Business Analysis Framework

Conceptual framework for business analysis. I use it as my mental model and project scoping. This is not a working toolkit. 

BUSINESS ANALYSIS FRAMEWORK

Three-Model Integration: Strategy → Economics → Returns

STRATEGIC INPUTS

Market Study

TAM/SAM/SOM
Market growth
Addressable segments

Competitive Analysis

Competitive landscape
Positioning
Defensibility

Risk Mapping

Key risks
Scenario parameters
Mitigation plans

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1. BUSINESS MODEL

"Strategy and value creation logic"

"How do I create, deliver and capture value in this sector?"

TOOL: Business Model Canvas (9 Elements)

Key Partners

Suppliers, alliances, strategic relationships

Key Activities

Critical actions to execute

Key Resources

Required assets (physical, IP, human, financial)

Value Propositions

Products/services that create value for segments

Customer Relationships

Relationship types established

Channels

How value is delivered

Customer Segments

Target customer groups

Cost Structure

All costs incurred to operate the business model

Revenue Streams

Cash generated from each customer segment

→ OUTPUT: Revenue Streams definition, Cost Structure logic

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Translation: Strategy → Economics
(Canvas elements become P&L line items)

2. OPERATING MODEL

"How the business makes money" (Pre-financing view)

"How much cash does this business generate?"

TOOL: P&L Structure

REVENUE (bottom-up buildups)

• Project revenue (transactional)
• Recurring revenue (subscriptions)
• Other revenue streams

COGS (direct costs)

• Purchase of merchandise
• Subcontract work
• Direct labor

= GROSS PROFIT

OPEX (by function)

• Sales & Marketing
• Product Development
• General & Administrative
• Payroll (non-COGS)

= EBITDA (Reported)
+ Add-backs (one-time items, owner adjustments)
= ADJUSTED EBITDA

CAPITAL REQUIREMENTS

• CapEx Schedule (maintenance vs. growth)
• Working Capital (DSO/DIO/DPO)

→ OUTPUT: EBITDA, FREE CASH FLOW TO THE FIRM (pre-debt)

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Handoff: EBITDA / FCFF
(Operating performance feeds capital structure)

3. FINANCING MODEL

"How value is divided among stakeholders" (Post-financing view)

"What returns do stakeholders receive?"

TOOL: Sources & Uses, Debt Schedule, Returns Analysis

SOURCES & USES

• Debt (tranches, terms, covenants)
• Equity (common, preferred, options/warrants)

EBITDA (from Operating Model)
− Depreciation & Amortization
= EBIT
− Interest Expense (from debt schedule)
= EBT
− Taxes
= NET INCOME

DEBT SCHEDULE

• Beginning balance
• Interest (by tranche)
• Principal payments (mandatory + sweep)
• Ending balance

FINANCIAL STATEMENTS

• Cash Flow Statement (with financing activities)
• Balance Sheet (full, with debt and equity detail)

RETURNS ANALYSIS

• IRR (by security type)
• MOIC (multiple on invested capital)
• Waterfall (exit proceeds distribution)

→ OUTPUT: IRR, MOIC, Returns by Stakeholder

KEY PRINCIPLES

1. Separation of Concerns
Business Model is independent of financing. Operating Model is independent of capital structure. Financing Model depends on both.

2. Sequential Dependency
Business Model → Operating Model → Financing Model. Each layer builds on the previous.

3. Feedback Loop
If returns are unacceptable, work backwards: Is it a financing issue? Operating issue? Or fundamental business model issue?

4. Explicit Translation
Clear mapping from strategy to numbers. Canvas elements become P&L line items. No black boxes.

BUSINESS MODEL answers:

• How do we create value?
• How do we deliver value?
• How do we capture value?
• What's our competitive position?

OPERATING MODEL answers:

• How much cash does the business generate?
• What are the operational drivers?
• How do we grow the pie?
• What's the margin structure?

FINANCING MODEL answers:

• How is the deal financed?
• How is cash distributed?
• What returns do stakeholders get?
• What's the optimal capital structure?

DEPTH VARIATIONS BY STAGE

BUSINESS MODEL

Screening

High-level canvas, desktop research, conceptual understanding

Due Diligence

Validated canvas with customer/partner interviews, quantified assumptions

Investment Committee

Comprehensive canvas with evolution scenarios, strategic alternatives

OPERATING MODEL

Screening

Top-down: Revenue = Base × Growth Rate

Due Diligence

Bottom-up: Revenue = Σ(Segment × Volume × Price)

Investment Committee

Bottom-up + detailed sensitivities and scenario modeling

FINANCING MODEL

Screening

Single debt line, simple IRR calculation

Due Diligence

Multiple tranches, full debt schedule, returns by security

Investment Committee

Full waterfall, covenant tracking, scenario analysis

TRANSLATION MAPPING

Business Model Canvas	→	Operating Model	→	Financing Model
Customer Segments	→	Revenue segmentation	→	—
Revenue Streams	→	Revenue buildups, pricing	→	—
Cost Structure	→	COGS, OpEx breakdown	→	—
Key Resources	→	CapEx, Working Capital	→	—
—		EBITDA	→	Debt capacity, coverage
—		FCFF	→	Cash available for debt service, distributions