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9 May 2020

It must be said that the development of a business plan takes the form of a long and complex process that is difficult to standardize.

There can be many reasons behind the preparation of a business plan. Certainly the start of an entrepreneurial project inevitably involves the construction of a forecast scenario. But this is not the only circumstance in which this operation may be necessary. Any entrepreneurial reality that intends to pursue a specific strategic project must inevitably proceed with the elaboration of an economic-financial plan that can write and verify the validity of its choice.

The business plan is that document which summarizes all the components of a specific business project, both in the start-up phase, and in the development and consolidation phases of a company already present on the market. It is made up of a series of qualitative and quantitative documents, which must effectively reflect the business idea or business strategy and represents a modern tool for simulating business dynamics in the short-medium-long term. It summarizes all the ideas, programs and initiatives that characterize an entrepreneurial project or a specific strategy.

The purposes of a Business Plan

  • Plan and evaluate business strategies or a specific business project;
  • Measure and evaluate the performance and performance of company management over a defined prospective time frame;
  • Identify any areas of management risk and give the company management the opportunity to intervene on time;
  • Improve communication between the company and external subjects, first of all credit institutions and other financial institutions.

The characteristics that a Business Plan must have are:

  • Clarity: this requirement must be understood as ease of reading and comprehensibility. A good business plan is not the one built too articulated, but the one where all the necessary information is illustrated with extreme simplicity ;
  • Completeness: this principle must be understood in two directions. Completeness of the reference area of ​​the document ( substantial completeness ) and completeness of the document content ( formal completeness );
  • Reliability: this document is reliable if and only the procedures through which the formulation of the forecast hypotheses and the derivation of the conclusions are reliable;
  • Trustworthiness: a business plan is reliable when its overall content and individual constituent elements are compatible, coherent and reasonable;
  • Neutrality: the business plan must be drawn up with objective criteria and therefore must not be influenced by undeclared objectives that the editor or entrepreneur wants to pursue;
  • Transparency: in the business plan, transparency means that it must be possible to go backwards through every elaboration of the plan, from the summary result to the single element of analysis, in addition, each elementary data must be identifiable at the source.

This document must be highly flexible, in the sense of easily adaptable to different purposes. Furthermore, it is important that the same document must be constantly updated when a certain behavioral hypothesis contemplated by the plan itself changes or changes.

Problems in drafting the Business Plan

It should be borne in mind that when preparing an economic-patrimonial-financial plan, the entrepreneur or the company management can very often encounter a whole series of difficulties and obstacles of various kinds. Among the most important problems, those that require extreme analysis are represented by the choice of the prospective horizon to be used and the qualification of the company's behavioral variables.

As for the first problem, it must be said that there is no general rule to follow in choosing the time horizon to be considered when setting up a business plan. In reality, the choice of the forecast period will have to be suitably assessed taking into account what are the real endings that the plan aims to achieve. In particular, in the circumstance in which the objective of the plan is to verify and analyze the impacts of a specific corporate strategic choice.

A second problem of fundamental importance is that related to the identification and subsequent quantification of behavioral variables. This phase is the most important and delicate, since an error in this context could compromise the construction of the prospective scenarios. It must be borne in mind that the estimate of the forecast variables does not consist in a simple imputation of data, the values ​​that will be attributed to each of them derives from a whole series of reasoning and collateral analyzes, which must be conducted carefully and accurately by the balance sheet editor.

The most salient PHASES that can characterize the procedure required for drawing up a business plan can concern the following aspects:

  1. Qualitative analysis of the company
  2. Reclassification of book values
  3. Historical analysis of business results
  4. Market and competitors analysis
  5. Choice of forecast variables

This article deals with the first 4 points, while another article will be dedicated to the choice of forecast variables.

Qualitative Analysis of the Company

When preparing an economic-financial plan, it is essential to carry out a qualitative analysis of the company or business project. In particular, this analysis must represent the first step for the development of a good business plan, regardless of the aims and objectives that the plan comes to set.

It is therefore wrong to focus attention only on a quantitative historical analysis. Or even proceed immediately with the estimate and identification of the behavioral variables without having an in-depth knowledge of the characteristics and peculiarities of the company and the sector in which it intends to operate.

The qualitative analysis is carried out through repeated interviews and meetings with the entrepreneur or company management and allows the editor of the plan to have a more in-depth knowledge of a whole series of aspects concerning the company, such as:

  1. Company history
  2. Corporate structure
  3. Organizational structure
  4. Commercial structure
  5. Activities and type of products sold
  6. Analysis of existing plants and machinery
  7. Any characteristic elements of the activity (seasonality, cyclist, etc.)
  8. Relations with third parties (credit institutions, customers, suppliers, tax authorities, etc.)

By analyzing all these elements, the editor of the plan will be able to know a whole series of information and news unknown to him.

Reclassification of Budget Values

The reclassification of the book values ​​represents an extremely laborious, but at the same time very important and delicate phase. The main objective of a reclassification process is to rework the values ​​shown in the financial statements in a consistent and homogeneous way according to certain income statement and balance sheet schemes.

Through this re-elaboration it will be possible to obtain additional and more significant information about the health of the company, by identifying certain indices and aggregates of both an economic and patrimonial-financial nature.

The fundamental task that the financial statement analyst or the editor of a business plan must have is to identify the characteristics and peculiarities of the individual income components of the balance sheet items, in order to attribute the due characteristics and correctly insert them in the chosen reclassification scheme.

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It should be borne in mind that in the doctrine there are multiple schemes for the reclassification of the balance sheet values ​​both as regards the Income Statement and the Balance Sheet, each of which with strengths and weaknesses. There is no reclassification scheme preferable to others, but the use of one over another can be dictated by very specific reasons (purpose of the analysis, type of activity carried out, or more) .

Historical Analysis of Company Results

After completing the reclassification of the book values, you can move on to the phase relating to the historical analysis of the reworked data. For a better interpretation of the reclassified balance sheet values, it would be appropriate to elaborate and take into account also percentage reclassification schemes, especially as regards the economic aspect.

In this way, it will be possible to verify the impact of each type and operating margins on turnover. It should be emphasized that the percentage values are more significant than the absolute ones, it is necessary to quantify the impact that margins have on turnover in order to be in a position to express an opinion on the company's health status.

The analysis of operating margins, as mentioned expressed in percentage terms on turnover, and the trend of some types of costs can also provide significant indications on the development trend of the company over the years.

Market and Competitors Analysis

The analysis of the market and competition has the specific objective of providing the entrepreneur, company management and the editor of the business plan with all the information of a strategic-operational nature on the performance of the sector or sector niche in which the enterprise is operating and on its direct competitors.

Only through the knowledge of this information, in fact, will it be possible to undertake the appropriate corporate strategic choices and correctly set up a short or medium-long term economic-financial plan.


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