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.
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.
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.
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.
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 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.)
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.
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.)
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.
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.
7-12Figure 7.1 - An Upside-Down PyramidApproach to Gathering Market Information
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.)
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.
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.
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.
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.)
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.)
7-19Table 7.5 - Critical Issues forEnvironmental and Industry Analysis
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.)
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.)
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.)
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.)
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.)
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.)
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.
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.)
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.)
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.