Writing a Business Plan

Writing a Business Plan
Source: Evans, Vaughan (2011). The
Financial Times Essential Guides to Writing a
Business Plan: How to win backing to start
up or grow your business
Chapter 1: Executive summary
Chapter 2: The business
Chapter 3: Market demand
Chapter 4: Competition
Chapter 5: Strategy
Chapter 6: Resources
Chapter 7: Financials and forecasts
Chapter 8: Risk, opportunity and sensitivity
Chapter 9: Conclusion
Appendix A: Market data
Appendix B: Competition data
Appendix C: Competitive position data
Appendix D: Management CVs
Appendix E: Marketing plan
Appendix F: Operations data
Appendix G: Environment, health and safety data
Appendix H: Financial data
I. Executive Summary
• One paragraph summary for each segment of the business plan.
• What makes a good business plan?
– It is clear and concise
– It is orderly and consistent
– It tackles risks
• What is the difference between a start-up business plan and one for
an established business? Nothing much except that the structure
plan is set largely in the future tense.
– What changes most is the level of uncertainty throughout. In a startup, this market reception is largely unknown. However, it can be
researched, assessed and estimated in advance.
• Need: What’s the purpose of the business plan?
– For start up, for raising equity finance, for raising debt finance, for
board approval, for a joint venture partner, for the sale of the
business, a plan versus a project plan and business planning as a
managerial tool.
I. Executive Summary
• Preparation
– Research: the business plan has to be CREDIBLE and CONVINCING.
How you arrived at the market growth estimates and other details on
your paper should be properly supported.
– Organization: organize the team, set timetable, determine the tools
you are going to need, what contents are important for the reader,
what appendices to include, set maximum length to 35 pages,
excluding the appendices.
– Main chapters on market demand, competition and strategy should be
3-4 pages each; those on resources and forecasts can be a bit longer at
4-6 pages each. The rest (other than the conclusion) should be just 2
pages each. The conclusion, in just half a page, should be well written
and upbeat.
– The appendices can be the same numbers of pages, depending on
what further information or evidence is necessary to include to
convince your reader.
The business
• The plan starts here.
• This is where you introduce more detail on the background to your
business. Don’t put too much detail, though.
• You brief your reader on the bare essentials of the business – what
it does, for whom, why, where, with whom, with what and how it
got to where it is.
• If established business, how well the business has done so far.
• If start-up, briefly discuss why the business is set to enjoy a
sustainable competitive advantage.
• The rest of the chapter will be about segmentation. Introduce to
the reader the segments that matter in your business. Each
segment will be analyzed in some depth in the coming chapters.
II. The business
• Background
– The opener
The essential bits of information will be in this first paragraph.
Who are you (the name of your company)
What products or services it focuses on
Its main customer groups
Where it is based, where else it has operations and where it sells to.
With what success, in terms of revenues and operating margin and by which year.
– Goals and objectives
• Goals are directional and objectives are specific.
• A goal (i.e. mission and vision statements) is something your business aims to be, as described
in words.
• An objective is a TARGET that helps to MEASURE whether that goal has been achieved, and is
typically set out in NUMBERS
Specific (a market share target in that segment)
Attainable or rational
Relevant (market share is a good indicator of corporate progress)
Time-limited or time-bounded
II. The business
• Background
– Strategy
• This is a ‘summary’ of your company’s competitive advantage and what strategy you deploy to
maintain and enhance it; including in response to any adverse circumstances.
– Resources
• In 3 or 4 paragraphs, describe in detail how resources increased or grew over time. The use of
timeline chart can be most useful to the reader (i.e. location and scale of main business
infrastructure such as headquarters, manufacturing facilities), acquisitions (of key people and
• This is where you add a sentence of two on how the ownership and governance of the business
has evolved.
– Basic financials
• Summarize recent financial history, showing financial impact of key deployment at the
company or in its markets over time.
• At this stage, aggregate numbers of sales and operating margin, are the only level of detail
needed. Balance sheets and cash flows can be left for the detail of Chapter 7.
• However, if a significant item of capital expenditure has influenced performance in recent
years, it should be highlighted here.
• For start ups: no history of sales but surely have incurred some costs (i.e. self financed , time
and money invested by the partners).
II. The business
• Business mix by segment
– Crucial questions that need answers are:
• What is your business mix?
• What products or services does your business offer and to which customer groups?
• Which count for most in your business?
– Focus on the segments that make the greatest contribution to your operating
profit forecasts over the plan period.
– Number of possible segments that you serve:
• Number of products (or services) x Number of customer groups
• For instance, if your hotel has function rooms, overnight rooms, and spa as your
products, which you sell to three markets, vacationers, business travelers and
honeymooners, in both the local and foreign tourists, THEN you operate in a 3 x 3 x 2 =
18 product/market segments
– Question: which segments contribute 80% of your sales? Focus on the 20%
that account for the 80% of sales.
– For start-ups: who is the target customer and in which way will the customers
benefit from your offering?
II. The business
The opener
Goals and objectives
Basic financials
Market Demand
• The analysis of market demand is the most important point of the
business plan (OPPORTUNITIES).
• Your reader wants to know:
Who are your buyers?
How much are they buying?
How much are they paying?
Why are they buying?
What has been influencing them?
How those influences may change?
How much they are likely to buy in the future?
• This chapter considers demand NOT only for your product or
service, but for all providers of products or services with whom you
compete. It looks at the overall demand in the marketplace.
III. Market Demand
• Market size
– You have to make an estimate of the market size. Reader would
be interested to know if you’re a big fish in small pond or a tiny
fish in a large pond.
– How did the market size change over the last few years?
Construct a market estimate about the past (last 3 years), today,
and the future (next 3 years).
– Make sure to identify the RELEVANT market size.
• Market growth
– Check websites that show market trends (without having to
– www.entreprenuer.com.ph ; www.dti.gov.ph; www.nscb.gov.ph ;
search Google
4 Stage process for demand
Assess past growth – how the market demand has grown in the past.
Get annual growth rate over a number of recent years, preferably the
last three or four years!
Assess past drivers of growth – identify what has been driving that
growth in the past. Typical factors that influence demand are per capita
income growth, population growth in general and in specific to a
market, government policy, changing awareness, business structural
shifts (i.e. outsourcing), price change, fad, weather (seasonal variations,
climate changes)
Assess changes in drivers – assess whether there will be any change in
influence of these and other drivers in the future. How each of these
drivers going to develop over the next few years? Are things going to
carry on more or less as before for a particular driver?
Forecast future growth – forecast market demand growth, based on the
influence of future drivers.
Sample of forecasting future growth
The business offers a relatively new service to the elderly.
• Step 1: you find that the market has been growing at 5-10% per
year over the last few years.
• Step 2: you identify the main drivers as (a) per capita income
growth, (b) growth in the elderly population, (3) growing
awareness of the service by elderly people.
• Step 3: you believe income growth will continue as before, the
elderly population will grow even faster in the future and that
awareness can only get more widespread.
Step 4: you conclude that growth in your market will accelerate
and could reach over 10% per year over the next few years.
Make sure that ALL drivers are taken into account, irrespective of
whether hard data can be found on them. Use your judgment.
III. Market Demand
• Market demand for a start-up
– For instance, if your product or service is something that has not
existed before, you have to do some test marketing (talk to
people). Collate the responses, analyze them, draw firm
conclusions, support them with quotes and data, and stick the
market research report in your Appendix A. Based on those
response, make an estimate of your potential market size.
– If your start-up is serving an existing market, use the four-stage
process for demand forecasting.
• Market demand risks and opportunities
– Identify the risks and opportunities that might affect your
market demand forecast.
– Assess from two perspectives: How likely are they are to take
place and if they do occur, how big an impact will they have?
III. Market demand
Market size
Market demand growth in recent years
Demand drivers and how these are changing
Forecasts of future market demand
Market demand risks and opportunities.
• Respect the competition. Give competitors the
space they merit in your plan. Dismiss them
and your reader will dismiss you. (THREATS)
• With whom do you compete?
– Variation by segment
– Indirect competition
IV. Competition
Assess how competitive competitive the supply is to that demand in general, and
your market segments.
Prepare summary profiles of your competitors for an Appendix B, to be
summarized here in Chapter 4. The profiles should include:
Sales (preferably by main segment)
Sales growth over the last three years
Operating and/or net profit margin
Ownership (and an assessment of financial depth and backing)
Segments addressed (now and plans for the future; new product in the pipeline or new
segment being targeted)
Location of facilities and sales/service teams
Physical assets deployed (i.e. number and type of machinery)
Strategy – main focus, recent investments, growth plans (i.e. trade shows)
Position in market (unique sales pitch, pricing policy)
Only KEY extracts and conclusions from this Appendix B analysis should go into the
Chapter 4.
Use of pie charts showing each competitor’s pie slice of market share in your main
business segments for the past three years would be helpful.
IV. Competition
• Competitive Intensity
– How intense is competition in your main business
segments? Is it going to intensify? Why?
– To assess the competitiveness of an industry, use
Professor Michael Porter’s five forces model.
Five forces shaping competition
Threat of new
Supplier power
Internal rivalry
Ease of
Customer power
• Internal rivalry
– The number of players (the more the numerous the players, the
tougher typically the competition)
– Market demand growth relative to supply (the slower the market is
growing, the tougher typically the competition. If D = S, internal rivalry
may be moderate; if D < S, internal rivalry is intensified)
– External pressure (government [regulation, taxes and subsidies] and
trade unions have great power to influence the nature of competition)
• Threat of new entrants
– The lower the barriers to entry to a market, the tougher typically the
competition. Barriers to entry can be technology, operations, people
or cost related and investment (capital).
– Barriers are also high, the higher the costs of the customer of
switching from one supplier to another.
• Ease of substitution
– The easier it is for customer to use a substitute product or
service, the tougher typically the competition.
• Customer power
– The more bargaining power your customer have over you, the
tougher typically the competition.
– The more choice of provider the customer has, the tougher the
– Customer power is also influenced by switching costs.
• Supplier power
– The more bargaining power suppliers have over producers or
service providers, the tougher typically the competition.
– Again it can often be just a function of numbers.
4 levels of Competitors
• A company can view its competitors as other companies
that offer similar products and services to the same
customers at a similar price. (Jollibee vs McDo)
• A company can see its competitors as all companies making
the same product or class of products. (Jollibee vs all fast
• A company can see its competitors more broadly as all
companies supplying the same services. (Jollibee vs ALL
restaurants and other suppliers of prepared foodsupermarket)
• A company can see its competitors even more broadly as all
companies that compete for the same customer pesos.
(Jollibee vs grocery stores and home cooked meals)
Source: Marketing for Hospitality and Tourism, 3rd Edition
Philip Kotler, John Bowen and James Makens
IV. Competition
• Overall competitive intensity
– Put the five forces of Porter together to measure how competitive
your industry is (i.e. high, medium, low).
– What about the future? Is industry competition set to intensify?
– What will be the effect of competitive dynamics on pricing in your
industry over the next few years?
• Competition in a start-up
– Whatever your solution to the perceived needs of the customers,
someone else somewhere else has another solution; or will have.
– Three aspects of competition in a start-up:
• Direct competition (identify existing competitors in the market)
• Indirect competition (identify those providing and alternative solution yet
competing for a similar share of the customer’s wallet)
• Competitive response (reaction of competitors if your venture turns out to be
a success. Assume that your competitor will respond to your market entry)
IV. Competition
• Industry competition risks and opportunities
– After assessing the competitive intensity in your industry,
what are the risks to that assessment? What could happen
to intensify competition further?
– What could happen to internal rivalry, to customer
bargaining power or to any of the other forces to intensify
– What is the likelihood of those risks occurring? And what
would be the impact if they did? And how will you lessen
these big risks should they occur?
– What are the big opportunities perhaps to balance these
risks? And how will you exploit them should they occur?
– One or two paragraphs will suffice.
How competitive is your business in each of its main segments?
What is your strategy for strengthening competitiveness in key segments?
What risks may you face and what opportunities can you exploit?
In Chapter 6, we will look at the resources you’ll need to deploy to put
that strategy into effect.
• The conclusion of Chapter 5 will form an essential component of the
justification of your sales and operating profit forecasts in Chapter 7 of
your plan.
• This Chapter discusses your competitive position and strategy; however,
only CONCLUSIONS go into the plan. Any further detail on competitive
position can be placed in Appendix C. Again, this entails solid research and
• Do not over exaggerate your strong points, nor gloss over your weak
points. Place your firm’s strengths and weaknesses in context – in
terms of both the customer’s buying decision and the capabilities of the
V. Strategy
• Competitive position
1. Identify and weight customer purchasing criteria (CPCs) –
what customers need from you (and your competitors) in
each segment
2. Identify and weigh key success factors (KSFs) – what you
and your competitors need to do to satisfy these
customer purchasing criteria and run a successful
3. Assess your competitive position – how you rate against
those key success factors to your competitors.
The summary of findings will be part of the business plan and further
detail will be in Appendix C to your plan.
Do this for each of your main business segment
FIRST STEP: Customer purchasing criteria (E2 – R2 – P2)
How important are these criteria to your customers, relative to other purchasing criteria?
Is it high, low or medium importance?
• Effectiveness of the product of service
– Job gets done. Customer has specific requirements on the features,
performance and reliability of the product or service they need.
• Efficiency of the service
– Job gets done on time.
• Range of products or services provided
• Relationship with the producer or service provider
• Premises (only applicable if the customer needs to visit the
producer or service provider’s premises)
• Price
• To find out the CPC, use survey to interview the customers. One customer
group might find one need ‘very important’ others just ‘important’. It’s unlikely
that another will say it’s ‘unimportant.’ Customers tend to have similar needs.
• Need to know how likely the importance of these criteria will change in time.
Do this for each of your main business segment
• What producers or service providers need to do right
to satisfy the customer purchasing criteria AND run a
sound business.
• Typical KSFs for products (or service)
– Quality, consistency, availability, range and product
development (R&D).
• On the service side, KSFs can include
– Distribution capability, sales and marketing effectiveness,
customer service and post-sale technical support.
• Other KSFs relate to the cost side of things
– such as location of premises, scale of operations, state of
the art, cost effective equipment and operational process
To identify which are the most important KSFs for each of your main business
segments, you need to undertake the following steps.
Convert CPCs into KSFs
– The CPCs that are related to how competitors differentiate their
product or service from others are called differentiation-related KSFs.
• What are the main differentiation-related KSFs in your business? How
important are they? Of high, low, medium, medium/high, low/medium
– Customers of most services expect a ‘fair’ price. Producers need to
keep their costs down. This are cost-related concerns. Price is a CPC,
cost competitiveness is a KSF.
• What are the main cost-related KSFs in your business? Cost of materials? Use
of subcontractors? Premises? Overhead control? Economies of scale? How
important are they? Of high, low, medium, medium/high, low/medium
Customer Purchasing Criteria
The associated key success factors:
In a salon, there are customers who need your
salon to be good at coloring
Stylist need to be skilled at coloring.
If there the internet is not working, customers
need technical help desk to understand and fix
the problem.
The technician should have an appropriate
technical qualification, subsequent completion
of relevant training and experience of handling
this and similar problems.
In joining a tour group, customer needs clarity
of communication from the tour guide.
Customer needs the guide to have good
The tour guide needs to be proficient in the
language delivery and clear communication
Cost competitiveness (location, labor,
materials, outsourcing, IT systems, size and
economies of scale)
Customer purchasing criteria and key success factors
from spa services, 2010
Spa customer purchasing criteria
Therapist capabilities
Benefit awareness
Confidence in process
Associated KSFs
Therapist skills
Track record
Work ethic
People skills (communication)
Positive, upbeat culture
Range of facilities
Range of treatments
Spa quality premises
Cost competitiveness
Cleanliness, hygiene
Space, decor
To identify which are the most important KSFs for each of your main business
segments, you need to undertake the following steps.
Assess two more KSFs
– Management
• How important is management in your business? Need to identify how
important management is in general in your industry such as how important
sales and marketing reinforced by an efficient operations team?
– Market share
• The larger the market share, the stronger should be the provider.
• This is an indicator of the breadth and depth of your customer relationships
and your business reputation. It’s less costly to maintain a customer than to
attract new ones, the provider with the larger market share typically has a
competitive advantage – the power of the incumbent (customers don’t like
switching unless they are sorely tempted (the pull factor) or forced to move
through deficient quality of product or service (the push factor). It can be even
costly to switch (lost of discount, time, hassle).
• How important is the power of the incumbent in your business? How
important is market share as a KSF?
To identify which are the most important KSFs for each of your main business
segments, you need to undertake the following steps.
Apply weights to the KSFs
After working out which are the most important KSFs in your business and after ranking in
order of importance, now you need to weight them.
Either methodically or systematically (p. 210).
Or eyeballing (setting relative market share at 20%, cost factors at 30%, management and
differentiation factors at 50%). Adjust them to what you have found to be critical to success
in your business.
Identify any must-have KSFs
Assess to what extent weightings differ for each of your business segments.
Different customer groups can often place a different emphasis on price, so cost competitiveness
may be more of an issue in one segment than in others
Is any one of the KSFs so important in your business that if you don’t rank highly against it
you shouldn’t even be in the business? This is a must-have KSF, rather than a mere shouldhave.
For instance, must have ISO classification, latest equipment, a product feature?
Rate performance for competitive position (rating system of 0 – 5)
Decide who to compare yourself with?
How do you compare with your peers? Are you more or less competitive than them?
How does your company rate in different customer group segment? What’s your position?
How likely is your competitive position to change over time? And for your competitors?
Competitive position in spa services
Effectiveness – standard of therapists
Efficiency – work ethic, delivery
Relationship – communication, attitude
Range – facilities, treatment
Premises – hygiene, décor, space
Key Success Factors
Relative market share
Cost factors
Overhead control, scale economies
Management Factors
Differentiation factors
Competitive position
V. Strategy
• Strategy
– How the company distributes its scarce resources to gain a sustainable
advantage over the competition.
– How you plan to allocate your company’s resources (i.e. people,
physical assets, cash) over the business plan period to meet your
goals, enhance firm’s competitive position in key business segments.
– In this section, show how you can proactively improve that position
through your strategy.
– Demonstrate how your firm’s strategy will improve performance over
the next few years:
• Which generic strategies you will pursue
• What steps will be taken to strengthen competitive position in key segments,
by building on strengths and or working on weaknesses
• How your firm will boost its strategic position by optimizing its portfolio of
business segments.
V. Strategy
• What is your generic strategies?
– Low cost or differentiation: either strategy can yield a
sustainable competitive advantage. Either the
company supplies a product that is at lower cost to its
competitors or it supplies a product that is sufficiently
differentiated from its competitors that customers are
prepared to pay a premium price (Cebupac vs.
Singapore Airline)
– Focus strategy (Porter): focus NOT on the whole
industry but only in a single segment (i.e. Honda
motorcycles  focus on product reliability has yielded
the global scale to enable its quality products to
remain cost competitive)
V. Strategy
• Strengthening competitive position
– If your generic strategy is one of low cost, what investments or
programs are you planning to reduce costs even further and so stay
ahead of competition? What major investments in plant, equipment,
training and partnering are you planning? What performance
improvement programs are underway or planned?
– If you generic strategy is one of differentiation, what investments or
programs are you planning to reinforce that differentiation and make
you stand out even more clearly that you competition? What major
investments are you planning? What strategic marketing programs are
underway or planned?
– If your generic strategy is one of focus, what investments or programs
are you planning to reduce costs and/or reinforce your differentiation?
– This section focuses on strengthening your competitive position in
your key product/market segments over the next few years (usually 3
V. Strategy
• Boosting strategic position
– Invest ideally in segments where you are strongest and/or
which are the most attractive.
– Consider withdrawal from segments where you are weaker
and/or where your competitive position is not that good.
– Should you be looking at entering another business
segment/s that is in more attractive markets than the ones
you currently address?
• The larger the MARKET SIZE and the faster it is growing (MARKET
DEMAND GROWTH), the MORE attractive the market is, other
things being equal.
• However, the greater the COMPETITIVE INDUSTRY in a market and
the greater its risk (MARKET RISK), the LESS attractive it is.
• Use judgment on weighing each of the four factors.
Strategic position: an example
Invest in
segment D
Exit from
Market attractiveness
with segments
A and C
Firm’s competitive position
Note: Diameter of bubble roughly proportional to scale of current revenues (except for E)
V. Strategy
This segment should include:
• Firm’s competitive position
– Your understanding of customer purchasing criteria in key business segments. Important
summary in this segment is included, with further detail in Appendix C of your plan.
– Your understanding of key success factors
– Your assessment of competitive position
Demonstrate how your firm’s strategy will improve performance over the new few
– Which of the generic strategies you will deploy
– What steps will be taken to strengthen competitive position in key segments, by building on
strength and/or working on weaknesses
– How your firm will boost its strategic position by optimizing its portfolio of business segments.
For start-ups, set out why you have a sufficiently distinctive angle to survive in the
early stages. Convince reader that you will find ready buyers for your new product
or service.
Finally, alert reader to the key strategic risks your firm may face and how you
intend to mitigate them. Conversely, high light strategic opportunities that may be
there for the taking, which will represent upside to your plan’s forecasts.
VI. Resources
• In strategies, you explained WHAT your firm plan to do to
achieve the goals set in Chapter 2. In this chapter, you will
set out HOW.
• In 3 – 4 pages, summarize the main findings and further
detail as Appendix D of your plan.
• Order of priority as follows:
– Management
– Marketing
– Operations
• Start Chapter 6 with how your management resources are
up to the task of delivering your plan then move on to your
marketing resources and then address the rest of the value
VI. Resources
(Investors would say that they back people, not products of services)
(Investors would think no matter how good the product is if customers are unaware of how
good it is, it will not be sold. This include product development and R&D program. )
Management and marketing must permeate every link in the value chain. Managerial capability
must be as evident in the inbound logistic as in the service ends of the business.
Manufacturing of
service ops
Systems and IT
VI. Resources
• In this section, you’ll set out why you have the right management
team to ensure delivery of the plan.
• In an established business
– A one-page curriculum vitae, specifying roles held, with which firm
and how long, and highlighting major achievements against specific
objectives within these roles – for Appendix D to your plan
– A one paragraph summary, with a sentence or two on relevant
experience, including length of service at the firm, and selecting one
example of how the manager delivered in a relevant role or against a
relevant project – for this section of Chapter 6.
– One paragraph for EVERY key manager (such as managing director,
sales and marketing, finance and operations, technology, human
resources and IT. Show organization –> can include an organizational
chart, which is kept simple and showing in particular who reports to
whom in the top management team.
– One or two paragraphs on governance should suffice.
VI. Resources
• In a start-up
– Investors look for entrepreneurs and not for
managers. If the entrepreneur is the right person,
then the venture capitalist will get excited.
– Investors are looking for a visionary, a leader, a person
who believes wholly in the product or service, who
will inspire and motivate through passion, energy and
hard work.
– Passion won’t be everything. You must also be able to
deliver. And in this section of your business plan, you
must set out briefly how you have delivered in the
past. How you met the objectives set, whether by you
or your boss.
VI. Resources
• In 1 -3 paragraphs, explain your marketing strategies.
– Product: if your strategy is differentiation, show how it satisfies the identified
customer needs. Show too how product development and research are
oriented towards meeting future customer needs.
– Place: show distribution channels that are of greatest importance to your firm,
now and in the next few years (i.e. direct/indirect selling, via agents,
wholesalers or distributors) Why? Cost? What are competitors using? Ratio of
sales to number of salespeople compare with that of the market leader?
Online sales?
– Price: what’s the firm’s price positioning relative to the competition? Broadly
in line with the average, at a discount, at a premium? Why? How is this pricing
aligned with strategy? How elastic are volumes sold in your business to price?
– Promotion: what are the main ways of promoting the products in recent
years? Advertising through which media – print, screen, internet? Trade
promotions, PR, sponsorship, exhibitions, trade shows, seminars/conferences.
VI. Resources
Marketing (additional P’s for services)
• In 1 -3 paragraphs, explain your marketing strategies.
– People: show the qualifications of servers that the firm needs and how
these would bring in the customer, customer satisfaction and business.
– Process: Show how the process is customer-oriented and how it
satisfies specific needs of the customer.
– Physical evidence: show how the tangibles helps in providing the best
customer experience.
• Include a paragraph or two on the results of all this marketing. How
satisfied are your customers with your product or service?
• Appendix E may include a one page synopsis of your surveys (if
you’ve taken one) along with other marketing data you think might
be useful evidence for your reader.
VI. Resources
• In a start-up
– All of these concerns are addressed however, they are in
future tense.
– Marketing is the lifeblood of a start-up.
– In Chapter 3, you identified promising market demand
prospects. In Chapter 4, you concluded that the
competitive environment was favorable. In Chapter 5, you
set out why your offering enjoyed a competitive edge.
– In Chapter 6, you’ll set out how customers are going to be
put in touch with your offering. Include a summary in this
section and a detailed marketing plan in Appendix E of
your paper.
VI. Resources
• Operations and capital expenditure
• Need to cover the issue affecting your firm through the value chain, from
the sourcing of supplies through to customer service.
• Reader only wants to know the general view. What resources are required
to meet the plan.
• For the next chapter on financial forecasts, you must set out the key items
of capital expenditure needed to support the plan. State the following – in
no more detail than is needed – for the major items of capital
The nature of the capital project.
Why it is needed.
The alternatives considered and rejected.
How much it will cost.
How long it will take to be implemented.
What impact it will have on future revenues or costs.
The risks associated with the investment.
VI. Resources
• Operations and capital expenditure
• In this section, consider the implication of your strategy over the next few
years on the following aspects of operations:
– Supplies (dependency on raw material sources and prices; people)
– Purchasing (outsourcing [services, logistics, IT supports, maintenance];
negotiation skills)
– Manufacture or service provision (facilities, equipment, process employed to
provide good or service, do you make or buy)
– Research and development
– Distribution, storage and logistics (describe how your goods get out of the
factory and into the hands of the customer)
– Customer service and technical support (do you have one? Outsourced?)
– Systems and IT (key systems used in manufacturing or service operation or
what are the shortcomings)
– Quality and financial control (controls you have in place to ensure quality of
output and that collections and pay outs are on time)
– Regulatory compliance (economic and social regulations)
VI. Resources
• In this chapter, demonstrate how your firm will distribute
its scarce resources to implement the strategy of Chapter 5
to achieve the goals and objectives of Chapter 2.
• Set out plans for using resources in three main fields
– Management: how you will have the right team of managers
with the right experience, qualifications and skills to implement
– Marketing: how you will create sufficient awareness of the
firm’s offering over the plan period
– Operations: how you will deploy your resources to ensure that
supplies, … are sufficiently aligned to deliver the plan.
• Finally, describe the big resource risks and opportunities
that may impact on the achievability of your business plan.
Chapter 6 – HOW you will assign
your limited resources
to achieve
Chapter 2 – GOALS
following your
Chapter 5 – STRATEGY
Chapter 7 – TRANSLATE strategy into RESULTS
 in terms of key measurable parameters and MONEY
VII. Financials and Forecasts
• Forecast sales growth that is consistent to
both the trends in the market demand
identified in Chapter 3 and with growth plans
in Chapter 5
• Forecast profit margin that is consistent with
competitive dynamics assessed in Chapter 4
and profit improvement plans of Chapter 5.
• Then translate these forecasts into full
financial statements
VII. Financials and Forecasts
First, set up your historical financials (last 3-5 years)
for the reader to have a bird’s eye view of your
performance. If for start-ups, no historics but only
forecasts. Set out four major financial statements –
for each year, the historic actual years and the
budget year:
• Sale and profit margins by main business
• Profit and loss (P&L) account (overall, for all
• Cash flow statement
• Balance sheet
VII. Financials and Forecasts
Then in one or two pages of narrative, describe the highlights
that support these financials.
• Remind reader which business segments contribute most
to sales and which segments contribute most to profit.
• How overall sales have changed from the previous year and
are expected to change in this year’s budget
• Describe the major elements of expense in the P&L and
how gross and operating profits have changed from
previous years and expected to change in the next year’s
• Describe the major influences in the cash flow and balance
• Look in particular anomalies (untypical change) and explain
what was behind the change.
VII. Financials and Forecasts
Derive a market-driven sales forecasts (without sales you have no business).
1. Business segments. List each main segment, which will be forecast separately
2. Revenues. What ‘normal’ revenues were achieved in this segment in the last
financial year (from Chapter 2 of your plan)?
3. Market demand prospects. How do you expect the market to grow (preferably in
% per year over the next few years in this segment (from Chapter 3)?
4. Competitive position. How does your firm measure up relative to the
competition in this segment (from Chapter 5)?
5. Likely revenue growth. Based on future competitive position, is your firm likely to
keep pace with, exceed or fall short of market demand growth in this segment?
What is your likely revenue growth rate?
6. Top-down revenues. What are the resultant revenues from the market-driven
forecast growth rate?
7. Bottom-up revenues. What initiatives are planned to grow sales in this segment?
Such as launch of market or product development, market penetration,
additional investments. What are the likely incremental revenues from such new,
bottom-up initiatives in three year’s time.
8. Total revenues. Add up the market-driven and bottom-up revenues to get the
total forecast revenue for each segment in three year’s time.
VII. Financials and Forecasts
• The process is best captured in a table. There are 8 entries in the
process flow, so take eight columns.
• First 4 columns are from Chapters 2, 3, and 5 of your plan. Here you
just need to add columns 5-8.
• Column 5 is the clincher. Your selected likely market-driven revenue
growth rate must be consistent with
– Market demand forecasts (Chapter 3 of your plan)
– Your firm’s competitive position (Chapter 5)
– Firm’s track record over the last few years
• Example of consistency. If you find that the market in a business segment is set
to grow steadily, and you assess your firm as having a favorable competitive
position then all else being equal, you should be able to grow your business
apace with the market in that segment. If, however, your plan is to grow much
faster than that, you will need to convincing reasons on how.
Example: How achievable are Dart Valley’s sales
Business Revenue
segments (£000)
Latest year
position (0-
Next five
Next five
Next five
In five years
In five years
In five years
Chapter 2
Chapter 3
Chapter 5
3.6 to 3.9
3.3 to 3.5
3.5 to 4.1
Chapter 7
* Phase II construction of Dart Valley
Forecast can be from the next three to five years.
VII. Financials and Forecasts
Derive a competition-driven margin forecasts
1. Business segments. Look at one segment at a time.
2. Revenues this year.
3. Profit margin (revenue-costs) this year. What % profit margin will you make in
this business segment this year.
4. Profit this year. Revenue multiplied by profit margin
5. Recent competitive intensity. How tough is competition compared to other
segments – high, medium, or low (from Chapter 4 of your plan)?
6. Future competitive intensity. How tough is competition likely to be over the next
few years compared to other segments – high, medium, or low (from Chapter
7. Planned profit margin. What % profit margin are you planning to make in this
business segment in three years’ time?
8. Forecast profit. Revenues from the previous section times planned profit margin
9. Planned profit improvement measures. What measures are you planning to
improve margins to support your planned profit margin of column 7 (from
Chapter 5)?
Example: setting the sales forecast in a competitive context
Business Revenue
segments (£000)
Segment A
Chapter 2
Latest year
In three
Chapter 4
will it be
Planned profit
In three
In three
Chapter 7
(based on
table) *
margin %
Chapters 5 and 6
- State what
measures you are
taking to justify
your forecasts
VII. Financials and Forecasts
• Funding the plan can come in the form of
– Equity
• Does not require servicing unless the board decides to
pay dividends
• Expensive because investor expects a rate of return
commensurate with the risk they are taking on (≅3040% / annum)
– Debt
• Demands a fixed return, a fixed rate of return
regardless the company’s performance
• Cheaper but less flexible than equity finance
VII. Financials and Forecasts
• Full financial forecasts
– Set out the current year’s budget numbers plus
three-year forecasts for three different sets of
• Profit and loss account, including overheads
• Cash flow, including capital expenditure
• Balance sheet
Forecasting the profit and loss account
• Dart Valley forecasts
VII. Financials and Forecasts
• Forecasts in a start up
– No track record on which to base one’s judgment
– No past, no present, only future.
Business Market
segments size
Market size competitive
position (0-
Latest year
Next three
In three
Next three
In three
Chapter 3
Chapter 5
In three
Chapter 7
VII. Financials and Forecasts
• For start-ups
– The process of drawing up the P&L statement, cash flow and balance
sheet will be the same as for an established business.
• Financial risks and opportunities
– So far, you’ve identified the main risks and opportunities relating to
market demand (Chapter 3), industry competition (Chapter 4),
strategy (Chapter 5) and resources (Chapter 6), Now you need to add
the final set – those relating to specific issues.
– The most obvious financial issues that could impact your business plan
will be interest rates, exchange rates and tax rates. To what extent
would your business plan be affected if and when a significant change
in any of these rates happen.
– What financial risks that are reasonably likely to occur and what would
the impact be if they occur?
– What are the big opportunities? How can you exploit them?
VIII. Risk and opportunity and
• In this section, assemble all the risks and
opportunities that you identified in
Relating to market demand (Chapter 3 of your plan)
Industry competition (Chapter 4)
Your firm’s competitive position (Chapter 5)
Your firm’s resources (Chapter 6)
Your financial forecasts (Chapter 7)
• Put these together and weigh them up and
address the key question: do the opportunities
surpass the risks?
Suns and Clouds chart
pictorial presentation of risk and opportunity
1 Double-dip dents staycation trend
2 Spa fad wanes
3 A direct copy new entrant
4 Dart Valley’s concept fades
5 Phase II construction costs up 20%
6 Phase II occupancy build up slower
than forecast
7 Interest rate up 3%
1 Market demand maintains growth
2 Focused marketing of Dart Valley’s
proven concept
3 Dart Valley spa profitability
4 New complementary services or
5 A replica in e.g. the Fal Valley
VIII. Risk and opportunity and
• Purpose of Suns and Clouds
– To present the balance of risk and opportunity
– Do the opportunities surpass the risks?
– Given the overall picture, are the suns more favorably placed
than the clouds? Or do the clouds overshadow the suns?
– Upper diagonal is worthy of note: it’s at least reasonably likely
to occur and have at least a reasonable impact.
– Lower diagonal are less important: low likelihood and low to
medium impact.
– The y-axis in the Suns and Clouds chart specifies impact on cash
flow, or impact on value. The chart is looking only for relative
impact, in the sense that one risk will have a greater impact
than another.
VIII. Risk and opportunity and
• Sensitivity testing
– Quantifying one or more risks or opportunities, putting actual
figures on them.
– You test the financial statements to see how they change in
response to a specific risk or opportunity or a general
– Pull out three or four big risks, assign specific, quantitative
impacts to them and observe the effects on your P&L and cash
flow forecasts. Plus add 5% operating costs, or 20% expenditure
on a key capital project. Then take a look at the output and see
how sensitive the financial forecasts are to these scenarios.
– Use Excel
– In this section, you want to show that your cash flow forecasts
remain stable and able to withstand the impact of reasonable
adverse assumptions derived from specified risks.
Dart Valley Sensitivity Testing
Profit before tax (£000)
Cash flow (£000)
2012 construction costs up 20%
Occupancy rates down 15%
Both of the above
Business Plan
Sensitivity tests
IX. Conclusions
• One general statement to answer: why is the plan worthy of backing?
• One statement each (concise) in which you summarize the main findings
from the headlines below.
– Market demand prospects. You’re conclusion on what’s going to happen to
market demand, by key business segment (Chapter 3)
– Competition. Your conclusion on whether competition is intense and set to get
tougher (Chapter 4)
– Strategy. Your conclusion on your firm’s competitive position and its strategy
for further developing competitive advantage (Chapter 5)
– Resources. Your conclusions on the resources your firm will deploy to
implement that strategy and meet its goals (Chapter 6)
– Financial forecasts. Your conclusions on how your firm will grow revenues and
operating margin over the next few years (Chapter 7)
– Risk, opportunity and sensitivity. Your conclusions on why opportunities before
your firm outshine risks in your plan.
• Conclusion can either be a half page’s worth or normal text or as per in
above format with an overall conclusion supported by six bulleted
I. Executive Summary
• Executive summary (Chapter 1 of your plan) is an
extended version of the conclusion.
• The executive summary should be 3-4 pages
including tables/charts.
• Two to three paragraphs to explain per bullet
• As for the conclusion (to the executive summary),
be clear, concise and convincing.
• The executive summary is the most crucial part of
the plan, since most senior decision makers will
read nothing else.
Final words, DON’T BE A:
• Dreamer – forecasting without relation to the market environment
(example forecasting a 14% per year sales growth in a business
segment even though the market demand is shrinking). This cannot
be backed up.
• Loner – forecasting without regards to competitors. Assuming that
competition does not exist. This cannot be backed up.
• Magician – forecasting yearly sales growth without regards to
capital expenditure, hence forecasting dramatic growth in operating
margin. This can be not backed up.
• Macho – forecasting a turn around from negative growth to high
positive growth. This is the ‘hockey stick’ forecasts. Too optimistic
forecasts may not be backed up.
• Deluded – setting forecasted operating margin too high (i.e. at 40%)
may not be backed up. The prices may be set too high. Forgetting
that there are competitors who may compete for the market share.

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