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Business plans and budgets By: Mohammadreza Arabi December 2012.

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Presentation on theme: "Business plans and budgets By: Mohammadreza Arabi December 2012."— Presentation transcript:

1 Business plans and budgets By: Mohammadreza Arabi December 2012

2 “ In the Name of God ”

3 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 2012 University of Economic Sciences

4 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 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

5 The Dichotomy So three-to five-year business plans need to be reviewed fundamentally each year and progress monitored at least quarterly. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

6 Aspects of preparing BP The supporting forecasts Budgets Economic overview By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

7 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

8 forecast Components Underlying trend Cyclical factors Random movements By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

9 forecasting Methods Using Averages -Moving Average -Weighted Moving Average By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

10 forecasting Methods Advanced forecasting techniques - Exponential smoothing - Holt ’ s & Brown ’ s linear exponential smoothing - Box-Jenkins -... By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

11 causal relationship By 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

12 causal relationship There 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

13 Economic cycles The natural fluctuation of the economy between the periods of expansion (growth) and contraction (recession). By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

14 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

15 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences Economic cycles

16 categories of cycle Kondratieff ’ s long waves Kuznet ’ s cycle Juglar cycle Kitchin cycle By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

17 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

18 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences kondratieff’s long waves

19 Kuznet ’ s cycle Also known as “ building cycle ” He identified a cycle of years duration covering the period it takes to acquire the land, get the necessary permissions, build property and sell. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

20 juglar cycle He observed boom and bust waves of 9 to 11 years going through four phases in each cycle: - prosperity - crisis - liquidation -recession By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

21 kitchin cycle He observed an natural 40-month cyclical path caused, he believed, by movement in inventories. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

22 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences A glance...

23 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 2012 University of Economic Sciences

24 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 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

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

26 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 2012 University of Economic Sciences

27 The contents Vision It ’ s purpose is to stretch the organization ’ s reach beyond it ’ s grasp. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

28 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 ” By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

29 The contents Objectives These are the big picture numbers that are to be achieved by successfully executing the chosen strategy like: marketshare, profit,... By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

30 The contents Marketing This section provide info on: product/service on offer, customers and market size, competitors and... By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

31 The contents Operations This area covers any processes such as manufacture, assembly, purchasing, stock holding, delivery and website. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

32 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

33 The contents Premises The space and equipment needed. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

34 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 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

35 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

36 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

37 The contents Appendices Any bulky information that you refer to be in your business plan like market studies, technical data and... By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

38 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

39 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

40 Budgets guidelines The 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 2012 University of Economic Sciences

41 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. By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

42 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences the fixed budget

43 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 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

44 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences the flexed budget

45 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 By: Mohammadreza Arabi Dec 2012 University of Economic Sciences

46


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