A Workshop Designed For Virtual Enterprises International Business Planning and Annual Report Preparation

A Workshop Designed For

Virtual Enterprises International

Business Planning and

Annual Report Preparation

2

• Introduction

• Why do Businesses Need a Business Plan?

• What is a Business Plan?

• Organizing and Initiating the Planning Process

• Strategic Planning Overview

• Lunch

• Putting it All Together: Creating a Business Plan

• Financial Planning

• Annual Report

Today’s Agenda -- Business Planning and Annual Report Workshop

9:00 - 9:20

9:20 - 9:50

9:50 - 10:00

10:00 - 10:20

10:20 - 12:00

12:00 - 1:00

1:00 - 2:40

2:40 - 3:00 3:00 - 4:00

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• Financial Planning – In-Depth

• Annual Report

Business Planning and Annual Report Workshop

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“Jack picked an unfortunate place to test his “drive by instinct” theory.”

Without a business plan, an organization is without a mechanism by which it can credibly communicate and evaluate its strategic direction

5

There are significant advantages to business planning

ControlControl

DisciplineDisciplineDisciplineDiscipline

DirectionDirection

CredibilityCredibilityCredibilityCredibility

Advantages of Business Planning

Advantages of Business Planning

• Challenges old thought Challenges old thought and creates climate for and creates climate for new ideasnew ideas

• Identification of new Identification of new issuesissues

• Calls for the consideration Calls for the consideration of issues today of issues today

• Challenges old thought Challenges old thought and creates climate for and creates climate for new ideasnew ideas

• Identification of new Identification of new issuesissues

• Calls for the consideration Calls for the consideration of issues today of issues today

• Establishes a benchmark Establishes a benchmark against which business against which business performance can be performance can be monitoredmonitored

• Allows for the quick Allows for the quick identification of problemsidentification of problems

• Establishes a benchmark Establishes a benchmark against which business against which business performance can be performance can be monitoredmonitored

• Allows for the quick Allows for the quick identification of problemsidentification of problems

• Financial implicationsFinancial implications• Principle piece of sales Principle piece of sales

literature that will identify literature that will identify to lenders and investors:to lenders and investors:

• The business opportunityThe business opportunity• The business strategyThe business strategy• Management capabilityManagement capability

• Financial implicationsFinancial implications• Principle piece of sales Principle piece of sales

literature that will identify literature that will identify to lenders and investors:to lenders and investors:

• The business opportunityThe business opportunity• The business strategyThe business strategy• Management capabilityManagement capability

• Facilitates the Facilitates the communication of a communication of a positive management positive management stylestyle

• Establishes the strength Establishes the strength of the business goals and of the business goals and objectivesobjectives

• Facilitates the Facilitates the communication of a communication of a positive management positive management stylestyle

• Establishes the strength Establishes the strength of the business goals and of the business goals and objectivesobjectives

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A business plan provides relevant - and often times required –information for a variety of different purposes

Strategic AlliancesStrategic Alliances

Investment FundsInvestment Funds

Bank FinancingBank Financing

Internal UsesInternal Uses

Customer/Distributor Relations

Customer/Distributor Relations

Business PlanBusiness PlanBusiness PlanBusiness Plan

• When and how capital will be utilized and repaid

• How the company will survive setbacks

• Available collateral

• When and how capital will be utilized and repaid

• How the company will survive setbacks

• Available collateral

• Illustrates track record of the company, market and executives

• Indicates feasibility of achieving forecasts

• Uniqueness of product

• Illustrates track record of the company, market and executives

• Indicates feasibility of achieving forecasts

• Uniqueness of product

• Enables companies to plan for growth

• Forces strategic thinking

• Commits people to well-defined goals

• Enables companies to plan for growth

• Forces strategic thinking

• Commits people to well-defined goals

• Addresses potential risk areas perceived by alliance partners

• Addresses potential risk areas perceived by alliance partners

• Dispel doubts that large well known organizations may have towards entering into long term commitments with unknown entities

• Dispel doubts that large well known organizations may have towards entering into long term commitments with unknown entities

Mergers &AcquisitionsMergers &

Acquisitions• Allows for the

examination of M&A opportunities

• Assists on the evaluation of “fit”

• Allows for the examination of M&A opportunities

• Assists on the evaluation of “fit”

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• Annual Report


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The business plan is the output of the planning process used to communicate the strategic direction of an organization to a variety of stakeholder groups

Stakeholder: Any group or individual who can affect or is affected by the achievement of the business objectives.Internal Stakeholders: Employees, Shareholders/Investors, Management Team/DirectorsExternal Stakeholders: Customers, Suppliers, Community, Partners, Gov’t./Regulators, Prospective Investors, Buyers

Stakeholder: Any group or individual who can affect or is affected by the achievement of the business objectives.Internal Stakeholders: Employees, Shareholders/Investors, Management Team/DirectorsExternal Stakeholders: Customers, Suppliers, Community, Partners, Gov’t./Regulators, Prospective Investors, Buyers

StrategicStrategicDirectionDirectionStrategicStrategicDirectionDirection

BusinessPlan

StrategicPlanningProcess

StrategicPlanningProcess

InternalStakeholder

Groups

InternalStakeholder

Groups

ExternalStakeholder

Groups

ExternalStakeholder

Groups

Key Management/Staff/AdvisorsKey Management/Staff/Advisors

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Neither the planning process nor the plan document are ends in themselves; rather, they are a means to coordinate effective management action

Successful business planning requires the following:

There must be a compelling reason for doing the planning

The ownership group, Board of Directors and management must all agree that the plan meets company needs.

The planning documents and end products should be brief and straightforward. The purpose is to do the planning, not write a massive report

The project must be driven by the Chief Executive Officer of the company who must participate in its execution

It must be understood that consensus is worth compromise. In other words, agreement and commitment to an achievable plan are far better than disagreement and conflict over an unachievable plan

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• Annual Report


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• The major objective is to establish a successful ongoing planning process in a company:

• Not just a study to put on the shelf

• Designed to help develop and enhance management of the company and related planning processes

• Business planning should be an annually recurring process:

• A recurring process vs. a strategic one-time process

• Concurrent with annual budgeting process

• Prior year plans revisited and updated each year

• Considers short- and long-range business environment; for example:

• 12-month, short-range plan

• 3-5 year, long-range plan

• Focuses on business agendas needing planning attention within each planning cycle

In order to be effective, the business planning process needs to become an integrated function of the organization…

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• The process should be tailored to the needs of the organization and its management

• The list of activities for the initial planning process should be realistic in terms of the objectives and scope

• The key activity is to establish a link between the planning process and the management process:

• Across divisions• Across functions• Up and down the organization

• Issues related to managing the planning process:• The role of the CEO• The role of a planning staff• The time frame for the planning process

The business planning process needs to be clearly defined and tightly managed…

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• Project organization in the planning process should be designed such that:

• Top management• Has overall direct line planning responsibility• Provides overall corporate guidelines• Establishes overall impetus behind the plan and the planning process• Plays an active role in developing the plan, as well as reviewing and monitoring plan performance

• Line management• Has direct responsibility for developing plans at division/department levels• Coordinates the development effort at the division/department level

• Corporate staff• Assists in plan preparation and monitoring• Supports top management through:

• Data gathering• Analysis• Project administration• Reviewing and monitoring plan performance

• Assists line management in the planning process as required:• Data gathering• Analysis

And, the business planning process needs to be organized to ensure comprehensive input and buy-in

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The planning process will be much clearer and to the point if the following key 20 questions are asked and answered

1. What type of business do you have?2. Where do you see the business in 1, 3, 5, 10 years?3. What is the purpose of this business?4. What key message or phrase to describes your business in one sentence?5. What is your product or service?6. Can you list three unique benefits of each of your products?7. What collateral materials do you have or plan to have?8. What is the product application?9. How will you finance company growth?10. Do you have the management team needed to achieve your goals?11. What led you to develop your product?12. Is this product used in conjunction with other products?13. List the top three objections to buying your product/service immediately?14. When will your product be available?15. Who is your target audience?16. Who is your competition?17. How is your product differentiated from that of your competition?18. What is the pricing of your product versus the competition?19. Are you making any special offers?20. What plans do you have for advertising & promotions?

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• Annual Report


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Dynamic strategic planning is an ongoing process. It is a way of thinking; it turns executives into strategic thinkers and not tactical planners.

Versus

Incremental Planning Process Dynamic Strategic Planning Process

IncrementalismOne reason why companies stagnate

TIME

GO

AL

Where weare now?

Actions taken in response to circumstances

Where can we be next year?

FocusOne reason why companies grow

TIME

GO

AL

Actions driven by strategy

Where are we now?

Vision of where we need to be five years from now

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A business plan is the key tangible output from the strategic planning process

Reassess the Business Imperatives

Business Strategy Implementation

FutureIndustry

Scenarios

FutureIndustry

Scenarios

FutureIndustry

Scenarios

FutureIndustry

Scenarios

BusinessDefinition

BusinessConstraints

ExternalAnalysis

InternalAnalysis

Develop Options

Objectives

Strategies

Evaluate Options

Risks

Rewards

ActionPlans

ActionPlans

ImplementActionPlans

MonitorActionPlans

BusinessPlan

Strategic Options Analysis

Environmental Analysis

Business ImperativeDevelopment

BusinessBusinessImperativesImperativesBusinessBusiness

ImperativesImperativesKeyKey

InsightsInsightsKeyKey

InsightsInsightsStrategicStrategicDirectionDirectionStrategicStrategicDirectionDirection

Change Leadership and Project ManagementCommunication, Education and Knowledge Transfer

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The First Step: Business Definition

Business Definition: The description of an organization’s vision, mission, and values.Business Definition: The description of an organization’s vision, mission, and values.

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Defining a mission, vision and values provides a high level definition of an organization’s operations, providing the overall scope for strategic planning.

Vision: An idealized view of an organization’s future state. Where or what an organization would like to be in the future.

Mission: An enduring statement of purpose. An organizations reason for being. Describes what an organization does, who it does it for, and how it does it.

Strategy: An expression of the manner in which the organization will achieve the goals necessary to accomplish its mission and fulfill its vision.

Values: A set of commonly held fundamental beliefs that describe the type of behavior it will take to realize the organization’s vision.

Vision: An idealized view of an organization’s future state. Where or what an organization would like to be in the future.

Mission: An enduring statement of purpose. An organizations reason for being. Describes what an organization does, who it does it for, and how it does it.

Strategy: An expression of the manner in which the organization will achieve the goals necessary to accomplish its mission and fulfill its vision.

Values: A set of commonly held fundamental beliefs that describe the type of behavior it will take to realize the organization’s vision.

MISSIONMISSION

Why are we inWhy are we inbusiness?business?

MISSIONMISSION

Why are we inWhy are we inbusiness?business?

VISIONVISION

What do we wantWhat do we wantthe business tothe business tolook like 5 yearslook like 5 years

from now?from now?

VISIONVISION

What do we wantWhat do we wantthe business tothe business tolook like 5 yearslook like 5 years

from now?from now?

STRATEGYSTRATEGY

How do we intendHow do we intendto get there?to get there?

STRATEGYSTRATEGY

How do we intendHow do we intendto get there?to get there?

Shared ValuesShared ValuesWhat type of organization do we seek to be?What type of organization do we seek to be?

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The Next Step: Business Constraints

Business Constraints: The conditions that an organization must satisfy to merely survive. They are the limitations or demands that are imposed on an organization by its stakeholders.

Business Constraints: The conditions that an organization must satisfy to merely survive. They are the limitations or demands that are imposed on an organization by its stakeholders.

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Stakeholders form mutually beneficial symbiotic relationship with the organization, if stakeholder interests are not met, the business will not survive

ShareholdersShareholders//

InvestorsInvestors

OrganizationOrganizationCustomersCustomers

Gov’t./Gov’t./RegulatorsRegulators CommunityCommunity

Management/Management/DirectorsDirectors

EmployeesEmployeesSuppliersSuppliers PartnersPartners

The Business Constraint provides the organization with the stakeholder perspective, including their requirements, issues, and concerns, and guides it in the development of appropriate strategies that factor in the specific needs of these all important groups.

The Business Constraint provides the organization with the stakeholder perspective, including their requirements, issues, and concerns, and guides it in the development of appropriate strategies that factor in the specific needs of these all important groups.

ProspectiveProspectiveInvestorsInvestors BuyersBuyers

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The Result: Business Imperatives

Business DefinitionBusiness DefinitionBusiness DefinitionBusiness Definition

• What businesses are we in?• What is our business vision?• What are our core values?• What types of products or

services do we provide?• How do we define the

customers we serve?

• What businesses are we in?• What is our business vision?• What are our core values?• What types of products or

services do we provide?• How do we define the

customers we serve?

Business ConstraintsBusiness ConstraintsBusiness ConstraintsBusiness Constraints

• What are the business constraints imposed by the various stakeholders:

–Shareholders;–Employees;–Customers; –Suppliers; and –Government?

• What are the business constraints imposed by the various stakeholders:

–Shareholders;–Employees;–Customers; –Suppliers; and –Government?

Objectives of AnalysisObjectives of AnalysisObjectives of AnalysisObjectives of Analysis

Establish the business imperatives

Establish the business imperatives

Objectives and Key Objectives and Key Questions to beQuestions to be

AddressedAddressed

• Understanding these business constraints is crucial to the retention of key stakeholders

• The business mission should describe why the organization exists - rather than what the organization does

• What are the key drivers of the business?

• Are they aligned with the constraints?

• How can they be aligned?

Business Imperatives are the essential pillars of an organization’s existence.Business Imperatives are the essential pillars of an organization’s existence.

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Once the imperatives have been established, they can be examined in the context of the firm’s environment, both internal and external.

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TechnologyTechnology

CompetitionCompetition

Impact onImpact onIndustry,Industry,CompanyCompany

RegulationRegulation

Customers/Customers/MarketsMarkets

The Environment: External Analysis

Competitive PositionCompetitive PositionMarketMarketAttractivenessAttractiveness

SuppliersSuppliers

PotentialPotentialEntrantsEntrants

BuyersBuyers

SubstitutesSubstitutes

IndustryIndustryRivalryRivalry

External Analysis examines two key dimensions of business activities: market attractiveness and competitive position.

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What will this mean for the business?

TechnologyTechnology

CompetitionCompetition

Impact onImpact onIndustry,Industry,CompanyCompany

RegulationRegulation

Customers/Customers/MarketsMarkets

• How do changing regulations affect the business?

• Where do they have the potential to benefit it?

• Where do they have the potential to harm it?

• Are the regulations getting more or less complex?

• What are customer perceptions of the regulation?

• How long will it be before all of business’ customers’ operations are performed electronically?

• Will this decrease customers’ need for business or increase it?

• How will business use technology itself to provide better service?

• Are customers responsive to technology trends in this area?

• What is the industry structure?

• Who are business’ key competitors? Regionally? Nationally? Globally?

• How are they responding to regulation, technology and the customer base?

• Are new competitors entering the market?

• Are existing competitors adding new services?

• What are the market segments?

• Establish a customer profile (size, industry)

• How is the business perceived by its customers?

• What are the switching costs for customers?

• Examination of the above in potential new markets

This analysis will determine which market segments are most attractive, in order to determine where the business should be

focusing its attention.

This analysis will determine which market segments are most attractive, in order to determine where the business should be

focusing its attention.

MarketMarketAttractivenessAttractiveness

MarketMarketAttractivenessAttractiveness

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SuppliersSuppliers

PotentialPotentialEntrantsEntrants

BuyersBuyers

SubstitutesSubstitutes

IndustryIndustryRivalryRivalry

• An analysis of a business' competitive position includes all competitors whose actions significantly affect its business.

• Competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors.

• The goal of competitive strategy is to find a position where a company can best defend itself against competitive forces or can influence them in its favor.

The analysis of the business’ competitive position will identify the industry dynamics and the critical success factors required to succeed in the industry and market segments

identified. These insights will then be examined in conjunction with the Internal Analysis.

The analysis of the business’ competitive position will identify the industry dynamics and the critical success factors required to succeed in the industry and market segments

identified. These insights will then be examined in conjunction with the Internal Analysis.

Competitive PositionCompetitive PositionCompetitive PositionCompetitive Position

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The Environment: Internal Analysis

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The Environment: Internal Analysis

The internal analysis assesses the strategically important aspects of the organization, including Resources, Infrastructure, Products/Services and Customers, to establish the strengths, weaknesses, and core competencies. We also examine strategic disciplines.

ResourcesResources

Products/Products/ServicesServices

InternalInternalAnalysisAnalysis

InfrastructureInfrastructure

CustomersCustomers

Operational Excellence

Customer Intimacy

Product Leadership

HybridsHybrids

Internal AnalysisInternal Analysis Strategic DisciplinesStrategic Disciplines

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ResourcesResources

Products/Products/ServicesServices

InternalInternalAnalysisAnalysis

of Companyof Company

InfrastructureInfrastructure

CustomersCustomers

• Determine the core and supporting processes within the organization

• Determine whether organizational structure and processes support business objectives

• What is the appropriate role for staff? Are call centres performing a core or supporting process?

• Is business a market-facing organization?

• Focus will be on tangible and intangible resources

• Is business prepared for an e-Business environment?

• How is business taking advantage of its intellectual capital and other intangible resources?

• Are sales and marketing resources sufficient for growth, new markets?

• What is the internal and external significance of the business’ key products and services?

• Which services are best in class?

• Which services are strategically important to attracting new customers?

• Which services will be appropriate for entering new markets?

• Determine which customers are strategic and which are non-strategic

• How responsive is the business to each type of customer?

• Where does the business derive its profitability from?

• How can its efforts be focused on strategic customers?

This analysis examines the business model in order to identify the key value drivers and competencies of the organization.

This analysis examines the business model in order to identify the key value drivers and competencies of the organization.

Internal AnalysisInternal AnalysisInternal AnalysisInternal Analysis

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Strategic Disciplines: A Different Way of Looking at a business

Product Differentiation

Operational Excellence Customer Intimacy

Customer Responsive

Operational Competence

“Best Product”

“Best Total Cost” “Best Total Solution”

Product LeadershipLeadership(only possible on one axis)

Threshold Performance(necessary on all axes)

A given company’sperformance

To be market leader, businesses must choose which value-creating discipline to lead in, and move above the threshold level in the other two disciplines.

To be market leader, businesses must choose which value-creating discipline to lead in, and move above the threshold level in the other two disciplines.

For example:• Microsoft• 3M• Fidelity

For example:• Nordstrom• IBM• Home Depot• C&W (U.S.)

For example:• Charles Schwab• Wal-Mart• McDonalds

HybridHybridoperating models operating models lead to confusion, lead to confusion,

tension and tension and mediocritymediocrity

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Key Insights

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Key Insights: Tying it all together...

Assessment of the

organization’s ability to sustain

competitive advantage

Strategic Intent, Organization

Direction, and Compelling

Case for Change

External Assessment

RegulationRegulation CompetitionCompetition

TechnologyTechnology MarketsMarkets

External Analysis

Customer Needs Assessment

InfrastructureInfrastructure ResourcesResources

Products/Products/ServicesServices CustomersCustomers

Internal Analysis

Once the internal and external analyses have been performed, we can extract key insights about the company and its ability to sustain competitive advantage through SWOT and other analyses. This in turn guides the strategic direction of the company, as it builds off strengths to take advantage of opportunities.

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Future Industry Scenarios: Where’s it all heading?

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Strategic Options: How we get where we want to go?

Strategic options address the “strategic gaps” within an organization and will ensure the organization’s survival and will provide ways to continue to grow and compete effectively in the uncertain future. They are the vehicles which are used to realize the mission and vision of the organization.

“Shapingthe Future”

“Adaptingto the Future”

“Reservingthe Right to Play”

Play a leadership role in establishing how the industry

operates, for example• setting standards• creating demand

Compete through speed, agility, and flexibility in

recognizing and capturing opportunities in existing

markets

Invest sufficiently to stay in the game but avoid

premature commitments

Given the changes in the industry, it is important to identify an organization’s strategic options for each of the “strategic postures”. Examining these variations will provide

increased insight into the critical gaps in the organization’s current operations.

Given the changes in the industry, it is important to identify an organization’s strategic options for each of the “strategic postures”. Examining these variations will provide

increased insight into the critical gaps in the organization’s current operations.

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Strategic Options: What do we need to do?

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Developing a business’ options

Market Market Development Development

StrategyStrategy

DiversificationDiversificationStrategyStrategy

Product Product Development Development

StrategyStrategy

Market PenetrationMarket PenetrationStrategyStrategy

Current New

New

Current

PRODUCTS

MARKET

The product/market matrix is a useful framework for detecting new strategic options. New products may come in the form of entirely new services, or

bundles of existing services.

The product/market matrix is a useful framework for detecting new strategic options. New products may come in the form of entirely new services, or

bundles of existing services.

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How to decide which options to pursue

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Evaluating Company’s Options

InputInputInputInput

Definition of the Strategic Options

Key Questions tobe Answered

Strategic OptionsRisk / Reward Map

AnalysisAnalysisAnalysisAnalysis

OutputOutputOutputOutput

Risk

Rew

ard

Option 1

Option 3

Option 4

Option 2

• What are the criteria for measuring the strategic options?

• How do the different options impact our business model?

• For which options is Company least prepared to respond to changes?

• What are the core competencies required to realize each of the strategic options in the market?

• Can organic growth achieve desired targets?

• Are we investing the right amount in growth? Are we prioritizing for growth? Are we poised to grow?

• What are the financial and strategic impacts on the current business?

• What are the criteria for measuring the strategic options?

• How do the different options impact our business model?

• For which options is Company least prepared to respond to changes?

• What are the core competencies required to realize each of the strategic options in the market?

• Can organic growth achieve desired targets?

• Are we investing the right amount in growth? Are we prioritizing for growth? Are we poised to grow?

• What are the financial and strategic impacts on the current business?

• Strategic Options based on future industry scenarios containing: Objective, Strategies and Initiatives

• Implications for the current business

• Criticial success factors

• Strategic Options based on future industry scenarios containing: Objective, Strategies and Initiatives

• Implications for the current business

• Criticial success factors

Once the options have been developed, they need to be evaluated in terms of criteria that are consistent with the insights developed earlier through the internal and external

analyses. These options can then be evaluated and considered by management.

Once the options have been developed, they need to be evaluated in terms of criteria that are consistent with the insights developed earlier through the internal and external

analyses. These options can then be evaluated and considered by management.

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Once developed and evaluated, the selected strategic options establish the organization’s strategic objectives

Strategic Objectives: The goals that must be achieved in order to accomplish the organization’s mission and fulfill its vision.

Strategic Objectives: The goals that must be achieved in order to accomplish the organization’s mission and fulfill its vision.

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The strategic planning process defines the organization’s strategic objectives which establish its strategic direction, the basis for the Business Plan

StrategicStrategicDirectionDirectionStrategicStrategicDirectionDirection

• Is a vibrant and compelling picture of the organization’s future state that provides direction and guidance to stakeholders.

• Is not tactics, divisional strategies, or “mom & apple pie” statements

• Contains concrete strategic objectives to attain the organization’s

• Mission,

• Vision,and

• Values

An organization’s strategic direction explains why it exists, where it is headed, and how it intends to get there

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• LUNCH



• Annual Report


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• Annual Report


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A business plan’s length and structure will depend on its intended purpose and the complexity of the organization’s operations

Pu

rpo

seB

usin

ess Co

mp

lexity

BusinessBusinessPlan TypePlan Type Reasons For SelectionReasons For Selection

OperationalOperational

• Established company• To develop source for senior

management guidance• Establish a blueprint for operations• Communicate management roles and

responsibilities

• Established company• To develop source for senior

management guidance• Establish a blueprint for operations• Communicate management roles and

responsibilities

CharacteristicsCharacteristicsCharacteristicsCharacteristics

• Detailed overview of operations, market, financial data, action plans and roles

• 40-100 Pages

• Detailed overview of operations, market, financial data, action plans and roles

• 40-100 Pages

FullFull

• Seeking moderate amount of financing• To communicate vision and business

strategy to senior management and alliance partners

• Detailed overview of operations, market analysis and financial data

• 20-40 Pages

• Detailed overview of operations, market analysis and financial data

• 20-40 Pages

SummarySummary

• Require roadmap for growth• Seeking small amount of seed capital• To renew an existing line of credit• Existing operations are small and have

a limited history• Management has excellent track record

• Require roadmap for growth• Seeking small amount of seed capital• To renew an existing line of credit• Existing operations are small and have

a limited history• Management has excellent track record

• Highlights business approach and projections

• 10-15 Pages

• Highlights business approach and projections

• 10-15 Pages

OperationsOperations

FinancingFinancing

HighHigh

LowLow

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The process of drafting a business plan becomes much easier if certain data is available before writing begins

Data CategoryData Category Data ChecklistData Checklist

CompanyCompanyDescription & StrategyDescription & Strategy

CompanyCompanyDescription & StrategyDescription & Strategy

Management andManagement andOrganizationOrganization

Management andManagement andOrganizationOrganization

Market and Market and CompetitorsCompetitorsMarket and Market and CompetitorsCompetitors

Product DescriptionProduct Descriptionandand

AnalysisAnalysis

Product DescriptionProduct Descriptionandand

AnalysisAnalysis

Marketing andMarketing andSalesSales

Marketing andMarketing andSalesSales

FinancialFinancialInformationInformationFinancialFinancial

InformationInformation

� Name� Legal Form� Location

� Financial Highlights� Shareholders

� Organizational Chart� Key Management� Board of Directors

� Consultants/Advisors� Compensation� Strategic Partners

� Market Statistics� Competitor Data� Competitive Advantages

� Market and Customer Surveys

� Product Literature� Patent, license & trademarks

� Regulatory Approvals� Operations Plan� R&D Plan

� Marketing Plan� Sales Vehicles

� Marketing Materials

� Financial Projections and Assumptions

� Amount and Timing of Needed Funding

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The Key Sections of the Business Plan document

Company Description &

Strategy

Management &Management &OrganizationOrganization

Market &Market &CompetitorsCompetitors

ProductDescription &

Analysis

Marketing& Sales

FinancialInformation

ExecutiveSummary

BusinessPlan

AppendicesAppendices

46

Company Description & Strategy

Company Company Description &Description &

StrategyStrategy




Analysis

Marketing& Sales


ExecutiveSummary

BusinessPlan


47

It is important that the company tell a story about its past, future and key people

• The company’s overall approach to producing and selling its products and The company’s overall approach to producing and selling its products and servicesservices

• An articulation of the company’s distinctive value propositionAn articulation of the company’s distinctive value proposition

• Goals for maximizing successGoals for maximizing success

• Provide a history of the company including information on the founders, the Provide a history of the company including information on the founders, the reason it was founded, accomplishments, and failuresreason it was founded, accomplishments, and failures

• Provide a sense of the company’s current situation and direction including Provide a sense of the company’s current situation and direction including information on employee size, products, sales trendsinformation on employee size, products, sales trends

• Provide a sense where the company is headed, company objectives, new Provide a sense where the company is headed, company objectives, new market and product plansmarket and product plans

The Company:The Company:Past, Present &Past, Present &

FutureFuture

The Company:The Company:Past, Present &Past, Present &

FutureFuture

BusinessBusinessMissionMission

BusinessBusinessMissionMission

• Provide a brief summary on management's:Provide a brief summary on management's:

– Experience; Talent; IntegrityExperience; Talent; Integrity

• The summary in this section will lead to a detailed description of the The summary in this section will lead to a detailed description of the management team in the next sectionmanagement team in the next section

ManagementManagementTeamTeam

ManagementManagementTeamTeam

Section ObjectiveSection Objective

• To ground the intended reader in the facts leading to the request for fundingTo ground the intended reader in the facts leading to the request for funding

Description of Section Content ComponentsDescription of Section Content Components

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Upon completion, consider whether the section demonstrates:Upon completion, consider whether the section demonstrates:

� The business the company is inThe business the company is in

� The purpose of the businessThe purpose of the business

� How the company’s products and services relate to its missionHow the company’s products and services relate to its mission

� The value the products and services are providing to customersThe value the products and services are providing to customers

� What led to the development of the businessWhat led to the development of the business

� The future vision for the businessThe future vision for the business

� Why the company is uniquely qualified to be in this businessWhy the company is uniquely qualified to be in this business

� Legal name, location and structure of the businessLegal name, location and structure of the business

� The current stage of the business (conceptual, start-up, mature)The current stage of the business (conceptual, start-up, mature)

� The current financial positionThe current financial position

� How the company’s weaknesses are being addressedHow the company’s weaknesses are being addressed

� The key members of the management teamThe key members of the management team

Section Check List

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Management & Organization


Strategy




Analysis

Marketing& Sales


ExecutiveSummary

BusinessPlan


50

A company’s ability to execute - one of the primary concerns to lenders and venture capitalists

Section ObjectiveSection Objective• To demonstrate that the necessary human resources are available to successfully implement the To demonstrate that the necessary human resources are available to successfully implement the

company’s strategycompany’s strategy


• A half page synopsis on each team member’s background including: A half page synopsis on each team member’s background including: relevant employment and professional experience; significant relevant employment and professional experience; significant accomplishments and educational backgroundaccomplishments and educational background

• Complete and detailed resumes of key management in an appendixComplete and detailed resumes of key management in an appendix

• Description of the compensation packages being offered to key employeesDescription of the compensation packages being offered to key employees

• Identification of the number of employees currently in the company and the Identification of the number of employees currently in the company and the need to expand the workforceneed to expand the workforce

• Discussion of any unique human resource policies and general Discussion of any unique human resource policies and general compensation principlescompensation principles

• Identification of skill gaps and the associated strategies to recruit people Identification of skill gaps and the associated strategies to recruit people with critical skillswith critical skills

Human ResourceHuman ResourceIssuesIssues

Human ResourceHuman ResourceIssuesIssues

Description ofDescription ofManagement Management

TeamTeam

Description ofDescription ofManagement Management

TeamTeam

• Identification of relationships with outside advisors which may include a Identification of relationships with outside advisors which may include a Board of Directors, Advisory Board, or an informal group of counselorsBoard of Directors, Advisory Board, or an informal group of counselors

• Indication as to the strength and depth of established relationships with Indication as to the strength and depth of established relationships with outside advisorsoutside advisors

OutsideOutsideAdvisorsAdvisorsOutsideOutside

AdvisorsAdvisors

51


� The CEO’s ability to effectively lead the companyThe CEO’s ability to effectively lead the company

� Strengths and experience of management match the goals and strategies of the businessStrengths and experience of management match the goals and strategies of the business

� Compensation arrangements are aligned with the goals and objectives of the businessCompensation arrangements are aligned with the goals and objectives of the business

� Any strategic alliances that provide access to talent that does not reside on the management teamAny strategic alliances that provide access to talent that does not reside on the management team

� Any plans to add additional talent to the management teamAny plans to add additional talent to the management team

� How the company will acquire additional human resources needed to implement its strategyHow the company will acquire additional human resources needed to implement its strategy

� Who the company’s outside experts are and what it will cost to retain themWho the company’s outside experts are and what it will cost to retain them

� The relevant experience the company’s Board of Directors/advisors brings to managementThe relevant experience the company’s Board of Directors/advisors brings to management

Section Check List

52

Market & Competitors


Strategy




Analysis

Marketing& Sales


ExecutiveSummary

BusinessPlan


53

Section ObjectiveSection Objective• To demonstrate the existence of a market for the company’s offering and management's To demonstrate the existence of a market for the company’s offering and management's

understanding of relevant market forces understanding of relevant market forces

Description of Section Content ComponentsDescription of Section Content Components• Description of the industry in which the company operates, an analysis of trends Description of the industry in which the company operates, an analysis of trends

and an assessment of business opportunities (in dollars, if possible)and an assessment of business opportunities (in dollars, if possible)

• Identification of the unmet need that the company will be satisfyingIdentification of the unmet need that the company will be satisfying

• Description of the company’s target market in terms that are as specific as Description of the company’s target market in terms that are as specific as possiblepossible

• Indication as to the size of the company’s market (in dollars) taking into Indication as to the size of the company’s market (in dollars) taking into consideration such things as: market trends, demographics, and geographyconsideration such things as: market trends, demographics, and geography

• Overview of current competition (strengths and weaknesses), the company’s Overview of current competition (strengths and weaknesses), the company’s competitive differences, and future competitive threats including how they will be competitive differences, and future competitive threats including how they will be addressed addressed

Identifying Identifying TheThe

MarketMarket

Identifying Identifying TheThe

MarketMarket

• Understanding of of how consumers will make purchase decisions related to Understanding of of how consumers will make purchase decisions related to the company’s product/servicethe company’s product/service

• Understanding of how customers are distributed over market segmentsUnderstanding of how customers are distributed over market segments

• Overview of how the company’s product or service will be positioned in the Overview of how the company’s product or service will be positioned in the market based on the following positioning dimensions: Technology market based on the following positioning dimensions: Technology Leadership; Management Style; Service Philosophy; Product QualityLeadership; Management Style; Service Philosophy; Product Quality

• An outline of the company’s defensive strategy based on an understanding An outline of the company’s defensive strategy based on an understanding on how competitors may react if they are threatenedon how competitors may react if they are threatened

UnderstandingUnderstandingTheThe

MarketMarket

UnderstandingUnderstandingTheThe

MarketMarket

Ideas for fantastic products from brilliant and innovative people areof little value in the absence of a market for the company’s offering

54


� The industry in which the company operates and the drivers of change within itThe industry in which the company operates and the drivers of change within it

� The unmet need that the company is able to satisfyThe unmet need that the company is able to satisfy

� Specific target marketsSpecific target markets

� What market trends, emerging and current, may have an effect on the customer purchase decisionWhat market trends, emerging and current, may have an effect on the customer purchase decision

� The size and geographic spread of the company’s marketThe size and geographic spread of the company’s market

� The rate of growth of the company’s target marketThe rate of growth of the company’s target market

� Competitors and their characteristics (strengths and weaknesses)Competitors and their characteristics (strengths and weaknesses)

� The company’s competitive differencesThe company’s competitive differences

� Barriers to entry for emerging competitorsBarriers to entry for emerging competitors

� Vulnerability of the company’s product/service offering to substitutionVulnerability of the company’s product/service offering to substitution

� The dimension(s), other than price, on which the company differentiates its product/service offeringsThe dimension(s), other than price, on which the company differentiates its product/service offerings

� The company’s product/service offering positioning on the price curveThe company’s product/service offering positioning on the price curve

� The anticipated competitive response to the company’s marketing strategyThe anticipated competitive response to the company’s marketing strategy

Section Check List

55

Product Description & Analysis


Strategy



ProductProductDescription &Description &

AnalysisAnalysis

Marketing& Sales


ExecutiveSummary

BusinessPlan


56

Investors require assurance that a company will be able to actually “do what it says it can do” with respect to product delivery

Section ObjectiveSection Objective• To demonstrate that the company’s described product/or service can be delivered to the market To demonstrate that the company’s described product/or service can be delivered to the market

on schedule, with high quality and at the cost anticipatedon schedule, with high quality and at the cost anticipated


• Demonstration of the product with the business plan i.e. CD RomDemonstration of the product with the business plan i.e. CD Rom

• Description of product/services in terms that are clear and conciseDescription of product/services in terms that are clear and conciseThe ProductThe ProductThe ProductThe Product

• Description of full R&D requirements including a budget, R&D plan, & risksDescription of full R&D requirements including a budget, R&D plan, & risks

• Discussion of relevant competing technologies and emerging technologiesDiscussion of relevant competing technologies and emerging technologies

• Explanation of the potential evolution of new products and servicesExplanation of the potential evolution of new products and services

• Description as to what technology/information is proprietaryDescription as to what technology/information is proprietary

ProductProductDevelopmentDevelopment

ProductProductDevelopmentDevelopment

• Description of the company’s philosophy and approach to quality Description of the company’s philosophy and approach to quality assuranceassurance

• Indication of how the company will deal with poor product serviceIndication of how the company will deal with poor product service

Quality ControlQuality Control& Ongoing Service& Ongoing ServiceQuality ControlQuality Control

& Ongoing Service& Ongoing Service

• Explanation of key operational processes and how technology may impact Explanation of key operational processes and how technology may impact themthem

• Discussion of the key drivers of operating costs and other product costsDiscussion of the key drivers of operating costs and other product costs

OperationsOperationsOperationsOperations

57


� The stage the company is at in the R&D process and key milestonesThe stage the company is at in the R&D process and key milestones

� Costs to complete any product development and expected ongoing costsCosts to complete any product development and expected ongoing costs

� The process for monitoring the need for and implementing product improvementsThe process for monitoring the need for and implementing product improvements

� Intellectual property owned by the companyIntellectual property owned by the company

� A need for the development of critical processesA need for the development of critical processes

� How the company will monitor quality and the process for dealing with poor product serviceHow the company will monitor quality and the process for dealing with poor product service

� Any product/service name registration with government bodiesAny product/service name registration with government bodies

Section Check List

58

Marketing & Sales


Strategy




Analysis

MarketingMarketing& Sales& Sales


ExecutiveSummary

BusinessPlan


59

For a given value proposition, there must be a clear understanding as to who it will be communicated to and how it will be delivered

Section ObjectiveSection Objective• To demonstrate the company’s strategy for building awareness and driving sales in the To demonstrate the company’s strategy for building awareness and driving sales in the

marketplacemarketplace


• Illustrates how the company will deliver a targeted message to key prospectsIllustrates how the company will deliver a targeted message to key prospects

• Demonstrates the results of any market researchDemonstrates the results of any market research

• Includes a clearly developed positioning statementIncludes a clearly developed positioning statement

• Outlines major marketing vehicles to be used such as: brochures; Outlines major marketing vehicles to be used such as: brochures; advertising in print, broadcast or electronic media; direct mail; public advertising in print, broadcast or electronic media; direct mail; public relationsrelations

MarketingMarketingStrategiesStrategies

MarketingMarketingStrategiesStrategies

• Outlines how the company’s product or service will be sold including a Outlines how the company’s product or service will be sold including a description of distribution channels and methodsdescription of distribution channels and methods

• Provides an indication of projected selling costsProvides an indication of projected selling costs

• Describes how the sales force will be supported though resources such as: Describes how the sales force will be supported though resources such as: training programs; promotional material; selling aids training programs; promotional material; selling aids

SalesSalesStrategiesStrategies

SalesSalesStrategiesStrategies

60


� How the company positions its products and servicesHow the company positions its products and services

� The key messages the company wishes to convey with respect to its products and servicesThe key messages the company wishes to convey with respect to its products and services

� The marketing vehicles that will be used to promote the company’s product/service offeringsThe marketing vehicles that will be used to promote the company’s product/service offerings

� How much the company plans to spend on promotionHow much the company plans to spend on promotion

� The distribution channels and the selling method that the company plans to use within each channelThe distribution channels and the selling method that the company plans to use within each channel

� Any strategic alliances that will assist the company in reaching desired markets efficiently and cost Any strategic alliances that will assist the company in reaching desired markets efficiently and cost

effectivelyeffectively

Section Check List

61

Financial Information


Strategy




Analysis

Marketing& Sales

FinancialFinancialInformationInformation

ExecutiveSummary

BusinessPlan


62

An illustration of the business plan’s financial implications provides abasis to quantify the risk and return potential of the business opportunity

Section ObjectiveSection Objective• To demonstrate to the investor that the proposed business plan can yield an acceptable rate of To demonstrate to the investor that the proposed business plan can yield an acceptable rate of

return for its level of riskreturn for its level of risk


• Includes past and 5 year forecasted financial statements such as: the balance Includes past and 5 year forecasted financial statements such as: the balance sheet; income statement; statement of cash-flowssheet; income statement; statement of cash-flows

• Describe key assumptions used to build forecasts - they should be Describe key assumptions used to build forecasts - they should be conservative, built on facts, and consistent across all forecasts and statementsconservative, built on facts, and consistent across all forecasts and statements

FinancialFinancialStatementsStatements

and Projectionsand Projections

FinancialFinancialStatementsStatements

and Projectionsand Projections

FundingFundingRequestRequest

FundingFundingRequestRequest

Payback andPayback andExit StrategyExit Strategy

Payback andPayback andExit StrategyExit Strategy

• Provide an indication as to what type of return investors can expect from Provide an indication as to what type of return investors can expect from their investmenttheir investment

• Describe the payback period and how the deal will be structured to allow for Describe the payback period and how the deal will be structured to allow for investors to harvest their investmentinvestors to harvest their investment

• Indicate how much money the business requires, why the business requires Indicate how much money the business requires, why the business requires this amount of money and what will be done with the fundsthis amount of money and what will be done with the funds

• Describe the anticipated effect that the requested funding will have on the Describe the anticipated effect that the requested funding will have on the company’s capital structurecompany’s capital structure

• Describe any other funding needs - current or anticipatedDescribe any other funding needs - current or anticipated

63


� Assumptions are consistent with the results of the market analysis and other sections of the business Assumptions are consistent with the results of the market analysis and other sections of the business

plan (the market share targets described in the market analysis should drive the financial projections)plan (the market share targets described in the market analysis should drive the financial projections)

� An understanding of how different scenarios will impact the key financial metrics of the businessAn understanding of how different scenarios will impact the key financial metrics of the business

� The form of the investment being sought The form of the investment being sought

� The capital required and the time period for which it will be requiredThe capital required and the time period for which it will be required

� How the funds will be usedHow the funds will be used

� How future growth will be financedHow future growth will be financed

� The proposed exit/payback strategy for lenders and investorsThe proposed exit/payback strategy for lenders and investors

Section Check List

64

Appendices


Strategy




Analysis

Marketing& Sales


ExecutiveSummary

BusinessPlan


65

The appropriate appendices should be attached to the business planto provide the reader additional detailed information

� Glossary of termsGlossary of terms

� Organizational chartsOrganizational charts

� Resumes of key managersResumes of key managers

� Patent detailsPatent details

� Detailed financial performance/statementsDetailed financial performance/statements

� Product literatureProduct literature

� Market surveys/researchMarket surveys/research

� Project schedulesProject schedules

The following items should be included as appendices in the business plan:The following items should be included as appendices in the business plan:

66

The Executive Summary


Strategy




Analysis

Marketing& Sales


ExecutiveExecutiveSummarySummary

BusinessPlan


67

The executive summary is the single most important section of thebusiness plan that is intended for company outsiders

Section ObjectiveSection Objective

• To entice and convince investors to further explore the business planTo entice and convince investors to further explore the business plan

The Executive Summary Defined:The Executive Summary Defined:

• A shortened representation of the business plan in the most concise form possibleA shortened representation of the business plan in the most concise form possible

• Should be 2-3 pages in lengthShould be 2-3 pages in length

Required ContentRequired Content

• Description of the opportunity and the need that is being metDescription of the opportunity and the need that is being met

• Summary of the company’s value propositionSummary of the company’s value proposition

• Brief synopsis of the success strategyBrief synopsis of the success strategy

• Brief description of the management team’s qualifications and their past successesBrief description of the management team’s qualifications and their past successes

• Brief description of the market and how the company will be unique in that marketBrief description of the market and how the company will be unique in that market

• Brief description of the company’s offering Brief description of the company’s offering

• Summary of key forecasted financial data over a five year period (Annual Revenue, Net Income)Summary of key forecasted financial data over a five year period (Annual Revenue, Net Income)

• Estimate of required funds including:Estimate of required funds including:

– How the money will be usedHow the money will be used

– How investors/lenders will get there money backHow investors/lenders will get there money back

68

Section Check List

� The business has been thoroughly planned and researchedThe business has been thoroughly planned and researched

� A business proposition that makes sense and is neededA business proposition that makes sense and is needed

� An accurate understanding of the value proposition of your product and serviceAn accurate understanding of the value proposition of your product and service

� The business proposition offers a real competitive advantageThe business proposition offers a real competitive advantage

� Management knowledge of the industry and target marketManagement knowledge of the industry and target market

� A sense of enthusiasm for the businessA sense of enthusiasm for the business

� A realistic picture of the inherent risks of the businessA realistic picture of the inherent risks of the business


69

Sample Table of Contents

Business PlanBusiness Plan

1. Executive Summary1. Executive Summary

2. Company Description and Strategy2. Company Description and Strategy

3. Management and Organization3. Management and Organization

4. The Market and Competitors4. The Market and Competitors

5. Products or Service Description Analysis5. Products or Service Description Analysis

6. Marketing and Sales6. Marketing and Sales

7. Financial Information7. Financial Information


70

Creating a business plan

• Industries:– Personal Electronics Mail Order & Web Sales; focus on entertainment in the

youth market

– Apparel Retailing; focus on infant to toddler age group

– Food and Beverages distribution; focus on weight loss market

– Cocoa importers; focus on high end ‘designer chocolate’

– …

71







• Annual Report


72

“A budget is just a method of worrying before you spend money, as well as afterward.”

Financial Planning

73

Benefits of Budgeting

• Better Planning

• Improved Communication

• Enhanced Coordination and Integration

• Improved Performance Evaluation and Control

74

Plan & Forecast

Analysis & Control

Act

Budgeting Lifecycle

75

Plan & ForecastPlan & Forecast

FORECASTING METHODS

• Regression Analysis– Simple Linear– Multiple Linear

• Time-Series Methods– Trend Analysis– Decomposition– Moving Averages (Adaptive Filtering, Exponential

Smoothing)• Simulations Models

76

Plan & ForecastPlan & Forecast

FORECASTING SELECTION CRITERIA

• Data Availability

• Time Horizon

• Variability and Consistency of Data

• Technical Sophistication / Ease of Use

• Amount of Detail Necessary

• Cost

77

ActAct

• Operating Budget– daily activity

• Capital Budget– approved capital projects, lump-sum for small capital projects

• Budgeted Balance Sheet– balance sheet implications of decisions in the operating and

capital budgets• Cash Flow Forecasting/Modeling

– inflows and outflows of cash

Budget Components

78

ActAct

APPROVAL

• Final approval must be give to the budget to assure that it is in line with the strategic goals of the company

• Due to the length of time it takes to prepare corporate budgets, approval process gives management a chance to make last minute top side changes in response to the environment

79

ActAct

ACTION

• During the budget process management considers alternatives, sets objectives, and decides on a course of action

• Through the budget process management allocates the company’s resources to specific activities and begins to implement the plans

80

ActAct

OPERATIONS

• With the budget approved and in place, management can use it as a plan to allocate company resources:

Department head count

Production planning

Capital purchases

81

ActAct

OPERATIONS

• Managers should feel empowered to operate their departments within the constraints of the budget

• IF circumstances change that managers cannot operate according to the budget, this should raise a red flag that change may be necessary across departments

82

Analysis & ControlAnalysis & Control

BUDGET ADJUSTMENTS

• The budget process should be dynamic and not set in stone

• The budget should be adjusted to changes in the environment

• Budgets should be reviewed at least quarterly and in response to changes in the environment

83







• Annual Report


84

UUnderstandingnderstanding An A An Annual Report - Agendannual Report - Agenda

• What is an Annual Report?What is an Annual Report?

• What are the Elements of an Annual Report?What are the Elements of an Annual Report?

• Understanding Financial StatementsUnderstanding Financial Statements

• Analyzing Financial StatementsAnalyzing Financial Statements

• Tips for Reading an Annual ReportTips for Reading an Annual Report

85

WWhat is an Annual Report?hat is an Annual Report?

• What is an Annual Report?

• What are the Elements of an Annual Report?

• Understanding Financial Statements

• Analyzing Financial Statements

• Tips for Reading an Annual Report

86

WWhat is an Annual Report?hat is an Annual Report?

“ A yearly chore mandated by Securities and Exchange Commission, most companies adhere to the same tired formula: Stick a product photo or company logo on the cover, follow with a droning letter from the CEO covering the year’s highlights and finish off with a stream of mind-numbing numbers

– Snooze City”

Adam Feuerstein – Business Times Staff Writer

87

PPurpose of an Annual Reporturpose of an Annual Report

• A formal report on a company’s performance in the preceding year. A public company produces an annual report for its stockholders, the people and institutions

who own the company.

• Other interested parties, such as customers and potential investors, read an annual report.

• The Securities and Exchange Commission (SEC), a U.S.government agency, requires a public company to keep

stockholders informed regularly on the state of its business.

88

WWhat are the Elements of an Annual Report ?hat are the Elements of an Annual Report ?






89

EElements of an Annual Reportlements of an Annual Report

Management Discussion

4

Financial Financial Statements and Statements and

NotesNotes33

Selected Selected Financial DataFinancial Data

55

Financial Highlights

6

Letter to Stockholders

and Stockholder Info.

7

Board of Directors and

Management8

Auditors’Report

2

Annual Report

Report of Report of ManagementManagement

11

Numbers 1- 5 is required information by the SEC Numbers 6 – 8 is optional information a company can provide

90


Report of Management - A letter from the Board Chairperson and the CFO, taking responsibility for the validity of the financial information in the annual report.

Auditors’ Report - A summary of the results an audit, or examination of the financial statements by an independent firm of certified public accountants. “A UNQUALIFIED OPINIION is a GOOD THING”

Financial Statements and Footnotes – Statements that provide the raw numbers for the company’s financial performance and recent historical history. The footnotes provide explanations, and additional detail about the numbers in the financial statements.

Management Discussion – A series of short, detailed reports discussing and analyzing the company’s performance.

Selected Financial Data – Information summarizing a company’s financial condition and performance over five years or longer.

91


Financial Highlights – A quick summary of a company’s performance.

Letter to Stockholders – Typically a letter written by the Board of Directors Chairperson, the CFO, or both. Usually reflects the business philosophy and management style of the company’s executives, and often it lays out the company’s direction for the following year.

Stockholder Information – Covers the basics – the company’s corporate office headquarters, the exchanges on which the company trades its stock, the location and time of the next annual stockholder’s meeting, and the other general stockholder service information.

Board of Directors and Management – List the names and position titles of the company’s board of directors and top management team.

Corporate Message – Typically covers the company’s line of business, markets, mission, management philosophy, corporate culture, and strategic direction.

92

UUnderstanding Financial Statementsnderstanding Financial Statements






93


STATEMENT OF STATEMENT OF FINANCIAL POSITIONFINANCIAL POSITION

STATEMENT OF STATEMENT OF FINANCIAL POSITIONFINANCIAL POSITION STATEMENT OFSTATEMENT OF

EARNINGSEARNINGSSTATEMENT OFSTATEMENT OF

EARNINGSEARNINGSSTATEMENT OFSTATEMENT OFCASH FLOWSCASH FLOWS

STATEMENT OFSTATEMENT OFCASH FLOWSCASH FLOWS

NOTES TO THE FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS

COMPLETE SET OF FINANCIAL STATEMENTS

94




Purpose: Purpose:

The statement of financial position / balance sheet reports a

company’s financial status at a set date noted on the statement.

Key Numbers: Key Numbers:

Assets / Liabilities/ Stockholder’s Equity

95


STATEMENT OF STATEMENT OF EARNINGSEARNINGS


Purpose: Purpose:

The statement of earnings shows how much revenue a company

brings into the business by providing goods or services or both, to

its customers for a set time.

Key Numbers: Key Numbers: • Revenue

• Gross Profit

• Operating Income

• Net Earnings

• Earnings Per Share

96


STATEMENT OF STATEMENT OF CASH FLOWSCASH FLOWS


Purpose: Purpose:

The statement of cash flows reports the flow of cash into and out of

the company in a given year.

Key Numbers:Key Numbers:

Net cash provided (or used) by operating activities

Net cash provided (or used) by investing activities

Net cash provided (or used) by financing activities

97


NOTES TO FINANCIAL NOTES TO FINANCIAL STATEMENTSSTATEMENTS

NOTES TO FINANCIAL NOTES TO FINANCIAL STATEMENTSSTATEMENTS

Purpose: Purpose:

The notes are an integral part of the financial statements.

They tell you how the company arrived at the numbers in the

financial statements.

98

AAnalyzing Financial Statements nalyzing Financial Statements






99

AAnalyzing Financial Statementsnalyzing Financial Statements

An anonymous writer once said,

“The needs of people are few — to get food, find shelter, and keep debt off the balance sheet [statement of financial position].”

100

• Examine a company’s liquidity to gain insight into debt and inventories

• Current ratio: • Comparison of

current assets with current liabilities

• Compare to statement of earnings – to statement of financial position

• A/R to Sales

Analyzing Financial Statements

• Look for trends in revenue, operating income, and gross profit rates

• Ratio of : Total Operating

Income/ Total Revenue

• How effectively is a company generating and managing cash.

• Evaluate cash flows in relation to earnings figures.

• Some companies report a positive earnings and negative net cash flows on the statement of cash flows.

STATEMENT OF STATEMENT OF FINANCIAL FINANCIAL POSITIONPOSITION

STATEMENT OF STATEMENT OF FINANCIAL FINANCIAL POSITIONPOSITION





101

TTips for Reading an Annual Reportips for Reading an Annual Report






102

Tips For Reading An Annual Report

1. Chairman of the Board Letter Should cover changing conditions, goals to achieve or achieved or missed, actions taken or not to be taken.Is it well written? Reading between the lines - what is being apologized for?

2. Sales and Marketing Should cover what the company sells, how, where and when. Is it clear where the company makes most of its money presently? Is it understandable? Is the scope of lines, divisions and operations clear?

3. Several Years of Summary Financial Figures Is this included? What's the growth of profits and operating income?

4. Management Discussion and Analysis Is there a clear discussion of significant financial trends over past two years? How candid and accurate is it?

5. Auditors ReportThe important thing to look for here is what the qualifications are.

6. Financial Statements Check sales, profits, R&D spending, inventory and debt levels over time. Read the footnotes to ferret out other information.

103

Tips For Reading An Annual Report

7. Subsidiaries, Brands and Addresses Where is the headquarters? Is it clear what lines, brandnames the company has and what the overseas distribution network is?

8. List of Directors and Officers How many outside vs. inside directors? Are the directors well known and respected? Are there less than 5 or more than 12 directors?

9. Stock Price History General trend of price over time: up or down? Which exchange is company traded/listed? Stock symbol? Bonus/dividend history?

Some other things to consider about an annual report...

• Is the report well written, clear, concise and succinct? • Are photos modeled or live? How well do they relate to the text of the report? • How much discussion is there of competition? • How clear are product plans? • Could the report be made more interesting, understandable or eye-appealing? • How does it compare with others in same industry?

Documents

A Workshop Designed For Virtual Enterprises International Business Planning and Annual Report Preparation