"NEWS July 22, 2016-the business plan part 1"

Posted by on Jul 22, 2016

The business plan is a document that contrast historical information, their budgets, information perspective, typical of company forecasts. These two types of data must be closely related, because the prospective data are relevant but based on estimates and assumptions the more subjective the more you lengthen the predictions over the years. The business plan thus plays the role of a liaison to this information through three functions. The first is corporate management, as the planning objectives requires senior management to communicate with the structure in order to plan the objectives. The second is to check business performance achieved, intended to set goals that has set the company, such as increase in revenue or market share, pruning the company structure, reduction of logistics costs, energy or personnel, or reaching a certain operating profit, EBITDA or contribution margin (data that , among others, could affect premiums payable to management). The last function is to enforce the company's reputation in the external market. That said, an example of the structure of the business plan could be as follows.

  1. Index: 1-2 pages, is composed of a section critical to immediately take note of the level of detail and accuracy of your business plan.
  2. Summaries/executive summary: long from 1 to 3 pages, contains a summary of the document. Is vital as who assesses the plan may not browse the rest of the document if he feels this way satisfying. You should include in this part a Non-Disclosure Agreement, a confidentiality agreement and not economic exploitation of the contents of the business plan.
  3. Corporate and financial profile: this chapter, about a dozen pages, describes in detail the company in its past, present, and future by explaining the objectives of short, medium and long term.
  4. Market: along about 5 pages, the chapter must contain the market analysis, the description of the reference field and the dynamics that regulate it.
  5. Competitive environment: along a couple of pages, it must be integrated with the strategic analysis and competitor analysis, needed to convey awareness of the existence of other competitors. It is not possible to submit a business plan by imagining that there is competition.
  6. Strategic and operational marketing plan: long ten pages, must distinguish between strategic implications (like the corporate image) and operational details.
  7. Economic forecasts: this chapter, three or four pages long, contains the objective of the plan in terms of numbers, which are represented through projections of balance sheet, income statement and financial statements with its balance sheet analysis.
  8. Attachments: this latest installment will be supportive to all the analysis previously carried out.

In this first article we will analyze the contents of the second and third chapters namely executive summary and corporate and financial profile. In future articles we will focus on the remaining chapters, namely market, competitive environment, strategic and operational marketing plan, economic projections and attachments.

Summary (executive summary)

The executive summary is the first paragraph that you read but the last one you write. Should not be longer than 10% of the document and consists of a schema that can be the following: document objectives, methods used, results, directions, and reviews. The content of this chapter will depend strongly on the contents of the other chapters, being in fact a synthesis of what the reader is going to read in more detail. It will be useful to graphically represent the content of the chapter.

Corporate and financial profile

The second chapter analyzes the historical data of the company. From a historical point of view is interesting to understand how a company is born, such as through corporate finance transactions, launching new products or creating a new company. In the first case will be helpful to understand the previous experience of the company, in the second case it will be appropriate to outline the company's path, while, in the latter case, it is helpful to bring the experience of its founders and the role they play in the new company, according to individual technical experience (typical aspect of startups).

To illustrate the company profile is useful to ask yourself two questions: "what is the future of the market?" and "what do we do?". These two questions I answer to the vision of the market and the company's mission: in other words, the mission explains the present and future needs and fulfill the scenery of vision.

The company profile is not possible without a budget analysis. Here is indeed essential to assess the economic and financial data of the company and corporate performance in terms of sales and costs, through the reclassification of the budget. Useful tools in this regard are the income statement, expressed in percentages, the trend analysis and the CAGR.

It will then be necessary to insert a paragraph dedicated to the products and services that your company has offered in the past and continues to offer, without however explaining the functioning or the technology, because stakeholders may not have sufficient knowledge of the industry.

Another essential aspect is the analysis of the customer portfolio balance, useful to understand whether the company is a lot or a little addicted to some customers in particular. A method of analysis in this field is the ABC model (which stands for Activity Based Costing) which is the analysis of the impact of customers to sales. The objective of the model is to bring the analyst to conclude if a large proportion of turnover is tied to a limited number of customers. For example, an ideal situation to be taken into account in case of high number of customers might be: the first third of the customers (A) produces a very large proportion of total sales (more than 65% -70%), the second third of the customers (B) produces a small proportion of turnover (10% -20%) and the remaining third (C) produces negligible share of total sales (5% -10%). Otherwise, if customers would not generate more than 90% of the band's turnover, the fortunes of the company would be linked to a few customers: the disadvantage is that the client can impair company performance but the advantage is that with a few targeted commitments you can improve sales. In contrast, companies in which the 40% of sales generates less of it is more difficult to pursue a policy of incentives to increase I invoice. A simple method of calculation is to divide the number of customers in 20%, 30% and 50% rather than the 33.3%.

The company will then have to deal with the analysis of the business model designed to represent the way in which it conducts business. In this regard you must briefly explain the internal and external processes that lead to the product/service, including through McKinsey and BCG matrix model.

The McKinsey model helps to classify products/business unit based on the attractiveness of the sector crossed with the competitive position of product/business unit, indicating consequently unattractive areas or locations that are not competitive.

Segment assets High GROW
Media KEEP
High Media Low
Competitive position of product/BU

The BCG matrix represents the same concepts but replaces the competitive position with relative market share and the attractiveness of the sector "becomes the growth rate of industry/market. On the vertical axis shows an annual growth rate of the market/sector for the product/business unit. The values range from 0% to 20%: a 10% higher than the market rate is usually considered high. The dials distinguish Question Marks, Stars, Cash Cows and Dogs.

Growth market High STARSMercato high growth in which the company must commit substantial financial resources to cope with the development of the market and rein in any concurrency. QUESTION MARKS: activities/products that are located in a market with a high growth rate, but with a low relative market share and carry a high financial requirements. The company needs to adapt its production capacity and close the gap with respect to the leaders.
Low CASH COWMercato that formerly was a Star and now grows at an annual rate below 10%. Products in this market generate liquidity and do not require special investments, since the market is not very attractive to any competitors. The BCG approach suggests using Cash Cow products in order to meet the immediate needs and support the remaining activities, particularly the stars and the Question Mark. DOGSSi comes to products/activities that could be discarded as they have a low relative market share in low-growth markets.
High Low
Market share

To make more effective the BCG analysis can be useful to represent the products/business unit through another dimension given the size of the bubble.

by Meadow