business. planning

Business Plans – where’s the value?

There is an emerging trend that business plans are no longer necessary. Indeed, there is something to be said in favour of this view in a fast moving world with disruptive business models.  To my mind, critics of the business plan overlook its advantages.

A business plan forces an entrepreneur (it should be them and not someone they employ) to write down what the business is going to do, how it is going to work, the consumer demand that it will satisfy, the evidence of market demand, the competitors, the market size, how it will make money, what resources it is going to require and the relationships that will need to be built.  These are not easy things to write down and require a lot of thought.  The writing of a business plan forces the entrepreneur to think.

Of course parts of it are likely be wrong, but that is not the point.  Once a business plan has been written it can easily be shared with others.  Their thoughts and perspectives can be gained and the business plan amended where appropriate.  It can then be shared again and inconsistencies and improvements identified.

Once the business plan is starting to take shape it can be used to create a series of financial projections.  Doing this will provoke further questions and the need to obtain further answers, which in turn may lead to the business plan being modified again.

It is this iterative process which gives the business plan its principal value.  By thinking through how the business will operate, how customers and competitors may respond, strategies can be developed which avoid making costly mistakes.  What is important is not to turn this into a burdensome exercise which loses its value.

The […]

By |January 16th, 2015|Business|0 Comments

Withdrawal of Quantitative Easing – What will be the impacts on companies?

By way of background, the Bank of England holds £375 billion of gilts. The US Federal Reserve has been buying $85 billion of US bonds each month giving a holding at the end of 2013 of some $3.7 trillion.   The Fed is now reducing its monthly purchases by $10 billion to  $75 billion of US bonds a month from January 2014 in a process known as “tapering”.  This is still significant monetary easing in the USA but it marks a turning point.  Over time we can expect the monetary easing to stop completely and eventually reverse through reductions in the gilt and bond holdings and increases in interest rates.

There are a number of consequential effects that can be expected, some of which are likely to impact your business:

Interest rates on government debt will rise as these have been driven down by QE. This may have an impact on company borrowing costs and if so, will reduce company profitability. At the start of the Financial Crisis interest rates fell rapidly, with UK bank base rates moving from 5% in late 2008 to 0.5% in early 2009.  There is a good chance that once rates start to rise the increases will come quickly.
Pension liabilities will fall as they are calculated by reference to long-term interest rates. The interesting question will be what happens to assets held by pension schemes. To the extent the investment is in government bonds, prices are likely to fall leading to lower asset values. Investments in equities could rise as the economy recovers but this will be offset by higher interest costs. The other factor affecting equity prices is the multiple of earnings on which they trade – this is the big uncertainty. […]

By |December 19th, 2013|Business|0 Comments
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