HB 311 1st Edition Lecture 6 Current LectureBusiness Plan - Model of what management expects a business to become - Questions:o Where am I today? o Where do I want to be?o How do I get there? - Financial Statements are Pro Forma o What financial statements will be if planning assumptions are true - Good business plans are comprehensiveo Marketso Productso Employeeso Technology Parts of a Business Plan - Typical Outline Includes: o Contentso Executive Summary o Mission and Strategy Statement  Basic charter and long-term directiono Market Analysis Why business will succeed against competitors o Operations (of the business)  How firm creates and distributes its product/service o Management and Staffing Firm’s projected personnel needso Financial Projections  Projects firm’s financial statements into the future o Contingencies What firm will do if things don’t go as planned Purpose of Planning and Plan Information - Firm’s own management These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o Planning process helps pull management team togethero Provides road map for running the business o Provides statement of goals o Help predict financing needs- Outside Investors o Tells equity investors what returns can be expected o Tells debt investors how firm will repay loansCredibility and Supporting Detail - Good business plan shows enough supporting detail to indicate it is the product of careful thinking - May display summarized financial projections with enough detail to explain the projections Four Kinds Of Business Plan 1. Strategic Planning2. Operational Planning 3. Budgeting 4. Forecasting Strategic Planning – addresses broad, long-term issues, contains summarized, approximate financial projections - Five-year plan is common- Expressed in words - Firm analyzes itself, the industry, and competitive situation Operational Planning – Translates business ideas into concrete, short-term projections - Specifies sales projections, to whom, and at what prices - Equal mix of words and numbers- Converts business strategies to functional strategies Budgeting Planning – Gives short-term updates of the annual plan in financial detail - Usually covers a calendar quarter - Used in industries in which business conditions change rapidly - Mostly financial data with very few words- Covers operational budgets, cash budgets, and capital budgets Forecasting Planning – Very short-term projections of profit and cash flowWhere financial momentum will carry it in the coming weeksCovers cash forecasts, or projections of short-term cash needsMost large firms do monthly cash forecasts The Business Planning Spectrum – Has broad, long-term planning on one end and numerical short-term forecasting on the other end Planning Processes of Small and Large Businesses – Small businesses tend to develop a single business plan containing both strategic and operating elements Financial Plan as a Component of a Business Plan - Financial Plan is the financial portion of the business plan - Contains a set of pro forma financial statements projected over the time period covered by the business plan - Financial statements are a piece of the projection in a strategic plan and not the center of the projection - Annual plans, budgets, and forecasts more financial in naturePlanning for New and Existing Businesses- Involves forecasting changes in business based on planning assumptions - Projected statements reflect assumptions- Forecasting examples: o Unit sales will increase/decrease by ___% o Overall Labor Costs will rise/fall by ___ % o Interest rates on borrowing will increase/decrease by ___ % o Cost of food supplies will remain unchanged The General Approach and Assumptions - What we have and what we need to projecto Only need to project an income statement and balance sheet - Planning Assumptions o Expected physical or economic condition that dictates the size of one or more financial statement itemsQuick Estimates Based on Sales Growth - The percentage of sales method assumes all financial statement line items vary directly with sales revenue o Unrealistic assumption o Management virtually always has more insight - Modified percentage of sales method assumes most but not all line items vary with