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Business Plan Basics
Business Plan Basics
Business Plan Basics
Business Plan Basics
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Business Plan Basics


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  • 1. Chapter 6: Business Plan Overview What is a business plan? Business Plan Basics What are the key elements of a business plan? Maria I. Marshall, Ph.D. What are the three tests must it pass? Department of Agricultural Economics What are some free resources? The Business Plan: A Business Plan Is… Two Essential Functions a systematic evaluation of a venture’s Business plan – a written summary of: chances for success. – an entrepreneur’s proposed business venture. – its operational and financial details. a way to determine the risks facing a – its marketing opportunities and strategy. venture. – its managers’ skills and abilities. a game plan for managing a business It serves two essential functions: successfully. – Guiding the company by charting its future course and a tool for comparing actual and target defining its strategy for following it. results. – Attracting lenders and investors who will provide an important tool for attracting capital. needed capital. Why Take the Time to The Business Plan Build a Business Plan? A plan is a reflection of its creator. Although building a plan does Realization that a business idea just won’t not guarantee success, it does work. increase your chances of The real value is in the process of creating it. succeeding in business. A plan is like a road map. 1
  • 2. Chapter 6: Business Plan Key Elements of a Business Plan: Key Elements of a Business Plan: The Executive Summary Mission Statement Summary of all the relevant parts of the Entrepreneur’s vision of what the company business. is, what it is to become, and what it stands Maximum of 2 pages. for. Anyone should be able to understand the Broadest expression of a company’s entire business concept and the company ’s purpose and defines the direction in which it competitive advantage. will move. “the elevator pitch” Key Elements of a Business Plan: Key Elements of a Business Plan: Business and Industry Profile Business Strategy Company’s general business goals and its Explain how you plan to gain a competitive edge in immediate objectives. the market and what sets your business apart from Industry Analysis the competition. Ease of entry and exit, economies of scale/scope, How you plan to meet goals and objectives in the economic trends face of competition and government regulations. – Summary of Commentary on Current Economic Conditions. Identify the image the business will project. Provide information on the existing and anticipated profitability of competing firms. Key Elements of a Business Plan: Key Elements of a Business Plan: Description of Product/Service Marketing Strategy Explain how customers will use product or Prove that a profitable market exists service. – Show customer interest Indicate product’s position in the product life – Document market claims cycle. Show customer interest Summary of patents, trademarks, or copyrights protecting the product/service. – Prove that the target customers need or want the product/service and are willing Focus on customer benefit, not just a and able to pay for them. detailed list of the product’s features. 2
  • 3. Chapter 6: Business Plan Key Elements of a Business Plan: Key Elements of a Business Plan: Competitor Analysis Owners’ and Managers’ Resumes Provide information on competitors’ market Should include resume of anyone with at shares, products, and strategies. least a 20% ownership in the company. Demonstrate that your company has an Show that the company has the right people advantage over its competitors. organized in the right way. Ideally, lenders look for managers with at least 2 years of operating experience. Key Elements of a Business Plan: Key Elements of a Business Plan: Plan of Operation Financial Forecasts Construct an organizational chart. Monthly pro forma financial statements for one year and by quarter for each of the next 2-3 years. Describe incentives to keep key personnel. – Income statement Describe firm’s form of ownership and any – Cash flow statement leases, contracts, and other relevant – Balance sheet agreements pertaining to the operation. Three sets of forecasts: optimistic, most likely, and pessimistic. Include break-even analysis. Key Elements of a Business Plan: Tips on Preparing a Business The Request for Funds Plan State the purpose of the loan or investment, the Rid your plan of all spelling and grammatical amount requested, and the plans for repayment or errors. cash-out. Make your plan visually appealing. Financial projection must reflect the firm’s ability to Leave ample “white space” in margins. repay loans to lenders and to produce adequate Make sure your plan has an attractive cover. yields for investors. Include a table of contents. Include an evaluation of the risks of the business. Write in a conversational style and use “bullets.” 3
  • 4. Chapter 6: Business Plan Tips on Preparing a Business A Plan Must Pass Three Tests Plan The Reality Test - proving that: Support claims with facts and avoid – a market really does exist for your product or service. generalizations. – you can actually build it for the cost estimates in the Avoid overusing industry jargon. plan. The Competitive Test - evaluates: Make it interesting! – a company’s position relative to its key competitors. Use spreadsheets to generate financial – management’s ability to create a company that will gain an edge over its rivals. forecasts. The Value Test - proving that: Always include cash flow projections. – it offers investors or lenders an attractive rate of return or a high probability of repayment. Keep your plan “crisp” Available Free Resources Indiana Secretary of State – An Entrepreneur's Guide to Starting A Business in Indiana AccessIndiana – Small Business Administration – Small Business Development Center – New Ventures Team (Purdue University) – U.S. Business Advisor – 4