Posts Tagged ‘Business’
Tips to Make Business Planning
Creating a business plan is very important before you action your business. By conducting business planning means you have to map your business for the future later.
Things to note in conducting business planning are:
- The target market should be clear, whether among students, men, women, teens, kids, we just have to determine our first target market with specific
- The product is a priority to us after we had two opportunities to determine its (target market) is where. Provide quality products with number one, although slightly more expensive, but it will be free promotion for you for the future
- Promotion. Determine the form of promotion will you apply for your business, the greatest Allocate funds for promotion, because no matter how great your product but you can not communicate with its customers so sales will be mediocre.
- Payment Method. If your business is small-scale businesses, this may not be so influential / be a problem, but if you’re a big business, you should already specify the payment method is right for your business, look for the most secure payment system, although it needs more funding .
- Support System. Same as point no.4 if your business is still on a small scale this point may be eliminated, because all you can handle alone. But still need to be noticed. Well, when you’re a big business and you can no longer handle it alone, then think of support system that can provide comfort to your customers.
Well, this business plan must also apparently applies to those of you who run a business on the internet. As you and I know that business on the Internets most promising is the business of selling information products via the Internet.
Creating a Business Plan
Seeing the opportunity is foresight that must be owned by the businessman. The more he trained, the more powerful he is. Therefore, excellent opportunities seldom come twice.
Develop a business plan, or commonly called the proposal, is a skill that must be owned by a businessman to cultivate opportunities into real business that generates. Through this business plan would look if the opportunity is viable or not to be realized into a profitable business.
The business plan is a means to look for business partners such as investors and sponsors. Compelling business plan usually get immediate response from investors or sponsors. But interesting is not enough. More importantly is well arranged.
A good business plan, should be able to explain the following four essential parts:
1. Description of business (description of the business)
2. Marketing (marketing plan)
3. Finance (financial management plan)
4. Management (management plan)
To be more convincing, it would be better if equipped with a business plan executive summary, supporting documents and financial projections. Good luck!
We understand that most entrepreneurs can not afford consultants to get through this process. If that’s your problem, here are some tips low cost or even free so you can keep up a business plan without professional help.
Consider four factors making up a business plan: opportunities, execution / implementation, solution and results.
Do not forget to read “Investors Want To Fund Your Business”. This article will tell you what He wants an investor in a business plan.
Get business planning software such as “Business Plan Pro” from Palo Alto Software. The format is more flexible than can be found at any site on the Internet and can be a good draft business plan.
Find an advisory who Bermudian guide you and guide you through the process of drafting a business plan.
Here are 4 questions guide which you can use when preparing a business plan:
Question # 1: What is the problem?
Basically if there is no problem in the market which is a requirement in large numbers that have not been met, then there is no point in trying to sell a solution. So you should be able to explain how the person or company experienced significant levels of pain because existing solutions are inadequate.
Question # 2: What is your solution and what makes it special?
This question is obvious. Tell them what you are doing and how your customers will reap the benefits of the solution you offer.
Question # 3: How big / severity of the problem?
An interesting problem from the perspective of investors is a big problem. This problem is more preferably in the form of problems that make people willing to pay lots of money to solve.
Question # 4: How much profit will be generated?
The question one would surely be obvious to most of the pioneering efforts (we will sell this product for Rp. 1000 / fruit) but not that obvious to others. Software, for example, can be sold based on the number of users or the number of places, with or without further cost, with or without maintenance costs, with or without installation or customization fees, and so on. Or you can give away for free product and reap profits from other products that accompany it.
In the meantime, certainly in this life must always sda risks you face. Similarly, investing in mutual funds. There are risks in investing in the Fund are:
1. Risk Reduced Number of Units you
This risk is a major risk in investing in the Fund. Decreasing the number of Units you are in a Mutual Fund is due to the fluctuation of the price of assets in mutual funds.
To effect the stock, price fluctuations occur in accordance with the mechanism that occurs in the stock market effect.
For debt securities, the price tends to rise when interest rates fall, and vice versa, the price will tend to fall as interest rates rise.
For money market instruments, interest rate fluctuations follow the existing.
In addition, economic and political conditions also can cause price fluctuations. All the political and legal policies relating to the business may affect the price of a stock. For example, high vehicle tax increase would lead to drop in car sales so that corporate profits fell. This will result in the car company’s stock price declined.
2. Credit Risk
Credit risk is the risk arising on debt securities and money market instruments as debt issuers are not able to fulfill its obligations to pay its debts, or called by default. This course will affect the asset mutual funds so your investment will be reduced.
3. Liquidity Risk
Liquidity risk is the risk that investment managers can not immediately pay off the resale transaction your mutual fund units. To reduce that risk, Bapepam (Capital Market Supervisory Agency) has set up that fund managers should pay back the entire sales transaction within 7 trading days of your transaction. Therefore, always remember to count down the time of the liquefaction process your order your money to be disbursed on time.
However, in exceptional circumstances (force majeure) or events beyond the control of investment managers, whether they can or can not be predicted, the resale transaction process can be stopped for a while.
Costs In Mutual Fund
1. Purchase costs
Is a fee charged every time you buy mutual funds. The cost of this purchase, you can choose to add some money for the cost of purchase, or you can request a fee is deducted from investment purchases that you entered. The amount of this fee depends on the individual mutual fund products.
2. Redemption fee
Is a fee charged every time you withdraw funds. This fee will be directly deducted when you withdraw your mutual fund, so you do not need to make any payment. The amount of this fee depends on the individual mutual fund products.
3. Return on Investment Service Fee Manager
This fee is given to investment managers as a reward for his services in managing the Fund. This fee is calculated daily based on the NAV of mutual funds. However, you do not have to bother to calculate these costs because the custodian bank has to calculate and charge at the NAV that has been reflected in the NAV per unit is published each day.
4. Custodian Fee Return
This fee is given to the custodian bank in return for his services in administering mutual funds. This fee is calculated daily based on the NAV of mutual funds. As the investment manager fee, this fee has been charged to NAB that has been reflected in the published NAV per unit per day.
Asset-based approaches
The value of asset-based analysis of a business is equal to the sum of its parts. That is the theory underlying the asset-based approaches to business valuation. The asset approach to business valuation is based on the principle of substitution: no rational investor will pay more for the business assets than the cost of procuring assets of similar economic utility. In contrast to the income-based approaches, which require the valuation professional to make subjective judgments about capitalization or discount rates, the adjusted net book value method is relatively objective. Pursuant to accounting convention, most assets are reported on the books of the subject company at their acquisition value, net of depreciation where applicable. These values must be adjusted to fair market value wherever possible. The value of a company’s intangible assets, such as goodwill, is generally impossible to determine apart from the company’s overall enterprise value. For this reason, the asset-based approach is not the most probative method of determining the value of going business concerns. In these cases, the asset-based approach yields a result that is probably lesser than the fair market value of the business. In considering an asset-based approach, the valuation professional must consider whether the shareholder whose interest is being valued would have any authority to access the value of the assets directly. Shareholders own shares in a corporation, but not its assets, which are owned by the corporation. A controlling shareholder may have the authority to direct the corporation to sell all or part of the assets it owns and to distribute the proceeds to the shareholder(s). The non-controlling shareholder, however, lacks this authority and cannot access the value of the assets. As a result, the value of a corporation’s assets is rarely the most relevant indicator of value to a shareholder who cannot avail himself of that value. Adjusted net book value may be the most relevant standard of value where liquidation is imminent or ongoing; where a company earnings or cash flow are nominal, negative or worth less than its assets; or where net book value is standard in the industry in which the company operates. None of these situations applies to the Company which is the subject of this valuation report. However, the adjusted net book value may be used as a “sanity check” when compared to other methods of valuation, such as the income and market approaches.
The other category of unsystematic risk is referred to as “specific company risk.” Historically, no published data has been available to quantify specific company risks. However as of late 2006, new ground-breaking research has been able to quantify, or isolate, this risk for publicly-traded stocks through the use of Total Beta calculations. P. Butler and K. Pinkerton have outlined a procedure, known as the Butler Pinkerton Model (BPM), using a modified Capital Asset Pricing Model (CAPM) to calculate the company specific risk premium. The model uses an equality between the standard CAPM which relies on the total beta on one side of the equation; and the firm’s beta, size premium and company specific risk premium on the other. The equality is then solved for the company specific risk premium as the only unknown. The BPM is a relatively new concept and is gaining acceptance in the business valuation community. (BPM is a trademarked name for a model sold by a private for profit company. The model is a simplistic mathematical formula, easily replicated without the purchase of the model from the vendor. Therefore, attributing the model to BPM along with claims that BPM is “new ground breaking research” and “gaining acceptance” appears to be advertising hyperbole.)
It is important to understand why this capitalization rate for small, privately-held companies is significantly higher than the return that an investor might expect to receive from other common types of investments, such as money market accounts, mutual funds, or even real estate. Those investments involve substantially lower levels of risk than an investment in a closely-held company. Depository accounts are insured by the federal government (up to certain limits); mutual funds are composed of publicly-traded stocks, for which risk can be substantially minimized through portfolio diversification
The Build-Up Method is a widely-recognized method of determining the after-tax net cash flow discount rate, which in turn yields the capitalization rate. The figures used in the Build-Up Method are derived from various sources. This method is called a “build-up” method because it is the sum of risks associated with various classes of assets. It is based on the principle that investors would require a greater return on classes of assets that are more risky. The first element of a Build-Up capitalization rate is the risk-free rate, which is the rate of return for long-term government bonds. Investors who buy large-cap equity stocks, which are inherently more risky than long-term government bonds, require a greater return, so the next element of the Build-Up method is the equity risk premium. In determining a company’s value, the long-horizon equity risk premium is used because the Company’s life is assumed to be infinite. The sum of the risk-free rate and the equity risk premium yields the long-term average market rate of return on large public company stocks.
Similarly, investors who invest in small cap stocks, which are riskier than blue-chip stocks, require a greater return, called the “size premium.” Size premium data is generally available from two sources: Morningstar’s (formerly Ibbotson & Associates’) Stocks, Bonds, Bills & Inflation and Duff & Phelps’ Risk Premium Report.
By adding the first three elements of a Build-Up discount rate, we can determine the rate of return that investors would require on their investments in small public company stocks. These three elements of the Build-Up discount rate are known collectively as the “systematic risks.”
Income, asset and market approaches
Three different approaches are commonly used in business valuation: the income approach, the asset-based approach, and the market approach[2]. Within each of these approaches, there are various techniques for determining the value of a business using the definition of value appropriate for the appraisal assignment. Generally, the income approaches determine value by calculating the net present value of the benefit stream generated by the business (discounted cash flow); the asset-based approaches determine value by adding the sum of the parts of the business (net asset value); and the market approaches determine value by comparing the subject company to other companies in the same industry, of the same size, and/or within the same region.
A number of business valuation models can be constructed that utilize various methods under the three business valuation approaches. Venture Capitalists and Private Equity professionals have long used the First chicago method which essentially combines the income approach with the market approach.
In determining which of these approaches to use, the valuation professional must exercise discretion. Each technique has advantages and drawbacks, which must be considered when applying those techniques to a particular subject company. Most treatises and court decisions encourage the valuator to consider more than one technique, which must be reconciled with each other to arrive at a value conclusion. A measure of common sense and a good grasp of mathematics is helpful.
Discount or capitalization rates
A discount rate or capitalization rate is used to determine the present value of the expected returns of a business. The discount rate and capitalization rate are closely related to each other, but distinguishable. Generally speaking, the discount rate or capitalization rate may be defined as the yield necessary to attract investors to a particular investment, given the risks associated with that investment.
* In DCF valuations, the discount rate, often an estimate of the cost of capital for the business is used to calculate the net present value of a series of projected cash flows.
* On the other hand, a capitalization rate is applied in methods of business valuation that are based on business data for a single period of time. For example, in real estate valuations for properties that generate cash flows, a capitalization rate may be applied to the net operating income (NOI) (i.e., income before depreciation and interest expenses) of the property for the trailing twelve months.
There are several different methods of determining the appropriate discount rates. The discount rate is composed of two elements: (1) the risk-free rate, which is the return that an investor would expect from a secure, practically risk-free investment, such as a high quality government bond; plus (2) a risk premium that compensates an investor for the relative level of risk associated with a particular investment in excess of the risk-free rate. Most importantly, the selected discount or capitalization rate must be consistent with stream of benefits to which it is to be applied.