A Financial Analysis of Quest Diagnostics Inc

Market-cap industry leaders sometimes are too scrutinized for real bargains to become apparent. However, this observation is relative to the industry. For example, the Healthcare Facilities industry under the Healthcare sector would fit this definition. The market-cap leader, Fresenius Medical Care AG & Co. KGAA, of about $13.9 billion is far from a household name, and the following leaders, Quest Diagnostics, Laboratory Corp. of America Holdings, and DaVita are also not very susceptible to receive media coverage on a daily basis. Nevertheless, that does not mean that these are not important companies. Quest Diagnostics (DGX) for example has an excellent fundamental history and growth plan from its business strategy. For this reason, investors should heed the following information for a chance of seeing higher capital gains.

What the company does is the most important asset provided by the company or third-party corporations investors can look at. Respective to Quest Diagnostics, Reuters claims that this company “is a provider of diagnostic testing, information and services.” More specifically Quest performs a cornucopia of testing including, “of esoteric testing, including gene-based testing, and…testing for drugs of abuse,” among routine testing. Routine testing is probably the most important component of the business. Such testing, “measure various bodily health parameters, such as the functions of the kidney, heart, liver, thyroid and other organs.” As the baby-boom generation continues to grow and becomes worrisome of health problems, these individuals will be eager to find out any detrimental-body problems. More customers leads to more demand, and more demand will lead to higher sales and higher EPS numbers. Somewhat related, Quest also focuses on esoteric testing. What these tests deal with include metabolism, genetics, and blood clots. Not only are all of these areas related to aging individuals, but overweight individuals as well. Unhealthy diets and inactive lifestyles can severely hinder people from living proper lives. As a result, tests are needed for prescription purposes, and healthcare facilities like Quest benefit once again. And as the life expectancy continues to grow higher and individuals continue to make unhealthy choices, this New Jersey-based company will please shareholders.

However, looking at the other companies in this industry, an investor may notice that most of the rivals to Quest have similar business strategies. What differentiates Quest from these competitors, however, is its strong fundamentals. According to Capital IQ, Quest has seen a year-over-year quarterly revenue rate of -1.70%. Typically it is hard to endorse a company with a negative sales rate, especially when competitors DaVita and Laboratory have positive figures, but it is important to go back to the introduction when market-cap is mentioned. As a $9.41 billion dollar publicly-traded company with over 6.24 billion dollars in revenue over the past twelve months, neither DaVita ($5.00 billion) nor Laboratory ($3.71 billion) can compete with this number. As a result, high revenue growth percentages year over year will be much tougher for Quest to earn when compared to its competitors. However, what does stand out for Quest is its high operating margins over the past year. At 17.15%, according to Reuters, this number is above the industry average at 9.94%, DaVita’s average at 15.43%, and Fresenius’s figure at 15.86%. Nevertheless, the next question that may be brought up in regards to sales is a trailing twelve month operating margins which is below the five year average. In fact, trailing twelve month gross margins, EDITD, and net profit margins are all slightly below the five year average. In many cases, investors may look at this as a sign of a company reaching diseconomies of scale and on the verge of a sell-off share price wise. However, there is still proof against this claim.

One reason to still purchase shares of this company is what was previously mentioned. With an already high revenue figure, it will be difficult for Quest to continue to find higher sales numbers every single year. What Quest needs to do is focus on earnings and net profit. And according to Reuters, Quest is doing just this. Its five years sales projections above 30% are near the industry average and beats out Laboratory (20%) and DaVita (22%). Surprisingly, Quest’s sales five year projection at near 12% beats out Laboratory’s same figure at 10%. So there is still quite a bit of potential for Quest in the future. It is true to call Quest a growth stock is a bit absurd, but because of strong future potential and present share price statistics, investors should realize that this equity is instead tremendously undervalued.

Fresenius, Laboratory, and DaVita are all near or at its respective 52 weeks high. Quest however is over 15 points below from its respective number. Currently sitting near 50 point range, even with lagging earnings over the past year, Quest still has a forward P/E ratio of 15.16 below its trailing multiple. This number is not only below the average industry figure but below Fresenius’s multiple at 24.20, Laboratory at 16.48, and almost identical to DaVita. In addition, Quest’s enterprise value to revenue (1.80), enterprise value to EBITDA (8.246), and price to sales (1.49) are below Laboratory’s respective numbers of 2.81, 10.185, and 2.49 and DaVita’s enterprise value to revenue (1.82) and enterprise value to EBITDA (9.31). Quest also has a PEG ratio of 1.18 which continues to indicate that this corporation is still growing, especially compared to Laboratory and its 1.34 respective ratio.

The management team, led by CEO Surya Mohapatra has also done well compared to the rest of the industry. Quest’s ROI (12.97), ROA (9.96), and ROE (19.63) are all above industry averages, not to mention competitor’s Fresenius respective figures as well. What is most intriguing about Quest however, is the analyst estimates for the coming quarters. Revenue and EPS surprises over the past five quarters have turned from positive to negative, and that means that Wall Street analysts are becoming more reluctant to provide guidance which may overvalue the company. As this happens, there is a higher percentage that one of the next few quarters Quest will positively surprise investors with encouraging news and higher guidance for the future. However, some investors may ask if this statement can really be made with so much conviction. Nevertheless, returning to the business plan given previously, as consumers continue to get older, routine and other tests will be required–leading to more business for this corporation.

Therefore, trading below its 50 and 200 day SMA, there is strong reason to believe that Quest is undervalued. The company has a good dividend figure at 0.83 which has been increasing over the past five years leading to a payout ratio near 14–dramatically above the industry average. The company is doing well in the places it should be performing well at, and once the baby-boom generation is fully established, this company should be a strong beneficiary.

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A Financial Analysis of 3M Company

Not so often do companies hold such a vast array of businesses. Whoever thought companies could have a manufacturing, financial, and television segment but not succeed is wrong. The conglomerate industry is diversified. Holding these companies through uncertain times illustrate strong investing knowledge. The current state of the economy is a bit instable, so owning a company like GE is a good investment. However, there are other companies in this industry. These companies not only have a strong business model, but they have excellent growth potential and solid valuation. One of these companies is 3M (MMM).

Before examining the financial statements of 3M, it is vital to understand the variety of activities this company performs. According to Reuters, 3M is a “diversified technology company with a global presence in various businesses, including industrial and transportation, healthcare, display and graphics, consumer and office, safety, security and protection services, and electro and communications.” The industrial and transportation business includes products such as food and beverage, personal care, and automobiles. More specific industrial products include polyester, foil, and tape. Specific transportation products are insulation components like catalytic converters. The health care segment produces supplies for medical, surgical, and dental use. The display and office business employs workers to produce stationary products, supply products, and home-improvement products. Office products like Post-it Memo Pads are also produced in this section. 3M also controls a safety segment and an electro and communications section, where the latter creates products including telecommunication fiber-optic products.

The main idea to take from the different business of 3M is the hedging strategy. Instead of focusing on only one industry, 3M can have a section of its business prosper, while another section’s growth slows. It is true that 3M may not experience any incredible share price appreciation because of its strategy, but 3M will not experience any dramatic share price fallout either. As evidence, since 1999, 3M has only had one distinct negative share price calendar year (2005), and that year only yielded a loss of 6%. Each year during this timeline before and after 2005, 3M has been flat or shown share price appreciation. In 2006 the share price rose about 5%, and so far in 2007 the share price is up over 30%. Throughout this period, the US economy has been through exuberant growth to panicked recession. However, because of 3M’s strategy and investor’s trust in such a well-respected brand, 3M has managed to avoid so terrible economic periods.

While, 3M’s business model is great, there are many other corporations in this industry that have similar strategies. What differentiates 3M however is its fundamentals. Over the last fiscal year, according to Reuters, 3M saw revenue at $22.9 billion dollars. This is an outstanding number. What is more outstanding is relative sales growth. 3M’s recent sales figure was 7.86% higher than it was the previous fiscal year. Not only is this increase higher than its five year average, but it is also higher than the five year average of the conglomerate industry. Considering the size of sales volume, this is a great sign of growth. What is even more outstanding is earnings growth. 3M has been efficient with its costs and saw an increase in profits of over 32.76% last fiscal year. This number is higher than the company’s five year average at 23.13% and also higher than the industry’s average at 13.87%. Comparing this figure to industry competitors, United Technologies only saw a 13.72% increase during the same time period, Emerson Electric saw a 20.26% increase, and GE only had profits grow by 12.16%. Clearly 3M is growing and using good internal controls to reduce cost.

Another way of illustrating 3M’s strong growth is through its margins. Gross margins for 3M at 47.94% are quite high compared to the industry’s average at 39.01%. 3M’s gross margins are also higher than United Technologies’ 26.78% figure, Emerson’s 35.70% number, and GE’s 42.83% margin. In addition, 3M’s operating margins at 28.04% are also above the industry average at 15.24%, not to mention above the rest of the industry’s respective figures. The more important margin, net profit margin, is also in favor of 3M. The past fiscal year illustrated this figure at 18.61%. The number is quite high compared to the company’s five year average at 14.70%. In addition, 3M’s number beats the industry average of 11.81%, United Technologies’ figure at 8.10%, Emerson’s margin at 9.29%, and GE’s number at 12.88%. 3M is working very efficiently compared to its industry peers. It can use the extra cents it makes for every dollar to help the company and investors. Capital spending over the past five years for 3M is growing at 3.57%. This number is higher than the industry average of 0.98% and higher than most of the aforementioned companies. Higher capital spending now means even more efficiency in the future for 3M. Lower costs mean wider margins and a greater ability for 3M to buy back shares from investors or increase its dividend.

While 3M’s growth looks excellent, some investors may question the company’s valuation. According to Reuters, the conglomerate industry has an earnings multiple of 19.92. Fortunately, for investors wanting to buy shares of this company, the forward P/E ratio for 3M is 18.99. This number is very similar to GE, Emerson, and United Technologies. In addition, 3M’s forward price to sales ration of 2.82 is also similar to the mentioned companies. This indicator illustrates that not only is 3M growing quite strongly, but 3M is also undervalued compared to its growth across this industry. High growth and low valuation typically create a strong recipe for success. 3M’s PEG ratio of 1.67 is near or below most of the industry competitors which again illustrates low valuation given growth.

In terms of other 3M strengths, this company is solvent with a 1.28 current ratio. The company is owned by more than 67% institutional investors. This indicates that the smartest investors like this company and want to take the risk to own it. The company’s ROE of 39.97% is excellent. This number is above its five year average of 33.31% and also above the industry average of 20.97%. This number obliterates GE, United Technologies, and Emerson’s figures. And if higher margins continue to be present for 3M, future buybacks will lead to even increased returns. 3M’s ROA of 19.82% and ROI of 27.80% are also quite strong. 3M is also very efficient when it comes to turnover. Receiver turnover at 6.99 beats the industry average of 4.27 which means consumers pay their discounts or credit on average every 50 days. Asset turnover at 1.07 is also stronger than the industry average of 0.53, which means 3M’s asset moves usually mean larger sales. Overall, there are plenty of advantages to owning 3M and its fundamentals.

Therefore, now would be an excellent time to think about purchasing 3M shares. The dividend yield for this company at 2.04% is very reasonable. In addition, technical indicators illustrate appreciating 50 day SMA and EMA indicators coupled with an up trending Parabolic SAR. The recent cross over of SMA and EMA a few weeks back indicates that 3M is ready to rise and should enjoy higher share price appreciation until the lines converge. Therefore, given the fundamental, technical, and strategy analysis, there are plenty of reasons for investors to purchase shares of 3M as a part of a diversified portfolio.

Stock Analysis Checklist

For a beginner in stock market, it is very important for him to understand how stock market works. There are no set rules which can predict the direction in which the stock market or even one particular stock will go. Therefore, it is critical for an investor to be able to analyze a stock. Most of the times, beginners in stock market are intimidated by terms which are being used by the experts. They are usually not able to understand the difference between different approaches of doing analysis like fundamental analysis, technical analysis and quantitative analysis.

This is the reason why they keep looking out for ways to do stock analysis which are simple and easy to understand. They also don’t want to pay anything for such kind of analysis. To be honest, no real information is free and easy but you can still find ways to substitute the paid analysis reports by freebies if you are ready to look for information at multiple places and do some research.

When you start analyzing the stock, you first have to look at the financial position of the company. Usually, the company’s annual reports have all these information. In earlier days, these reports were not easy to get but now everything is available on the internet. You can log on to financial websites like Yahoo Finance, Google Finance, Motley Fool site or any other reliable website. You can get company profile, its products and services, financial statements etc free of cost.

Apart from the financial statements, there are other things which should be looked at. Some of these are technical indicators like 50 day moving average. This average usually gives the price trend of the stock. In case the current price is more than 50 day moving average you can consider buying that stock. Other factors you should consider are the cash flow per share, daily average volume, financial health grade and growth grade and price per sales ratio.

In addition to these ratios, you can also look for the recommendations from various experts and analysts. Usually, the analysts do research and then give buy, hold or sell recommendation for a particular stock. The institutional ownership of a stock also gives a fair idea about what bug fund houses think about that company. If they are buying it, there is a good chance that this is a good bet. The growth margin and future competition should also be looked at. As you can see there are many parameters involved here and the stock market checklist is pretty lengthy. The good thing is that most of this information is freely available on the internet.

The Cost of Active Fund Investing

There are many options for buying a group of securities in one product. The most popular ones are mutual funds, segregated funds and exchange traded funds. What they have in common is that these products are an easy way to buy a group of securities at once instead of buying each security individually. The fund can also proportion the securities so that you the individual investor does not have to. There are two main classifications for what type of fund you can purchase in terms of costs. It is important to know how these costs work so you can avoid paying too much for this convenience. These products differ in terms of how they are administered, access to the products and their costs.

Active Versus Passive Investing

Before getting into which of the products are suitable for you, there are some aspects that need to be considered so that you understand what the variations are among the products.

Active investing is when someone (a portfolio manager) picks the stocks that are in the fund and decides how much of each one to hold (the weighting). This portfolio manager would also monitor the portfolio and decide when a security should be sold off, added to or have its weighting decreased. Since there is ongoing research, meetings and analysis that must be done to build and monitor this portfolio, this fund manager would have research analysts and administrative personnel to help run the fund.

Passive investing has the same setup as active investing, but rather than someone deciding what securities to buy or how much of each one to buy, the portfolio manager would copy a benchmark. A benchmark is a collection of securities which the fund is compared against to see how well it is doing. Since everything in investing is about how much money you can make and how much risk it takes to make that money, every fund out there is trying to compare to all of the other funds of the same type to see who can make the most money. The basis for the comparisons is the benchmark, which can also become comparing between peers or funds managed the same way. Comparisons are general in done only for returns. The risk aspect of the equation is handled by looking at what type of securities the fund holds or how specialized the fund is.

How Do I Know By the Fund Name If it is Active or Passive?

The short answer is that you have to get to know how the fund manager operates the fund. Some clues to know more quickly if the fund is active or passive are given next. If they are intentionally trying to pick securities according to some beliefs that they have about the market, this is active management. If the fund description talks about “beating the benchmark” or “manager skill” then it is actively managed. Looking at the return history, if the returns vary versus the index by different amounts each year, then the fund is actively managed. Lastly, the fees may be expensive and have sales loads.

If the name of the fund says “Index” or “Index fund” there is a good chance that the fund is passively managed. If the name of the fund says “ETF” or “Exchange Traded Fund” this could be a passive fund, but you need to make sure of this because some ETFs are actually active funds, but they are managed in a certain way. Most of the passively managed ETFs are provided by BMO, iShares, Claymore, Vanguard and Horizons in Canada and Powershares, Vanguard and SPDR (or Standard and Poors) and others if the holdings are from the U.S. Most of the other companies would have actively managed funds only. If the fund description states that the fund is trying to “imitate” the performance of an index or benchmark, then this implies that it is copying the index and this is passively managed. From the return perspective, passively managed funds will be very close to the index that they claim to imitate, but slightly less due to fees each year. The amount that the returns are under the index will be close to identical each year unless there are currency conversions or variances in cost which may come from currency fluctuations or hedging that the fund may do. Passive funds typically do not have sales loads as they are geared toward people who invest for themselves.

There are some funds that try to mix active and passive management. These products can be assumed to be actively managed, although their results will be closer to the benchmark than most of the other funds, so this is something to consider if the variation from the index is a factor.

Types of Costs

Whatever product you buy, there will be a cost associated with buying it, keeping it and selling it. This will be true whether you have an advisor versus doing it yourself, and whichever institution you go to. Even buying your own individual stocks will have trading fees which you must account for. How much you are paying for each product as well as the advice will make a large difference in what return you will receive at the end of the day.

There are many types of costs to be aware of when you are deciding which products to invest in. This article will focus on the active funds that make up most of the selection for retail investors.

The Management Expense Ratio (MER)

This is the largest cost for most funds and represents the cost of managing the fund. “Managing the fund” means running the investment company, researching the investments, advertising, overhead and the cost for the advisor or sales person when it applies. Administrative costs like GST within the fund and accounting for trades and record keeping are also part of the expense. The MER covers all of these costs in an actively managed fund. The MER is given as a percentage, which is the percentage of the assets that the fund manages or invests over a year of time. If you have $100,000 invest in a fund, and the MER is 2% per year, you are paying $2000 per year to keep this fund. The cost is subtracted from the return and what you see in your investment statement is your return net of fees, or after fees. There are exceptions to this rule if you have a high net worth account or a special arrangement with the fund company, but for the typical investor, this would be true. The Management Expense Ratio is the management fee plus the administrative costs. The administrative costs are usually between 0.05% and 0.1% of the assets of the fund. If the information you obtain states a “Management Fee” instead of a “Management Expense Ratio” you would have to add on the administrative costs to get the true fee. Seek out the prospectus and look up fund operating costs to find exactly how much the number is. In some cases, an advisory fee is also added to the management fee and administrative fee which can be substantial. If your advisor does not disclose this, the prospectus is the next best place to find out what the costs are.

For American funds, the MER would be called the “Expense Ratio” or “ER” which is the same thing as the Canadian MER, but advisory fees are not included in the ER and would be included in Canada for the MER if the product is actively managed. If the product is passively managed in Canada or the U.S., the same names apply, but no advice would be part of the cost since these products are used by people who invest for themselves and would pay for advice separately if they retain it.

MER Will Depend on Class

There are products that have various classes of the same product, the same way there are different models of the same car or the same cell phone. For investment products, the classes indicate how you came across the product, or what restrictions you have on access to the product. For example, Class A is usually a retail class where anyone can buy the product with any amount of money. There is Class I, which can be obtained through an employer or another institution. An example might be buying this product through your company pension plan. There is a Class O which typically has no fees embedded in the return and is reserved for non-profit institutions of high net worth clients that buy direct from the company. There are also classes that are part of different portfolios that are set up by the issuer, like Class F which would be available depending on who your investment dealer is. There are also classes that vary depending on what type of advisor you have and what relationship they have with the fund company. The best thing to do here is ask what class you are being offered and get material form the issuer on how much it would cost. In some cases, you can get the same product in a different class and pay less for it. Some companies may have “Series” instead of classes or some variation thereof. The key thing to note is that different versions of the same fund would different fees, and the differences can be substantial.

Sales Loads

Whenever you see the word “load” on a fund it refers to a sales load. This fee is paid to a sales person for advising you and recommending the product to you for the company. There are “front end loads” which are paid as a percentage of the amount you initially invest. If a front end load is 4% and you invest $100,000, you will pay $4,000 up front just to buy this fund. These funds may have the code “FE” in the fund name on your statement. Note that sales loads are not related to MER fees – they are separate fees. There is also a “back end load” or “Rear end load” which is a percentage charged to you when you sell the fund. These are marked with the code “DSC” or “Deferred Sales Charge”. If a back end load is 5%, and you sell $120,000 worth of this fund, you would pay $6,000 in fees to exit the fund. These funds tend to have a DSC redemption schedule which means the sales load will decrease the longer you stay in the fund. Most companies stop charging the rear end sales load after 6 years of holding the product. Since each company varies, you should obtain the details of this schedule up front and understand how the numbers apply to your holdings. There are also “no load” funds which do not charge sales loads at any time. You may also come across “Low Load Funds” and “Level Load Funds”. Low load is similar to the fees discussed above, but they are discounted or lower than average. The level load idea means that the same percentage of sales load is charged over time.

Some companies charge an early redemption fee if you sell their fund within a short period of time. How short the period is will depend on the institution. In some cases, it is 30 days, but it can be 90 days, 6 months, 1 year or some other time period. This fee is designed to discourage quick redemptions or short term trading of the product.

The best thing to do to clarify which load you have is to ask up front and have it explained to you. If the information is not forthcoming, it may be time to find another place to invest your money or do the research on your own. Note that sales loads only apply to a fund that is sold through a sales person. You may be able to get the same fund without the sales person in some cases. Passive investing generally does not have sales loads – but the exception would be if an advisor recommends these funds and charges you some type of referral fee. This would be another question to ask if you are being advised to buy a passive fund and are not seeing any direct cost to buying the product.

Currency Hedging Costs

This type of fee will occur in funds that trade in non-Canadian currencies and hedge them so that the price you receive would be in Canadian dollars. The cost of transacting the hedge itself is the fee being described here, and it can range from 0.5% to 1% per year. If the fee is not disclosed, assuming 0.5% is the cheapest that it will likely be. If you are investing in emerging market currencies or non-developed market currencies, the hedges are much more expensive to put in place and go higher than 1% per year. This is a cost embedded in the return of the fund, but should be examined to flesh out exactly what you are paying to have this hedged. Both active and passive funds pay the same fee for this type of activity.

The alternative would be to keep the securities in their home currencies and whatever changes happen to the foreign exchange rates would be reflected in the price of the product. The fact that currency exchange rates can change is a risk of your investment, but it is not considered a fee like the other fees discussed in this article. This fee does not apply if the fund price is in your home currency. You may have a U.S. dollar account, buy a fund that trades in U.S. dollars and then redeem this fund for U.S. dollars. Until you convert the money on your own to Canadian dollars, there is no currency charge. You would only have a conversion charge to change the final dollar amount to Canadian dollars.

Referral Fees or Trailer Charges

These can sometimes be called Service Fees. This type of charge is paid to a third party who sells the product to you on their behalf. It can be thought of as a referral fee or trailer fee. This fee tends to be captured by the MER, but this should be investigated with the company you are dealing with as this may vary. This type of fee tends to arise with active management as passive management products usually do not have any referrals attached to them.

Performance Fee

This fee is based on whether a fund achieves a return over a required benchmark – a reward for good performance. This type of fee is common with hedge funds or exotic types of products, but it is sometimes embedded in funds sold to retail investors. Like with most of the fees, ask questions and do your research because this type of fee will be different for every institution and product. This fee is optional in that it usually will not apply if the return on the fund is negative or positive but not that high, but the question should still be asked to minimize surprises.

Fees of Holding One Fund Inside of Another one

If a fund that you are investing in has other funds within it as part of its holding list, then you will pay the MER fee for the fund you are buying as well as the fund that the fund holds. The best way to check if this is happening is to look at the holdings list. If a fund holds another fund, it will be a large holding so a fact sheet with a top 10 holdings summary should provide good information. The actual numbers for each of these items will differ depending on specifically what the fund is and how it is managed. Some of the other fees like Sales Loads and Referral Fees would not apply to a fund held inside of another fund. If the fee is necessary to operate the fund, like currency hedging, then this would be included. Whether a fund holds stocks or another fund can also impact withholding taxes if the fund is investing outside of Canada – particularly for U.S. products. This topic can get complex, so it will not be discussed here. Some funds will have other funds to get access to illiquid markets, or parts of the world that have hundreds of securities. Buying a fund in these cases would actually save on time and trading costs, so it can be justified depending on the market being invested in.

Intangible Costs

The key takeway is that you need to do a cradle to grave analysis of what you have and see the costs from beginning to end of your investment period to get an idea of what is really happening. Ideally, the costs should factor in time spent, effort spent on research, and costs of discipline and assurance which would be available when dealing with an advisor that may not be there when you are doing it yourself.

Where to Find These Costs?

The most comprehensive place that will contain the most detail regarding fund costs is the prospectus. This can be found be searching for the product name and the word “prospectus”. If you do not know the exact product name, you can search the internet by the company name only, find their web site and then search for the product name there. The fund companies will have these documents with the regulator as well as their own web sites and they will be typically in PDF format which can be read and downloaded from your computer. A simplified prospectus would also have the same data that you would be looking for regarding fees.

9 Key Sections of a Business Plan

You probably know that there is more to starting a business than you initially thought. There are so many pieces to put together, coordinate and do before starting a business. Many entrepreneurs are either overloaded with information or confused as to where to start from!

A business plan is a formal document that put these ideas together in a logical sequence. Just like a blue print is necessary for building a house, a business is the THE first step in starting a business. It is a realistic and a workable plan that outlines various aspects of business including industry performance, market statistics, and financial summary and so on.

Alan Lakein once said, “Failing to plan is planning to fail.”

Many entrepreneurs write business plans only when they seek financing or start-up capital for their business. I have always felt that a business plan is an essential document to any business whether or not it is seeking capital. Yes, investors and bankers need a business plan to understand your plan, but more important than that is you being sure as to what you need and where you want to go!

However, in order to write down your business ideas there are several aspects that you need to research upon. Most of this information would be available on the internet or with industry and trade associations. Once the plan is written, it will give you a complete picture of the business including its potential weaknesses, opportunities, strengths, threats, legal and financial considerations and so on. This will help in completely understanding your business and defining its framework before you go ahead and jump into it.

Here, we’ve summarized the key sections that you’ll find in a business plan.

The Nine Key Sections of a Business Plan

1. Executive summary

This is one of the most critical aspects of your business plan. I have seen many clients whose plans were rejected by investors just because the executive summary was not well written. An executive summary is a one (or two) page summary of your entire business idea, the industry, market, competition, management team, risks, financial projections and the implementation plan. Ideally, the executive summary should be written last after the entire business plan (including its financials are ready)!

2. Business/Company Overview

This is the first section of your main business plan. This should start with an introduction and a brief business overview. This should include details on the history of the business, type of entity, mission and vision statement, objectives, ownership structure and a brief summary of the financial proposal/funding request.

3. Products and Services

This section explains to the reader, the products and/or services you propose to sell. Here you need to give the detailed product(s) information, features, benefits, value proposition, competitive advantages, how and where your product/services will be produced/rendered.

4. Industry overview

The industry overview section of the business plan demonstrates the viability of your business idea by discussing the size and growth of the industry. We generally recommend our clients to use the ‘funnel approach’ when writing this section of the business plan. Under the funnel approach, the industry overview of the entire country is given first, followed by the region/state and then narrowed down to the performance of the industry in the cities/towns where you propose to have the business. Any industry permissions (such as pollution certificates, permits, licenses etc) should also be discussed here.

5. Marketing Strategy

The marketing section of the business plan is one of the most important sections of the business plan. Even if you have the best product in your entire industry, you need to plan on how it should reach the customers and where they are! Here you should describe the target market segment, competitors, and the key value proposition.

You also should discuss what will be your pricing and promotion packages and how these will appeal to the target customers. You might also have to factor in the latest trends such as social media, networking and the mix of each type of these tactics and how they will affect your sales.

6. Operations Plan

An effective management team is the key to driving any business from where it is now to where it wants to go. In this section, provide a profile of your management team, your manpower plan, your production plan, and an overview of day-to-day operations. It is very critical that this section is written well since people will bet on the jockey than bet on the horse.

7. Financial plan

Many entrepreneurs that I have worked with fear this part of the plan and somehow or the other try to avoid it. This is THE most important part of the business plan since investors or bankers will not invest if the business plan is not financially viable. This section should contain financial projections for at least three to five years and should include income statements, working capital statements, cash flow statements and balance sheets.

Many business plans that I have reviewed do not contain an analysis of these financial statements. Ideally a simple ratio analysis, industry benchmarking, charts and graphical representations go a long way in making this section appealing to the investors.

8. Project Appraisal and Risk Analysis

Nine out of ten plans do not have this section. From a readers’ perspective I can’t stress how important this section of the plan is. This section will discuss the key risks that the business is exposed to and how these risks are proposed to be mitigated. For example, if you are planning a restaurant and assumed that 100 customers will come in everyday, this plan will analyze the sensitivity of your assumption of 100 customers on various factors such as profitability, cash flows etc – What if only 80 customers come? Will I make sufficient profits to repay my loan?

9. Implementation

Again, this is one of the most commonly ignored sections in a business plan. Having read your complete plan, the reader would like to know the next steps in making this business idea a reality. In this section of the business plan, you should discuss the key milestones in the near future, how you are going to achieve them, who (among your management team) are responsible for each of these milestones and so on. This would give the business plan a complete finish from being just a concept to making it a reality!