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The Definitive Business Plan, 3rd Edition by Sir Richard Stutely

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SOME NUMBERS TO PLEASE THE BANKERS 65
How did you arrive here?
A short history of the business with a note of the current status will help set the scene.
This should be very brief, such as in the following example.
This section will naturally be shorter for plans supporting new businesses or management
buyouts. In these instances its job is largely to set the scene. It will be longer if your busi-
ness is large, complex or long-established. In such instances, you might be able to draw
on a considerable body of knowledge or want to conduct significant research. Knowing
where you have come from often helps you see where you are going, or where you have
made mistakes. This is not to say that the future depends on the past.
Some numbers to please the bankers
During your planning process, you have to look over the finances of the business for the
past few years (i.e. the historical financial data). Do not worry if you do not love crunch-
ing numbers most sensible people do not. However, if you can understand your own
bank statement, you can analyse your companys financial performance. You might want
to skip forward to Chapter 7 on financial analysis before continuing here.
Case study
Walter Schmidt established Schmidt Pacic KallBack (SPK) in March this year after
spotting that demand for lower-cost telecommunications could be met by rout-
ing calls through Micronesia. The company was incorporated in April and a service
agreement was immediately signed with MI Telecoms. This market niche is now
fully developed, but SPK is poised for expansion to take advantage of six new rout-
ing opportunities.
A common mistake is to continue to fund an activity because so much
money has been sunk into it already. When you come to assess the future,
your opportunities must be assessed in terms of their relative merits.
Spend another dollar only if the returns (however you measure them) exceed the
opportunity costs of not spending it elsewhere.
66 CHAPTER 4 KNOW YOURSELF
You have two objectives at this moment. One is to understand what has been happen-
ing to your business. The other is to communicate this to your readers. If you have a brand
new business, you are spared this task and you can consider yourself lucky or hindered.
Otherwise, include a brief table showing annual figures for each of the previous five years
for each of:
sales revenue;
gross profit (sales less the cost of sales);
gross profit as a percentage of sales;
operating costs by key areas;
interest paid;
net income (net profit) before tax.
Detailed figures should go into an annex. As discussed in Chapter 3, your choice of figures
will reflect the nature of your business. You might want to include the balance sheet value
of certain assets or liabilities or spending related to specific areas.
In a start-up situation, you have no historical data and the business will be valued for
the expected income stream with due probably excessive allowance for the risks.
However, where you do have a track record, you will be judged more on past per-
formance than on the potential of your ideas for the future. In other words, the cost of
raising additional finance is going to depend on your past errors and successes.
Occasionally, in these circumstances it is worthwhile developing a two-stage process
to create a bit of recovery before going for a large chunk of additional funding. I am not
suggesting that you should massage the figures or focus unduly on short-term profits.
But if you can put your house in better order before selling or renting it out, it makes
sense to do so.
Incidentally, management buyouts are an exception to this rule. The current manage-
ment might not be hindered in raising cash if they can show that past performance was
held back by a disinterested parent.
Never include financial figures in a plan without a short written analysis. You
might think that the numbers are self-evident, but many readers will ignore
tables or miss the important points. As mentioned before, it often makes
sense to present important information three times – in a chart or picture, in a table,
and in a written commentary.

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