A Workshop Designed For
Virtual Enterprises International
Business Planning
and
Annual Report Preparation
Today’s Agenda -- Business Planning and Annual Report Workshop
• Introduction
9:00 - 9:20
• Why do Businesses Need a Business Plan?
9:20 - 9:50
• What is a Business Plan?
9:50 - 10:00
• Organizing and Initiating the Planning Process
10:00 - 10:20
• Strategic Planning Overview
10:20 - 12:00
• Lunch
12:00 - 1:00
• Putting it All Together: Creating a Business Plan
1:00 - 2:40
• Financial Planning
2:40 - 3:00
• Annual Report
3:00 - 4:00
1
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
2
Without a business plan, an organization is without a mechanism by which it
can credibly communicate and evaluate its strategic direction
“Jack picked an unfortunate place to test his “drive by instinct” theory.”
3
There are significant advantages to business planning
• Challenges old thought
and creates climate for
new ideas
• Identification of new
issues
• Calls for the consideration
of issues today
Direction
• Facilitates the
communication of a
positive management
style
• Establishes the strength
of the business goals and
objectives
Discipline
Advantages of
Business
Planning
Credibility
4
• Establishes a benchmark
against which business
performance can be
monitored
• Allows for the quick
identification of problems
Control
• Financial implications
• Principle piece of sales
literature that will identify
to lenders and investors:
• The business opportunity
• The business strategy
• Management capability
A business plan provides relevant - and often times required –information for
a variety of different purposes
Investment Funds
Bank Financing
• When and how
capital will be utilized
and repaid
• How the company will
survive setbacks
• Available collateral
• Illustrates track record of
the company, market
and executives
• Indicates feasibility of
achieving forecasts
• Uniqueness of product
Business Plan
Internal Uses
• Enables companies
to plan for growth
• Forces strategic
thinking
• Commits people to
well-defined goals
Customer/Distributor
Relations
• Dispel doubts that large
well known
organizations may have
towards entering into
long term commitments
with unknown entities
5
Strategic Alliances
• Addresses potential
risk areas perceived
by alliance partners
Mergers &
Acquisitions
• Allows for the
examination of M&A
opportunities
• Assists on the
evaluation of “fit”
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
6
The business plan is the output of the planning process used to communicate
the strategic direction of an organization to a variety of stakeholder groups
Internal
Stakeholder
Groups
Key Management/Staff/Advisors
Strategic
Planning
Process
Strategic
Direction
Business
Plan
External
Stakeholder
Groups
Stakeholder: Any group or individual who can affect or is affected by the achievement of the business objectives.
Internal Stakeholders: Employees, Shareholders/Investors, Management Team/Directors
External Stakeholders: Customers, Suppliers, Community, Partners, Gov’t./Regulators, Prospective Investors, Buyers
7
Neither the planning process nor the plan document are ends in themselves;
rather, they are a means to coordinate effective management action
Successful business planning requires the following:
There must be a compelling reason for doing the planning
The ownership group, Board of Directors and management must all agree
that the plan meets company needs.
The planning documents and end products should be brief and
straightforward. The purpose is to do the planning, not write a massive
report
The project must be driven by the Chief Executive Officer of the company
who must participate in its execution
 It must be understood that consensus is worth compromise. In other
words, agreement and commitment to an achievable plan are far better than
disagreement and conflict over an unachievable plan
8
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
9
In order to be effective, the business planning process needs to become an
integrated function of the organization…
• The major objective is to establish a successful ongoing planning process in a company:
• Not just a study to put on the shelf
• Designed to help develop and enhance management of the company and related
planning processes
• Business planning should be an annually recurring process:
• A recurring process vs. a strategic one-time process
• Concurrent with annual budgeting process
• Prior year plans revisited and updated each year
• Considers short- and long-range business environment; for example:
• 12-month, short-range plan
• 3-5 year, long-range plan
• Focuses on business agendas needing planning attention within each planning cycle
10
The business planning process needs to be clearly defined and tightly
managed…
• The process should be tailored to the needs of the organization and its management
• The list of activities for the initial planning process should be realistic in terms of the
objectives and scope
• The key activity is to establish a link between the planning process and the management
process:
• Across divisions
• Across functions
• Up and down the organization
• Issues related to managing the planning process:
• The role of the CEO
• The role of a planning staff
• The time frame for the planning process
11
And, the business planning process needs to be organized to ensure
comprehensive input and buy-in
• Project organization in the planning process should be designed such that:
• Top management
• Has overall direct line planning responsibility
• Provides overall corporate guidelines
• Establishes overall impetus behind the plan and the planning process
• Plays an active role in developing the plan, as well as reviewing and monitoring plan
performance
• Line management
• Has direct responsibility for developing plans at division/department levels
• Coordinates the development effort at the division/department level
• Corporate staff
• Assists in plan preparation and monitoring
• Supports top management through:
•
•
•
•
Data gathering
Analysis
Project administration
Reviewing and monitoring plan performance
• Assists line management in the planning process as required:
• Data gathering
• Analysis
12
The planning process will be much clearer and to the point if the following key
20 questions are asked and answered
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
What type of business do you have?
Where do you see the business in 1, 3, 5, 10 years?
What is the purpose of this business?
What key message or phrase to describes your business in one sentence?
What is your product or service?
Can you list three unique benefits of each of your products?
What collateral materials do you have or plan to have?
What is the product application?
How will you finance company growth?
Do you have the management team needed to achieve your goals?
What led you to develop your product?
Is this product used in conjunction with other products?
List the top three objections to buying your product/service immediately?
When will your product be available?
Who is your target audience?
Who is your competition?
How is your product differentiated from that of your competition?
What is the pricing of your product versus the competition?
Are you making any special offers?
What plans do you have for advertising & promotions?
13
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
14
Dynamic strategic planning is an ongoing process. It is a way of thinking; it
turns executives into strategic thinkers and not tactical planners.
Incremental Planning Process
Dynamic Strategic Planning Process
Vision of where we
need to be five
years from now
GOAL
GOAL
Where can we be
next year?
Versus
Actions taken in
response to
circumstances
Where we
are now?
Actions driven by strategy
Where are
we now?
TIME
TIME
Incrementalism
Focus
One reason why companies stagnate
One reason why companies grow
15
A business plan is the key tangible output from the strategic planning process
Business Imperative
Development
Environmental
Analysis
Strategic Options
Analysis
Business Strategy
Implementation
Develop Options
Objectives
Business
Definition
External
Analysis
Business
Imperatives
Key
Insights
Business
Constraints
Internal
Analysis
Implement
Action
Plans
Strategies
Future
Future
Future
Industry
Industry
Industry
Scenarios
Scenarios
Scenarios
Strategic
Direction
Evaluate Options
Risks
Rewards
Reassess the Business Imperatives
Change Leadership and Project Management
Communication, Education and Knowledge Transfer
16
Business
Plan
Action
Plans
Monitor
Action
Plans
The First Step: Business Definition
Business Definition: The description of an organization’s vision, mission, and values.
17
Defining a mission, vision and values provides a high level definition of an
organization’s operations, providing the overall scope for strategic planning.
MISSION
VISION
STRATEGY
Why are we in
business?
What do we want
the business to
look like 5 years
from now?
How do we intend
to get there?
Shared Values
What type of organization do we seek to be?
Vision:
An idealized view of an organization’s future state. Where or what an organization
would like to be in the future.
Mission: An enduring statement of purpose. An organizations reason for being. Describes
what an organization does, who it does it for, and how it does it.
Strategy: An expression of the manner in which the organization will achieve the goals
necessary to accomplish its mission and fulfill its vision.
Values: A set of commonly held fundamental beliefs that describe the type of behavior it will
take to realize the organization’s vision.
18
The Next Step: Business Constraints
Business Constraints: The conditions that an organization must satisfy to merely survive. They are
the limitations or demands that are imposed on an organization by its stakeholders.
19
Stakeholders form mutually beneficial symbiotic relationship with the
organization, if stakeholder interests are not met, the business will not survive
Shareholders
Suppliers
Partners
/
Employees
Investors
Customers
Prospective
Investors
Organization
Management/
Directors
Buyers
Gov’t./
Regulators
Community
The Business Constraint provides the organization with the stakeholder
perspective, including their requirements, issues, and concerns, and guides it
in the development of appropriate strategies that factor in the specific needs
of these all important groups.
20
The Result: Business Imperatives
Business Imperatives are the essential pillars of an organization’s existence.
Business Definition
• What businesses are we in?
• What is our business vision?
• What are our core values?
• What types of products or
services do we provide?
• How do we define the
customers we serve?
• The business mission
should describe why the
organization exists - rather
than what the organization
does
Business Constraints
Objectives and Key
Questions to be
Addressed
Objectives of Analysis
Establish the business
imperatives
• What are the key drivers
of the business?
• Are they aligned with the
constraints?
• How can they be aligned?
21
• What are the business
constraints imposed by the
various stakeholders:
–Shareholders;
–Employees;
–Customers;
–Suppliers; and
–Government?
• Understanding these
business constraints is
crucial to the retention
of key stakeholders
Once the imperatives have been established, they can be examined in the
context of the firm’s environment, both internal and external.
22
The Environment: External Analysis
External Analysis examines two key dimensions of business activities: market
attractiveness and competitive position.
Regulation
Potential
Entrants
Competition
Impact on
Industry,
Company
Suppliers
Customers/
Markets
Technology
Industry
Rivalry
Substitutes
Market
Attractiveness
Competitive Position
23
Buyers
What will this mean for the business?
• How do changing
regulations affect the
business?
• Where do they have the
potential to benefit it?
• Where do they have the
potential to harm it?
• Are the regulations
getting more or less
complex?
• What are customer
perceptions of the
regulation?
• How long will it be
before all of business’
customers’ operations
are performed
electronically?
• Will this decrease
customers’ need for
business or increase it?
• How will business use
technology itself to
provide better service?
• Are customers
responsive to
technology trends in
this area?
Market
Attractiveness
Regulation
Competition
Impact on
Industry,
Company
Customers/
Markets
Technology
This analysis will determine which market
segments are most attractive, in order to
determine where the business should be
focusing its attention.
24
• What is the industry
structure?
• Who are business’ key
competitors?
Regionally? Nationally?
Globally?
• How are they
responding to
regulation, technology
and the customer base?
• Are new competitors
entering the market?
• Are existing
competitors adding new
services?
• What are the market
segments?
• Establish a customer
profile (size, industry)
• How is the business
perceived by its
customers?
• What are the switching
costs for customers?
• Examination of the
above in potential new
markets
What will this mean for the business?
Competitive Position
• An analysis of a business' competitive position
includes all competitors whose actions
significantly affect its business.
Potential
Entrants
• Competition in an industry is rooted in its
underlying economic structure and goes well
beyond the behavior of current competitors.
Suppliers
• The goal of competitive strategy is to find a
position where a company can best defend itself
against competitive forces or can influence them
in its favor.
Industry
Rivalry
Buyers
Substitutes
The analysis of the business’ competitive position will identify the industry dynamics and
the critical success factors required to succeed in the industry and market segments
identified. These insights will then be examined in conjunction with the Internal Analysis.
25
The Environment: Internal Analysis
26
The Environment: Internal Analysis
The internal analysis assesses the strategically important aspects of the organization,
including Resources, Infrastructure, Products/Services and Customers, to establish the
strengths, weaknesses, and core competencies. We also examine strategic disciplines.
Product
Leadership
Products/
Services
Infrastructure
Internal
Analysis
Hybrids
Resources
Customers
Operational
Excellence
Internal Analysis
Customer
Intimacy
Strategic Disciplines
27
What will this mean for the business?
• Determine the core and
supporting processes
within the organization
• Determine whether
organizational structure
and processes support
business objectives
• What is the appropriate
role for staff? Are call
centres performing a
core or supporting
process?
• Is business a marketfacing organization?
• Focus will be on
tangible and intangible
resources
• Is business prepared for
an e-Business
environment?
• How is business taking
advantage of its
intellectual capital and
other intangible
resources?
• Are sales and marketing
resources sufficient for
growth, new markets?
Internal Analysis
Products/
Services
Infrastructure
Internal
Analysis
of Company
Resources
Customers
This analysis examines the business model
in order to identify the key value drivers
and competencies of the organization.
28
• What is the internal and
external significance of
the business’ key
products and services?
• Which services are best
in class?
• Which services are
strategically important
to attracting new
customers?
• Which services will be
appropriate for entering
new markets?
• Determine which
customers are strategic
and which are nonstrategic
• How responsive is the
business to each type of
customer?
• Where does the
business derive its
profitability from?
• How can its efforts be
focused on strategic
customers?
Strategic Disciplines: A Different Way of Looking at a business
“Best Product”
Product Leadership
Leadership
(only possible on one axis)
For example:
• Microsoft
• 3M
• Fidelity
Product
Differentiation
Threshold Performance
A given company’s
performance
(necessary on all axes)
Hybrid
operating models
lead to confusion,
tension and
mediocrity
For example:
• Charles Schwab
• Wal-Mart
• McDonalds
Operational
Competence
Customer
Responsive
Operational Excellence
For example:
• Nordstrom
• IBM
• Home Depot
• C&W (U.S.)
Customer Intimacy
“Best Total Cost”
“Best Total Solution”
To be market leader, businesses must choose which value-creating discipline to
lead in, and move above the threshold level in the other two disciplines.
29
Key Insights
30
Key Insights: Tying it all together...
Once the internal and external analyses have been performed, we can extract key
insights about the company and its ability to sustain competitive advantage
through SWOT and other analyses. This in turn guides the strategic direction of the
company, as it builds off strengths to take advantage of opportunities.
External Analysis
Regulation
Competition
Technology
Markets
Internal Analysis
Infrastructure
Resources
Products/
Services
Customers
Assessment of
the
organization’s
ability to sustain
competitive
advantage
31
Strategic Intent,
Organization
Direction, and
Compelling
Case for
Change
Future Industry Scenarios: Where’s it all heading?
32
Strategic Options: How we get where we want to go?
Strategic options address the “strategic gaps” within an organization and will
ensure the organization’s survival and will provide ways to continue to grow and
compete effectively in the uncertain future. They are the vehicles which are used to
realize the mission and vision of the organization.
“Shaping
the Future”
“Adapting
to the Future”
“Reserving
the Right to Play”
Play a leadership role in
establishing how the industry
operates, for example
• setting standards
• creating demand
Compete through speed,
agility, and flexibility in
recognizing and capturing
opportunities in existing
markets
Invest sufficiently to stay in
the game but avoid
premature commitments
Given the changes in the industry, it is important to identify an organization’s strategic
options for each of the “strategic postures”. Examining these variations will provide
increased insight into the critical gaps in the organization’s current operations.
33
Strategic Options: What do we need to do?
34
Developing a business’ options
New
Market
Development
Strategy
Diversification
Strategy
Market Penetration
Strategy
Product
Development
Strategy
MARKET
Current
Current
New
PRODUCTS
The product/market matrix is a useful framework for detecting new strategic
options. New products may come in the form of entirely new services, or
bundles of existing services.
35
How to decide which options to pursue
36
Evaluating Company’s Options
Analysis
Definition of the
Strategic Options
• Strategic Options based
on future industry
scenarios containing:
Objective, Strategies and
Initiatives
• Implications for the current
business
• Criticial success factors
• What are the criteria for measuring
the strategic options?
• How do the different options impact
our business model?
• For which options is Company
least prepared to respond to
changes?
• What are the core competencies
required to realize each of the
strategic options in the market?
• Can organic growth achieve
desired targets?
• Are we investing the right amount
in growth? Are we prioritizing for
growth? Are we poised to grow?
• What are the financial and strategic
impacts on the current business?
Output
Strategic Options
Risk / Reward Map
Option 2
Option 3
Reward
Input
Key Questions to
be Answered
Option 1
Option 4
Risk
Once the options have been developed, they need to be evaluated in terms of criteria
that are consistent with the insights developed earlier through the internal and external
analyses. These options can then be evaluated and considered by management.
37
Once developed and evaluated, the selected strategic options establish the
organization’s strategic objectives
Strategic Objectives: The goals that must be achieved in order to
accomplish the organization’s mission and
fulfill its vision.
38
The strategic planning process defines the organization’s strategic objectives
which establish its strategic direction, the basis for the Business Plan
An organization’s strategic direction explains why it exists,
where it is headed, and how it intends to get there
Strategic
Direction
• Is a vibrant and compelling picture of the organization’s
future state that provides direction and guidance to
stakeholders.
• Is not tactics, divisional strategies, or “mom & apple pie”
statements
• Contains concrete strategic objectives to attain the
organization’s
• Mission,
• Vision,and
• Values
39
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• LUNCH
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
40
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
41
A business plan’s length and structure will depend on its intended purpose
and the complexity of the organization’s operations
Business
Plan Type
Operations
Full
Summary
Financing
Characteristics
• Established company
• To develop source for senior
management guidance
• Establish a blueprint for operations
• Communicate management roles and
responsibilities
• Detailed overview
of operations,
market, financial
data, action plans
and roles
• 40-100 Pages
• Seeking moderate amount of financing
• To communicate vision and business
strategy to senior management and
alliance partners
• Detailed overview
of operations,
market analysis
and financial data
• 20-40 Pages
• Require roadmap for growth
• Seeking small amount of seed capital
• To renew an existing line of credit
• Existing operations are small and have
a limited history
• Management has excellent track record
• Highlights
business
approach and
projections
• 10-15 Pages
42
High
Business Complexity
Purpose
Operational
Reasons For Selection
Low
The process of drafting a business plan becomes much easier if certain data
is available before writing begins
Data Category
Company
Description & Strategy
Management and
Organization
Market and
Competitors
Product Description
and
Analysis
Marketing and
Sales
Financial
Information
Data Checklist
•Name
•Legal Form
•Location
•Organizational Chart
•Key Management
•Board of Directors
•Financial Highlights
•Shareholders
•Consultants/Advisors
•Compensation
•Strategic Partners
•Market Statistics
•Competitor Data
•Competitive Advantages
•Product Literature
•Patent, license & trademarks
•Market and Customer
Surveys
•Marketing Plan
•Sales Vehicles
•Marketing Materials
•Financial Projections and
Assumptions
•Amount and Timing of
Needed Funding
43
•Regulatory Approvals
•Operations Plan
•R&D Plan
The Key Sections of the Business Plan document
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
44
Company Description & Strategy
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
45
It is important that the company tell a story about its past, future
and key people
Section Objective
• To ground the intended reader in the facts leading to the request for funding
Description of Section Content Components
Business
Mission
• The company’s overall approach to producing and selling its products and
services
• An articulation of the company’s distinctive value proposition
• Goals for maximizing success
• Provide a history of the company including information on the founders, the
reason it was founded, accomplishments, and failures
The Company:
Past, Present &
Future
• Provide a sense of the company’s current situation and direction including
information on employee size, products, sales trends
• Provide a sense where the company is headed, company objectives, new
market and product plans
• Provide a brief summary on management's:
Management
Team
– Experience; Talent; Integrity
• The summary in this section will lead to a detailed description of the
management team in the next section
46
Section Check List
Upon completion, consider whether the section demonstrates:
• The business the company is in
• The purpose of the business
• How the company’s products and services relate to its mission
• The value the products and services are providing to customers
• What led to the development of the business
• The future vision for the business
• Why the company is uniquely qualified to be in this business
• Legal name, location and structure of the business
• The current stage of the business (conceptual, start-up, mature)
• The current financial position
• How the company’s weaknesses are being addressed
• The key members of the management team
47
Management & Organization
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
48
A company’s ability to execute - one of the primary concerns to
lenders and venture capitalists
Section Objective
• To demonstrate that the necessary human resources are available to successfully implement the
company’s strategy
Description of Section Content Components
Description of
Management
Team
• A half page synopsis on each team member’s background including:
relevant employment and professional experience; significant
accomplishments and educational background
• Complete and detailed resumes of key management in an appendix
• Description of the compensation packages being offered to key employees
• Identification of the number of employees currently in the company and the
need to expand the workforce
Human Resource
Issues
• Discussion of any unique human resource policies and general
compensation principles
• Identification of skill gaps and the associated strategies to recruit people
with critical skills
Outside
Advisors
• Identification of relationships with outside advisors which may include a
Board of Directors, Advisory Board, or an informal group of counselors
• Indication as to the strength and depth of established relationships with
outside advisors
49
Section Check List
Upon completion, consider whether the section demonstrates:
• The CEO’s ability to effectively lead the company
• Strengths and experience of management match the goals and strategies of the business
• Compensation arrangements are aligned with the goals and objectives of the business
• Any strategic alliances that provide access to talent that does not reside on the management team
• Any plans to add additional talent to the management team
• How the company will acquire additional human resources needed to implement its strategy
• Who the company’s outside experts are and what it will cost to retain them
• The relevant experience the company’s Board of Directors/advisors brings to management
50
Market & Competitors
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
51
Ideas for fantastic products from brilliant and innovative people are
of little value in the absence of a market for the company’s offering
Section Objective
• To demonstrate the existence of a market for the company’s offering and management's
understanding of relevant market forces
Description of Section Content Components
• Description of the industry in which the company operates, an analysis of trends
and an assessment of business opportunities (in dollars, if possible)
• Identification of the unmet need that the company will be satisfying
Identifying
The
Market
• Description of the company’s target market in terms that are as specific as
possible
• Indication as to the size of the company’s market (in dollars) taking into
consideration such things as: market trends, demographics, and geography
• Overview of current competition (strengths and weaknesses), the company’s
competitive differences, and future competitive threats including how they will be
addressed
• Understanding of of how consumers will make purchase decisions related to
the company’s product/service
Understanding
The
Market
• Understanding of how customers are distributed over market segments
• Overview of how the company’s product or service will be positioned in the
market based on the following positioning dimensions: Technology
Leadership; Management Style; Service Philosophy; Product Quality
• An outline of the company’s defensive strategy based on an understanding
on how competitors may react if they are threatened
52
Section Check List
Upon completion, consider whether the section demonstrates:
• The industry in which the company operates and the drivers of change within it
• The unmet need that the company is able to satisfy
• Specific target markets
• What market trends, emerging and current, may have an effect on the customer purchase decision
• The size and geographic spread of the company’s market
• The rate of growth of the company’s target market
• Competitors and their characteristics (strengths and weaknesses)
• The company’s competitive differences
• Barriers to entry for emerging competitors
• Vulnerability of the company’s product/service offering to substitution
• The dimension(s), other than price, on which the company differentiates its product/service offerings
• The company’s product/service offering positioning on the price curve
• The anticipated competitive response to the company’s marketing strategy
53
Product Description & Analysis
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
54
Investors require assurance that a company will be able to actually
“do what it says it can do” with respect to product delivery
Section Objective
• To demonstrate that the company’s described product/or service can be delivered to the market
on schedule, with high quality and at the cost anticipated
Description of Section Content Components
• Demonstration of the product with the business plan i.e. CD Rom
The Product
• Description of product/services in terms that are clear and concise
• Description of full R&D requirements including a budget, R&D plan, & risks
Product
Development
• Discussion of relevant competing technologies and emerging technologies
• Explanation of the potential evolution of new products and services
• Description as to what technology/information is proprietary
Operations
• Explanation of key operational processes and how technology may impact
them
• Discussion of the key drivers of operating costs and other product costs
Quality Control
& Ongoing Service
• Description of the company’s philosophy and approach to quality assurance
• Indication of how the company will deal with poor product service
55
Section Check List
Upon completion, consider whether the section demonstrates:
• The stage the company is at in the R&D process and key milestones
• Costs to complete any product development and expected ongoing costs
• The process for monitoring the need for and implementing product improvements
• Intellectual property owned by the company
• A need for the development of critical processes
• How the company will monitor quality and the process for dealing with poor product service
• Any product/service name registration with government bodies
56
Marketing & Sales
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
57
For a given value proposition, there must be a clear understanding
as to who it will be communicated to and how it will be delivered
Section Objective
• To demonstrate the company’s strategy for building awareness and driving sales in the
marketplace
Description of Section Content Components
• Illustrates how the company will deliver a targeted message to key prospects
Marketing
Strategies
• Demonstrates the results of any market research
• Includes a clearly developed positioning statement
• Outlines major marketing vehicles to be used such as: brochures; advertising
in print, broadcast or electronic media; direct mail; public relations
• Outlines how the company’s product or service will be sold including a
description of distribution channels and methods
Sales
Strategies
• Provides an indication of projected selling costs
• Describes how the sales force will be supported though resources such as:
training programs; promotional material; selling aids
58
Section Check List
Upon completion, consider whether the section demonstrates:
• How the company positions its products and services
• The key messages the company wishes to convey with respect to its products and services
• The marketing vehicles that will be used to promote the company’s product/service offerings
• How much the company plans to spend on promotion
• The distribution channels and the selling method that the company plans to use within each channel
• Any strategic alliances that will assist the company in reaching desired markets efficiently and cost
effectively
59
Financial Information
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
60
An illustration of the business plan’s financial implications provides a
basis to quantify the risk and return potential of the business opportunity
Section Objective
• To demonstrate to the investor that the proposed business plan can yield an acceptable rate of
return for its level of risk
Description of Section Content Components
Financial
Statements
and Projections
• Includes past and 5 year forecasted financial statements such as: the balance
sheet; income statement; statement of cash-flows
• Describe key assumptions used to build forecasts - they should be
conservative, built on facts, and consistent across all forecasts and statements
• Indicate how much money the business requires, why the business requires
this amount of money and what will be done with the funds
Funding
Request
• Describe the anticipated effect that the requested funding will have on the
company’s capital structure
• Describe any other funding needs - current or anticipated
Payback and
Exit Strategy
• Provide an indication as to what type of return investors can expect from their
investment
• Describe the payback period and how the deal will be structured to allow for
investors to harvest their investment
61
Section Check List
Upon completion, consider whether the section demonstrates:
• Assumptions are consistent with the results of the market analysis and other sections of the business plan
(the market share targets described in the market analysis should drive the financial projections)
• An understanding of how different scenarios will impact the key financial metrics of the business
• The form of the investment being sought
• The capital required and the time period for which it will be required
• How the funds will be used
• How future growth will be financed
• The proposed exit/payback strategy for lenders and investors
62
Appendices
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
63
The appropriate appendices should be attached to the business plan
to provide the reader additional detailed information
The following items should be included as appendices in the business plan:
• Glossary of terms
• Organizational charts
• Resumes of key managers
• Patent details
• Detailed financial performance/statements
• Product literature
• Market surveys/research
• Project schedules
64
The Executive Summary
Executive
Summary
Appendices
Company
Description &
Strategy
Financial
Information
Business
Plan
Management &
Organization
Marketing
& Sales
Product
Market &
Description &
Competitors
Analysis
65
The executive summary is the single most important section of the
business plan that is intended for company outsiders
Section Objective
• To entice and convince investors to further explore the business plan
The Executive Summary Defined:
• A shortened representation of the business plan in the most concise form possible
• Should be 2-3 pages in length
Required Content
• Description of the opportunity and the need that is being met
• Summary of the company’s value proposition
• Brief synopsis of the success strategy
• Brief description of the management team’s qualifications and their past successes
• Brief description of the market and how the company will be unique in that market
• Brief description of the company’s offering
• Summary of key forecasted financial data over a five year period (Annual Revenue, Net Income)
• Estimate of required funds including:
– How the money will be used
– How investors/lenders will get there money back
66
Section Check List
Upon completion, consider whether the section demonstrates:
• The business has been thoroughly planned and researched
• A business proposition that makes sense and is needed
• An accurate understanding of the value proposition of your product and service
• The business proposition offers a real competitive advantage
• Management knowledge of the industry and target market
• A sense of enthusiasm for the business
• A realistic picture of the inherent risks of the business
67
Sample Table of Contents
Business Plan
1. Executive Summary
2. Company Description and Strategy
3. Management and Organization
4. The Market and Competitors
5. Products or Service Description Analysis
6. Marketing and Sales
7. Financial Information
Appendices
68
Creating a business plan
• Industries:
– Personal Electronics Mail Order & Web Sales; focus on entertainment in the
youth market
– Apparel Retailing; focus on infant to toddler age group
– Food and Beverages distribution; focus on weight loss market
– Cocoa importers; focus on high end ‘designer chocolate’
– …
69
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
70
Financial Planning
“A budget is just a method of worrying before you
spend money, as well as afterward.”
71
Benefits of Budgeting
• Better Planning
• Improved Communication
• Enhanced Coordination and Integration
• Improved Performance Evaluation and Control
72
Budgeting Lifecycle
Analysis
& Control
Plan &
Forecast
Act
73
Plan & Forecast
FORECASTING METHODS
•
Regression Analysis
–
–
•
Time-Series Methods
–
–
–
•
Simple Linear
Multiple Linear
Trend Analysis
Decomposition
Moving Averages (Adaptive Filtering, Exponential
Smoothing)
Simulations Models
74
Plan & Forecast
FORECASTING SELECTION CRITERIA
•
Data Availability
•
Time Horizon
•
Variability and Consistency of Data
•
Technical Sophistication / Ease of Use
•
Amount of Detail Necessary
•
Cost
75
Act
Budget Components
• Operating Budget
– daily activity
• Capital Budget
– approved capital projects, lump-sum for small capital projects
• Budgeted Balance Sheet
– balance sheet implications of decisions in the operating and
capital budgets
• Cash Flow Forecasting/Modeling
– inflows and outflows of cash
76
Act
APPROVAL
• Final approval must be give to the budget to assure that it is in
line with the strategic goals of the company
• Due to the length of time it takes to prepare corporate budgets,
approval process gives management a chance to make last
minute top side changes in response to the environment
77
Act
ACTION
•
•
During the budget process management
considers alternatives, sets objectives, and
decides on a course of action
Through the budget process management
allocates the company’s resources to specific
activities and begins to implement the plans
78
Act
OPERATIONS
•
With the budget approved and in place,
management can use it as a plan to allocate
company resources:
Department head count
Production planning
Capital purchases
79
Act
OPERATIONS
•
•
Managers should feel empowered to operate
their departments within the constraints of the
budget
IF circumstances change that managers cannot
operate according to the budget, this should
raise a red flag that change may be necessary
across departments
80
Analysis & Control
BUDGET ADJUSTMENTS
•
•
•
The budget process should be dynamic and not
set in stone
The budget should be adjusted to changes in the
environment
Budgets should be reviewed at least quarterly
and in response to changes in the environment
81
Business Planning and Annual Report Workshop
• Why do Businesses Need a Business Plan?
• What is a Business Plan?
• Organizing and Initiating the Planning Process
• Strategic Planning Overview
• Putting it All Together: Creating a Business Plan
• Financial Planning – In-Depth
• Annual Report
82
Understanding An Annual Report - Agenda
• What is an Annual Report?
• What are the Elements of an Annual Report?
• Understanding Financial Statements
• Analyzing Financial Statements
• Tips for Reading an Annual Report
83
What is an Annual Report?
• What is an Annual Report?
• What are the Elements of an Annual Report?
• Understanding Financial Statements
• Analyzing Financial Statements
• Tips for Reading an Annual Report
84
What is an Annual Report?
“ A yearly chore mandated by Securities and Exchange
Commission, most companies adhere to the same tired formula:
Stick a product photo or company logo on the cover, follow with
a droning letter from the CEO covering the year’s highlights and
finish off with a stream of mind-numbing numbers
– Snooze City”
Adam Feuerstein – Business Times Staff Writer
85
Purpose of an Annual Report
• A formal report on a company’s performance in the
preceding year. A public company produces an annual
report for its stockholders, the people and institutions
who own the company.
• Other interested parties, such as customers and potential investors,
read an annual report.
• The Securities and Exchange Commission (SEC), a U.S.
government agency, requires a public company to keep
stockholders informed regularly on the state of its
business.
86
What are the Elements of an Annual Report ?
• What is an Annual Report?
• What are the Elements of an Annual Report?
• Understanding Financial Statements
• Analyzing Financial Statements
• Tips for Reading an Annual Report
87
Elements of an Annual Report
Auditors’
Report
2
Report of
Management
1
Financial
Statements and
Notes
3
Board of Directors
and
Management
8
Annual Report
Letter to
Stockholders
and
Stockholder Info.
7
Financial
Highlights
6
Management
Discussion
4
Selected
Financial Data
5
Numbers 1- 5 is required information by the SEC
Numbers 6 – 8 is optional information a company can provide
88
Elements of an Annual Report

Report of Management - A letter from the Board Chairperson and the CFO,
taking responsibility for the validity of the financial information in the annual
report.

Auditors’ Report - A summary of the results an audit, or examination of the
financial statements by an independent firm of certified public accountants.
“A UNQUALIFIED OPINIION is a GOOD THING”

Financial Statements and Footnotes – Statements that provide the raw
numbers for the company’s financial performance and recent historical history.
The footnotes provide explanations, and additional detail about the numbers in
the financial statements.

Management Discussion – A series of short, detailed reports discussing
and analyzing the company’s performance.

Selected Financial Data – Information summarizing a company’s financial
condition and performance over five years or longer.
89
Elements of an Annual Report

Financial Highlights – A quick summary of a company’s performance.

Letter to Stockholders – Typically a letter written by the Board of Directors
Chairperson, the CFO, or both. Usually reflects the business philosophy and
management style of the company’s executives, and often it lays out the
company’s direction for the following year.

Stockholder Information – Covers the basics – the company’s corporate
office headquarters, the exchanges on which the company trades its stock, the
location and time of the next annual stockholder’s meeting, and the other
general stockholder service information.

Board of Directors and Management – List the names and position titles
of the company’s board of directors and top management team.

Corporate Message – Typically covers the company’s line of business,
markets, mission, management philosophy, corporate culture, and strategic
direction.
90
Understanding Financial Statements
• What is an Annual Report?
• What are the Elements of an Annual Report?
• Understanding Financial Statements
• Analyzing Financial Statements
• Tips for Reading an Annual Report
91
Understanding Financial Statements
COMPLETE SET OF FINANCIAL STATEMENTS
STATEMENT OF
FINANCIAL POSITION
STATEMENT OF
EARNINGS
NOTES TO THE FINANCIAL STATEMENTS
92
STATEMENT OF
CASH FLOWS
Understanding Financial Statements
STATEMENT OF
FINANCIAL POSITION
Purpose:
The statement of financial position / balance sheet reports a
company’s financial status at a set date noted on the statement.
Key Numbers:
Assets / Liabilities/ Stockholder’s Equity
93
Understanding Financial Statements
STATEMENT OF
EARNINGS
Purpose:
The statement of earnings shows how much revenue a company
brings into the business by providing goods or services or both, to
its customers for a set time.
Key Numbers:
• Revenue
• Gross Profit
• Operating Income
• Net Earnings
• Earnings Per Share
94
Understanding Financial Statements
STATEMENT OF
CASH FLOWS
Purpose:
The statement of cash flows reports the flow of cash into and out of
the company in a given year.
Key Numbers:
 Net cash provided (or used) by operating activities
 Net cash provided (or used) by investing activities
 Net cash provided (or used) by financing activities
95
Understanding Financial Statements
NOTES TO FINANCIAL
STATEMENTS
Purpose:
 The notes are an integral part of the financial statements.
They tell you how the company arrived at the numbers in the
financial statements.
96
Analyzing Financial Statements
• What is an Annual Report?
• What are the Elements of an Annual Report?
• Understanding Financial Statements
• Analyzing Financial Statements
• Tips for Reading an Annual Report
97
Analyzing Financial Statements
An anonymous writer once said,
“The needs of people are few — to get food, find
shelter, and keep debt off the balance sheet
[statement of financial position].”
98
Analyzing Financial Statements
STATEMENT OF
FINANCIAL
POSITION
•
•
•
Examine a company’s
liquidity to gain insight into
debt and inventories
Current ratio:
•
Comparison of
current assets with
current liabilities
Compare to statement of
earnings – to statement of
financial position
•
A/R to Sales
STATEMENT OF
CASH FLOWS
STATEMENT OF
EARNINGS
•
•
Look for trends in revenue,
operating income, and
gross profit rates
Ratio of :
 Total Operating
Income/ Total
Revenue
99
•
•
How effectively is a
company generating and
managing cash.
Evaluate cash flows in
relation to earnings figures.
•
Some companies
report a positive
earnings and
negative net cash
flows on the
statement of cash
flows.
Tips for Reading an Annual Report
• What is an Annual Report?
• What are the Elements of an Annual Report?
• Understanding Financial Statements
• Analyzing Financial Statements
• Tips for Reading an Annual Report
100
Tips For Reading An Annual Report
1.
Chairman of the Board Letter
Should cover changing conditions, goals to achieve or achieved or missed,
actions taken or not to be taken.
Is it well written? Reading between the lines - what is being apologized for?
2.
Sales and Marketing
Should cover what the company sells, how, where and when.
Is it clear where the company makes most of its money presently? Is it understandable?
Is the scope of lines, divisions and operations clear?
3.
Several Years of Summary Financial Figures
Is this included? What's the growth of profits and operating income?
4.
Management Discussion and Analysis
Is there a clear discussion of significant financial trends over past two years?
How candid and accurate is it?
5.
Auditors Report
The important thing to look for here is what the qualifications are.
6.
Financial Statements
Check sales, profits, R&D spending, inventory and debt levels over time.
Read the footnotes to ferret out other information.
101
Tips For Reading An Annual Report
7.
Subsidiaries, Brands and Addresses
Where is the headquarters? Is it clear what lines, brandnames the company has
and what the overseas distribution network is?
8.
List of Directors and Officers
How many outside vs. inside directors? Are the directors well known and respected?
Are there less than 5 or more than 12 directors?
9.
Stock Price History
General trend of price over time: up or down? Which exchange is company
traded/listed? Stock symbol? Bonus/dividend history?
Some other things to consider about an annual report...
•
•
•
•
•
•
Is the report well written, clear, concise and succinct?
Are photos modeled or live? How well do they relate to the text of the report?
How much discussion is there of competition?
How clear are product plans?
Could the report be made more interesting, understandable or eye-appealing?
How does it compare with others in same industry?
102