1 LECTURE #7 OVERVIEW OF THE BUSINESS PLAN. 2 TOPICS TO COVER IN THIS LECTURE Purpose of the...

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LECTURE #7OVERVIEW OF THE BUSINESS PLAN

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TOPICS TO COVER IN THIS LECTURE

Purpose of the Business Plan Elements of the Business Plan Environmental Analysis

Techniques Competitive Strategies

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BUSINESS PLANSWHAT IS A BUSINESS PLAN?

1. A plan developed for a proposed or new business

2. A document that explains the Who, What, Why, When & How of the business (Bloomberg On Demand)

3. A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals (Wikipedia encyclopedia).

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PURPOSE OF THE BUSINESS PLAN

Gives you the opportunity to examine the entire business objectively and give serious thought to chances of its success

The detailed information and analyses help you to: Work out your policy for key business areas Identify areas of weakness and strength Predict possible problems and correct or

prepare for them before they eventually occur.

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In the initial stages of the project, the business plan acts as your “Bible”. It is a working guide against which progress can be measured.

The Plan should be flexible. It details analyses about key aspects of the operation make it easier for you to make adjustments when faced with unexpected changes.

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The Plan describes the business for Lending agencies who need to

evaluate the feasibility of your business idea.

Professionals who will be involved with the business

Your employees who will join the organization at a future date.

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8 REASONS FOR WRITING A BUSINESS PLAN

1. Obtain loan financing & investment funds

2. Attracting partners3. Arrange strategic alliances/suppliers 4. Obtain large contracts/customers5. Attract key employees/ Management6. Complete merger and acquisitions7. Motivate and focus employees

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BUSINESS PLANSBUSINESS PLAN CONTENT / COMPONENTS

The content and format of the business plan is

determined by the goals and audience being

addressed.

A business plan should contain whatever

information is needed to decide whether or not to

pursue a goal.

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BUSINESS PLAN CONTENT / COMPONENTS

The main areas of focus are

The business idea/ concept Marketing Considerations Technical/Operational issues Management & Human resources Financial Considerations

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A Topical Outline of its components is as follows:

Executive Summary Industry Analysis Definition of the Business Purpose of the Business Plan Business Feasibility Justification of the Business Organizations and Management

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A Topical Outline cont’d

Human Resources Operational Considerations Marketing Arrangements Financial Considerations Critical risks Implementation Schedule Appendices References

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BUSINESS PLANSExecutive Summary a succinct highlight of the overall plan -

Located at the front of the business plan but is the last item to write in the business plan

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BUSINESS PLANSExecutive Summary

Explains:What are you planning to do (business / goal)What is the Market Opportunity & related Company StrategyWhy your Management team can best execute this planWhat is the proposal & why is it financially compelling to make this investment

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BUSINESS PLANS

Industry Analysis an overview of the industry, identifying the

business opportunity include consideration of the competition,

legal constraints, statutory requirements, regulatory bodies, etc.

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BUSINESS PLANS

Definition of the Business explanation of the business idea /

concept, the current offering, and the projected growth

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BUSINESS PLANS

Purpose of the Business Plan dominant reason for the preparation

of the business plan e.g. To raise loan funding To attract investors

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BUSINESS PLANS

Business Feasibility analysis of the demand, risk,

environmental impact

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BUSINESS PLANS

Justification of the Business State the economic, social, and personal

benefits to be gained from introduction / operation of the business

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BUSINESS PLANS

Organization and Management Details the mission statement, corporate

goals, managerial competence, organizational chart

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The Organization & Management

Plan

Building an organization that will last requires careful planning and strategy.

Potential investors are interested in the quality of the management team.

The initial organization design is simple.

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The Management Team Management team:

Consists of managers and other key persons who give a company its general direction

Characteristics of a Strong Management Team Capable of securing the resources needed to make business a success

Reassures investors about their investment and the continuity of business

Diversity of talent makes the team stronger than an individual entrepreneur

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BUSINESS PLANS

Human Resources sourcing and staffing considerationsWho are your key staff & Management TeamWhat skills do they have, what skills will you have to outsource Arrangements for Training and

Development Performance Evaluation Occupational Safety and HealthWho are your advisors / Board of Directors

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BUSINESS PLAN COMPONENTSOperations

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BUSINESS PLAN COMPONENTSOperationsWhat are your processesHow will you operate to gain a competitive advantageWhat facilities, equipment and machinery are needed to carry out these operationsDo you have to spend money or capital to implement these processes or can they be outsourced

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BUSINESS PLANS

Operational Considerations Looks at facility location, technical

requirements, suppliers of raw materials, utilities

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BUSINESS PLANS

Marketing Arrangements

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BUSINESS PLANS

Marketing Arrangements target market, definition of the product or

service, pricing, distribution, promotionWho are your customers

Where are they fromHow can you reach themWhat is their spending power

What are the Products or Services you intend to offer

Highlight important or significant aspects of your products/service

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BUSINESS PLAN COMPONENTSMarketingWhat is your Marketing Strategy How will you introduce the

product/service to the market? Who will buy the product/service? Can the money from sales cover the

costs of running the business and will this money come in when needed so you can pay your bills on time?

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THE MARKETING PLAN

Pricing Strategy Promotion and Advertising Product/Packaging Distribution Customer Service Overall – deals with all the seven

P’s.

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The Marketing Plan Section of the BP should focus on strategies for the first three years of the venture:

1. For the first year, goals and strategies should be projected monthly;

2. For years 2 & 3, market results should be projected based on longer term goals;

3. Preparing an annual marketing plan becomes the basis for planning other aspects of the business.

THE MARKETING PLAN –Purpose & Timing

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BUSINESS PLANS

Marketing ArrangementsIncludes a discussion about your Competitors

What are their pricesWhat are their strengths & weaknessesTheir dominant strategies

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The Financial Plan

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The Financial Plan

Provides a complete picture of: How much and when the funds are

coming into the organization. How the funds will be used How much cash will be available The projected financial position of

the firm at the end of specified periods

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BUSINESS PLANS

Financial Considerations sources of financing, capital cost, pre-

operating expenses, working capital requirements, breakeven analysis (where possible), cash budget over three years, budgeted accounting statements over three years.

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The Financial Plan – its components

1. Operating and Capital Budgets2. Pro forma income statements3. Pro forma cash flow4. Pro forma Balance Sheet5. A Break-even Analysis6. Pro forma Sources and Uses of

Funds

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BUSINESS PLAN COMPONENTS Financial PlanShows whether or not the business is financially viableThere are three main financial statements

Balance SheetIncome Statement ( Profit & Loss)Cash Flow projectionA brief explanation of these three statements

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BUSINESS PLAN COMPONENTS

Financial Plan

Balance SheetPresents a picture of your business’ net worth at a particular point in timeIt summarises all the financial data about your business into three categories

AssetsLiabilitiesCapital/ Owner’s Equity

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BUSINESS PLAN COMPONENTSFinancial Plan

Balance Sheet Cont’dAssets

The total of all tangible & intangible objects of financial value that are owned by the company

LiabilitiesIndebtedness of the company for resources provided by someone other than the owner (i.e. Creditors)

Capital/Owner’s EquityThe total amount of resources supplied by & belonging to the owners of the business

Assets = Capital + Liabilities

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Financial Plan

Balance Sheet Cont’dThe Capital/Owner’s Equity or Net worth or value of the business is calculated as follows:

Net Worth = Total Assets - Total Liabilities

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Financial Plan

Income Statement ( Profit & Loss) shows:Revenues for a given periodExpenses for said periodProfits or loss for the period

Revenues – expenses = Profit / Loss

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Financial Plan

Cash Flow projectionShows how cash is expected to flow in & out of the businessShows expected magnitude & timing of cash inflows & outflowsShows whether you will be able to meet your bills as they become due for paymentHelps determine the timing & magnitude of financial investments needed to keep the business operating

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Financial Plan

Cash Flow projection cont’dStrong positive cash flow projections reduce the risk for investors & loan officers, making them more willing to fund your business ventureUsually done on a monthly basis for period of one yearNon-cash items do not appear on a cash flow statementOnly the actual amount of cash received and paid out by the business are captured by this statement

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Financial Plan

Cash Flow projection cont’dMonthly Cash Flow Projections are computed as follows:

Opening cash balancePlus total cash inflows for the monthMinus total cash disbursements for said monthEquals Closing cash balance for that month

Closing cash balance for January becomes the opening cash balance for February and so on.

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Financial Plan

A brief explanation of these three statements

Usually appear as notes to the financial statementsHighlights & explains significant features such as unusual expenditures or incomes & gives a brief explanation. The information contained within the notes not only supplement financial statement information, but they clarify line-items that are part of the financial statements.

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Critical RisksIdentify your Critical Risks

Availability of Raw Materials Changes in TechnologyMarketing StrategyEngagement of key personnelAgreement with key partnersAcquisition of licenses or specific contracts

Discusses assumptions & alternative courses of action in case critical risks are not satisfied

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ProposalDesired Financing

How much money is requiredWhen will various sums be required

OfferingWhat will investors receive in return for their investment

Use of FundsHow will the funds obtained be used

Investor’s returnThe extent to which investors can expect to benefit from this investment

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BUSINESS PLANS Implementation Schedule

stages of activities six months before to six months after the startup date, accompanied by a (Gantt Chart)

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BUSINESS PLANS Appendices

tools used in feasibility study; profile of

management team, letters of commitment from prospective suppliers and clients; samples of product design, labels, promotional campaigns, floor plan and legal documents

References bibliography, credits, acknowledgements

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BUSINESS PLANS End of the Business plan

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An Effective Business Plan

Accomplishes its intended purposeIs clear, unambiguous easy to understandAddresses its intended audienceCredible – critical risks identified and dealt withEmployed the uses of positive upbeat language

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Writing an effective Business Plan

The ProcessConduct relevant research using secondary or primary data as necessaryBrainstorm ideasDiscuss with your partnersDecide how to respond to each item in the business plan templateWrite a statement or paragraph on each itemExpand the statement as necessary to capture the views of the team on the matter

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BUSINESS PLANS

The Process of Writing the PlanHelps the entrepreneur to fully analyse and develop the idea into a real opportunityThe actual writing of the plan should result in the improvement of the business idea enabling it to become a real opportunityMay prove that the idea is not viable – in the form it was originally conceivedCould result in the abandonment of the idea

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The Process of Writing the Plan

Developing the Financial PlanUse real data where possible, make assumptions about othersUse what-if analyses to come up with different scenariosDevelop best case, normal and worst case scenariosEnsure contingencies treat with worst case scenarios State your assumptions in the notes to the financial statements

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PRESENTING THE BUSINESS PLAN

Ensure all members of the team read and fully understand the planAdd graphs, charts and pictures to enhance clarity & attractiveness Ask a trusted colleague or advisor to review the planBe sure to make adjustments where necessary

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Environmental Analysis Techniques

Tools used to analyse the business environment

PESTL Analysis SWOT Analysis

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PESTL Analysis Political Economical Social Technological Legal

Considers the environment in which the business will operate. Used the develop appropriate

business strategies

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SWOT Analysis Strengths Weaknesses Opportunities Threats

May be done for the business and for competitors

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Examples of SWOT Factors

Internal Strengths

Core Competencies Financial strength Well-planned strategy Skilled management

Weaknesses Production inefficiencies Inadequate financial

resources Poor management Poorly planned strategy

External Opportunities

Untapped market potential

Favourable shift in market

Emerging technologies

New product Threats

New competition Rising demand Increased government

regulations

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Competitive Strategies

Michael Porter’s Generic Competitive Strategies

Porter’s Five Forces Analysis

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Porter’s Five Forces Analysis Rivalry from existing competitors Threat of new entrants Technical threat of substitutes Bargaining power of buyers Bargaining power of suppliers

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Michael Porter’s Generic Competitive Strategies Cost leadership Differentiation Focus or niche marketing

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End of the lesson

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