Business Plan The Techniques

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Business PlanThe Techniques

• Our Case The Red Line
• Saigon Hotel
• Mission and Vision
• SWOT Analysis
• The Financial Plan Step by Step
• Initial Balance Sheet
• Year 1
• Profit and Loss
• Balance Sheet
• Calculation of financial debt and interest
• Cash Flow Statement
• Year 2
• Etc.

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Hanoi Hotel Mission and Vision

• What we are
• A medium size high level hotel in the centre of
  HCMC
• 130 rooms
• Average income per night/room in 2003 80 US
• Mission
• We want to deliver excellent service to our
  business (40) and leisure (60) customers and
  want them to come back
• What we want to become
• Possibility to add 60 additional rooms
• Vision
• We want to become immediately after the Rex the
  reference hotel for people who want a unique
  experience and not the standard (high level)
  service provided by international chains

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SWOT Analysis
STRENGTHS Good image Excellent location (centre) Experienced management and personnel WEAKNESSES Not a member of an international chain Quite old building (we should renovate all rooms for a total capex of 3Mio US)
OPPORTUNITIES New building with 60 rooms (total capex of 4Mio US) Become member of international network (license of 1 MioUS) THREATS A lot of new hotels are coming on the market Competition try to hire our personnel
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Step 1 Initial Balance Sheet

• last available figures for existing company
• opening Balance Sheet for new venture
• Liabilities only equity
• Assets only cash

BPcons.xls - STEP1!A1
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Step 1bis Simplified Balance Sheet

• Calculation of Working Capital
• R S - DSTop
• Calculation of Capital Employed
• FIX WC CASH

BPcons.xls - STEP1bis!B1
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Step 2 Profit Loss Year 1

• based on
• PL of last year
• Operational assumptions for year 1
• Turnover
• Margins (Cost of sales)
• Costs of goods and services
• Salaries and productivity of labor
• Fixed assets table
• depreciation
• Balance Sheet of last year
• calculation of interests on debt

BPcons.xls - STEP2!A48
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Step 2bis Fixed assets depreciation

• based on
• Fixed assets at the end of last year
• Depreciation rules
• Capex of the year
• Tangible
• Intangible

BPcons.xls - STEP2bis!A111
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Step 3 Balance Sheet Year 1

• based on
• Balance Sheet of Year 0
• PL of Year 1
• EAT DIV for EQ
• Depreciation for FIX
• Operational assumptions
• Change in Working Capital
• Duration of inventories
• Duration of collection
• Etc.
• Capex for FIX
• Financial assumptions
• New LT debt
• Capital increase for EQ
• Reimbursed LT debt
• Short term fin debt to balance

BPcons.xls - STEP3!A1
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How to do to finance the company ?

• Cash Flow from financing activities
• First use the existing cash or credit lines
• Second seek additional debt provided by banks
• Duration should depend on needs but
• Always seek long term to reduce the risks
• Limits for the bankers
• Future Cash flows
• Cover of interest ratio must be respected
• Cover of debt must be respected
• Finally seek new capital provided by
  shareholders
• Is it an interesting investment for them ?

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Step 4 Cash flow statement Year 1

• based on
• Cash Flow from operations
• PL of the year
• EAT
• Depreciation
• Operational assumptions
• Changes in components of WC
• CF from investing activities
• Fixed assets assumptions
• Capital expenditures
• Assets sales
• CF from financing activities
• Financial assumptions
• New and reimbursment LT
• Calculation short term debt
• Sanity check the cash

BPcons.xls - STEP4!A173
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Step 5 Profit Loss Year 2

• based on
• PL of Year 1
• Operational assumptions for Year 2
• Turnover
• Margins (Cost of sales)
• Costs of goods and services
• Salaries and productivity of labor
• Fixed assets table
• depreciation
• Balance Sheet of Year 1 2
• calculation of interests on debt

BPcons.xls - STEP5!A48
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Iterative Process

• Step 5
• PL for year 2
• Step 6
• Balance Sheet for year 2
• Step 7
• Cash flow statement for year 2
• Step 8
• PL for year 3
• Steps 9
• Balance Sheet for year 3
• Step 10

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How to build the Financial Plan
BPcons.xls - STEPfoll!A48
BPcons.xls - STEPfoll!A1
BPcons.xls - STEPfoll!A160
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Sensibility studies

• We can see immediately all the consequences of
  changing one assumption
• occupancy rate or load factor
• unit price
• additional capital expenditures
• more rooms, more planes, more shops
• fixed and variable costs
• interest rate
• exchange rate
• etc.

BPcons.xls - SENSIB!A1