The Business Planning Process
Business Planning and
Execution
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Market Analysis- TAM, SAM and
competitive environment
How to keep score: A=L+OE
Product Costing
Building the Plan
Measuring the Results
The Business Process
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Start Up Capital, Friends and family,
Angel investors
Venture Capital, round 1, 2 and 3
Business structures – Prop.,LLP, Corp.
A=L+OE
The Business Plan – year to year
Standard Cost Accounting
The Marketing Plan
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Target market
Market Size and trends
Competition
Estimated Market Share
Marketing Strategy: Sales, Distribution,
Pricing, Advertising and promotions.
Marketing Challenge
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You are in the cell phone business. The
TAM(Total Available Market) is $2 Billion in
2002 and your SAM(Share of the Available
market) is 5 % each year. Your CAGR
(Compound Annual Growth rate ) is projected
to be 10% per year. The overall market is
growing at 15% each year.
What is your current dollar volume goal for
2003?
Assets=Liabilities+Owners
Equity
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Double entry Accounting- debits and credits.
Assets: cash, inventory, accts Rec., Prepaids ,
Eqpt., Supplies, property
Liabilities: AP’s, Notes Payable
Owners’ Equity: Investment, retained
earnings, Revenue and Expense accts.
Balance Sheet, Income Statement, Cash Flow
Statement
Accounting Process
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Accounting Ledger and chart of
accounts
Trial Balance for EOP Income
Closing Entries to period ( PPV, cutoff,
inventory valuation changes).
Performance vs. Budget or Plan.
Double Entry Accounting – The Balance Sheet
Assets
Debit
(+)
Credit
(-)
Cash
Accts Rec.
Equipment
Property
=
Liabilities + Owners Equity
Debit
(-)
Credit
(+)
Accts Pyble
Notes Pyble
Bank Debt
Other Debt
Debit
Credit
(-)
(+)
Investment
Retained
Earnings
Revenue
&Expense
A=L+OE Challenge
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$1000 is invested in your new company.
Describe the balance sheet.
______= ______+________
You borrow $500 to expand further, describe
the balance sheet.
______=______+_________
The company made a profit in year 1 of $100.
Describe the balance sheet after year end.
______=______+_________
Terms to Know and
Understand
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EBITDA- Earnings before Interest, Taxes,
Depreciation or Amortization
Income Statement- P&L- covers a period in
time, Month, Quarter, or year
Balance Sheet is a point in time picture of
A=L+OE
Cash Flow shows EBITDA and changes in
working capital ( AR, AP, Inventory) for a
period.
Business Structures
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Proprietorship
Limited Liability Partnership
Subchapter S Corporation
Corporation
Public Company ( Corporation) SEC
rules
Outline of a Business Plan
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Executive Summary- Brief Highlights
Company Description
Product or Service
Market Analysis
Strategy and Implementation
Management Team
Financial Plan
The Planning Process- Sales
and Marketing
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Sales and marketing projects volume of sales
by product by month or quarter.
Also project price increases and declines.
The timing of new product introductions is
included.
Changes to selling cost: additions /deletions
to sales force, changes in commission
structure.
Product Costing- Variable Cost
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Material cost= standard quantity at standard
cost. (adjust for usage variance at end of
period).
Labor cost= standard hours at standard rate.
(adjust for rate variance and efficiency
variance at end of period).
Variable Overhead= absorb at standard rate
per hour. (adjust for actual at end of period)
includes indirect labor, utilities, supplies, etc.
Fixed Cost- Overhead
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Building Lease or rent
Salaries of all support staff ( typically
excludes the “selling, general and
administrative” cost.)
Utilities, Inform. Systems cost including
software leases.
BreakEven Analysis
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Selling Cost per Unit less VC per unit=
Contribution per unit
Fixed Cost per month= rent, utilities,
Salaries, taxes, insurance.
FC divided by Contribution per unit
=Units needed to Break even.
Selling, General and Admin Cost is an
additional Fixed Cost Category(S,G,&A).
Breakeven Analysis Challenge
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Product A sells for $5 per unit.
Variable cost is $3 per unit.
Fixed Cost including S, G &A is $80,000
per year.
What is the breakeven point?
You just had a 10% price decline. Now
what is breakeven point?
BE Point= FC/Contribution per Unit
Planning Process - Operations
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Converts sold units to a manufacturing plan
by product line or process.
Loads volume into a capacity plan by
standard units or hours.
Cost reduction process- Material purchasing(
Part of supply chain mgmt.),material usage,
labor cost, overhead.
Capital expenditure plan to meet volume and
cost goals.
The Plan- Income Statement
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Sales by product by month= revenue.
Variable cost of goods sold by month.
Fixed cost of goods by month.
Adjust for cost variance in M, L, OH.(in Actual
not Plan)
Gross Profit.
S,G, and A.
Operating Profit( sometimes EBITDA).
Net Profit (after ITDA) by month.
The Plan – Cash Flow
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Cash from Operations
Changes in Working Capital- Inventory,
Accounts Payable and Receivable and
Capital Expenditures(Capex).
Interest Cost
Taxes due
The Balance Sheet
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Point in time-End of Period
Changes in Assets, Liabilities, and
Owners equity as a result of funding,
operations, etc.
Defines borrowing capability and health
of company in details.
Business Plan
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Marketing Plan-“nothing happens until
something is sold”
Operating plan or budgets
Cash Flow projection
Knowing your cost
Capital allocation- A limited resource
Business Systems - Other
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Quality Systems. ( TQM, ISO, SPC)
Information Systems ( client server, real time,
web based).
Human resources management.
Global marketing – know the global
competition first.
Supply Chain management.( Partnering,
Blanket PO’s, joint research, eqpt. Leases)
Top Mistakes in Business Plans
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Too Long
Unable to explain the market position well.
Lack of Focus- “Swiss Army Knife” Plans
Lack real world Market analysis
No Business “ gauges” to monitor with.
Unclear Business Model- How will you make
money?
Weak Team Formation