2. Business Plan
The business plan is a formal written expression of the entrepreneurial
vision, describing the strategy and operations of the proposed
venture.
The business plan is a written narrative, typically 25 to 35 pages long,
that describe what a new business intends to accomplish and how it
intends to accomplish it.
Reason for Writing
Business Plan
1. Internal Reason
1. External Reason
3. Internal Reason: The internal reason is to develop a roadmap to
follow to execute its strategies and plans. It also forces a firms
founders to systematically think through each aspect of their new
venture.
External Reason : It introduces potential investors and other
stakeholders to the business opportunity the firm is pursuing and
how it plans to pursue it. The Business plan is to create a selling
document for a company. It provides a mechanism for a young
company to present itself potential investors, suppliers, business
partners, key job candidates, and others.
Who reads the Business Plan ?
1. A firms employee
2. Investors and other External Stakeholders
4. Guidelines for Business Plan
The business plan follows the general format for documents:
The first section tells the audience what the entrepreneur is going to tell them. This
prepares them for what is coming.
The major middle sections give the audience the information and arguments that are
central to the company’s purpose.
The last section reminds the audience what it has heard and summarizes the
presentation.
Guidelines :
1. Structure of the Business Plan
2. Content of the Business Plan
3. style or format of the Business Plan
4. summary plan
5. The Essential Elements of Business Plan
Preliminary Sections
Outline.
Cover page
Table of contents
Executive summary
1. Type of Business
2. Company summary
3. Management
4. Product/service and competition
5. Funds requested, collateral, use of proceeds*
6. Financial history, financial projections*
7. Deal structure, exit*
*Required if the plan is used for financing.
Major Sections
Outline.
I. Background and Purpose
A. History
B. Current situation
C. The business model and resource-based elements
6. II. Objectives
A. Short term
B. Long term
III. Market Analysis
A. Overall market
B. Specific market
C. Competitive factors
D. Macroenvironmental influences
IV. Development and Production
A. Production processes
B. Resource requirements
C. Quality assurance
V. Marketing
A. Overall concept and orientation
B. Marketing strategy and resources
C. Sales forecasts
7. VI. Financial Plans
A. Financial statements
B. Financial resources
C. Financial strategy
VII. Organization and Management
A. Key personnel resources
B. Human resource management strategy
VIII. Ownership
A. Form of business
B. Equity positions
C. Deal structure*
IX. Critical Risks and Contingencies
X. Summary and Conclusions
XI. Scheduling and Milestones
8. Cover Page:
The cover page includes the following information:
Company name, address, telephone and fax numbers, and e-mail
address. The reader is more likely to contact the entrepreneur if it’s easy to
do so. ( CENTERED at the TOP of the PAGE )
The name and position of the contact person, one of the firm’s top
executives, who must be fully prepared to answer questions about the plan.
The date the business was established (e.g., “established 2006”) and the
date of this version of the business plan (e.g., “February 2007”).
The full name of the organization from which funding (or credit, or a
supplier agreement, etc.) is being sought.
The company’s logo : Every firm should have a logo, a design, picture, or
ideograph that represents the company. The association of a company name
with a pictorial design gives the reader (and eventually the customer) two
ways to remember the company and its products.( Near the CENTER of the
PAGE )
9. Table of Contents.
The table of contents follows the cover page and adheres to the format of the
business plan elements.
Each major section is numbered and divided into subsections, using one of two
common numbering methods.
The Harvard outline method uses Roman numerals for main headings, capital letters
for major sections,
Arabic numbers for subsections, and the number-letter combination (e.g., 1a) for
even smaller subsections. The decimal format numbers each major heading, starting
at 1.0, and subsections that follow are numbered 1.10, 1.11, . . . 2.0, 2.10, 2.20, etc.
The executive summary and the appendixes are not numbered this way. The
executive summary precedes the numbering and, therefore, has no number; the
appendix numbers are in Arabic preceded by “A” (A.1, A.2, and so on) to indicate
that they are appendixes.
If the plan has a significant number of tables, figures, drawings, and exhibits, a
separate table can be prepared listing these with their titles and page numbers. Any
consistent and coherent organizing method may be used.
However, because the purpose of the table of contents and the table of figures is to
make it easier for readers to extract pertinent information, complicated and arcane
systems of cataloging should be avoided.
10. Executive Summary.
The executive summary is a short overview of the entire business plan; it provides a
busy reader with everything she needs to know about the new venture’s distinctive
nature.
An investor will first ask for a copy of a firm’s executive summary and will request a
copy of the full business plan only if the executive summary is sufficiently
convincing.
The most important point to remember when writing an executive summary is that it is
not an introduction or preface to the business plan. Instead, it is meant to be a
summary of the plan itself.
An executive summary shouldn’t exceed two single-spaced pages. The cleanest format
for an executive summary is to provide an overview of the business plan on a
section-by-section basis.
The topics should be presented in the same order as they are presented in the business
plan. Two identical versions of the executive summary should be prepared—one
that’s part of the business plan and one that’s a stand-alone document. The stand-
alone document should be used to accommodate people who ask to see the executive
summary before they decide whether they want to see the full plan.
Even though the executive summary appears at the beginning of the business plan, it
should be written last. The plan itself will evolve as it’s written, so not everything is
known at the outset. In addition, if you write the executive summary first, you run
the risk of trying to write a plan that fits the executive summary rather than thinking
through each piece of the plan independently.
11. Type of Business: The summary should describe the firm’s industry or sector in about ten words.
Some investors will not invest in certain industries, so being clear up front saves time for everyone.
Company Summary: This thumbnail sketch of the firm’s history and background emphasizes the
positive—briefly. More than half a page (150 words) is not a summary. A statement defining the
firm’s primary product or service should not be complicated by lists of product extensions or auxiliary
services.
Management: The people running the company matter more than any other factor, but the summary
need not include a lot of detail. Listing the top two or three people and emphasizing their industry
experience should suffice.
Product/Service and Competition: Mentioning the competition defines the niche the firm occupies.
Again, this description should be no longer than half a page (150 words).
Funds Requested: This brief statement specifies the exact amount of money needed and the
investment vehicle: debt, equity, or some hybrid .
Collateral: If the summary offers a debt instrument, it should indicate whether and in what form
collateral will be available. The more collateral the company has, the lower the interest rate it will be
charged and the less equity it will have to give up.
Use of Proceeds: The financial section in the main body of the business plan should specify how the
money will be used. Overly broad terms like “pay expenses” and “increase working capital” do not
inspire confidence, so entries such as “pay salaries” and “build inventory” are preferred.
Financial History: The firm’s financial history should include only the major categories— revenues,
net income, assets, liabilities, and net worth—for the last two or three years. Figures presented in the
history must coincide exactly with those in the main body of the plan. This section is omitted if the
venture is completely new.
Financial Projections: These projections follow the same format as the financial history, covering
two or three years and matching the figures in the main body of the plan.
12. The main body of the business plan contains the strategic and operating details of
the new venture.
Background and Purpose. This introductory section creates a context for
understanding the business. Although history is not destiny in business, it is
important that readers be able to gauge how far the firm has come and precisely
where it is now in the new venture creation process.
History: This section, a brief description of the venture and its history, is especially
important if the firm is offering a unique product or service. It tells potential
investors that this company is a “prime mover.”
Current Situation: This includes a brief description of the product or service, its
potential customers, and the technology necessary to make and deliver the
product. This product/market/technology configuration (P/M/T) is the most
concise statement about your business. There is ample opportunity to expand on
this later in the plan. If the product or service is so technical that a non-expert
might not understand it, create an exhibit or an appendix with a photograph or
drawing of the product, list its technical specifications, and present any
available test results.
The Business Model and Resource-Based Elements: This section tells the story
of the business: its customers, product, technology, and revenue model. How
will it make money? What key resources will contribute to the firm’s success?
How will these resources be translated into a unique product or service with a
competitive advantage? This is the first introduction of the strategy statement.
13. 2. Objectives :
Objectives are desired outcomes, and every new venture has three broad
objectives: creation, survival, and profitability. For firms with an operating
history, of course, only survival and profitability are pertinent. Objectives
are viewed in terms of time frame and measurement. Short-term objectives
can be achieved within one year. Long-term objectives generally require
three to five years.
The measurement of how well an objective has been achieved can be
quantitative or qualitative. Quantitative measures are stated as
numbers—return on sales, return on equity, employee turnover, etc.
They usually concern the degree of the firm’s efficiency: how well
it has deployed a given set of resources. Qualitative measures, on
the other hand, resist reduction to numbers.
14. 3.Market Analysis.
The market analysis section aims to convince the reader or investor that the entrepreneur
fully understands the competitive environment and the macroenvironment. It must
demonstrate that (1) the addressable market for the product or service is substantial
and growing, and (2) the entrepreneur can achieve a defendable competitive
position. Suggestions and recommendations for market analysis follow:
Overall Market: A description of the firm’s industry includes its current conditions, and
its projections for sales, profits, rates of growth, and other trends.
Specific Market: In narrowing the focus to the target market, segment, or niche in
which the firm will operate, the plan describes current and projected conditions,
leading competitors, and customers. How are purchasing decisions made, and by
whom?
Competitive Factors: It analyzes the competitive nature of the firm’s industry and the
industry’s attractiveness; the power of the buyers and the suppliers; the availability
of substitute products and services; the height of entry barriers; and the nature of the
current rivalry.
Macroenvironmental Influences: This vital section demonstrates the venture’s
knowledge and competence by evaluating the impact of the macroenvironmental
factors
15. 4. Development and Production.
This section deals with the most important elements of research, development, and
production of the basic product or service.
Production Processes: This outline of the stages in the development and production of
the product or service include brief comments on each stage, detailing how time and
money are allocated in the production process or service delivery system. A
discussion of the difficulties and risks encountered at each stage can be accompanied
by a flowchart illustrating how the core function is accomplished. The possibility of
subcontracting each stage should be evaluated and make-or-buy decisions must be
explained. What resource-based competencies provide the firm with advantages in
the production process?
Resource Requirements: This is an analysis of each resource employed in the
production process. These resources, described in Chapter 2, may be financial,
physical, human, technological, reputational, and organizational. Where in the
production process does the venture possess valuable, rare, hard-to-copy, and
nonsubstitutable resources? What are the cost/volume economics of the production
process or service delivery system? What are the current trends in the cost of
resource procurement?
Quality Assurance: Quality dimensions (product, user, process, value) were described
in Chapter 1. What is the firm’s perspective on quality? How will quality be defined
and measured in the production process. Will the new venture employ total quality
management techniques and systems?
16. 5. Marketing Plan
This section describes the actual marketing strategy of the firm or new venture.
This strategy must be consistent with the objectives stated earlier. The
marketing section explains how the firm will exploit its resource base to create a
total marketing focus. It also describes how the new venture connects with its
customers.
Overall Concept and Orientation: The description of the venture’s concept in the
background section can be given a marketing focus by transforming it into a
statement of customer orientation. What benefits and positive outcomes will the
customer derive from interaction with the firm? Evaluate the resources that the
firm or new venture has or can control in creating high levels of customer
awareness and satisfaction. This introduction demonstrates a commitment to the
marketing effort.
Marketing Strategy: This brief description of the primary product or service’s, along
with that of the major competitors can show how marketing strategy will support the
product or service’s strengths and exploit competitors’ weaknesses. Identifying the
target market and using data from market research demonstrates why the company is
competing in this particular segment. Why and how does its product appeal to this
segment? How does the marketing strategy communicate and activate this appeal?
What image does the firm want to adopt? Is this image consistent with the product or
service? Why will it appeal to customers? How will the image be communicated?
That is, what are the plans for packaging, branding, and labeling the product? What
advertising, promotional activities, and campaigns are proposed?
17. Pricing: Here the plan discusses pricing strategy. How do the company’s prices compare with the
competition’s? Is the pricing strategy consistent with the firm’s image? Does it create value for
customers? What is the profit margin per unit under various pricing schemes? What is the credit
policy and is it consistent with purchasing patterns in the industry? What is the warranty policy?
What about service after the sale? How will the company create and foster ongoing relationships
with buyers and encourage repeat business?
Distribution: How will the product or service be distributed? Include a description of the geographic
scope and the channels of distribution.
Sales Forecasts. The sales forecast is derived from three elements of market analysis:
(1) the size of the market in units and dollars, (2) the fraction of that market that the
firm can capture through its marketing efforts (market penetration rate), and (3) the
pricing strategy.
Sales forecasts are often best presented in an exhibit or chart. They can be shown as
units of products (or number of services delivered) as well as in dollars. The
entrepreneur multiplies product units by predicted average price (and offers the
justification for this price). Using a five-year time frame, the plan presents a best
case, most likely case, and worst case scenario. What separates the best, most likely,
and worst cases? A graph can illustrate sales trends and growth.
18. 6 Financial Plans
The sales forecasts conclude the marketing portion of the business
plan and begin the financial analysis portion; they represent the “top line.”
The purpose of the financial analysis section is to illustrate the “bottom
line.” Bankers and potential investors evaluate this section to see whether
enough profits will be generated to make the venture an attractive
investment. It also serves as the financial plan for the firm’s executives.
This section is numbers oriented, and it should give the audience what it
wants: rows and columns of figures, carefully labeled and footnoted.
If the firm has an operating history, the financial statements must summarize
its past and current performance. For past performance, it calculates ratios
that highlight profitability, liquidity, leverage, and activity, then compares
these ratios with industry averages collected from trade data.
If the firm is a new venture, it must present the following:
Projected profit and loss statements (income statements) for 5 years—
monthly for the first year, quarterly for the next two years, and annually
thereafter.
Projected cash flow statements and analysis—monthly for the first year and
until the firm has positive cash flow, quarterly for the next two years, and
annually thereafter.
Projected balance sheets for the ends of the first 3 to 5 years.
19. 7. Organization and Management.
Key personnel resources are presented on an organization chart with the names and titles of the key
executives. Brief synopses of these individuals’ previous experience, education, and related
qualifications are included, and complete resumes of top managers and key executives may be
placed in an appendix. Readers will want to know whether these people have worked together
before and in what capacity.
What are these individuals’ contributions to the company? Who will do what, and why was he or she
chosen for that role? What contractual relationships exist between the company and its
principals, and between the principals? Are there employment contracts, severance packages, or
noncompete agreements?
Initial salaries, incentives, bonuses, pensions, and fringe benefits of the top people are also of interest
to investors. It is wise to keep initial salaries low to conserve cash and to keep deferred
compensation (stock options and the like) high to produce long-term commitment. What key
positions remain unfilled? Job descriptions of these positions should include the unique skills,
abilities, and experience the firm needs, and plans should be presented for attracting, developing,
and retaining key personnel. Without such plans, people problems will inhibit growth.
A list of the firm’s board of directors, their ages, their relevant experience, their other corporate
affiliations, and their connection with the firm is another component. Providing the names of the
legal, accounting, banking, and other pertinent organizations (marketing or advertising agencies,
consulting firms, and the like) can also influence investors.
20. 8. Ownership.
In this section, the founders describe the legal form of the business, the
contractual obligations of the owners to the firm and to each other,
and, if the business plan is a proposal for financing, the nature of the
deal. Note that only after the reader is familiar with the experience,
reputation, and character of the entrepreneurial team is it
appropriate to ask for money.
It also shows the equity positions that these investments represent.
Another exhibit can show any rights to warrants and stock options
and indicate their precise nature (exercise price, expiration date).
What proportion of equity would be controlled if these were
exercised? Are the shares held in beneficial trust? Recent changes in
the ownership of the firm should also be noted and explained. What
percentage of stock is owned by the employees?
21. 9. Critical Risks and Contingencies.
In this section the new venture, following the rules of full disclosure, reveals all material and relevant
information that a prudent investor needs. The nature of this information is inherently negative,
including every reason why someone would not want to invest in the venture. By fully revealing
this information, the entrepreneurs perform their legal and moral obligation to be forthcoming
and honest about the firm’s prospects. Should the investors lose their investment, full disclosure
can be a defense against claims of civil or criminal liability.
This section typically includes the following categories of information and the potential impact
of each on the new venture:
1. Failure to produce the products and services promised
2. Failure to meet production deadlines or sales forecasts
3. Problems with suppliers and distributors
4. Unforeseen industry trends
5. Unforeseen events in the political, economic, social, technological, and ecological environments
6. Failure to survive retaliation by competitors with significantly more resources
7. The problems of unproven and inexperienced management
8. The problems of unproven and undeveloped technology
9. Difficulties in raising additional financing
10. Other issues specific to the firm in question
22. 10 Concluding Sections
There are a few loose ends and details left to report on in the concluding sections.
Summary and Conclusions. A brief summary of the highlights and key features of the
report must include the firm’s overall strategic direction, the reasons for believing
the firm will succeed, a short description of how the firm will exploit its unique
resources to advantage, the firm’s sales and profit projections, its capital
requirements, and the percentage ownership for the founders and investors. Because
this is a summary, no new information should be reported here. The entrepreneurs
may even use the exact words used in earlier sections since repetition will reinforce
the message and demonstrate consistency.
23. 11.Scheduling and Milestones.
The business plan outlines a number of actions to be taken in the future, actions
discussed in many different sections of the plan. To consolidate the timing of events,
the plan should present a schedule in chart form, listing the important milestones to
be reached in the near and intermediate term. This helps investors know when the
firm will need additional capital infusions and allows them to track the firm’s
progress.
Projected calendar dates for the following events should appear:
1. Seeking legal counsel and accounting services
2. Filing documents necessary to set up the desired legal form of business, and completing licensing
requirements
3. Completion of research and development efforts
4. Completion of a working prototype
5. Purchase or lease of production facilities and office and retail space
6. Selection of personnel: management, skilled, semiskilled
7. Ordering supplies, production materials, inventory
8. Beginning production
9. First order, sales, and payments
10. Other critical dates and events
24. Appendixes
This discussion of the elements of the business plan has suggested that certain items,
exhibits, and documentation belong in an appendix, so these plans may have a number of
appendixes.
A partial list of possible appendix sections is shown below.
1. A photograph or a drawing of the product (if appropriate), including title and labels if necessary.
If the product or process is highly technical and investors are likely to have the technical
section reviewed by a consulting engineer, the entire technical section should be under
separate cover.
2. A photograph or drawing of the intended location and physical layout (if appropriate), annotated
if necessary
3. Sales and profitability forecasts in chart form
4. Market surveys and documentation of size and nature of market
5. Sample advertisements, brochures, and telemarketing protocols
6. Sample press releases
7. Price lists, catalogues, and mailing lists (just the titles of the lists, not all the contents)
8. All detailed and footnoted financial statements, including income statements, cash flow
statements, balance sheets, break-even calculations, and table of start-up costs
9. Fixed-asset acquisition schedule
10. Individual and corporate tax returns
11. Résumés of founders, board members, and key individuals
12. Letters of recommendation or character references
13. Any additional information deemed appropriate
