Business Plan


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Business Plan

  1. 1. Business Plan Primary Focus Business Standards: Business Communications; Business Environment; Economics and Financial Concepts; Leadership Development; Accounting Procedures and Financial Analysis; Financial and Managerial Accounting; Economics; Legal Environment; Management Principles; Marketing Strategies; Selling Concepts; Entrepreneurship. Business Standards Covered B Business Communications 1.1.1; 1.1.2; 1.1.4; 1.1.5; 1.1.6 Business Environment 1.2.4; 1.2.6; 1.2.8 Economics and Financial Concepts 1.4.1; 1.4.6; 1.4.8 Employability Skills 1.5.2; 1.5.5; 1.5.6; 1.5.7; .5.8 Information Technologies 1.6.1; 1.6.3; 1.6.6 Leadership Development 1.7.1; 1.7.2; 1.7.3; 1.7.4; 1.7.6 Accounting 2.1.4; 2.1.5; 2.1.6; 2.1.11; 2.2.6; 2.2.7; 2.2.10; 2.3.1; 2.3.2; 2.3.5; 2.3.10; 2.3.11; 2.3.12; 2.3.14; 2.3.15 Economics 3.1.1; 3.1.2; 3.1.3; 3.1.4; 3.1.9; 3.1.10 Management Principles 3.3.1; 3.3.2; 3.3.4; 3.3.5; 3.3.6 Computer Science and Information Technology 4.1.1; 4.1.2; 4.1.3; 4.2.2; 4.2.3; 4.2.8 Communications and Interpersonal Skills 5.1.2; 5.1.3; 5.1.4; 5.1.5 Global Marketing 5.2.1; 5.2.7 Marketing Strategies 5.3.3; 5.3.4; 5.3.6; 5.3.7 Products/Services Management 5.4.5; 5.4.6; 5.4.9 Promotion 5.5.2; 5.5.4; 5.5.5 Selling Concepts 5.6.3 Merchandising 5.9.10 Entrepreneurship 6.1.1; 6.1.2; 6.1.4; 6.1.5; 6.1.6; 6.1.7; 6.1.8; 6.1.11; 6.1.12; 6.1.13; 6.1.15; 6.1.16; 6.1.17; 6.1.18; 6.1.19; 6.1.20; 6.1.21; 6.1.22; 6.1.24; 6.1.25 Introduction The Business Plan is a valuable management tool that can be utilized in a wide variety of situations. In most companies, the plan is used at a minimum to: • Set the goals and objectives for the company's performance. • Provide a basis for evaluating and controlling the company's performance. • Communicate a company's message to middle managers, outside directors, lenders, and potential investors. The Business Plan is used as a powerful money-raising tool to obtain loans from lending agencies. A well-written Business Plan helps a Virtual Enterprise secure start-up funding. It also allows an existing Virtual Enterprise to request additional funding for continued operation and/or expansion. • The proposed product. • The expected marker for it. • The strengths and weaknesses of the industry. • Planned marketing policies, such as price, promotion, and distribution. • Operations or production methods and facilities. • Financial aspects, including expected income, expenses, profits (or losses), investment needed, and expected cash flow. F Real World Application - An effective Business Plan does more than help convince prospective investors that the proposed new (or existing) business is sound. It provides a detailed blueprint for the activities needed to finance the business and develop and market the product and/or service. Business Plans are also used for the continuing operation of a firm. A properly developed and well-written business plan should answer questions such as: • Would it be attractive to lending institutions? • Does the proposed business have a reasonable chance for success at the start? • Does it have any long-run competitive advantages to the owners? To the investors? To employees? • Can the product be produced efficiently? • Can it be marketed effectively? • Can the product and marketing of the product be economically financed? • Can the prospective owners express the plans for the proposed business in writing in a clear, concise, and logical way so that it is easily understood and convincing to potential investors or lenders? • Do the phantom contracts cover the proposed expenses only?
  2. 2. • Is every department adequately represented? • Is it clear what each department wants to accomplish? • Is there evidence of teamwork and coherency? I Virtual World Application - In the Virtual World, a properly developed and well-written business plan addresses the same Real World questions. However, in the Virtual World, phantom contracts are proposed to cover a percentage of a company's proposed expenses. In summary, if the plan is properly developed and written, it provides more than mere numbers on paper. It serves as an effective communication tool to convey ideas, research findings, and proposed plans to others. Secondly, it forms the basis for managing the new (or existing) venture. Lastly, it serves as a means by which to evaluate needed changes. Developing and writing a Business Plan takes much time and effort, but the result can make the difference between success and failure. The Business Plan should show how all the pieces of a company fit together to create a vibrant organization capable of meeting its goals and objectives. Objective All Virtual Enterprise employees will be able to participate in writing a complete Business Plan, including the following components: Cover Sheets, Statement of Purpose, Table of Contents, Mission Statement, Executive Summary, Objective Statement, Company Description, Personnel Overview, Market Analysis, SWOT Analysis, Marketing Plan, Operation Procedures, Loan Application (or Summary), Start-Up Budget, Pro-Forma Balance Sheet, Pro-Forma Income Projections, Pro-Forma Cash Flow, Financial Summary, and Supporting Documents. Implementation I Time Line 1st Quarter. When designing the Business Plan, keep close track of the VE calendar. The Business Plan should be ready in hard copy format to be presented as prescribed by the task timeline on the VE web site. The Business Plan is one of the most important assignments of any enterprise. Therefore, start as early as possible. Expect the total time spent on this project to range anywhere from four to six weeks. Note that revisions may take additional time. Quality time should be spent on preparing the Financial Data and estimating Phantom Contracts. (See Accounting and Finance). Because the business plan is such an important document, it should be arranged logically and presented clearly. Although the information that should be included tends to be standardized, the format is not. Regardless of the specific format chosen, any plan should include at least the following: 1. Cover Sheet 2. Statement of Purpose 3. Table of Contents 4. The Business A. Executive Summary B. Objective Statement C. Mission Statement D. Company Description E. Personnel F. Market 1. Market Analysis 2. SWOT Analysis 3. Marketing Plan G. Operating Procedures 1. Location 2. Equipment 3. Labor 4. Process 5. Financial Data A. Loan Documents B. Start Up Budget C. Pro-Forma Balance Sheet D. Pro-Forma Income Projections (profit and loss statements) E. Pro-Forma Cash Flow F. Break-Even Analysis G. Financial Write-Up 6. Supporting Documents Required Documents 1. Proposed lease agreement or purchase agreement for building space 2. Résumés of all principals (CEO and management team) 3. Phantom Contract - proposed P Optional Documents 1. Licenses
  3. 3. 2. Letters of intent 3. Other relevant legal documents Recommended Steps to Follow Step 1 - Identify Objectives • Determine who will read the plan • Decide what should be known about the company (e.g. business description, product/service, new or existing company, financial need, etc.) Step 2 - Outline the Business Plan • Prepare a detailed outline based on objectives • Break out sections • Introductory Elements • Business Description • The Market • Development & Production • Sales & Marketing • Management • Financials Step 3 - Review Outline • Identify areas of the outline that will require the most detailed support • Identify areas of the outline that will require a summary Step 4 - Determine Business Plan Writing Team The company's management team should prepare the Business Plan. Each manager should be assigned a section of the plan and must include members of their department to assist with completing that section. Step 5 - Preliminary Research The order in which the specific elements of the plan are developed will vary depending on the age of the company and the experience of its staff in preparing business plans. Even so, certain research must be completed before formal writing of the plan begins. This will provide a basis for many of the assumptions and strategies eventually described in the Business Plan. The research includes: A. Collect historical financial information about the company • Balance Sheets • Income Statements • Existing Loan Information • Additional Financial Information (e.g. cash flow, break-even analysis, etc.) B. Complete market research: • Industry Analysis - describe the performance of other firms in related industries and markets, both virtual and real. Determine competitive national and local business trends, identifying strengths and threats to be addressed in long and short term planning. Compare the company vision and experience against averages for similar operations. • Market Segmentation - identify potential customers that may be divided into workable segments such as: age, income, product type, geography, buying patterns, and customer needs. • Target Market - identify defined segments of the market that are the strategic focus of the business. These defined segments are made up of people that possess common characteristics and have a greater tendency to purchase a particular product or service. These characteristics of a target market include geographic,
  4. 4. demographic, and psychographic elements. As such, people in this market represent the greatest potential for sales volume and frequency. C. Research and Develop Financial Data • Start-Up Budget (one-time expenses) such as: • Administrative Personnel A. Salary expense for administrative team prior to opening • Salaries/Wages A. Personnel expense for employees hired at or after opening • Advertising/Promotions • Construction Costs • Equipment • Furniture and Fixtures • Inventory • Legal/Professional Consulting fees • Licenses • Pre-paid Insurance • Rent Deposit • Supplies • Utilities Deposit • Operating Budget (on-going monthly expenses) such as: • Advertising/Promotions • Bank Service Charges • Equipment • Insurance • Inventory • Janitorial Services • Legal/Professional fees • Licenses • Rent • Salaries/Wages • Payroll Taxes • Supplies • Utilities • Vehicle Expenses Step 6 - Write the Plan All writing rules including grammar, spelling and punctuation need to be carefully applied. In addition, the following guidelines will assist in preparing a successful business plan. • Be honest and reveal the significant and relevant aspects of the plan - avoid lies. • Use the third person, not the first person "I." • Use transitional words, such as but, still, therefore, and hence, to smoothly lead the reader from one thought to another. • Avoid redundancies, such as "future plans." Such repetition adds nothing to the presentation. • Use short, simple words where feasible, so the plan will be easy to understand. • Use visuals such as tables, charts, photos, and computer graphics to present your ideas effectively. ` The plan should be prepared in an 8 ½ x 11-inch format, typewritten and laser printed (if possible), with copies for the investors attractively bound. Most Business Plans can be presented effectively in 25 to 30 pages. The plan should be grammatically correct and should always be proofread before it is presented. Only when pertinent, the cover and title pages should indicate that the information is proprietary since it might offend a potential investor. A. Mission Statement - briefly state (2-4 sentences) the direction for the company. It is the guiding principle for the entire business. The statement should represent the company's goal, what the company stands for, and their focus for the future. Suggested guidelines include: • Narrow enough to give direction and guidance to everyone in the business
  5. 5. • Large enough to allow the business to grow and realize its potential • Must be realistic, achievable, and brief. • Captures the essence of an organization without being so vague that it could apply to every other organization too. B. Objective Statement - specify time-based goals that can be monitored and measured, that the company wishes to achieve. • "Being the best" or "maximize customer satisfaction" cannot really be measured. Much better objectives would set measurable goals, such as holding gross margin to 25 percent as a minimum, or selling more than $4 million, or achieving six percent profit on sales and 10 percent return on equity. • EXAMPLES: "Achieve annual sales of $1.1 million"; "Open gift shop in Anytown at Third Street Public Market with five-year lease."; "Maintain gross margin of 25 percent"; Expand product family by adding 10 different kinds of flowers and flower arrangements in 2004". C. Company Description - describe in general terms a clear and concise picture of what the company does, what it will offer, where it will operate, when it will transact business, and how it will succeed. • Type of business • Industry segment(s) • Company offerings • Legal Description • Where the company was formed • How the company is structured (sole proprietorship, partnership, corporation) • Effective Date • Date the company is projected to open for business (new company). • Date the company originally opened for business (existing company). • Company Location • Street Address • City, State, Zip Code • Organizational Chart • History of Company (existing businesses only) • Current Status (existing businesses only) • Future Goals D. Personnel - specify key personnel including the CEO and management team. • Name • Job title • Personal qualifications - (Student's actual qualifications) E. Market • Market Analysis • Industry Analysis A. Real Industry B. Virtual Industry - based on historical data • Market Segmentation - identify potential customers in a target market that may be divided into workable segments such as: A. Age B. Income C. Product type D. Geography E. Buying patterns F. Customer needs • Target Market • SWOT Analysis • Internal Audit A. Strengths - identify the company's resources and capabilities that can be used as a basis for developing a competitive advantage. • External Audit (4 external forces: economic, technological, competitive, social/cultural/environmental) A. Opportunities - describe areas that may reveal certain new opportunities for profit and growth. B. Threats - discuss changes in the external environment that may present threats to the company.
  6. 6. • Marketing Plan - outline specific actions the company will take to interest potential customers and clients in its product and/or service and persuade them to buy the product and/or service offered. • Product - identify the physical product/service offered to the consumer as well as any services or conveniences that are part of the offering. • Price - use any combination of the following to determine the price of the product/service: A. evaluate product features and customer benefits B. determine the cost of production C. note competitors' prices D. ask key customers what price they are willing to pay E. get feedback from salespeople F. consider typical customers' "disposable income" G. solicit advice from consultants or business associates • Placement (Distribution) - A. identify channels of distribution that serve as the means of getting the product/service to the target customers. B. describe the distribution system that performs transactional, logistical, and facilitating functions. • Promotion - discuss the method of communicating and selling the product/service to potential consumers. F. Operating Procedures - determine the internal operations and process necessary to deliver the product/service. • Location - list information about the location of the business including: • Number of Locations • Square Footage • Type of Space - (office, warehouse, manufacturing, or combination) • Advantage of Location(s) • Equipment - describe significant equipment needed, including cost. • Labor - list the number of employees, schedules, functions, and pay. • Process • Acquiring Products • Storing Products • Distributing Products/Services G. Loan Documents • Loan Application for new company • Loan Summary for existing company - summarize the current status of the loan including: • Original Amount of Loan • Loan Issue Date • Loan Pay-Off Date • Remaining Balance H. Start Up Budget - calculate the following one-time expenses: • Administrative Personnel • Salary expense for administrative team prior to opening • Salaries/Wages • Personnel expense for employees hired at or after opening • Inventory • Legal/professional fees • Licenses • Insurance • Rent • Equipment • Utilities • Supplies • Advertising/Promotions I. Pro-Forma Balance Sheet • Assets • Liabilities
  7. 7. • Net Worth Evaluation Rubric A Business Plan Rubric and Grade Summary have been provided for evaluation purposes. Other Resources See the following web sites for further information regarding business plans: • - American Express shows small businesses how to write an effective business plan. • - Rubric Maker (time management) • - Industry Analysis and Marketing Plan Research • - Excellent resource of Business Plan preparation material • - Good resource for looking at real companies' business plans. • - SWOT analysis method and examples • - Entrepreneur Magazine's site with plenty of articles relating to writing business plans. • - Writing an Effective Business Plan • Outline for a Business Plan • - Mistakes to Avoid When Writing a Business Plan • - This site is an excellent resource for writing your own business plan. It includes numerous sample business plans for product as well as service organizations. In addition, you can ask questions to the experts on- line. • - Description of the Accounting Process, Journal Entries, and Financial Statements • - Lots of sample business plans! A great resource to get an idea of the different formats professionals have used. • - Site supported by the government, includes links to other resources. • - SWOT Analysis Exercise