Business plan writing

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How to write a business plan

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Business plan writing

  1. 1. Business Plan Writing Hj Arriffin Mansor 012-278628204/14/12 arriffin 1
  2. 2. 7 steps in business planning04/14/12 arriffin 2
  3. 3. 7 steps in business planning04/14/12 arriffin 3
  4. 4. The Purpose of business plans Pre-venture Counseling Loan Packaging Business Planning Market Research New Product Financial Analysis Commercialization Franchise Evaluation Strategic Planning International Trade Human Resource Mgmt04/14/12 arriffin 4
  5. 5. Ingredients for business Success competent PERSON POTENTIAL BUSINESS OPPORTUNITY BUSINESS PLAN SUFFICIENT CAPITAL All the above04/14/12 arriffin 5
  6. 6. THE BUSINESS PLANTHE BUSINESS PLAN IS A WRITTEN DOCUMENT WHICH DESCRIBES YOUR BUSINESS IN TERMS OF . . .04/14/12 arriffin 6
  7. 7. THE BUSINESS PLAN WHO YOU ARE WHAT YOU DO WHERE YOU ARE HEADED HOW AND WHEN YOU EXPECT TO GET THERE WHY YOU WILL BE SUCCESSFUL04/14/12 arriffin 7
  8. 8. WHY YOU NEED A BUSINESS PLAN04/14/12 arriffin 8
  9. 9. A Business Plan is: Your First Marketing and Sales Tool04/14/12 arriffin 9
  10. 10. Typical Business Plan Outline(First Time Entrepreneurs) I. Overview (Summary) II. The Opportunity III. The Solution IV. The Business Model V. Operations VI. Financials VII. Required Capital, Equity Structure and Rate of Return VIII.Management Team 04/14/12 arriffin 10
  11. 11. TO ENCOURAGE YOU TO BE SPECIFIC TO EVALUATE THE FEASIBLITY OF YOUR IDEAS TO PROVIDE PLANNING, OPERATING, AND POLICY GUIDES TO IMPROVE DECISION-MAKING, EFFICIENCY, AND CONTROL04/14/12 arriffin 11
  12. 12. TO IMPROVE YOUR CHANCES OF SUCCESS TO PERSUADE POTENTIAL LENDERS AND INVESTORS YOU WILL SUCCEEDNOTE: DO NOT WRITE A BUSINESS PLAN JUST TO OBTAIN FINANCING, WRITE IT FOR YOUR BENEFIT.04/14/12 arriffin 12
  13. 13. COMPONENTS OF A BUSINESS PLAN NARRATIVE FINANCIAL DATA SUPPORTING DOCUMENTS04/14/12 arriffin 13
  14. 14. STATEMENT OF PURPOSE WHO IS ASKING FOR THE MONEY? WHAT IS THE BUSINESS STRUCTURE? HOW MUCH MONEY? WHAT IS THE MONEY NEEDED FOR? HOW WILL THE FUNDS BENEFIT THE BUSINESS? WHY DOES THE LOAN MAKE SENSE? HOW WILL THE FUNDS BE REPAID?04/14/12 arriffin 14
  15. 15. DESCRIPTION OF BUSINESS BUSINESS FORM? -PROPIETORSHIP -PARTNERSHIP -CORPORATION TYPE OF BUSINESS? -MERCHANDISING -MANUFACTURING -SERVICE04/14/12 arriffin 15
  16. 16. DESCRIPTION OF BUSINESS (cont.) WHAT IS THE PRODUCT AND/OR SERVICE? IS IT A NEW BUSINESS, TAKEOVER, OR EXPANSION? WHY WILL THE BUSINESS BE PROFITABLE?04/14/12 arriffin 16
  17. 17. DESCRIPTION OF BUSINESS (cont.) WHEN WILL YOUR BUSINESS OPEN? IS IT A SEASONAL BUSINESS? WHAT HAVE YOU LEARNED ABOUT YOUR BUSINESS FROM OUTSIDE SOURCES?04/14/12 arriffin 17
  18. 18. PRODUCT/SERVICE WHAT ARE YOU SELLING? WHAT BENEFITS ARE YOUR CUSTOMERS BUYING? WHICH PRODUCTS ARE RISING STARS, STEADY CASH COWS, IN DECLINE (INVESTMENT EGOS)? WHAT IS DIFFERENT ABOUT YOUR GOODS AND SERVICES?04/14/12 arriffin 18
  19. 19. MARKET WHO BUYS FROM YOU? DEFINE YOUR TARGET MARKETS. ARE YOUR MARKETS GROWING, STEADY, OR DECLINING? IS YOUR MARKET SHARE GROWING, STEADY, OR DECLINING?04/14/12 arriffin 19
  20. 20. MARKET (cont.) HAVE YOU SEGMENTED YOUR MARKETS? HOW? ARE YOUR MARKETS LARGE ENOUGH FOR EXPANSION? HOW WILL YOU ATTRACT, HOLD, AND INCREASE YOUR MARKET SHARE?04/14/12 arriffin 20
  21. 21. MARKET (cont.) ARE YOU PLANNING TO ENTER OR LEAVE ANY MARKETS? HOW DO YOU PRICE YOUR PRODUCTS?04/14/12 arriffin 21
  22. 22. COMPETITION WHO ARE YOUR DIRECT COMPETITORS? WHO ARE YOUR NEAREST INDIRECT COMPETITORS? HOW ARE THEIR BUSINESSES SIMILAR TO AND DIFFERENT FROM YOURS? WHAT HAVE YOU LEARNED FROM THEIR OPERATIONS, ADVERTISING?04/14/12 arriffin 22
  23. 23. LOCATION OF BUSINESS WHERE ARE YOU (OR SHOULD YOU BE) LOCATED? WHY IS IT A DESIRABLE AREA OR BUILDING? WHAT KIND OF SPACE DO YOU NEED? ARE ANY DEMOGRAPHICS OR OTHER MARKET SHIFTS GOING ON?04/14/12 arriffin 23
  24. 24. MANAGEMENT HOW DOES YOUR BUSINESS EXPERIENCE HELP YOU IN THIS BUSINESS? WHAT RELATED WORK EXPERIENCE DO YOU HAVE? WHO IS ON THE MANAGEMENT TEAM?04/14/12 arriffin 24
  25. 25. MANAGEMENT (cont.) WHAT ARE THEIR STRENGTHS AND WEAKNESSES? WHAT ARE THEIR DUTIES? ARE THESE DUTIES CLEARLY DEFINED? HOW? WHAT ADDITIONAL RESOURCES ARE AVAILABLE TO YOUR BUSINESS?04/14/12 arriffin 25
  26. 26. PERSONNEL WHAT ARE YOUR CURRENT PERSONNEL NEEDS? WHAT SKILLS WILL YOUR EMPLOYEES NEED? IN FIVE YEARS? WHAT ARE YOUR PLANS FOR HIRING AND TRAINING PERSONNEL?04/14/12 arriffin 26
  27. 27. APPLICATION/EXPECTED EFFECT OF THE LOAN (INVENSTMENT) HOW WILL THE LOAN (INVESTMENT) MAKE YOUR BUSINESS MORE PROFITABLE? WILL YOU BUY OR LEASE (EQUIPMENT, PLACE OF BUSINESS)? DO YOU NEED THIS MONEY?04/14/12 arriffin 27
  28. 28. FINANCIAL DATASOURCES ANDAPPLICATIONS OF FUNDINGASSUMPTIONSWAGE/REVENUE SCHEDULEBALANCE SHEETTHREE YEAR INCOME STATEMENTTHREE YEAR CASH FLOW STATEMENT04/14/12 arriffin 28
  29. 29. Goal for Session Quick Introduction to Business Plan Financial Analysis  Help you understand what is important Not a class in accounting!04/14/12 arriffin 29
  30. 30. What should it be ? What is the Purpose of Business Plan Financials? Passing the “Taste Test” Executive Summary Financials Detailed (Appendix) Financials04/14/12 arriffin 30
  31. 31. Business PlanFinancials04/14/12 arriffin 31
  32. 32. What is the Purpose ofYour Business PlanFinancials?04/14/12 arriffin 32
  33. 33. Business Plan FinancialsPhase I Helps you:  test various potential business models  isolate critical assumptions  determine whether this is a viable business opportunity  determine how much money you’ll need04/14/12 arriffin 33
  34. 34. Business Plan FinancialsPhase II Helps potential investors:  test the viability of your business model  evaluate your critical assumptions  Are they credible?  Do you understand your business?  evaluate you as someone who understands how business works from a financial perspective  determine whether the investment is potentially attractive  evaluate your true financial needs04/14/12 arriffin 34
  35. 35. “The Taste Test”04/14/12 arriffin 35
  36. 36. Job 1: Pass the “Taste Test” Tom Canfield of Equity Catalysts: “Can you taste $25-$50 million in revenues?” Is the revenue scenario credible or will you have to achieve miracles to hit your forecast numbers?04/14/12 arriffin 36
  37. 37. So, how doyou convincesomeone thatyour revenuescenarios arecredible?04/14/12 arriffin 37
  38. 38. Tips for Credibility Show your assumptions and be able to back them up with FACTS based on market research and/or some compelling rationale04/14/12 arriffin 38
  39. 39. Showing a Potential MarketEnterprize, Inc.Market share required to achieve Revenue GoalsGizmo Unit Sales Price $ 2,500 25% of competitor price; greater valueMarket Opportunity in Units 150000 According to Gartner Group;Market Opportunity in Revenue to Enterprize $ 375 $ million Yr Yr Yr Yr Yr 1 2 3 4 5Enterprise, Inc. Yearly Objectives ($ millions) $ 3.50 $ 7.00 $ 14.00 $ 28.00 $ 56.00Growth Rate 100% 100% 100% 100%Required Unit Sales 1400 2800 5600 11200 22400Required Market Share to Achieve Objective 0.93% 1.87% 3.73% 7.47% 14.93%Note: Enterprise will achieve this required market share because of:1) Partnership with xyz will yield . . .2) ajsadfjkdfsajkl adfjkldsfkl, etc. 04/14/12 arriffin 39
  40. 40. Mistakes to Avoid Assumptions you can’t justify  Too high a market share Too much detail Too little detail Not enough growth Too much profit (in later years)04/14/12 arriffin 40
  41. 41. Summary Financials04/14/12 arriffin 41
  42. 42. Summary Financials Pro-forma Income Statement Pro-forma Return to Investors04/14/12 arriffin 42
  43. 43. IncomeStatement04/14/12 arriffin 43
  44. 44. What is an Income Statement? Shows financial results of a company over a given period of time Includes:  Revenues  Cost of Sales (costs directly attributable to the products/services sold)  Other Operating Expenses  Marketing, Sales  Research and Development  General and Administrative  Earnings before TaxOperating Income  Tax  Earnings after Tax04/14/12 arriffin 44
  45. 45. Sample Income Statement Simple Income Statement Enterprize, Inc. Jan-Dec, 1999 Revenues $60,000 Cost of Goods Sold $30,000 Gross Margin $30,000 Research & Development $35,000 Sales and Marketing $40,000 General and Administrative $10,000 Total Operating Expenses $85,000 Operating Profit -$55,000 Tax 35% 0 Profit After Tax -$55,00004/14/12 arriffin 45
  46. 46. Income Statement Questions What is Revenue?  How would a magazine account for a subscription?  How would a software company account for a software license? What is Cost of Goods sold? What are some of the components of operating expenses? What is operating profit?04/14/12 arriffin 46
  47. 47. Pro-forma Income Statement Summary Table showing 3-5 years of  Revenues  Cost of Sales  Other Operating Expenses  Operating Income Plus: Brief text on how can you support these financials  The key assumptions04/14/12 arriffin 47
  48. 48. Pro-forma Income Statement Income Statement (MM)Years 1 2 3 4 5Revenues $13.1 $54.3 $143.3 $230.2 $321.2Cost of Goods $15.6 $28.8 $54.1 $82.4 $112.1SoldOther Operating $23.8 $32.1 $64.5 $100.4 $140.3ExpensesOperating Income -$26.3 -$6.6 $24.8 $47.4 $68.8Operating Margin -201.2 -12.2 17.3% 20.6% 21.4% % %04/14/12 arriffin 48
  49. 49. Required Capital, EquityStructure and Rate of Return How much cash will you need? What is the value of the company? How much will the management team contribute, if any? What is the rate of return on capital for the investors?04/14/12 arriffin 49
  50. 50. Rate of Return Assumptions Assumptions for ROI Calculation Investment by Partner $ 25.0 million Valuation of the company after the investment $ 100.0 million Equity from Investment 25% Equity from Strategic Relationship 5% Total percent of equity 30% Year 5 Operating Profit $ 69 million Assumed multiple of operating profit at sale 7 Assumed value of the company after 5 years $ 483 million Return to Partners $ 145 million Assumed dividends during 5 years 004/14/12 arriffin 50
  51. 51. Rate of Return Calculation Yr Yr Yr Yr Yr 1 2 3 4 5 Initial Investment $ (25) $ - $ - $ - $ - Dividends $ - $ - $ - $ - $ - Return from Sale $ 145 Net Cash Flows $ (25) $ - $ - $ - $ 145 Internal Rate of Return 55% Net Present Value at 35% $13.8204/14/12 arriffin 51
  52. 52. Detailed Financials(“Appendix”) 04/14/12 arriffin 52
  53. 53. Exhibits for Detailed Financials Typically: 5 years on an annual basis and month-to-month for the first year Components:  Assumptions and Outcomes Page  Income Statement  Detailed Revenue  Detailed Expenses  Headcount  Return on Investment  Balance Sheet  Cash Flow04/14/12 arriffin 53
  54. 54. Assumptions and Outcomes Shows key assumptions and the outcomes in terms of profits, etc. Helps show the reasonableness of your analysis Tells the story in summary form, in case someone only looks at this page04/14/12 arriffin 54
  55. 55. IncomeStatementandRelatedExhibits04/14/12 arriffin 55
  56. 56. Income Statement Revenues  Summarizes components of revenue Expenses  Cost of goods sold  Other major components of operating expenses  Sales, marketing, general and administrative  Research and Development, etc. Earnings before income and tax (or operating income) Tax Profit after tax04/14/12 arriffin 56
  57. 57. Detailed Revenue Shows revenue over time divided into key components:  Product areas  Geographies  Any components that make sense Documents assumptions and their effects04/14/12 arriffin 57
  58. 58. Detailed Expenses Summarizes key expense categories in major detail Documents assumptions not summarized elsewhere04/14/12 arriffin 58
  59. 59. Payroll and Headcount Who are you going to hire When will they start? How much will they earn? Cost of benefits, etc.04/14/12 arriffin 59
  60. 60. Return on Investment Expected investment Expected share of ownership Change in share of ownership due to other investments Returns on the investment, including dividends and some “terminal value” Discount cash flows to show Internal Rate of Return and Net Present Value04/14/12 arriffin 60
  61. 61. Balance Sheet04/14/12 arriffin 61
  62. 62. What is a Balance Sheet? A snapshot of a company’s financial position at a moment in time Left hand side = Assets Right hand side = Liabilities and Equities Assets must equal liabilities plus equities (hence it is a “balance” sheet)04/14/12 arriffin 62
  63. 63. Balance Sheet Simple Balance Sheet Enterprize, Inc. 6-Jan-00 Liabilities & Assets Equity Cash $ 25,000 Accounts Payable $ 5,000 Accounts Receivable $ 10,000 Prepaid royalties $ 25,000 Inventory $ 15,000 Current portion of notes payable $ - Total Current Assets $ 50,000 Total Current Liabilities $ 30,000 Property, Plant & Equipment $ 25,000 Long term debt $ - Total Liabilities $ 30,000 Paid-in Capital $ 100,000 Retained Earnings (cumulative deficit) $ (55,000) Total Assets $ 75,000 Total Liabilities and Equities $ 75,00004/14/12 arriffin 63
  64. 64. What is an Asset?Assets are valuable resources owned by an entity and include:  Cash  Things that are likely to become cash soon (inventories, accounts receivable)  Valuable things that help the business produce revenues over a longer period (property, plant, and equipment, etc.) 04/14/12 arriffin 64
  65. 65. What is a Liability? Liabilities are the claims of creditors and include:  Accounts payable  Notes payable this year  Longer term obligations, such as long term debt04/14/12 arriffin 65
  66. 66. What is an Equity? Equities reflect the “claims” of investors and include: Paid in capital “Retained Earnings” or the sum total of profits after tax that haven’t been paid out through dividends Note: You can’t cash in equities—they represent a claim on the business not an asset.04/14/12 arriffin 66
  67. 67. Cash FlowStatement04/14/12 arriffin 67
  68. 68. Cash Flow Statement Records the Flow of Cash during a given period Cash inflows include:  Profits  Sale of assets  Reduction in:  Accounts Receivables  Other assets Cash outflows include:  Losses  Purchase of assets  Increase in:  Accounts Receivables  Other assets04/14/12 arriffin 68
  69. 69. Cash Flow StatementSimple Cash Flow StatementEnterprize, Inc.Jan-Dec, 1999Sources of Cash Uses of CashCash from Operations: Increase in accounts receivable $ 10,000 Increase in Inventory $ 15,000Net Income (loss) $ (55,000) Purchase of property, plant $ 30,000Depreciation $ 5,000 & equipmentNet cash from operations $ (50,000)Other Sources of Cash:Sale of Stock $ 90,000Increase in accounts payable $ 5,000Increase in prepaid royalties $ 25,000Total Sources of Cash $ 70,000 Total Uses of Cash $ 55,000 Increase (decrease) in cash $ 15,00004/14/12 arriffin 69
  70. 70. Business Plan FinancialProjection WorkshopHandout Example Statements and Recommended Readings04/14/12 arriffin 70
  71. 71. Q and A04/14/12 arriffin 71
  72. 72. Thanks and ABM Consult04/14/12 arriffin 72

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