Business plan

Elaboration reasons:

It must be done carefully and realistically, for internal and external reasons.

Internal:

• Allows a real evaluation of the potential of the business opportunity Determines critical variables and those that require permanent control Reduces project risks Evaluates the current and future state of the company Allows evaluating various scenarios and project operation strategies

External:

• It is a tool for the search and achievement of project resources. It helps to obtain suppliers and customers. It allows to know the environment in which the business is going to develop.

Conceptual Bases:

At least three basic attributes must be demonstrated:

1. That it has an excellent product with enough clients willing to acquire them. That it has an excellent technical and administrative business and human group. That it has well-defined forms of operations and strategies that allow achieving all the planned goals.

The business plan requires a very careful preparation to achieve a deep understanding of each of the facets of the business, to know the environment in which the business operates and to be able to examine the consequences of different strategies and tactics that can be used in the development of the same.

The process of preparing a business plan can be seen as a series of interrelated analyzes with permanent feedback that often requires repeating stages.

The final document:

The entire process of preparing the business plan ends in a written document to present to financial entities, investors, clients, suppliers, venture capital companies, government, support organizations, employees, etc. This document should give forceful answers to the five big questions in the introduction to this chapter and should demonstrate the attributes indicated in the conceptual foundations section. It must meet the following characteristics:

• Be very concise Written in business language Excellent writing and spelling Be written to achieve specific objectives Be evaluative

Market analysis:

The central objective of this analysis is to determine the real existence of customers for the products or services to be produced, the willingness of customers to pay the established price, the determination of the quantity demanded, the acceptance of payment methods, the validity of the planned marketing and sales mechanisms, the identification of the distribution channels to be used, the identification of competitive advantages and disadvantages, the economic and social environment of the sector in which it is going to act, the behavior of the consumer, promotion mechanisms, strategic plans and market tactics, in order to develop a valid sales projection.

The components of a market analysis are:

• Analysis of the sector: it is about knowing very well what is happening and what is expected to happen in the economic sector to which you are going to enter. It must be studied; growth possibilities, the state of the sector, economic trends. Analysis of the market itself: It is about knowing in detail the characteristics of the product in relation to the products that exist in the market. It must be analyzed; the application of the product, competing products, strengths and weaknesses of our product, factors to highlight the product. Clients: It is about identifying who and where the product's clients are and knowing their competition. You must know the types of buyers, basic characteristics of customers. Competition: It is about determining the strengths and weaknesses of competing companies, their size, the importance of each one of them and the policies applied. Prices, product performance, production capacity must be analyzed. Global Market Size: This is one of the most difficult parts to do. The data is obtained from statistical information centers, chambers of commerce, union publications, etc. However, they are not enough and there is a need for more detailed studies to be able to respond to the following aspects: Total level of consumption, trend in the number of users and consumption patterns, and the factors that may affect current or future consumption. Size of my market: The objective of this process is to get to formulate my sales plan at least in volumes, and therefore to define the fraction of the target market that will be covered by my business, company or service. Marketing Plan: the marketing plan includes the strategies that are going to be used to achieve the expected results in terms of sales volume. Price strategy: It is about formulating the decisions that affect the price structure of products: pricing policy, expected price, profit margin. Sales strategy: it is about planning the specific ways in which the sales volumes will be achieved, in that sense they must be analyzed: customers, customer identification mechanisms. Promotional strategy: it is about identifying all aspects related to promotion mechanisms that the company will use. Distribution strategies: distribution channels, transportation costs and finished product inventory policies are analyzed. Service policies: guarantees, service and customer care are analyzed, as well as the policies for service charges. Sales tactics: the business has the possibility of surviving if it has sales, therefore, it is necessary to analyze very well how the sale will be made. Contingency plans: the corrective actions that could be taken in case any of your strategies were not effective.

Frequent mistakes:

• Do not make a real segmentation Do not use secondary information Ask useless questions in the questionnaires Ask questions in which you can know what the person is going to answer Give as fact answers given in conditional Do not identify the true magnitude of the markets Do not know the competition

Technical Analysis:

The central objective of technical analysis is to determine whether it is possible to successfully develop and sell the product. The general elements to be analyzed are:

• Product analysis: all aspects that are related to the production of the product or the provision of the service must be analyzed. Equipment and machinery: the size and type of equipment and machinery must be identified. The specification of the process, the forms of operation and the personnel for the operation. Plant distribution: a scale plan must be made that indicates the way in which the departments and equipment are distributed and the way in which the production process will be carried out. Production plan: taking into account the sales plan, the finished product inventory policies and the work in progress, the production plan must be prepared. Consumption plan: the consumption of raw materials is established. Purchasing plan: it is analyzed according to the inventory policies of raw materials and supplies. Control systems: it is about raising the operational forms that allow the production process to generate the product service within the specifications of quality, quantity and cost.

Frequent mistakes:

• Not having a program execution schedule. Lack of real evaluation of consumption and productivity. Not identifying suppliers of raw materials and equipment. Not formulating a clear inventory policy.

Administrative analysis:

The main objective of this analysis is to define the characteristics necessary for the business group and for the business personnel, the management structures and styles, the control mechanisms, the personnel administration policies and the participation of the business group in the management and in the results and in the possibility of having all these elements.

• Business group: Must be described; the members of the business group, their experiences and skills, the level of participation in management and on the board of directors, as well as their salary conditions. Executive personnel: it must describe which person occupies the basic positions, personnel administration policies, types of contract, salary, benefits, etc. Organization: the basic structure, lines of authority, management and control mechanisms, and management style should be described. Employees: qualitative and quantitative needs, selection, hiring and development mechanisms, training programs, and personnel management policies should be described.

Frequent mistakes:

• Not being clear about the members of the business group and their role in the business. Having unknown people in the operation of the business. Not having a personnel management policy.

Legal and social analysis:

This aims to define the legal and social possibility for the business to establish and operate, the definition of the type of company and the tax, commercial and labor obligations that derive from it, by analyzing the implications that the community has on the project, determine local regulations and required permits. In this analysis the following aspects should be determined.

• Legal aspects: the type of company, tax, commercial and labor implications associated with the type of company, regulations and procedures on the commercialization of its products are included here. Aspects of urban legislation: includes procedures and permits before government agencies, legal difficulties with the handling of raw materials or finished products, import and export regime. Environmental analysis: effluent and waste emissions of the company, risk of contamination, pollution control, risks for the community due to effluent and waste emissions, risk for workers, hygiene mechanisms. Social Analysis: the possibilities of rejection or support from the community and the additional services that the company demands and contributes to the community are analyzed.

Frequent Errors:

• The legal structure is not clearly defined. Not knowing the processes, permits, requirements and costs of establishing the company, as well as not knowing the taxes.

Economic Analysis:

Its objective is to determine the economic characteristics of the project, and therefore it is necessary to identify the following components.

• Investment in fixed assets: based on all the specifications of the technical analysis, the amounts, investment times and tax regime applicable to the following concepts must be determined:

1. Machinery and equipment Buildings Land Vehicles and means of transport.

• Investment in working capital: here the policies of days of inventory, raw material, product in process and finished product, policies of customer and supplier portfolios, in addition to the cash policy should be collected.

In addition to income budgets. budget of raw materials, services and supplies, personnel budget, budget of other expenses, and tax deductions.

Financial analysis:

The main objective is to determine the needs for financial resources, the sources and their conditions, the possibilities of having real access to these sources. To expand these purposes, the following stages must be accomplished.

• Cash flow: it is the tool that allows determining the real capital needs at the different stages of business development. Cash flow must be done monthly, during the entire construction and assembly stage and for at least one year of operation. Income statement: shows the profits produced by the business in the analysis period. Basically it compares income caused with costs and expenses caused in a period of business operation. Balance: the balance shows the status of the various accounts at the end of an analysis period. The data for this are fundamentally taken from the cash flow, the income statement and some of the tables made in the economic analysis.

Frequent mistakes:

• Confusion about the conceptual bases of the three states. Make cash flows over very long periods. Not having agreement in the figures used in the three states. Not defining a dividend distribution policy. Not having financial strategies.

Risk and intangible analysis:

This analyzes the effects and what potential changes, in the basic variables of the project, can generate in the feasibility of the same and to evaluate those variables that have not been able to be included in all the previous stages with the purpose of identifying the difficulties that they may create in the future of the business. The basic risks and their components are:

• Market risks: among the market risks are unfavorable changes in the sector, the emergence of better products and a reduction in customers. Technical risks: sources of raw materials, obsolescence of equipment and maintenance problems are included. Economic risks: there is an increase in the cost of raw materials and production, as well as a possible reduction in the price of the product. Financial risks: includes the increase in the cost of capital, delays in the contributions of the partners and the disbursements of the credit entities.

Comprehensive evaluation of the project:

Its objective is to determine the main feasible indicators, make an analysis of the effects that changes in the project variables have on those indicators, identify variables and critical assumptions for the feasibility of the project and, ultimately, give a specific vision of the feasibility of it.

• Cash evaluation: it tries to analyze the project itself, that is, without external financing resources. For this, financial projections and cash flows must be made completely net. Evaluation with financing: the business is analyzed with the support of external financial resources to analyze the effect of the financial lever. Sensitivity analysis: seeks to analyze the effects that the decision criteria have variations in the main variables of the project. Financial structure analysis: here the financial reasons, the capital structure and the contingency plans on the structure are analyzed.

Frequent mistakes:

• Do not seek expert opinion. Confuse project profitability with profitability for partners. Do not review the negotiation terms. Do not review financial data. Do not determine the economic equilibrium point.