This document provides guidance on preparing an effective business plan by outlining each section and what they should contain. The sections include an executive summary, business description, market analysis, management team, operations, critical risks, and financial projections. The executive summary should capture investor interest with a 2-3 page overview of the business idea. The business description provides details on the company, product, and strategy. The market analysis demonstrates how the company will capture market share. The financial projections must convince investors the venture is financially viable.

1. copyright 2003 Jack M. Kaplan
How to Prepare a
Winning Business Plan
Preparing a Business Plan
Patterns of Entrepreneurship
Chapter 4

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Purpose of a Business Plan
Attracts Investors
Evaluates Feasibility of Business Concept
Serves as an Operating Guide
Attracts Potential Business Partners and Key Employees
Attracts Potential Customers and Suppliers

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Business Plan Development
Guide
Outline:
The Executive Summary
Business Description
Market Analysis
The Management Team
Operations
Critical Risks
The Financial Projections
Appendix

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The Executive Summary
Objective:
Capture interest of investors
General overview of business idea
How will it work
Bullet form
Emphasize key issues
No more than 2-3 pages
Should be written last

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Include the following:
Company profile
Nature of the product or service offering emphasizing
any competitive advantages
Identify foreign/domestic markets to be targeted
Size and growth trend of market
Make-up and background of the management team -
include individual skills
Financing requirements
Key projections (i.e., sales, gross profits, N.I.)
The Executive Summary

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Business Description
Objective:
Provide a detailed overview of the company and the
nature of the product/service offering.
Show long-term commitment to developing the venture.
Show defensible competitive advantage.

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Business Description
Include:
Mission statement
History behind the idea or current business
Company’s current or proposed legal form
Proposed entry strategy
Description of the initial product/service (including
any anticipated competitive advantages)
Product research and development

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Market Analysis
Objective:
Prepare an opportunity marketing analysis.
Demonstrate how to capture a large share to support the
venture.
Show how to support claims and customer interest.

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Market Analysis
Address:
Description of industry
Description of region and/or countries (international
business)
Targeted markets
Marketing research
Competition
Barriers to entry
Marketing strategy
– deliver products/services to the targeted markets

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Management Team
Objective:
Show that the team can effectively manage the
product/service into foreign or domestic markets.
Does management have the background and skills to
make the venture a success?
Highlight synergistic skills.
Show how deficiencies will be covered.
Do not give up more control than absolutely
necessary.

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Address:
Background and primary responsibilities of the
management team
Organizational structure
Board of directors/advisors/international trade specialists
Ownership
Management Team

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Exit Strategy
To be determined up-front
Some options include:
– going public
– selling the business
– a stock buy-back at the going rate
– leveraged buy-out
– second round of investment

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Critical Risks
Objective:
Identify potential problems that could significantly affect
the new company.
Let potential investors know up-front that there are risks
associated with the venture.

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Critical Risks
Internal
– loss of key employees
– inadequate working capital
– unproductive R&D
– breakdowns in plant and equipment
– bottlenecks in the distribution channels
– factors not covered by insurance policies
External
– patent violations
– changes in technology
– changes in government regulation or protectionist legislation
– adverse economic conditions, market changes
– unstable banking/financial and transportation/distribution systems
– potential effects on financial plans

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Continued:
Contingency Plans
– probabilities
Insurance Provisions
– fire
– liability
– automobile
– worker’s compensation
– key person
Critical Risks

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Operations
Objective:
Focus on relevant cost.
Demonstrate ability to carry out implementation.
Integrate operation costs with the financial section.

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Address:
International Considerations
– market development activities
– transportation
– export documentation
– foreign contacts and personal relationships
Future Research and Development Plans
– cannot be built around a single service or product
– present the planned directions of R&D
– new products
– new markets
– improve on existing production processes
Operations

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Continued:
Production Plan
– procuring and transforming critical resources
– internally
– externally
– time line of events
Customer Support
– focus on getting and keeping customers
– customer service
– what role it plays in achieving sales goals
Operations

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Continued:
Personnel
– creating management and infrastructure charts
– hiring
– training
Operations

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The Financial Projections
Objective:
Convince the investor that the venture makes sense
from a financial standpoint.
Projections must address:
– allocation of expenses
– return on investment
– cash flow management

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Historical financial data
First year financial projections by month
Balance Sheet
Income Statement
Cash Flow Statement
Second year financial projections by quarter
Five year annual forecasts
Break-Even Analysis
Ratio Analysis
The Financial Projections

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Valuation
“Residual Value” commonly used by investors.
Should be done before meeting with investors.
Will help you to assess what ownership you may have to
give up based on the expected ROI for your type of
venture.
Use the “time value of money” equation:
n
Future Value = Present Value (1+i)
i= estimated rate of return investors will require based on the
perceived risk associated with your type of venture
n= number of years

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Calculate the future value of the up-front investment
needed.
Example: Funds needed = $500,000
Average annual return on investment (ROI) = 45%
4
FV = $500,000 (1+.45)
FV = $500,000 (4.4205)
FV = $2,210,253
Valuation

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Example:
Determine the point in time that will be used in the
valuation calculations.
Example: 4 years
What are the projected after-tax profits?
Example: $1,855,050 (year 4)
Determine the valuation factor by looking at similar
companies in your industry.
Example: 10 times after tax earnings
$1,855,050 x 10 = $18,550,500
Valuation

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Determine the amount of equity you may have to give
up, based on the value of the venture, and the future
value of the potential investors’ initial investment.
Example:
$2,210,253
-------------- = 12%
$18,550,500
Valuation

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Balance Sheet
WC Position
Capital Asset Position
Capital Structure
Pro Forma Balance Sheet:
Current Assets Current Liabilities
Fixed Assets Long-term Debt
Intangible Assets Equity
Total Assets = Total Liabilities + Equity

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Cash Flow Statement
Objective:
Demonstrate that you have sufficient cash to run the
operation.
Assess the timing of future cash flows.
Develop a plan for subsequent rounds of financing.

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Cash Provided (used) from Operations
Net income (loss)
Depreciation
Adjusted net income (loss)
Cash Provided by Working Capital
Accounts receivable (increases) decreases
Inventories (increases) decreases
Accrued liabilities (decreases) increases
Prepaid expenses (decreases) increases
Cash Provided (used) by Continuing
Operations
Cash Flow Statement

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Continued:
Cash Provided (used) from Financing
Activities
Long-term debt (decreases) increases
Interest on notes
Cash dividends paid
Issuance of stock
Total Cash Provided (used) from
Financing Activities
Cash Flow Statement

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Continued:
Cash Provided (used) from Investment
Activities
Purchase of property, plant and equipment
Proceeds from sale of assets
Other acquisitions
Cash Provided (used) from Investment
Activities
Increase (decrease) in cash
Cash at beginning of period
Cash at end of period
Cash Flow Statement

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Income Statement
Revenue Projections
Cost Relationships
Tie into the Operating Strategy

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Income Statement
Pro Forma Income Statement
Revenue
- Cost of Goods Sold
Gross Profit Margin
- Operating Expenses
Net Income Before Interest and Taxes
- Interest
- Taxes
Net Income (Loss)