Entrepreneurship Chap 7


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Entrepreneurship Chap 7

  1. 1. HisrichPetersShepherdChapter 7The Business Plan:Creating andStarting the VentureCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 7-2Planning as Part of the BusinessOperation Plans provide guidance and structure in arapidly changing market environment. Plans get finalized as the entrepreneur hasa better sense of the market, the productor services, the management team, and thefinancial needs of the venture. They help meet short-term or long-termbusiness goals.
  3. 3. 7-3What is the Business Plan? A written document describing all relevantinternal and external elements, andstrategies for starting a new venture. It is an integration of functional plans;addresses short-term and long-termdecision making for the first three years ofoperation.
  4. 4. 7-4Who Should Write the Plan? The plan should be prepared by theentrepreneur in consultation with othersources. The entrepreneur should make anobjective assessment of his or her ownskills before deciding to hire a consultant.
  5. 5. 7-5Scope and Value of the BusinessPlan—Who Reads the Plan? Who is expected to read the plan can oftenaffect its actual content and focus. In preparing the plan it is important toconsider the: Entrepreneur’s perspective. Marketing perspective. Investors perspective.
  6. 6. 7-6Scope and Value of the BusinessPlan—Who Reads the Plan? (cont.) Depth and detail in the business plandepend on: Size and scope of the proposed new venture. Size of the market. Competition. Potential growth.
  7. 7. 7-7 The business plan is valuable because it: Helps determine the viability of the venture in adesignated market. Guides the entrepreneur in organizing planningactivities. Serves as an important tool in obtainingfinancing. This process provides a self-assessment bythe entrepreneur.Scope and Value of the BusinessPlan—Who Reads the Plan? (cont.)
  8. 8. 7-8How do Potential Lenders andInvestors Evaluate the Plan? The business plan must reflect: The strengths of management and personnel. The product/service. Available resources. Lenders are interested in the venture’sability to pay back the debt. Focus on the four Cs of credit - Character, cashflow, collateral, and equity contribution. Banks want an objective analysis of thebusiness opportunity and the risks.
  9. 9. 7-9 Investors, particularly venture capitalists,have different needs: Place more emphasis on the entrepreneur’scharacter. Spend much time conducting backgroundchecks. Demand high rates of return. Focus on market and financial projections.How do Potential Lenders andInvestors Evaluate the Plan? (cont.)
  10. 10. 7-10Presenting the Plan The entrepreneur is expected to “sell” thebusiness concept. Focus on why this is a good opportunity. Provide an overview of the marketing program;sales and profits. Address risks and how to overcome them. Audience includes potential investors whomay raise questions. Investors describe these presentations aselevator pitches.
  11. 11. 7-11Information Needs Before creating a business plan, theentrepreneur must undertake a feasibilitystudy. Information for a feasibility study shouldfocus on marketing, finance, andproduction. Feasible, well-defined goals and objectivesneed to be established. Based on this, strategy decisions can beestablished.
  12. 12. 7-12Figure 7.1 - An Upside-Down PyramidApproach to Gathering Market Information
  13. 13. 7-13 Operations Information Needs Location. Manufacturing operations. Raw materials. Equipment. Labor skills. Space. Overhead. Most of the information should be incorporateddirectly into the business plan.Information Needs (cont.)
  14. 14. 7-14Financial Information Needs The entrepreneur has to prepare a budgetof all possible expenditures and revenuesources, including sales and any externalavailable funds. The budget includes capital expenditures,direct operating expenses, and cashexpenditures for nonexpense items. Industry benchmarks can be used inpreparing the final pro forma statements inthe financial plan.
  15. 15. 7-15Using the Internet as a ResourceTool The Internet can provide information forindustry analysis, competitor analysis, andmeasurement of market potential. It is a valuable resource in later-stageplanning and decision making; providesopportunities for marketing strategy. An entrepreneur can access: Popular search engines. Competitors’ Web sites. Social networks, blogs, and discussion groups.
  16. 16. 7-16Writing the Business Plan A business plan should be comprehensiveenough to give any potential investor acomplete picture and understanding of thenew venture. It should help the entrepreneur clarify hisor her thinking about the business.
  17. 17. 7-17 Introductory Page Name and address of the company. Name of the entrepreneur(s), telephonenumber, fax number, e-mail address, and Website address. Description of the company and nature of thebusiness. Statement of financing needed. Statement of confidentiality of report.Writing the Business Plan (cont.)
  18. 18. 7-18 Executive Summary About two to three pages in length summarizingthe complete business plan. Environmental and Industry Analysis The environmental analysis assesses externaluncontrollable variables that may impact thebusiness plan. Examples: Economy, culture, technology, legalconcerns, etc. The industry analysis involves reviewing industrytrends and competitive strategies. Examples: Industry demand, competition, etc.Writing the Business Plan (cont.)
  19. 19. 7-19Table 7.5 - Critical Issues forEnvironmental and Industry Analysis
  20. 20. 7-20Table 7.6 - Describing the Venture
  21. 21. 7-21Table 7.7 - Production Plan
  22. 22. 7-22 Operations Plan All businesses (manufacturing ornonmanufacturing) should include an operationsplan as part of the business plan. It goes beyond the manufacturing process. Describes the flow of goods and services fromproduction to the customer. The major distinction between services andmanufactured goods is services involveintangible performances.Writing the Business Plan (cont.)
  23. 23. 7-23 Marketing Plan It describes market conditions and strategyrelated to how the product/service will bedistributed, priced, and promoted. Marketing research evidence to support any ofthe marketing decision strategies as well as forforecasting sales should be described in thissection. Potential investors regard the marketing plan ascritical to the success of the new venture.Writing the Business Plan (cont.)
  24. 24. 7-24 Organizational Plan It describes the form of ownership and lines ofauthority and responsibility of members of newventure. In case of a partnership, the terms of thepartnership should be included. In case of a corporation, the following should beincluded: Shares of stock authorized and share options. Names, addresses, and resumes of directors andofficers. Organization chart.Writing the Business Plan (cont.)
  25. 25. 7-25 Assessment of Risk Identifies potential hazards and alternativestrategies to meet goals and objectives. The entrepreneur should indicate: Potential risks to the new venture. Impact of the risks. Strategy to prevent, minimize, or respond to the risk. Major risks could result from: Competitor’s reaction. Weaknesses in marketing/ production/ managementteam. New advances in technology.Writing the Business Plan (cont.)
  26. 26. 7-26 Financial Plan It contains projections of key financial data thatdetermine economic feasibility and necessaryfinancial investment commitment. It should contain: Summarized forecasted sales and appropriateexpenses for at least the first three years. Cash flow figures for three years. Projected balance sheet.Writing the Business Plan (cont.)
  27. 27. 7-27 Appendix It contains any backup material that is notnecessary in the text of the document. It may include: Letters from customers, distributors, orsubcontractors. Secondary data or primary research data used tosupport plan decisions. Leases, contracts, or other types of agreements. Price lists from suppliers and competitors.Writing the Business Plan (cont.)
  28. 28. 7-28Using and Implementing theBusiness Plan The business plan is designed to guide theentrepreneur through the first year ofoperations. The strategy should contain control pointsto ascertain progress and to initiatecontingency plans if necessary. Without good planning employees will notunderstand the company’s goals. Businesses fail due to entrepreneur’sinability to plan effectively.
  29. 29. 7-29 Measuring Plan Progress Business plan projections are made on a 12-month schedule but the entrepreneur shouldfrequently check on: Profit and loss statement. Cash flow projections. Inventory control. Production control. Quality control. Sales control. Disbursements. Web site control.Using and Implementing theBusiness Plan (cont.)
  30. 30. 7-30 Updating the Plan Entrepreneurs must be sensitive to changes inthe company, industry, and market. Determine what revisions are needed if changesare likely to affect the business plan. This helps entrepreneurs to: Maintain reasonable targets and goals. Keep the new venture on a course to high probabilityof success.Using and Implementing theBusiness Plan (cont.)
  31. 31. 7-31Why Some Business Plans Fail Goals are unreasonable. Objectives are not measurable. Entrepreneur has not made a totalcommitment to the business or to thefamily. Lack of experience in the planned business. No sense of potential threats or weaknessesto the business. No customer need was established for theproposed product or service.