Contents of the investment plan (business plan) of the investment project
In practice, many organizations (enterprises) are associated with investment activities. However, decisions about investing capital in real assets depend on many factors:
• type of investment and the cost of the investment project;
• The complexity of choosing an investment project for implementation;
• limited financial resources for investment;
• risks associated with the implementation of an investment project, etc.
To determine the content and timing of various activities within the framework of investment policy and provide them with financial resources, organizations (enterprises) develop investment plans (business plans). After the examination, they are approved by the management (owner) and serve as a guide for practical activities.
In the industrially developed countries, the investment plan (business plan) is a standard document in which the concept of a real investment project is thoroughly justified and its main parameters are given.
This document is a kind of software product containing information in a fixed form and specifically designed to transmit this information to users in time and space. It is designed to bring business information to all interested participants of the investment project: potential investors and creditors, experts, local governments, etc. The specificity of such a plan as a document is also related to the closure of all information contained in it, which is confirmed by the relevant entry of the relevant persons. First of all, the investment plan (business plan) is used to justify long-term investment decisions related to the mobilization of external sources of financing for the production of new products through the creation of new production capacities or the increase in the volume of its output on the basis of technical re-equipment or the reconstruction of existing production. In this plan, the rationale for investing in real assets-buildings, structures, machinery, equipment, etc., is provided. When developing it, they are guided by the principles of complexity and consistency.
Complexity means the completeness of the information contained in the plan (economic, technical, marketing, legal, financial, etc.).
Systematic assumes a presentation on a specific scheme (a system built in accordance with the internal logic of the object description and proofs of the effectiveness of its implementation by the potential investor).
The word business in the name of the plan reflects the fact that it takes into account the market environment of the organization (enterprise) that implements the investment project.
Current practice shows that for realizing the real investment organization (enterprise
event) must have a clear understanding of the following key parameters:
• scale of entrepreneurial (industrial, commercial, etc.) activities;
• raw, technical and personnel support of the investment project;
• the amount of capital investment required and the time frame for their return;
• financial resources involved in the implementation of the investment project;
• risks associated with this investment project, and ways to protect against them.
Along with the listed indicators , the information on the economic environment of the project is of vital importance for the development of a business plan (investment plan). This information usually includes:
• the forecasted estimate of the general inflation index and the forecast of absolute or relative (relative to the general inflation index) changes in prices for individual products (services) and resources for the entire period of project implementation;
• forecast of changes in the exchange rate of the currency or the index of domestic inflation of foreign currency for the entire period of the project;
• Information on the taxation system (taxable base, income tax rate, frequency of payment of taxes, distribution of tax payments between budgets of different levels, etc.).
In investment design, the need to assess the financial status of organizations (enterprises) arises when:
• In the project materials it is necessary to reflect the stable financial position of the project participant, his ability to fulfill the financial obligations assumed;
• evaluate the effectiveness of the project implemented in the operating organization (enterprise). In this case, analyze the organization (enterprises) as a whole to make sure that the implementation of the investment project will not worsen its financial condition.
Such an assessment is carried out according to the accounting records for the previous period using standard financial ratios - liquidity, solvency, turnover and profitability of assets, equity and sales (sales).
Based on the assessment of the financial and economic situation, other investors (lending banks, lessors, government bodies, etc.) decide to participate in the investment project or financial support of its initiator. In assessing the financial condition, his credit history is also taken into account.
If the investment project involves the creation of a new legal entity, preliminary information on its shareholders and the amount of the planned share capital is required.
The approaches to the development and presentation of the business plan are differentiated based on the nature of the investment project. For large investment projects that require significant amounts of capital investments, as well as for projects related to the production and introduction of fundamentally new products to the market, a detailed business plan is drawn up. For small investment projects, it is sufficient to develop a short version of this document (10-15 pages).
In business practice, there are certain requirements for the business plan, the observance of which makes it clear and convenient to use. Such requirements can be referred to:
• target orientation (the plan should reflect the ultimate goal of the investment project);
• multifunctional purpose (information can be used by various categories of stakeholders);
• brevity and consistency in the presentation of information material (text, calculations, drawings, graphs and tables);
• the reliability of the information provided (all provisions and conclusions should be based on the research of the initiator of the investment project and external information sources);
• a strict sequence of presentation of the material in the form of sections, each of which characterizes various aspects of the investment project.
The business plan for an investment project (investment plan) can have the following approximate structure:
• title page;
• introduction (summary);
• an overview of the state of the industry to which the organization (enterprise) belongs;
• production plan (production plan, services, etc.);
• market analysis and marketing plan;
• organizational plan;
• Risk assessment and investment insurance;
• Financial plan;
• Financing strategy;
• Estimation of economic efficiency of costs and expenses implemented during the implementation of the investment project;
The financial plan is one of the key sections of the business plan of the investment project. Its development should be approached especially carefully, since it is he who helps to answer the main questions that investors are interested in, including - when and in what forms the return of invested capital will be provided.
The financial plan reflects the results of a number of calculations (steps). So, the cash flow schedule (the schedule of receipt and spending of funds during the implementation of the investment project) includes three blocks of calculations related to the entrepreneurial, investment and financial activities of the organization (enterprise). Calculations for each block complete a certain balance of inflow and outflow of funds, namely:
• the balance of entrepreneurial (supply-and-sale) activities - the sum of net profit and depreciation charges by years;
• balance of investment activity - subtraction of the full amount of capital investments from the invested own funds (except for reinvested net profit and depreciation);
• balance of financial activity - the difference between the amount of borrowed funds (including the sale of shares issued for the implementation of the investment project) and the amount of money needed to repay the debt, pay interest to creditors and pay dividends to shareholders.
The condition for the success of an investment project is the positive value of the overall cash flow balance, which is calculated by summing the final balance of business, investment and financial activity.
Therefore, for the organization (enterprise) implementing the investment project, the economic effect of its implementation is determined by the sum of the annual values of the total balance for a specific period.
Comparability of non-recurring payments and receipts during the implementation of the investment policy is achieved by bringing them to the first (base) year, i.е. on the basis of discounting. Discounting of cash flows (payments and receipts) and determining their balances is necessary for a more justified assessment of the future effect of investment realization (in the form of net discounted income - NPV).
The strategy of financing the investment project completes the presentation of the financial section of the business plan of the investment project. Real investment projects within the framework of the investment policy of the organization (enterprise) should be coordinated among themselves in terms of the amount of financial resources allocated and the timing of implementation based on the criterion of achieving the maximum overall economic effect.
Own funds allocated for financing investment activities may consist of:
• free cash held in the accounts of the organization (enterprise) in banks by the beginning of the investment project;
• Net income in the form of net profit and depreciation reinvested during the implementation of the investment project;
• Cash from the sale of surplus and retired property and under-depreciated fixed assets of the organization (enterprise) in the conversion of its production;
• cash received from additional share issue, etc.
When choosing the option of attracting loans and borrowing as sources of financing investment projects (the amount of attracted cash, the interest rate on loans and borrowings, the beginning and the end of interest payments and repayment of principal debt on them), project developers are guided by obtaining the maximum economic effect from own funds , directed to the purpose of investment.
Evaluation of the effectiveness of costs carried out during the implementation of the investment project, produced by the indicators of commercial and budgetary efficiency. The most important characteristic of the entrepreneurial (commercial) efficiency of projects is the period (period) of the recoupment of capital expenditures (in years or months), and the budget efficiency is the ratio of the amount of revenues to the budget to the amount of appropriations from the budget.
The payback period of own funds allocated to finance an investment project is equal to the period from the beginning of the provision of funds until the moment when the amount of own funds equals the accumulated amount of depreciation and the balance of profit after payment of taxes, repayment of interest on loans and payment of dividends on shares.
The payback period of the investment project as a whole (costs from all sources of financing) is equal to the period from the beginning of the investment to the moment when the volume of investments equals the total volume of depreciation and net profit.
In case of attracting various sources of financing for objects constructed within the framework of the investment program of the organization (enterprise), the distribution of payments acceptable for all participants (partners) during the investment projects implementation period is provided. In the case of borrowing, they ensure minimum interest payments and minimum repayment periods.
The development of business plans is closely related to the chosen strategy of the portfolio management of real investment projects.
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