/supply cost

• Systems and organisational effectiveness

• Seek to establish the outstandingly good features, achievements and unique qualities of your proposed company. Summarise and rank the good/bad points.

Determining Threats & Opportunities

Identify critical threats & main opportunitiesdue to:

Industry Features• Size and segmentation

• Growth pattern and maturity

• Established practices

• Emergence/contraction of niches

• International Dimension

Changes In Market Place• Customers

• Distribution channels

• Economic factors

• Social/Demographic/Political

Determining Threats and Opportunities(cont’d)

Competitors• Identities

• Performance

• Likely plans

• Capacity to make/sell/innovate

• Market shares

• Strengths/weaknesses

Technology• New materials/processes

• New products/applications

• Infringement/overlapping by other sectors

Preparing A Business Plan?

Why Prepare a Business Plan?

Because they are designed to:-

• Help an entrepreneur clarify, focus and research his project usually over a 3-5 year period

• Act as a framework within which a business can develop and pursue medium term business strategies

• Serve as a basis for third party discussions with banks, investors, government and other agencies

• Provide benchmarks against which actual performance can be assessed

What will the Plan do for BIC Clients ?

• It Acts as a Map for the Business

• It Supports Management Control

• It is a Briefing Document for Key Staff

• It Helps Secure Finance

Tips When Preparing a Business Plan

• Own the Contents

• Ensure the Plan fits You

• Be Realistic

• Be Clear in Your Objectives

• Be Concise and Clear, Avoid Padding

• Well Presented, Typed and Bound

• Remember not everything goes as Planned

The Structure of the Business Plan

• Executive Summary

• Background & Description of the Business

• Management & Organisation Structure

• Market Research

• Marketing and Sales Plan

• Operation Plan

• Financial Plan

Check List

Management: Have you clearly stated how the Business will be

Managed?

Market: Have you clearly shown that there is a market for

your Product or Service?

Operations: Have you thought through the day to day Operational Issues to make your Business a Success?

Finance: Have you clearly demonstrated the

Financial viability of the Business?

The Operations Plan

• Describe the Service or Process

• Include a Layout Drawing Manufacturing

• Describe Procedures for Monitoring and Controling Quality

• Sources of Raw material, Terms of Trade, possible Vulnerability

• Employment and Training

• How Competitors do it

The Financial Plan

• Financing a Business

• Strategy and Raising Finance

• Types of Project Finance

• Approaching Sources of Finance

• Capital Financing

• Putting a Value on Equity

• Debt Financing

• Banks and Debt Financing

• Grants and Subsidies

The Financial Plan

• Total Funding & Sources of Funds

• Three years Cash Flow Forecasts

• Projected Profit and Loss Accounts

• Projected Balance Sheets

• Costing & Pricing details

Management & Organization Structure

• Current Structure & Organization

• Organization Charts

• Key Management Functions

• Profiles of Promoter & Key Managers

• Remuneration & Contracts

• External Professional Advisors

Projections and Assumptions

• Three year Projections

• Market Demand & Sales growth

• Prices & Costs achieved

• Stocking Levels

• Creditor & Debtor Days

• Equipment available, and Lease or Buy

• Productivity, staff & plant

• Quality Levels & Yields

• Research & Development

• Can Buy Technology

Financing a Business

• Key Questions– What are you trying to do ?

– What do you estimate it will cost to do it ?

– Can you or should you finance it yourself ?

• Business Planning is the Key Activity– Matching Plans with Probable Outcomes

– Reconciling Planned Sales and Expenditures

– Simulation of Business Process

• Evaluation of Financing Options– Resources Required

– Cash Required

– Sources of Cash

– In-Kind Options

Strategy and Raising Finance

• Typical Start-Up Problem– Lack of Capital

• A Problem Well Stated !– Objectives in Securing Needed Finance

• Money . . .– What for exactly ?

– When is it needed ?

– Where might it come from ?

• Cost of Finance– Interest and Borrowing Degrees of Freedom

– Dilution of Ownership, Control, and Returns

– Cost of Capital

Types of Project Finance

• Capital– Equity: Cash vs In Kind

– Seed / Venture

• Bank Finance– Term Loan

– Overdraft

– Commercial Mortgage

• Grants & Subsidies– State Schemes

– Enterprise Organisation Dublin

– Business Innovation Centre

– Others (e.g., First Step)

• Creditors ?

Capital Financing

•Promoter’s Money–Putting Your Money Where . . . !

–Shortage of Cash !

–Abundance of In-Kind ?

•Investor’s Money–Identifying Appropriate Investors

–Negotiating Mutually-Agreeable Exchange

–Mechanisms for Offering Returns

–Equity/Preference Shares/Loans/Options

–Business Expansion Scheme (BES)

•Seed/Venture Capital–Few Sources

–Get to Know Evaluation Criteria ?

–Don’t Expect Quick Fix !

Putting a Value on Equity

• No Hard and Fast Rules

• Important to Know . . .– Investment to Date - Both Cash and In-Kind

– Development Investment Required

– Realistic Evaluation of Cash Needs and Scheduling

– Realistic Estimation of Profits and Returns on Equity

• Balancing . . .– Resourcing the Business

– Retaining Ownership

– Retaining Control

– Realising Immediate vs Future Value

– Attracting / Retaining Critical Skills

– Developing Strategic Alliances

Getting Over Financing Obstacles

• Be Practical and Realistic About What you Need

• Be Careful in Justifying Figures

• Be Vigorous in Validating Your Assessments

• Be Creative About Options and Sources

• Be Considerate of What Others Require of You

• Be as Persistant as You Need Be

• Be Always Conscious of What YOU Need and Want

Effective Business and Financial

Planning are critical functions for

BICs

This presentation and other

relevant information can be

downloaded at www.dbic.ie

Effective Business and Financial

Planning are critical functions for

BICs

This presentation and other

relevant information can be

downloaded at www.dbic.ie

Conclusion