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It really depends on what you mean by business plan.If you mean a long 50 page detailed fictional document… No, most do not look for this.As has been said before “Business plans are not important” But “Business planning is very important”All of the investors will (or should ) want to see how deeply understand your business. They want to understand your model of how the business works and how it intersects with customers , market and competitors.This is why things like the Business Model Generation Canvas and the Lean Canvas are so helpful. They bring to the the forefront some of the key issues. Starting with the book “Running Lean” By Ash Maurya is a good way to dive into some of the key issues like “Who is the customer” and “What is their problem” etc. In the end, you have to take these business assumptions and generate other things from them. Your business assumptions need to be tested. And they need to be connected to the cashflow projection that you have done. And they need to be connected to your Sale Funnel modeling.So in the end, while most investors don’t really want a big business plan, all of them want you to have done all the work that it takes to write that plan, and to deeply understand your business. And moreover, they want you to keep testing, refining and evolving that plan over time.If you do not have a model for how your business works in your head, and you don’t have a way to compare it to what you are actually doing, then your business is going to run into trouble sooner or later.So if you are showing your systems for tracking your business metrics, and you have a cashflow projections and your sales funnel metrics are all showing you data, they also are showing the fundamental business assumptions. The business plan is just the communication of all that in a readable form. Some people want to see how well you can communicate that in writing. Others are going to want to see you communicate it in person or in the slide deck…. But all of them want to you be able to clearly communicate the business model that you are executing and why you think it is the path to success.

Balaji Viswanathan (பாலாஜி விஸ்வநாதன்) has provided an excellent summary of the components of the accounting system, so I just want to add some more of accounting's less known but still important facts.The current system of accounting we practice today is over 500 years old. Today's accounting system was first codified by a Franciscan friar and mathematician Luca Pacioli in 1494 in a book titled , "The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality" . Luca codified what was then known as the Venetian accounting system and his book was one of the earliest books ever published on the Gutenberg press and was the only accounting textbook for over 100 years. Luca Pacioli was also a colleague of Leonardo da Vinci who helped Luca illustrate his second most important manuscript De Divina Proportione ("Of Divine Proportions"). Leonardo Da Vinci mentions Pacioli many times in his notes. For Luca's great contribution, most accountants today regard Luca Pacioli as the "Father of Accounting".Double-entry bookkeeping was instrumental in the success of the industrial revolution which led to our current global shareholder based corporations and stock exchanges. Without double-entry bookkeeping, managers would not be informed about the financial status of their ventures and investors would not have confidence to invest in a venture that could not accurately and transparently report on the financial performance and position of the venture. The double-entry bookkeeping system allows all stakeholders in a venture to get an accurate picture of the financial performance (Profit & loss report) and financial position (Balance sheet report) of the venture at any time. This knowledge of the venture's financial sustainability and strength allows stakeholders to make informed decisions about the efficient and effective allocation of scarce resources which is the foundation of sound business practice that ensures businesses remain viable and that the most successful ventures attract the appropriate amount and quality of resources. See Why is double-entry bookkeeping such a big deal?Accounting, with its double-entry bookkeeping system, reflects the reality of a closed financial system where economic value is not created or destroyed but is simply transferred from one form (account) to another. Luca Pacioli originally tagged this duality of financial transactions in a closed system by the Latin terms “Credre” “to entrust” and “Debere” “to owe”. These terms were later translated into English as "Credit" and "Debit" and represent the flow of economic value from "Credit" (the source) to "Debit" (the destination). All financial transactions adhere to this flow of economic resources. Interestingly the Latin word for "Debit" (i.e. Debere) explains how we get the today's abbreviation of "Dr" for "Debit".The "Balance Sheet" does not represent the market value of a business. For reasons of convention and conservatism, accountants value assets in the financial reports at the asset's purchase price (historical cost) and not at its current market price. While a Balance sheet proclaims to be the statement of financial position, it should be remembered that the assets stated in the report could be either under or over stated relative to current market valuations. Furthermore, accounting has no interest in valuing and including items of intangible value unless they have been actually paid for with 'cold hard cash'. Maybe your website gets 1 million hits per month, maybe you have a brand reputation with global recognition, maybe you have the top people in your industry working for you, maybe you have a trademark that is the envy of the world ... accounting will only value these assets at what it cost you to create them, not at what they are currently worth."Creative accounting" that saw the profit reporting of Enron evaporate into a massive loss making venture within months, is alive and well. Accounting is not an exact science. A subjective view of revenue and expenditure is often required when preparing financial statements. By simply changing expenses to assets overvaluing inventory using a different formula, optimistically valuing outstanding debtors, bringing forward earnings or postponing expenses one can create an overly unrealistic profit result. The best way by far to identify 'creative accounting' is to ask for a month by month analysis of the accounts and look for the monthly variances and anomalies. "creative accounting" generally happens in the closing month of the reporting period with unusual 're-classifications'.There is no global accounting standard. You would think that in an era of globalisation, there would be a global accounting and financial reporting standard. Not so. While there are moves towards the international standard IFRS by over 100 countries, the biggest economy in the world (USA) looks like continuing with its own GAAP standard. Closing the GAAPYour accountant is one of the few professional business advisers that actually makes you money. I apologize now to all those other worthwhile and worthy business professions, but I have found that only my accountant made me money when comparing the cost of the consultation with the cashflow returns I received from their advice. You spend most of your money with other professions in alleviating fears or meeting compliance obligations rather than making or saving the money that accountants do so well.Understanding accounting and the financial reports that it produces is a critical competency of every business owner or CEO. Maybe you are a marketing/Buz Dev genius or an operations wizard or a HR expert ... if you don't know how to read, analyse or interpret a Profit and Loss Statement, Balance Sheet, a Cashflow Statement or variance report then you are doomed. Areas like sustainable pricing, shareholder deal negotiations, breakeven analysis, enterprise valuation, expense variation/control, liquidity, profitability and efficient asset management will all be beyond you.

Alibaba generates consolidated operating margins north of 30% while Amazon struggles to break single-digits but because of differences in business model and accounting treatment, comparing these two figures is essentially meaningless.To properly answer this question, you really need to peel the onion on both companies to see how they are similar and where they are different. Done right it can offer interesting insights in the two companies themselves and also shed light on some key differences between the United States and China as it relates to e-commerce, society and general economic conditions.In past work, I had done some of the onion-peeling already and I thought it would be helpful to share some of what I found.Picture Source: OorjitFrom the bleacher seats, Amazon and Alibaba appear to overlap in many areas:In their core e-commerce businesses, they function as a marketplace using the Internet to connect suppliers of goods and services to buyersThey host digital media streaming services over the InternetThey provide outsourced cloud infrastructure services (computing power and storage) to business customersThey re-invest much of their economic profits back into growth and new business areasBut head down to field level and you will soon realize how differently they go about executing their respective business strategies. This has significant implications in how accounting revenue is recognized, how “profit margin” is calculated and how it all should be interpreted.Another difference — and one that has mostly shaped the way each attacks its respective markets — is the competitive sandbox within which each operates. The operating environment in China for Alibaba is very different from a stage of development and competitive dynamic perspective than Amazon’s core markets i.e. wealthy, developed countries. And the manner in which Alibaba and Amazon re-invest shareholder earnings back into new growth areas also differs quite a bit.All of these differences impact how you calculate, normalize and interpret the “profit margin”. For this analysis, I broadly define “profit margin” as operating income (see Note 1 for further explanation). Also for this answer, I am going to focus exclusively on the e-commerce operations which are the most mature divisions for both companies.Interestingly, one thing I discovered was that Amazon actually extracts more out of every transaction that goes across its e-commerce platform. But this is primarily because Amazon needs to do more work on the fulfillment side requiring higher opex and capex investment as well as inventory working capital.In aggregate terms, Alibaba’s e-commerce business actually generates significantly more cashflow for shareholders due to greater scale and higher market share in its core market. Moreover, its unique approach requires much less fixed overhead investment to grow as fast or faster than Amazon.Both companies have massive growth opportunities ahead — opportunities to deploy their rapidly growing cashflow into very large markets on an advantaged basis. And the way that each of them goes about re-investing in growth opportunities is quite different. In the coming years (and decades) it will be fascinating to watch them compete especially as they start to bump into each other more directly in markets like India and Southeast Asia.With that, let’s start peeling that onion.Step 1: High-level analysisHere are top-level financials for Alibaba and Amazon:Here you can see Alibaba is running at a 34% consolidated operating margin while Amazon is barely over 3%. At first glance the difference seems massive but it is like comparing your SAT score to your ACT score — in absolute terms quite a meaningless comparison.The first problem in this comparison is that both Alibaba and Amazon are a hodgepodge of different businesses. For example, Amazon has a large cloud infrastructure business (Amazon Web Services) whose financial profile looks very different from its e-commerce business. Alibaba also has a cloud infrastructure business but the market is still quite nascent in China compared to North America.So the next peel of the onion involves isolating the e-commerce business.Step 2: Segment-level analysisThe good news is that both Alibaba and Amazon provide segment financials in their public filings which separate out e-commerce from the rest of the business.You may have noticed the “Adjusted EBITA” in place of operating income under Alibaba. This is how Alibaba reports its segment-level data and I explain in Note 2 why it is an appropriate proxy for operating income.Lo and behold, the difference in operating margins is even higher when you focus solely on the e-commerce businesses with Alibaba running north of 60% while Amazon sits in the low-to-mid single digits — or even negative in the case of its operations outside North America.Once again this is also not an apples-to-apples comparison because of critical differences in revenue recognition.Step 3: Understanding how revenue is recognized differently between Alibaba and AmazonBoth Alibaba and Amazon connect buyers with goods and services that they sell on their platform.Generally Amazon acts as the retailer and handles everything from advertising, marketing, fulfillment (warehousing) to delivery, payment processing and customer service. In contrast, Alibaba takes a more hands-off approach, pushing much of the responsibility for fulfillment, delivery and customer service to other retailers and acting more like a marketplace.This difference results in accounting treatment that is completely different for the two companies. To illustrate, let’s look at how the sale of a $100 item might flow through their respective financial statements.As you can see in the illustrative example, the same $100 product sale results in only $7 of recognized revenue for Alibaba but over $100 for Amazon. But from an “economic value capture” perspective — represented by “Operating Margin before Fixed Costs” — Alibaba and Amazon both capture approximately 4% of the retail price.Step 4: Normalizing the numbers (as much as possible)With “Operating Margin before Fixed Costs” in the table above we are starting to get to a more apples-to-apples comparison of the true economic value being captured by the two e-commerce giants.If we go back to the Segment Financials and dig through company disclosure to match up the different buckets of opex, we can get to an estimate of what this figure looks like on an aggregated basis:The table above introduces the concept of Gross Merchandise Value (GMV) — this represents the aggregate value that transacts across any given e-commerce platform.GMV helps adjust for the difference in revenue recognition methodologies between Amazon and Alibaba. But there are some problems with GMV comparisons between Alibaba and Amazon so I have adjusted GMV to what I believe is a more accurate “Net” Merchandise Value figure. Please see Note 3 for more detailed discussion about GMV and why you need to adjust this figure.We are now at the point where we have done our best to normalize the numbers between Alibaba and Amazon. These numbers are based on various estimates and probably do not fully account for some differences between Amazon and Alibaba. But this is probably the best we’ll get to based on public information.We’ve finished peeling the onion and we are ready to start drawing some conclusions.Conclusion #1 — Amazon captures a higher percentage of each “true dollar” that transacts across its platform.From that last table, you will notice that Amazon (at 4.6%) is extracting a higher percentage of each transaction than Alibaba (3.8%). While these figures are based on quite a bit of estimating, they should be directionally correct. It makes sense that Amazon’s is higher because it needs to do a lot more work compared to Alibaba which operates as an asset-light, pure marketplace.Specifically, Amazon needs to invest in a network of warehouses, hire hundreds of thousands of workers, manage seasonality, hold and manage inventory etc. For this they should get a higher cut of each transaction to account for higher costs and risk.I should note that Alibaba also gets involved in fulfillment as well but with a much lighter touch. For example, its subsidiary Cainiao Networks is a software overlay that coordinates hundreds of third-party logistics providers on behalf of its customers. Unlike Amazon, Alibaba does not own and operate the warehouses and trucks involved in moving product from the source to the end user.Conclusion #2 — Alibaba’s e-commerce business is significantly larger than Amazon’sDespite the first conclusion above, in aggregate Alibaba’s operating profit ($14.1 billion) before accounting for fixed overhead costs like product development and G&A is already significantly higher than Amazon’s ($11.8 billion).Alibaba is much bigger than Amazon when it comes to e-commerce. This is a function of three main variables:Overall China retail spending is massive (1.4 billion consumers!)Online is a higher percentage of overall retail sales in China vs. the U.S.Alibaba has significantly higher online market share than Amazon.And the gap is widening as Alibaba continues to grow at a significantly higher rate than Amazon.Conclusion #3 — Alibaba’s competitive environment is more favorable than AmazonAlibaba is significantly larger than its competition. In the online retail world, it is about 5x larger than the next-largest online competitor (JD.com) measured in GMV terms. Traditional retail in China was historically relatively unsophisticated and did not really produce any scale players. Tencent is really the only player that can go head-to-head with Alibaba and they do not compete head-to-head in e-commerce.Source: BCG “Decoding the Chinese Internet” (September 2017)Meanwhile, Amazon has had to deal with much more battle-hardened competition.U.S. retail was already incredibly sophisticated before the Internet came along — it was in this environment that sophisticated firms like Walmart, Costco and Best Buy incubated. E-commerce and the Internet certainly changed the game, allowing a new entrant like Amazon to join the fray, but these competitors have the scale, capital and capability to evolve their business models. And they have had plenty of time to do so — after two decades of unfettered growth, Amazon’s retail business is still a fraction of the size of Walmart’s and is around the same revenue as Costco. Even a smaller retailer like Best Buy sells roughly the same amount within the consumer electronics category.The difference in competitive dynamic means that Alibaba should be able to command greater pricing power than Amazon. Amazon’s financials provide some evidence of this — in the past, it has “struggled” with GAAP profitability.Some of this is undoubtedly because Amazon is re-investing massively back into growth. Amazon management also likes to note that the company’s obsessive customer focus means that they often choose to sacrifice near-term profitability so they can delight the customer by passing along the savings.But I think this may also simply be because it has to compete with companies like Walmart that are also similarly obsessed with continuously optimizing its business model and lowering costs for its customers.Conclusion #4 — Alibaba and Amazon are both re-investing in growth but go about it differentlyNote in the last table the line item “Implied Overhead”. This figure represents product development or technology & content costs and allocated general & administrative overhead.Amazon’s (at $8.1 billion) is significantly higher than Alibaba’s ($1.7 billion).While some of this is likely a function of significantly lower staff and personnel costs in China vs. the U.S. it could also indicate that Amazon is re-investing significantly more technology resources back into growth. Indeed, from the very beginning the Amazon story has been all about re-investing all of its profits back into the business (or passing along lower prices to its customers) which has paid off handsomely in the emergence of businesses like Amazon Web Services — which incidentally appears to be a significantly more profitable business than e-commerce!The main way that Amazon invests back into growth is by hiring developers and smart business people to pursue new business initiatives from within the Amazon umbrella. They also occasionally make a large acquisition like the recent deal for Whole Foods but this is rare. Hence the much higher fixed overhead compared to Alibaba.Alibaba also takes a portion of its GAAP profits and re-deploys it into hiring new personnel to focus on new business areas. For example, it is pouring significant development resources into its fast-growing Alibaba Cloud business which is similar to AWS. It is also investing heavily into its digital media business to compete against Tencent and Baidu. Recently, Alibaba announced that it was going to expand its R&D budget by $15 billion over the next three years to focus on new areas such as artificial intelligence.But Alibaba also re-invests earnings across dozens of startup companies in the Internet, e-Commerce, O2O (online-to-offline) and payments eco-systems in China and developing economies (right now a major focus is Southeast Asia). Alibaba has been quite a successful investor in large part because it comes from such an advantaged position — its proprietary transactional data is second-to-none — allowing it to play the role of “Kingmaker” as I described in another recent answer. This chart from the last Investor Day gives you an idea how well it has done re-investing its profits into its eco-system for the benefit of its stockholders:Source: Alibaba 2017 Investor DayRelated reading:Are Alibaba's numbers fake?How is Alibaba doing so well, despite China being in a slump?Notes:[1] Operating income is essentially revenues minus operating expenses that are tied to generating the revenue. It is before taking into account interest income, interest expense, income taxes as well as non-operating income and expenses and some more esoteric accounting concepts like minority interest. I chose to define “profit margin” as operating income because:It is a good measure of income that belongs to investors (equity and debt)It is a standard metric generally available in the public filingsIt can help smooth over differences in tax regime, capital structure and cost of debt financing across different operating jurisdictions[2] EBITA stands for “earnings before interest, taxes and amortization”. The “adjusted” portion also excludes non-cash stock-based compensation (which can be volatile) and certain one-time expenses. I am using this figure because Alibaba reports Adjusted EBITA for its segment-level financials and also because it is quite similar to the “Adjusted Operating Income” reported at the segment level by Amazon. Source: Alibaba 20-F (2017)[3] Gross Merchandise Value (GMV) does not account for product returns where the customer is refunded his money. Also, return rates can vary significantly by industry — and as clothing and apparel is one of Alibaba’s largest categories, this can cause a significant differences between GMV and actual fulfilled transactions. The “brushing” phenomenon which is relatively unique to Alibaba/China also creates variances. I explored this GMV question in a prior answer: Are Alibaba's numbers fake?In any case, I have estimated (actually more like a guess) the variance between GMV and “true” Net Merchandise Value. The discount is going to be higher for Alibaba due to “brushing” and other factors discussed above and this is reflected in the chart. I think the estimate is directionally correct and fine for the purposes of this exercise.