Business plans and budgets By: Mohammadreza Arabi December 2012.

Business plans andbudgets

By: Mohammadreza ArabiDecember 2012

“In the Name of God”

What’s Business plan?

Business plan setting out in detail the role each part of organization has to play for the next three to five years.

By: Mohammadreza Arabi Dec 2012University of Economic Sciences

What’s Business plan?

It should encompass:

- The period is needed as recognizing an opportunity- Developing the product or service to exploit that opportunity- Bringing it to market


The Dichotomy

So three-to five-year business plans need to be reviewed fundamentally each year and progress monitored at least quarterly.


Aspects of preparing BP

The supporting forecasts

Budgets

Economic overview


forecasting

First of all: “A SALE FORECAST” is not the same as “A SALE OBJECTIVE”

Objective: is what you want to achieve and will shape a strategy to do so.

Forecast: is the most likely future outcome, given what has happened in the past and the momentum that provides for the business.


forecast Components

Underlying trend

Cyclical factors

Random movements


forecasting Methods

Using Averages

-Moving Average-Weighted Moving Average


forecasting Methods

Advanced forecasting techniques

- Exponential smoothing- Holt’s & Brown’s linear exponential smoothing- Box-Jenkins- ...


causal relationshipBy drawing the line that most accurately represent the slope, called “the line of best fit”, we have a useful tool for estimating what sales might be next month, given the temperature that occurred this month.


causal relationshipThere is an algebraic formula known as “linear regression” that will calculate the line of best fit.

There are a couple of calculations then needed to test if the relationship is strong (positive or negative) and significant.


Economic cycles

The natural fluctuation of the economy between the periods of expansion (growth) and contraction (recession).


Economic cycles

Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of economic cycle.

The cycle itself is caused by the collective behavior of billions of people - the unfathomable “animal spirits” of businesses and households.



Economic cycles

categories of cycle

Kondratieff’s long waves

Kuznet’s cycle

Juglar cycle

Kitchin cycle


kondratieff’s long waves

He advanced the theory that the advent of capitalism had created long wave economic cycles lasting around 50 years.

The idea of long wave is supported by evidence that major technologies from first printing press to internet take 50 years to yield full value, before themselves being overtaken.



kondratieff’s long waves

Kuznet’s cycle

Also known as “building cycle”

He identified a cycle of 15-25 years duration covering the period it takes to acquire the land, get the necessary permissions, build property and sell.


juglar cycle

He observed boom and bust waves of 9 to 11 years going through four phases in each cycle:

- prosperity- crisis- liquidation-recession


kitchin cycle

He observed an natural 40-month cyclical path caused, he believed, by movement in inventories.



A glance...

business plans

The plan is in essence the root map from where the business is to where it wants to get and how it will go about getting there.

it includes:

- roles and responsibilities of key players- the resources required in terms of money, people, materials and...By: Mohammadreza Arabi Dec 2012University of Economic Sciences

Executive summery

It’s primary purpose is to excite and inspire an audience to want to read the rest of the business plan.

It should be:

- written last- punchy, short- ideally one page, maximum two pages


executive summery

It should start with a succinct table showing past performance in key areas and future objectives.

Executive summery

It should continue with sections covering the following areas:- What are the primary products/services are and why they are better or different from what is around now?- Which market/consumer groups will most need what you plan to offer and why?- ...By: Mohammadreza Arabi Dec 2012University of Economic Sciences

The contents

Vision

It’s purpose is to stretch the organization’s reach beyond it’s grasp.


The contents

Mission

explains concisely “what you do” , “who you do it for” and “why you are better or different from others operating in the market”


The contents

Objectives

These are the big picture numbers that are to be achieved by successfully executing the chosen strategy like: marketshare, profit,...


The contents

Marketing

This section provide info on: product/service on offer, customers and market size, competitors and...


The contents

Operations

This area covers any processes such as manufacture, assembly, purchasing, stock holding, delivery and website.


The contents

Financial projections

Detailed information on sales and cash flow for the period of the plan, showing how much money is needed, for what, by when, and the most appropriate source of those funds.


The contents

Premises

The space and equipment needed.


The contents

People

The skill and experience you have on board that will help run this business and implement the chosen strategy, what other people you will need and where you will find them


The contents

Administrative Matters

Any IP on your product or service, the insurance you need, the changes needed to the accounting, control and record system.


The contents

Milestone timetable

Show the key actions you have still to take to be ready to achieve major objectives and the date these will be completed.


The contents

Appendices

Any bulky information that you refer to be in your business plan like market studies, technical data and...


Budgets & variances

Budgeting is the principle interface between the operational business unit and the finance department.

“Rolling quarterly budget”: Budgets are reviewed quarterly through the year. At the review a further quarter can be added to the budget to maintain a one-year budget horizon.


Budgets guidelines

The budget must be based on realistic but challenging goals.

The budget should be prepared by those responsible for delivering the results.

Agreement to the budget should be explicit.


Budgets guidelinesThe budget needs to be finalized at least a month before the start of the year and not weeks or months into the year.

The budget should undergo fundamental reviews periodically throughout the year.

Accurate info to review performance against budgets should be available each month.By: Mohammadreza Arabi Dec 2012University of Economic Sciences

variance analysis

Performance needs to be carefully monitored and compared against the budget as the year proceeds, and corrective actions must be taken when necessary.



the fixed budget

flexing the budget

The way to manage situations mentioned, is to flex the budget to show what would be expected to happen to expenses, given the sales that actually occurred.

Applying the budget ratio to the actual data does this.

The flexed budget allows you to concentrate your efforts on dealing with true variances in performance



the flexed budget

seasonality & trends

The figure shown for each period of the budget are not the same. The exact figure depends on two factors:

- The projected trend- Seasonal factors


Business plans and budgets By: Mohammadreza Arabi December 2012.

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Transcript of Business plans and budgets By: Mohammadreza Arabi December 2012.