Evaluating A: Business Plan

Evaluating a
Business Plan
Corporate Finance Institute®

A Quick Overview of the Course
How to Use a Business Qualitative & Introduction to Case Study

Plan to Analyze a Quantitative Concepts
Business
A business plan has These concepts will Analyze a business
A company’s capital both types of data for be covered in detail in plan case study
structure the credit decision later courses throughout the exam
process

What Is a Business Plan?
A business plan is a written document prepared by management that outlines the main strategy and
performance of their business.
The business plan is supposed to tell you:
What… Who… Where… Why…
…is the problem …is managing the …is the company …should the
the business business geographically business get a
solves? operations? located and loan?
operating?
…is the company
positioned relative
to its competition?

What Is in a Business Plan?
A typical outline of a business plan includes:
1. Cover Page 5. Services or Product Lines

Contains the essential information of the business. Summarizes the main revenue channels of the company.
2. Executive Summary & Funding Request 6. Market Analysis

This section should contain all the essential Gives an overview of the supply and demand of the market.
information on the business, including the
sources and uses of funds. 7. Marketing and Sales
Describes and outlines the main customer acquisition channels.
3. Company Description
This section answers, what the company does 8. Financial Management and Projections Statements
and what it plans to do.
Accurately and fairly reflects the underlying business economics.
4. Management and Operations

9. Appendices
Describes the experience of management, and
Contains extra files and information.
outlines information regarding operations.

Why Should a Firm Develop a Business Plan?
Why should someone develop a business plan?
To have a solid roadmap that guides activities
To support growth
To avoid big mistakes
To make sure everyone understands the business
To assist in keeping an objective view
To assist when raising capital
Flexibility and adaptability are key

A Business Plan Should be Clear and Professional
The business plan will reflect the competency of management.
Does it tick these simple boxes?
Written for the correct audience?
Does it have a clear goal?
Has time been invested in conducting research?

Evaluating a Business Plan
So what does this mean?
A good business plan should have answers to

all the critical questions about a business.
(Example: what does it sell? How does it sell?)
We will breakdown each key section that you would

find in a typical business plan, and highlight the
key information you should look out for.
As you evaluate a business plan, you should take

note of questions that arise about the business, so
you can clear them out with management later.

Case Study
Throughout this course we will review each

section with a case study of a fictitious
company – Oil Transportation Ltd.
We will ask you to evaluate each section

individually as we review each section.
This will teach you how to apply what

you’re learning in a practical way.

Business Plan
Cover Page

What Is the Business Plan Cover Page
The cover page should only contain the essential information.

Examples of what you could find on the cover page includes:
Business Statutes Document Date & Version

(e.g. licensed corporation) (e.g. version 4, October 2021)
Purpose of Plan Proprietary & Copyright Restrictions

(e.g. to secure $10M in funding) (e.g. strictly confidential)
Personal Information
(e.g. 123 West Street)

Business Plan Cover Page
First Impressions Matter.
It is important that the cover page looks:
Clean
& Professional

Business Plan Cover Page
Case Study - Questions
The cover page should only contain the essential information about
the business such as the name of the business and the type of
business it is.
It should also be professional looking. Consider the structure and
choice of font used.
Let’s take a look at Oil Transportation Ltd.
Does it answer the following questions:
• What is the business address?

• What type of business is Oil Transportation Ltd.?
• What is its business status?
• Who is the President/CEO?

Executive Summary &
Funding Request

Executive Summary
This section describes the big picture of the business. It should

answer most of the questions you have about the business.
(Examples: purpose of the business, description of product and
operations, where the business is located, where its main market is).
The section should also clearly state the funding request, and
how the funds will be used.
The executive summary is the most

important section of the business plan.
The summary should be thorough enough that you don’t

have to read any other section of the business plan for the
investment decision.

Funding Request & Use of Funds
The funding request should answer how much the business is asking for, and how they plan to
allocate the funds. It should also clearly state the time horizon to repay the loan.
Total Financing Request

$1M
Purchase of Managing
Assets Working Capital
$500K $500K
• How will those assets be • Look at cash flow

used? projections
• Is it consistent with • How do they handle

business operations? inventory?

Loan Security
Consider how the bank loans could be secured, such as:
Collateral
Cash or Down Payment
Committed Contracts

Executive Summary and Funding Request
• How clear is the executive summary?

• Do you have a general understanding of the business?
• How much is the business asking for?
• What are the funds going to be used for?
• Does the funding request appear to support their
operations?

Company
Description

Company Description
Here you should find some critical business information.
Company description should have the following

information in this section:
Legal and Administration Information
Business Structure
Business Goals
Current Professional Advisors

What Is in the Company Description?
Does it contain the following:
Company name Business certifications
Legal business structure - What industry the business

date & place registered serves
Stated business goals What problems the business

solves
Professional advisors Who the target customers are

Most Common Business Structures
Sole
Partnership Corporation
Proprietorship
What experience does the owner, or owners, Who are the owners? How are they involved
have in running a business? in the business?
What are the long term goals of the owners? How long has the business been in operation?

Company Description
Business Goals
Business goals should be written using the SMART

framework, reflecting a clear strategy on achieving
them.
Specific
Measurable
Achievable
Realistic
Timely

Company Description Business Goal Description
Business Goals
“Our goal is to be the best transportation company in the world.”
S pecific? – “In the world” could mean many things to many people.
M easurable? – What is “best”? How is that defined? How can they measure that against their competitors?
A chievable? – This will depend on expansion plans, if there are any.
R ealistic?– Possibly, but again we don’t know what ‘best’ and ‘world’ actually mean.
T imely? – What is their timeframe?
How could they restate the goal?
“Our goal is to achieve the largest market share of our industry

within the United States in 5 years.”

Professional Advisors
Here are some of key roles the company should have:
Accountant/ Attorney Insurance Industry Other

Bookkeeper Agent/Broker Professionals Professionals
(e.g. project manager,
marketing, etc.)
If there is an absence of professional advisors, why? Does it cause any concern?
How complex are the business operations?
Are you able to recommend professionals to help the management team?

Company Description
• Does the business plan explain what problem it solves

or opportunity it exploits?
• Who are its target customers?
• Does the company have professional advisors and if so,
what capacity do they serve?
• What are its goals? Are they clearly stated?

Management and
Operations

Management Summary
What should you find in the management summary?
In this section you should find information on the company

structure, who will run it, and how it will be run.
Organizational chart Management profiles Employee and

workforce description

Organizational Chart
More hierarchical or flatter in nature?
Identify key players in the company, such as:

President, CEO, Director of Operations, Director of Finance, Director of
Marketing, office manager, etc.
Get a sense of the size of operations
“Are there too many key positions or too few?”

Management Profiles
Profile Overview
Here you should find short bios for the management team.
The full resume of key members should be in an Appendix.
Chief Executive Officer (CEO) Director of Operations Chief Financial Officer (CFO)
Short Description – Here Short Description – Here Short Description – Here

you should find a short bio of you should find a short bio of you should find a short bio of
the CEO, which highlights key the Director of Operations, the CFO, which highlights key
relevant experiences. which highlights key relevant relevant experiences.
experiences.

Workforce Description
Employee Overview
It is important to have a good overview of the company’s current

and future workforce.
How many full-time and part-time employees does

the company currently employ?
Is there enough labor to complete any projects

the company has?
Are they going to be adequately staffed, and how much

will management be involved in operational tasks?

Operations (Suppliers)
Analyze the complete value chain
1 2 3
1 4 5 6
7 8 9
10 11 12
2
VS 13
16
14
17
15
18
19 20 21
3 22 23 24
25 26 27

Operations (Customers)
Analyze the complete value chain and identify who the main customers of the
business are.
B2B B2C
VS

Operations (Where)
The location of operations is important to

understand what geographic and trade issues a
company may have.
• Where are the company’s headquarters?

• Where has the business been incorporated?
• Where do their sales come from?
• Where are their suppliers located?
• Do they have any other business locations locally,
domestically, or internationally?
• Are there any geo-political risks?
Note: registering security may be difficult or expensive in

certain jurisdictions; this can cause deals to fall through.
Management and Operations
• Who are the key members of the management team and

what experience do they have?
• Does the size of the workforce match the company’s future
plans?
• What geographic locations does Oil Transportation Ltd.
conduct business in?
• Who are Oil Transportation’s main suppliers?
• Who are Oil Transportation’s main customers?

Services or
Product Lines

Services or Product Lines
In this section you will find:
A description of the products or services that the business offers.
How the product/service benefits their customers.
How the products or services are delivered.

Products & Services Mix
A showcase for the product/service mix of the company should

be clearly displayed in this section.
Product/Service 1 Product/Service 2 Product/Service 3
% of Total Revenue % of Total Revenue % of Total Revenue
Sensitivity to market conditions Sensitivity to market conditions Sensitivity to market conditions
Current Product New Product To be discontinued

Risks Risks Risks

Assessment of Services & Product Lines
Points to consider when evaluating services or product lines:
Customer Testimonials are a great way to determine if a company

is valued. This can be an indication of sustainability.
You can use tools such as Hax’s Delta Model to

evaluate the products or services from a
sustainability perspective.

Assessment of Services & Product Lines
Some Questions to Consider:
Key People & Experts Existing Customer Licensing & Tools &
on Staff Relationships Certification Technology
• How knowledgeable are • What are the existing • Does the company, or • What tools/technology
they regarding the customer relationships? its team members, are required to deliver
products/services? Any testimonials? require any the products/services?
licensing/certifications?

Services & Product Lines - Questions
• What are the main services offered by Oil Transportation?

• What is the typical size and scope of services they offer to
their clients?
• Are there any customer testimonials and if so, are they
current and relevant?
• Are there any special skills or certifications required for
the delivery of its services?

Market
Analysis

Market Analysis
Typical analyses that you can find in the market analysis

section include:
The Size of the Market – (TAM, SAM SOM)
The Competitive Landscape
SWOT Analysis
PESTEL Analysis
Consider how much time has been invested in conducting research.
If there is information missing, you should ask management for further information.

TAM SAM SOM – The Market Opportunity
Total Attainable Market (TAM) – All the possible

markets that exists – it’s independent of any
potential business constraints. TAM
Serviceable Attainable Market (SAM) – These are SAM

the customers that the business offerings could
realistically reach.
SOM
Serviceable Obtainable Market (SOM) – These are the

customers that the business can serve in the
foreseeable future.

Competitive Landscape
Here you should find the main competitors of the business as well as what the main competitive
advantages of the business are. A table outlining the product or service characteristics are common,
but this is prepared by management and therefore it is important to consider what some of the
weaknesses are. This is where a SWOT analysis can be useful.
Business Competitor #1 Competitor #2
Characteristic #1 √
Characteristic #2
Characteristic #3

SWOT Analysis
SWOT analysis is a summary version of external and internal analysis.
S W O T
Strengths Weaknesses Opportunities Threats
Characteristics of a Characteristics of a Elements in a Elements in the

business which give it business which make company’s external external environment
advantages over its it disadvantageous environment that allow that could endanger
competitors. relative to it to formulate and the integrity and
competitors. implement strategies profitability of the
to increase profitability. business.

PESTEL Analysis
PESTEL analysis is a method of assessing the macro environment of a business. It includes

environmental and legal factors that directly impact the company.
Political factors Economic factors
Identify
Social Technological
opportunities
factors factors
and threats
Environmental Legal
factors factors

PESTEL Example – Grocery Store
What are the PESTEL factors for a grocery store?
Political Trends Economic Trends

• Trade policies that impact the import and export • Changes in household incomes
of produce and other products • Increasing transportation costs
• Price inflation
Social Trends Technological Trends

• Healthy lifestyle trend leads to increasing • Increasing online grocery shopping
demand for organic and natural products • More efficient organic and natural farming
• Population shift from rural to urban areas • Automated inventory management
Environmental Trends Legal Trends

• Environmental impact • Consumer safety policies
• Sustainability of food sources

Market Analysis
A company should consider the following areas when

developing their outlook:
Unemployment rates
Product/service considered a need or want?
Legislation that can be favourable/unfavourable
Company response to these various areas?
Has a plan been formulated?

Market Analysis
• What do you think about the industry size, growth

opportunities and market outlook?
• Does Oil Transportation seem to be positioned for growth
and longevity?
• Is there anything in the SWOT analysis that you should be
concerned about?
• Have the opportunities and threats in the SWOT analysis
addressed key areas identified in the PESTEL analysis?
• What does Oil Transportation’s competitive landscape look
like, and how are they positioned?

Marketing and
Sales

Marketing
What is the current marketing plan?

Ads Digital
How does the business acquire
customers?
Mobile Public Relations
What is its reach? Through ads, Marketing
word of mouth, email, or social? Strategies
Email Marketing Influencers
What are their expected
conversion rates?
Word of Mouth Social
How much will it cost? Do they have
the budget for it?

Sales & Business Development
What has sales performance been like so far?
What are the sales projections like?
Are the distribution channels well-defined?
Does the business need a larger sales team?
How much will it cost? Do they have the budget for it?

Marketing & Sales
Attracting Customers
Both marketing and sales are concerned with customer acquisition. It is important to
see how effective the strategy has been, as well as the costs associated with the initiative.
Marketing
& Sales
= Customer Acquisition

Marketing & Sales
Let’s take a look at Oil Transportation Ltd.’s

marketing and sales section.
• What are their main methods of customer acquisition?

• What does their marketing strategy consist of?
• What proportion of the budget does Oil Transportation
spend on customer acquisition?

Financial
Projections

Financial Projections
Evaluate the company’s cashflow generating ability.
Financial Statement Cash Flow Cash Flow Budget Sensitivity Analysis

Excerpts Projections
For an established Watch out for ‘hockey What is the timing of Has it been
company, 3 years of sticks’ as these are cash flows? performed? How does
comparatives can be unrealistic. their base and worst
used. scenario look?

Financial Stability & Sustainability
In this section, it is important to look at the

company’s cash flow generating ability.
Can the company take on additional debt? How likely

will they be able to meet their interest obligations?
Does the business have stable cash inflows?
It is also good to look at management’s

ability to handle cash.
If the business is small, you may want to ask

for personal financial statements as well.

Key Financial Ratios
Leverage Liquidity Coverage Profitability
A company’s capital The ability to repay a A company’s ability to The profit a company is
structure. company’s debt meet obligations. generating, relative to a
obligations. line item such as
revenue.
These metrics vary significantly among industries and there are no universal benchmarks.

Financial Projections
Let’s take a look at Oil Transportation Ltd.’s

financial projections section.
• What financial information have they included?

• How do the projections look?
• Do they show consistent positive cash flows?

Appendices

Appendices…
Use appendices to provide

supporting documents or other
materials that were specifically
requested.

Common Appendices
Resumes Credit histories or Contract Bonds /

personal financial documents insurance
statements for each
owner
Licenses / permits Letters of Marketing Recognition /

reference materials awards

Appendices

• What is included in the appendices?
• Is there any information missing?
• How current is the information?
• How useful is the information?

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Evaluating a

Corporate Finance Institute®

How to Use a Business Qualitative & Introduction to Case Study

Corporate Finance Institute®

The business plan is supposed to tell you:

What… Who… Where… Why…

Corporate Finance Institute®

A typical outline of a business plan includes:

1. Cover Page 5. Services or Product Lines

2. Executive Summary & Funding Request 6. Market Analysis

4. Management and Operations

Corporate Finance Institute®

Why should someone develop a business plan?

To have a solid roadmap that guides activities

To avoid big mistakes

To make sure everyone understands the business

To assist in keeping an objective view

To assist when raising capital

Flexibility and adaptability are key

Corporate Finance Institute®

The business plan will reflect the competency of management.

Does it tick these simple boxes?

Written for the correct audience?

Does it have a clear goal?

Has time been invested in conducting research?

Corporate Finance Institute®

So what does this mean?

A good business plan should have answers to

We will breakdown each key section that you would

As you evaluate a business plan, you should take

Corporate Finance Institute®

Throughout this course we will review each

We will ask you to evaluate each section

This will teach you how to apply what

Corporate Finance Institute®

Corporate Finance Institute®

The cover page should only contain the essential information.

Business Statutes Document Date & Version

Purpose of Plan Proprietary & Copyright Restrictions

Corporate Finance Institute®

First Impressions Matter.

It is important that the cover page looks:

Corporate Finance Institute®

Case Study - Questions

Let’s take a look at Oil Transportation Ltd.

Does it answer the following questions:

• What is the business address?

Corporate Finance Institute®

Corporate Finance Institute®

This section describes the big picture of the business. It should

The executive summary is the most

The summary should be thorough enough that you don’t

Corporate Finance Institute®

Total Financing Request

• How will those assets be • Look at cash flow

• Is it consistent with • How do they handle

Corporate Finance Institute®

Consider how the bank loans could be secured, such as:

Cash or Down Payment

Corporate Finance Institute®

Case Study - Questions

Let’s take a look at Oil Transportation Ltd.

• How clear is the executive summary?