Two-Year Business Plan

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Two-Year Business Plan

Presented by

Dr. K. Kwong

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Some General Instructions Given in the Syllabus:

v  Follow the general format outlined in Section 18 on page 10: q  Title page

q  Table of content

q  Introduction (5% of the total score)

q  Organization (5% of the total score)

q  Objectives (10% of the total score)

q  Strategies (20% of the total score)

q  Sales forecasts (20% of the total score)

q  Production plan (10% of the total score)

q  Pro forma financial statements (25% of the total score) q  Appendix

v  Normally, the descriptive written part (not including graphs, tables, and other illustrations) is about 20-40 pages long. Nonetheless, it is not a strict limit and you can exceed it if needed.

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Supplementary Handouts:

v  The checklist given out in class gives you a general picture of the

different types of data you will need to prepare for your business plan.

v  Download the Notes on Data Preparation for the Two-Year Plan

from our class website (www.calstatela.edu/faculty/klai/CL497-2.htm). This handout provides specific examples on how some of the required data may be presented.

v  Turn in the business plan to your instructor. Do not drop it off at the management department office!

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Data Period Covered:

v  To prepare the business plan, you should have all the data from both company and industry reports up to Year 4 Qtr 4.

v  Based on forecasts and projections, your plan will need to present the company's expected financial position and results of operations in Years 5 and 6.

v  You should not use any actual data from Year 5 even though they become available before completing the plan.

v  Your plan will be graded based on the coherence, strength, and

correctness of the analysis and not on the ultimate accuracy of its predictions.

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Purpose of a Financial Plan:

v  The general purpose of a financial plan is to focus the company on

future operations against some measurable and achievable targets

set by management. Alternative management strategies may be considered in the plan.

v  Two key elements:

q  Capital Budgeting

q  Estimating the short-term (operating) need for cash, forecasting the

need of long-term (strategic) financing, and considering alternative funding possibilities.

q  This aims at evaluating whether the company has adequate financial

resources to support its action plan.

q  Strategy Evaluation

q  Forecasting the company s future profitability under the proposed

strategic plan.

q  This aims at assessing the company s ability to meet its goals and

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Title Page and Table of Content

v  Title page:

q  Company Name

q  World number and team number q  Names of team members

q  Date

q  Name of your professor

v  Table of content:

q  Heading and page number for each section q  Title and page numbers of every exhibit q  Do the same for the appendix

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Introduction

v  Provide a concise, interesting introduction of your company: q  Company name

q  Company history

q  Corporate philosophy

q  Product lines and their target markets q  Geographic markets served

q  Industry conditions q  Historical performance

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Organizational Structure

v  Describe the organizational structure of your company. You may also talk about the company s management style.

v  Present an organization chart that includes every member of the management team.

v  Specify the job duties of each individual member.

v  No fictitious resumes.

v  Justify your choice of organizational structure by identifying its potential benefits and drawbacks (e.g., centralization vs.

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Objectives

v  In terms of the ROA, ROE, MS, SP, UPC, and TNI measures, you will

provide graphs to show the performance of your company relative to others in the industry over Years 3 and 4.

v  After reviewing your company s recent performance, you need to set

specific numerical performance targets for ROA, ROE, MS, SP, UPC, and TNI for both Year 5 and Year 6. These should all be reasonable targets to reach. You should also outline any broad approaches that can help your company achieve individual performance targets.

v  Preliminary and Final Weighting factors:

q  Provide a table showing the values of both Preliminary and Final

weighting factors your company chose. The assigned weights quantified the relative importance of the 6 different performance criteria for your company.

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Strategies

v  Provide a mission statement.

v  Outline a general strategic plan to compete in the industry. Describe

specific or generic business strategies employed by the company to create and maintain a competitive advantage.

v  Detail specific functional strategies with quantified action plans for

Years 5 and 6. Present relevant quarterly decision numbers as well. v  Discuss in what way these functional strategies and the planned

actions can help the company meet individual performance targets. v  Implementing your functional strategies can cost money. Many of the

planned decision actions will incur extra costs. Provide quarterly cost estimates for all these planned actions, where relevant.

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For Functional Strategies, Think about Those

Decision Variables:

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List of Functional Strategies:

v  Decision variables can be classified into several functional areas:

q  Marketing and Human Resource Management

Sales force size management, compensations (base salaries and commissions), advertising spending, general and other selling expenses, and product pricing.

q  Operations and Production Management

R&D spending, product development schedule, employee training, plant and sales office operations, production management

(operating lines and hours, work shifts, and equipment

purchases), inventory control, and product supply and distribution.

q  Financial Management

Bank loans, CDs, stock issuance or buybacks, bond issuance or repurchase, and dividends to stockholders.

v  Your strategic plan should include quarterly numbers planned for all

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Sales Forecasts:

v  Present industry sales forecasts for Years 5 and 6: q  Both in units and in dollars

q  By marker area and with consolidated totals q  By quarter and with annual totals

v  Present company sales forecasts for years 5 and 6: q  Both in units and in dollars

q  By marker area and with consolidated totals q  By quarter and with annual totals

v  Discuss how the quarterly forecasts were generated and show the forecasting model equation used for each market area. Explain also how the forecasting model was selected in each case.

v  Report the regression results from estimating the forecasting model for each market area.

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Production Plan:

v  Establish a quarterly production plan for Years 5 and 6. This two-year plan should consist of two parts:

q  Quarterly production schedules showing the expected changes in production capacity and its utilization – including production lines, work shifts, and operating hours per shift – by plant and with totals in Years 5 and 6.

q  Quarterly projections showing the expected results of the company s production and inventory management plan –

including units of production, anticipated sales, and changes in inventory levels – by market area and with totals in Years 5 and 6.

v  State the safety stock assumption made in developing the plan.

v  Provide quarterly estimates of all production-related costs (including labor costs, materials costs, maintenance costs, layoff expenses, and plant and equipment depreciation charges) in both unit and total costs.

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Financial Statements:

v  State all the assumptions made in computing pro forma numbers for Years 5 and 6. Show also how depreciation charges for plant and equipment are determined.

v  Present income statements (quarterly and annual), cash flow

statements (quarterly and annual), and balance sheets (quarterly and

annual) by market area and in consolidated totals. q  Years 3 and 4 (data are based on actuals)

q  Years 5 and 6 (data require future projections)

v  Chapter 10 of the Player s Manual discusses how pro forma financial statements are prepared. These pro forma statements will offer

projections of the financial outcomes of the company decisions.

v  Conduct pro forma analysis: Evaluate the company s future

profitability and its ability to meet the performance targets in Years 5 and 6. Show any additional computation that is needed.

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Work Hard and Deliver!

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References

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