Tài liệu Corporate Finance handbook Chapter 6 docx

Part Six Management Issues in Generating Investment 6.1 The Business Plan – Making it Fly Shiju Varghese Director, Strategic Development and Corporate Finance,Tenon Group All too often businesses do themselves a disservice when planning a corporate finance transaction by failing to prepare a compelling business plan that captures the imagination of the reader. While it is not intended to give instruction in creative writing, hopefully this chapter will highlight the areas that need to be considered in preparing a business plan. This chapter has been written for a broad audience and the recom- mendations below will need to be overlaid with the specific consider- ations that may apply to any single company. Furthermore, it is not meant to be prescriptive, nor must it be seen as comprehensive. Ultimately, every business is unique and any general guide can only hope to draw out common themes. Although every good business plan will have an executive summary at the start that should be written last, after all the other sections of the business plan have been completed, it is also important that any financial projections are done after the business plan itself has been articulated. Do not try to write a business plan that justifies a number of ridiculously optimistic projections. Sector A brief summary of the development of the business and the industry sector it operates in is required. An outline explaining how the business relates to other participants in the sector and what trends affect the industry gives the reader a basis upon which to evaluate the plans. Key elements 1. Provide a history of the development of the business: • Date and form of incorporation, details of founders. • How is the business currently financed? • What are the major accomplishments of the business? 2. Describe the industry in which the business operates: • What is the current size of the industry? • Who are the major participants – competitors, market leaders, suppliers – in the industry? • What are the critical success factors in the sector? • What do published forecasts say about the future growth and profile of the sector? • What fashions, legislation or environmental trends affect the sector? Product/service A full description of the product should be provided. Consider planned developments and assess any competitive products. Use charts where appropriate to compare the product with those of competitors and include photographs or drawings if that would be helpful. Do not make this section too technical, if necessary attach an appendix. Above all, describe the advantages of the product. Key elements 1. Fully describe the product: • What need does it fulfil? • Which features make it unique? (cost? technology? versatility?) • How is the product perceived within the industry? 2. Discuss the development of the product: • How fully developed is the product? (working model? in production? in use?) 226 Management Issues in Generating Investment • Are there opportunities to expand the product line? • Is the product patented or otherwise protected by copyright? 3. Discuss competitive products on the market: • How do they compare in quality and features with your product? • Why do customers buy competitors’ products? • Which pricing strategies are pursued for these products? • Is it normal to pay commissions or offer discounts? 4. Research and development: • What are the future developments and objectives? • Discuss the influence of new technology. • What resources are required – both financial and human? • What are the technical risks? • Describe the state of competitors’ technological developments and how these will affect you. • Consider the next-generation derivative products. 5. Financial considerations: • Explain your pricing strategy. • Indicate the required levels of stocks of raw materials and finished products. • What are optimal order sizes? • How is distribution effected? • Consider cash flow requirements. Market This section should describe the opportunities available in the market and show how your proposals will exploit them successfully. It will be helpful to prepare this section of the plan before some of the other sections, such as operations and finance, as they will be dependent on the ability of the business to penetrate and expand in the market. It is critical to show that a market exists for the products or services that you will provide. Show that you understand the market forces and have the abilities and resources to supply and publicise your products effectively. Make a realistic estimate of your potential market share based on sound assumptions and give a concise appraisal of the competition. Do not overestimate your strengths or underestimate your weaknesses. Do not unjustifiably downplay your competitors’ abilities. Investors expect to obtain an in-depth understanding of why your sales goals can be achieved despite competition. The Business Plan – Making it Fly 227 Key elements 1. Describe your customers: • Who are they? (individuals? manufacturers? end-users?) • Where are they located geographically? • How sensitive are they to price, quality and service? • Who has bought or expressed an interest in the product? 2. Describe your market: • How large is the market? (volume? value?) • How developed is the market and what is its history? • What is the projected growth rate for the future? • Identify unusual market characteristics such as barriers to entry. • What do published forecasts predict about the market’s future? • What is your market share? • Are you aiming for particular market segments? • What are your plans regarding the export market? 3. Discuss your company’s competition: • Which companies do you compete with? • What are their strengths and weaknesses? (financial backing? technology? market share?) • What are their similarities? • What are their marketing strategies? Consider their likely response to your product. • Consider the potential for new competitors to enter the market. • Consider competition from overseas. 4. Explain how you will achieve your sales goals: • Which marketing strategy will you employ? • How will potential customers be identified? • Which customers will be the target in your initial marketing effort? • How will you attract customers away from the competition? • Are advertising efforts important to your strategy? • Consider the size of your sales force. Operations The section on operations should describe how your business will provide its product successfully and efficiently. For a manufacturing oper- ation, you should include a full description of the production process, the raw materials required and whether any particular trade skills are 228 Management Issues in Generating Investment needed. For a service venture, the availability of skilled personnel will be a prominent feature. Be sure to highlight any competitive advantages. Key elements 1. Describe the production process: • How will critical elements be controlled? (bottlenecks? quality? delivery?) • To what extent are you dependent on key factors – suppliers, materials, skilled labour? • Which make or buy decisions are involved? • Which raw materials are required? • What is your relationship with suppliers? • What is the production capacity? Is it sufficient for the future? 2. Discuss personnel requirements: • What are your employee needs? Discuss any particular trade skills needed. • What are your labour costs, including benefits? • How will you attract sufficient, suitably qualified employees? • What is the state of your industrial relations? 3. Evaluate your plant and equipment needs: • Which facilities and equipment do you require? • Which future additions will be required for expansion and how much will they cost? • Is there a need to rely on subcontractors? 4. What are your needs for premises?: • What are your existing premises and where are they located? • Are your existing premises suitable for your needs? • Do you need any additional premises? Management Investors will be particularly interested in the strength and quality of the management team, and in many cases the investment is more in the management team than in anything else. It is important to openly discuss the strengths and weaknesses of current management and show what steps will be taken to rectify any weaknesses highlighted. In addition, indicate what additional skills will be required as the venture grows. Include full profiles of key individuals and an organi- sation chart as appendices. The Business Plan – Making it Fly 229 Key elements 1. Discuss the structure of the organisation: • How are responsibilities distributed? • Is management centred around one person? • What additions to management are anticipated? 2. Identify key management personnel and their backgrounds: • Who are the key managers and what have they accomplished in the past? • What are their goals for the organisation? • Is there a balance of skills among the members of the management team (marketing, research, finance, administration)? • What steps have been taken to ensure that key members of the management team will be retained? • Have any personal financial commitments been made to the business by the management team? 3. Describe the role of any outsiders in the venture: • Are there to be any non-executives on the board of directors? What skills will they bring to the organisation? • Which professionals (lawyers, accountants, bankers) does the company rely upon? 4. Include general personnel details: • Employment terms of key personnel. • Planned staff numbers. • Future recruitment plans. • Other incentives issued. • Qualifications and skills required. Implementation schedule The implementation schedule should outline all the activities required to implement the proposals set out in other sections of the business plan. Key elements 1. The schedule should be internally consistent and co-ordinated with the financial projections and requests for finance. Typical factors should include timings for: • Obtaining finance. • Capital expenditure programme. 230 Management Issues in Generating Investment • Staff recruitment. • Product testing. • Contacting distributors. • Obtaining orders. 2. A timetable should indicate expected completion dates and milestones. 3. Decision points in the company’s growth should be identified where the choice may be made to commit further funds. Finance required and repayment/exit The investor will want to assess your current financial position and you will need to provide your latest audited and management accounts, together with a commentary on the trends they reflect. The investor will also be interested in forecasts of profits and cash flow, incorporating the proposals detailed elsewhere in the plan. In addition, you should set out the amount and form of finance sought as well as a schedule for its repayment. Bear in mind that investors in start-up companies will want to see evidence of financial commitment on the part of the founders. It is important to demonstrate that the financial projections have been subjected to careful thought. Therefore, document your assump- tions explicitly and include a commentary on the financial projections. Do not include too many spreadsheets but the statements included in your plan should be clear and to the point. Key elements 1. Include historical statements: • Where possible, include full financial statements (balance sheets, income statements, statements of sources and applications of funds) for the past 2–5 years. 2. Present financial projections: • Prepare projected income statements, balance sheets and cashflow statements for the next 3–5 years. These should be on a monthly basis for the first year and then quarterly. Include: – assumptions you have used in preparing the projections; – the impact of capital expenditure, fixed costs, and research and development costs on the cash flow; – a breakeven/sensitivity analysis, identifying the split between fixed and variable costs; – a contingency element, identified as such. The Business Plan – Making it Fly 231 Executive summary The executive summary should provide a brief overview of the plan. It is the most important section in that it may well determine the amount of consideration your proposal will receive by the potential investor. It must succinctly express the uniqueness and viability of your venture. Try to limit the executive summary to two pages if possible but, in any event, try to avoid exceeding four pages. Write it after the rest of the business plan is complete and ask someone who understands the business to review the summary to test its effectiveness. Key elements 1. Describe your business and why it is unique: • What is your product or service? • Why is your market attractive? • Who are your customers? • Who are your competitors? • Why are your products or services preferable to those of your competitors? • How far has your company evolved to date? 2. Briefly state management’s qualifications: • What is management’s past success record? • What abilities do management bring to the venture? • How is ownership to be distributed? 3. Present your financial projections summary: • How much growth is expected? • What earnings are projected? • Over what period of time will these be achieved? 4. Indicate the amount, form and use of finance: • How much finance is required? • What form will the funding take? (equity? debt?) • What will the money be used for? • How will finance be repaid? • What are the risks/rewards for the investor? Appendices The appendices should include documentation that supports or further 232 Management Issues in Generating Investment explains the strategies and observations noted elsewhere in the plan, for example: • profiles of key management personnel; • market research studies; • photographs or drawings of the product; • detailed technical specifications; • organisation chart; • letters of commitment from potential customers and suppliers; • plant layout; • key contracts (eg management agreements, technology rights, leases); • magazine, newspaper and trade articles about the business and its operating environment. The Business Plan – Making it Fly 233 [...]... be contacted on +44 (0)20 7928 3131 2 Nigel Stephens, CEO of Velo +44 (0) 162 8 898088 3 Alistair Singleton, Hanover Fox +44 (0)20 7409 1177 4 Entrepreneurship at Russam GMS +44 (0)1582 66 6970 5 Nigel Kendall +44 (0)1483 23 264 1 6 Clive Borthwick – Taylor Walton +44 (0)1582 731 161 7 David Eales – Royal Bank of Scotland +44 (0)20 8 367 7150 8 Interim management companies can be contacted through their professional... small-to-medium-sized firms of chartered accountants throughout the United Kingdom Keith White is chairman of the UK200 corporate finance panel, whose task it is to advise, support and co-ordinate the corporate finance activities of the UK200 Group He says that of all the SME corporate finance proposals that cross the desks of himself and his colleagues what is absent most is a good team to support the... (0)20 7323 4300 9 Peter Waine – Hanson Green +44 (0)20 7493 0837 10 Keith White and the UK200 Corporate Finance Panel +44 (0)1 865 243155 11 Antony Ripper +44 (0)1908 584042 12 Chris Bundy +44 (0)1904 60 8297 6. 3 Enterprise Management Incentive (EMI) Schemes Maurice Fitzpatrick and Jay Sanghrajka Tenon Group This chapter examines how the new Inland Revenue-approved EMI schemes (introduced in the March 2000... preferring to focus on completing the executive team first ‘Think again’ is the advice from many financial backers Many finance providers do want their own nonexecutive director involved to safeguard their investment This can be a tricky one If the non-executive is also a director of the finance provider that approach would be understandable but conflicts of interest can arise, sometimes taking the form... genuinely independent with a level of objectivity and experience which is of considerable value to the board and the finance providers A growing number of owner-managers are, however, making their own decision to bring in non-executive directors The best independent directors introduced by many finance providers are keen to stress the point of independence Buckinghamshire-based Antony Ripper, for example,... finding a new CEO at a later stage when – as sometimes happens – the entrepreneur CEO loses the plot Building the Management Team 241 The independent director and the management team Dipping into their 60 0-strong independent directors’ programme results in approximately 200 appointments each year, mostly in the form of an independent director for each investee company 3i can then work with the entrepreneur... at the start of a new venture tend to be at the higher end, mostly having a structured management training behind them At the smaller end, the driving force is invariably the idea or the opportunity 2 36 Management Issues in Generating Investment In all cases, however, it is up to the advisers to assess the quality of the management team and to do something about it – and for those who set about building... relentless drive is a great image Today, not all entrepreneurs are cast in that mould – but they need to be like that to a degree Take, for example, Nigel Stephens After several years as vice-president, finance, of an international car rental company, Stephens decided that he wanted to do it for himself He saw some niches that, with a different approach, could make good money It took him about four years... it as an internal matter, have been nervous at being seen as shadow directors and have relied on the loans being secured and repayable on demand ‘This is now changing’, says David Eales, North London corporate business centre director of the Royal Bank of Scotland ‘We need to offer more than our competitors and our customers want to negotiate and do deals As important as the cost of the money is the... used to be seen as integral parts of being an employee, are now being realistically seen as something an organisation buys for a period of time Paradoxically, against the background of growing and global corporate power, the power of the individual is also growing Recruitment process Personal lifestyles are changing markedly Increasing numbers of business people are going it alone Very active in the SME . White is chairman of the UK200 corporate finance panel, whose task it is to advise, support and co-ordinate the corporate finance activities of the UK200. CEO of Velo +44 (0) 162 8 898088. 3. Alistair Singleton, Hanover Fox +44 (0)20 7409 1177. 4. Entrepreneurship at Russam GMS +44 (0)1582 66 6970. 5. Nigel Kendall