The document provides guidance on developing a business plan. It defines a business plan and outlines its key components, including an executive summary, description of the product/service, market analysis, marketing strategy, organizational structure, and financial projections. An effective business plan clearly conveys customer value, market size and growth potential, and feasibility while addressing competition and risks. Developing a business plan requires thorough research and forces disciplined thinking about transforming a business idea into a viable enterprise.

1. A Business Plan Tool Kit
John Gregg, Principal
Navigate Consulting

2. 1
Contents
 What is a Business Plan
 Writing a Business Plan

3. 2
¶ Definition of a business plan
¶ The role of a business plan in new business development process
¶ The significance of a business idea
¶ Developing a business idea
¶ Elements of a promising business idea
¶ Prioritizing a business idea
¶ Protecting your business idea
 What is a Business Plan

4. 3
¶ Definition of a business plan
A business plan must have a detailed plan for the following eight factors ;
1) Product/ Service
2) Market and Competition
3) Marketing
4) Business System
5) Organization and HR
6) Opportunities and Risks
7) Implementation Schedule
8) Financial Planning
 What is a business plan
Developing a business idea (idea which can make money) into a detailed plan that can be
implemented

5. 4
¶ Role of a business plan in new business development process
New business
promotion
stage
Methodology
Internal support
organization
Online Idea DB
Intangible Workshop
Benchmarking/
Megatrend Analysis
Business Plan Competition
Stage 1
Stage 2
Stage 3
Idea Generation
Business plan write-up
Implementation and
growth
Idea Generation
Management Team
Business Plan
Development Team
Investment Committee
Venture Team (TFT)
 What is a business plan
A business plan can be defined as the intermediary stage before a business idea can actually be
implemented as a new business

6. 5
¶ Significance of a business idea
There are many different ways to generate a business idea. The following are recommendations to come
up with well-organized business ideas-best if implemented at the same time
– Intangible Workshop : Hold workshops to generate ideas to facilitate company intangibles, as the
significance of intangibles continue to grow under the new economy
– Benchmarking/Megatrend Analysis : Study megatrends of other industries to generate ideas or
conduct benchmarking analysis
– Online Idea DB : Make an idea DB online to enable review/posting of ideas as a way to help develop
business ideas
– Business Plan Competition: Hold business plan competitions to generate business ideas
 What is a business plan
‘No business idea, no business plan’ ‘No business plan, no business’
A business idea is the start of a business establishment. You must have many creative ideas which
can be transformed into a business in order to create value
¶ Developing a business idea

7. 6
¶ Elements of a promising business idea
– The key to success in the marketplace is satisfied customers, not
great products.
(ex) “Our new device can perform 200 operations per minute.” (X)
“Our new device has 25% fewer parts.” (X)
“Our new device will save the customer a quarter of the time.”
(O)
– Make value propositions to the customer
– Present customers with unique values.
Clear customer
value
Market of
adequate size
Feasibility and
profitability
Sufficient
degree of
innovation
1 2
4 3
 What is a business plan
◇ Clear Customer Value
• Who will buy your product/service ?
• Why should the customer buy the product ? (What
needs does your product fulfill that the competitor
products cannot ?)
• What is most unique about your business idea ?
Key Questions

8. 7
• Does the market you plan to target with your
products/services have adequate size (no precise
analysis needed, statistics or estimates can be used)
• Know who your competitors are.
Clear customer
value
Market of
adequate size
Sufficient
degree of
innovation
1 2
4 3
 What is a business plan
◇ Market of adequate size
Feasibility and
profitability
• What is the market size ?
• Is the market growing ?
• What is your target market and market share ?
• Who are your competitors ?
• What are your strengths/weaknesses compare to your
competitors ?
Key Questions

9. 8
• A business idea should have the following four elements
according to product/service type and business system
• Must specify where innovation is taking place
New product
(Microsoft)
New
industry
(Netscape)
Existing
industry
New
business
system
(Dell)
Business System
ConventionInnovation
Product/service
Convention Innovation
Clear customer
value
Market of
adequate size
Sufficient
degree of
innovation
1 2
4 3
Feasibility and
profitability
◇ Sufficient degree of innovation
 What is a business plan
• How is your product/service innovative ?
• How is your business system innovative ?
Key Questions

10. 9
• Consider feasibility (legal constraints, time/resource limits, etc)
• Calculate overall profitability (simple cash flow, etc)
Clear customer
value
Market of
adequate size
Sufficient
degree of
innovation
1 2
4
3
Feasibility and
profitability
◇ Feasibility and Profitability
 What is a business plan
• What are the constraints in implementing your business
idea ?
• Why are other people not implementing this kind of
business idea ?
• What is the gross margin rate of your planned business ?
• How much investment is necessary ? How much is the
variable cost ? Does the profit increase ?
• What is the overall cash flow ?
Key Questions

11. 10
¶ Prioritization of a business idea - In search of a killer idea
• A process to prioritize generated ideas
• Positioning of ideas on the below chart based on the potential market and its feasibility
• Killer Idea: An idea capable of creating a new market (ex. The pc, mobile phones, iphone, tabelets )
Seek solutions for
obstacles in
implementation
Immediately launch
business plan write-up
Postpone
Seek ways to expand
market size
Feasibility
LowHigh
Marketsize(allowgrowth)
Low High
 What is a business plan

12. 11
¶ Protecting a business idea
Ways of protecting a business idea
• Patenting : Patenting a business idea to ensure legal protection
• Confidentiality agreement : Maintaining a confidentiality agreement with
related parties working on the business idea
• Quick implementation : Implementing your business plan as soon as possible
 What is a business plan
Innovative ideas are the result of hard work and creative thinking. It is important to protect the idea
sufficiently so that the idea is not exposed to other industries
The best protection is to implement your business idea as quickly as possible
so as to build an entry barrier

13. 12
¶ The need to write a business plan
¶ Elements of a good business plan
¶ Business plan structure
 Writing a business plan
¶ Summary
¶ Product/ Service
¶ Market and Competition
¶ Marketing
¶ Business System
¶ Organization and HR
¶ Opportunities and Risks
¶ Implementation Schedule
¶ Financial Planning

14. 13
¶ The need to write a business plan
“Writing a business plan forces you into disciplined thinking, if you do an intellectually honest job.
An idea may sound great, but when you put down all the details and numbers it may fall apart.”
 Writing a business plan
The business plan was first used in the USA by start-up and venture companies as means of acquiring funds
from private investors and venture capitalists. Even major corporations rely on business plans to help them
make internal investment decisions.
• Can systematically examine feasibility of the new business from various angles
• Can provide solutions to problems and heighten efficiency of the new business with clear analysis of the
situation
• Provides an invaluable tool for management and evaluation of the project
Benefits of writing a business plan

15. 14
¶ Elements of a good business plan
◇ Clarity: Must clearly lay out the key points (strengths) of the business plan
◇ Objectivity: Must be based on objective data
◇ Simplicity: Should be comprehensible by technical layman
◇ Consistency: Must have uniform visual layout and consistency in editing of the final version
◇ Well-defined, quantifiable customer value : Lowering the cost of delivering an existing
value or creating a new value if this can be achieved at reasonable cost
◇ Innovative product/service : The product/service and/or business system must possess a
high degree of innovation
◇ The possibility to protect/sustain the innovation
◇ A growing and/or large market : The target market should grow at a fast pace or should be
a large market
◇ A far-sighted analysis of the competition : Provide a complete and objective description of
existing and potential future competitors
◇ A careful weighing of the risks and opportunities : Provide a realistic description of the
risks involved in the business and plans to overcome them. Explain ways to make use of
potential opportunities
General
principles
Main Contents
 Writing a business plan

16. 15
Check to see if your readers can read and comprehend the summary in five to ten minutes even if the
person has no previous knowledge of your business concept or its technical or scientific basis
 Writing a business plan
¶ Summary
The summary should be able to deliver the most important aspects of the business plan to the decision-makers
Focus on these four elements when writing your summary
― Clarity of the business idea
― Value the product/ service provides to the customer
― Market size and growth
― Return on investment
Describe your business idea as clearly, compellingly, and
concisely as you can

17. 16
¶ Product/ service
Development status of the product/service
• Explain the stage of development your product/service has reached
• Identify technical/legal/consumer behavioral/partnership (need to partner with other industries)/social and
cultural constraints in delivering product or service to customers and provide solution measures
“If you don’t know what the customer value is, the whole thing is a waste of time.”
 Writing a business plan
Clearly indicate how your product/service differs from those that are now or will be on the market
Customer Value
• The business plan doesn’t make any sense if the product or service fails to provide better value to the customer
compared to current market offerings
• Analyze the value the customer gains from your product/service
• Weigh the advantages and disadvantages of the new product/service from the customer’s perspective

18. 17
Check List (Product/service)
 Have you explained plans to retrieve the value delivered to the customer ?
(how will you get your money back)
□ Development status of the product/service
 Have you accurately explained the current stage of development of your product/service ?
 Have you indicated what resources (time, personnel, funds) you require for each subsequent development ?
□ Customer Value
 Is there a clear definition of what customer value your product/service provides ?
 Have you defined who you customers are and who are not ?
 Have you identified why the customer buys your product/service ? (Have you explained what added
value the customer receives compared to other products/services)
 Have you weighed the strengths/weaknesses of your product/service over comparable
products/services from the customer’s perspective ?
 Have you conducted pilot tests or surveys to see if the product/service fulfills customer needs ?
( or tried other means to find out)
 Have you explained the technical barriers and solution measures ?
 Have you explained the institutional/legal constraints and ways to overcome them ?
 Have you explained the customary/consumer behavioral constraints and solutions ?
 Have you explained the cultural/social constraints and ways to overcome them ?
Yes No
 Writing a business plan

19. 18
¶ Market and Competition
Market size and growth
• A rapid increase in the value of the company can be expected only if the market holds a great potential
• The market size should be presented in figures i.e. number of customers, of unit sales, total sales
• Your expectations for market growth are critical ; show what factors will affect developments (e.g.technology,
legislative initiatives)
• Forecasting market size and growth
Define factors
influencing market
size and growth
Set hypothesis on
future
developments
Collect facts needed
to verify hypothesis
(past trends, expert
opinions)
Estimate market
size and growth
based on the
proven
hypothesis
“If there is no competition, there is probably no market.”
 Writing a business plan

20. 19
Market Segmentation
- Segment the market and explain your target market
- There are many ways to segment the market but the following three elements need to be present
1) Determine the number of customer in each market segment and their buying power (Measurability)
2) Identify customer behavioral pattern in each segment (Homogenous-within)
3) Use the same marketing strategy for customers within each segment
Customer
segmentation
criteria for
consumer
goods markets
Customer
segmentation
criteria for
industrial goods
markets
• Location : country, urban/rural (population density), climate
• Demographics : age, sex, income, profession, religion, education level
• Behavior : Frequency of product purchase, product usage, brand loyalty, price
sensitivity, purchasing variables
• Psychological factors : Lifestyle (behavior, interest, opinion)
•Demographics : company size, industry, location
•Operations : technology employed (e.g., digital, analog)
• Buying habits : centralized or decentralized purchasing, purchasing criteria
•Situational factor : urgency of need, order size
 Writing a business plan

21. 20
Competition
–Compare key customer value, target customers, sales revenue, market share, cost positioning, product lines, and
distribution channels of your company with those of your competitors
–Compare strengths/weaknesses of your product with that of the competitors
–Consider ways to maintain your competitive edge
–Compare your intangible assets with those of the competitors
–Analyze your positioning strategy in the market with that of the competitors
–Maps for designing positioning strategy (samples)
Quality
LowHigh
Price
Low High
Product line
LowHigh
Deliverytime
Low High
Credibility
LowHigh
Convenience
Low High
 Writing a business plan

22.  Have you explained factors crucial for success in your target market ?
□ Competition
 Have you identified your competitors with comparable products/services ?
 Have you given an analysis of your potential competitors ?
□ Market size and growth
 Have you explained the general trend of your target market ?
 Is there a rationale for present market size ?
 Is there a rationale for future market growth rate ?
□ Market segmentation
 Have you defined the criteria for market segmentation and its rationale ?
 Have you compared the strengths and weaknesses of your major competitors with your own ?
 Have you compared your strategies with those of your competitors ?
 What is your competitive edge and have you explained if your competitive edge will be sustainable ?
 Have you given a rationale for characteristics of each market segment (profitability, size, growth rate, future prospects)?
 Is there a clear definition of the target customer and customer examples ?
 Have you determined the target market share for each market segment ?
 Writing a business plan
Check List (Market and competition) Yes No

23. 22
¶ Marketing
Price
–Determine the attainable price for your product/service and evaluate on willingness of customers to pay the asked
price (new businesses often encounter problems because of the conventional wisdom that price is derived from
cost)
–Quantify the customer value of your product/service and define the price bracket. Verify and refine your
assumptions through discussions with potential customers
–The pricing strategy depends on your goal ; the choice can be either penetrating the market quickly by going with
low price (Penetration Strategy) or generating the highest possible return from the outset (Skimming Strategy)
Skimming strategy
Penetration strategy
• A new product/service is positioned as better than previous options, so a higher price can be
justified. You can also create a superior image of the product/service
• Higher prices generally lead to higher profit margins, and allow the new company to finance its
own growth
•Can set a new standard in the early stage (e.g. Facebook, google)
•Can lower fixed costs per unit if the fixed cost is high in the initial stage of the business
• Can prevent market entry by competitors
“Marketing is far too important to be left to the marketing department.”
 Writing a business plan
Marketing is a key element in a successful business launching. This requires a clear strategy for the so-called 4Ps
(Product, Price, Place, Promotion) (For product, refer to the product/service section)

24. 23
Place
–How to deliver your product/service to the customer is a key marketing issue
–The main factors to consider are ; the number of potential customers, range of product/service, where do they prefer to
shop, does the product require explanation, what is the price bracket, what is the frequency of purchase.
–Another significant decision is whether your company will handle the distribution itself, or whether a specialized
operation will handle it for you. Technological developments have greatly expanded the spectrum of distribution channels
and the choices are as follows ;
1) Third-party Retailers : Products sold to the end customer via retailers
2) Outside Agents : Specialized companies acting as agents for the distribution of products (don’t acquire ownership
rights) and charging commission for sales
3) Franchising : Franchisees paying license or franchise fees and selling the product/service (e.g. McDonalds,
Seven-eleven)
4) Wholesalers : A middle man specializing in re-sales to retailers
5) Stores : Selling products directly to customers
6) Own sales staff : Company marketing employees in charge of direct sales
7) Direct Mail : Selling products by mail to customers
8) Call Center : Inviting consumers to order products by telephone through advertising
9) Internet : Using Internet as a marketing channel
 Writing a business plan

25. 24
Promotion
–Advertising your products/services in order to attract customer’s attention, informing, persuading and inspiring
confidence
–Promotion can be defined as ‘marketing communication’. Communication must explain the value of your
product/service to your customers, and convince customers that your product meets their needs better than
competing or alternative solutions
–Ways to attract the customer’s attention
1) Classic Advertising : newspapers, magazines, TV, radio
2) Digital marketing, e-mail, google adwords, social media etc
3) PR (Public Relations) : articles in print media about your product, business or the management
4) Exhibitions
5) Customer Visits
– Focus on the people who make the purchasing decision or have the greatest influence on the purchasing decision
 Writing a business plan

26. 25
 Is the price of your product reasonable compared to market offerings from the customer’s point of view ?
□ Promotion
 Have you analyzed who, within each customer group, ultimately makes the purchasing decision ?
 Have you identified ways to draw attention of your target groups to your product/service ?
□ Price
 Have you specified what your price strategy is and reasons for adopting the strategy ?
 Does the price asked cover costs and ensure a fair return ?
□ Place
 Have you explained the reasons for your choice of distribution channel ?
 Have you determined how much resources will be used to attract and maintain customers ?
 Have you described steps required for launching your product/service in the market ?
 Have you specified the target sales volume for each distribution channel ?
 Have you explained the typical process of selling your product/service ?
 Have alternative distribution channels been compared and studied ?
 Writing a business plan
Check List (Marketing)
Yes No

27. 26
R&D Production Marketing Sales Service
 Writing a business plan
¶ Business System
A business system maps out the activities necessary to prepare and deliver a final product/service to the customer
Three elements, namely the value chain, make-or-buy decisions and the need for partnership, must be considered
within the business system
Value Chain
–Describes the entire process of product/service delivery to end-users (use charts to enhance understanding)
–Define the key value creating activities within the process (e.g.) In the case where R&D is the key activity

28. 27
Need for partnership
–Determine whether it is necessary to forge a partnership for a part or whole of the business system
–Points to consider when making a partnership
 Win-Win situation: Determine whether both sides can gain a fair advantage from the relationship
 Need to disperse risks: Determine whether there is a need to avoid risks within certain parts of the business system (e.g. massive
initial investment)
–Types of partnership
 Non-binding partnership: Both parties can end the partnership quickly and easily
 Close partnership: Can end the partnership only under agreement from both parties when there is a high degree of interdependence
–Select field for partnership: Explain why there is a need for partnership in the select field
–Select partner company: Compare strengths/weaknesses of the partner
Make or Buy
• Define core skills for each process in the value chain
• Decide whether it is best to carry out the individual activities by yourself or whether outsourcing is a better
option based on these criteria ; strategic significance, suitability, and availability
• If outsourcing is your choice, compare potential vendors or suppliers
 Writing a business plan

29. 28
 Has the key value creation factor in the value chain been indicated ?
□ Partnership
 Has the need for partnership been clearly explained ?
 Have you compared potential partners ?
□ Value Chain
 Is the value chain fully explained ?
 Is the cost in each value chain objectively explained ?
□ Make or Buy
 Specify which activities you want to handle yourself and which should be carried out by third parties ?
 Have you compared possible ways to forge partnership ?
 Have you examined whether the partnership gives equal benefits to both sides ?
 Have you examined feasibility of your business from the viewpoint of strategic significance, suitability
and availability ?
 Have you compared potential suppliers for outsourcing ?
Check List (Business System)
Yes No
 Writing a business plan

30. 29
Organization
–Explain organizational structure necessary for each stage of the business (show organizational chart)
–Maintain TFT format during the incubating stage of the business. Separate into an independent
business unit once the operation is in full swing
–Describe missions and functions of each organizational unit
HR
–Describe skills and qualifications required of the team leaders and members
–Set up KPI for performance evaluation of team leaders and members
–Suggest ways to reward outstanding team leaders and members
–Show required number of personnel according to each organizational unit/rank
 Writing a business plan
¶ Organization and HR

31. 30
 Is there enough background for the organizational structure ?
 Have you selected KPI for performance evaluation of team leaders/members ?
 Does the KPI match the missions and functions ?
 Have you presented an organizational chart according to each business stage ?
 Have you detailed functions and missions for each organizational unit ?
□ HR
 Have you described the skills and qualifications required of each business unit leader ?
 Have you suggested ways to reward outstanding team leaders/members ?
 Is the organization structure suitable for speedy decision making ?
 Have you described the skills and qualifications required of each unit team member ?
 Will you utilize your own or outside people as team leaders/members, why ?
 Have the number of ranks been minimized as much as possible ?
 Writing a business plan
Check List (Organization and HR)
Yes No
□ Organization

32. 31
Analyze the opportunities and risks involved in the new business and promote risk management and opportunity use
Risk analysis
–Analyze the fundamental risks related to the market, competition and technological development for the new business
–Quantitatively measure the impact on the risks
–Seek ways hedge or manage the risks
Opportunities analysis
–Analyze additional opportunities related to the market, competition and technological development for the new business
–Quantitatively measure the value of the options
–Seek ways to enhance the value of the options
“One of the greatest myths about entrepreneurs is that they are all risk seekers.
All sane people want to avoid risk.”
 Writing a business plan
¶ Opportunities and Risks

33. 32
 Are the risks related to the market, competition and technological change quantitatively evaluated ?
□ Risk analysis
 Are the risks in market, competition, and technological change accurately defined ?
 Have you suggested ways to hedge the risks ?
□ Opportunity analysis
 Are the opportunities in market, competition and technological development accurately defined ?
 Are the options related to the market, competition and technological development quantitatively evaluated ?
 Have you pointed out ways to heighten the value of the options ?
 Writing a business plan
Check List (Opportunities and risks)
Yes No

34. 33
Drawing up your implementation schedule
1) Gantt implementation schedule : Check major tasks on the Gantt chart
2) Major milestones : Indicate events that should be defined as milestones
3) Important connections and interdependencies between the work assignment groupings
 Writing a business plan
¶ Implementation Schedule
A realistic five-year plan enables you to consider inter-related issues in promoting your project and above all, help you
to avoid possible risks from attempting to reach your targets with an overly optimistic planning

35. 34
Sample Gantt Chart
 Writing a business plan

36. 35
 Are all major tasks included in the schedule ?
□ Gantt chart implementation schedule
 Is the implementation schedule in the form of a Gantt chart ?
 Is the schedule consistent with other sections (organization, personnel, financial planning) of the business plan ?
□ Milestone
 Have all the major milestones been indicated ?
 Are the milestones consistent with the Gantt implementation schedule ?
 Is the schedule overly optimistic ?
□ Interrelation and interdependency
 Is the order of tasks logically laid out ?
 Is there a reasonable explanation for the interdependencies between tasks ?
 Writing a business plan
Check List (Implementation schedule)
Yes No

37. 36
Minimum required for financial planning
1) Cash flow statement, income statement, balance sheet
2) Forecasts over five years, at least one year beyond the generation of positive cash flow
3) Detailed financial planning for the first two years (monthly or quarterly), thereafter annually
4) All figures must be based on reasonable assumptions (the basis for all assumptions must be provided in the
business plan)
5) Analysis of the economical efficiency (NPV, IRR, Payback period) and sensitivity analysis of major variable
changes
 Writing a business plan
¶ Financial Planning
Financial planning is a consolidation of all elements in the business plan and assists you in evaluating the
profitability of your business
Financial planning is used as a basic data for forecasting the amount of financing needed to set up a business
“Planning substitutes chaos for mistakes.”

38. 37
Income statement
• The income statement shows whether the business can generate profits. Businesses unable to yield long-term
profits cannot continue to exist
• The provisions of the income statement are as below and sub-categorized according to the characteristics of the
business (Businesses operating on internal funds without any external sources does not take the interest cost into
consideration : unleveraged basis)
 Writing a business plan
A. Revenue
B. Cost
• Give rationale in the form of price x volume
• Categorize into variable/fixed costs and give rationale
NotesYear 1 ~ 5
C. Gross Profit (A-B)
D. SG&A
E. EBIDTA (C-D)
F. Depreciation
G. EBIT (E-F)
H. Tax
I. NOPLAT (G-H)
• Show gross profit rate (gross profit/revenue)
• Categorize into variable/fixed costs and SG&A/overhead and give rationale
• Should be consistent with investment plans in the cash flow
statement, give rationale for manner and period of amortization
• Indicate tax rate

39. 38
Cash Flow Statement
–The cash flow statement shows the amount of invested capital and the cash that will be generated from business
operations
–The provisions of the cash flow statement are as below ;
A. Operating cash flow
A.1. After-tax sales profit
A.2. Depreciation
A.3. Decrease/(increase) in account receivables
A.4. Increase in account payables/(decrease)
A.5. Decrease/(increase) in inventory
A.6. Decrease/(increase) in other working capital
B. Invested cash flow
• Same as NOPLAT in income statement
• Same as depreciation in income statement
• Give rationale in the form of daily revenue x A/P
period
• Give rationale in the form of daily revenue x A/P
period
• Give rationale in the form of daily revenue x
inventory days
• Give rationale in SG&A ratio
• Detailed annual investment (Categorize into
assets/depreciation difference) should be put in
a separate provision
C. Net cash flow (A - B)
D. Accumulative cash flow
 Writing a business plan
NotesYear 1 ~ 5

40. 39
Balance Sheet
–The balance sheet shows changes in corporate assets on an annual basis
–The provisions of the balance sheet are as below ; (The balance sheet can be automatically calculated from the income
statement and cash flow statement figures)
 Writing a business plan
A. Current assets
A.1. Account receivables
A.2. Inventories
A.3. Other working capital
• Accumulative increase/decrease in account payables on the cash flow statement
• Accumulative increase/decrease in inventories on the cash flow statement
• Accumulative other working capital on the cash flow statement
C. Total assets (A+B)
D. Current liabilities
D.1. Account payables
E. Equity
E.1. Investment capital
E.2. Accumulative after-tax operating profit
• Accumulative invested cash flow on the cash flow statement
• Accumulative depreciation on the income statement
• Accumulative increase/decrease in account receivables on the cash flow statement
• Accumulative cash flow on the cash flow statement
• Accumulative EBITDA on the income statement
NotesYear 1 ~ 5
F. Liabilities and equity (D + E)
B. Non-current assets
B.1. Investments
B.2. Accumulated depreciation

41. 40
Results of economics analysis
–Indicate economic profitability of the company by Net Present Value (NPV), Internal Rate of Return (IRR), and
Payback period
– A typical economics analysis is as below ;
A. Net cash flow (from cash flow statement)
Year 1 Year 2 Year 3 Year 4 Year 5 Perpetuity Total
B. Accumulated net cash flow (from cash flow statement)
C. Payback period : Point when accumulative net cash flow becomes a plus
D. Perpetuity : EBITDA x Multiple (multiple reflecting business characteristics)
E. Discount rate(i) : Cost of capital + α (additional business risks)
F. Present value index :
G. NPV : (ΣA x F + D x F)
H. IRR : Discount rate when A + D = Zero
1/(1+i) 1/(1+i)² 1/(1+i)4
1/(1+i)³ 1/(1+i)5 1/(1+i)
5
 Writing a business plan
※ Perpetuity : Continued value/remaining value when the business continues its operation after the
forecasting period

42. 41
Sensitivity analysis
–Sensitivity analysis looks at how changes in the key drivers of the business affects the economics and
profitability, thereby evaluating the level of risk involved and identifying the risk factors
–Key drivers mainly used for sensitivity analysis are investment cost, price, sales volume, etc.
–Define potentials and solutions for each key driver
 Writing a business plan
Key Driver
Investment cost
Price
Sales volume
Cost of
materials
SG&A
-20%
Mark changes in
PV and IRR
-10% Base +10% +20%
Mark changes in
NPV and IRR

43. 42
 In there an accurate basis for the assumptions ?
□ Balance sheet
 Is the balance sheet easy to understand ?
 Is the balance sheet consistent with the income statement/cash flow ?
□ Assumptions
 Can a third person draw up the income & cash flow statements & balance sheet based on given assumptions ?
 Is there an explanation on whether the price covers the cost and guarantees a reasonable profit ?
□ Income statement
 Is the income statement easy to understand ?
□ Economics analysis and sensitivity analysis
 Is the economics analysis easy to understand ?
 Is the income statement categorized sufficiently ?
□ Cash flow statement
 Is the cash flow statement easy to understand ?
 Is the perpetuity adequately evaluated ?
 Is the calculation accurate for NPV, IRR, and Payback Period ?
 Is the sensitivity analysis on the key drivers reasonable ?
 Is the cash flow statement categorized sufficiently ?
 Writing a business plan
Check List (Financial planning)
Yes No

44. Murray Region Futures:
Infrastructure, Planning and Population
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John Gregg
Principal
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Email: johng@navigateconsulting.com.au
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