Málaga-Webb & Asociados

HOW TO DEVELOP A BUSINESS PLAN

ITALO ARBULÚ VILLANUEVA

GERENTE EN ASESORÍA ECONÓMICA-FINANCIERA

- September 2013 -
THE BUSINESS PLAN

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 THE BUSINESS PLAN

• The Financial Plan is the most essential part of your Business

Plan. It shows investors the timeframes you have scheduled to
make profits.

• Some elements of the Financial Plan include:

– Important Assumptions
– Key Financial Indicators
– Break-even Analysis
– Projected Profit and Loss
– Projected Cash Flow
– Projected Balance Sheet
– Risk Analysis
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 THE BUSINESS PLAN

Steps in conducting a Financial Analysis:

1.Identify the costs
2.Identify the benefits
3.Enter the costs and benefits into the financial
calculator
4.Assess the financial indicators to determine if
the project is financially favourable.

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 THE BUSINESS PLAN

n
NB t
VALUE  ∑ 1  r t
t0

WHERE

n: LIFETIME OF THE PROJECT OR BUSINESS

NBt: NET BENEFIT OF THE BUSINESS AT PERIOD “t”.
r: DISCONUNT RATE.

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 THE BUSINESS PLAN

Identifying the Benefits

Identify the benefits that the project will provide, and the value that can
be assigned to each benefit.

PRICE QUANTITY INCOME

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 THE BUSINESS PLAN

Defining Costs
There are different ways of defining costs:
By type: By function:

• Capital costs • Development costs

• Operating costs • Operational costs
• Maintenance costs

By behaviour: By time:

• Fixed costs • Recurring costs

• Variable costs • Non-recurring costs
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 THE BUSINESS PLAN
2006 2005
Amount Percent Amount Percent
Income $187,500 100.0% $150,000
100.0%
Operating expenses: 32.0%
Wages expense$60,000 38.0% $45,000 30.0%
Rent expense 15,000 6.7% 12,000 8.0%
Utilities expense 12,500
1.4% 9,000 6.0%
Supplies expense 2,700
1.2% 3,000 2.0%
Miscellaneous exp. 2,300 1,800 1.2%
Total operating 49.3%
expenses $92,500
50.7% $70,800 47.2%
Net income $95,000 $79,200 52.8% 8
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 THE BUSINESS PLAN

Capital Costs - INVESTMENT

Capital costs are the expenses incurred in purchase of items that are recorded as
assets; their value is depreciated over time and they are recorded in the Balance
Sheet.

Identify the capital costs for the project for the following items:

• Equipment
• Non-consumable Materials*
• Infrastructure

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 THE BUSINESS PLAN

The value of Money

• The value of money changes over time.
• With most projects, the financial benefits are realised at a different time to the
costs.
• Net present value (NPV) provides a means to compare these by adjusting the
value to today’s value.
• This is achieved by modifying the future value by a factor that represents the
change in value of money from today’s value.
• This factor is called the discount factor.
It is calculated as: 1 – (discount rate / 100)

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 THE BUSINESS PLAN

An Example: Dell
Abbreviated Income Statement
Sales $25,265.00
Costs of Goods Sold -$19,891.00
Gross Profit $5,374.00
Cash operating expense -$2,761.00
EBITDA 2,613.00
Depreciation & Amortization -$156.00
Other Income (Net) -$6.00
EBIT $2,451.00
Interest -$0.00
EBT $2,451.00
Income Taxes-$785.00
Special Income/Charges -$194.00
Net Income (EAT) $1,666.00 11
 THE BUSINESS PLAN

An Example: CANFOR CORPORATION

Abbreviated Income Statement

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 THE BUSINESS PLAN

Investment Analysis
Ye ar 1 Ye ar 2 Ye a r 3 Ye ar 4 Ye ar 5
Benefits 9250 21000 21000 21000 21000
Less Costs 23570 15320 15320 15320 18320
Cash Flow -14320 5680 5680 5680 2680
X Discount factor 0.87 0.756 0.658 0.572 0.497
Present Value -12458 4254 3737 3249 1332
Net Present Value $154

Note: The discount factor is based on a discount rate of 13%. Hence at the end of the first
year $1 is worth 87c, drops to 75.6c in the second year, 65.8c in the third year etc.

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 THE BUSINESS PLAN

Net profit after tax

Net profit margin =
Sales

Sales less Cost of sales PROFITABILITY

Gross operating margin = RATIOS
Sales

Net profit before interest and tax

Net operating margin =
Sales

Net profit after tax

Return on equity (ROE) =
Equity

Net profit before interest

Return on assets (ROA) =
Total assets

Net profit after tax + (interest * (1-tax rate))

=
Total assets

Net profit before interest on LT-debt

Return on capital employed (ROCE) =
Equity + LT-debt

Net profit after tax

Earnings per share (EPS) =
Number of shares outstanding

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 Málaga-Webb & Asociados

THANK YOU…

IARBULU@MALAGA-WEBB.COM

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 Málaga-Webb & Asociados
HOW TO DEVELOP A BUSINESS PLAN

ITALO ARBULÚ VILLANUEVA

GERENTE EN ASESORÍA ECONÓMICA-FINANCIERA

- September 2013 -