business plan tool kit. 1 contents what is a business plan writing a business plan business plan...
TRANSCRIPT
Business Plan Tool Kit
2
Contents
What is a Business Plan
Writing a Business Plan
Business Plan sample (to be complemented later)
3
¶ Definition of a business plan
¶ The role of a business plan in new business development process
¶ The significance of a business idea
¶ Developing a business idea
¶ Elements of a promising business idea
¶ Prioritizing a business idea
¶ Protecting your business idea
What is a Business Plan
4
¶ Definition of a business plan
A business plan must have a detailed plan for the following eight factors ;
1) Product/ Service
2) Market and Competition
3) Marketing
4) Business System
5) Organization and HR
6) Opportunities and Risks
7) Implementation Schedule
8) Financial Planning
What is a business plan
Developing a business idea (idea which can make money) into a detailed plan that can be
implemented
5
¶ Role of a business plan in new business development process
New business promotion
stage
Methodology
Internal support organization
Online Idea DB
Intangible Workshop
Benchmarking/Megatrend Analysis
Business Plan Competition
Stage 1
Stage 2
Stage 3
Idea Generation
Business plan write-up
Implementation and growth
Idea Generation Management Team
Business Plan Development Team
Investment Committee
Venture Team (TFT)
What is a business plan
A business plan can be defined as the intermediary stage before a business idea can actually be
implemented as a new business
6
¶ Significance of a business idea
There are many different ways to generate a business idea. The following are recommendations to come up with well-organized business ideas-best if implemented at the same time
– Intangible Workshop : Hold workshops to generate ideas to facilitate company intangibles, as the significance of intangibles continue to grow under the new economy
– Benchmarking/Megatrend Analysis : Study megatrends of other industries to generate ideas or conduct benchmarking analysis
– Online Idea DB : Make an idea DB online to enable review/posting of ideas as a way to help develop business ideas
– Business Plan Competition: Hold business plan competitions to generate business ideas
What is a business plan
‘No business idea, no business plan’ ‘No business plan, no business’
A business idea is the start of a business establishment. You must have many creative ideas which
can be transformed into a business in order to create value
¶Developing a business idea
7
¶ Elements of a promising business idea
– The key to success in the marketplace is satisfied customers, not great products. (ex) “Our new device can perform 200 operations per minute.” (X)
“Our new device has 25% fewer parts.” (X)
“Our new device will save the customer a quarter of the
time.” (O)
– Make value propositions to the customer
– Present customers with unique values.
Clear customer value
Market of adequate size
Feasibility and profitability
Sufficient degree of innovation
11 22
44 33
What is a business plan
◇ Clear Customer Value
• Who will buy your product/service ?
• Why should the customer buy the product ? (What needs does your product fulfill that the competitor products cannot ?)
• What is most unique about your business idea ?
Key Questions
8
– Does the market you plan to target with your
products/services have adequate size
(no precise analysis needed, statistics or estimates can
be used)
– Know who your competitors are.
Clear customer value
Market of adequate size
Sufficient degree of innovation
11 22
44 33
What is a business plan
◇ Market of adequate size
Feasibility and profitability• What is the market size ?
• Is the market growing ?
• What is your target market and market share ?
• Who are your competitors ?
• What are your strengths/weaknesses compare to your competitors ?
Key Questions
9
– A business idea should have the following four elements
according to product/service type and business system
–-Must specify where innovation is taking place
New product(Microsoft)
New industry(Netscape)
Existing industry
New business system(Dell)
Business System
Co
nve
ntio
nIn
no
vatio
n
Pro
du
ct/s
ervi
ce
Convention Innovation
Clear customer value
Market of adequate size
Sufficient degree of innovation
11 22
44 33
Feasibility and profitability
◇ Sufficient degree of innovation
What is a business plan
• How is your product/service innovative ?
• How is your business system innovative ?
Key Questions
10
– Consider feasibility (legal constraints,
time/resource limits, etc)
– Calculate overall profitability (simple
cash flow, etc)
Clear customer value
Market of adequate size
Sufficient degree of innovation
11 22
44 33
Feasibility and profitability
◇ Feasibility and Profitability
What is a business plan
• What are the constraints in implementing your business idea ?
• Why are other people not implementing this kind of business idea ?
• What is the gross margin rate of your planned business ?
• How much investment is necessary ? How much is the variable cost ? Does the profit increase ?
• What is the overall cash flow ?
Key Questions
11
¶ Prioritization of a business idea - In search of a killer idea
– A process to prioritize generated ideas
– Positioning of ideas on the below chart based on the potential market and its feasibility
※ Killer Idea: An idea capable of creating a new market (ex. walkman, mobile phone, Dialpad,
45min. photograph printing, etc.)
Seek solutions for obstacles in implementation
Immediately launch business plan write-up
Postpone Seek ways to expand market size
Feasibility
Low
Hig
h
Mar
ket
size
(al
low
g
row
th)
Low High
What is a business plan
12
¶Protecting a business idea
Ways of protecting a business idea
– Patenting : Patenting a business idea to ensure legal protection
– Confidentiality agreement : Maintaining a confidentiality agreement with related parties
working on the business idea
– Quick implementation : Implementing your business plan as soon as possible
What is a business plan
Innovative ideas are the result of hard work and creative thinking. It is important to protect the idea
sufficiently so that the idea is not exposed to other industries
The best protection is to implement your business idea as quickly as possible so as to build an entry
barrier
13
¶ The need to write a business plan
¶ Elements of a good business plan
¶ Business plan structure
Writing a business plan
¶ Summary
¶ Product/ Service
¶ Market and Competition
¶ Marketing
¶ Business System
¶ Organization and HR
¶ Opportunities and Risks
¶ Implementation Schedule
¶ Financial Planning
14
¶ The need to write a business plan
“Writing a business plan forces you into disciplined thinking, if you do an intellectually honest job.
An idea may sound great, but when you put down all the details and numbers it may fall apart.”
Writing a business plan
The business plan was first used in the USA by start-up and venture companies as means of
acquiring funds from private investors and venture capitalists. Even major corporations rely on
business plans to help them make internal investment decisions.
– Can systematically examine feasibility of the new business from various angles
- Can provide solutions to problems and heighten efficiency of the new business with clear analysis
of the situation
― Provides an invaluable tool for management and evaluation of the project
Benefits of writing a business plan
15
¶ Elements of a good business plan
◇ Clarity: Must clearly lay out the key points (strengths) of the business plan
◇ Objectivity: Must be based on objective data
◇ Simplicity: Should be comprehensible by technical layman
◇ Consistency: Must have uniform visual layout and consistency in editing of
the final version
◇ Well-defined, quantifiable customer value : Lowering the cost of delivering an existing value or creating a new value if this can be achieved at reasonable cost
◇ Innovative product/service : The product/service and/or business system must possess a high degree of innovation
◇ The possibility to protect/sustain the innovation
◇ A growing and/or large market : The target market should grow at a fast pace or should be a large market
◇ A far-sighted analysis of the competition : Provide a complete and objective description of existing and potential future competitors
◇ A careful weighing of the risks and opportunities : Provide a realistic description of the risks involved in the business and plans to overcome them. Explain ways to make use of potential opportunities
General principles
Main Contents
Writing a business plan
16
Check to see if your readers can read and comprehend the summary in five to ten minutes even if
the person has no previous knowledge of your business concept or its technical or scientific basis
Writing a business plan
¶ Summary
The summary should be able to deliver the most important aspects of the business plan to the
decision-makers
Focus on these four elements when writing your summary
― Clarity of the business idea
― Value the product/ service provides to the customer
― Market size and growth
― Return on investment
Describe your business idea as clearly, compellingly, and concisely as you can
17
¶ Product/ service
Development status of the product/service
– Explain the stage of development your product/service has reached
– Identify technical/legal/consumer behavioral/partnership (need to partner with other
industries)/social and cultural constraints in delivering product or service to customers and provide
solution measures
“If you don’t know what the customer value is, the whole thing is a waste of time.”
Writing a business plan
Clearly indicate how your product/service differs from those that are now or will be on the market
Customer Value
– The business plan doesn’t make any sense if the product or service fails to provide better
value to the customer compared to current market offerings
– Analyze the value the customer gains from your product/service
– Weigh the advantages and disadvantages of the new product/service from the customer’s
perspective
18
Check List (Product/service)
Have you explained plans to retrieve the value delivered to the customer ? (how will you get your money back)
□ Development status of the product/service
Have you accurately explained the current stage of development of your product/service ?
Have you indicated what resources (time, personnel, funds) you require for each subsequent development ?
□ Customer Value
Is there a clear definition of what customer value your product/service provides ?
Have you defined who you customers are and who are not ?
Have you identified why the customer buys your product/service ? (Have you explained what added value the customer receives compared to other products/services)
Have you weighed the strengths/weaknesses of your product/service over comparable products/services from the customer’s perspective ?
Have you conducted pilot tests or surveys to see if the product/service fulfills customer needs ? ( or tried other means to find out)
Have you explained the technical barriers and solution measures ?
Have you explained the institutional/legal constraints and ways to overcome them ?
Have you explained the customary/consumer behavioral constraints and solutions ?
Have you explained the cultural/social constraints and ways to overcome them ?
Yes No
Writing a business plan
19
¶ Market and Competition
Market size and growth
– A rapid increase in the value of the company can be expected only if the market holds a
great potential
– The market size should be presented in figures i.e. number of customers, of unit sales,
total sales
– Your expectations for market growth are critical ; show what factors will affect
developments (e.g.technology, legislative initiatives)
– Forecasting market size and growth
Define factors influencing market size and growth
Set hypothesis on future developments
Collect facts needed to verify hypothesis (past trends, expert opinions)
Estimate market size and growth based on the proven hypothesis
“If there is no competition, there is probably no market.”
Writing a business plan
20
Points to follow when making an estimate
–Build on solid foundation : Rely on easily verifiable figures even though there may be many
unknowns
– Think logically : An estimate should be a logical conclusion and should not have any leaps in logic
or depend on unspecified assumptions
– Compare your sources : Check your facts with other sources (interviews, statistics, expert opinions)
to ensure objectiveness
– Be creative : Look for a substitute variable that relates to your need when a variable is unknown
– Check for plausibility : Check if each estimate makes sense
Writing a business plan
21
Market Segmentation
- Segment the market and explain your target market
- There are many ways to segment the market but the following three elements need to be
present
1) Determine the number of customer in each market segment and their buying power
(Measurability)
2) Identify customer behavioral pattern in each segment (Homogenous-within)
3) Use the same marketing strategy for customers within each segment
Customer segmentation criteria for consumer goods markets
Customer segmentation criteria for industrial goods markets
� Location : country, urban/rural (population density), climate
� Demographics : age, sex, income, profession, religion, education level
� Behavior : Frequency of product purchase, product usage, brand loyalty, price sensitivity, purchasing variables
� Psychological factors : Lifestyle (behavior, interest, opinion)
� Demographics : company size, industry, location
� Operations : technology employed (e.g., digital, analog)
� Buying habits : centralized or decentralized purchasing, purchasing criteria
� Situational factor : urgency of need, order size
Writing a business plan
22
Competition
–Compare key customer value, target customers, sales revenue, market share, cost positioning,
product lines, and distribution channels of your company with those of your competitors
–Compare strengths/weaknesses of your product with that of the competitors
–Consider ways to maintain your competitive edge
–Compare your intangible assets with those of the competitors
–Analyze your positioning strategy in the market with that of the competitors
* Positioning : transferring the customer’s market position of the product/service to a position that
the company wants to take (ex. Low quality product⇒high quality product, baby products ⇒ adult
products)
–Maps for designing positioning strategy (samples)
Quality
Lo
wH
igh
Pri
ce
Low HighProduct line
Lo
wH
igh
De
liv
ery
tim
e
Low HighCredibility
Lo
wH
igh
Co
nv
en
ien
ce
Low High
Writing a business plan
23
Have you explained factors crucial for success in your target market ?
□ Competition
Have you identified your competitors with comparable products/services ?
Have you given an analysis of your potential competitors ?
□ Market size and growth
Have you explained the general trend of your target market ?
Is there a rationale for present market size ? Is there a rationale for future market growth rate ?
□ Market segmentation
Have you defined the criteria for market segmentation and its rationale ?
Have you compared the strengths and weaknesses of your major competitors with your own ?
Have you compared your strategies with those of your competitors ?
What is your competitive edge (especially intangible) over your competitors and have you explained if your competitive edge will be sustainable ?
Have you given a rationale for characteristics of each market segment (profitability, size, growth rate) and their future prospects ?
Is there a clear definition of the target customer and customer examples ?
Have you determined the target market share for each market segment ?
Writing a business plan
Check List (Market and competition) Yes No
24
¶ Marketing
Price
–Determine the attainable price for your product/service and evaluate on willingness of customers to pay the asked price (new businesses often encounter problems because of the conventional wisdom that price is derived from cost)
–Quantify the customer value of your product/service and define the price bracket. Verify and refine your assumptions through discussions with potential customers
–The pricing strategy depends on your goal ; the choice can be either penetrating the market quickly by going with low price (Penetration Strategy) or generating the highest possible return from the outset (Skimming Strategy)
Skimming strategy
Penetration strategy
� A new product/service is positioned as better than previous options, so a higher price can be justified. You can also create a superior image of the product/service
� Higher prices generally lead to higher profit margins, and allow the new company to finance its own growth
� Can set a new standard in the early stage (e.g. Netscape, Explorer)� Can substantially lower fixed costs per unit if the fixed cost is high in the initial stage of the business� Can prevent market entry by competitors
“Marketing is far too important to be left to the marketing department.”
Writing a business plan
Marketing is a key element in a successful business launching. This requires a clear strategy for the
so-called 4Ps (Product, Price, Place, Promotion) (For product, refer to the product/service section)
25
Place
–How to deliver your product/service to the customer is a key marketing issue and requires
consideration of various factors
–The main factors to consider are ; the number of potential customers, range of
product/service, are the customers companies or individuals, where do they prefer to shop,
does the product require explanation, what is the price bracket, what is the frequency of
purchase, what are the institutional/legal constraints
–Another significant marketing decision is whether your company will handle the distribution
itself, or whether a specialized operation will handle it for you. Technological developments
have greatly expanded the spectrum of distribution channels and the choices are as follows ;
1) Third-party Retailers : Products sold to the end customer via retailers
2) Outside Agents : Specialized companies acting as agents for the distribution of
products (don’t acquire ownership rights) and charging commission for sales
3) Franchising : Franchisees paying license or franchise fees and selling the
product/service
(e.g. McDonalds, Seven-eleven)
4) Wholesalers : A middle man specializing in re-sales to retailers
5) Stores : Selling products directly to customers
6) Own sales staff : Company marketing employees in charge of direct sales
7) Direct Mail : Selling products by mail to customers
8) Call Center : Inviting consumers to order products by telephone through advertising
9) Internet : Using Internet as a marketing channel
Writing a business plan
26
Promotion
–Advertising your products/services in order to attract customer’s attention, informing,
persuading and inspiring confidence
–Promotion can be defined as ‘marketing communication’. Communication must explain
the value of your product/service to your customers, and convince customers that your
product meets their needs better than competing or alternative solutions
–Ways to attract the customer’s attention
1) Classic Advertising : newspapers, magazines, TV, radio
2) Direct Marketing : direct mail to select customers, telephone marketing, internet
3) PR (Public Relations) : articles in print media about your product, business or
the management
4) Exhibitions
5) Customer Visits
–Be sure to focus on the people who make the purchasing decision or have the greatest
influence on the purchasing decision
Writing a business plan
27
Is the price of your product/service reasonable compared to current market offerings from the customer’s point of view ?
□ Promotion
Have you analyzed who, within each customer group, ultimately makes the purchasing decision ? Have you identified ways to draw attention of your target groups to your product/service ?
□ Price Have you specified what your price strategy is and reasons for adopting the strategy ?
Does the price asked cover costs and ensure a fair return ?
□ Place
Have you explained the reasons for your choice of distribution channel ?
Have you determined how much resources (time, investment) will be used to attract and maintain customers ? Have you described steps required for launching your product/service in the market ?
Have you specified the target sales volume for each distribution channel ? Have you explained the typical process of selling your product/service ? Have alternative distribution channels been compared and studied ?
Writing a business plan
Check List (Marketing) Yes No
28
R&D Production Marketing Sales Service
Writing a business plan
¶ Business System
A business system maps out the activities necessary to prepare and deliver a final product/service to
the customer
Three elements, namely the value chain, make-or-buy decisions and the need for partnership, must
be considered within the business system
Value Chain
–Describes the entire process of product/service delivery to end-users (use charts to enhance
understanding)
–Define the key value creating activities within the process
e.g.) In the case where R&D and marketing are the key activities
29
Need for partnership
–Determine whether it is necessary to forge a partnership for a part or whole of the
business system
–Points to consider when making a partnership
Win-Win situation: Determine whether both sides can gain a fair advantage from the relationship
Need to disperse risks: Determine whether there is a need to avoid risks within certain parts of the
business system (e.g. massive initial investment)
–Types of partnership
Non-binding partnership: Both parties can end the partnership quickly and easily
Close partnership: Can end the partnership only under agreement from both parties when there is
a high degree of interdependence
–Select field for partnership: Explain why there is a need for partnership in the select field
–Select partner company: Compare strengths/weaknesses of the partner
Make or Buy
– Define core skills for each process in the value chain
– Decide whether it is best to carry out the individual activities by yourself or whether outsourcing is a better option based on these criteria ; strategic significance, suitability, and availability
– If outsourcing is your choice, compare potential vendors or suppliers
Writing a business plan
30
Has the key value creation factor in the value chain been indicated ?
□ Partnership
Has the need for partnership been clearly explained ?
Have you compared potential partners ?
□ Value Chain
Is the value chain fully explained ?
Is the cost in each value chain objectively explained ?
□ Make or Buy
Have you specified which activities you want to handle yourself and which should be carried out by third parties ?
Have you compared possible ways to forge partnership ?
Have you examined whether the partnership gives equal benefits to both sides ?
Have you examined feasibility of your business from the viewpoint of strategic significance, suitability and availability ? Have you compared potential suppliers for outsourcing ?
Check List (Business System) Yes No
Writing a business plan
31
Organization
–Explain organizational structure necessary for each stage of the business (show
organizational chart)
–Maintain TFT format during the incubating stage of the business. Separate into an
independent business unit once the operation is in full swing
–Describe missions and functions of each organizational unit
HR
–Describe skills and qualifications required of the team leaders and members
–Set up KPI for performance evaluation of team leaders and members
–Suggest ways to reward outstanding team leaders and members
–Show required number of personnel according to each organizational unit/rank
Writing a business plan
¶ Organization and HR
32
Is there enough background for the organizational structure ?
Have you selected KPI for performance evaluation of team leaders/members ?
Does the KPI match the missions and functions ?
Have you presented an organizational chart according to each business stage ?
Have you detailed functions and missions for each organizational unit ?
□ HR
Have you described the skills and qualifications required of each business unit leader ?
Have you suggested ways to reward outstanding team leaders/members ?
Is the organization structure suitable for speedy decision making ?
Have you described the skills and qualifications required of each unit team member ?
Have you indicated whether you will utilize your own or outside people as team leaders/members, and given rationale for your choice ?
Have the number of ranks been minimized as much as possible ?
Writing a business plan
Check List (Organization and HR) Yes No
□ Organization
33
Analyze the opportunities and risks involved in the new business and promote risk
management and opportunity use
Risk analysis
–Analyze the fundamental risks related to the market, competition and technological
development for the new business
–Quantitatively measure the impact on the risks
–Seek ways hedge or manage the risks
Opportunities analysis
–Analyze additional opportunities related to the market, competition and technological
development for the new business
–Quantitatively measure the value of the options
–Seek ways to enhance the value of the options
“One of the greatest myths about entrepreneurs is that they are all risk seekers. All sane people want to avoid risk.”
Writing a business plan
¶ Opportunities and Risks
34
Are the risks related to the market, competition and technological development quantitatively evaluated ?
□ Risk analysis
Are the risks in market, competition, and technological development related to the new business accurately defined ?
Have you suggested ways to hedge the risks ?
□ Opportunity analysis
Are the potential opportunities in market, competition and technological development related to the new business accurately defined ?
Are the options related to the market, competition and technological development quantitatively evaluated ?
Have you pointed out ways to heighten the value of the options ?
Writing a business plan
Check List (Opportunities and risks) Yes No
35
Drawing up your implementation schedule
1) Gantt implementation schedule : Check major tasks on the Gantt chart
2) Major milestones : Indicate events that should be defined as milestones
3) Important connections and interdependencies between the work assignment
groupings
Writing a business plan
¶Implementation Schedule
A realistic five-year plan enables you to consider inter-related issues in promoting your project and
above all, help you to avoid possible risks from attempting to reach your targets with an overly
optimistic planning
36
Sample Gantt Chart
Task
2000
1 2 3 4 5 6 7 8 9 10 11 12 2001 2002 2003
Development• Software
development• Hardware Set-up• Test
Marketing• Establish customer
relationship• Advertising• Regional expansion
Organization/HR• TFT
organization/management
• Recruiting/training
Milestone New product completion
Launch advertising
Busan operations Kwangju
operations
Taegu operations
Seoul operations
Writing a business plan
37
Are all major tasks included in the schedule ?
□ Gantt chart implementation schedule
Is the implementation schedule in the form of a Gantt chart ?
Is the implementation schedule consistent with other sections (organization, personnel, financial planning) of the business plan ?
□ Milestone
Have all the major milestones been indicated ?
Are the milestones consistent with the Gantt implementation schedule ?
Is the schedule overly optimistic ?
□ Interrelation and interdependency
Is the order of tasks logically laid out ?
Is there a reasonable explanation for the interdependencies between tasks ?
Writing a business plan
Check List (Implementation schedule) Yes No
38
Minimum required for financial planning
1) Cash flow statement, income statement, balance sheet
2) Forecasts over five years, at least one year beyond the generation of positive
cash flow
3) Detailed financial planning for the first two years (monthly or quarterly), thereafter
annually
4) All figures must be based on reasonable assumptions (the basis for all
assumptions must be provided in the business plan)
5) Analysis of the economical efficiency (NPV, IRR, Payback period) and sensitivity
analysis of major variable changes
Writing a business plan
¶ Financial Planning
Financial planning is a consolidation of all elements in the business plan and assists you in
evaluating the profitability of your business
Financial planning is used as a basic data for forecasting the amount of financing needed to set up a
business
“Planning substitutes chaos for mistakes.”
39
Income statement
• The income statement shows whether the business can generate profits. Businesses
unable to yield long-term profits cannot continue to exist
–The provisions of the income statement are as below and sub-categorized according to
the characteristics of the business (Businesses operating on internal funds without any
external sources does not take the interest cost into consideration : unleveraged basis)
A. RevenueB. Cost
• Give rationale in the form of price x volume• Categorize into variable/fixed costs and give rationale
NotesYear 1 ~ 5
C. Gross Profit (A-B)D. SG&A
E. EBIDTA (C-D)F. Depreciation
G. EBIT (E-F)H. Tax
I. NOPLAT (G-H)
• Show gross profit rate (gross profit/revenue)• Categorize into variable/fixed costs and
SG&A/overhead and give rationale
• Should be consistent with investment plans in the cash flow statement, give rationale for manner and period of amortization
• Indicate tax rate
Writing a business plan
40
Cash Flow Statement
–The cash flow statement shows the amount of invested capital and the cash that will be
generated from business operations
–The provisions of the cash flow statement are as below ;
A. Operating cash flow
A.1. After-tax sales profit A.2. Depreciation A.3. Decrease/(increase) in account receivables A.4. Increase in account payables/(decrease) A.5. Decrease/(increase) in inventory A.6. Decrease/(increase) in other working capital
B. Invested cash flow
• Same as NOPLAT in income statement • Same as depreciation in income statement • Give rationale in the form of daily revenue x A/P
period • Give rationale in the form of daily revenue x A/P
period • Give rationale in the form of daily revenue x
inventory days • Give rationale in SG&A ratio
• Detailed annual investment (Categorize into assets/depreciation difference) should be put in a separate provision
C. Net cash flow (A - B)D. Accumulative cash flow
Writing a business plan
NotesYear 1 ~ 5
41
Balance Sheet
–The balance sheet shows changes in corporate assets on an annual basis
–The provisions of the balance sheet are as below ; (The balance sheet can be
automatically calculated from the income statement and cash flow statement figures)
A. Current assets A.1. Account receivables A.2. Inventories A.3. Other working capital
• Accumulative increase/decrease in account payables on the cash flow statement
• Accumulative increase/decrease in inventories on the cash flow statement
• Accumulative other working capital on the cash flow statement
C. Total assets (A+B)
D. Current liabilities D.1. Account payables
E. Equity E.1. Investment capital E.2. Accumulative after-tax operating profit
• Accumulative invested cash flow on the cash flow statement
• Accumulative depreciation on the income statement
• Accumulative increase/decrease in account receivables on the cash flow statement
• Accumulative cash flow on the cash flow statement
• Accumulative EBITDA on the income statement
Writing a business plan
NotesYear 1 ~ 5
F. Liabilities and equity (D + E)
B. Non-current assets B.1. Investments B.2. Accumulated depreciation
42
Results of economics analysis
–Indicate economic profitability of the company by Net Present Value (NPV), Internal Rate
of Return (IRR), and Payback period
–A typical economics analysis is as below ;
A. Net cash flow (from cash flow statement)
Year 1 Year 2 Year 3 Year 4 Year 5 Perpetuity Total
B. Accumulated net cash flow (from cash flow statement)
C. Payback period : Point when accumulative net cash flow becomes a plus
D. Perpetuity : EBITDA x Multiple (multiple reflecting business characteristics)
E. Discount rate(i) : Cost of capital + α (additional business risks)
F. Present value index :
G. NPV : (ΣA x F + D x F)
H. IRR : Discount rate when A + D = Zero
1/(1+i) 1/(1+i)² 1/(1+i)41/(1+i)³ 1/(1+i)5 1/(1+i)5
Writing a business plan
※ Perpetuity : Continued value/remaining value when the business continues its operation after the forecasting period
43
Sensitivity analysis
–Sensitivity analysis looks at how changes in the key drivers of the business affects the
economics and profitability, thereby evaluating the level of risk involved and identifying
the risk factors
–Key drivers mainly used for sensitivity analysis are investment cost, price, sales volume,
etc.
Key Driver
Investment cost
Price
Sales volume
Cost of materials
SG&A
-20%
Mark changes in NPV and
IRR
-10% Base +10% +20%
Mark changes in NPV and
IRR
–Define potentials and solutions for each key driver
Writing a business plan
44
In there an accurate basis for the assumptions ?
□ Balance sheet
Is the balance sheet easy to understand ?
Is the balance sheet consistent with the income statement/cash flow ?
□ Assumptions Can a third person draw up the income statement, cash flow statement and balance sheet based on the given assumptions ?
Is there an explanation on whether the price covers the cost and guarantees a reasonable profit ?
□ Income statement
Is the income statement easy to understand ?
□ Economics analysis and sensitivity analysis
Is the economics analysis easy to understand ?
Is the income statement categorized sufficiently ?
□ Cash flow statement
Is the cash flow statement easy to understand ?
Is the perpetuity adequately evaluated ?
Is the calculation accurate for NPV, IRR, and Payback Period ?
Is the sensitivity analysis on the key drivers reasonable ?
Is the cash flow statement categorized sufficiently ?
Writing a business plan
Check List (Financial planning) Yes No