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Business Strategy Fundamentals

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This document is a comprehensive plan and description of the fundamentals of business strategy. The sections covered in the document include: establishing a business structure, identifying and developing a SWOT analysis, evaluation the business goal, constructing a future projections of fair market value and cash flow, plans for exiting the business, and also expense and reimbursement policies. This document included a sample expense reimbursement form. The document is useful to any business owner or employee seeking to analyze, evaluate, or develop a business strategy.

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									This document is a comprehensive plan and description of the fundamentals of
business strategy. The sections covered in the document include: establishing a
business structure, identifying and developing a SWOT analysis, evaluation the
business goal, constructing a future projections of fair market value and cash flow, plans
for exiting the business, and also expense and reimbursement policies. This document
included a sample expense reimbursement form. The document is useful to any
business owner or employee seeking to analyze, evaluate, or develop a business
strategy.
                             Business Strategy Fundamentals

Table of Contents
Evaluating the Present Business Structure ..................................................................................... 1
   Developing the SWOT .................................................................................................................. 1
       Strengths and Weaknesses ..................................................................................................... 1
       The Business Benchmark ........................................................................................................ 1
       The Objectives......................................................................................................................... 2
       The Strategies ......................................................................................................................... 2
       The Goals................................................................................................................................. 2
       The Programs .......................................................................................................................... 2
Evaluation of the Business Goal ...................................................................................................... 3
   What is the Present Strategy of Business? .................................................................................. 3
   What are the Fundamental Strategies? ...................................................................................... 3
SWOT for Future Strategies ............................................................................................................ 4
Future Projections for Fair Market Value & Cash Flow .................................................................. 4
   Where do you want the business to be in 5, 10, 15, even 20 years from now? ......................... 4
Plans for Exiting the Business ......................................................................................................... 6
   Who will the business be sold to? ............................................................................................... 6
   Exit Strategies .............................................................................................................................. 6
Expense & Reimbursement Policies ............................................................................................... 7
Summary ....................................................................................................................................... 11
                        Business Strategy Fundamentals

Evaluating the Present Business Structure
The SWOT analysis is a major part of developing your strategy, so it has to be effective. When
developed properly, the SWOT (strengths, weaknesses, opportunities & threats) model will make
sure that everything happens as it should and that nothing is left out. It will also create the
capability for any follow up activities that may become necessary. If the strategy involves
significant growth, it is important to fast forward and take a look at the SWOT’s as they would
appear in the futuristic years. You do this to ensure that the strategies are motivated and
vigorous, and in anticipation of any issues that may emerge.

Developing the SWOT
Concisely list the most important strengths (S), weaknesses (W), opportunities (O) & threats (T)
that are happening presently. S & Ws are internal to the business and O & Ts are external. All
SWOTs are one-sided, for example, something is either an S or a W; it but cannot be both. Enter
up to six items under each heading.

Str e n gths an d Weak n esses
Strengths and weaknesses are relative to the internal functioning of the organization. They
include the issues surrounding resources, programs and organization in the major areas. They
would include:

  Costs        Finances      Management Operations        Products        R&D           Sales             Systems

Productivity   Resources        Systems    Efficiency      Services         Effort    Marketing          Organization

Purchasing     Performance     Expertise   Capacity         Quality       Direction   Distribution        Structure

                              Resources    Processes        Pricing       Resources   Promotion

                                                           Features                    Support

                                                            Range

                                                        Competitiveness


The B usin ess B en chm ar k
Benchmarking is a management tool that is used in just about every aspect of business. It is
usually part of a larger effort associated with re-engineering processes, or in response to quality
improvement practices. Benchmarking is what makes the business different from all of the
competitors. It can be something as simple as staying open 24 hours a day when competitors
close their doors at 9PM, or it can be something like your company holds the patent for a recipe
for a great tasting dessert.



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                     Business Strategy Fundamentals

The O b j e ctives
Precisely specify the business's intentions. Detail the kinds of results that are necessary and
needed in order to be successful both in the present and in the long run. Aside from seemingly
indicating a prerequisite to achieve regular profits which is articulated as a return on
shareholders' financing, objectives should relate to the expectations and requirements of all the
major stakeholders, including the employees, and need to reflect the underlying reasons for
running the business. These objectives should cover growth, profitability, technology, offerings
and markets.

The Str ategies
These are the rules and guidelines that determine how the company’s mission and objectives etc.
will be achieved. They can cover the business as a whole, and include issues like diversification,
organic growth, or acquisition plans; or they can relate to principal matters in key functional
areas, for example:
                How the company's internal cash flow will fund all future growth.
                Which new products will progressively replace existing ones over the next 3
        years.
                To lower the company’s break even point, all assembly work will be contracted
        out.

The G oal s
These are the detailed provisional or definitive time-based measurements that are to be achieved
by implementing the strategies that are pursuant to the company's objectives; for example, to
realize sales of $3m within five years time. The goals can relate to things like products, market
size and share, profitability, finances, utilization, and efficiency. The goals must be quantifiable,
consistent, realistic and achievable.

The P r ogr am s
The last part of the building blocks are the programs that start off as implementation plans for the
key strategies. These should include resources, objectives, time-scales, deadlines, budgets and
performance targets.
You will need to describe the values as well as the standards that govern the business’s
operation. In not more than 150 words, explain its relationship with society, with customers,
suppliers, and employees; and with the local community and other stakeholders. This segment is
particularly needed for NFP (not-for-profit) and educational organizations.




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                     Business Strategy Fundamentals



Evaluation of the Business Goal
What is the Present Strategy of Business?
When designing a new strategy, you must first identify the current strategies for the business as a
whole. The strategies are the understood ones and the implied ones. The primary functional
areas include:

                 Finance                 Marketing                 Sales
                 Management              Operations

You can accomplish this by creating a series of short strategic statements like these:
       Instead of performing research and development exercises, the business copies
        competing products and then sells them at a discount.
       The business has been financed completely using sustained profits and without recourse
        to debt or external equity.
       The implied sales strategy has been to present a very broad range of products at
        premium prices and to invest substantially in promotional activities.
       The senior management team is devised exclusively of family members.

What are the Fundam ental Strategies?
To identify the fundamental strategies, critically examine the following statements:
       How has the company actually been funded?
       What has the company tried to do to increase their sales and market share?
       How have productivity/costs shifted?

To completely cover all of the essentials, you’ll want to come up with as many as eight
statements. Examine each of the statements to determine if they contain actual seeds for
significant growth or if they simply represent troubleshooting tactics against possible failure.
For larger businesses, a separate analysis should be undertaken for each segment of the
company.

After developing a representation of the company's present configuration, start working on the
all-important SWOT (strengths, weaknesses, opportunities and threats) model. Use that




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                     Business Strategy Fundamentals

information to create an outline of just where you want the business to be in future years. Break
the information out into 5 year increments.

SWOT for Future Strategies
Use SWOTs to help identify possible strategies. If applied correctly they will help to build on
strengths and resolve weaknesses. In addition, they will exploit opportunities and help to avoid
threats.

                            Internal                                      External

                     B u i l d on st r en gt h s                E x p l oi t o pp o r t u ni t i e s

                    R e s o l ve w e a kn e s se s                    A vo i d t h r ea t s


Future Projections for Fair Market Value & Cash Flow
Where do you want the business to be in 5, 10, 15, even 20 years
from now?
What will the business look like? What will the fair market value be? What will the cash flow
stream look like? If an investor, a buyer, or a potential funding source looked at the business
portfolio that has been broken out into 5 year increments, what would they see? What would
they sense? This information should be put together in no more than 150 words, and should be
written in the future tense.
The information should highlight the company’s achievements; and include an outline of the
wide-ranging progress that is to be realized through each of the subsequent years. The
information needs to be relevant to shareholders; if there are no shareholders, to management,
and to the business itself.
                      F u tu r e C a s h F lo w & F a ir M a r k e t 70%
                                                                                  60%

                                                                                  50%

                                                                                  40%

                                                                                  30%              Cash Flow
                                                                                  20%              Fair Market Value

                                                                                  10%

                                                                                  0%



         5 Years       10 Years         15 Years     20 Years




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                      Business Strategy Fundamentals




                                         Projections: 2009 - 2013
            Year                 Ca sh F lo w          Fa ir M ar ket   Com p an y Va lu at ion
            2009                  $600,000             $200,000              $500,000
            2010                  $900,000             $400,000              $750,000
            2011                  $950,000             $750,000              $600,000
            2012                  $967,000             $850,000              $625,000
            2013                 $1,000,000            $900,000              $685,000
       Grand Totals             $4,417,000.00        $3,100,000.00        $3,160,000.00

                                         Projections: 2014 - 2018
            Year                 Ca sh F lo w          Fa ir M ar ket   Com p an y Va lu at ion
            2014                 $1,010,000            $925,000              $687,000
            2015                 $1,225,000            $933,000              $690,000
            2016                 $1,275,000            $945,000              $710,000
            2017                 $1,333,000            $950,000              $717,000
            2018                 $1,354,000            $965,000              $722,000
       Grand Totals             $6,197,000.00        $4,718,000.00        $3,526,000.00

                                         Projections: 2019 - 2023
            Year                 Ca sh F lo w          Fa ir M ar ket   Com p an y Va lu at ion
            2019                 $1,367,000            $967,000              $725,000
            2020                 $1,400,000            $972,000              $736,000
            2021                 $1,422,000            $980,000              $745,000



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                       Business Strategy Fundamentals

            2022                 $1,424,000        $988,000                $755,000
            2023                 $1,445,000        $990,000                $756,000
        Grand Totals            $7,058,000.00    $4,897,000.00          $3,717,000.00


Plans for Exiting the Business
Today’s global economy leaves no room for error and no time to spare when making a decision
about the best time to exit your business. The funding options that are accessible to potential
buyers have been curtailed considerably. The unstable nature of the banking industry has made
syndicated funding virtually impossible. Even the private equity firms are finding it difficult to
raise money. All of these factors will play a major role when you start tossing around your
options and making your decision about just how you want to close the business out. The first
major consideration will need to be …

Who will the business be sold to?
       Corporate take over
       Developers
       Family assumption (turned over to owner’s children)
       Investors
       Key Employees
       Outside Party

Exit Strategies
The world's oldest business is a Japanese temple construction company that has been run by the
same family since 578 A.D. Your business may or may not last that long, but one thing is sure:
You won't be around to see it. Whether you plan to sell, close or pass the business on to your
children, it's never too early to think about an exit strategy.
Many owners of companies that are closely held hope to pass their businesses on to their next
generation o family leaders. If that's what you're planning, you should have started grooming a
successor during the years your business was maturing. If you didn’t do it then, start today
because the process can take years!1
Having a well-prepared successor isn't the only thing you will need. You also have to plan for
how you will actually relinquish the reins. The best way is probably to give your retirement date
well in advance of the actual date; when that day arrives, walk away from the business and never


1
                                       Information                                            source:
http://www.entrepreneur.com/growyourbusiness/businesstimeline/article81282.html


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                     Business Strategy Fundamentals

return. You do want to make yourself available for consultation by the new leadership; however
if you visibly participate in decision making actions, it will confuse the workforce about who is
really in charge.
Well-run, profitable companies will find that there are many potential buyers for them to choose
from, some of which include:
         Existing employees
         Investors in the public stock market
         Other companies (both large and small)
         Other entrepreneurs
Business buyers are purchasing the rights to the cash flow that the business will generate. The
cash flow must be significant enough to justify the purchase price, which
is often based on a multitude of projected cash flows. You must be able
to document the rationale for why you expect future cash flows to reach
a certain level. This includes vigilant record keeping, operations manuals
that are well-written, and marketing and financial plans that are detailed.
One favorite exit strategy of some forward-thinking business owners is
to simply bleed the company dry on a daily basis by paying theirselves a
huge salary and huge bonus awards. They will even issue special shares
which gives them much higher dividends than the other shareholders;
and that only they can own. These practices are frowned on in public
companies. In private companies it is an accepted practice. These
companies are called "lifestyle companies."2
Simply closing the business is also an alternative. If you don't have a
viable successor and the business is unsuitable for sale, this may be your
only option. This process is simple enough: Lay your employees off, sell the company assets,
refer your customers to other suppliers; pay whatever bills remain, shut the doors and walk away.
This is the most straightforward exit strategy that requires the minimum amount of forward
planning and preparation. If done properly, this can be a satisfying conclusion to a rewarding
entrepreneurial career.

Expense & Reimbursement Policies
Expense and reimbursement policies are designed to reimburse employees and approved non-
employees for necessary and reasonable expenses that have been incurred during the course of
authorized business. Reimbursements must align with federal regulations. Reimbursements that

2
    Information source: http://www.entrepreneur.com/management/operations/article78512.html


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                     Business Strategy Fundamentals

are paid must be economical. When the price paid by the individual exceeds what would have
normally been paid under usual circumstances, the usual amount will be reimbursed.
Reimbursement expenses may include:
       Conference registration and course fees when related
        to company business.
       Dues & subscriptions for memberships to professional
        organizations and publications related to company
        business.
       Gifts – (tangible personal property) related to company
        business.
       Meal costs – when there is a clear business purpose for
        the meal.
       Miscellaneous purchases – in support of company
        business, like supplies, books and equipment costing
        less than $2,500 (purchases exceeding $2,500 should
        be ordered in accordance with company policy).
                                            Previously negotiated moving & house hunting
                                             expenses incurred by a new employee.
                                            Travel Expenses – relating to company business,
                                             including air fare, lodging, incidental expenses; and
                                             use of personal auto, car rental, taxi fares and
                                             phone charges.

                                     Expense and reimbursement policies should be clearly
                                     defined. They should also be incorporated into the
                                     company policies and procedures.

                                     A typical form to be used for this application is as follows:




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                         Business Strategy Fundamentals

                                   General Expense Reimbursement Form
Reimbursements from petty cash cannot exceed $50.00. Reimbursements exceeding $50.00 must
be submitted on this form no later than the 3rd week of each month. All requests are processed
the last week of every month. Funds are dispersed the last pay period of each month.

Date Requested:                                              Employee Name:
Employee ID #:                                                  Department:
Total amount of                                                        For the Pay Period
reimbursement:                                              Beginning:                 Ending:

                                I n s t r uc t i o n s f o r C om p l et i n g T h i s F o rm

1.   Enter all of the required information above.
2.   Enter the date that the expenditure occurred below.
3.   Describe the reason and/or purpose for the expense below.
4.   Attach any relevant receipts, credit card statements, etc. to this form.
5.   Sign and date where indicated.
6.   Submit the completed form (with attachments) to your immediate supervisor for review and
     approval.
           P l e a se n ot e t h a t e v ery f i e l d c o n st i t ut e s r e qu i r e d i nf o r m at i on a n d m u s t
                  b e c o m pl e t e l y f i l l e d i n . I f n e ce s s ar y , at t ach a d d i t i on a l s h ee t s .
                         I n c o m pl e t e s u b mi t t al s w i l l b e re t ur n e d u n pr o c e ss e d .
                               Cost         Date of                                                          Expense
     Type of Expense:                                               Description of Expense:
                               Code:       Expense:                                                          Amount:

 Entertainment                E-01
 Entertainment                E-01
 Entertainment                E-01
 Entertainment                E-01
 Entertainment                E-01
 Meals                        M-01
 Meals                        M-01
 Meals                        M-01
 Meals                        M-01
 Meals                        M-01
 Medical                      M-02
 Medical                      M-02
 Medical                      M-02
 Medical                      M-02
 Medical                      M-02
 Per-diem                     P-01
 Per-diem                     P-01



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                     Business Strategy Fundamentals

 Per-diem                 P-01
 Per-diem                 P-01
 Per-diem                 P-01
 Relocation               R-01
 Relocation               R-01
 Relocation               R-01
 Relocation               R-01
 Relocation               R-01
 Transportation           T-01
 Transportation           T-01
 Transportation           T-01
 Transportation           T-01
 Transportation           T-01
 Miscellaneous other:     M-03
 Miscellaneous other:     M-03
 Miscellaneous other:     M-03
 Miscellaneous other:     M-03
 Miscellaneous other:     M-03
                                                                      Total Expenses $
By signing my name below, I certify that all information contained in this Expense Reimbursement Form
is accurate. I understand that entering false information is grounds for immediate termination of my
employment, and may result in legal action against me.

Employee Signature      Date Submitted   Manager/Supervisor     Date Approved      Accounting Code




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                     Business Strategy Fundamentals

Summary
You will fare much better if you make an effort to understand the steps that are involved in
selling the business. You will want to formulate your plan carefully, and enlist in the help of
your professional advisors. When it is time to put your decision into action, you want to make
sure that you negotiate a price and terms that satisfy your reasons for getting out of the business.
Regardless of the circumstances, the decision to sell your business will be one of the most
important things that you will ever do. Just like many other decisions that you have made
through the years, you will only get one chance to put a price tag on what took you years and
years of effort to build up; and once you sign on the dotted line, it’s all over.
Give some thought to what your heirs or successors would have to do if you were no longer able
to work, or worse yet, if you died unexpectedly. Even though you may believe that you are
many years away from selling out, you should have a workable exit strategy in place. You don’t
want to be left with no choice but to liquidate the business and sell off the assets piece meal.
This will get you nothing for the time, effort, and goodwill that you have invested into building
the business up throughout the years. When it becomes time to sell your business, here are the
major issues that you will want to consider:
     Preliminary issues such as:
             The timing of your decision
             The industry experts that you will need to help you sort through everything
     The legal and ethical pitfalls that you will need to steer clear of
     What you can do to maximize your business’s value
             Determining a fair market price for a small business
     Securing a buyer
             Working with a business broker
             Developing a selling memorandum
     Other marketing concerns
     Exploring the term options
     Identifying tax implications if various alternatives are used
     Find out how much you need to know about:
             Seller financing
             Third-party financing through leveraged buyouts
     The typical steps associated with the sales processing:
             Letter of Intent
             Due diligence


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                     Business Strategy Fundamentals

             Closing




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                           Business Strategy Fundamentals


								
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