A Guide to Writing Your Business Plan

A Business Plan Tool Kit
John Gregg, Principal
Navigate Consulting
March, 2015

2
¶ Definition of a business plan
¶ The role of a business plan in new business development process
¶ The significance of a business idea
¶ Developing a business idea
¶ Elements of a promising business idea
¶ Prioritizing a business idea
¶ Protecting your business idea
What is a Business Plan
This document is a partial preview. Full document download can be found on Flevy:
http://flevy.com/browse/document/a-guide-to-writing-your-business-plan-1338

4
¶ Role of a business plan in new business development process
Stage 1
Stage 2
Stage 3
Idea Generation
Business plan write-up
Implementation and
growth
Idea Generation
Management Team
Business Plan
Development Team
Investment Committee
Venture Team (TFT)
What is a business plan
A business plan can be defined as the intermediary stage before a business idea can actually be
implemented as a new business

6
¶ Elements of a promising business idea
– The key to success in the marketplace is satisfied customers, not
great products.
(ex) “Our new device can perform 200 operations per minute.” (X)
“Our new device has 25% fewer parts.” (X)
“Our new device will save the customer a quarter of the time.”
(O)
– Make value propositions to the customer
– Present customers with unique values.
Clear customer
value
Market of
adequate size
Feasibility and
profitability
Sufficient
degree of
innovation
11 22
44 33
◇ Clear Customer Value
• Who will buy your product/service ?
• Why should the customer buy the product ? (What
needs does your product fulfill that the competitor
products cannot ?)
• What is most unique about your business idea ?
Key Questions

8
• A business idea should have the following four elements
according to product/service type and business system
• Must specify where innovation is taking place
New product
(Microsoft)
New
industry
(Netscape)
Existing
industry
New
business
system
(Dell)
Business System
ConventionInnovation
Product/service
Convention Innovation
Clear customer
value
Market of
adequate size
Sufficient
degree of
innovation
11 22
44 33
Feasibility and
profitability
◇ Sufficient degree of innovation
• How is your product/service innovative ?
• How is your business system innovative ?
Key Questions

10
¶ Prioritization of a business idea - In search of a killer idea
• A process to prioritize generated ideas
• Positioning of ideas on the below chart based on the potential market and its feasibility
• Killer Idea: An idea capable of creating a new market (ex. The pc, mobile phones, iphone, tabelets )
Seek solutions for
obstacles in
implementation
Immediately launch
business plan write-up
Postpone
Seek ways to expand
market size
Feasibility
LowHigh
Marketsize(allowgrowth)
Low High

12
¶ The need to write a business plan
¶ Elements of a good business plan
¶ Business plan structure
Writing a business plan
¶ Summary
¶ Product/ Service
¶ Market and Competition
¶ Marketing
¶ Business System
¶ Organization and HR
¶ Opportunities and Risks
¶ Implementation Schedule
¶ Financial Planning

14
¶ Elements of a good business plan
◇ Clarity: Must clearly lay out the key points (strengths) of the business plan
◇ Objectivity: Must be based on objective data
◇ Simplicity: Should be comprehensible by technical layman
◇ Consistency: Must have uniform visual layout and consistency in editing of the final version
◇ Well-defined, quantifiable customer value : Lowering the cost of delivering an existing
value or creating a new value if this can be achieved at reasonable cost
◇ Innovative product/service : The product/service and/or business system must possess a
high degree of innovation
◇ The possibility to protect/sustain the innovation
◇ A growing and/or large market : The target market should grow at a fast pace or should be
a large market
◇ A far-sighted analysis of the competition : Provide a complete and objective description of
existing and potential future competitors
◇ A careful weighing of the risks and opportunities : Provide a realistic description of the
risks involved in the business and plans to overcome them. Explain ways to make use of
potential opportunities

16
¶ Product/ service
Development status of the product/service
• Explain the stage of development your product/service has reached
• Identify technical/legal/consumer behavioral/partnership (need to partner with other industries)/social and
cultural constraints in delivering product or service to customers and provide solution measures
“If you don’t know what the customer value is, the whole thing is a waste of time.”
Clearly indicate how your product/service differs from those that are now or will be on the market
Customer Value
• The business plan doesn’t make any sense if the product or service fails to provide better value to the customer
compared to current market offerings
• Analyze the value the customer gains from your product/service
• Weigh the advantages and disadvantages of the new product/service from the customer’s perspective

18
¶ Market and Competition
Market size and growth
• A rapid increase in the value of the company can be expected only if the market holds a great potential
• The market size should be presented in figures i.e. number of customers, of unit sales, total sales
• Your expectations for market growth are critical ; show what factors will affect developments (e.g.technology,
legislative initiatives)
• Forecasting market size and growth
Define factors
influencing market
size and growth
Set hypothesis
on future
developments
Collect facts needed
to verify hypothesis
(past trends, expert
opinions)
Estimate market
size and growth
based on the
proven
hypothesis
“If there is no competition, there is probably no market.”

20
Competition
–Compare key customer value, target customers, sales revenue, market share, cost positioning, product lines, and
distribution channels of your company with those of your competitors
–Compare strengths/weaknesses of your product with that of the competitors
–Consider ways to maintain your competitive edge
–Compare your intangible assets with those of the competitors
–Analyze your positioning strategy in the market with that of the competitors
–Maps for designing positioning strategy (samples)
Quality
LowHigh
Price
Low High
Product line
LowHigh
Deliverytime
Low High
Credibility
LowHigh
Convenience
Low High

22
¶ Marketing
Price
–Determine the attainable price for your product/service and evaluate on willingness of customers to pay the asked
price (new businesses often encounter problems because of the conventional wisdom that price is derived from
cost)
–Quantify the customer value of your product/service and define the price bracket. Verify and refine your
assumptions through discussions with potential customers
–The pricing strategy depends on your goal ; the choice can be either penetrating the market quickly by going with
low price (Penetration Strategy) or generating the highest possible return from the outset (Skimming Strategy)
Skimming strategy
Penetration strategy
A new product/service is positioned as better than previous options, so a higher price can be
justified. You can also create a superior image of the product/service
Higher prices generally lead to higher profit margins, and allow the new company to finance its
own growth
Can set a new standard in the early stage (e.g. Facebook, google)
Can lower fixed costs per unit if the fixed cost is high in the initial stage of the business
Can prevent market entry by competitors
“Marketing is far too important to be left to the marketing department.”
Marketing is a key element in a successful business launching. This requires a clear strategy for the so-called 4Ps
(Product, Price, Place, Promotion) (For product, refer to the product/service section)

24
Promotion
–Advertising your products/services in order to attract customer’s attention, informing, persuading and inspiring
confidence
–Promotion can be defined as ‘marketing communication’. Communication must explain the value of your
product/service to your customers, and convince customers that your product meets their needs better than
competing or alternative solutions
–Ways to attract the customer’s attention
1) Classic Advertising : newspapers, magazines, TV, radio
2) Digital marketing, e-mail, google adwords, social media etc
3) PR (Public Relations) : articles in print media about your product, business or the management
4) Exhibitions
5) Customer Visits
– Focus on the people who make the purchasing decision or have the greatest influence on the purchasing decision

26
¶ Business System
A business system maps out the activities necessary to prepare and deliver a final product/service to the customer
Three elements, namely the value chain, make-or-buy decisions and the need for partnership, must be considered
within the business system
Value Chain
–Describes the entire process of product/service delivery to end-users (use charts to enhance understanding)
–Define the key value creating activities within the process (e.g.) In the case where R&D is the key activity

28
Has the key value creation factor in the value chain been indicated ?
□ Partnership
Has the need for partnership been clearly explained ?
Have you compared potential partners ?
□ Value Chain
Is the value chain fully explained ?
Is the cost in each value chain objectively explained ?
□ Make or Buy
Specify which activities you want to handle yourself and which should be carried out by third parties ?
Have you compared possible ways to forge partnership ?
Have you examined whether the partnership gives equal benefits to both sides ?
Have you examined feasibility of your business from the viewpoint of strategic significance, suitability
and availability ?
Have you compared potential suppliers for outsourcing ?
Check List (Business System)
Yes No

30
Is there enough background for the organizational structure ?
Have you selected KPI for performance evaluation of team leaders/members ?
Does the KPI match the missions and functions ?
Have you presented an organizational chart according to each business stage ?
Have you detailed functions and missions for each organizational unit ?
□ HR
Have you described the skills and qualifications required of each business unit leader ?
Have you suggested ways to reward outstanding team leaders/members ?
Is the organization structure suitable for speedy decision making ?
Have you described the skills and qualifications required of each unit team member ?
Will you utilize your own or outside people as team leaders/members, why ?
Have the number of ranks been minimized as much as possible ?
Check List (Organization and HR)
Yes No
□ Organization

32
Are the risks related to the market, competition and technological change quantitatively evaluated ?
□ Risk analysis
Are the risks in market, competition, and technological change accurately defined ?
Have you suggested ways to hedge the risks ?
□ Opportunity analysis
Are the opportunities in market, competition and technological development accurately defined ?
Are the options related to the market, competition and technological development quantitatively evaluated ?
Have you pointed out ways to heighten the value of the options ?
Check List (Opportunities and risks)
Yes No

34
Sample Gantt Chart

36
Minimum required for financial planning
1) Cash flow statement, income statement, balance sheet
2) Forecasts over five years, at least one year beyond the generation of positive cash flow
3) Detailed financial planning for the first two years (monthly or quarterly), thereafter annually
4) All figures must be based on reasonable assumptions (the basis for all assumptions must be provided in the
business plan)
5) Analysis of the economical efficiency (NPV, IRR, Payback period) and sensitivity analysis of major variable
changes
¶ Financial Planning
Financial planning is a consolidation of all elements in the business plan and assists you in evaluating the
profitability of your business
Financial planning is used as a basic data for forecasting the amount of financing needed to set up a business
“Planning substitutes chaos for mistakes.”

38
Cash Flow Statement
–The cash flow statement shows the amount of invested capital and the cash that will be generated from business
operations
–The provisions of the cash flow statement are as below ;
A. Operating cash flow
A.1. After-tax sales profit
A.2. Depreciation
A.3. Decrease/(increase) in account receivables
A.4. Increase in account payables/(decrease)
A.5. Decrease/(increase) in inventory
A.6. Decrease/(increase) in other working capital
B. Invested cash flow
• Same as NOPLAT in income statement
• Same as depreciation in income statement
• Give rationale in the form of daily revenue x A/P
period
• Give rationale in the form of daily revenue x A/P
period
• Give rationale in the form of daily revenue x
inventory days
• Give rationale in SG&A ratio
• Detailed annual investment (Categorize into
assets/depreciation difference) should be put in
a separate provision
C. Net cash flow (A - B)
D. Accumulative cash flow
NotesYear 1 ~ 5

40
Results of economics analysis
–Indicate economic profitability of the company by Net Present Value (NPV), Internal Rate of Return (IRR), and
Payback period
– A typical economics analysis is as below ;
A. Net cash flow (from cash flow statement)
Year 1 Year 2 Year 3 Year 4 Year 5 Perpetuity Total
B. Accumulated net cash flow (from cash flow statement)
C. Payback period : Point when accumulative net cash flow becomes a plus
D. Perpetuity : EBITDA x Multiple (multiple reflecting business characteristics)
E. Discount rate(i) : Cost of capital + α (additional business risks)
F. Present value index :
G. NPV : (ΣA x F + D x F)
H. IRR : Discount rate when A + D = Zero
1/(1+i
)
1/(1+i)² 1/(1+i)4
1/(1+i)³ 1/(1+i)5 1/(1+i)
5
※ Perpetuity : Continued value/remaining value when the business continues its operation after the
forecasting period

42
In there an accurate basis for the assumptions ?
□ Balance sheet
Is the balance sheet easy to understand ?
Is the balance sheet consistent with the income statement/cash flow ?
□ Assumptions
Can a third person draw up the income & cash flow statements & balance sheet based on given assumptions ?
Is there an explanation on whether the price covers the cost and guarantees a reasonable profit ?
□ Income statement
Is the income statement easy to understand ?
□ Economics analysis and sensitivity analysis
Is the economics analysis easy to understand ?
Is the income statement categorized sufficiently ?
□ Cash flow statement
Is the cash flow statement easy to understand ?
Is the perpetuity adequately evaluated ?
Is the calculation accurate for NPV, IRR, and Payback Period ?
Is the sensitivity analysis on the key drivers reasonable ?
Is the cash flow statement categorized sufficiently ?
Check List (Financial planning)
Yes No

1
Flevy (www.flevy.com) is the marketplace
for premium documents. These
documents can range from Business
Frameworks to Financial Models to
PowerPoint Templates.
Flevy was founded under the principle that
companies waste a lot of time and money
recreating the same foundational business
documents. Our vision is for Flevy to
become a comprehensive knowledge base
of business documents. All organizations,
from startups to large enterprises, can use
Flevy— whether it's to jumpstart projects, to
find reference or comparison materials, or
just to learn.
Contact Us
Please contact us with any questions you may have
about our company.
• General Inquiries
support@flevy.com
• Media/PR
press@flevy.com
• Billing
billing@flevy.com

A Guide to Writing Your Business Plan

Recommended

Recommended

More Related Content

More from Flevy.com Best Practices

More from Flevy.com Best Practices (20)

Recently uploaded

Recently uploaded (20)

A Guide to Writing Your Business Plan