5. Business Plan

Question 1

Business plans usually take weeks to write - time that
many entrepreneurs would argue is better spent building
the business.

a) Explain the purposes of a business plan.
b) Is it worth writing a business plan if you do not need
any external investment? Give your reasons.

(4 marks)

2009

Answer 1

Purpose of a business plan

Internal

• encourage realism, reduces self-deception
• Definition of business
• Idea clarification
• Identification of goals
• Economic viability
• Set of agreed milestones
• Funding needs
• Framework for management team activities
• Resource allocation
• Handling unforeseen complications

External

• Get funding
• Build credibility with stake-holders

b)

It is still worth it, even if funding is not required. The business plan is of primary use to the business owner. It helps them to lay down their plans on paper and assess aspects such as milestones, goals, targets and economic viability. These are absolutely fundamental to ensure that the business venture progresses and succeeds.

Question 2

a) What is the purpose of “discounting” future cashflows in a DCF? [3 Marks]
b) How objective is a DCF as a valuation method? [4 Marks]
c) Name one other valuation method. [1 Mark]

2010

Question 3

“I don’t see the point in writing a business plan. I’d rather spend the
time out there talking to my customers”. Discuss.

8 marks

2010

Answer 3

Purpose of a business plan

Internal

encourage realism, reduces self-deception
Definition of business
Idea clarification
Identification of goals
Economic viability
Set of agreed milestones
Funding needs
Framework for management team activities
Resource allocation
Handling unforeseen complications

External

Get funding
Build credibility with stake-holders

Advantages:

• blueprint for the business
• enables everyone to see the plan of action
• can be shown to advisors for advice
• teaches team about the market, customers and eachother
• highlights gaps or mistakes to be fixed

Question 4

Contents of a business plan

Answer 4

Executive Summary

• the business, its USP,
• The opportunity and strategy
• The target market
• The competitive advantages
• The team
• The economics
• The offer (how much equity for how much)

The industry

Pyramid of Goals

Team

Management composition and ownership

Finance forecast breakdown

Risk assessment

Question 5

What should be included in the financial forecast?

Answer 5

Profit and loss account (over the period of time, with a focus on profit)

Cashflow (over a period of time, with focus on cash)

Balance Sheet (focus on what you have, what you owe and where money will come from and where it’s going)

• Be realistic
• Don’t confuse direct and indirect costs
• Profit is the aim but without cash, you go bust

Question 6

COGS, PBIT

Depreciation/ Amortisation

Answer 6

Cost of goods sold

Profit before interest and tax

Depreciation - loss in value over time

Amortisation - gain in value over time

Question 7

Breakeven analysis: what is it?

Answer 7

Breakeven point is where

FC+VC = Revenue (price x volume of sales)