[#BusinessManagement] #Startup, #Authorization, #Budgeting,
#Forecasting, #InternalControl, #Project, #Change, #Integration (2/5)
3.
What is the
connection among the operating plan (business plan and financial model),
budget, forecast and business analysis?! Are they just putting the same number
in different places, right?!
[Reminder]: In the end of this paragraph is the
sharing of [business analysis],
regarding the [things] being analyzed,
no matter you call them KPI, OBR, financial indicators, above [People, Machine,
Material, Legal, Environment, Safety and Health], or, below mentioned 5W1H or
fish-bone diagram…etc., I personally call them [Key Success Factors =KSF], because, they are the major work
elements to support your business success in your planning in the beginning,
thus, in business analysis, it must focus on those work results in order to
report and present it to the Board, shareholders or investors and add
additional KSF or delete some of them according to actual situation, hence, those
defined [key elements] in business plan or budgeting needs to be included in [business
analysis];many companies didn’t integrate above kinds of definitions and they
review them in a scattered way, it costs duplicated work cost, and it is also because those work
responsible persons are not the same or they belongs to different work
departments, they are not
linked together, no one thinks those tihngs are relevant.
(1) [Operating plan], it is mainly for reporting to the
Board or investors, the purpose is to request for approval for their operating
plan for the coming year work activities (Board approval or a report to
investors), or, it is for fundraising of general companies or startups, they
need to report to specific companies or potential investors about their Company
Profile, Main Business, Opportunities and Threads(Risks) In The
Market, Financial Plan and Manpower Plan…etc., and summarize
all of them as an operating plan for investors’ review, and they hope they will
get their investment intent accordingly, being invested and to achieve their
goal of fundraising. Please refer to the example of the contents of the [Table
of Contents Outline] in the [Public Prospectus] of Taiwan's listed
stock trading market. I selected a company with its Chinese and English
versions [6497 ASLAN-KY] (TraditionalChinese, English version)
, the purpose is for the company to explain to the public about their company's
background, main business, and future operating plans and hoping to gain the
attention of potential shareholders and obtain their investment.
https://mops.twse.com.tw/mops/web/t57sb01_q3
https://doc.twse.com.tw/pdf/201705_6497_B04_20240322_145327.pdf
https://doc.twse.com.tw/pdf/201705_6497_BE1_20240322_153312.pdf
Regardless the format you use for operating plan, you will encounter two
things involving in their own effects and causes relation: Business Planning(=BP)and
Finance Planning(=FP)(I personally define FP is [to do Finance
Modeling], there is only difference in how to name it). Below are using the
ways of doing them as examples ( the content ignores the wording or the detail
of creating related charts)-
BP: the work responsible person is CEO, they need to define the
direction of business growth, including the business industry they belong to,
business blueprint, work partners, target
customers and their attributes…etc.
FP: the responsible person is CFO, they do the financial planning based
on the content of BP.
Though, there is cause and effect between BP and FP, they need to work
together, for example: [industry] and [work partners] assumptions in BP would
have influence on [normal situation of payment terms] of cash flow and [whether
there is equipment or other resources available for financing and the necessity]
issues in FP.
In another aspect and including all the [planning works] including below
1st. step in [budgeting] works, please be advised to start to work
in below dimensions:
-
To start the planning work from [Sales], please be advised
to use the ways of 5W1H, fish- bone diagram, What If/Senario, all of above and do those
brainstorming accordingly. i.5W1H= What(sell what), Who(who are the target
customers, the industry is B2C and/orB2B…, major suppliers and the sources of
resources), When(months of sales amount generated, quarter or year), Where(sales
channels), Which(to list all the option for selecting decision making; e.g.:
you’ve already defined your target customers in Who, however, the investors or
customers may ask: What would be the
effect if they don’t buy your products?! If they buy it, what the effect will
be?! You need to do related early preparation for this kind of
questions) and How(how to do it); your decision will result in those cost and
related expense to be invested accordingly in the future.
(I met a founder of a startup before,
he said they belong to B2C industry, and in the middle of our conversation, he
thought he wrongly defined their industry, they should be B2B…and it is very
embarrassing).
ii. Fish bone diagram, it is a kind of cause-effect diagram, you can
search for its definition in internet; please be advised not to focus on the
detail of how to create this diagram, the logic of this diagram solves everyone’s
worry before they start to do planning:[What kind of facets and how many needs
to be included in this plan? How to start this planning work?], in seeking for
answers, besides above 5W1H, it is advised to use brainstorming in preparing
fish-bone diagram, and its overall preparation procedures are:
1st. [Goal setting]. (Before doing any kind
of things, it needs to define the purpose or goal, do you agree with this?!)
2nd.[Brainstorming, not to categorize
first but to list all the way to achieve target item by item].
3rd.[Doing categorizing on the results of 2nd.
and do grouping; below is the hypothesis of their conclusion are totally ABCDE 5
items].
4th.To confirm the detail of ABCDE and their work results will support to
fulfill the [Target] in 1st.:
A.
a1
a2
B
b1
b2
C
c1
c2
c3
D
d1
d2
d3
E
e1
e2
e3
5th.To ensure ABCDE are complete and nothing duplicated (Mutual
Exclusive Completeness Exhaustive/MECE)。
iii. What If/Senario,
it is usually used in financial [forecasting], however, in fact, it must be used
in BP development, for example: It is advised to use 5~10 years in sales
planning or forecasting..
a.[What if ]COVID19 disease disappears in year 2024, [then] this year
and the upcoming 5 years, the sales amount can achieve $OOOMM…., estimated
income statement is….
[What is] the vaccine OOO will be obtain at June and the injection will
achieve only 20%, [then] the predicted income statement is….
b.[If] we can get OO skill by …[then]…..
The benefit of What if is not only to assist people to ask questions in
the angle of investors or approvers, it helps people to figure out the possible
answers in the beginning, it [assumes the possible sales amount the team can
achieve once current shortage of resources are obtained] in order to fight for
investment or financing approval opportunity.
iv. Other reference[#KPI/#Regional FPA] Boss
asked : What’s more valuable can you input and done by your team than
consolidating data submitted by subsidiaries??
-
The person who is responsible for [doing]
summary work of kinds of plans and statement preparation, usually, it is the middle level
manager of finance and accounting department, if you are a startup, and you
have the need of personnel cost
saving + have not/recruiting CFO, I suggest you to recruit a person who
is [middle level, good at finance statement preparation works, specialised at the mutual influence of [accounting
items], this person can identify [the difference in meaning of budget
and forecast], and define this person is your Finance Planning and
Analysis(FPA)] and directly report to CEO, it is also a good way you ask
for help from professional accountants firms(CPA) for talents recommendation;
it is because I usually encountered these kind of companies’ [hiring salary
amount for a CFO is under market ], however, they also hope this CFO person
possesses [fundraising work experience], [extremely professional in finance and
accounting], [they use wrong accounting concepts to interview work candidates],
it is a waste of time, and, as a startup, it is not appropriate to hire a CFO
of higher salary, because, this kind of person ‘s work skills in a startup is
of no use, so I suggest it use above mentioned talent and external consulting
resources (advices from external accountants firms, underwriters or other work
professional service providers, and, potential investors would also provide
opinion or ask questions for your deep thinking)so the companies are able to
consider the sequences of things before doing it, and, the most important thing
is to define the structure of statements,
and this is the 1st. work step👈 when the structure of statements is define, it means, your BP is ready. Do you
agree?!
- FPA person will search for the resources by themselves, such as [Financial Plan], [Budget], [Forecast]…related written charts or required resources; because this person directly reports to CEO, CEO is able to save time in paper works, and their accounting department is also able to focus on their daily accounting works and needs👈because investors would like to review clear finance statements. FPA is the best communication role among all departments, not only because this person directly learns from CEO or interacts with this boss, but because this person is also the company’s human capital, in the future, it is suitable for this person and company to switch this person’s role to other department or consider promoting to CFO position.
(2) Budget: at work place, there are many people not quite clear
about [budget] and [forecast] which is discussed in next paragraph, as for me….I
started to know and realize what they are after I left the accountant firm and
when I needed to support the company I worked for to do budget, finance
forecast.
Budget, it is the Financial
Plan mentioned in above (1) Operating Plan; you can say the Financial Plan is generated for
achieving specific work target. Examples are: Project Budget, Operating Budget,
and Budget of the Company of Year 20XX= 20XX Financial Plan of the Company.
In colloquial explanation is: if we assume A establishes a new company
or A is the CEO of the company, A must explain to shareholders or the Board of Directors
the company's operating plan for the next N years, as well as the
financial plan, and it also works if they would like to name it as the [financial
performance goal setting]:
Dear shareholders, we would like to present our operating plan of the
next 10 years; and our financial plan( =budget )is:
-
In these 10 years, we [plan to] create ☆☆☆ of sales performance(=Sales Budget).
-
In order to achieve this Sales Budget, we [would like to]
invest OOO in recruiting talents (=Personnel Budget)+ renting offices and other
operating expense (=Expense Budget, OPEX ).
-
We will purchase required software OOO and machinery
equipment or resources (=CAPEX); please see Estimated Fixed Assets Movement,
Estimated Unamortized Expense Movement.
-
The estimated raw material purchasing amount is OOO;
please also see the Producing Plan OOO and it is to support the Sales Budget
achievement.
-
The estimated operating work result please see [Budget
Income Statement], [Balance Sheet] with the Sales Channel Plan.
-
In fundraising this time, 40% would come from financing from
OOO bank +60% is cash capital increase; please see financing detail chart, [Estimated
Cash Flow Chart], [Estimated Shareholders Equities Movement].
The ways to prepare the sales
amount in budgeting including TOP-DOWN, the higher up defines the
number and the team members are responsible for achieving it, or, there is also
Bottom-Up, it is the team members to prepare the number and to summarize all of
them as a plan; we usually found an unpleasant situation like: the executive
team(sales department, startups, subsidiaries or management managers) would
intentionally underestimates the amount, and, the approvers(CEO, investors,
parent companies or the Board of Directors) disagree with it, or, they have big
doubt about it, if there is internal disagreement and cannot make consensus, I
suggest the companies define the sales amount not only to increase the number
from breakeven point but also to refer to those accessible report in
public market (information of companies in the same industry or industry
reports, the macroeconomics prediction % by the related department of the government,
stock market forecast or listed companies information…)and define the
comparison value; on the other hand, in all the accounting items in the budget
chart, I suggest the companies add related work responsible persons’ name on
it, such as Sales (to add OOO, the name of VP of Sales Department), please download file 113001 (choose [not to
update]), and see those
columns in sky blue in its [Comprehensive Income Statement];
about the simplified [Sales
Budget] template, please see worksheet of [Sales
Plan], it only considers [Place] and [Product], these are the frequently used
two dimensions in budget preparation. You can also refer to tab [7PSales Analysis and Action]
mentioned in below 4.
(3) Forecast: when above operating plan or
operating activities of specific year has been started, they will incur related
expense, spending or income, and those things defined in budget in the
beginning may happen gradually or may not happen due to some reasons, or there
may be postponement, thus, the timing and amount of things happening may not be
100% the same as planned in budget (=plan). Hence, according to the law or the
request from shareholders, in some specific work period, the business team needs
to report [Financial Forecast] to make known whether the [Content of their
Budget] will be achieved, won’t be achieved or exceed expectation?
https://docs.google.com/spreadsheets/d/1UUmxpEIbxHNJ_nzoIIYkIfezcps9wpex/edit?usp=sharing&ouid=110707784186047219702&rtpof=true&sd=true
Example: The Company has reported financial budget of year 2024 on
2023/11/30, it included estimated sales $555,555,555, and the Board of
Directors has approved and so does their shareholders meeting.
On 2024/2/15, there is a oversea agent promising a purchase amount of
$16,666,666.-, it is the 3% of the original sales; according to the law or
following the Company’s internal rule, they need to increase Financial Forecast
number as =$555,555,555+$16,666,666 at 2024/3/31 Q1 forecast report, or, if
there is operating losses, and the oversea agent contribution will cover the
loss causing the overall impact amount become small, no significance, then,
they don’t need to increase the financial forecasted number.
In this case, the [Significance] must be defined by the companies; they will
choose the [higher] amount of items as their own most significant situation:
In Sales, the significant number is the higher value between 1% of
operating sales and the number exceeding $50,000,000.
In Expense, the significant number is the higher value between 3% of
total Expense or the amount impacts 1% of Net Profit.
(4)
In Business Analysis (BA), I define it as [Business Planning and
Analysis(BPA)], its major difference from above [Operating Plan], [Budget], [Forecast]
is: the analyzed or calculated amount is the actual amount generated in their action taken according to
their plan; I define this term has 2 functions for your reference:
- New Business Planning (NBP): it is
similar to Business Development (BD); if we define them by the professional
work background of the responsible persons, NBP is more financial number
oriented or possessing related fundamental work concept, the purpose of its
work including calculating new business estimated profit and loss and cash flow
or resources…etc., and BD is more for products dimension.
-
In Business Analysis (BA), it is to compare and analyze
[number of actual operating work result] with number in above mentioned [Operating
Plan], [Budget] and [Forecast] and finally providing advices accordingly. The
[Situations] which need BA result = the situation of Departments Heads need to
[report] their KSF achievements to the boss or CEO regularly, I name it as [Business
Review Meeting (BRM)]. In below paragraph, I share content of BA in BRM for
your reference (please ignore how a BRM should be completed), thank you!
There is a personnel organization experience for your reference: in a company, if the BA has a work mission of [providing business advice based on its analysis works], thus, usually, the work level of the Head of BA needs to be Manager or above; in Dinosaur Age, Emily was the junior manager of the NBP, my work mission included BA, and I directly reported to [Chief Strategy Officer], he was managing departments of NBP, marketing, product, and directly doing strategy+ new investment planning or BD. In professional work background and work mission of this Chief Strategy Officer, I realized Head of sales oriented work departments( sales and marketing etc.) and Head of supporting departments( finance and accounting ) can do work rotation with each other, if there is work aspect they are not familiar with, the manager level of the professional work function can support them. What’s your idea?!
1.
What is Project,
what is Risk?! Who can serve as the project manager?! Does Risk mean Danger?
2.
How the founders can authorize hired
managers appropriately so that the managers will not overstep their authority
without approval?!
P01-P02 https://whatsyouridea1996.blogspot.com/2024/03/startups-plan-control-integrate-eng.html
3. What is the connection among the
operating plan (business plan and financial model), budget, forecast and
business analysis?! Are they just putting the same number in different places,
right?!
P03 https://adv1996.blogspot.com/2024/05/startups-plan-control-integrate-eng03.html
4.
According to 3.,
what information does the Business Analysis (BA) provide for the [Business Review
Meeting] (BRM)?! (suggestions including 4 charts: Achievement and Trend Report,
Cash Flow Control Chart and Sales Analysis, [Early Warning, Opportunity and
Action Progress Summary])
5.
Change and integration are also project-based work; please
define OO first. What do you think OO is?!
6.
For example: to change corporate work culture, the difficulty
may come from people who have management power= people who want to change the
work culture, it is possible.(This may differ from your company's corporate
culture or environmental perception)
P04-P06 https://whatsyouridea1996.blogspot.com/2024/05/startups-plan-control-integrate-eng04.html
7.
Share: 1 form that must be used in integrating the work
processes.
8.
Because money is very important, use [internal control] in finance and
accounting work operations to explain the internal control issues when
establishing subsidiaries/business expansion. (Please answer first: In addition
to morality and conscience, why should the CFO of the subsidiary need to obey
the finance and accounting work instructions from HQ?!)
9.
Only companies that need an e- approval platform and need
[approval records] and [approval efficiency] should read this.
P07-P09 https://whatsyouridea1996.blogspot.com/2024/05/startups-plan-control-integrate-eng07.html
10.
Summary: Internal control, something about business
management.
P10 https://adv1996.blogspot.com/2024/05/startups-plan-control-integrate-eng10.html
