Free Online Course in International BusinessMarket analysis and potentialThe potential market and ways to capture additional market share are critical to meeting all objectives of the company. This section identifies the size of the market, the market share expected, distribution methods, pricing, customer support, promotion and anything else that lends credibility to the projections.Funding rationaleHere the case for funding is made.Financial statementsThe financial statements are often considered to be fixed in nature but can be presented in many ways. Financial statements should tell a story clearly and highlight the company’s strengths. Doing such requires both art and skill, which take time to develop. Always consider the reader foremost since the document is an appeal for that reader to become financially involved with the company.Source materialsInclude all the research materials that support the financial plan. Presentation and Customization Presentation of a plan is of great importance. The presentation should capture the audience to solidify a commitment to proceed. Careful consideration should be given to the following for the delivery of the plan:Presentation skillsBe sure to know the targeted audience. It is critical to the success of the plan to know as much as possible about the potential lender, investor, partner or government agency. Presentations often must be altered to appeal to a specific audience.Clarity of informationThe information presented should be clear and concise, answering most questions that can be anticipated from a specific reader. The plan must create confidence in management and the company. It should never be assumed that a reader knows much about the company.Ability to field questionsManagement will often pull together a team to present the plan. It is very difficult for one member of the management team to field all questions. Thus the team needs to be diversified to cover all questions that may arise and also to leave the audience with a strong sense of confidence in management. An inability to field questions can easily be seen as a sign of weakness.Customization:• Banks are going to focus more on the financial data that is presented in the plan. Profitability, positive net worth, relevant ratios and length of time in business are some of the important items of interest to banks. The higher the risk the lower the interest the banker has in a business. Banks are in the business of taking on risk, but everything they actually do is centered on risk avoidance. A company must generate sufficient profits to pay back the loan with interest even if it appears to meet all of the banks requirements.• Venture capital firms are generally looking for opportunities for growth and profitability. Marketing studies indicating a sizeable market share that can generate a sizable return will influence them. They generally want an equity interest with the ability to “cash out” at a later date, often in the form of a stock offering. • Government and state agencies are traditionally overworked and have limited resources, so they are dependent upon lenders to screen and submit applications for them. Many lenders have the capability to approve applications on their own; this capability has been acquired after submitting several approved applications. Risk Assessment and Risk ManagementCommercial risk is the risk associated with the individual companies of the buyer and the seller. Information is often the key to managing this risk. A previous lesson explored the preparation of this type of information. Now it is important to be able to read and assess the information gathered.Commercial RiskCommercial risk can be evaluated with the assistance of the following:• Credit bureaus can provide credit checks, which are mostly effective in industrialized countries. In developing countries, most of the usual financial information is missing and is often more like a reference. • Foreign credit insurance providers will approve and assume the credit risk, eliminating the need for heavy investigation. • Banks can request a credit check from a prospective client’s bank. This information is generally limited to the length of time they have been a client of the bank, whether they have a credit facility, and whether they are in good standing. It does not provide information on how they pay their bills. • U.S. Department of Commerce – Commercial services can provide contacts with commercial officers located overseas for country analysis. The information provided is generally broad in nature, not specific enough for individual company evaluations. Balance Sheet AssessmentThe review and understanding of the following will help a company evaluate its standing as well as that of any other prospective company.Liquidity is the ability of a company to pay its bills as they come due. The higher the number, the greater the liquidity. Current Ratio = Current assets _________________ Current liabilitiesQuick Ratio = Current assets inventory _______________________Current liabilitiesAnother key ratio to determine how quickly a company collects on its outstanding receivables is to use the accounts receivable turnover to determine the average collection period. Accounts receivable turnover = Total sales ______________________Accounts receivable balanceAverage collection period = 365 days ___________________________Accounts receivable turnoverLeverage is the use of debt to finance the company’s assets. Banks often use a debt to equity ratio to determine if a company can support the requested debt. The higher the ratio, the greater the risk is; if the risk is too high, the company may have to seek a secondary lender such as a factor or a private finance company. Debt to equity ratio = Total debt ____________Total equityProfitability is important for bill paying and debt servicing. It is also a key factor in determining a return on investment. Comparing the return on assets ratio to other alternative investments provides an objective comparison and evaluates risk with greater precision. Return on assets = Net Income ___________ Sales X Sales ___________Total Assets(Profitability of sales) (Asset efficiency)Country riskCountry risk assessment is a key component in the decision making process when considering funding. Countries are evaluated based on key elements and stability. Companies consider both political and economic factors when making country risk forecasts, because economic hardship and political unrest are closely related.Political factors that come into play are the frequency of coups, labor unrest, the attitudes toward capitalism, nationalistic tendencies rather than democratic policies, protectionism, movements toward expropriation, the military role in government, political factions within the country, and social and ethnic conflicts. Economic factors that come into play are inflation rates, unemployment rates, the gross domestic product, fiscal deficits, the availability of natural resources, the balance of trade, the international reserve position and the proportion of the nation’s export earnings needed to service its external debt. Currency exchange is an economic factor of a country which can have a significant impact on those trading with that country. Not all governments allow their currencies to float freely. The private sector has found many ways to circumvent government in order to trade for desired products. Both political and economic factors will impact the fluctuation of a currency. It is important to monitor and often hedge against this volatility.
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