Each of these actions should be coupled with, at least, the following prescriptions:
● Clear objectives that should be pursued
● Impacts on income statement, balance sheet, and cash flow statement
● Expected realization timing
● The project manager responsible
● The potential problems linked with the implementation
The credibility of a business plan largely depends on how clearly the mapping of the actions to implement is set out from the very outset. Indeed, absent precise indications around the actions needed to implement the decided competitive strategy, the latter is jeopardized.
Exhibit 2.4 has been extrapolated from the business plan of Beta a company operating in the production and commercialization of luxury goods, whose management has decided to undergo an internationalization process. The exhibit shows, in particular, the detailed plan underpinning the opening of the new stores (both direct points of sale and stores in franchise), as hypothesized by the management. The schedule provides for each new store:
Exhibit 2.4 Definition of the necessary actions to implement the strategy (the Beta case)
● The moment when raising of the financing needed for the setup of the new store activities is expected
● The moment when opening to public is expected
2.2.4 The Formulation of the Quantitative Assumptions
The output of the planning activity is represented by the income statement, balance sheet, and cash flow statement forecasts, which synthesize the outcome expected by the implementation of the competitive strategy set up by the company management. Having said this, it is also worth noting that the development of such forecasts is based on a series of quantitative assumptions. The breadth of this in turn depends on the complexity inherent to the company for which the business plan has been prepared. As such, if the company operates in several business activities, the following should be defined:
● Macroeconomic assumptions which have to be formulated by distinguishing the different geographical areas where the company operates, and which concern in particular:
● GDP real growth rates
● Inflation rates
● Exchange rates
● Interest rates
● Assumptions on the business activity, concerning in particular the evolution of:
● Revenues
● Costs
● Working capital
● Capital expenditures
● Assumptions at the corporate level:
● The evolution of the corporate costs structure
● Financial management policy:
● Financing costs
● Raising/reimbursement of financings
● Equity injections
● Dividend distributions
● Fiscal policy
● The management of noncore (surplus assets) corporate activities
It is worth noting that:
● Assumptions shall be coherent with the competitive strategies formulated by the company management, as well as with the actual precise actions envisaged to implement the plan.
● Assumptions shall be coherent among each other. As a consequence, hypotheses on financing costs shall be in line with the forecasts on the interest rates evolution.
● All the assumptions shall be explicitly reported and, if possible, corroborated by independent data and supporting materials.
Exhibit 2.5 shows the business plan of Gamma, a company operating in the advertising industry. It shows the assumptions formulated by the company management around the evolution of its market share with separate estimates for the off-line and on-line distribution channels.
Exhibit 2.5 The definition of the quantitative assumptions (the Gamma case)
2.2.5 Preparation of the Plan Forecasts
The last phase of the planning activity is represented by preparation of the forecasts for the income statement, balance sheet, and cash flow statement, which give a condensed representation of management's expected results on the back of the implementation of the chosen and pursued competitive strategies. When the company operates in multiple sectors of activity, it is necessary to take two steps:
1. Develop the forecasts for the income statement, balance sheet, and cash flow statement for:
● Each business sector in which the company operates
● The corporate headquarters
2. Integrate these prospects so as to give a holistic representation of the results expected.
2.3 WHAT DRIVES THE PREPARATION OF A BUSINESS PLAN?
In the previous sections we have gone through the main phases making up the activity of business plan preparation, which are common to all the business plan types. This, however, does not also imply that the logic and standpoint to be assumed when preparing the business plan are always the same. Actually, they vary in function of the nature and type of business activity carried out by the company.
Previously, we have represented the key areas of attention to consider with regard to the above aspect. Precisely, we have highlighted the necessity, in the case of companies operating in multiple businesses, to:
● Define the following:
● Competitive strategies
● Actions to carry out to implement the above strategies
● Quantitative assumptions necessary to develop the plan's forecasts (both at corporate and business unit level)
● Develop the forecasts for the income statement, balance sheet, and cash flow statement, with regard to:
● Each business unit/activity
● The corporate structure
● The company as a whole
Bearing this in mind, over the next paragraphs we will focus on the logics and rationale that should underpin the business plan formulation and that are a function of the very nature of the company's business activity. In particular, we will distinguish among:
● Companies producing standardized goods on a large scale
● Commercial companies operating through a network of points of sale
● Companies working on order
● Companies operating in regulated sectors
For each of these categories we will present a case to show the most appropriate mechanics that should underpin the business plan preparation.
2.3.1 A Components Manufacturer
Company Delta operates in the mechanical components manufacturing sector, marketed to several end applications. The manufacturing activity is carried out in two plants, employing about 600 employees. The main geography to market the products is the national one. Its clients are industrial and distribution companies.
The