small business management
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CraftingaBusinessPlan2.pptxCrafting a Business Plan
Dr. S. R. Moussalli
Why Create a Business Plan?
Saves time and money.
Key to raising capital.
Serves as an operations guide.
Helps you organize your thoughts before starting.
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Benefits of Creating a Business Plan
Business Plan:
A written summary of:
An entrepreneur’s proposed business venture
The operational and financial details
The marketing opportunities and strategy
The managers’ skills and abilities
A business plan is the best insurance against launching a business destined to fail or mismanaging a potentially successful company.
Essential Functions of a Business Plan
Guiding the company by charting its future course and defining its strategy for following it.
Attracting lenders and investors who will provide needed capital.
A Plan Must Pass Three Tests
The Reality Test: proving that:
A market really does exist for your product or service.
You can actually build or provide it for the cost estimates in the plan.
The Competitive Test: evaluates:
A company’s position relative to its competitors.
Management’s ability to create a company that will gain an edge over its rivals.
The Value Test: proving that:
A venture offers investors or lenders an attractive rate of return or a high probability of repayment.
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Why Take the Time to Build a Business Plan?
Although building a plan does not guarantee success, it does increase your chances of succeeding in business.
A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map!
Key Elements of a Business Plan
Title Page and Table of Contents
Executive Summary
Mission and Vision Statement
Description of a Firm’s Product or Service
Business and Industry Profile
Competitor Analysis
Marketing Strategy
Entrepreneurs’ and Managers’ Resumes
Plan of Operation
Pro Forma (Projected) Financial Statements
The Loan or Investment Proposal
Exit Strategy
Business Plan Components
Cover page
Table of contents
Executive summary
Mission, vision, and culture
Company description
Opportunity analysis
Marketing strategy and plan
Management and operations
Financial analysis and projections
Funding request
Exit strategy
Appendices
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Key Elements of a Business Plan
Title Page and Table of Contents
Executive Summary
Mission and Vision Statement
Description of a Firm’s Product or Service
Cover Page
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Information to Include:
Company Name
Street Address
E-mail Address
Phone Number(s)
Date
Contact Person
Website Address
Confidentiality
My Company, Inc.
Business Plan
March 2, 2015
Ms. Jan Okla
561-555-5611
123 Maple St.
Page, GA 32899
myco.net
Confidentiality Statement
Copyright © 2015 Pearson Education, Inc.
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The cover page should include the name of the company, its street address, its e-mail address, its phone number (land based and cell), the date, the contact information for the lead entrepreneur, and the company’s Web site address if it has one.
The single most important item on the cover page is the contact information for the authors of the plan. You want to make it extremely easy for anyone reading the plan to be able to contact you.
This is the logical place to include your notice of the importance of maintaining the confidential nature of the information in your business plan.
Optional information includes your Facebook or Twitter addresses, your logo or photo that depicts your product or service.
Cover Page and Table of Contents
Cover Page
Name of the business
Name of the principals
Date
Contact information
Confidentiality statement
Table of Contents
Include enough detail to easily find a section.
Avoid excessive detail which uses too many pages.
Table of Contents
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Follows Cover Page
Main Sections
Subsections
Appendices
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A table of contents should follow the cover page. It should list the main sections, subsections, and appendices to the plan along with their corresponding page numbers. The goal is to make it easy to find anything in the plan. Refer to Figure 4-1 for an example.
Executive Summary
A good plan provides:
Context
Benefit
Target customers
Point of differentiation
Clincher
Short Overview of Entire Plan
Goal is to Capture Reader’s Attention
Provides Everything Reader Needs to Know
Two Pages Maximum
Write it Last, Not First
Content Mimics Plan Format
Executive Summary
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The executive summary is the first item that appears in a business plan. It is a short overview of the entire plan, and provides a busy reader with everything that needs to be known about the new venture’s distinctive nature.
The most important thing to remember when writing an executive summary is that it’s not an introduction or a preface to the business plan. Instead, it is meant to be a summary of the plan itself. After someone reads the executive summary they should have a good sense of the entirety of the plan.
If the Executive Summary interests and excites the reader, he or she will be motivated to read the actual business plan. For this reason, this is the most important section of the plan.
Some investors and others is to ask the entrepreneur for a short PowerPoint overview of a business plan rather than an Executive Summary. In this case, the Summary is then boiled down to the 10 to 15 slides that are typically expected. Chapter 11 will provide more guidance on this process.
Since the Executive Summary is intended to summarize the information in the plan, it should be written AFTER the rest of the plan is completed.
Even though Refer to Figure 4-2 for an example.
Executive Summary Should Be:
Clear—identify concept and purpose.
Concise—one to two pages long.
Comprehensive—answer basic who, what, when, where, and how questions.
Compelling—generate enthusiasm.
Written last.
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Description of Business Plan:
Written Document that Carefully Explains Every Aspect of a New Venture
2 to 3 Pages Long
Provided to Investor or Other Interested Party
Describes:
Why Business is Starting
How Business Will Make Money
Introduction
Copyright © 2015 Pearson Education, Inc.
4-21
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A business plan is a written document that carefully explains every aspect of a new business venture. It is the 25-35 page text that an entrepreneur provides to an investor or other interested party, which describes why the business is starting and how it will make money.
The plan must be written with extreme empathy for the reader, providing the information that that person wants to know. The plan must also be interesting.
As readers evaluate your plan, they’re not only evaluating the plan, but they’re forming judgments about the writer of the plan.
Defines why Company Exists and What it Aspires to Become
Acts as Financial and Moral Compass
Articulate Firm’s Mission or Purpose
Few Words as Possible
Google: “Don’t be Evil”
Mission Statement
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Copyright © 2015 Pearson Education, Inc.
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A mission statement defines why a company exists and what it aspires to become.
If carefully written and used properly, a mission statement can define the path a company takes and act as its financial and moral compass.
For a business plan, a well written mission statement demonstrates that your business is focused and you can articulate its purpose clear and distinctly.
The trick to writing an effective mission statement is to articulate the mission or purpose of the company in as few words as possible. A short mission statement is easier to remember than a longer one and is usually more effective.
See Table 4-1 for examples of mission statements.
Company Development Milestones
Current Composition of Management Team
Early Customer Reactions
Company’s Financial Status:
How Firm Has Been Funded to Date
Current Debt or Equity, and Future Intentions
Current Status
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This section should reveal how far along your company is in its development.
A good way to frame this discussion is to think in terms of milestones. If you have selected and registered your company’s name, completed a feasibility analysis, written a business plan, and have established a legal entity, you have already cleared several important milestones.
There are three issues that are particularly important for this section: the current composition of you management team, early customer reaction to your product or service, and your company’s financial status.
Legal Status and Ownership
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Owners of Business
Ownership Split
Founder’s Agreement Contents:
Legal Written Document
Split of Equity Among Founders
Founders’ Compensation
Time Founders Have to Remain with Firm for Shares to be Vested
Legal Form of Business (LLC or Corporation)
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This section should indicate who owns the business, how the ownership is spit up if more than one individual is involved, and whether a founder’s agreement has been set up.
A founder’s agreement (or shareholders’ agreement) is a written document that deals with issues such as the relative split of the equity among the founders of the firm, how individual founders will be compensated for the “sweat equity” they put into the firm, and how long the founders will have to remain with the firm for their shares to be vested.
It should also include information about the current form of business ownership, such as sole proprietor, partnership, limited liability company (LLC) or corporation.
Mission, Vision, and Culture
Mission—concise communication of strategy with a business definition and competitive advantage; expressed in a statement.
Vision—broad “picture” of what you want the organization to become.
Culture—beliefs, values, and behavioral norms of the organization which will form the business “environment”.
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Company Description
If company is already established…
Summary of company’s founding.
Overview of track record: business progress and financial success.
If a start-up venture…
Brief background story.
What has been done so far, and why.
Legal form of the business.
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Headings
Company History
Mission Statement
Products and Services
Current Status
Legal Status and Ownership
Overview of the Company Description
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The main body of the business plan begins with a general description of the company.
The company description should start with a brief introduction, which provides an overview of the company and reminds the reader of the reason it is starting.
Demographic information should be also provided, including the names of the founders, the address of the company’s headquarters, and contact information for the lead entrepreneur.
Tell the story about the opportunity and how your business plans to deliver value to your customers, compete in the marketplace, and make money. Build credibility with readers by backing up assumptions with facts and research.
Refer to Figure 4-3 for an example.
Brief Explanation of Where Idea for Company Originated
Be Interesting or Heartfelt
How Business Meets Compelling Need
Company History
4-28
Copyright © 2015 Pearson Education, Inc.
Company History - explain where the idea for the business came from, and the driving force behind inception.
Ideally the story should be interesting or heartfelt, or discuss how the concept will meet a compelling need.
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Explanation of Product or Service:
How Product/Service is Unique
Positioning in Marketplace Relative to Rivals
Report Results of Feasibility Analysis
Explain Proprietary Aspects and Protection of Intellectual Property
Products and Services
4-29
Copyright © 2015 Pearson Education, Inc.
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This section should include an explanation of your product or service, beyond what you said in the executive summary.
Include a description of how your product or service is unique and how you plan to position it in the marketplace. A product or service’s position is how it is situated relative to its rivals.
Ideally you will have powerful results from your feasibility analysis to support the need for the product or service.
This is the best section to explain any proprietary aspects of the product, and your efforts to protect your intellectual property.
Opportunity Analysis
Industry analysis—definition, size, and growth/decline of the industry.
Environmental analysis—how community, region, nation, world relates to the business.
Proof of market—evidence of opportunity in terms of dollars and units.
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Opportunity Analysis (continued)
Target market segments—groups defined by common factors such as demographics, psychographics, age, and geography.
Competitive analysis—comparison of the business to direct and indirect competitors.
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Sources of Entry Barriers
Capital requirements
Cost advantages
Economies of scale
Access to distribution channels
Product differentiation
Government policy
Porter’s Five Forces Analysis
Competitive Rivalry Among Existing Firms
Bargaining Power of Suppliers
Threat of Substitute Products
Bargaining Power of Customers
Threat of New Entrants
Analyzing Market and Industry Feasibility
How attractive is the opportunity in the proposed industry?
Do any strategic, defensible niches exist in the proposed market?
Competitor Analysis
Who are the company’s key competitors?
What are there strengths and weaknesses?
What are their strategies?
How successful are they?
What distinguishes the entrepreneur’s product or service from others already in the market, and how will these differences produce a competitive edge?
Marketing Strategy
Show customer interest
Prove that target customers actually need or want the product or service.
Document market claims
Support market size and growth rates with facts.
Marketing Strategy
Address:
Target market
Advertising and promotion
Market size and trends
Location
Pricing
Distribution
Analyzing Product and/or Service Feasibility
Can the product or service be produced and delivered at a profit, in an ongoing manner?
Create a prototype.
Is there sufficient customer demand for the product or service?
Product or Service Description
Describe the benefits customers get from the product or service
A feature is a descriptive fact about a product or service.
A benefit is what the customer gains from the product or service feature.
Existing Competitive Rivalry
Many firms of similar size
Slow growth
Lack of differentiation
High fixed costs
Perishable products
Need for additional capacity
High exit barriers
Diverse rivals
Analyzing Financial Feasibility
How much start-up capital is required?
How much revenue is expected (based on anticipated pricing and volume)?
What are the expected costs?
Projected revenues, less projected costs, equals potential profit. Evaluate the return on the capital invested to make a “go/no go” decision.
Visualizing Risks and Rewards
Financial Analysis and Projections
Sources and uses of capital.
Cash flow projections.
Cash flow statement shows cash receipts less cash disbursements over a time period.
Balance sheet projections.
Assets = Liabilities + Owner’s Equity
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Cash Flow Calculations
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Financial Analysis and Projections (continued)
Income statements for three years.
Also called profit and loss statements (P&L).
Summarize income and expense activity.
Breakeven analysis.
Fixed Cost ($) = Breakeven Units
Gross Profit per Unit ($)
Ratio analysis.
Risks and assumptions.
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Funding Request & Exit Strategy
Amount of funds needed.
Type of financing, including terms.
Proposed exit scenarios, such as:
Buyout plan.
Initial public offering (IPO).
Sold when benchmarks or date reached.
Succession plan.
Implementation schedule.
Milestones
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Appendices
Management resumes.
Specifications/photos/diagrams of products and packaging.
Advertising and promotional samples.
Detailed financial projections.
Other supportive materials.
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Presenting the Plan
The time allotted for presenting is usually less than 15 minutes, so it’s important to rehearse and be prepared.
A basic presentation should cover:
Your company and its products and services.
The problem to be solved.
A description of your solution to the problem.
Your company’s business model.
Your company’s competitive edge.
What Lenders and Investors Look for in a Business Plan
The “5 Cs” of Credit
Capital
Capacity
Collateral
Character
Conditions
Tips for Presentation
Avoid the use of technical terms that will be above most of the audience.
Remember to tell lenders and investors how they will benefit.
Be prepared for questions.
Anticipate questions and prepare for them in advance.
Focus your answers on what’s important to lenders and investors.
Follow up with every lender and investor to whom you make a presentation.
Tips for a Good Business Plan
First impressions count! Use an attractive cover.
Checks for errors.
Make it visually appealing.
Include a table of contents with page numbers.
Make it interesting!
Show that it will make money.
Use spreadsheets for realistic financial forecasts.
Include cash flow projections.
Keep the plan “crisp.”
Tell the truth.
Tips for Presentation
Prepare
Practice your delivery and then practice some more.
Demonstrate enthusiasm about the business but don’t be overly emotional.
Focus on communicating the dynamic opportunity your idea offers and how you plan to capitalize on it.
Hook investors quickly with an up-front explanation of the new venture, its opportunities, and the anticipated benefits to them.
Tips for Presentation
Use visual aids.
Explain how your company’s products or services solve some problems and emphasize the factors that make your company unique.
Offer proof.
Hit the highlights.
Keep the presentation “crisp.”
Business Plan Suggestions
Write for your audience.
Show that you have “skin in the game.”
Be clear and concise.
Use current industry data and reports.
Select a “voice” and stick with it.
Use a consistent, easy-to-read format.
Number and label items throughout the plan.
Present the plan professionally.
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Presenting the Business Plan
Presentations may be formal or informal.
Presentation time may be limited to 15 minutes.
Multimedia formats work well in formal situations.
Business plan competitions may provide cash prizes and access to capital.
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