BAEB510 Chapter 5: Business Plan


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BAEB510 Chapter 5: Business Plan

  1. 1. BAEB501 : ENTREPRENEURSHIPCHAPTER 5:Business Plan © 2010 Cosmopoint
  2. 2. Chapter 5: Business PlanTopic Outlines 5.1. Introduction 5.2 Purposes of preparing a Business Plan 5.3 Business Plan helps 5.4 Who should read your business plan? 5.5 5C’s of Credit – Additional information 5.6 Business Plan Format 5.7 Business Plan 5.8 The Executive Summary 5.9 State your Mission Statement 5.10 Describe your product/service 5.11 Analyze the competition 5.12 Describe your pricing strategies 5.13 Example: Describe any special pricing strategies 5.14 Describe your credit policy 5.15 Describe your competitive advantage 5.16 Describe the market segmentation 5.17 Describe your location 5.18 Common Location Mistakes 5.19 Describe your promotion plan © 2010 Cosmopoint Slide 2 of [11]
  3. 3. Chapter 5: Business PlanLearning Outcomes  After completing this chapter, student should be able to:  Explain the business plan  Understand the elements in business plan  Develop your own business plan © 2010 Cosmopoint Slide 3 of [11] Topics
  4. 4. Chapter 5: Business Plan5.1 Introduction What is a business plan? It is a written document that serves as a blueprint and guide for a proposed business project that one intends to undertake. A comprehensive document that helps the entrepreneur analyze the market and plan the business strategy © 2010 Cosmopoint Slide 4 of [11] Topics
  5. 5. Chapter 5: Business Plan5.1 Introduction  What does business plan contains of?  The business plan contains of:  Proposed business venture  Its operational and financial details  Marketing opportunities and strategies  Manager skills and abilities © 2010 Cosmopoint Slide 5 of [11] Topics
  6. 6. Chapter 5: Business Plan5.1 Introduction  Why do we write a business plan?  Because:  Prepared by a start-up to avoid costly mistakes (e.g. in financial plan, marketing plan, right?)  To ensure the future growth is properly managed © 2010 Cosmopoint Slide 6 of [11] Topics
  7. 7. Chapter 5: Business Plan5.2 Purposes of preparing a Business Plan  To allow the entrepreneur to view and evaluate the proposed business venture in an objective, critical and practical manner.  To analyze and evaluate the viability of a proposed venture.  To convince relevant parties of the investment potential of the project.  As a guideline for managing the business.  To allocate business resources effectively. © 2010 Cosmopoint Slide 7 of [11] Topics
  8. 8. Chapter 5: Business Plan5.3 Business Plan helps  Owner project where they are, where they want to be, and how they plan to get there.  Clarify the goals of your business, the risk you take in starting it, and the possible rewards.  Describes the product you wish to sell and how will you sell it.  Banker an insight into your strategy and market  Investors to decide if you and your ideas are worth their risk.  Sales people and suppliers learn about your operations and goals.  You to analyze and predict competitive and money market situations that help or hurt your business.  Your learn to better manage your finances, marketing and management. © 2010 Cosmopoint Slide 8 of [11] Topics
  9. 9. Chapter 5: Business Plan5.4 Who should read your business plan?  Bankers – who grant loans for equipment and expansion.  Investor – who can supply startup or growth capital.  Business Brokers – who buy and sell businesses.  Initial Stock Offering Consultants – who write prospectus to sell stock or partnership units.  Suppliers of your inventory and materials (if they need to know who they are dealing with).  Marketing managers – if you need outside talent to help you develop marketing and sales plan.  Entrepreneur – to track whether he/she in the right path. © 2010 Cosmopoint Slide 9 of [11] Topics
  10. 10. Chapter 5: Business Plan5.4 Who should read your business plan?  Are you unique?  You must have a unique product or process with high profit potential.  Desirable to them if you can offer proprietary technology such as pattern, production process, trade secret, chemical formula  Management Team’s Tract Record  Must be experienced in different kind of business  Will business continue if something happen to you © 2010 Cosmopoint Slide 10 of [11] Topics
  11. 11. Chapter 5: Business Plan5.4 Who should read your business plan?  A track record of profit for the past 3 years.  Seldom consider people seeking startup capital unless have a substantial amount of collateral such as property.  How the loan is used to improve an already efficient operation. How you will generate enough cash from your cash flow to repay your loan.  Debt-to-Equity ratios of less than 3 to 1. This ratio compares what you owe to what you own. Anything less is a sign of risk, and bankers are not in business to take risks.  Conservative financial projections that show reasonable growth with reasonable profits over 2 years (which is what venture capitalists want to see).  Strong analysis of your market and competition. © 2010 Cosmopoint Slide 11 of [11] Topics
  12. 12. Chapter 5: Business Plan5.5 5C’s of Credit – Additional information  Capital – to have own money as a sign of commitment, stable capital base. Willing to lose, handle.  Capacity – cash flow to show ability to repay loan. Money come in.  Collateral – assets pledged as security for repayment of loan. Set when default to recover the loans.  Character – intangible factors such as honesty, competence, intelligence, ability, etc.  Conditions – potential growth in the market, competition, location, form of ownership, loan purpose, etc. © 2010 Cosmopoint Slide 12 of [11] Topics
  13. 13. Chapter 5: Business Plan5.6 Business Plan Format  Cover Letter - To write you purpose of writing business plan, formal format.  Cover page  Title of business plan  Name of business/business address  Name of writers  Date of submission  Table of contents  List of topics, list of figures (if there’s any), paging  Executive Summary © 2010 Cosmopoint Slide 13 of [11] Topics
  14. 14. Chapter 5: Business Plan5.6 Business Plan Format  Main Body of the Business Plan  Introduction (briefly tell what is all about)  Purpose (what you focus at)  Company Background (all about your company)  Owner/Partner background (formal biodata of owners)  Location of the business (map, address, why choose)  Administrative Plan (organizational chart, description)  Marketing Plan (4p’s, marketing strategies, planning)  Operation Plan (how the product/service produced)  Financial Plan (describe capital, profit, lost, return)  Conclusion (summary why writing business plan) © 2010 Cosmopoint Slide 14 of [11] Topics
  15. 15. Chapter 5: Business Plan5.6 Business Plan Format  Appendices  Balance sheet/financial statement  Supplier’s quotation  Agreement letter  Letter of references  Research findings © 2010 Cosmopoint Slide 15 of [11] Topics
  16. 16. Chapter 5: Business Plan5.7 Business Plan  For more understanding what should be in the business plan, herewith I attach you the additional information on Business Plan description. Enjoy reading on next slide!  © 2010 Cosmopoint Slide 16 of [11] Topics
  17. 17. Chapter 5: Business Plan5.8 The Executive Summary  It should best be summarized in 1 page (maximum 2 page only). The less the better.  A brief description of the proposed business and the product/service it will provide.  The most important trends in the industry.  The type of advertising and promotion that will be implemented.  Sales and Profits from the past 3 years (if the company is an existing business).  Projected Sales and Profits for the next 3 years.  The education and work experience of the owners and key personnel.  Any other information that is critical in understanding how your business operates. © 2010 Cosmopoint Slide 17 of [11] Topics
  18. 18. Chapter 5: Business Plan5.9 State your Mission Statement  In writing a business plan, please state your mission. This is advisable to prepare good business plan. This can include:  State the purpose of your business.  Identify the products and/or service to be offered.  Describe your management philosophy. © 2010 Cosmopoint Slide 18 of [11] Topics
  19. 19. Chapter 5: Business Plan5.10 Describe your product/service  To include information concerning any applicable data such as:  Size, shape, colors  Raw materials  Weight, speed  Packaging, texture, etc  To include information concerning services such as:  Personalized attention, custom ordering  Guaranteed response time, trial orders  Money-back guarantee, etc. © 2010 Cosmopoint Slide 19 of [11] Topics
  20. 20. Chapter 5: Business Plan5.11 Analyze the competition  Identify 3 of your main competitors by name.  State the distance between you and each of the competitors. (e.g. how far? How long?)  Describe their trading areas in comparison to yours.  Identify the strengths and weaknesses of your competitors by using the following checklist. (Note: Not all information will be available on all competitors). © 2010 Cosmopoint Slide 20 of [11] Topics
  21. 21. Chapter 5: Business Plan5.12 Describe your pricing strategies  State your pricing objective, the goal to be achieved through pricing such as:  A certain level of profit  A specific market share  To reach a certain sales volume  Describe the typical markup in this industry and how your prices compare. © 2010 Cosmopoint Slide 21 of [11] Topics
  22. 22. Chapter 5: Business Plan5.12 Describe your pricing strategies  Identify your pricing policies and general pricing guidelines.  Examples:  Will you run seasonal sales?  Will you try to match the competitors’ prices?  Will you use coupons?  Will you give employees discounts on merchandise purchased? © 2010 Cosmopoint Slide 22 of [11] Topics
  23. 23. Chapter 5: Business Plan5.13 Example: Describe any special pricing strategies  Introductory prices – Low prices used to gain entry into market  Price Lining – Grouping inventory into categories and then setting the same price for all items in each category.  Odd-ending – Prices set at odd numbers such as RM1.99, RM9.99, RM29.99, etc  Loss-Leader – Selling one or a few items below cost in order to attract customers.  All-One-Price-Setting every item equal to the same price.  Bundling – Grouping items together and selling them for less than if each item were purchased separately. © 2010 Cosmopoint Slide 23 of [11] Topics
  24. 24. Chapter 5: Business Plan5.14 Describe your credit policy  Describe your credit terms to customers.  Compare your credit terms to those of your competitors  State whether you will accept checks, credit cards, etc.  Segmentation – identify target market by separating the customer into groups of similar needs. © 2010 Cosmopoint Slide 24 of [11] Topics
  25. 25. Chapter 5: Business Plan5.15 Describe your competitive advantage  As much details as possible.  Might include: - Quality, Price, Selection (variety of product) - Location, Service - Fast turnaround, etc  Provide an explanation of how you will achieve your competitive advantage. (Try to combine several advantages, if possible)  Example: -How will you have better quality? -What will make your service better? -Why is your location better? © 2010 Cosmopoint Slide 25 of [11] Topics
  26. 26. Chapter 5: Business Plan5.16 Describe the market segmentation 1. Geographically – the geographic area you will serve. 2. Demographically – the age, sex, race, income, etc. of your target market. 3. Benefit – the benefits customers are buying such as status, security/safety, convenience, romance, sociability, entertainment, comfort, self indulgence, durability, etc. 4. Usage rate – the % of your customers that account for the largest portion of sales. 5. Psychographically – the values and lifestyle of your customers such as outgoing, introverted, scholarly, partygoers, athletic, family oriented, etc © 2010 Cosmopoint Slide 26 of [11] Topics
  27. 27. Chapter 5: Business Plan5.17 Describe your location 1. Give the business address 3. State whether the property is correctly zoned or if rezoning is necessary - Residential, commercial, industrial, agricultural 4. Describe your trading area. 6. Provide the demographic data for your trading area giving age, sex, race, income, occupation, etc. 8. Give the average traffic count in front of the outlet. 10. Describe anything hindering accessibility such as medians, one- way streets, congested traffic, difficult entrance, etc. 12. Identify any factors helping accessibility such as multiple entrances, a location near major highways. © 2010 Cosmopoint Slide 27 of [11] Topics
  28. 28. Chapter 5: Business Plan5.17 Describe your location 8. Identify the businesses adjacent to your site. State whether these businesses serve the same customers as your business and whether they have similar operating hours. 9. Research and describe the community’s sign laws. Describe any restrictions that would affect the sales of the business. © 2010 Cosmopoint Slide 28 of [11] Topics
  29. 29. Chapter 5: Business Plan5.18 Common Location Mistakes  Location Mistake 1: Choosing a location because it is close to home  Location Mistake 2: Choosing a location because it is the cheapest  Location Mistake 3: Choosing a location because it is the only one available © 2010 Cosmopoint Slide 29 of [11] Topics
  30. 30. Chapter 5: Business Plan5.19 Describe your promotion plan  List the type of promotion you will use  Sales and direct marketing, advertising  Publicity and public relations  Sales promotion  State your promotional goals. Might include:  A specific sales volume  A percent increase in awareness  To inform customers of a sale  To eliminate seasonal merchandise, etc. © 2010 Cosmopoint Slide 30 of [11] Topics
  31. 31. Chapter 5: Business Plan5.19 Describe your promotion plan  Provide information on your inside and or outside sales force, state whether you hire only experienced salespeople or if you hire inexperienced personnel and train them  Describe the compensation packages for the sales force (Salary only, salary plus commission, etc)  Describe how customer accounts are divided among the sales force – geographically, by industry, by company size, etc.  Describe any direct mail, catalogs, or direct response ads that will be used.  State the objectives of the promotions and the total annual cost.  Identify company activities that can be used for publicity.  Any plan to write for the local newspaper concerning the grand opening, expansion plans, new products that are developed, etc. or interesting enough to be featured on local radio or television stations © 2010 Cosmopoint Slide 31 of [11] Topics