Business Plan Assessment for Asset Transfer

Asset Transfer Unit

Briefing Paper

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Business Plan Assessment for Asset Transfer

Business supporters, investors and others have to undertake assessments of Business Plans as part of their role. It is however very difficult to do as it is not possible for one person to be an expert in every sector of industry or familiar with every geographical area within which a business may be operating – which is why a business plan must do the best possible job of explaining as clearly as possible what the business is about, why it is considered a financially viable proposition and on what evidence the business proposition is being made.

This briefing paper sets out what a plan should contain (to make sure that there are no obvious gaps), the kind of supporting evidence that is normally included (to make sure it is based on sensible and through research rather than wishful thinking) and some suggested “reality checks” that can be applied (to make sure that optimism and enthusiasm are in balance with realism and financial prudence).

What does the plan cover?

Asset transfer projects can result in one of two kinds of business plan.

Asset Specific - A plan specifically associated with the building or land to be transferred. In this case the organisation seeking to accept a transfer of ownership essentially adopts a project based approach to the transfer and does not include within the plan its other activities. This approach is also often taken where a new organisation is proposed to be established to accept an asset transfer or a larger organisation with a number of projects creates a new one to add to its activities and asset base

Organisation focussed - A plan that is based on the organisation seeking to accept the transfer of ownership of land/ buildings. This approach is often taken where the asset to be transferred is currently occupied by the organisation or the organisation wants to be owner of or accommodated in the development of the land or building that is the subject of transfer.

Either way a Business Plan assessment is one that should be done as part of a process which involves:

• Meeting with the developers of the plan.
• Visiting the organisation that is promoting the development or acquisition of an asset and reviewing photographs and data about the organisation,the asset and the neighbourhood in which they are located .

What is the Purpose of the plan?

All plans should be used as management, planning and communication tool but in addition they may be used to set out a case for investment support. Some funders may require a specific business plan for the use of their investment only. If this is the case then the main elements of a business plan set out below may need to specifically address in the executive summary key financial achievements (profitability, turnover growth etc). They may also be used internally to justify investment of time and resources into pursuing a specific venture which may add value to the overall offer of the business. Again this may need to be addressed in the plan specifically, particularly in the executive summary and in the financial elements of the plan. The most important thing is that this is clearly explained in the plan.

Capital and Revenue planning for the business

In most cases the business plan for a transfer will have to consider the capital funding proposal to refurbish/develop the property concerned and the revenue funding proposal for its subsequent operation.

Assessment of these plans as they are formulated (in many cases it is to be hoped that both a transferring organisation and the recipient of a transfer will work on the business plan together) is an important task if the transfer of a liability is to be avoided and the transfer of an asset is achieved.

Assessment of a business plan however must be proportionate to the value of the asset to be transferred and should not be done in isolation from an assessment of the recipient organisation in the round – in particular the people involved, the skills, commitment and networks they have and the time and enthusiasm they have to devote to it.

In addition a balance has to be achieved between the level of detail necessary to convey that the full extent of the undertaking is understood and that no glaring errors have been made, against the need to have aplan which straightforwardly communicates the business and what is proposed.

To take these factors into consideration the following business plan assessment guide is divided into two sections: the capital funding plan, the revenue or operational plan. It should be noted that not all Business Plans will separate these two elements – some may include capital funds and associated activities under start up costs within the overall costs of their business plan for the organisation or project.

Although the assessment plan follows a generic template of a business plan – the level of detail required in each section will vary considerably. In most cases it will be necessary for a judgement to be made about the level of information and evidence which should be included. This judgement should be based on the type and amount of investment and risk involved in the business, the experience of the people promoting it, the levels of complexity that are involved and the extent to which the business model (how the business generates revenues) is reliant on new technology or products that have had limited testing. Based on this judgement a plan will have to be assessed based on whether it needs to demonstrateawareness of the issues or subjects involved, or whether it needs to include information and evidence that demonstratesdetailed knowledgeof or researchonthe products and services involved.

Business Plan: Key Elements Checklist

The following is based on an amalgam of templates that are readily available and form the basis of a checklist of what should be covered in a Business Plan. The title of each element tabulated below is not necessarily the title that will be used in every business plan.

Business Plan Assessment : Key Elements Checklist for Supporting Evidence

Business Plan Assessment: Reality Checking

The answers to the following questions will provide a good basis for making an assessment as to the rigour and realism of the plan:

1. Do the financial projections show large amounts of surplus/profit in year one? If the answer to this is yes then either costs may be too low or revenues are too optimistic. Work will probably be needed on checking pricing levels, the realism of volumes of sales (or lettings, contracts etc), the associated assumptions andthe completeness and reliability of costs.
2. What are estimates of cost based on? If the answer to this is lacking in specifics (I.e. professional advice, supplier quotations, and comparative historical information) then they probably need more research to ensure that all costs are included and are based on relevant benchmarking.
3. Is there a clear understanding of sector the business is operating in - particular its regulatory and policy framework and any potential changes that may happen within the life of the plan?
4. Is the pricing strategy convincing – is it based on good research about relevant competitors?
5. Does the Risk Assessment include at least five risks under each of the following categories: Governance-Management/Operations/External-Environment/Legal/Financial? If the answer to this is no then it is likely that not all risks have been identified and a SWOT and PESTLE analysis should be re-visited.
6. Do cost and revenue income increase and/or decrease in rational ways for the kind of business it is? For example, if revenue income doubles but costs do not increase at all, why is that the case and is it explained anywhere in the financial assumptions in the plan.
7. Are the financial assumptions that are important to the costs and income of the business clear? Are they reasonable? For example if the assumption is that fixed costs of rent for premises are to stay reasonably constant over the period of the plan does this align with the leasehold/licence rent review terms that the business is to occupy its premises under? Similarly if costs associated with finance are included are they based on reasonable assumptions about the terms of borrowing or are they more likely to change?
8. Are all start up costs (Capital and Revenue ) included - Building costs (new build or refurbishment), ground works and services, Design team fees/Building control / planning fees, Fit out – equipment and furniture, Consultant fees, Recruitment/procurement costs, Initial promotion, Set up salaries and consultants, Loan arrangement fees and interest).
9. Are reasonable assumptions made about any variations in levels of fixed and variable costs over the life of the plan?(e.g. Fixed costs like Service charges(reception, insurance, security, utilities, cleaning and refuse, repairs and maintenance, management charge), Inspection / quality assurance fees, Audit fees, Equipment (new and replacement), Promotion, Subscriptions) (e.g. Variable costs – Staffing, general consumables, materials costs, catering, phone, stationery, photocopying, postage).
10. Does the cash flow for the business show any particularly “tight” or deficit positions during the year (i.e. costs are only just covered by income) and how they are to be covered or managed?

Advancing Assets Programme 1