First EBN Spring University April 1999 Business and Financial Planning Principles-Methods-Software

1. First EBN Spring University April 1999 Business and Financial Planning Principles-Methods-Software DESMOND RYAN Dublin Business Innovation Centre IDA Enterprise Centre, The Tower, Pearse Street, Dublin 2, Ireland. Tel No: +353-1-671 3111 Fax No: +353-1-671 3330 E-Mail: desryan@dbic.ie WWW: www.dbic.ie

2. Presentation Objectives Theme of today's presentations Basics of BIC Management • To Provide an Overview of Strategic Planning • To Relate Strategic Planning to Business Planning • To Relate the Business Plan to Financial Planning • To Show how Software will assist BIC Executives

3. The essence of a BIC BIC Deliverables Incubation Space Access to Funds Business Planning

4. “Plans Are Nothing Planning is Everything” Dwight D. Eisenhower BICs must help clients to plan effectively Business Strategy Planning

5. Why BIC Clients Need Strategic Planning? Truisms of planning Framework for planning Strategic v operational plans Mission statements Developing strategies Setting long-term objectives Assessing strengths & weaknesses Determining threats & opportunities Implementation The Business Plan

6. Why Do Strategic Planning? Provides a framework for management Used to communicate about the company Serves as a monitor Strategic Business Plans are important BIC deliverables

7. 1. Take a medium term view, e.g. 2 to 4 years 2. Be developed by owners/directors 3. Focus on matters of strategic importance Strategic Business Planning Must....

8. 4. Be separated from day to day issues 5. Be Realistic, Detached & Critical Business Strategy Planning

9. 6. Not to be viewed as another form of budgeting 7. Be written down 8. Be reviewed periodically Business Strategy Planning OUR STRATEGIC PLAN DETAILS OUR SALES AND PROFITS FOR THE NEXT FIVE YEARS SO THAT EVERYBODY KNOWS HOW MUCH THEY CAN SPEND Here Lies the Fourth Business Plan of XYZ Ltd.

10. BIC Clients should understand Planning is a means and not an end Planning is not a procedure Process is as important as the plan Planning must be done by the client from top down Think strategically and act operationally A plan is a business’s most important document The plan belongs to the client not to the BIC Truisms of Planning

11. “In this world nothing is certain except death & taxes” Murphy’s first law: ‘If anything can go wrong, it will’ Murphy’s fourth law: - if there is a possibility of several things going wrong, the one that will cause the most damage will be the one to go wrong “If you don’t know where you are going, any road will do” Truism of Planning

12. Strategic planning is : - Visionary & conceptual - Directional - Broad Operational planning is: - Short-term, tactical & specific - Action orientated - Focused on Implementation & results Strategic Vs Operational Planning

13. Framework For Planning Business Strategy Planning FORMULATE VISION DEVELOP MISSION SET OBJECTIVES PREPARE STRATEGIES ASSESS INTERNAL STRENGTHS & WEAKNESSES DETERMINE EXTERNAL THREATS & OPPORTUNITIES REDEFINE FUNDAMENTALS & SELECT SPECIFY GOALS PREPARE PROGRAMMES IMPLEMENT PROJECTS

14. What Business - Industry - Activity Products and Services Processes and Technologies Customers, Clients and Users Markets and Segments Channels and Outlets Mission Statements

15. REFORMULATE YOUR VISION REVIEW YOUR MISSION REDEFINE YOUR STRATEGIES REVISE YOUR OBJECTIVES Take Stock And Redefine EXPLOIT OPPORTUNITIES BUILD ON STRENGTHS MINIMISE WEAKNESSES AVOID THREATS

16. Cut through the symptoms and identify internal strengths and weaknesses in the following key areas: Sales/marketing/distribution Product features/range/competitiveness Manufacturing efficiency/capacity Financial position/resources/performance Assessing Strengths & Weaknesses

17. R&D effort/direction/resources Management resources/expertise Purchasing and materials - sources/supply cost Systems and organisational effectiveness Seek to establish the outstandingly good features, achievements and unique qualities of your proposed company. Summarise and rank the good/bad points. Assessing Strengths & Weaknesses(cont’d)

18. Identify critical threats & main opportunities due to: Industry Features Size and segmentation Growth pattern and maturity Established practices Emergence/contraction of niches International Dimension Changes In Market Place Customers Distribution channels Economic factors Social/Demographic/Political Determining Threats & Opportunities

19. Competitors Identities Performance Likely plans Capacity to make/sell/innovate Market shares Strengths/weaknesses Technology New materials/processes New products/applications Infringement/overlapping by other sectors Determining Threats and Opportunities(cont’d)

20. Why Prepare a Business Plan? Because they are designed to:- Help an entrepreneur clarify, focus and research his project usually over a 3-5 year period Act as a framework within which a business can develop and pursue medium term business strategies Serve as a basis for third party discussions with banks, investors, government and other agencies Provide benchmarks against which actual performance can be assessed Preparing A Business Plan?

21. What will the Plan do for BIC Clients ? • It Acts as a Map for the Business • It Supports Management Control • It is a Briefing Document for Key • Staff • It Helps Secure Finance

22. Tips When Preparing a Business Plan • Own the Contents • Ensure the Plan fits You • Be Realistic • Be Clear in Your Objectives • Be Concise and Clear, Avoid Padding • Well Presented, Typed and Bound • Remember not everything goes as Planned

23. The Structure of the Business Plan • Executive Summary • Background & Description of the Business • Management & Organisation Structure • Market Research • Marketing and Sales Plan • Operation Plan • Financial Plan

24. Check List Management: Have you clearly stated how the Business will be Managed? Market: Have you clearly shown that there is a market for your Product or Service? Operations: Have you thought through the day to day Operational Issues to make your Business a Success? Finance: Have you clearly demonstrated the Financial viability of the Business?

25. The Operations Plan • Describe the Service or Process • Include a Layout Drawing Manufacturing • Describe Procedures for Monitoring and • Controling Quality • Sources of Raw material, Terms of Trade, • possible Vulnerability • Employment and Training • How Competitors do it

26. Financing a Business Strategy and Raising Finance Types of Project Finance Approaching Sources of Finance Capital Financing Putting a Value on Equity Debt Financing Banks and Debt Financing Grants and Subsidies The Financial Plan

27. The Financial Plan • Total Funding & Sources of Funds • Three years Cash Flow Forecasts • Projected Profit and Loss Accounts • Projected Balance Sheets • Costing & Pricing details

28. Management & Organization Structure • Current Structure & Organization • Organization Charts • Key Management Functions • Profiles of Promoter & Key Managers • Remuneration & Contracts • External Professional Advisors

29. Projections and Assumptions • Three year Projections • Market Demand & Sales growth • Prices & Costs achieved • Stocking Levels • Creditor & Debtor Days • Equipment available, and Lease or Buy • Productivity, staff & plant • Quality Levels & Yields • Research & Development • Can Buy Technology

30. Key Questions What are you trying to do ? What do you estimate it will cost to do it ? Can you or should you finance it yourself ? Business Planning is the Key Activity Matching Plans with Probable Outcomes Reconciling Planned Sales and Expenditures Simulation of Business Process Evaluation of Financing Options Resources Required Cash Required Sources of Cash In-Kind Options Financing a Business

31. Typical Start-Up Problem Lack of Capital A Problem Well Stated ! Objectives in Securing Needed Finance Money . . . What for exactly ? When is it needed ? Where might it come from ? Cost of Finance Interest and Borrowing Degrees of Freedom Dilution of Ownership, Control, and Returns Cost of Capital Strategy and Raising Finance

32. Capital Equity: Cash vs In Kind Seed / Venture Bank Finance Term Loan Overdraft Commercial Mortgage Grants & Subsidies State Schemes Enterprise Organisation Dublin Business Innovation Centre Others (e.g., First Step) Creditors ? Types of Project Finance

33. Promoter’s Money Putting Your Money Where . . . ! Shortage of Cash ! Abundance of In-Kind ? Investor’s Money Identifying Appropriate Investors Negotiating Mutually-Agreeable Exchange Mechanisms for Offering Returns Equity/Preference Shares/Loans/Options Business Expansion Scheme (BES) Seed/Venture Capital Few Sources Get to Know Evaluation Criteria ? Don’t Expect Quick Fix ! Capital Financing

34. No Hard and Fast Rules Important to Know . . . Investment to Date - Both Cash and In-Kind Development Investment Required Realistic Evaluation of Cash Needs and Scheduling Realistic Estimation of Profits and Returns on Equity Balancing . . . Resourcing the Business Retaining Ownership Retaining Control Realising Immediate vs Future Value Attracting / Retaining Critical Skills Developing Strategic Alliances Putting a Value on Equity

35. Be Practical and Realistic About What you Need Be Careful in Justifying Figures Be Vigorous in Validating Your Assessments Be Creative About Options and Sources Be Considerate of What Others Require of You Be as Persistant as You Need Be Be Always Consciousof What YOU Need and Want Getting Over Financing Obstacles

36. Conclusion Effective Business and Financial Planning are critical functions for BICsThis presentation and other relevant information can be downloaded at www.dbic.ie