Abdm4223 lecture week 7 150612


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  • Abdm4223 lecture week 7 150612

    1. 1. ABDM4233 ENTREPRENEURSHIP Preparing a Business Plan by Stephen OngPrincipal Lecturer (Specialist) Visiting Professor, Shenzhen
    2. 2. Business Prototyping Entrepreneurs test their business models on a small scale before committing serious resources to launch a business that might not work. Recognizes that a business idea is a hypothesis that needs to be tested before taking it full scale. 4-2
    3. 3. Elements of a Feasibility Analysis Industry and Product or Service Market Feasibility Feasibility Financial Feasibility 4-3
    4. 4. Elements of a Feasibility Analysis Industry and Product or Service Market Feasibility Feasibility Financial Feasibility 4-4
    5. 5. Five Forces Model Potential Entrants Threat of New Entrants Bargaining Power Industry of Suppliers Bargaining Power Competitors of BuyersSuppliers Buyers Rivalry among existing firms Threat of Substitute Products or Services Substitutes 4-5
    6. 6. Five Forces Matrix 4-6
    7. 7. Elements of a Feasibility Analysis Industry and Product or Service Market Feasibility Feasibility Financial Feasibility 4-7
    8. 8. What Is a Business Plan? Business Plan  A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business plans to accomplish. Dual-Use Document  For most new ventures, the business plan is a dual- purpose document used both inside and outside the firm. 4-8
    9. 9. Who Reads the Business Plan—And What Are They Looking For?There are two primary audiences for a firm’s business plan Audience What They are Looking For A Firm’s A clearly written business plan helps the Employees employees of a firm operate in sync and move forward in a consistent and purposeful manner.Investors and A firm’s business plan must make the case that theother external firm is a good use of an investor’s funds or the stakeholders attention of others. 4-9
    10. 10. Guidelines for Writing a Business Plan 1 of 5 Structure of the Business Plan  To make the best impression a business plan should follow a conventional structure, such as the outline for the business plan shown in the chapter.  Although some entrepreneurs want to demonstrate creativity, departing from the basic structure of the conventional business plan is usually a mistake.  Typically, investors are busy people and want a plan where they can easily find critical information. 4-10
    11. 11. Guidelines for Writing a Business Plan 2 of 5 Structure of the Business Plan (continued)  Software Packages  There are many software packages available that employ an interactive, menu-driven approach to assist in the writing of a business plan.  Some of these programs are very helpful. However, entrepreneurs should avoid a boilerplate plan that looks as though it came from a “canned” source.  Sense of Excitement  Along with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture. 4-11
    12. 12. Guidelines for Writing a Business Plan 3 of 5 Content of the Business Plan  The business plan should give clear and concise information on all the important aspects of the proposed venture.  It must be long enough to provide sufficient information yet short enough to maintain reader interest.  For most plans, 25 to 35 pages is sufficient. Types of Business Plans  There are three types of business plans, which are shown on the next slide. 4-12
    13. 13. Guidelines for Writing a Business Plan 4 of 5 Types of Business Plans 4-13
    14. 14. Guidelines for Writing a Business Plan 5 of 5 Recognizing the Elements of the Plan May Change  It’s important to recognize that the plan will usually change while written.  New insights invariably emerge when an entrepreneur or a team of entrepreneurs immerse themselves in writing the plan and start getting feedback from others. 4-14
    15. 15. The Business Plan A written summary of:  An entrepreneur’s proposed business venture  The operational and financial details  The marketing opportunities and strategy  The managers’ skills and abilities. A business plan is the best insurance against launching a business destined to fail or mismanaging a potentially successful company. 4 - 15
    16. 16. The Business Plan: Two Essential Functions1. Guiding the company by charting its future course and defining its strategy for following it.2. Attracting lenders and investors who will provide needed capital. 4 - 16
    17. 17. A Plan Must Pass Three Tests1. The Reality Test – proving that :  A market really does exist for your product or service.  You can actually build or provide it for the cost estimates in the plan.2. The Competitive Test – evaluates:  A company’s position relative to its competitors.  Management’s ability to create a company that will gain an edge over its rivals.3. The Value Test – proving that:  A venture offers investors or lenders an attractive rate of return or a high probability of repayment. 4 - 17
    18. 18. Why Take the Time to Build a Business Plan? Although building a plan does not guarantee success, it does increase your chances of succeeding in business. A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map! 4 - 18
    19. 19. Key Elements of a Business Plan  Title Page and Table of Contents  Executive Summary  Vision and Mission Statement  Company History  Business and Industry Profile Our Business Plan 4 - 19
    20. 20. FIGURE 4.3Mission, Goalsand Objectives 4 - 20
    21. 21. Key Elements of a Business Plan Title Page and Table of Contents Executive Summary The Business Plan Mission Statement Company History Business and Industry Profile Business Strategy Description of Products/Services 4 - 21
    22. 22. Features vs. Benefits Feature – a descriptive fact about a product or service: “an ergonomically designed, more comfortable handle” Benefit – what a customer gains from the product or service feature: “fewer problems with carpal tunnel syndrome and increased productivity” 4 - 22
    23. 23. Key Elements of a Business Plan (continued)  Marketing Strategy The Business Plan  Document market claims  Show customer interest  Competitor Analysis  Description of Management Team  Plan of Operation Our Business Projected Financial Statements Plan   Loan or Investment Proposal 4 - 23
    24. 24. Guidelines for Preparing a Business Plan Remember: No one can create your plan for you. Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections. Show how you plan to set your business apart from competitors; don’t fall into the “me too” trap. Identify your target market and offer evidence that customers for your product or service exist. 4 - 24
    25. 25. Tips on Preparing a Business Plan Make sure your plan has an attractive cover. (First impressions are crucial.) Rid your plan of all spelling and grammatical errors. Make your plan visually appealing. Include a table of contents to allow readers to navigate your plan easily. Make it interesting. 4 - 25
    26. 26. Tips on Preparing a Business Plan (continued) Your plan must prove that the business will make money (not necessarily immediately, but eventually). Use spreadsheets to generate financial forecasts. Always include cash flow projections. Keep your plan “crisp” – between 25 and 40 pages long. Tell the truth – always. 4 - 26
    27. 27. The “5 Cs” of Credit  Capital  Capacity  Collateral  Character  Conditions 4 - 27
    28. 28. Outline of Business Plan Outline of Business Plan  A suggested outline of a business plan is shown on the next several slides.  Most business plans do not include all the elements introduced in the sample plan; we include them here for the purpose of completeness.  Each entrepreneur must decide which elements to include in his or her plan. 4-28
    29. 29. Section 1: Executive Summary 1 of 2 Executive Summary  The executive summary is a short overview of the entire business plan  It provides a busy reader with everything that needs to be known about the new venture’s distinctive nature.  An executive summary shouldn’t exceed two single-spaced pages. 4-29
    30. 30. Section 1: Executive Summary 2 of 2 Key Insights • In many instances an investor will ask for a copy of a firm’s executiveExecutive Summary summary and will ask for a copy of the entire plan only if the executive summary is sufficiently convincing. • The executive summary, then, is arguably the most important section of a business plan. 4-30
    31. 31. Section 2: Industry Analysis 1 of 2 Industry Analysis  This section should begin by describing the industry the business will enter in terms of its size, growth rate, and sales projections.  Items to include in this section:  Industry size, growth rate, and sales projections  Industry structure  Nature of participants  Key success factors  Industry trends  Long-term prospects 4-31
    32. 32. Section 2: Industry Analysis 2 of 2 Key Insights • Before a business selects a target market it should have a good graspIndustry Analysis of its industry—including where its promising areas are and where its points of vulnerability are. • The industry that a company participates in largely defines the playing field that a firm will participate in. 4-32
    33. 33. Section 3: Company Description 1 of 2 Company Description  This section begins with a general description of the company.  Items to include in this section:  Company description  Company history  Mission statement  Products and services  Current status  Legal status and ownership  Key partnerships (if any) 4-33
    34. 34. Section 3: Company Description 2 of 2 Key Insights • While at first glance this section may seem less important than theCompany Description others, it is extremely important. • It demonstrates to your reader that you know how to translate an idea into a business. 4-34
    35. 35. Section 4: Market Analysis 1 of 2 Market Analysis  The market analysis breaks the industry into segments and zeros in on the specific segment (or target market) to which the firm will try to appeal.  Items to include in this section:  Market segmentation and target market selection  Buyer behavior  Competitor analysis 4-35
    36. 36. Section 4: Market Analysis 2 of 2 Key Insights • Most start-ups do not service their entire industry. Instead, they focusMarket Analysis on servicing a specific (target) market within the industry. • It’s important to include a section in the market analysis that deals with the behavior of the consumers in the market. The more a start-up knows about the consumers in its target market, the more it can tailor its products or services appropriately. 4-36
    37. 37. Section 5: The Economics of the Business 1 of 2 The Economics of the Business  This section addresses the basic logic of how profits are earned in the business and how many units of a business’s profits must be sold for the business to “break even” and then start earning a profit.  Items to include in this section:  Revenue drivers and profit margins  Fixed and variable costs  Operating leverage and its implications  Start-up costs  Break-even chart and calculations 4-37
    38. 38. Section 5: The Economics of the Business 2 of 2 Key Insights • Two companies in the same industry may make profits in different ways.The Economics of the One may be a high-margin, low Business -volume business, while the other may be a low-margin, high-volume business. It’s important to check to make sure the approach you select is sound. • Computing a break-even analysis is an extremely useful exercise for any proposed or existing business. 4-38
    39. 39. Section 6: Marketing Plan 1 of 2 Marketing Plan  The marketing plan focuses on how the business will market and sell its product or service.  Items to include in this section:  Overall marketing strategy  Product, price, promotions, and distribution  Sales process (or Cycle)  Sales tactics 4-39
    40. 40. Section 6: Marketing Plan 2 of 2 Key Insights • The best way to describe a start-up’s marketing plan is to start byMarketing Plan articulating its marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix, and distribution strategy. • It’s also important to discuss the company sales process. 4-40
    41. 41. Section 7: Design and Development Plan 1 of 2 Design and Development Plan  If you’re developing a completely new product or service, you need to include a section in your business plan that focuses on the status of your development efforts.  Items to include in this section:  Development status and tasks  Challenges and risks  Projected development costs  Proprietary issues (patents, trademarks, copyrights, licenses, brand names) 4-41
    42. 42. Section 7: Design and Development Plan 2 of 2 Key Insights • Many seemingly promising start-ups never get off the ground becauseDesign and Development their product development efforts Plan stall or the actual development of the product or service turns out to be more difficult than thought. • As a result, this is a very important section for businesses developing a completely new product or service. 4-42
    43. 43. Section 8: Operations Plan 1 of 2 Operations Plan  Outlines how your business will be run and how your product or service will be produced.  A useful way to illustrate how your business will be run is to describe it in terms of “back stage” (unseen to the customer) and “front stage” (seen by the customer) activities.  Items to include in this section:  General approach to operations  Business location  Facilities and equipment 4-43
    44. 44. Section 8: Operations Plan 2 of 2 Key Insights • Your have to strike a careful balance between adequately describing thisOperations Plan topic and providing too much detail. • As a result, it is best to keep this section short and crisp. 4-44
    45. 45. Section 9: Management Team and Company Structure 1 of 2 Management Team and Company Structure  The management team of a new venture typically consists of the founder or founders and a handful of key management personnel.  Items to include in this section:  Management team  Board of directors  Board of advisers  Company structure 4-45
    46. 46. Section 9: Management Team and Company Structure 2 of 2 Key Insights • This is a critical section of a business plan.Management Team and • Many investors and others who Company Structure read the business plan look first at the executive summary and then go directly to the management team section to assess the strength of the people starting the firm. 4-46
    47. 47. Section 10: Overall Schedule 1 of 2 Overall Schedule  A schedule should be prepared that shows the major events required to launch the business.  The schedule should be in the format of milestones critical to the business’s success.  Examples of milestones:  Incorporating the venture  Completion of prototypes  Rental of facilities  Obtaining critical financing  Starting production  Obtaining the first sale 4-47
    48. 48. Section 10: Overall Schedule 2 of 2 Key Insight • An effectively prepared and presented schedule can beOverall Schedule extremely helpful in convincing potential investors that the management team is aware of what needs to take place to launch the venture and has a plan in place to get there. 4-48
    49. 49. Section 11: Financial Projections 1 of 2 Financial Projections  The final section of a business plan presents a firm’s pro forma (or projected) financial projections.  Items to include in this section:  Sources and uses of funds statement  Assumptions sheet  Pro forma income statements  Pro forma balance sheets  Pro forma cash flows  Ratio analysis 4-49
    50. 50. Section 11: Financial Projections 2 of 2 Key Insights • Having completed the earlier sections of the plan, its easy to seeFinancial Projections why the financial projections come last. • They take the plans you’ve developed and express them in financial terms. 4-50
    51. 51. Presenting the Business Plan to Investors 1 of 2 The Oral Presentation  The first rule in making an oral presentation is to follow directions. If you’re told you have 15 minutes, don’t talk for more than the allotted time.  The presentation should be smooth and well-rehearsed.  The slides should be sharp and not cluttered. Questions and Feedback to Expect from Investors  The smart entrepreneur has a good idea of the questions that will be asked, and will be prepared for those queries. 4-51
    52. 52. Presenting the Business Plan to Investors 2 of 2Twelve PowerPoint Slides to Include in an Investor Presentation 1. Title Slide 7. Marketing & Sales 2. Problem 8. Management Team 3. Solution 9. Financial projections 4. Opportunity & 10. Current status Target Market 11. Financing sought 5. Technology 12. Summary 6. Competition
    53. 53. Presenting the Plan Demonstrate enthusiasm, but don’t be overemotional. Know your audience thoroughly. “Hook” investors quickly with an up- front explanation of the venture, its opportunities, and its benefits to them. Hit the highlights; focus on the details later. Keep your presentation simple – 2 or 3 major points. 4 - 53
    54. 54. Presenting the Plan (continued) Avoid overloading your audience with technological jargon. Use visual aids. Close by reinforcing the nature of the opportunity. Be prepared (with details) for potential investors’ questions. Follow up with every investor to whom you make your presentation. 4 - 54
    56. 56. Conclusion There are no guarantees for success. Creating a business plan will be valuable primarily because of the process itself. The business planning process may provide insight to increase the chances for success. The business plan: Entrepreneurs benefit; lenders and investors demand it! 4 - 56
    57. 57. Social Enterprise Business Plan APPENDIX II 4 - 57
    58. 58. Purpose of a business plan If the business model is a blueprint, the plan provides the detail A business plan communicates to key stakeholders, and can be widely disseminated It summarizes how objectives will be met As an action plan, requires the entrepreneur to execute 4 - 58
    59. 59. Internal and external audiences for the business plan External  Funders  Government  Community Internal  The social entrepreneur  Actual and potential staff and volunteers  Board members 4 - 59
    60. 60. Business plan contents1. Business plan summary2. Description of the enterprise3. The team4. The market and industry5. Marketing and fundraising6. The financial plan7. Goals, and objectives, with a timeline8. Risk assessment9. Supporting documents 4 - 60
    61. 61. 1. Business plan summary One page only, answering key questions:  What is the venture?  Why is it new and important?  Who will benefit from it, and how?  How (in general terms) will the idea be executed?  Who is the social entrepreneur, and what unique skill, service, or background does he or she (or they) bring to the venture?  What kind of support for the enterprise is needed, and how much of it?  What will constitute success? The summary is usually written last 4 - 61
    62. 62. 2. Description of the enterprise The idea, and why it is an authentic opportunity The mission statement Definition of value, and how it is to be measured Key innovations or adaptations Competitive advantage The social enterprise’s legal structure Current status of enterprise 4 - 62
    63. 63. 3. The team Management Board Advisors Early donors 4 - 63
    64. 64. 4. The market and industry Industry description Target market Expected position and share in target market 4 - 64
    65. 65. 5. Marketing and fundraising Fundraising targets and strategies  Personal relationships  Direct mail  Media  Virtual means Grant-writing plans Pricing plans For-profit activities Marketing 4 - 65
    66. 66. 6. The financial plan Financial needs for 3-5 years Financial projections Income statements Cash-flow projections Balance sheets 4 - 66
    67. 67. 7. Goals and objectives, with a timeline Definition of success Intermediate goals and success measures Evidence that goals can be achieved 4 - 67
    68. 68. 7. Goals and objectives, with a timeline (continued) Timeline  Start of the enterprise  Incorporation  Acquiring staff, space, and equipment  Delivering services  Projected cash flow  Growth milestones  Attaining key goals 4 - 68
    69. 69. 8. Risk assessment Financial risk Legal risk Talent risk Environmental risk Other risks 4 - 69
    70. 70. 9. Supporting documents, in an appendix Résumés for the key participants in the enterprise Data sources cited in the plan References for literature cited in the plan, if any 4 - 70
    71. 71. Pitfalls in assembling business plans Failing to communicate realistic goals Failing to anticipate problems Lack of commitment or dedication to the venture Lack of experience Failure to demonstrate market niche 4 - 71
    72. 72. Other pitfalls in presenting business plans Too sloppy or too slick Doesn’t get to the point quickly enough Financial projections are unrealistic Unclear what stage the venture is Leaders’ qualifications are not clear 4 - 72
    73. 73. Information on leader/founder(s) to include in the business plan The plan should present their …  background, education, work experience, accomplishments, reputation, experience, and skills Their own realistic assessment of chances for success How they will build a team Their motivations, toughness, and personal drive 4 - 73
    74. 74. Further Reading Scarborough, Norman, M. 2011. Essentials of Entrepreneurship and Small Business Management. 6th edition. Pearson. Brooks, Arthur C. (2006) Social Entrepreneurship : A Modern Approach to Social Value Creation. Pearson Barringer, Bruce R. & Ireland, R. Duane, 2011 Entrepreneurship – Successfully launching new ventures 4th edition, Pearson. Schaper, M., Volery, T., Weber, P. & Lewis, K. 2011. Entrepreneurship and Small Business. 3rd Asia Pacific edition. John Wiley.