Move guide
Build the plan from the record
Your report suggested a move on at least one of these four questions:
- whether your plan follows from your record;
- whether you hit your forecasts, and can produce the numbers a buyer asks for;
- what the earnings growth initiatives are, and whether they are sized;
- whether those initiatives survive a buyer's scrutiny.
This move guide restates the base year without its one-offs. Then it bridges three years of history to the plan, driver by driver, and sizes every initiative the way a buyer's advisers would.
1. When it applies
Use this move guide if your report placed any of these questions at "Red flag" or "Doubtful".
| Question | Where it may sit today | Where this move guide aims |
|---|---|---|
| Does our plan follow from our record? | Red flag: "The plan's growth bears no relationship to what we have delivered, and we cannot say what changed." Doubtful: "The plan outruns our run-rate, and the explanation is the initiatives, not the drivers." |
Supported: "The plan is bridged driver by driver to the last three years, the base year is tested for one-offs, and every step above the run-rate has a cause a buyer can check." |
| Do we hit our forecasts, and can we produce the numbers a buyer asks for? | Red flag: "We routinely miss and re-forecast, and the numbers change depending on who runs the report." Doubtful: "Nobody compares the forecast with what happened; annual statements are all there is." |
Supported: "A documented record of hitting or beating, with segment and customer cuts on request." |
| What are the EBITDA growth initiatives, and are they sized? | Red flag: "There is no initiative list; “growth” is a number on the last slide." Doubtful: "A wish list of initiatives, none sized or owned." |
Supported: "Each initiative sized bottom-up, with confidence, timing, cost and an owner." |
| Do the initiatives survive a buyer's scrutiny: realistic, sequenced, not dependent on us? | Red flag: "The initiatives depend on the founders, the cycle, or price rises the market won't take." Doubtful: "The plan assumes everything improves at once, with no sequencing or requirements." |
Supported: "Initiatives sequenced with requirements stated, deliverable by a new owner's team." |
If all four already sit at "Supported" or higher, skip this move guide.
Two of these are warning questions on the seller check: the plan against the record, and the forecast record. A low answer on either moves the report's verdict toward "Slow down".
2. What to do
Five steps. They take six to eight weeks.
- Test the base year for one-offs: a bumper season, a catch-up, an accounting change or a single large order. Restate it without them.
- Build the bridge from three years of history to the plan, driver by driver. Name what changed for every step above the run-rate. Table A below records it.
- Keep a budget-against-actual record and explain every miss. Build the segment and customer cuts a buyer will ask for.
- Write the initiative list with size, confidence, timing, cost and an owner for each.
- Sequence the initiatives and state what each needs. Remove anything that depends on the sellers, the cycle, or price rises the market will not take.
The earnings calculator works out earnings before interest, tax, depreciation and amortisation from your accounts. Use it to set the base year.
3. What to produce
One table.
Table A. The bridge from the record to the plan
| Step in the bridge | Amount ($) | What has changed to cause it | Initiative behind it | Owner (name) | Confidence |
|---|---|---|---|---|---|
| Base year, restated | One-offs taken out: | ||||
| Volume | |||||
| Price | |||||
| Mix | |||||
| Cost | |||||
| Plan year |
A step with nothing in the third column is a hope.
4. A worked example
Illustrative. Written for this move guide. It describes no client.
A building-products distributor plans to grow earnings by a third in three years.
The base year.
- Last year included one large hospital project that will not repeat. Restated without it, earnings were lower than reported.
The bridge.
- Volume growth in the plan ran at twice the market. Two new branches explained half of it. The rest had no cause, and came out.
- A price step assumed rises the market had not taken. It was cut to the rises already made.
The initiatives.
- Seven initiatives went on the list, each with an owner and a cost. Two depended on the founder's contacts and were rewritten for the branch managers.
Seven weeks on.
- 1 one-off taken out of the base year
- 5 steps in the bridge, each with a cause
- 7 initiatives sized, each with an owner
On a retake, all four questions could be answered at "Supported".
What it looked like in our work
From our own work. Figures changed.
For a buyer of an industrial manufacturer, our due diligence rebuilt management's earnings bridge. The plan's volume step had no plan behind it to win customers or share.
- Earnings in the base year$30m
- Volume+$29m
- Price+$4m
- Costs−$28m
- Earnings in the plan year$35m
| Step | In the plan ($m) | Re-based ($m) | Why it changed |
|---|---|---|---|
| Volume | +29 | +8 | No plan to win customers or share, so volume was set to grow with the market |
| Price | +4 | +2 | Price held in line with the market, and competition squeezed margin |
| Costs | -28 | -11 | Unit costs rise as input prices return to normal |
| Earnings in the plan year | 35 | 29 |
The re-based plan ended below the base year's margin. A seller can build this bridge before a buyer's advisers do.
5. Effort and dependencies
- Chief financial officerRestates the base year and builds the bridge.
- Initiative ownersEach sizes one initiative, with its cost and timing.
- Chief executiveRemoves anything that depends on the sellers.
What you need
- The market model from proving the market and your growth.
- Three years of monthly accounts, and the budgets set for them.
How long
- Six to eight weeks.
What gets in the way. We have seen these in our own work:
- A plan with no mechanism. An industrial manufacturer planned volume growth well above its market. Nothing said how it would win the share.
- A strong year that was not momentum. A contact-centre business's best recent year came from two contract step-ups. It did not repeat.
- A base year built from the plan. A packaged-food maker's vendor case annualised its latest months. It also added the earnings of businesses it had just bought.
6. How will you know it worked?
The test is whether a buyer's adviser would start from your bridge or build their own. Retake the check once the bridge and the initiative list are written. Each of these should be true when you answer:
| Question | You can answer Supported when | A document alone does not count if |
|---|---|---|
| Whether the plan follows from the record | The plan is bridged driver by driver to the last three years, from a base year tested for one-offs. Every step above the run-rate has a cause. | The bridge runs from top line to top line only. |
| Whether you hit your forecasts | There is a documented record of hitting or beating budget, with segment and customer cuts on request. | Budgets exist, but nobody has compared them with what happened. |
| Whether the initiatives are sized | Each initiative is sized from the bottom up, with confidence, timing, cost and an owner. | The list has names but no sizes. |
| Whether the initiatives survive scrutiny | The initiatives are sequenced, with what each needs stated, and a new owner's team could deliver them. | An initiative still needs the founder. |
The worked example is illustrative.
Think we've used your work without proper credit? Tell us and we'll fix it.