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Business Plan

• Provides a more specific and detailed exploration of the venture’s goals and operations with a clear path on how the venture will succeed.

• A written document that details the proposed venture: • Describes the current status, expected needs, and

projected results of the new business.

• Demonstrates a clear picture of what the venture is, where it is projected to go, and how the entrepreneur proposes it will get there.

Benefits of a Business Plan (slide 1 of 2)

• For the Entrepreneur: • Time, effort, research, and discipline to create a

formal plan forces the entrepreneur to view the venture critically and objectively.

• Competitive, economic, and financial analyses subject the venture to close scrutiny.

• For Outside Evaluators: • Develops and examines operating strategies and

expected results. • Provides a tool for use in communications with

outside financial sources.

Benefits of a Business Plan (slide 2 of 2)

• Specifically for the Financial Sources: • Details the market potential and plans for securing a

share of that market.

• Shows the venture’s ability to service debt or provide an adequate return on equity.

• Identifies critical risks and crucial events with a discussion of contingency plans.

• Contains the necessary information for a thorough business and financial evaluation.

• Assesses the entrepreneur’s managerial ability.

Developing a Well-Conceived Business Plan

• The Five-Minute Reading: 1. Determine the characteristics of the venture and its industry. 2. Determine the financial structure of the plan (amount of debt or

equity investment required). 3. Read the latest balance sheet (to determine liquidity, net worth,

and debt/equity). 4. Determine the quality of entrepreneurs in the venture

(sometimes the most important step). 5. Establish the unique feature in this venture (find out what is

different). 6. Read the entire plan lightly (this is when the entire package is

paged through for a casual look at graphs, charts, exhibits, and other plan components).

Putting the Package Together

• Key Format Issues: • Appearance • Length • The cover and title page • The executive summary • The table of contents

Guidelines to Remember

• Keep the plan respectably short. • Organize and package the plan appropriately. • Orient the plan toward the future. • Avoid exaggeration. • Highlight critical risks. • Give evidence of an effective entrepreneurial team. • Do not over-diversify. • Identify the target market. • Keep the plan written in the third person. • Capture the reader’s interest.

TABLE 12.1 Common Business Plan Phrases: Statement versus Reality

Statement Reality We conservatively project . . . We read a book that said we had to be a $50 million company in five years, and we

reverse-engineered the numbers.

We took our best guess and divided by 2. We accidentally divided by 0.5.

We project a 10 percent margin. We did not modify any of the assumptions in the business plan template that we downloaded from the Internet.

The project is 98 percent complete. To complete the remaining 2 percent will take as long as it took to create the initial 98 percent but will cost twice as much.

Our business model is proven . . . . . . if you take the evidence from the past week for the best of our 50 locations and extrapolate it for all the others.

We have a six-month lead. We tried not to find out how many other people have a six-month lead.

We need only a 10 percent market share. So do the other 50 entrants getting funded.

Customers are clamoring for our product. We have not yet asked them to pay for it. Also, all of our current customers are relatives.

We are the low-cost producer. We have not produced anything yet, but we are confident that we will be able to.

We have no competition. Only IBM, Microsoft, Netscape, and Sun have announced plans to enter the business.

Our management team has a great deal of experience . . .

. . . consuming the product or service.

A select group of investors is considering the plan. We mailed a copy of the plan to everyone in Pratt’s Guide.

We seek a value-added investor. We are looking for a passive, dumb-as-rocks investor.

If you invest on our terms, you will earn a 68 percent internal rate of return.

If everything that could ever conceivably go right does go right, you might get your money back.

Questions to Be Answered

• Is your plan organized so key facts leap out at the reader? • Is your product/service and business mission clear and simple? • Are you focused on the right things? • Who is your customer? • Why will customers buy? How much better is your product/service? • Do you have a competitive advantage? • Do you have a favorable cost structure? • Can the management team build a business? • How much money do you need? • How does your investor get a cash return?

Elements of a Business Plan (slide 1 of 4)

• Section I: Executive Summary • Section II: Business Description

A. General description of business B. Industry background C. Goals and potential of the business and milestones (if any) D. Uniqueness of product or service

• Section III: Marketing A. Research and analysis

1. Target market (customers) identified 2. Market size and trends 3. Competition 4. Estimated market share

Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Elements of a Business Plan (slide 2 of 4)

• Section III: Marketing (continued) B. Marketing plan

1. Market strategy—sales and distribution 2. Pricing 3. Advertising and promotions

• Section IV: Operations A. Identify location: advantages B. Specific operational procedures C. Personnel needs and uses

D. Proximity to suppliers

Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Elements of a Business Plan (slide 3 of 4)

• Section V: Management A. Management team—key personnel B. Legal structure—stock agreements, employment agreements,

ownership C. Board of directors, advisors, consultants

• Section VI: Financial A. Financial forecast

1. Profit and loss 2. Cash flow 3. Break-even analysis 4. Cost controls 5. Budgeting plans

Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Elements of a Business Plan (slide 4 of 4)

• Section VII: Critical Risks A. Potential problems B. Obstacles and risks C. Alternative courses of action

• Section VIII: Harvest Strategy A. Liquidity event (IPO or sale) B. Continuity of business strategy C. Identify successor

• Section IX: Milestone Schedule A. Timing and objectives B. Deadlines and milestones C. Relationship of events

• Section X: Appendix or Bibliography Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

Milestone Schedule Segment

• Timetable for the activities to be accomplished: • Incorporation of the venture • Completion of design and development and prototypes • Hiring of sales representatives, product display at trade shows • Signing up distributors and dealers • Ordering production quantities of materials, receipt of first orders • First sales and first deliveries (dates of maximum interest

because they relate directly to the venture’s credibility and need for capital)

• Payment of first accounts receivable (cash in)

TABLE 12.3 Helpful Hints for Developing the Business Plan (slide 1 of 3)

I. Executive Summary • No more than three pages. This is the most crucial part of your plan because you must capture

the reader’s interest. • What, how, why, where, and so on must be summarized. • Complete this part after you have a finished business plan.

II. Business Description Segment • The name of your business. • A background of the industry with history of your company (if any) should be covered here. • The potential of the new venture should be described clearly. • Any uniqueness or distinctive features of this venture should be described clearly.

III. Marketing Segment • Convince investors that sales projections and competition can be met. • Use and disclose market studies. • Identify target market, market position, and market share. • Evaluate all competition and specifically cover why and how you will be better than your competitors.

Identify all market sources and assistance used for this segment. • Demonstrate pricing strategy. Your price must penetrate and maintain a market share to produce

profits; thus, the lowest price is not necessarily the best price. • Identify your advertising plans with cost estimates to validate proposed strategy.

Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

TABLE 12.3 Helpful Hints for Developing the Business Plan (slide 2 of 3)

IV. Operations Segment • Describe the advantages of your location (zoning, tax laws, wage rates). List the production

needs in terms of facilities (plant, storage, office space) and equipment (machinery, furnishings, supplies).

• Describe the specific operations of the venture. • Indicate proximity to your suppliers. • Mention the need and use of personnel in the operation. • Provide estimates of operation costs—but be careful: Too many entrepreneurs underestimate

their costs. V. Management Segment

• Supply résumés of all key people in the management of your venture. • Carefully describe the legal structure of your venture (sole proprietorship, partnership, or

corporation). • Cover the added assistance (if any) of advisors, consultants, and directors. • Give information on how and how much everyone is to be compensated.

VI. Financial Segment • Give actual estimated statements. • Describe the needed sources for your funds and the uses you intend for the money. • Develop and present a budget. • Create stages of financing for purposes of allowing evaluation by investors at various points.

Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

TABLE 12.3 Helpful Hints for Developing the Business Plan (slide 3 of 3)

VII. Critical-Risks Segment • Discuss potential risks before investors point them out—e.g.,

• Price cutting by competitors • Any potentially unfavorable industry-wide trends • Design or manufacturing costs in excess of estimates • Sales projections not achieved • Product development schedule not met • Difficulties or long lead times encountered in the procurement of parts or raw materials • Greater than expected innovation and development costs to stay competitive • Provide some alternative courses of action.

VIII. Harvest Strategy Segment • Outline a plan for a liquidity event—IPO or sale. • Describe the plan for transition of leadership. • Mention the preparations (insurance, trusts, and so on) needed for continuity of the business.

IX. Milestone Schedule Segment • Develop a timetable or chart to demonstrate when each phase of the venture is to be completed.

This shows the relationship of events and provides a deadline for accomplishment. X. Appendix or Bibliography

Source: Donald F. Kuratko, The Complete Entrepreneurial Planning Guide (Bloomington, IN: Kelley School of Business, Indiana University, 2015).

TABLE 12.5 What to Do When a Venture Capitalist Turns You Down: Ten Questions

1. Confirm the decision: “That means you do not wish to participate at this time?”

2. Sell for the future: “Can we count you in for a second round of financing, after we’ve completed the first?”

3. Find out why you were rejected: “Why do you choose not to participate in this deal?” (Timing? Fit? All filled up?)

4. Ask for advice: “If you were in my position, how would you proceed?”

5. Ask for suggestions: “Can you suggest a source who invests in this kind of deal?”

6. Get the name: “Whom should I speak to when I’m there?”

7. Find out why: “Why do you suggest this firm, and why do you think this is the best person to speak to there?”

8. Work on an introduction: “Who would be the best person to introduce me?”

9. Develop a reasonable excuse: “Can I tell him that your decision to turn us down was based on ____________ ?”

10. Know your referral: “What will you tell him when he calls?” Source: Joseph R. Mancuso, How to Write a Winning Business Plan (Englewood Cliffs, NJ: Prentice Hall, 1985), 37. Reprinted with the permission of Simon & Schuster Adult Publishing Group. Copyright © 1985 by Prentice Hall, Inc.