business plan

Conchur De Barra

HOSPITALITY ENTREPRENEUR

Homework

• For your homework, you need to continue on your own, your Business Plans.

• In class we have covered:

- Cover Page

- Executive Summary

- Table of Contents

- Management Team

- Industry, Customer and Competition Analysis.

- Product & Company Description.

BA3 Business Plan Sections

• Cover

• Executive Summary

• Table of Contents

• Management Team i.e. You!!

• Industry, Customer & Competition Analysis

• Company & Product Description

• Marketing Plan

• Operations Plan

• Development Plan

• Critical Risks

• Offering

• Financial Plan

• Appendix

Marketing Plan

• You will have already mentioned market penetration and growth of your company but now you need to set out exactly how you plan on doing this.

• Primary components will be: Target Market Strategy, Product/Service Strategy, Pricing Strategy, Distribution Strategy, Advertising and Promotion, Sales Strategy, Sales and Marketing Forecasts

Target Market Attractiveness

• Target Market Attractiveness

• The challenge in identifying an attractive target market is to find a market that’s large enough for the proposed business but is yet small enough to avoid attracting larger competitors.

• Assessing the attractiveness of a target market is tougher than assessing the attractiveness an entire industry.

• Often, considerable ingenuity must be employed to find information to assess the attractiveness of a specific target market.

Marketing Plan

• Target Market Strategy: is selecting and describing one or more target markets that a company's product or service will identify for business opportunities. A target market is a defined group most likely to buy a company's products or services.

• Product/Service Strategy: How your product/service is differentiated from the competition. Discuss why customers will buy your product and not go back to competitors when they react.

Marketing Plan

• Pricing Strategy: Pricing strategy is important for companies who wish to achieve success by finding the price point where they can maximize sales and profits. Companies may use a variety of pricing strategies, depending on their own unique marketing goals and objectives. Cost plus or market demand as primary approaches.

• Distribution Strategy: Will show how you plan on getting your product/service to intermediaries, retailers and end use/customers.

Marketing Plan

• Advertising/Promotion: Within your resources you will have to identify how you advertise the product/service. Your progressive budget explained in reference to FP. Am primarily looking here for some creative content in the form of Guerrilla Advertising.

• Sales Strategy: Illustrate what kind and level of human capital you will devote to marketing. Internal/external sales strategy.

• Sales & Marketing Forecasts: Outcomes expected to be able to gauge success of marketing strategy.

Sales & Marketing Forecast

Operations Plans

• Operations Strategy: What aspects of your business have a comparative advantage over others?

• Describe the working facility (leased/purchased), ability to expand.

• Mention geographic and non internal factors such as highly educated labour force, language abilities, local regulations.

Operations Plan 1 of 4

• Operations Plan

• Outlines how your business will be run and how your product or service will be produced.

• A useful way to illustrate how your business will be run is to describe it in terms of “back stage” (unseen to the customer) and “front stage” (seen by the customer) activities.

• Items to include in this section:

• General approach to operations.

• Business location.

• Facilities and equipment.

Operations Plan 2 of 4

Operations Plan

Key Insights

• Your have to strike a careful

balance between adequately

describing this topic and

providing too much detail.

• As a result, it is best to keep

this section short and crisp.

Operations Plans 3 of 4

• Scope of Operations: What is the production scope of the product/service? Diagrams again are useful if relevant. Supplier relationships/partnerships. Scope for growth. Outsourcing and dangers involved with dependance on singular suppliers. Identify key suppliers and fault lines.

• On-going operations: investors will want to see how the company is planned to be run on a day to day basis. For start ups will usually involve the entrepreneur covering most of these roles initially.

Operations Plans 4 of 4

Development Plan/Timeline

• Development Timeline

• A schedule should be prepared that shows the major events required to launch the business.

• The schedule should be in the format of (risk mitigating) milestones critical to the business’s success.

• Examples of milestones:

• Incorporating the venture.

• Completion of prototypes.

• Rental of facilities.

• Obtaining critical financing.

• Starting production.

• Obtaining the first sale.

Development Plan/Timeline

Overall Schedule

Key Insight

• An effectively prepared and

presented schedule can be

extremely helpful in

convincing potential investors

that the management team is

aware of what needs to take

place to launch the venture and

has a plan in place to get there.

Development Plan/Timeline

• Formation of legal entity • Physical location identification • Rounds of finance • If R&D stage then indicate • Development of the product • Relevant permissions and licences • Recruitment and staff training

• Advertising and promotion • Launch date • Growth and development stages

Needs to include:

Development Plan/Timeline

• Development Strategy – explaining what has been done, is being done and still needs doing in the company

• Development Timeline - visual aid, will usually highlight dependencies of stages e.g. purchase of equipment after securing round of financing.

Development Plan/Timeline

• What is the purpose? What length of time? • Set all the goals and targets and key influences and

interconnected segments of the project

• Risk Mitigating Milestones, identify

• Need to avoid over optimism

• Will be a checklist for your business in the future, not just for you but also investors

• For Business Plan, think of overall look and presentation

Critical Risks

• Market Interest and Growth Potential: What is the possibility of a complete failure?

• Competitor Actions and Retaliation, remember stealth actions.

• Time and Cost to Development.

• Operating Expenses.

• Availability and timing of finance.

• Should use a SWOT and/or PESTLE analysis.

PESTLE analysis

• What is the political situation of the country and how can it affect the industry?

• What are the prevalent economic factors?

• How much importance does culture has in the market and what are its determinants?

• What technological innovations are likely to pop up and affect the market structure?

• Are there any current legislations that regulate the industry or can there be any change in the legislations for the industry?

• What are the environmental concerns for the industry?

PESTLE analysis

SWOT Analysis

Strengths:

• What advantages does your organization have?

• What do you do better than anyone else?

• What unique or lowest-cost resources can you draw upon that others can't?

• What do people in your market see as your strengths?

• What factors mean that you "get the sale"?

• What is your organization's Unique Selling Proposition (USP)?

• Consider your strengths from both an internal perspective, and from the point of view of your customers and people in your market.

SWOT Analysis

Weaknesses

• What could you improve?

• What should you avoid?

• What are people in your market likely to see as weaknesses?

• What factors lose you sales?

Again, consider this from an internal and external basis: Do other people seem to perceive weaknesses that you don't see? Are your competitors doing any better than you?

SWOT Analysis

Opportunities

• What good opportunities can you spot?

• What interesting trends are you aware of?

Useful opportunities can come from such things as:

• Changes in technology and markets on both a broad and narrow scale.

• Changes in government policy related to your field.

• Changes in social patterns, population profiles, lifestyle changes, and so on.

• Local events.

SWOT Analysis

Threats

• What obstacles do you face?

• What are your competitors doing?

• Are quality standards or specifications for your job, products or services changing?

• Is changing technology threatening your position?

• Do you have bad debt or cash-flow problems?

• Could any of your weaknesses seriously threaten your business?

SWOT Analysis - example

Offering

• This is where you explain your pitch for investment

• Should show the amount of finance required and the timing

• The (future) value of the company if relevant

• Should show how the capital is going to be spent

• Show a reasonable return for an investor

• (Positive) Exit strategy

Financial Plan

Should include a description of the key drivers that impact revenues so that the reader can follow.

- 3 pro forma financials covering min. 2 years. May need to show 3-5 for profitability proof of concept.

- Discuss the income statement, what assumptions have been made, how you segmented and broke down the revenues and expenses. Mention (if) seasonality peaks and troughs.

- Then explain the variances in your cash flow with impacts of taxes etc., shouldn’t be as long as the income statement explanation.

- Explanation of the balance sheet.

Appendixes

• In here list anything and everything of relevance to the project that helps explain where your findings have come from e.g. quote industry sources, cv’s of the team, any reviews you’ve had of your idea.

• Good to include LinkedIn page of the entrepreneurs should an investor wish to see if what has been said is publicly available information.

• Remember you’re writing a book so you don’t want reader having to flick back to sections also unnecessarily.

• From the presentations, in general, one of the most lacking aspects was the financials before deciding if an investment could be made.

• Finances can be a daunting aspect, yet without them, a start up has almost no possibility of success

• Financial reporting can be time consuming and ‘boring’.

• Proforma financial statements are part of the business plan – the section financial investors will usually look at first before anything else.

Pro Forma Financial Statements

1)Not understanding the revenue drivers – all entrepreneurs claim their estimates are conservative, 99% of the time they are overly optimistic.

2) Underestimating costs – poor projections lead to cash crunches and ultimately failure.

3) Underestimating time to generate revenues (think break even point and + cash flow).

4)Lack of comparables – investors will look to industry norms and if you are expecting higher than industry standard norms then you will have to have justified reasons for it*.

Common Mistakes When Planning PFFS

Example: Industry Norms In Full

service restaurants in USA According to the "2010 Operations Report" by the National

Restaurant Association and Deloitte & Touche LLP

- Full-service restaurants at all levels spent about 32 percent of each dollar on the cost of food and beverages.

- 33 percent on salaries and wages, and from 5 percent to 6 percent on restaurant occupancy costs.

- Profit margins, however, varied according to the cost of the average check per person.

- Those with checks under $15 showed a profit of 3 percent.

- Those with checks from $15 to $24.99 boasted the highest profit margin at 3.5 percent. Finally, those with checks of $25 and over had the lowest profits, at 1.8 percent.

5)Top-down versus bottom-up forecasting. « I only need 2,5% of a market to make US$ 1,000,000 » process of acquiring customers needs to be fully thought through.

6)Time to secure financing: one of the bigger annoyances for investors is an enetrepreneur assuming they will close rounds of financing quickly. By overlooking this, is a very easy way to find out the real definition of negative cash flow...

Common mistakes when planning

PFFS cont’d…

• Revenue per employee

• Revenue per salesperson

• Employees per customer

• Gross Margin

• Expense categories as % of revenues

• Financial ratios

• Industry-specific metrics

Compare yourself to others in your industry

where possible:

INCOME STATEMENT:

- Describes how well a company conducted itself over a

period of time

- Starts at the top with revenue

- COGS are deducted resulting in gross profit

- Overheads deducted

- Depreciation accounted for

- Interest on debts/financing. Non-operational Costs

- Taxes on/if profits.

- Bottom line is (literally) the company’s profits,

called net earnings or net income.

Pro Forma Financial Statements

Income Statement

Pro Forma Financial Statements

Statement of Cash Flows

- Without cash there is no business, this

document/statement monitors the flow of cash in and out

within a business.

- Selling a product doesn’t mean you have received payment

for it.

- Taxes, benefits can be quarterly, annually, postponed

cash drains.

- Bottom up accounting, adding back cash where it hasn’t yet

accrued, deducting items not yet sold e.g. capital

expenditures.

Statement Of Cash Flows

Pro Forma Financial Statements Balance Sheet

• Assets = Liabilities + Shareholder Equity

- Lists all of the companies assets, liabilities and

shareholder equity.

- Assets are all the things the company owns that are

expected to generate value over time e.g. inventory

(stock), buildings, equipment, accounts receivable

and cash. Should be listed as long and short term. In

our BP we will mostly deal with tangible assets.

- Liabilities represent all the money the company expects to

pay eventually e.g. accounts payable, debts and unpaid

taxes. Should be listed as Long and Short Term Liabilities.

Pro Forma Financial Statements Balance Sheet

• Assets = Liabilities + Shareholder Equity

- Shareholder Equity is the money that shareholders have

paid into the company as well as the company’s earnings

so far; (more often referred to as assets less liabilities)

- Shareholder Equity Ratio, expressed as a percentage, is

calculated by dividing total shareholders' equity by total

assets of the firm, and it represents the amount of assets

on which shareholders have a residual claim. The figures

used to calculate the ratio are taken from the company

balance sheet.

- The balance sheet ALWAYS balances!!!

How To Build

Pro Forma Financial Statements

• Having investigated if your idea is a business

opportunity you have indepth knowledge of your product,

now need to put that knowledge into numbers

• Start with the income statement

• The other 2 statements derive, in part, from

the income statement

Revenue Projections

• Easy and lazy to ‘stick finger in the air’ annual turnover.

• Break it down, then break it down some more, then break it

down some more, then work in reverse.

• Make assumptions otherwise will get bogged down eternally

• Estimates end up only being as good as the assumptions –

so stay realistic.

• The work has to be put in on the assumptions, research

primary and secondary data available where possible.

• Segment the assumptions throughout the year, this will be

useful later for cash flow purposes.

Cost Of Goods Sold

• Is the direct cost of the sold items.

•Opening stock/inventory plus net purchases less closing stock/inventory.

•Refer back to industry standards here if you don’t have personal knowledge. Identify any reasons why your GPM

will be lower/higher than industry standard.

•Check the stock levels needed depending on the economies of scale of bulk purchase and availability of

supply.

Cost Of Revenues

For Service Based Businesses

•Shipping Costs – If you are an Amazon style business, you would not incur the direct cost without the direct sale. Other

examples of hybrids?

•Sales Commissions – Sales commissions are another common expense that should be included in cost of

revenue. You only incur sales commission expenses when

you generate revenue through a sale of your product or

service; therefore, sales commissions should be included

in your cost of revenue.

• A common rule of thumb when determining what is cost of

revenue and what is not, is to simply ask yourself, “Would I

incur this expense if I did not make a sale today?”

Cost Of Revenues (What Not To Include, Advice)

•Salaries – Employee salaries are not directly tied to revenue, in other words, your employees are paid the same salary each

month whether they sell more or less goods and services.

•Rent – Your rent expense is another overhead cost that is not included in cost of revenue.

•Phone Service – The phone bill will arrive each month whether you sell 100 widgets or 1,000,000 widgets; therefore, it is not to

be considered part of your cost of revenue.

•Utilities – Now this might be up for debate because your utilities might go up or down based heavily upon your sales volume, but

even if you did not sell any product or service next week

wouldn’t you still turn the lights on? Wouldn’t you still heat or

call your office building? In general your utilities are not

considered as part of Cost of Goods Sold or Cost of Revenue.

A list of the general costs that comprise the COGS for a SaaS business and may not be part

of the Operating Expenses:

•Application hosting and monitoring costs. •Customer support and account management costs. •Data communication expense. •Software license fees for products embedded in the

application.

•Website development and support costs. •Professional services and training personnel costs. •Costs of subscriptions. •Hosting fees (often the highest expense after salaries and

benefits for SaaS businesses)

A list of the general costs that comprise the COGS for a SaaS business and may not be part

of the Operating Expenses:

•Third-party web fees like content delivery networks, embedded software, etc.

•Support personnel costs •Customer on-boarding costs (e.g. client implementation

personnel costs).

•Note: Credit card fees and other billing fees often are not cost of goods sold for SaaS companies and are instead

general and administrative fees.

Operating Expenses

(also called indirect expenses)

•Examples are: salaries, rent, admin costs, marketing, online fees, accountancy fees, legal fees, payroll, etc.

•Again a lot of industry secondary data can be available,

what is the per m² for rent in a certain area? What are

normal salaries in the industry, how many staff will you

need, what hours will they work? Identify costs with

similar businesses in same area.

•Costs should be identified, examined, re-examined until

comfortable with the result.

Depreciation and Amortisation

• Depreciation: The gradual conversion of the cost of a

tangible capital asset or fixed asset into an

operational expense (called depreciation expense)

over the asset's estimated useful life.

• Amortisation: refers to the gradual writing off in book

value terms of intangible assets. Examples of

intangible assets are….

• For Belgium generally: if goods >800€ → 4 years else write

off < 800€ directly.

Business start-up costs

• Business start-up costs are expenses for creating an

active trade or business or investigating whether you

should create or buy an active trade or business. You can

amortize a cost only if:

- It’s a qualified, deductible business expense for a

business that’s already up and running.

- You pay or incur it before the day your active trade

or business begins.

• Examples of amortizable start-up costs include:

- Advertising the opening of the business

- Wages for workers who are being trained, along with

instruction costs

- Travel and related expenses in finding customers, distributors

or suppliers

- Research on things relating to the viability of the business,

like possible markets for your goods or services, the local

labour pool and the availability of transportation

- Costs that don’t qualify include tax-deductible interest and

real estate and other taxes.

Business Start-up Costs

Preliminary Income Statement

• This already highlights weaknesses or strengths in a model.

• Taxes need to be deducted/added to the above, always

assume higher if unsure.

• If certain of borrowing requirements add any interest

repayments on borrowings, otherwise estimate an amount

plus potential redemption payments.

• Tax rate

The tax rate is 33 %, but in Belgium are the surcharges 3

%, the combined rate (all-in rate) is 33.99 %. There are

also targeted corporate income tax rates which can be

applied when the taxable profit does not exceed 322 500

EUR. In order to qualify for these reduced rates, a

company must however fulfill a number of additional

conditions relating to the activities of the company, the

shareholding of the company, the rate of return of

distributed profits and the remuneration of their managers.

Belgium Corporation Tax

WWW.CFE-EUTAX.ORG/TAXATION/CORPORATE-INCOME-TAX/BELGIUM

HTTP://TAXSUMMARIES.PWC.COM/UK/TAXSUMMARIES/WWTS.NSF/ID/BELGIUM-CORPORATE-DEDUCTIONS

Belgium Corporation Tax

Droit D’Auteurs 15% Withholding Tax

Droit d’auteurs ttp://www.wolterskluwer.be/corporate/fr/auteurs/informations-utiles/regime-fiscal-des-droits-dauteur/personnes-physiques-et-asbl/

Gross Profit Margin/ Revenue/Purchase Price

•GPM = (Revenue – COGS)/Revenue

•In American Resto example:

•68% GPM = (Revenue -32 (COGS)/Revenue

0,68R= R-32

68R= 100R-3200

68R-100R=-3200

-32R=-3200 R= 100