192 P A R T 3 FROM THE OPPORTUNITY TO THE BUSINESS PLANi.docx

192 P A R T 3 FROM THE OPPORTUNITY TO THE
BUSINESS PLAN
in later-stage planning and decision making. Besides being a
business intelligence resource,
the Internet also provides opportunities for marketing strategy;
through its Web site, a firm can
provide information on the company, its products and services,
and ordering instructions.
According to data published by the Department of Commerce,
online sales have contin-
ued to increase in spite of the economic downturn. In 2011
online sales are expected to
reach approximately $197 billion, an increase of about 12
percent over 2010. In Western
Europe online sales have risen 13 percent in 2011 to about $125
billion. Increased gas
prices and convenience are the major reasons for the increase in
e-commerce sales. 6
An entrepreneur in the process of writing a business plan can
also access one of the
popular search engines: Google, Yahoo!, BING, MSN, AOL, or
Ask Jeeves. Simply con-
ducting a search of a topic (for example, “online sporting
goods”) may reveal several Web
sites, articles, or sources of information to assist the
entrepreneur in writing the business
plan. Use of these search engines has become a commonplace
procedure now to answer
questions or gather information either for personal use or
business purposes.
An entrepreneur should access competitors’ Web sites to gain

more knowledge about
their strategy in the marketplace. Internet service is not costly
and is an important vehicle
for the entrepreneur to gather information about the market,
competition, and customers as
well as to distribute, advertise, and sell company products and
services.
In addition to accessing Web sites, the entrepreneur can also
investigate social networks,
blogs, and discussion groups. A discussion group is an online
forum where one can discuss
a topic specific to the Web site with others. Individuals post
responses to questions on the
Web site. Blogs refer more to talking to or about something
rather than creating a dialogue.
Social networks are the fastest growing new trend in
technology. They are Web sites where
those with similar interests can communicate using such sites as
MySpace, Twitter, LinkedIn,
Windows Live Spaces, or Facebook. These are the most popular
networks in the U.S. and
they serve many uses depending on the needs of the
entrepreneur. Marketing strategies
utilizing these social networks are discussed in Chapter 8.
Using Usenet, which represents
the newsgroups on the Internet, the entrepreneur can use
keywords to identify the most
appropriate newsgroups. These newsgroups represent potential
customers who can be
asked specific questions on their needs, competitive products,
and potential interest in the
new venture’s products and services. Individuals who are
members of the newsgroups will
then respond to these questions, providing valuable information
to the entrepreneur.
Compared with alternative sources the entrepreneur need only

make a small investment
in hardware and software to be ready to use these online
services. With its continuous im-
provements and modifications, the Internet will continue to
provide invaluable opportuni-
ties for the entrepreneur in planning the start-up or the growth
of a venture.
WRITING THE BUSINESS PLAN
The business plan could take hundreds of hours to prepare,
depending on the experience
and knowledge of the entrepreneur as well as the purpose it is
intended to serve. It should
be comprehensive enough to give any potential investor a
complete picture and under-
standing of the new venture, and it should help the entrepreneur
clarify his or her thinking
about the business.
Many entrepreneurs incorrectly estimate the length of time
that an effective plan will
take to prepare. Once the process has begun, however, the
entrepreneur will realize that it
is invaluable in sorting out the business functions of a new
venture.
The outline for a business plan is illustrated in Table 7.3. This
outline is only meant to be a
guide. As we discussed earlier in this chapter the entrepreneur
should be aware that each busi-
ness plan may be different depending on the purpose of the plan
and who will be reading it.
However, most of the items in this outline are critical elements
in a general plan and should be
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C H A P T E R 7 THE BUSINESS PLAN: CREATING AND
STARTING THE VENTURE 193
I. Introductory Page
A. Name and address of business
B. Name(s) and address(es) of principal(s)
C. Nature of business
D. Statement of financing needed
E. Statement of confidentiality of report
II. Executive Summary—Two to three pages summarizing
the complete business plan
III. Industry Analysis
A. Future outlook and trends
B. Analysis of competitors
C. Market segmentation
D. Industry and market forecasts
IV. Description of Venture
A. Product(s)
B. Service(s)
C. Size of business
D. Office equipment and personnel
E. Background of entrepreneur(s)
V. Production Plan
A. Manufacturing process (amount subcontracted)
B. Physical plant
C. Machinery and equipment
D. Names of suppliers of raw materials
VI. Operations Plan
A. Description of company’s operation
B. Flow of orders for goods and/or services

C. Technology utilization
VII. Marketing Plan
A. Pricing
B. Distribution
C. Promotion
D. Product forecasts
E. Controls
VIII. Organizational Plan
A. Form of ownership
B. Identification of partners or principal shareholders
C. Authority of principals
D. Management team background
E. Roles and responsibilities of members of organization
IX. Assessment of Risk
A. Evaluate weakness(es) of business
B. New technologies
C. Contingency plans
X. Financial Plan
A. Assumptions
B. Pro forma income statement
C. Cash flow projections
D. Pro forma balance sheet
E. Break-even analysis
F. Sources and applications of funds
XI. Appendix (contains backup material)
A. Letters
B. Market research data
C. Leases or contracts
D. Price lists from suppliers
TABLE 7.3 Outline of a Business Plan
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BUSINESS PLAN
addressed by the entrepreneur. Each of the items in the outline
is detailed in the following
paragraphs of this chapter. Key questions in each section are
also appropriately detailed.
Introductory Page
This is the title or cover page that provides a brief summary of
the business plan’s con-
tents. The introductory page should contain the following:
The name and address of the company.
The name of the entrepreneur(s), telephone number, fax
number, e-mail address, and
Web site address if available.
A paragraph describing the company and the nature of the
business.
The amount of financing needed. The entrepreneur may offer a
package (e.g., stock or
debt). However, many venture capitalists prefer to structure this
package in their own way.
A statement of the confidentiality of the report. This is for
security purposes and is
important for the entrepreneur.

This title page sets out the basic concept that the entrepreneur
is attempting to develop.
Investors consider it important because they can determine the
amount of investment
needed without having to read through the entire plan. An
illustration of this page can be
found in Table 7.4.
Executive Summary
This section of the business plan is prepared after the total plan
is written. About two to
three pages in length, the executive summary should stimulate
the interest of the potential
investor. This is a very important section of the business plan
and should not be taken
lightly by the entrepreneur since the investor uses the summary
to determine if the entire
business plan is worth reading. Thus, it should highlight in a
concise and convincing manner
the key points in the business plan.
KC CLEANING SERVICE
OAK KNOLL ROAD
BOSTON, MA 02167
(617) 969-0010
www.cleaning.com
Co-owners: Kimberly Peters, Christa Peters
Description of Business:
This business will provide cleaning service on a contract basis
to small and medium-sized
businesses. Services include cleaning of floors, carpets,

draperies, and windows, and regular
sweeping, dusting, and washing. Contracts will be for one year
and will specify the specific
services and scheduling for completion of services.
Financing:
Initial financing requested is a $100,000 loan to be paid off
over six years. This debt will cover
office space, office equipment and supplies, two leased vans,
advertising, and selling costs.
This report is confidential and is the property of the co-owners
listed above. It is intended for
use only by the persons to whom it is transmitted, and any
reproduction or divulgence of any
of its contents without the prior written consent of the company
is prohibited.
TABLE 7.4 Sample Introductory Page
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Generally the executive summary should address a number of
issues or questions that
anyone picking up the written plan for the first time would want

to know. For example:
What is the business concept or model?
How is this business concept or model unique?
Who are the individuals starting this business?
How will they make money and how much?
If the new venture has a strong growth plan and in five years
expects to be positioned
for an initial public offering (IPO), then the executive summary
should also include an exit
strategy. If the venture is not initially expecting this kind of
growth, the entrepreneurs
should avoid any discussion of an exit strategy in the executive
summary.
Any supportive evidence, such as data points from marketing
research or legal docu-
ments or contracts that might strengthen the case on the
preceding issues, also should be in-
cluded. Under no circumstances should the entrepreneur try to
summarize every section of
the plan, especially since the emphasis placed on the preceding
issues depends on who is
reading the plan.
It should be remembered that this section is only meant to
highlight key factors and mo-
tivate the person holding the plan to read it in its entirety. Key
factors for some plans might
be the people involved. For example, if one of the entrepreneurs
has been very successful in
other start-ups, then this person and his or her background
needs to be emphasized. If the
venture has a contract in hand with a large customer, then this

would be highlighted in the
executive summary. It is similar to the opening statement a
lawyer might make in an impor-
tant court trial or the introductory statements made by a
salesperson in a sales call.
Environmental and Industry Analysis
It is important to put the new venture in a proper context by
first conducting an
environmental analysis to identify trends and changes
occurring on a national and interna-
tional level that may impact the new venture. This process was
described earlier in this
chapter. Examples of these environmental factors are:
Economy. The entrepreneur should consider trends in the
GNP, unemployment by
geographic area, disposable income, and so on.
Culture. An evaluation of cultural changes may consider
shifts in the population by
demographics, for example, the impact of the baby boomers or
the growing elderly
population. Shifts in attitudes, such as “Buy American,” or
trends in safety, health,
and nutrition, as well as concern for the environment, may all
have an impact on the
entrepreneur’s business plan.
Technology. Advances in technology are difficult to predict.
However, the entrepreneur
should consider potential technological developments
determined from resources
committed by major industries or the U.S. government. Being in
a market that is
rapidly changing due to technological development will require

the entrepreneur to
make careful short-term marketing decisions as well as to be
prepared with
contingency plans given any new technological developments
that may affect his or
her product or service.
Legal concerns. There are many important legal issues in
starting a new venture; these
were discussed in Chapter 6. The entrepreneur should be
prepared for any future
legislation that may affect the product or service, channel of
distribution, price, or
environmental analysis
Assessment of external
uncontrollable variables
that may impact the
business plan
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BUSINESS PLAN
promotion strategy. The deregulation of prices, restrictions on
media advertising
(e.g., ban on cigarette ads or requirements for advertising to
children), and safety

regulations affecting the product or packaging are examples of
legal restrictions that
can affect any marketing program.
All the preceding external factors are generally uncontrollable.
However, as indicated,
an awareness and assessment of these factors using some of the
sources identified can
provide strong support for the opportunity and can be invaluable
in developing the appropriate
marketing strategy.
As stated earlier (see Figure 7.1), this process can be
visualized as an upside-down pyra-
mid leading to specific market strategy and objectives. Once an
assessment of the environ-
ment is complete, the entrepreneur should conduct an industry
analysis that will focus on
specific industry trends. Some examples of these factors are:
Industry demand. Demand as it relates to the industry is often
available from published
sources. Knowledge of whether the market is growing or
declining, the number of new
competitors, and possible changes in consumer needs are all
important issues in trying
to ascertain the potential business that might be achieved by the
new venture. The
projected demand for the entrepreneur’s product or service will
require some
additional marketing research, which will be discussed in
Chapter 8.
Competition. Most entrepreneurs generally face potential
threats from larger corporations.
The entrepreneur must be prepared for these threats and should
be aware of who the

competitors are and what their strengths and weaknesses are so
that an effective marketing
plan can be implemented. Most competitors can be easily
identified from experience,
trade journal articles, advertisements, Web sites, or even the
yellow pages.
There are numerous sources that the entrepreneur can consult
to attain general industry
and competitive data for inclusion in this part of the business
plan. Some of these were
mentioned earlier in this chapter (also review Table 7.2), in
relation to our discussion of the
gathering of market information. Many of these sources can be
found in local or university
libraries. They include: Encyclopedia of American Industries,
Encyclopedia of Emerging
Industries, Standard and Poor’s Industry Surveys, MarketLine
Business Information Cen-
tre, Forrester, Investext Plus, and Mintel Reports. Each of
these sources focuses on differ-
ent types of industries or markets and can be easily evaluated as
to their benefit either by
an online search (such as Google) or by a visit to a local library.
Most of these sources also
provide published reports that are available for purchase.
The last part of the business plan’s industry analysis section
should focus on the specific
market, which would include such information as who the
customer is and what the busi-
ness environment is like in the specific market and geographic
area where the venture will
compete. Thus, any differences in any of the preceding
variables that reflect the specific
market area in which the new venture will operate must be
considered. This information is

particularly significant to the preparation of the marketing plan
section of the business
plan, which is discussed in Chapter 8.
In addition to the numerous industry sources given, there are
also many market data-
bases that can be researched for relevant data to incorporate
into this section of the busi-
ness plan. Market share and size of market often can be
assessed from databases such as:
TableBase and Business & Industry, Market Share Reporter,
Economic Census, County
Business Patterns, Current Industrial Reports, Service Annual
Survey, and Monthly Re-
tail and Food Service Sales and Inventories. More specific data
on demographic trends
and possible target market numbers can be found in: Profiles of
General Demographic
Characteristics 2010 Census/Population, Mediamark Reporter,
and Lifestyle Market
industry analysis
Reviews industry trends
and competitive strategies
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Analyst. Finally, state-by-state population, demographic, and
housing data usually are
available from each state’s Web site.
A list of some key questions the entrepreneur should consider
for this section of the
business plan is provided in Table 7.5.
Description of Venture
The description of the venture should be detailed in this
section of the business plan. This
will enable the investor to ascertain the size and scope of the
business. This section should
begin with the mission statement or company mission of the
new venture. This statement
basically describes the nature of the business and what the
entrepreneur hopes to accom-
plish with that business. This mission statement or business
definition will guide the firm
through long-term decision making. After the mission
statement, a number of important
factors that provide a clear description and understanding of the
business venture should
be discussed. Key elements are the product(s) or service(s), the
location and size of the
business, the personnel and office equipment that will be
needed, the background of the
entrepreneur(s), and the history of the venture. Table 7.6
summarizes some of the impor-
tant questions the entrepreneur needs to answer when preparing
this section of the busi-
ness plan.
The location of any business may be vital to its success,
particularly if the business is re-
tail or involves a service. Thus, the emphasis on location in the
business plan is a function
of the type of business. In assessing the building or space the

business will occupy, the en-
trepreneur may need to evaluate such factors as parking; access
from roadways to facility;
and access to customers, suppliers, distributors, delivery rates,
and town regulations or zon-
ing laws. An enlarged local map may help give the location
some perspective with regard
to roads, highways, access, and so forth.
Recently an entrepreneur considered opening a new doughnut
shop at a location diago-
nally across from a small shopping mall on a heavily traveled
road. Traffic counts indicated
a large potential customer base if people would stop for coffee,
and so on, on their way to
work. After enlarging a local map, the entrepreneur noted that
the morning flow of traffic
description of the
venture Provides
complete overview of the
product(s), service(s), and
operations of a new
venture
TABLE 7.5 Critical Issues for Environmental and Industry
Analysis
1. What are the major economic, technological, legal, and
political trends on a national
and an international level?
2. What are total industry sales over the past five years?
3. What is anticipated growth in this industry?
4. How many new firms have entered this industry in the

past three years?
5. What new products have been recently introduced in this
industry?
6. Who are the nearest competitors?
7. How will your business operation be better than this?
8. Are the sales of each of your major competitors growing,
declining, or steady?
9. What are the strengths and weaknesses of each of your
competitors?
10. What trends are occurring in your specific market area?
11. What is the profile of your customers?
12. How does your customer profile differ from that of your
competition?
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BUSINESS PLAN
required drivers to make a left turn into the doughnut shop,
crossing the outbound lane. Un-

fortunately, the roadway was divided by a concrete center strip
with no break to allow for
a left-hand turn. The only possibility for entry into the shop
required the customer to drive
down about 400 yards and make a U-turn. It would also be
difficult for the customer to get
back on the roadway traveling in the right direction. Since the
town was unwilling to open
the road, the entrepreneur eliminated this site from any further
consideration.
This simple assessment of the location, market, and so on,
saved the entrepreneur from
a potential disaster. Maps that locate customers, competitors,
and even alternative locations
for a building or site can be helpful in this evaluation. Some of
the important questions that
might be asked by an entrepreneur are as follows:
How much space is needed?
Should I buy or lease the building?
What is the cost per square foot?
Is the site zoned for commercial use?
What town restrictions exist for signs, parking, and so forth?
Is renovation of the building necessary?
Is the facility accessible to traffic?
Is there adequate parking?
Will the existing facility have room for expansion?

What is the economic and demographic profile of the area?
Is there an adequate labor pool available?
What are local taxes?
Are sewage, electricity, and plumbing adequate?
If the building or site decision involves legal issues, such as a
lease, or requires town
variances, the entrepreneur should hire a lawyer. Problems
relating to regulations and
TABLE 7.6 Describing the Venture
1. What is the mission of the new venture?
2. What are your reasons for going into business?
3. Why will you be successful in this venture?
4. What development work has been completed to date?
5. What is your product(s) and/or service(s)?
6. Describe the product(s) and/or service(s), including
patent, copyright, or trademark status.
7. Where will the business be located?
8. Is your building new? old? in need of renovations? (If
renovation is needed, state costs.)
9. Is the building leased or owned? (State the terms.)
10. Why is this building and location right for your

business?
11. What office equipment will be needed?
12. Will equipment be purchased or leased?
13. What experience do you have and/or will you need to
successfully implement the
business plan?
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leases can be avoided easily, but under no circumstances should
the entrepreneur try to
negotiate with the town or a landlord without good legal advice.
Production Plan
If the new venture is a manufacturing operation, a production
plan is necessary. This
plan should describe the complete manufacturing process. If
some or all of the manu-
facturing process is to be subcontracted, the plan should
describe the subcontractor(s),
including location, reasons for selection, costs, and any
contracts that have been com-
pleted. If the manufacturing is to be carried out in whole or in

part by the entrepreneur,
he or she will need to describe the physical plant layout; the
machinery and equipment
needed to perform the manufacturing operations; raw materials
and suppliers’ names,
addresses, and terms; costs of manufacturing; and any future
capital equipment needs.
In a manufacturing operation, the discussion of these items will
be important to any
potential investor in assessing financial needs.
Table 7.7 summarizes some of the key questions in this section
of the business plan.
If the new venture does not include any manufacturing
functions, this section should be
eliminated from the plan.
Operations Plan
All businesses—manufacturing or nonmanufacturing—should
include an operations plan
as part of the business plan. This section goes beyond the
manufacturing process (when
the new venture involves manufacturing) and describes the flow
of goods and services
from production to the customer. It might include inventory or
storage of manufactured
production plan Details
how the product(s) will
be manufactured
TABLE 7.7 Production Plan
1. Will you be responsible for all or part of the
manufacturing operation?
2. If some manufacturing is subcontracted, who will be the

subcontractors? (Give names
and addresses.)
3. Why were these subcontractors selected?
4. What are the costs of the subcontracted manufacturing?
(Include copies of any written
contracts.)
5. What will be the layout of the production process?
(Illustrate steps if possible.)
6. What equipment will be needed immediately for
manufacturing?
7. What raw materials will be needed for manufacturing?
8. Who are the suppliers of new materials and what are the
appropriate costs?
9. What are the costs of manufacturing the product?
10. What are the future capital equipment needs of the
venture?
If a Retail Operation or Service:
1. From whom will merchandise be purchased?
2. How will the inventory control system operate?
3. What are the storage needs of the venture and how will
they be promoted?
4. How will the goods flow to the customer?

5. Chronologically, what are the steps involved in a business
transaction?
6. What are the technology utilization requirements to service
customers effectively?
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BUSINESS PLAN
products, shipping, inventory control procedures, and customer
support services. A non-
manufacturer such as a retailer or service provider would also
need this section in the
business plan to explain the chronological steps in completing a
business transaction. For
example, an Internet retail sports clothing operation would need
to describe how and
where the products offered would be purchased, how they would
be stored, how the in-
ventory would be managed, how products would be shipped,
and, importantly, how a
customer would log on and complete a transaction. In addition,
this would be a conven-
ient place for the entrepreneur to discuss the role of technology
in the business transac-
tion process. For any Internet retail operation, some explanation
of the technology

requirements needed to efficiently and profitably complete a
successful business transac-
tion should be included in this section.
It is important to note here that the major distinction between
services and manufactured
goods is services involve intangible performances. This implies
that they cannot be
touched, seen, tasted, heard, or felt in the same manner as
manufactured products. Airlines,
hotels, car rental agencies, theaters, and hospitals, to name a
few, rely on business delivery
or quality of service. For these firms, performance often
depends on location, facility lay-
out, and personnel, which can, in turn, affect service quality
(including such factors as
reliability, responsiveness, and assurance). The process of
delivering this service quality is
what distinguishes one new service venture from another and
thus needs to be the focus of
an operations plan. Some key questions or issues for both the
manufacturing and nonman-
ufacturing new venture are summarized in Table 7.7.
Marketing Plan
The marketing plan (discussed in detail in Chapter 8) is an
important part of the business
plan since it describes how the product(s) or service(s) will be
distributed, priced, and pro-
moted. Marketing research evidence to support any of the
critical marketing decision strate-
gies as well as for forecasting sales should be described in this
section. Specific forecasts
for a product(s) or service(s) are indicated to project the
profitability of the venture. The
budget and appropriate controls needed for marketing strategy
decisions are also discussed

in detail in Chapter 8. Potential investors regard the marketing
plan as critical to the suc-
cess of the new venture. Thus, the entrepreneur should make
every effort to prepare as
comprehensive and detailed a plan as possible so that investors
can be clear as to what the
goals of the venture are and what strategies are to be
implemented to effectively achieve
these goals. Marketing planning will be an annual requirement
(with careful monitoring and
changes made on a weekly or monthly basis) for the
entrepreneur and should be regarded
as the road map for short-term decision making.
Organizational Plan
The organizational plan is the part of the business plan that
describes the venture’s form of
ownership—that is, proprietorship, partnership, or corporation.
If the venture is a partner-
ship, the terms of the partnership should be included. If the
venture is a corporation, it is
important to detail the shares of stock authorized and share
options, as well as the names,
addresses, and resumes of the directors and officers of the
corporation. It is also helpful to
provide an organ ization chart indicating the line of authority
and the responsibilities of the
members of the organization. Table 7.8 summarizes some of the
key questions the entre-
preneur needs to answer in preparing this section of the
business plan. This information
provides the potential investor with a clear understanding of
who controls the organization
and how other members will interact in performing their
management functions. Chapter 9
provides more detail on this part of the business plan.

marketing plan
Describes market
conditions and strategy
related to how the
product(s) and service(s)
will be distributed, priced,
and promoted
organizational plan
Describes form of
ownership and lines of
authority and
responsibility of members
of new venture
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Assessment of Risk
Every new venture will be faced with some potential hazards,
given its particular industry and
competitive environment. It is important that the entrepreneur
make an assessment of risk in
the following manner. First, the entrepreneur should indicate
the potential risks to the new ven-
ture. Next should be a discussion of what might happen if these

risks become reality. Finally,
the entrepreneur should discuss the strategy that will be
employed to either prevent, minimize,
or respond to the risks should they occur. Major risks for a new
venture could result from a
competitor’s reaction; weaknesses in the marketing, production,
or management team; and new
advances in technology that might render the new product
obsolete. Even if these factors
present no risks to the new venture, the business plan should
discuss why that is the case.
Financial Plan
Like the marketing, production, and organization plans, the
financial plan is an important
part of the business plan. It determines the potential investment
commitment needed for
the new venture and indicates whether the business plan is
economically feasible. (The finan-
cial plan is discussed in more detail in Chapter 10.)
Generally, three financial areas are discussed in this section of
the business plan. First,
the entrepreneur should summarize the forecasted sales and the
appropriate expenses for at
least the first three years, with the first year’s projections
provided monthly. The form for
displaying this information is illustrated in Chapter 10. It
includes the forecasted sales, cost
of goods sold, and the general and administrative expenses. Net
profit after taxes can then
be projected by estimating income taxes.
The second major area of financial information needed is cash
flow figures for three
years, with the first year’s projections provided monthly. Since
bills have to be paid at dif-
ferent times of the year, it is important to determine the

demands on cash on a monthly ba-
sis, especially in the first year. Remember that sales may be
irregular, and receipts from
customers also may be spread out, thus necessitating the
borrowing of short-term capital to
meet fixed expenses such as salaries and utilities. A form for
projecting the cash flow needs
for a 12-month period can be found in Chapter 10.
The last financial item needed in this section of the business
plan is the projected
balance sheet. This shows the financial condition of the
business at a specific time. It sum-
marizes the assets of a business, its liabilities (what is owed),
the investment of the
entrepreneur and any partners, and retained earnings (or
cumulative losses). A form for the
balance sheet is included in Chapter 10, along with more
detailed explanations of the items
assessment of risk
Identifies potential
hazards and alternative
strategies to meet
business plan goals and
objectives
financial plan
Projections of key
financial data that
determine economic
feasibility and necessary
financial investment
commitment
TABLE 7.8 Organization Structure

1. What is the form of ownership of the organization?
2. If a partnership, who are the partners and what are the
terms of agreement?
3. If incorporated, who are the principal shareholders and
how much stock do they own?
4. How many shares of voting or nonvoting stock have been
issued and what type?
5. Who are the members of the board of directors? (Give
names, addresses, and resumes.)
6. Who has check-signing authority or control?
7. Who are the members of the management team and what
are their backgrounds?
8. What are the roles and responsibilities of each member of
the management team?
9. What are the salaries, bonuses, or other forms of payment
for each member of the
management team?
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202

included. Any assumptions considered for the balance sheet or
any other item in the finan-
cial plan should be listed for the benefit of the potential
investor.
Appendix
The appendix of the business plan generally contains any
backup material that is not neces-
sary in the text of the document. Reference to any of the
documents in the appendix should
be made in the plan itself.
Letters from customers, distributors, or subcontractors are
examples of information that
should be included in the appendix. Any documentation of
information—that is, secondary
data or primary research data used to support plan decisions—
should also be included.
Leases, contracts, or any other types of agreements that have
been initiated also may be
included in the appendix. Finally, price lists from suppliers and
competitors may be added.
USING AND IMPLEMENTING THE BUSINESS PLAN
The business plan is designed to guide the entrepreneur through
the first year of opera-
tions. It is important that the implementation of the strategy
contain control points to ascer-
tain progress and to initiate contingency plans if necessary.
Some of the controls necessary
in manufacturing, marketing, financing, and the organization
are discussed in subsequent
A S S E E N I N B U S I N E S S N E W S
AN UNUSUAL START-UP: ELEVATOR PITCH FOR
COFFEE POUCHES

A softball teammate tells you about a new product
he has heard about that substitutes for chewing
tobacco. You have recently sold your business in
California and you are looking for some opportuni-
ties to invest your money in an interesting start-up.
As a longtime athlete in high school and college you
have continued to play softball in local leagues and
would love to entertain some way to invest in a prod-
uct that would involve professional athletes. Would
you consider investing in the new product?
We all watch baseball players that are often chew-
ing tobacco and constantly spitting, much to the dis-
may of viewing audiences. Pat Pezet and Matt Canepa
have a solution to the chewing tobacco problem as
well as a great substitute for those who need a caf-
feine boost and do not have the ability to make a cup
of coffee. Their innovation is chewable flavored cof-
fee pouches that contain about as much caffeine as a
quarter cup of coffee as well as a small amount of
vitamins. They come in two flavors: mint chocolate
and mocha. Matt and Pat were both amateur and mi-
nor league baseball players and were finishing their
degrees at California Polytechnic State University
when one night while working on an economic
project, they decided to stuff wads of coffee grinds in
their mouths instead of making a pot of coffee. The
caffeine “kicked in” and they both decided that they
might be on to something.
After this discovery the two friends won a couple
of business plan competitions that netted them funds
and interest from investors who heard their presenta-
tion. In 2009 with their business plan and initial fund-
ing they launched Grinds. As a rollout they targeted
minor and major league baseball players with Grinds

as a substitute for chewing tobacco. Word of mouth
quickly elevated their success such that a number of
players have become testimonials for the product.
Revenues in 2011 are expected to break the six fig-
ure mark by the end of the year. With limited funds
they have utilized social networks such as Twitter
and Facebook to get the word out about their prod-
uct. They are considering FDA approval since the
product is considered a supplement. Other options
are to increase the flavors offered and to consider
other channels of distribution such as retail stores.
Source: Adapted from www.getgrinds.com ;
www.twitter.com/
getGRINDS ; www.facebook.com/getGRINDS ; and
“Grinding It
Out,” by Matt Villano, Entrepreneur (September 2011), p. 21.
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chapters. Most important to the entrepreneur is that the business
plan not end up in a drawer
somewhere once the financing has been attained and the
business launched.
There has been a tendency among many entrepreneurs to avoid
planning. The reason

often given is that planning is dull or boring and is something
used only by large compa-
nies. This may be an excuse; perhaps the real truth is that some
entrepreneurs are afraid
to plan. 7 Planning is an important part of any business
operation. Without good planning,
the entrepreneur is likely to pay an enormous price. All one has
to do is consider the
planning done by suppliers, customers, competitors, and banks
to realize that it is impor-
tant for the entrepreneur. It is also important to realize that
without good planning the
employees will not understand the company’s goals and how
they are expected to perform
in their jobs.
Bankers are the first to admit that few business failures result
from a lack of cash but,
instead, that businesses fail because of the entrepreneur’s
inability to plan effectively. In-
telligent planning is not a difficult or impossible exercise for
the inexperienced entrepre-
neur. With the proper commitment and support from many
outside resources, such as those
shown in Table 7.2, the entrepreneur can prepare an effective
business plan.
In addition, the entrepreneur can enhance effective
implementation of the business plan
by developing a schedule to measure progress and to institute
contingency plans. These
frequent readings or control procedures will be discussed next.
Measuring Plan Progress
During the introductory phases of the start-up, the entrepreneur
should determine the points
at which decisions should be made as to whether the goals or
objectives are on schedule.

Typically, the business plan projections will be made on a 12-
month schedule. However,
the entrepreneur cannot wait 12 months to see whether the plan
has been successfully
achieved. Instead, on a frequent basis (i.e., the beginning of
each month) the entrepreneur
should check the profit and loss statement; cash flow
projections; and information on inven-
tory, production, quality, sales, collection of accounts
receivable, and disbursements for the
previous month. Company Web sites should also be assessed as
part of this process. This
feedback should be simple but should provide key members of
the organization with current
information in time to correct any major deviations from the
goals and objectives outlined.
A brief description of each of these control elements is given
here:
• Inventory control. By controlling inventory, the firm can
ensure maximum service to
the customer. The faster the firm gets back its investment in raw
materials and finished
goods, the faster that capital can be reinvested to meet
additional customer needs.
• Production control. Compare the cost figures estimated in
the business plan with day-
to-day operation costs. This will help to control machine time,
worker hours, process
time, delay time, and downtime cost.
• Quality control. This will depend on the type of production
system but is designed to
make sure that the product performs satisfactorily.

• Sales control. Information on units, dollars, specific
products sold, price of sales,
meeting of delivery dates, and credit terms is useful to get a
good perspective of the
sales of the new venture. In addition, an effective collections
system for accounts
receivable should be set up to avoid aging of accounts and bad
debts.
• Disbursements. The new venture should also control the
amount of money paid out.
All bills should be reviewed to determine how much is being
disbursed and for what
purpose.
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BUSINESS PLAN
• Web site control. With more and more sales being
supported or garnered from a
company’s Web site, it is very important to continually evaluate
the Web site to
ascertain its effectiveness in meeting the goals and objectives of
the plan. There are
many services and software packages available to assist the
entrepreneur in this
process. These service companies and software alternatives are

too numerous to
mention here but can easily be identified from an Internet
search. 8
Updating the Plan
The most effective business plan can become out-of-date if
conditions change. Environ-
mental factors such as the economy, customers, new technology,
or competition—and in-
ternal factors such as the loss or addition of key employees—
can all change the direction
of the business plan. Thus, it is important to be sensitive to
changes in the company, indus-
try, and market. If these changes are likely to affect the
business plan, the entrepreneur
should determine what revisions are needed. In this manner, the
entrepreneur can maintain
reasonable targets and goals and keep the new venture on a
course that will increase its
probability of success.
WHY SOME BUSINESS PLANS FAIL
Generally, a poorly prepared business plan can be blamed on
one or more of the following
factors:
• Goals set by the entrepreneur are unreasonable.
• Objectives are not measurable.
• The entrepreneur has not made a total commitment to the
business or to the family.
• The entrepreneur has no experience in the planned business.
• The entrepreneur has no sense of potential threats or

weaknesses to the business.
• No customer need was established for the proposed product
or service.
Setting objectives requires the entrepreneur to be well informed
about the type of business
and the competitive environment. Objectives should be specific
and not so mundane as
to lack any basis of control. For example, the entrepreneur may
target a specific market
share, units sold, or revenue. These objectives are measurable
and can be monitored
over time.
In addition, the entrepreneur and his or her family must make
a total commitment to the
business to be able to meet the demands of a new venture. For
example, it is difficult to
operate a new venture on a part-time basis while still holding
onto a full-time position.
And it is also difficult to operate a business without an
understanding from family members
as to the time and resources that will be needed. Lenders or
investors will not be favorably
inclined toward a venture that does not have full-time
commitment.
Generally, a lack of experience will result in failure unless the
entrepreneur can either
attain the necessary knowledge or team up with someone who
already has it. For example,
an entrepreneur trying to start a new restaurant without any
experience or knowledge of the
restaurant business would be in a disastrous situation.
The entrepreneur should also document customer needs before
preparing the plan. Cus-
tomer needs can be identified from direct experience, letters

from customers, or marketing
research. A clear understanding of these needs and how the
entrepreneur’s business will
effectively meet them is vital to the success of the new venture.
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IN REVIEW
S U M M A R Y
This chapter has established the scope and value of the
business plan and has outlined the
steps in its preparation. The business plan may be read by
employees, investors, lenders,
suppliers, customers, and consultants. The scope of the plan
will depend on who reads it,
the size of the venture, and the specific industry for which the
venture is intended.
The business plan is essential in launching a new venture. The
result of many hours
of preparation will be a comprehensive, well-written, and well-
organized document
that will serve as a guide to the entrepreneur and as an
instrument to raise necessary
capital and financing.

Before beginning the business plan, the entrepreneur will
need information on the
market, manufacturing operations, and financial estimations.
This process can be
viewed as an upside-down pyramid, beginning with a very
broad-based analysis down
to specific market positioning and the determination of specific
goals and objectives.
The Internet represents a low-cost service that can provide
valuable information on
the market, customers and their needs, and competitors. This
information should be
evaluated based on the goals and objectives of the new venture.
These goals and ob-
jectives also provide a framework for setting up controls for the
business plan.
The chapter presents a comprehensive discussion and outline
of a typical business
plan. Each key element in the plan is discussed, an information-
gathering process is
described, and examples are provided. Control decisions are
presented to ensure the
effective implementation of the business plan. In addition, some
insights as to why
business plans fail are discussed.
R E S E A R C H T A S K S
1. There are many software packages that aim to help
entrepreneurs write a business
plan. Research the Internet and select three of these software
packages. What is
different about them? How are they similar? How can they
assist an entrepreneur
in the preparation of his final business plan?

2. Find five business plans in your library. What are the
common topics covered
across all five plans? What are the differences? Choose the one
that you believe is
the best written and then describe why you believe it is better
than the others.
3. Speak to five entrepreneurs and find out why they have (or
do not have) a business
plan. For those who do have a business plan, find out when it
was written, the purpose
for which it was created, and whether it has been used and/or
kept up-to-date.
C L A S S D I S C U S S I O N
1. Given the difficulties in accurately predicting the future, is
a business plan useful?
Provide three reasons for writing one and three reasons for not
preparing a plan.
What is your conclusion and why?
2. What makes an excellent business plan?
3. Would the entrepreneur be better off spending more time
selling his or her product
rather than investing so much time in writing a business plan?
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BUSINESS PLAN
4. If a business plan is to be used to raise capital, then why
would the entrepreneur
want to advertise the firm’s major risks by detailing them in the
business plan?
5. What is the purpose of the business plan if the audience is
(a) the entrepreneur,
(b) an investor, or (c) a key supplier? How might the plan be
adapted for these
different audiences? Or do you believe that it is better to simply
have one business
plan that serves all audiences?
S E L E C T E D R E A D I N G S
Bartes, Frantiŝek. (2011). Action Plan—Basis of Competitive
Intelligence Activities.
Economics and Management, vol. 16, pp. 664–69.
Competitive intelligence has become an important business
practice. The author
argues that competitive intelligence is often improperly
understood. His view is
that it is a means of forecasting the future. It then becomes the
basis of planning
and important strategic decision making.
Bekiaris, Maria; and Dan Warne. (September 2010). Starter

Kit. Money, pp. 36–38.
This article provides important questions and answers related
to starting a new
business. The plan is regarded as one of the most important
steps to get a new
venture on the right path. Responses to questions regarding
registering a business,
setting up a company bank account, determining insurance
needs, where to get
help, and how to set up an efficient office are all addressed.
Bewayo, Edward D. (2010). Pre-Start-Up Preparations: Why
the Business Plan Isn’t
Always Written. Entrepreneurial Executive, vol. 15, pp. 9–
23.
This paper summarizes the results of a survey of 355 small
business owners in New
Jersey. It found that 50 percent of these businesses prepared a
business plan. The
main reasons for not preparing a plan was either because the
venture did not need
financing or the entrepreneurs had prior experience that
substituted for a business
plan. However, about half of those entrepreneurs that had
experience still felt
compelled to prepare a business plan. There was also a high
correlation between
the preparation of a plan and the need for external financing.
Deeter-Schmelz, Dawn R.; Rosemary P. Ramsey; and Jule B.
Gassenheimer. (Summer 2011).
Bleu Ribbon Chocolates: How Can Small Businesses Adapt to
Changing Environment? Mar-
keting Education Review, vol. 21, issue 2, pp. 177–82.

A small regional manufacturer of chocolates that markets to
trade accounts, corporate-
owned stores, and online/mail is faced with declining sales in a
poor economy and
changes in consumer life styles. The paper focuses on serious
strategic issues such as
changing the product line, considering more in-source
manufacturing, reducing the
number of company-owned stores, increasing sales to retail
outlets, or just waiting
for the economy to turn around.
Finley, Daniel C. (January/February 2011). A Plan for
Success. Advisor Today, vol. 106,
issue 1, pp. 58–59.
Highlighted here are views on how to accomplish goals set in
the planning process.
The author addresses the importance of building a blueprint
with details on goals
and strategy to meet these goals.
Gjerde, Thomas J.; and Thomas J. Harlow . (2010
Supplement). Valuing a Turnaround
Plan for a Company in the Restaurant Equipment Business.
Journal of the International
Academy for Case Studies , pp. 39–48.
A case study on TastySlush’s plan to restore its reputation is
discussed in this paper. It
provides a case study of why this company failed to maintain
quality and durability
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in its frozen dessert and beverage equipment. A consultant was
hired to provide a
turnaround plan to revive the company’s reputation in the food
equipment business.
Komoszewski, Jim. (March 2011). Creating a Business Plan.
Investment Advisor, vol. 31,
issue 3, pp. 60–64.
This article discusses the importance of financial advisors to
prepare and implement
a business plan. It outlines the elements of a note card plan in
order to guide investors
to define goals, build a strategy, and implement changes in their
business.
Robinson, Sherry; and Hans Anton Stubberud. (2011).
Gender Differences in Entrepre-
neurs’ Perceived Problems, Profits, and Plans. International
Journal of Entrepreneurship,
vol. 15, pp. 25–44.
This is a study of European business owners that had started
their business and
were still in operation after three years. Thus they were
considered successful. Im-
pediments to selling products and services due to competition

and lack of demand
were most often mentioned. Gender differences were also
reported, with women
incurring lower levels of profitability.
Schnuer, Jenna. (September 2011). Rebuild Rebuild.
Entrepreneur, vol. 39, issue 9,
pp. 76–78.
This is a good example of how to control and track inventory
using a mobile device
application called Thrive. The owner of a home furnishing store
utilized this appli-
cation to improve his business strategy.
E N D N O T E S
1. See Katherine A. Diaz, “A Champion for Small Business:
GC Micro’s Belinda
Guadarrama Breaks Barriers,” HispanicTrends.com (Spring
2003), pp. 1–6;
“GC Micro’s ‘Huge Step’: Petaluma Computer Contractor
Selected to Provide
Equipment for Federal Agencies,” The Press Democrat,
November 7, 2007; and
www.gcmicro.com .
2. See Kate Lister, “Myth of the Business Plan,”
Entrepreneur (January 2011),
pp. 64–65; “A Simple Plan,” Entrepreneur (August 2010), p.
38; and Sarah
Simoneaux and Chris Stroud, “A Business Plan: The GPS for
Your Company,”
Journal of Pension Benefits: Issues in Administration 18,
issue 2 (Winter 2011),
pp. 92–95.

3. Jack Kwicien, “Put Your Plan into Action,” Employee
Benefit Advisor (April 2011),
pp. 60–62.
4. See http://www.sba.gov/about-offices-
content/2/3126/success-stories .
5. Jennifer Wang, “A Refined Taste,” Entrepreneur (April
2011), pp. 28–34.
6. See www.Fortune3.com ; and
www.hometextilestoday.com .
7. See Jason Daley, “First Lesson: Trust Your Gut,”
Entrepreneur (March 2010),
p. 106; and Carl Richards, “Planning without Fear,”
Financial Planning
(April 2010), pp. 93–94.
8. Allan Kent, “Choosing the Right CMS for Your Website,”
NZ Business (May 2011),
pp. 46–47.
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