An analysis of the business plan is needed in order to evaluate the expected return on investment based on the data presented in the document.
By definition, a potential investor is most interested in a qualitative analysis, for whom it is vital to correctly assess the performance indicators of a project or enterprise in which he intends to invest his funds.
But the circle of people who may be interested in evaluating a business plan is not limited to a potential investor. No less interested in getting an idea of the objectivity of the calculations presented in this document may be an existing or potential partner.
And taking into account the fact that for complex and large-scale projects, the preparation of a business plan is often ordered from third-party specialized firms, the evaluation of a business plan is also necessary for the leaders of an enterprise or project.
It should also be mentioned that the knowledge of how the investor analyzes the quality of the business plan is necessary for the owner or manager of the enterprise in order to draw up this document, focusing on the investor’s requests.
Speaking about the interest of a potential investor, one must understand that this interest is primarily aimed at studying the proposed investment objects in order to choose from them that meet certain criteria.
The main of the possible criteria is the possibility of obtaining maximum profit from investments with minimal risks.
Once selected enterprises or projects that meet this criterion, each of them should be evaluated in terms of their effectiveness in achieving the goals stated in the business plan.
Thus, the analysis is a complex of three parts:
- Analysis of the investment environment, which includes the study of possible investment objects in order to select the most suitable one.
- Analysis of the selected object.
- Analysis of the business plan provided by the management of the selected facility.
Analysis of the investment environment
The assessment of the investment situation is of a three-stage nature, since it is carried out at three levels:
- at the macroeconomic level.
- At the industry or relevant market segment level.
- At the level of a particular enterprise or project.
In each case, information is collected, the quality of the information received is analyzed and processed. After that, conclusions are drawn about the feasibility of further research.
These studies are especially relevant for foreign investors, who as a result receive information about the state of the economy of the country or region where the proposed investment object is located. But they are no less important for internal investors or partners, especially when it comes to large-scale enterprises.
The area of study of macroeconomic analysis is, as a rule, the following characteristics of the national or regional economy:
- Dynamics, negative or positive, of economic development;
- State policy in the field of taxation and business lending;
- Stabilizing and destabilizing factors that determine the social and political situation;
- The state of legislation and law enforcement practice related to doing business;
- The state of the financial market and the stability of the national currency;
- Financial solvency of the state;
- The state of the banking sector;
- The state of the communication space, which includes the assessment of transport, communications and telecommunications.
This list is not exhaustive, because each country and region has its own individual features. But the general scheme of the partition is preserved in each case.
In some of its points, the sectoral assessment repeats the points of macroeconomic analysis, but not at the regional level, but at the level of an industry or market segment. The main positions she operates on are:
- An overview of the quantity and quality of specialized firms and corporations.
- Evaluation of the dynamics of their development.
- Assessment of their competitive qualities.
- Overview of the situation with the sale of products.
- The study of state policy on the regulation of this industry.
Local or microeconomic assessment
After investors have decided on the choice of the region and industry in which they intend to invest their funds, the next step is to select a specific enterprise or project for investment.
The enterprise is selected from among the specialized enterprises recognized as promising based on the results of macroeconomic and sectoral analyses.
At this stage, the business plan of the project is analyzed in terms of the ability of the enterprise to meet the goals of the project.
Important! Business plan writers should take into account the fact that information about the operation of the enterprise that potential investors cannot find in the business plan, they will seek to obtain from other sources. As a result, the effectiveness of the impact of the document, which the compilers of the business plan were counting on, could be damaged.
Local assessment is aimed at studying the following parameters of the enterprise:
- The activity of the firm for the previous three to four years.
- The production and organizational form in which it operates.
- State of the production base.
- Financial position.
- Assortment and volume of output.
- Organization of the enterprise management system.
- Organization of supply of raw materials and marketing of finished products.
- The quality and quantity of employed personnel is also assessed.
Detailing various types of business plan analysis
The degree of detail of the various types of analysis is determined by several factors.
- First of all, this is the volume of production and trade capacities that are to be attracted for the implementation of the project.
- Another very important factor is the volume of attracted investments.
The higher these indicators, the more detailed the document is required.
A serious role is played by the form of project implementation. If the main burden for its implementation falls on one organization, then a comprehensive analysis is carried out in relation to it. If a number of companies are involved, then most often the analysis is limited to their brief description.
Analysis of the investment business plan
An investment business plan is a plan focused on attracting investments. The analysis of this document is carried out according to the following positions:
- Checking the quality of the presentation of the initial information.
- Evaluation of the organizational scheme of the project implementation.
- Evaluation of the financing scheme.
- Evaluation of legal support.
- Marketing analysis.
- A generalized assessment of the possibility of achieving the goals presented in the document.
To improve the quality of analysis and its effectiveness, they often resort to compiling financial, production and organizational models. Based on these models, various situations that may arise during the implementation of the plan are played out.
This is achieved by introducing various input data into the models.
So, for example, when testing a financial model, various options for attracting investment funds are played out, such as lending, corporatization, etc. At the same time, the financial and credit practice that is relevant for this region is also modeled.
It should be said that the construction of such models and their running-in is a rather complicated matter and requires the involvement of specialized firms.
Let’s consider some aspects of the analysis of the investment business plan in more detail.
Checking the quality of the presentation of the initial information
Particular attention in this type of verification is drawn to the following points:
- The amount of investment that project managers expect to receive, and the alignment of their expectations with their capabilities.
- Items of expenses related to the achievement of the goals stated in the document. The list of these articles is quite extensive:
- Construction and arrangement of production, warehouse and retail space;
- Expenses for ensuring the production process;
- Allocation of funds for the renewal of the equipment fleet;
- Costs for the purchase of raw materials and for the sale of products;
- Salary of employees and involved specialists, and much more.
- Maintenance of loans taken and investments received.
- depreciation expenses.
- Existing and projected prices for finished products.
Achieving the goals declared in the project directly depends on the efficiency and quality of the marketing organization. Therefore, marketing analysis, which determines the sales potential of products, is an important part of the system evaluation of the project.
It includes the evaluation of the following parameters:
- Conjuncture of the relevant market segment.
- State involvement.
- Proposed scheme for promoting finished products on the market.
- Estimated pricing scheme.
- Forecasting the market reaction to the expansion of the range of goods.
Evaluation of the organizational scheme of the project implementation
There are several forms of participation of investors in achieving the goals of the project:
- The investor can directly enter the top management;
- He can also own a block of shares;
- Participation it can be carried out by lending.
Evaluation of the financing scheme
In terms of attractiveness for investment, the evaluation of the financing scheme is the main section of the project analysis.
It, as already mentioned, is produced in two stages:
- Creation of a model for the movement of financial flows.
- Checking the effectiveness of this model for various inputs.
Based on the results of this analysis, as a rule, a final conclusion is made about the effectiveness of the project itself, as well as the effectiveness of investments in its implementation.
In addition, this approach allows solving the following applied problems:
- Identification of financing risks and improving the effectiveness of protection against them.
- Creation of a methodology for collecting and processing information adapted to the specifics of the project.
When compiling a financial model, its developers face the problem of building a hierarchy of priority factors, depending on the degree of their impact on the movement of finances. The right choice is an important condition for the effectiveness of financial evaluation.
- Methodology of accounting calculations used.
- Methodology for calculating taxation.
- Depreciation options.
- Calculation of interest on loans and dividends for shareholders.
- Calculation of repayment terms of various debts and much more.
The model development process can be divided into several stages:
- Development of the concept, that is, the definition of the goals that the created model should serve.
- Define the range of input data.
- Model development.
- Run the created model with different input data.
- Correction of the model based on the results obtained.
If the model was compiled correctly, then its use allows not only to make a fairly reliable forecast of the movement of investment investments, but also to optimize project financing schemes.
It would not be superfluous to mention once again that the creation of a workable model should be carried out by specialists of the appropriate profile.
Because otherwise it will be difficult to take into account all the features of such modeling.
So, for example, the use of accounting methods for modeling is fundamentally different from modeling based on highly specialized methods focused on calculating investment financing.
And this is not the only problem. Almost every aspect of such a model requires the use of specific techniques, which are fully owned only by specialists with the appropriate education and serious experience.
Another difficulty is the pairing of these techniques for their correct operation within the same model.
And finally, it is worth mentioning the presentation of the data obtained in a form understandable to investors and partners.
Naturally, the work of such specialists is quite expensive. But if successful, these costs pay off with interest