Archive for category Business plans
A joint strategic planning of credit
Posted by admin in Business plans, bonds, budget, business, communication on February 15th, 2010
Everything you’ve done up to this point has been focused on getting you to the full partnership stage. You and your partner have worked hard together, navigating the Stages of Relationship Development to produce trust and mutual benefits. You’ve also engaged in the steps necessary to accomplish a task in order to determine the partnership’s worth. You’ve used the Plan–Do–Check–Act cycle to continuously improve the task and relationship dynamics of your partnership.
You’ve seen the partnership move from a past to a future orientation. The final two stages will feel almost anticlimactic. This is a good thing. You’ve worked so hard to increase your Partnering Intelligence that by the time you’re prepared to make a commitment and move to full partnership it will feel like the only logical step. The only thing that stands between you and full partnership is one more task: to conduct a joint strategic planning session in order to solidify your future vision and spell out the plans to get you there. Your partnership is now in the Commit Stage of Partnership Development. You have achieved the trust and communication needed to help you maximize the synergy. You have identified the mutual benefits that the partnership provides. Having managed the changing dynamics of the relationship and its impact on each organization, you are now positioned to perform.
Learn how to value corporate credit
Posted by admin in Business plans, Companies, bonds, budget, business, communication, consulting on October 29th, 2009
One of the most widely used indicators to value corporate credit is the equity market. The Merton model formalizes the relationship between leverage, equity prices, equity volatility and credit spreads. While the model permits an assessment of the relative valuation of equity and credit, it makes no explicit statement about which of the markets is currently priced correctly, or if both markets are in disequilibrium. In addition, focusing solely on equity prices and volatility neglects the effects of changes in leverage. However, equity-market performance contains information about the future state of the economy, the future cash flows and risk premium in the market. Stronger cash generation benefits corporate bonds since creditworthiness improves and the required risk premium is lower. Furthermore, as the equity cushion increases through rising equity prices and more IPOs and equity volatility decreases, default probabilities and spread levels tend to fall.
The ratio of sales to loans and assets
Posted by admin in Business plans, Companies, Money Tips, Taxes, communication, market demand, market forecasts, profit margin, understanding finances on October 28th, 2009
The ratio of sales to assets is an asset turnover ratio that measures the sales-generating capacity of a given asset base. Taking the nominal GDP of the nonfinancial corporate sector as a measure for sales. The ratio has started to turn up at the beginning of 2001. This pattern is normally consistent with periods of recovery. However, it should be noted that this ratio is near its historical low. The z-score for the nonfinancial corporate sector has collapsed dramatically since 2000, resting well below the critical level of 1.8 since the second quarter of 2002. For an individual firm this signals that the company is likely to fail within 2 years. On the macro level it indicates a high probability of rising default rates and widening credit spreads. Three points stand out:
- based on macroeconomic data the z-score has never been in the safe zone;
- the average score since 1952 is about 2;
- in the 1970s and 1980s, the z-score was permanently in the distress zone implying that corporate America should have gone bankrupt, but clearly it survived.
This leads to the conclusion that the weighting scheme is no longer appropriate to capture the vulnerability of the corporate sector. The relative importance of the individual factors changes over time. Therefore, it is necessary to adjust the weighting scheme on a regular basis, for example by using a regression methodology.
Understanding Debits and Credits – part 1
Posted by admin in Business plans, Companies, communication, consulting, understanding finances on August 3rd, 2009
You’ll find in subsequent chapters that the accounting function has many steps and components. Although they may vary in complexity, all bookkeeping and accounting systems are essentially the same.
The concept behind accounting, what makes it more than merely adding and subtracting, revolves around a basic core consisting of debits and credits. This is an accounting system’s soul, and understanding it will help managers better handle their share of responsibility for the firm’s finances.
In some ways, debits and credits are more complex in theory than in practice. Debits and credits form the basis of all accounting functions, including the company’s balance sheet. They are the two types of activity that can affect any financial account of any type— assets, liabilities, equity, income, or expenses.
The balance sheet is one of the primary accounting statements for any company. It’s a list of assets, liabilities, and owners’ equity—ownership value, if you will—in the business as of a specific date, usually the end of the financial month or fiscal year. Its ultimate goal is to keep all accounts in balance.
Business Plan Shortfalls – part 2
Posted by admin in Business plans, Companies, Money Tips, management skills on July 29th, 2009
These words of advice are intended to help you avoid problems with lenders and investors. But they are also sound guidelines for your business plan even if you don’t expect it to be read by a single outsider. All the employees of a company—from top managers down to the mail room—are lenders and investors: they lend their abilities and invest their energy in your company. If your business plan fails to support their hopes and inspire them, you risk turning those employees—no matter what their level of responsibility or pay—into wage slaves.
Many business plans are created with a circular approach that offers a summary at both the beginning and the end, using the points in between to enhance the introductory summary so the concluding summary is more complete and comprehensive. For investors, it answers the question, “Why should we invest in this company?” It can save the reader time and give a company a greater opportunity to attract the type of financing it seeks.
Business Plan Shortfalls – part 1
Posted by admin in Business plans, Money Tips, Real estate, management skills on July 29th, 2009
Every good business plan consists of certain elements. But there’s also a list of things that should be avoided when creating a plan:
Inaccuracies will kill any plan. People won’t give money to companies that can’t count. It should go without saying that you need to be absolutely accurate in everything from addition to spelling. (Yes, even spelling, because some people may believe that inattention to accuracy in spelling might be symptomatic of inattention to accuracy elsewhere.)
More is not always better! Plans must be complete but succinct. Plans that run on for pages, with attachments from every financial document generated, generally turn off people who don’t have the time to read them—and today that’s most of us. Answer the questions that likely will be asked, clearly and succinctly. Good move!
Don’t underplay management team skills. The number one reason investors walk away from companies is concern over management. Plans should showcase the strengths of your managers and tie their skills directly to both the needs and solutions for the company. After all, the success of a company cannot be predicted from figures alone. Who is behind those figures? Who will be leading the company toward its goals?
Don’t editorialize. Or, as a colleague liked to put it, “Tell, don’t sell.” Keep the tone of the plan factual and professional. As soon as the plan becomes familiar or promo tional in its flavor, investors are likely to smell a sales pitch and walk.
Don’t just write your plan and shelve it. Use your annual plan to improve company per formance and involve as many of the appropriate staff as possible in developing it.
Business Plan Objectives
Posted by admin in Business plans, Investment Opportunities, Money Tips, Real estate on July 29th, 2009
The first step in developing a business plan is to define its key objective. Is it an annual plan used to drive business operations? Or is it a financial plan designed to attract investors and/or lenders? Is it both? It often is—and that’s not at all bad…if the plan meets everyone’s needs and if the language and goals don’t conflict.
Business plans can take as many forms as necessary and include as many financial addenda as required. Balance sheets and financial reports are usually critical components in a business plan. Some companies seem to attach virtually every financial document available.
Assuming the numbers support the text, however, the real area of interest for most executives, financiers, and even staff will be the assumptions behind the plan. Why is the company expected to sell 150,000 units this year after selling only 50,000 last year? The assumption will make or break the success of the business plan. Show the thinking behind your figures.