StartUp Suite:The Business Plan
Contents1    Introduction2    The benefits of creating a business plan3    First steps4    Getting Help5    The business p...
Introduction                                       Some contend that the formal business plan has become                  ...
The benefits of creatinga business planThere is one thing stronger than all thearmies in the world: and that is an ideawho...
A new idea is delicate . It can be killed                                                                                 ...
Getting HelpLawyers, accountants, marketing professionals, IT specialists,        •   Growth potential for the industry an...
Thebusinessplan                                  Twenty pages is the target length for the plan; however, the length      ...
Only one link of the chain ofExecutive summary                                                                            ...
The market opportunity   This section of your business plan is intended to paint a picture of   the unfulfilled need your ...
The competitionIf the company is new, you will likely face entrenched competitionfrom mature organizations with far greate...
MarketingMarketing is a crucial element of a business plan, and itsimportance is often underestimated. It defines strategy...
ManagementNo matter what stage the venture is in, you must develop a strongmanagement framework. Prospective investors tak...
FinancialsIn this section, all the assumptions and quantitative datapresented elsewhere in the business plan are put to a ...
MilestonesThis section is concerned with committing to some very definitivegoals and times for those goals.Your milestones...
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Guide to writing a business plan

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Guide to writing a business plan

  1. 1. StartUp Suite:The Business Plan
  2. 2. Contents1 Introduction2 The benefits of creating a business plan3 First steps4 Getting Help5 The business plan • Executive summary • Introduction • The market opportunity • The offering • The competition • Marketing • Management • Financials • Milestones12 For further assistance Ar thur Andersen | The StartUp Suite:The business plan | 1
  3. 3. Introduction Some contend that the formal business plan has become obsolete in the new economy.They declare, “We don’t have time to plan in such a fast, dynamic, and competitive environment!” Adaptation is paramount, but we believe that it is exactly for this reason that the business plan is even more important today. The business plan acts as the backbone of the venture and gives you the benchmark to gauge progress. The business plan should afford you the opportunity to think, plan, and articulate the business’ value proposition to yourself, the employees, and potential investors. With useful commentary, visuals and “Ask yourself ” questions, this guide will help you create a well thought out and attention grabbing business plan. Read, look, and answer the questions: start up. A vision is something you see and others don’t. Some people would say that’s a pocket definition of lunacy, but it also defines entrepreneurial spirit. -Anita Roddick, founder of The Body Shop1 | Star tUp Suite:The business plan
  4. 4. The benefits of creatinga business planThere is one thing stronger than all thearmies in the world: and that is an ideawhose time has come .-Victor HugoA business plan is the pen-to-paper “rallying cry” of any start-up investors are inundated by investment opportunities; they canventure. Sound business plans not only help a company that choose but a few. An investor’s decision frequently turns on theneeds to raise capital but also help create enduring value. The quality of the business plan. Piquing, capturing, and retaining theirbusiness plan acts as the operations manual for the company and interest is critical.as a reference tool for investors and board members. Developingthe plan forces you to analyze corporate strengths, weaknesses, Keep in mind that investors do not purchase good ideas. They areopportunities, and threats. more interested in dynamic and flexible people who can execute a well reasoned plan for a business with strong opportunities in aAn effective business plan should: growth market. To effectively write the plan you must keep in mind what a good investor is looking for:1) Help focus ideas about a market opportunity and turn them into a realistic course of action. 1) A specific and realistic source of value that differentially fulfills2 Create a track for management to follow in the early years of a a specific and unmet need. business. 2) A team that can plan and execute the plan with success.3) Identify milestones and benchmarks that the management 3) A sustainable and defensible product/service position. team can use to measure progress.4) Be succinct, interesting, and sufficiently solid enough to attract For more information regarding the specifics of obtaining venture prospective investors. capital, growing the business, going public, executing mergers5) Be flexible enough to handle contingencies and unexpected and acquisitions, developing competitive executive compensation events. plans, look to the other literature in the StartUp Suite and to the knowledgeable professionals at Arthur Andersen.This guide focuses on developing a business plan to assist withfinancing the venture. It cannot be overemphasized that major2 | StartUp Suite:The business plan
  5. 5. A new idea is delicate . It can be killed by a sneer or a yawn; it can be stabbed to death by a quip and worried to death by a frown on the right man’s brow. -Charles Brower, Advertising Executive First steps The plan should be for mula-driven and Before you solicit financing, an important fluid, not a static estimate.Your projections first step is to analyze the business and your plans of attack must be thoroughly and prepare yourself for the committed to but must also demonstrate fierce competitiveness of the capital room for flexibility. More than likely, an markets. Keep in mind that it is not just the investor reviewing the plan will cut the numbers that matter, you should be able to sales projections and raise the costs. The make transparent your venture’s source of plan should be prepared to handle these value. types of contingencies as well as flexible enough to cope in dire situations. Building Ask yourself: a fluid set of plans and decision criteria will 1) What core competencies and values take longer but it will pay off in the end to will the business possess? have multiple levels of projections 2) What need does the venture fill? formalized in the plan. 3) What is the company’s basic value proposition?3 | Star tUp Suite:The business plan
  6. 6. Getting HelpLawyers, accountants, marketing professionals, IT specialists, • Growth potential for the industry and the company.scientists, and engineers can provide valuable input for emerging • Competitive forces and new product development.companies. • Market acceptance of a proposed new product. • Creative marketing approaches.For example, attorneys can:• Check patent, copyright, trademark or trade secret protection. In addition, outside IT and engineering expertise may be needed• Review proposed arrangements or contracts for both short- to perform research and development and determine the technical and long-term benefits. feasibility of new systems and products.You may also need• Consult on product liability, antitrust and environmental consultants to help you with real estate, office design, inventory, concerns. logistics, production, etc. Consulting with outside professionals• Address the myriad of legal pitfalls facing every new or can diminish the need for high salaried in-house executives in the expanding business. company’s early years, and give you insights to enhance the probability of success.Experienced accountants can:• Help you develop a realistic business plan. Business incubators are a good source for providing these• Review financial projections for the plan. services or recommending resources. Incubators affiliated with• Recommend information and computer systems technology. universities may provide access to laboratories, specialized• Provide tax planning, as well as state and local tax consulting. equipment and research experts. Many “virtual” incubators• Create the proper corporate structure from the beginning. provide these services through the Internet. Consult the National Business Incubator Association for more information.Lawyers and accountants can offer knowledge of and contactswith venture capital firms, banks, other lending sources and NOTE:While seeking consultants’help in developing a businessunderwriters as well as advice on how to structure the venture. plan is important, the need for active management involvement in every aspect of the planning process is paramount. A businessOutside marketing professionals can develop a comprehensive plan prepared principally by outside consultants will not reflect anmarket analysis for inclusion in the business plans. Their research entrepreneur’s total insight and broad concept of the business.can determine: The entrepreneur must take full ownership of the plan.• The size of the market and the company’s market share.4 | Star tUp Suite:The business plan
  7. 7. Thebusinessplan Twenty pages is the target length for the plan; however, the length and content vary depending on such factors as company maturity, nature, and complexity. Here is a list of items to consider: Ten do’s and don’ts of the business plan Do 1. Talk about managing change 2. Talk about maintaining competitive advantage 3. Write an engaging executive summary 4. Use visuals to enhance the presentation 5. Indicate the plan is private and confidential 6. Make the venture’s true value transparent 7. Spiral bind the final copy 8. Provide a table of contents 9. Demonstrate the plan’s flexibility 10. Base financials and projections on for mulae Don’t 1. Make the plan more than 30 pages 2. Make claims you can’t substantiate 3. Discuss possible valuations in the plan 4. Wander in your writing - be succinct instead 5. Send your plan to a VC cold - talk to them first 6. Underestimate current/possible competition 7. Overestimate the company’s strength 8. Underestimate required funding 9. Go it alone - enlist knowledgeable help 10. Ignore the potential for unexpectedobstacles5 | StartUp Suite:The business plan
  8. 8. Only one link of the chain ofExecutive summary destiny can be handled at a time.This three-page maximum section should summarize thebusiness plan and provide an overview intended principally to Winston Churchillcatch the interest of prospective financing sources. While theExecutive Summary is the first section of the business plan, itshould be written last in order to incorporate the relevant piecesfound in the subsequent parts of the plan.More often than not, the summary is all that investors will read, soit must capture their attention. An effective summary positions the Introductioncompany accurately and differentiates a company from otherscompeting for limited investment capital. If the summary fails to This section is intended primarily for prospective investors whopersuade the prospective source of capital to read further, it has need to know where a business has been before they cannot done its job. evaluate where it is likely to go. If you have little history, you should place more emphasis on the description of theAt the very least, the summary should include: management team and relevant experience. This section of the• A depiction of the business and the target markets for the plan should discuss: product or service.• How the product or service will distinguish itself from its • When the business was founded, its progress to date and a competition and emphasize the need that it will fill. brief description of the founders, emphasizing their relevant• An arguement that concisely and persuasively addresses why experience and their roles in the company. the venture will succeed in a competitive situation. • The form of organization (partnership, S Corporation, LLC,• A description of the management team, relevant experience etc.) and distribution of equity. Summarize the company’s and special skills of each key executive. Cite and discuss how capitalization, classes of stock, shares outstanding and other and when correction of weak management practices will take relevant data. place. • Past loans to, or investments in, the company by outside• A summary of key financial projections for the next three to sources, as well as management’s investment in the company. five years. Detail any outstanding stock options or warrants as well as• A synopsis of funding requirements, amounts of capital as well other financial commitments, including name of those involved as when and how it will be spent. and principal terms (price, expiration date, and so on) of• A grid showing projected estimates of Revenues and EBITDA each commitment. for the next 5 years (as shown below). • Products or services the company has developed or marketed and the success of each. • The state of development that your product or service is in and what further approvals, upgrades, or development it must still undergo (e.g. stage of FDA approval, R&D status, status of website’s technology if imperative to operations, etc.) If you have reasons for believing that the company’s pastAsk yourself performance is not a reliable indicator of its potential, cite those1) What pulls all the other elements of the business plan reasons in this section and discuss them more fully elsewhere in together? the business plan. Also keep in mind that the current volatility of2) What, in brief, does each part of the business plan address the business environment may require you to change directions. and show about the value of the venture? Be sure that the history displays an ability to adapt, continued3) Have I addressed the important issues relevant to the growth and dynamic vision. investment community?4) Does the summary inspire management to execute and Ask yourself: investors to invest? 1 On what common vision has the venture been founded to date? 2) How will the past fuel future sustainable growth? 3) How has the venture shown outstanding performance and exercised good practices in the past? 4) Have you demonstrated an ability to adapt to and overcome obstacles? 6 | StartUp Suite:The business plan
  9. 9. The market opportunity This section of your business plan is intended to paint a picture of the unfulfilled need your venture will fill. Take the time to give grounded and educated estimates of the market size and growth today and in the future. Also give a brief description of your target customer, their behaviors and how those behaviors can be capitalized on to bring the venture to profitable and sustainable fruition. Describe the present market and future opportunities domestically and abroad. If the product or service is new, market research probably will be required to put meaningful dimensions on the initial and future mar ket.This section should describe the results of such research, if it has been completed, or outline the plans for future research. If the product or service represents an improvement on what is available, there already may be well-defined dimensions to the market. In that case, summarize them here, using both historical The offering data and reliable forecasts from industry, trade associations or government sources. The purpose of this section is to define precisely what you intend to develop and market while pointing investors (directly and Ask yourself transparently) to the source of continuing and profitable growth. 1) What is the historic and predicted (next five years) rate of This section should include a summary of all of the company’s growth for each market segment? existing or planned products or services. The length depends on 2) Where are the present and future markets? Are they regional, the complexity and number of products or services. The language national, international? should be concise and understandable by a layperson. 3) How does each market segment purchase the product? 4) What are the critical product/service characteristics? Consider This section should also include discussion of any legal protectio performance, reliability, durability, availability, price, and the company has obtained or applied for (i.e. patents, copyrights service. trademarks, etc.). If, for example, the product or process is 5) What substitutes are available for this product? protected by a patent, that fact would influence the marketing 6) Does the market have any special characteristics, such as strategy and interest prospective investors. seasonal, cyclical or other important factors? 7) Who are the customers? Attach as appendices any lengthy or detailed diagrams, technical documents or descriptions necessary to understand the products Alternatively, you might opt to provide detail at a later stage of the investigation, especially if the information is proprietary. He who can see three days ahead One of the keys to success is knowing what sets you apart from the competition.When describing the product or service, give will be rich for 3,000 years. special attention to characteristics distinguishing it from others in the market. State the specific benefits (i.e. lower cost or greater versatility). Japanese proverb Ask yourself 1) How is the venture different from other companies in the market? 2) Is the product or service patentable? 3) How will the venture maintain long-term profitable growth? 4) Can a layperson understand the description of the product or service?7 | Star tUp Suite:The business plan
  10. 10. The competitionIf the company is new, you will likely face entrenched competitionfrom mature organizations with far greater resources. Identifycompetitors in the business plan and note the strengths,weaknesses and market share of each.Be realistic about the analysis and address all the negatives toshow that the venture is prepared.The business plan should alsoindicate the market share you expect to capture in the first three Perhaps the greatest temptation will be to overstate your ownto five years. Spell out your rationale for these forecasts. From strengths and understate competitors’skills. In the end, thiswhich competitors do you expect to draw customers... and why? approach is self-defeating since you base the actions on theDefine the niche in the market and summarize the strategy to directions charted in the business plan. Moreover, prospectivegain market share. investors are unlikely to back an entrepreneur who lacks a realistic view of the competition. Show how competition couldCite the principal competitive factors in the marketplace:product deter your plans and how the venture can be adaptable to meetperformance, reliability, durability, styling, delivery, service, the changing environment in these situations.aggressive merchandising, price, and other factors.Identify trendsand explain how you plan to react to them.A prospective investor Ask yourselfwill also want to know how competitors are likely to react to entry 1) How has the industry of the venture evolved and how willin to the market and how you plan to respond. Do not forget to global, domestic, and Internet competition affect it in thealso address the growing need to be wary of global competition. future?The Internet has made it possible to conduct business throughout 2) What is the venture’s specific competitive advantage?the world in the blink of an eye. Be sure to analyze the possibility Weakness?of strong new competitors globally and locally. 3) How can that advantage be defended in the face of changing competitors? 4) Who is the competition? 5) What are their strengths? Weaknesses? 6) What substitutes exist for the product or service? 8 | Star tUp Suite:The business plan
  11. 11. MarketingMarketing is a crucial element of a business plan, and itsimportance is often underestimated. It defines strategy and chartsthe marketing direction for the staff. This section of the businessplan should give prospective investors confidence that you can Business has only twoconvert your ideas and assets into a strong brand and marketingposition. Investors want reassurance that the business will main functions—generate a growing profit stream. marketing and innovation.The marketing section of the business plan normally sets thestage for, or summarizes, a more detailed marketing plan. Whenthe time is right — either at startup or at some future stage — the -Peter Druckermarketing executives will need to develop a comprehensivemarketing plan to guide that critical function on both an annualand a long-term basis.Regardless of whether the company is in the research anddevelopment stage, or ready to take products to market, substitutes for your product. Keep in mind the product’s currentsummarize the marketing goals, which should be quantitative, and projected product life cycle stages, how pricing will change atrealistic, and consistent with the marketing analysis. They should different times, and how your competition will react under thosealso be able to deal with the consistently and rapidly changing conditions.markets of the new economy. Here are some key areas of interestto prospective investors: Promotion Few products, however good they might be, can succeed in aBranding competitive marketplace without effective, continuing promotion.One of the most significant issues in the new economy is the Continually leveraging a venture’s brand is of paramountneed for a startup to brand itself. In today’s constantly changing importance in the new economy. Advertising on the Internet, emailmarkets, you must have a recognizable name.You must decide campaigns, as well as traditional methods such as televisionwhat the company’s name means and what it will stand for.You commercials must all come under consideration.The market mustmust decide how you intend to build a brand name and maintain be aware of your brand and want to choose your product, givenits equity for years to come. they have a need for your mar ket offering. You must also decide how much of the promotion will be handled internally and howChannels of distribution much will be outsourced. If you have chosen an advertising orIn the new economy, the manner in which a market offering is public relations agency, prospective investors will want to knowdistributed has become of paramount concern. New business which one.models have given rise to new distinct modes of distribution: pure-play Internet companies and the hybrid clicks and mortar. The Ask yourselfweb has developed into a necessity in any business model. 1) What markets are you prepared to serve from a financial, logistical, and management perspective?Internet considerations should also be balanced with strategy on 2) How do you intend to monitor the market on a continuingtraditional channels, such as sales force and physical order basis?fulfillment centers or retail centers. 3) Will you plan to conduct product evaluation, pricing comparisons or market-share analyses?The scale of your operations will also be important.Under 4) What is the plan for adapting to changing market conditions?whatever medium you choose, you must decide whether or not 5) How will you advertise or publicize the offering?distribution will be handled internally or outsourced. You must 6) What does your brand mean, what will it stand for, and howconsider how to deliver to the increasingly global market that the can you build equity in that name?Internet has created and how expansion will be handled in terms 7) What is it that specifically will allow the venture to maintainof capacity, whether its in terms of your technology, handling profit and growth?traffic, or a distribution center shipping orders. 8) What part of the venture is the underlying source of value for the consumer?Pricing strategy 9) What will allow the venture to erect barriers to entry and retainPricing has become an important consideration in the new competitive advantage?economy, thanks to e-tailing and portal services.You must decide 10)What is the acquisition cost of a new customer?how you will price your product compared to the competition. You 11)How will these costs be controlled?must also be able to support that price by pulling out how yourventure adds to the value of the item if there are readily available9 | StartUp Suite:The business plan
  12. 12. ManagementNo matter what stage the venture is in, you must develop a strongmanagement framework. Prospective investors take a dim view ofa company that lacks a well-balanced management team.However brilliant a product idea might be, or however great theneed, prospective investors want assurance the company canmanage its operations effectively and adapt to the changes thatwill inevitably occur.Even in the case of a new product, competition from establishedcompanies may follow on the heels of an entrepreneur’s initialsuccess. If the company’s management team has respected Personal data on key executives should include all relevantproduction, marketing and financial executives, a solid board, business experience, educational background, patents orstrong strategic alliances, and a history as well as a plan for copyrights, significant awards and any other information thatadaptability, you can greatly enhance the probability of success. would show a potential investor that you have the necessary management and technical resources.In some cases, potential investors may be able to help you fill keyslots in management and/or the Board.But many turn away from If one of the goals is to strengthen the management team, deala company with a poorly conceived organization, investing with that issue here by outlining the planned managementinstead in well-structured operations. structure in chart form and providing detailed job descriptions and the minimum qualifications for each unfilled slot. Also indicate theMost prospective investors believe the presence of a complete level of compensation for each open position, and when and howfirst-rate management team is the single most important criterion you expect to fill it.in the evaluation of any funding opportunity. Therefore, thissection of the plan should emphasize the experience and Ask yourselfcompetence and strengths of each key management executive. 1) Is the management team complete? 2) Have you proven the management team to be a flexible one?It is helpful to include job descriptions, compensation data, equity 3) What are the management team’s strengths? Weaknesses?interests, and detailed resumes on all management executives in 4) How can the team be strengthened?place. While the internal business plan need not include such 5) What is the venture’s human resource strategy?information, it is of interest to prospective investors who need 6) What is the venture’s planned organizational structure?assurance that the team is well qualified to implement the 7) How do you intend to acquire and retain the personnel you willbusiness plan. need to execute the business plan? 10 | StartUp Suite:The business plan
  13. 13. FinancialsIn this section, all the assumptions and quantitative datapresented elsewhere in the business plan are put to a numericaltest. In other words, bring together all of the company’s sales,market, and cost projections in a financial summary format. Besure to keep the model open to query and adaptation.Make this acontingency- and formula-based model instead of a staticuncompromising set of numbers. This will help potential investorssee the ability to react and adapt as well as allow you to preparementally for when investors cut the sales projections in half duringa meeting.Three-to-five-year financial projections serve a dual purpose: toguide the management team and to inform prospective investors.Include financial statements and other detailed information in anappendix or make it available upon request.At a minimum the financials should include:• Current financial statements.• Past financial records — balance sheets, profit and loss statements, cash-flow statements — for up to three years if relevant.• Projected balance sheet information on an accrual basis for The financial projections mst be realistic and adaptable. If they the next three to five years. represent a major deviation from past experience or established• Profit and loss projections and cash flow projections on a industry parameters, you should present reasonable evidence to monthly or quarterly basis, if possible, for the first two years support such a rosy projection. Otherwise, the forecast will and annually for the next three years. generate skepticism within the management group and among• The venture’s current funding desired and future funding prospective investors. expectations (be as precise as possible with dates and amounts). Among those you should consult in developing financial• A brief statement about the planned exit strategy. projections are the top management team, key financial personnel and independent public accountants.Potential investors want to see how much money you will needand when you will need it. Put at least a modest cushion in the Obviously, the projections in this section must tie to data includedfunding request. Many early stage businesses fail because of elsewhere in the business plan. For example, if you plan tounderestimated cash needs. Be realistic and prepare yourself for relocate technical personnel or expand production facilities in thethe unexpected. third year, the projections should reflect costs associated with these actions. Similarly, if you are obligated to pay royalties on aYou should include a detailed description of all major assumptions new product or process, these costs should be factored intounderlying the projections. At the very least, you should describe projections.the accounting principles, as well as sales and market shareexpectations. In addition, you need to be forthright about Ask yourselfassumptions regarding the anticipated number of days sales in 1) How will the venture effectively manage its financial assets?accounts receivables, bad debts, interest expense, research and 2) How will the venture deal with generating significantly differentdevelopment costs, facility costs, warranty costs, payroll, costs of cash flows than projected?materials and components and;of course, federal, state and local 3) How will the venture’s various financial assets contribute to thetaxes. fulfillment of the business model? 4) What is the competition doing with its financial assets toA major problem facing many enterprises is cash-flow. Revenues maximize value?often do not flow in predictably and burn rates exceed 5) How much funding does the venture currently need and howexpectations. Some of the factors that lead to the failure of new much (based on the projected financials) will the venture needbusinesses include undercapitalization, not anticipating setbacks in the future?and unexpected expenses, and extending credit too easily. The 6) Have you included all relevant assumptions in your estimates?plan should anticipate cash flow problems.11 | Star tUp Suite:The business plan
  14. 14. MilestonesThis section is concerned with committing to some very definitivegoals and times for those goals.Your milestones do not have tobe detailed, in-depth accounts of how you plan to execute on your The importance of money essentiallyidea, but must give a general idea of what action items you wantto fulfill for at least the next two years.Tr y to separate these high- flows from its being a link betweenlevel actions out as much as possible, giving a range forcompletion no longer than one calendar quarter. Include as much the present and the future.of the following as possible:• When you plan to complete stages of product development John Maynard Keynes, economist (e.g. FDA trials, patents or copyrights, and the like) and/or rollout on new and existing products.• What the planned state of your technology will be and when you plan to upgrade and/or redesign (e.g. your website’s status).• What strategic alliances you plan to vie for and when you expect to complete negotiations.The milestone section can be as simple as a single bulleted list ofthese action steps.The intent is to show that management cancommit to a plan.The milestones will serve as the investor andmanagement’s means of gauging how well the company is doing For furtherwhen these goals are compared to actual results in the future.Ask yourself1) What is the current state of the planned product line in terms assistance of research and development and rollout?2) When will the new products be completed and rolled out?3) Is the venture’s technology up to par? If not, when will the necessary adjustments be completed?4) Is the venture’s means of doing business (e.g. website) up to par and scalable? If not, when will it be completed and/or upgraded?5) What lines of expansion will the venture take to continue to For further assistance or to learn more from the Arthur Andersen grow its business? StartUp Suite, visit us at www.arthurandersen.com/enterprise or contact the experienced professionals in Arthur Andersen’s Enterprise Group. They are available to consult with you regarding the challenges facing your company. For more information, please call: 1-800-222-5257 or 1-314-425-9386 outside the U.S. e-mail: enterprise@arthurandersen.com 12 | StartUp Suite:The business plan

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