The-Economist-Business-Planning.doc - courseworkbank.info

GUIDE TO BUSINESS PLANNING
OTHER ECONOMIST BOOKS Guide to Analysing Companies Guide to Business
Modelling Guide to Economic Indicators Guide to the European Union Guide to
Financial Markets Guide to Management Ideas Numbers Guide Style Guide
Dictionary of Business Dictionary of Economics International Dictionary of
Finance Brands and Branding Business Ethics Business Strategy China's
Stockmarket E-trends Globalisation Successful Innovation Successful Mergers
Wall Street Essential Director Essential Economics Essential Finance
Essential Internet Essential Investment Essential Negotiation Pocket Asia
Pocket Europe in Figures Pocket World in Figures
GUIDE TO BUSINESS PLANNING
Graham Friend and Stefan Zehle
THE ECONOMIST IN ASSOCIATION WITH PROFILE BOOKS LTD Published in 2004 by
Profile Books Ltd 3a Exmouth House, Pine Street, London ec1r 0jh Copyright
© The Economist Newspaper Ltd, 2004 Text copyright © Graham Friend and
Stefan Zehle, 2004 All rights reserved. Without limiting the rights under
copyright reserved above, no part of this publication may be reproduced,
stored in or introduced into a retrieval system, or transmitted, in any
form or by any means (electronic, mechanical, photocopying, recording or
otherwise), without the prior written permission of both the copyright
owner and the publisher of this book. The greatest care has been taken in
compiling this book. However, no responsibility can be accepted by the
publishers or compilers for the accuracy of the information presented.
Where opinion is expressed
it is that of the authors and does not necessarily coincide with the
editorial views of The Economist Newspaper. Typeset in EcoType by MacGuru
Ltd info@macguru.org.uk Printed in Italy by Legoprint - S.p.a. - Lavis (TN)
A CIP catalogue record for this book is available from the British Library
ISBN-10 1 86197 474 4 ISBN-13 978 1 86197 474 7
Contents
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Introduction The
business plan The business planning process Strategic planning Analysing
the environment Analysing the firm Industry and competitor analysis Product
and portfolio analysis SWOT analysis Generating strategic options Market
analysis and strategy Market forecasting The operational plan Modelling the
business Accounting principles Completing the financial statements
Reviewing the financial statements Evaluating strategic options Funding
issues Risk analysis Presenting the business plan and obtaining approval
Implementing the business plan Appendix Index 1 8 19 24 31 41 54 65 85 89
99 107 137 144 150 179 187 199 221 236 241 245 248 263
This page intentionally left blank
1

1 Introduction
This book is designed for those with an inspired idea who wish to translate
it into a successful new business or incorporate it in an existing
business. Usually, the first challenge for those who want to get a business
idea off the ground is securing funding. Any investor or those in an
existing business with responsibility for approving new initiatives will
invariably insist upon seeing a business plan before
they approve any investment. The business plan, besides being a
prerequisite for gaining access to finance, also provides the blueprint for
successfully creating and running the new venture. This book describes a
business planning process that will support the preparation of a compelling
business plan and the creation of a successful business. A business plan
describes the business's vision and objectives as well as the strategy and
tactics that will be employed to achieve them. A plan may also provide the
basis for operational budgets, targets, procedures and management controls.
No two businesses are identical and no two business plans are ever exactly
the same. This guide examines the different reasons for preparing a
business plan. It identifies who the potential audiences for a business
plan are; how they read it; and what things different members of the
audience will be looking for. The task of writing a business plan is a lot
easier if you have a template that can be tailored to the specific needs of
your business. Chapter 2 provides one. Also explained is how to design and
present a business plan to maximise the likelihood of its gaining approval
or funding. Although the presentation of the final business plan is
important, ultimately the substance of the plan is most crucial. The
strategies and tactics described in the plan should be the outputs from a
logical and appropriately comprehensive business planning process. The main
emphasis of this guide is on the various stages of that process. This book
provides
a practical step-by-step business planning process and a reference for the
tools and techniques necessary to complete it. It begins with an overview
of a typical business plan and the remaining chapters correspond to the
stages of the business planning process described in Chart 1.1 on the next
page. The process should begin by evaluating the business's existing or
intended position and the environment in which it operates, before
analysing existing or future customers, competitors and suppliers. The
results of the analysis, combined with a set of expectations about the
future, coupled with creative and innovative thinking, allow the business
to develop a range of strategic options designed to achieve its objectives.
The evaluation stage includes developing forecasts (notably for market
demand), financial projections and, in some cases, a range of valuations,
as well as calculating various measures of performance. The business
planning process can also be used to test alternative ideas and
assumptions, as one of the main reasons for planning is to help the
business prepare for an uncertain future. Following stages include an
examination of the funding issues and risk analysis, and lastly presenting
and gaining approval for the business plan, and then implementing it.
Because of the rapidly changing world in which businesses must operate,
this guide places considerable emphasis on business planning in the face of
uncertainty and makes use of techniques such as scenario planning.
2

1. INTRODUCTION

Chart 1.1 The
business planning process
Strategic review and plan Stakeholder analysis Vision, mission and
objectives

Environmental analysis

Analysis of the firm Chapters 4 to 10

Change strategy depending on outcome of evaluation

Industry and competitor analysis

Product and portfolio analysis

SWOT analysis

Generation of strategic options

Marketing plan Market analysis and strategy Market forecasting Chapters 11
and 12

Operational plan

Chapter 13

Model the business

Chapters 14 to 17

Evaluate and select strategy

Chapter 18

Examine funding issues

Chapter 19

Perform risk analysis

Chapter 20

Present and approve the business plan

Chapter 21

Implement the business plan

Chapter 22

All business plans require some form of financial analysis and forecasts
for the business or project. Most financial projections are prepared in a
spreadsheet package such as Microsoft's Excel. Chapter 14 describes the
generic Excel spreadsheet business model that accompanies this book and
that can be used within your own business. The model also forms the basis
for the detailed worked examples that are used to explain the basic
principles of accounting and the preparation of financial statements in
Chapters 15 and 16.
Using the book

3

This book is not, however, about business modelling, which is dealt with in
The Economist Guide to Business Modelling.

USING THE BOOK
Although this book provides a step-by-step guide to business planning, it
can also be dipped into by those wanting to apply
the techniques to address a specific business appraisal or analytical
challenge. Chart 1.2 on the next page provides a quick reference to all the
business planning techniques used in the book, including the typical
applications for each technique and where they can be found.

THE BUSINESS PLANNING MODEL
A business planning model built in Microsoft's Excel is available for the
readers of this book. To download the model visit
www.guidetobusinessplanning.com and follow the simple download
instructions. There are two versions available. The blank version (Blank
Model) is designed to help the reader understand and apply the accounting
techniques discussed in Chapters 15-17. For experienced business modellers,
this version can be customised to meet the specific needs of their
business. There is also a completed version (Complete Model), which
represents the end result of working through the examples in the book. A
full set of outputs from the completed model can be found in the Appendix.

ACCOUNTING AND BUSINESS MODELLING
When considering the forecasting and accounting needs for your own
business, you are strongly recommended to gain professional assistance from
trained accounting personnel if the accounting and modelling issues extend
beyond those covered in this book. The banks from whom you hope to raise
finance may be able to provide assistance with the creation of your
financial projections or alternatively you can seek the help of a
professional accounting firm or management consultancy. You may also be
able to
obtain help from government organisations established to support new
business ventures. The specific details of setting up a new company or
partnership are beyond the scope of this book, but Chapter 13 provides a
useful checklist of the issues that should be considered when creating a
new company. The first thing that you should think about, however, is
whether you are emotionally prepared for the inevitable stress that running
your own business entails. We hope that this book will at least alleviate
some of the pressures of preparing your first business plan.
4

1. INTRODUCTION

Chart 1.2 Quick reference guide to business planning techniques
Technique Benchmarking Application Obtaining financial and operational data
from competitors against which a business can measure its own performance.
Helps to set ta