Theoretical Framework for Business Planning for C2R Prof. dr. Ton Broekhuis Makassar Januari 2014
[email protected]
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How to Write a Business Plan
Prof. dr. Ton Broekhuis Makassar Januari 2014
[email protected]
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My Background • Organic Chemistry @ University Nijmegen
• PhD @ University Nijmegen •
23 yrs Research / New Product Devt.
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now: 12-th yr Product Technology
My first boss in Shell !! First day in the job: My boss: 1. “We have a technical problem, I hope that you can solve it” 2. “You write a research program that solves our problem” 3. “You come back tomorrow morning at 9.00 hrs and explain your plans” Next Morning: 1. Me: Explained my plans - all just clever technical stuff 2. My boss: “This is nice, but in Shell you always have to explain the incentive”.
Incentive •
How much value can you generate by spending money on research
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Always calculate the value of your research project!!
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My boss: “Come back tomorrow and talk to me again”
My Dream: My Own Business • • • • • • •
To be independent Personal fulfillment Lifestyle change Respect Big money Power Right livelihood
Types of Businesses Wholesale Retail Service
Business
Project Manufacture
My Dream: My Own Business • > 80% of new start-ups fail
• 30 – 40 % of owners do not know the money flow
• second round starters are more successful
Why so many fail? •
Misunderstanding of the market – – –
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customer and customer needs market size and location competition
Misunderstanding of the product – technology – cost
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Wrong investment – too quick – too late – wrongly phased – lack of financial support when needed
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Misunderstanding of development time – product – market
Why so many fail? • No Business Plan made – To be successful you have to do it!
• How to make a Business Plan ? – Quick Plan (1 day) – Normal Plan (up to several months)
• Writing a Business Plan – Is not rocket science! – Is like working through a “checklist”
What is a Business Plan? • Written statement that describes and analyzes your business and gives detailed projections about the future
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What How When Where Why
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Why need a Business Plan? • • • • • •
Improves your chances to success It helps you to get money for investment Helps you to decide to stop or to proceed Lets you improve your business plan Helps you keep track Making it, tells you what you can and what not – General business skills – Specific business skills
• It is a document your investor wants to see !!!
Investors • Yourself • Your rich father-in-law • A group of people in a cooperation
• Another company • Banks (most often)
What Bankers Like • An owner with a good business plan and an owner who understands what he/she is and will be doing • For an existing business: sufficient cash flow to make loan payments
• A new business owner with positive experience • An owner with financial reserves • Net Present Value, Payback Time and Return on Investment evaluations
A “Product” Business Target market
Promotion Business Sales forecast
Product form
Product function Materials
Product design
Distribution coverage Manufacturing processes
Price
Cost / risk Production system
Facilities
Production
Production planning
General Design Chart
Content Business Plan • • • • • • • •
Title Page Plan Summary Table of Contents Problem Statement (Need for R&D Investment) Business Concept Marketing Plan Sales Revenue Forecast
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Profit and Loss Forecast Capital Spending Plan Personnel Plan – Business personality – Staffing schedule – Job descriptions
• Specific Business Goals • Personal Background • Supporting Documents
Title Page • Title of the Plan • Your name and other contact details • Date
The Plan Summary • Is the most important page! – must be specific – keep it short and crispy – it is what makes people read the full plan
• It states the amount of money you seek ! • It further tells the reader: – – – –
who you are what you want to do how much money you need how much money you will make
Example statements for “Summary of Plan” 1. 2. 3. 4. 5. 6. 7.
Must say how much money is needed Must say something about market potential Should say how this potential will be achieved Tells something about the position of the competition Show with financial overview that the loan can be payed back Say how the borrowed money will be used Say why you or the investing team are capable to do the job
Table of Contents • After the “Plan Summary” ! • • • • • • • •
Plan Summary The Problem Statement The Market Plan Financial Plan and Project Value Analysis Personal Background Risk Analysis Personnel Plan Supporting Documents
The Problem Statement • Successful businesses solve problems of their customers! – identify your customer
• Identify and describe the problem of the customer that you will solve
• Describe how the business will solve this problem (description) – also describe what the business will not do – if you can try to qualify and quantify the solution – ask in this process any general and specific business questions (use Porter’s business models)
Marketing Plan • Is just a part of the main checklist: – – – – – –
understand the customer - describe the target customer understand the competition know your business’ position in the local, regional…. Environment how to differentiate from the competition how will the customer know about you? does your advertising fit with the …. regional spread?
• Create a marketing budget as part of the investment
Business Personality • Depending on the type of business – you may want to be “customer intimate” – “one of many” suppliers – have a strategy view
Future Trends • Make analysis of potential future changes affecting the business • Write a “future trends statement”
Specific Business Goals • What is it that you want your business to do for you? – – – –
become miljonair is 5 yrs work from 9-5 be a global player etc.
Sales Revenue Forecast • Actually the 2nd step in starting the preparation of a business plan: – a negative break-even analysis tells you to stop here! • • • •
forecast sales revenue (true sales, be realistic) list fixed costs per period (week, month or year) list gross profit per sale break-even sales revenue: amount of money you need to cover variabel and fixed costs : fixed cost per period / average gross profit = break – even sales revenue
– use Excel or other math system
How to Forecast Sales • Retail: get “indicators” from similar activities or branch associations • Service: estimate time needed per billable service • Manufacture and Wholesale: Know the business or do surveys
• Project: pre-project revenue estimation
Profit and Loss Forecast • Map: (Excel) – sales revenue – variable costs • product costs • logistics
– fixed costs (examples) • • • • • •
equipment and building etc. wages / salaries payroll taxes rent/lease offices insurance maintenance
Cash Flow Forecast •
Collect expenditures and income in one sheet (Excel) – can be kept simple in early phase – investors may like to see more detailed (but uncertain) information • • • • •
like credit sales like credit purchases taxes depreciation interest on loans
– calculate net cash flow – calculate cumulative net cash flow
• Investment needed: sum of: – capital spending – largest number in cumulative net cash flow
Capital Spending Plan • Includes everything you have to buy before start-up – – – –
buildings (construction or rental) office furniture computers equipment
Project Value Judgment • Net Present Value – must be positive at discount rate above minimum acceptable rate of return (MARR) or at cost of capital
– Internal Rate of Return: k for which NPV = 0 (is not the same as return on investment)
• Cumulative Cash Flow Payback Time – when will the cumulative cash flow become positive – is not the same as break-even sales revenue
Example
Personal Background • Explain who you are and why you will be good in the business you propose – what are strong and weak points – what do you like and what do you dislike
Your Business Accomplishments • Investors like to know to whom they trust their money • Write a resume of accomplished jobs and tasks – – – –
not a standard resume but facts that you accomplished which relate to the business goals no problem to mention mistakes as long as they relate to the goals be proud of yourself
Personal Financial Statement • Investors may want to see what their risk will be: – own cash position – current income – asset ownership • house • car
– duties • mortgage • alimony
– rich father-in-law
Risks Facing Your Business • Analyse and collect possible risk items – – – – –
competition developing a new market evaluate effect of economic cycles and trends evaluate cash flow stability how does own or personnel expertise take you
Personnel Plan • How do you want your customers to see you • Make personnel plan – how many – which skills and competences: make job descriptions – when to contract them
Job Descriptions • • • • • •
Job title Job duties Skills required, personality desired Education required Supervisor Pay rate and salary indication
Supporting Documents •
(Research) Reports – – – – – – – –
market research technical reports consultant reports make sure you know and understand the contents previous financial statements (business extension) proposed lease agreements capital expenditure details bids (in case of construction plans)
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Patents
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Awards
Literature
• “How to Write a Business Plan”, Mike McKeever, 7th edition NOLO Berkeley, 2004, ISBN 1-4133-0092-8 • “Engineering Economics and Economic Design for Process Engineers”, Thane Brown, CRC Press, 2007, ISBN 0-84938212-2
What we expect from you • x
