Writing Business Plans/Management

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Question
Please answer the following questions:

1. If an entrepreneur approaches you for an advice regarding financing of a project wherein he intends to expand his existing project. What resources you should suggest him to raise his funds?

2. "Commercial banks in India are now financial super markets" Explain the statement in view of innovative functions of commercial banks.

3. International business is not a new activity-a product of the modern times. The‘imperative’ to international business may be a modern day feature; but organized international business took place even during historical times.–Substantiate this statement.

4. Explain the role played by IMF in solving Liquidity crisis and promoting the same through SDRS

5. Ratios like statistics have a set of principles and finality about them which at times may be misleading. Discuss with illustrations.

6. The true fund flow from depreciation is the opportunity saving of cash outflow through taxation. Illustrate with numerical examples.

7. If the use of financial leverage magnifies the earnings per share under favorable economic conditions, why do companies not employ very large amount of debt in their capital structures? Justify your views in elaborate.

8. "Every financial decision has an impact on the risk return Profile of a firm.” Therefore, the financing decision of Working capital of a firm also determines the risk return Profile of a firm with regard to its working capital. Do you agree with the statement? Support your answer with necessary examples

9. Elucidate the changes that have started taking place in the debt market in the post liberalization scenario. Also discuss the key features of the methodology for the debt rating.

10. "No Investment Decisions are made without calculating risk." Do you agree? As an Investment Manager of a firm, discuss the various steps involved in the investment decision making process.

11. Critically examine the globe – hex strategies for the Indian government.

12. Comment on this statement. “Often neither the least expensive strategy nor the most expensive may be the most productive strategy”.

Answer

HERE  IS  SOME  SOME  USEFUL MATERIAL.
SOME  ANSWERS  HELD  BACK  DUE TO  SPACE CONSTRAINT.
PLEASE  FORWARD  THESE  BALANCE  QUESTIONS  TO  MY  EMAIL  ID   
leolingham@gmail.com.
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Question:   Please answer the following questions:

1. If an entrepreneur approaches you for an advice regarding financing of a project wherein he intends to expand his existing project. What resources you should suggest him to raise his funds?

2. "Commercial banks in India are now financial super markets" Explain the statement in view of innovative functions of commercial banks.

3. International business is not a new activity-a product of the modern times. The‘imperative’ to international business may be a modern day feature; but organized international business took place even during historical times.–Substantiate this statement.

4. Explain the role played by IMF in solving Liquidity crisis and promoting the same through SDRS@@@@@

5. Ratios like statistics have a set of principles and finality about them which at times may be misleading. Discuss with illustrations.

6. The true fund flow from depreciation is the opportunity saving of cash outflow through taxation. Illustrate with numerical examples.

7. If the use of financial leverage magnifies the earnings per share under favorable economic conditions, why do companies not employ very large amount of debt in their capital structures? Justify your views in elaborate.

8. "Every financial decision has an impact on the risk return Profile of a firm.” Therefore, the financing decision of Working capital of a firm also determines the risk return Profile of a firm with regard to its working capital. Do you agree with the statement? Support your answer with necessary examples@@@@

9. Elucidate the changes that have started taking place in the debt market in the post liberalization scenario. Also discuss the key features of the methodology for the debt rating.

10. "No Investment Decisions are made without calculating risk." Do you agree? As an Investment Manager of a firm, discuss the various steps involved in the investment decision making process.




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8. "Every financial decision has an impact on the risk return Profile of a firm.”
Therefore, the financing decision of Working capital of a firm also determines
the risk return Profile of a firm with regard to its working capital. Do you agree
with the statement? Support your answer with necessary examples

-  Working capital management
o  Risk, Profitability and Liquidity
-  Working capital policies
o  Conservative
o  Aggressive
o  Moderate
-  Risk and return of current liabilities
Working Capital Management
Decisions relating to working capital and short term financing are referred to as working capital management.
These involve managing the relationship between a firm's short-term assets and its short-term liabilities. The
goal of Working capital management is to ensure that the firm is able to continue its operations and that it
has sufficient cash flow to satisfy both maturing short-term debt and upcoming operational expenses.
Decision Criteria
By definition, Working capital management entails short term decisions - generally, relating to the next one
year period - which is "reversible". These decisions are therefore not taken on the same basis as Capital
Investment Decisions (NPV or related, as above) rather they will be based on cash flows and / or
profitability.
•  One measure of cash flow is provided by the cash conversion cycle - the net number of days from
the outlay of cash for raw material to receiving payment from the customer. As a management tool,
this metric makes explicit the inter-relatedness of decisions relating to inventories, accounts
receivable and payable, and cash. Because this number effectively corresponds to the time that the
firm's cash is tied up in operations and unavailable for other activities, management generally aims
at a low net count.
•  In this context, the most useful measure of profitability is Return on capital (ROC). The result is
shown as a percentage, determined by dividing relevant income for the 12 months by capital
employed; Return on equity (ROE) shows this result for the firm's shareholders. Firm value is
enhanced when, and if, the return on capital, which results from working capital management,
exceeds the cost of capital, which results from capital investment decisions as above. ROC
measures are therefore useful as a management tool, in that they link short-term policy with long-
term decision making.

Management of Working Capital
Guided by the above criteria, management will use a combination of policies and techniques for the
management of working capital. These policies aim at managing the current assets (generally cash and cash
equivalent, inventories and debtors) and the short term financing, such that cash flows and returns are
acceptable.


•  Cash Management. Identify the cash balance which allows for the business to meet day to day
expenses, but reduces cash holding costs.
•  Inventory Management. Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials - and minimizes reordering costs - and
hence increases cash flow.
•  Debtor's Management. Identify the appropriate credit policy, i.e. credit terms which will attract
customers, such that any impact on cash flows and the cash conversion cycle will be offset by
increased revenue and hence Return on Capital (or vice versa).
•  Short Term Financing. Identify the appropriate source of financing, given the cash conversion
cycle: the inventory is ideally financed by credit granted by the supplier; however, it may be
necessary to utilize a bank loan (or overdraft), or to "convert debtors to cash" through "factoring".
Financial Risk Management
Risk Management is the process of measuring risk and then developing and implementing strategies to
manage that risk. Financial risk management focuses on risks that can be managed ("hedged") using traded

financial instruments (typically changes in commodity prices , internet rates, foreign exchange rates and
stock prices). Financial risk management will also play an important role in cash management.
This area is related to corporate finance in two ways. Firstly, firm exposure to business risk is a direct result
of previous Investment and Financing decisions. Secondly, both disciplines share the goal of creating, or
enhancing, firm value. All large corporations have risk management teams, and small firms practice
informal, if not formal, risk management.
Derivatives are the instruments most commonly used in financial risk management. Because unique
derivative contracts tend to be costly to create and monitor, the most cost-effective financial risk
management methods usually involve derivatives that trade on well-established financial markets. These
standard derivative instruments include options, future contacts, forward contacts, and swaps.
Working Capital Policies
•  Conservative - Use permanent capital for permanent assets and temporary assets.
•  Moderate ¬ Match the maturity of the assets with the maturity of the financing.
•  Aggressive ¬ Use short-term financing to finance permanent assets.
Let's view the characteristics of each policy.
1. CONSERVATIVE WORKING CAPITAL POLICY;
high level of investment in current assets
support any level of sales and production
high liquidity level
Avoid short-term financing to reduce risk, but decreases the potential for maximum value
creation because of the high cost of long-term debt and equity financing.
Borrowing long-term is considered less risky than borrowing short-term.
This approach involves the use of long-term debt and equity to finance all long-term fixed
assets and permanent assets, in addition to some part of temporary current assets.
The firm has a large amount of net working capital. It is a relatively low-risk position.
The safety of conservative approach has a cost.
Long-term financing is generally more expensive than short-term financing.
2. AGGRESSIVE WORKING CAPITAL POLICY;
Low level of investment
More short-term financing is used to finance current assets.
Support low level of production & sales
Borrowing short-term is considered more risky than borrowing long-term.
Firm risk increases, due to the risk of fluctuating interest rates, but the potential for higher
returns increases because of the generally low-cost financing.
This approach involves the use of short-term debt to finance at least the firm's temporary
assets, some or all of its permanent current assets, and possibly some of its long-term fixed
assets. (Heavy reliance on short term debt)
The firm has very little net working capital. It is more risky.
May be a negative net working capital. It is very risky
3. MODERATE WORKING CAPITAL POLICY
This approach tries to balance risk and return concerns.
Temporary current assets that are only going to be on the balance sheet for a short time
should be financed with short-term debt, current liabilities. And, permanent current assets
and long-term fixed assets that are going to be on the balance sheet for a long time should
be financed from long-term debt and equity sources.
The firm has a moderate amount of net working capital. It is a relatively amount of risk
balanced by a relatively moderate amount of expected return.
In the real world, each firm must decide on its balance of financing sources and its
approach to working capital management based on its particular industry and the firm's
risk and return strategy.
88

LIQUIDITY & PROFITABILITY:
•  Lenders prefer a company having a large excess of current assets over current liabilities whereas the
owners prefer a high return.
•  Current assets have the advantage of being liquid, but holding them is not very profitable.
•  Cash account is paid no interest.
•  Accounts receivable earns no return.
•  Inventory earns no return until it is sold.
•  Non-current assets can be profitable, but they are usually not very liquid.
•  Firms are usually faced with creating trade-off in their working capital management policy.
•  They seek a balance between liquidity and profitability that reflects their desire for profit and their
need for liquidity.
OPTIMAL LEVEL OF CURRENT ASSETS
A firm's optimal level of current assets is reached when the optimal level of cash, inventory, accounts
receivable, and other current assets is achieved.
Cash: firms try to keep just enough cash on hand to conduct day-to-day business, while investing extra
amounts in short-term marketable securities.
Inventory: firms seek the level that reduces lost sales due to lack of inventory, while at the same time
holding down bad debt and collection expenses through sound credit policies.
• PROJECTING THE ALL THREE POLICIES
• CONSERVATIVE = A
• MODERATE = B
• AGGRESSIVE = C
LIQUIDITY
PROFITABILITY
RISK
HIGH
A
C
C
NOR
B
B
B
LOW
C
A
A
The chart tells us two things:
-  Profitability varies inversely with liquidity; increased liquidity can be achieved at the expense of
(decreased) profitability
-  Profitability & risk have same direction; in order to have greater profitability, we need to take
greater risk.
-  Conclusion: optimal level of each current asset will depend on the  management's attitude
towards risk & return.
Risk and Return of Current Liabilities
The goal of the return management process is to maximize earnings in the context of an acceptable level of
risk.
Firm's working capital is financed from short-term borrowing, long-term borrowing, equity financing, or
some mixture of all three.
The choice of the firm's working capital financing depends on manager's desire for profit versus their
degree of risk aversion.
The balance between the risk and return of financing options depends on the firm, its financial managers,
and its financing approaches


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11. Critically examine the globe – hex strategies for the Indian government.

12. Comment on this statement. “Often neither the least expensive strategy nor the most expensive may be the most productive strategy”.
3. Critically examine the globe – hex strategies for the Indian government.

THE  STRATEGIES  FOR   THE  INDIAN  GOVERNMENT--BEING  
*proactive and planned participation
*export led growth strategy
*infrastructure   depth
*agriculture  promotion
*safeguard  against  unreasonable  import
*import  of raw  material  
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4. Comment on this statement. “Often neither the least expensive strategy nor the most expensive may be the most productive strategy”.  

FOR THE MOST  PRODUCTIVE  STRATEGY
Developing Organizational Objectives and Formulating Strategies
Developing Objectives
Objectives are what organizations want to accomplish—the end results they want to achieve—in a given time frame. In addition to being accomplished within a certain time frame, objectives should be realistic (achievable) and be measurable, if possible. “To increase sales by 2 percent by the end of the year” is an example of an objective an organization might develop. You have probably set objectives for yourself that you want to achieve in a given time frame. For example, your objectives might be to maintain a certain grade point average and get work experience or an internship before you graduate.
Objectives help guide and motivate a company’s employees and give its managers reference points for evaluating the firm’s marketing actions. Although many organizations publish their mission statements, most for-profit companies do not publish their objectives. Accomplishments at each level of the organization have helped PepsiCo meet its corporate objectives over the course of the past few years. PepsiCo’s business units (divisions) have increased the number of their facilities to grow their brands and enter new markets. PepsiCo’s beverage and snack units have gained market share by developing healthier products and products that are more convenient to use.
A firm’s marketing objectives should be consistent with the company’s objectives at other levels, such as the corporate level and business level. An example of a marketing objective for PepsiCo might be “to increase by 4 percent the market share of Gatorade by the end of the year.” The way firms analyze their different divisions or businesses will be discussed later in the chapter.
Formulating Strategies
Strategies are the means to the ends, or what a firm’s going to do to meet its objectives. Successful strategies help organizations establish and maintain a competitive advantage that competitors cannot imitate easily. PepsiCo attempts to sustain its competitive advantage by constantly developing new products and innovations, including “mega brands,” which are eighteen individual brands that generate over $1 billion in sales each.
Firms often use multiple strategies to accomplish their objectives and capitalize on marketing opportunities. For example, in addition to pursuing a low cost strategy (selling products inexpensively), Walmart has simultaneously pursued a strategy of opening new stores rapidly around the world. Many companies develop marketing strategies as part of their general, overall business plans. Other companies prepare separate marketing plans.
A marketing plan is a strategic plan at the functional level that provides a firm’s marketing group with direction. It is a road map that improves the firm’s understanding of its competitive situation. The marketing plan also helps the firm allocate resources and divvy up the tasks that employees need to do for the company to meet its objectives. The different components of marketing plans will be discussed throughout the book and then discussed together at the end of the book. Next, let’s take a look at the different types of basic market strategies firms pursue before they develop their marketing plans.
Product and Market Entry Strategies

The different types of product and market entry strategies a firm can pursue in order to meet their objectives.
Market penetration strategies focus on increasing a firm’s sales of its existing products to its existing customers. Companies often offer consumers special promotions or low prices to increase their usage and encourage them to buy products. When Frito-Lay distributes money-saving coupons to customers or offers them discounts to buy multiple packages of snacks, the company is utilizing a penetration strategy. The Campbell Soup Company gets consumers to buy more soup by providing easy recipes using their soup as an ingredient for cooking quick meals.
Product development strategies involve creating new products for existing customers. A new product can be a totally new innovation, an improved product, or a product with enhanced value, such as one with a new feature. Cell phones that allow consumers to charge purchases with the phone or take pictures are examples of a product with enhanced value. A new product can also be one that comes in different variations, such as new flavors, colors, and sizes. Mountain Dew Voltage, introduced by PepsiCo Americas Beverages in 2009, is an example. Keep in mind, however, that what works for one company might not work for another. For example, just after Starbucks announced it was cutting back on the number of its lunch offerings, Dunkin’ Donuts announced it was adding items to its lunch menu.
Market development strategies focus on entering new markets with existing products. For example, during the recent economic downturn, manufacturers of high-end coffee makers began targeting customers who go to coffee shops. The manufacturers are hoping to develop the market for their products by making sure consumers know they can brew a great cup of coffee at home for a fraction of what they spend at Starbucks.
New markets can include any new groups of customers such as different age groups, new geographic areas, or international markets. Many companies, including PepsiCo and Hyundai, have entered—and been successful in—rapidly emerging markets such as Russia, China, and India. As Figure 2.12 "Product and Market Entry Strategies" shows, there are different ways, or strategies, by which firms can enter international markets. The strategies vary in the amount of risk, control, and investment that firms face. Firms can simply export, or sell their products to buyers abroad, which is the least risky and least expensive method but also offers the least amount of control. Many small firms export their products to foreign markets.
Firms can also license, or sell the right to use some aspect of their production processes, trademarks, or patents to individuals or firms in foreign markets. Licensing is a popular strategy, but firms must figure out how to protect their interests if the licensee decides to open its own business and void the license agreement. The French luggage and handbag maker Louis Vuitton faced this problem when it entered China. Competitors started illegally putting the Louis Vuitton logo on different products, which cut into Louis Vuitton’s profits.

The front of a KFC franchise in Asia may be much larger than KFC stores in the United States. Selling franchises is a popular way for firms to enter foreign markets.
Franchising is a longer-term form of licensing that is extremely popular with service firms, such as restaurants like McDonald’s and Subway, hotels like Holiday Inn Express, and cleaning companies like Stanley Steamer. Franchisees pay a fee for the franchise and must adhere to certain standards; however, they benefit from the advertising and brand recognition the franchising company provides.
Contract manufacturing allows companies to hire manufacturers to produce their products in another country. The manufacturers are provided specifications for the products, which are then manufactured and sold on behalf of the company that contracted the manufacturing. Contract manufacturing may provide tax incentives and may be more profitable than manufacturing the products in the home country. Examples of products in which contract manufacturing is often used include cell phones, computers, and printers.
Joint ventures combine the expertise and investments of two companies and help companies enter foreign markets. The firms in each country share the risks as well as the investments. Some countries such as China often require companies to form a joint venture with a domestic firm in order to enter the market. After entering the market in a partnership with a domestic firm and becoming established in the market, some firms may decide to separate from their partner and become their own business. Fuji Xerox Co., Ltd., is an example of a joint venture between the Japanese Fuji Photo Film Co. and the American document management company Xerox. Another example of a joint venture is Sony Ericsson. The venture combined the Japanese company Sony’s electronic expertise with the Swedish company Ericsson’s telecommunication expertise.
Direct investment (owning a company or facility overseas) is another way to enter a foreign market. For example, In Bev, the Dutch maker of Beck’s beer, was able to capture market share in the United States by purchasing St. Louis-based Anheuser-Busch. A direct investment strategy involves the most risk and investment but offers the most control. Other companies such as advertising agencies may want to invest and develop their own businesses directly in international markets rather than trying to do so via other companies.
Figure 2.14 Market Entry Methods

Diversification strategies involve entering new markets with new products or doing something outside a firm’s current businesses. Firms that have little experience with different markets or different products often diversify their product lines by acquiring other companies. Diversification can be profitable, but it can also be risky if a company does not have the expertise or resources it needs to successfully implement the strategy. Warner Music Group’s purchase of the concert promoter Bulldog Entertainment is an example of a diversification attempt that failed.
KEY TAKEAWAY
The strategic planning process includes a company’s mission (purpose), objectives (end results desired), and strategies (means). Sometimes the different SBUs of a firm have different mission statements. A firm’s objectives should be realistic (achievable) and measurable. The different product market strategies firms pursue include market penetration, product development, market development, and diversification.

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Writing Business Plans

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Leo Lingham

Expertise

Questions could cover business analysis, business planning, business development, strategic planning, corporate planning, corporate development, manpower planning etc

Experience

18 years working managerial experience in business planning,
strategic planning, organization planning , human resource planning etc.

plus

24 years in management consulting covering business planning,strategic planning, marketing planning, product planning,
sales planning etc

Organizations
BESTBUSICON Pty Ltd--PRINCIPAL

Education/Credentials
MASTERS IN SCIENCE

MASTERS IN BUSINESS ADMINISTRATION

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