Chapter 7 the Business Plan

8/6/2019 Chapter 7 the Business Plan

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The Business Plan:

Creating and Startingthe Venture


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Planning as Part of the Business Operation

Plans: provide guidance and structure tomanagement in a rapidly changing marketenvironment. Extremely important in early stages of a new venture.

Become finalized as entrepreneur has a bettersense of: Market.

Product or services to be marketed. Management team. Financial needs of the venture.

Helps meet short-term or long-term business goals.


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Business Plan

Written document describing allrelevant internal & external

elements and strategies forstarting a new venture


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The Business Plan

A road map for the business.

An integration of functional plans.

(Marketing, Fin, HR, Manufacturing)

Addresses first three years of operation.

Like the entrepreneur, the traveler must make someimportant decisions and gather information beforepreparing the plan (Discussion)

Where am i nowWhere am i goingHow will i get there

Road map Peshawar to Naran


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Who should write the plan?

Should be prepared by the entrepreneur inconsultation with other sources.

SMEDA & Internet provides a wealth of info

Attend Workshops Entrepreneur can make an objective assessment of his

or her own skills before deciding to hire a consultant

Figure 7.1 (Skills Assessment table given in the book)


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LOGO

Scope of the Business Plan- who reads it?

Three perspectives to be considered in preparing the plan:

Entrepreneur

Marketing

Investors

Employeesinvestorsbankers suppliers

E often consider product OR technology and notwhether

Someone would buy it- View business thru eyes of their customers

Sound financialprojections required

Sound financialprojections required


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Depth and detail in the business plan depend on:

Size and scope of the proposed new venture.x Nature of the product or market

x -comprehensive plan for Portable Computer / retail videostore / e-commerce business

Size of the market.

Competition.

Potential growth.


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Value of the Business Plan (2 of 2)

The thinking process required to complete the planis a valuable experience for the entrepreneur. Provides a self-assessment by the entrepreneur. Forces the entrepreneur to bring objectivity to the

idea. Helps consider obstacles that might prevent the

venture from succeeding. Similar to role playing.

Allows to plan ways to avoid such obstacles.

If required, the entrepreneur may decide toterminate the business endeavor.


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Evaluating the Plan

The business plan must address: Strengths of management and personnel. Product or service. Available resources.

Entrepreneur prepares a first draft of the businessplan from a personal viewpoint. Appropriate changes are necessary as entrepreneur is

aware of the audience.x Suppliers.x Customers.x Potential suppliers of capital.


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Lenders and Investors

Lenders:

Primarily interested ability of the new venture to payback the debt.

Banks: Want facts with an objective analysis.

Investors, particularly venture capitalists, have

different needs: Place more emphasis on the entrepreneurs character

Spend much time conducting background checks.

Investors will also demand high rates of return.


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Presenting the Plan

Entrepreneur is expected to sell his or herbusiness concept.

Focus is on why this is a good opportunity.

Concluding remarks may reflect recognized risks andhow the entrepreneur plans to address them.

Audiences include potential investors.

A winner is usually declared, with a financialaward.

Investors describe these presentations as elevatorplans.


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Information Needs

Before creating a business plan, entrepreneur mustundertake a feasibility study.

Information for a feasibility study should focus on:

x

Marketing.x Finance.

x Production.

Internet can be a valuable resource.

Feasible, well-defined goals and objectives need tobe established.


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Jim & Gary- Retail store of computer software

& video games .

Brainstorming discovered untapped market niche

BP made was weak & over optimistic reachinggoals

Ross old friend gave them advice

12 stores openings first month & how-where storeswould be opened

Ross liked the business concept & willing to pay$3M credit

Restructured plan and revise goals

Co made fortune later acquired by Barnes & Nobel


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Marketing information

Market potential for the product or service Size and define the market

Example: Is the product most likely to be purchased by men or

women?People of high income or low income?

Highly educated or less educated people?

Well-defined market size->easier to project market/goals for new venture


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Operations Information Needs

Entrepreneur may need information on:

Location

Manufacturing operations- basic machines need to be identified/subcontracted

Raw materials- supplier details/ cost should be determined

Equipment- list if its going to leased or purchased

Labor skills- # of personnel in each skill-pay rates

Space- total space needed should be determined

Overhead- item needed to support manufcaturing/ tools, supplies,utilities, salaries

Most of the information should be incorporateddirectly into the business plan.


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Outline of a Business Plan (1 of 2)

I. Introductory PageA. 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 SummaryThree to fourpages summarizing the complete

business plan

III. Industry Analysis

A. Future outlook and trends

B. Analysis of competitors

C. Market segmentationD. Industry and market forecasts

IV. Description of VentureA. Product(s)

B. Service(s)

C. Size of business

D. Office equipment and personnel

E. Background of entrepreneur(s)

V. Production PlanA. Manufacturing process (amount

subcontracted)

B. Physical plant

C. Machinery and equipment

D. Names of suppliers of raw materials

VI. Operational PlanA. Description of companys operation

B. Flow of orders for goods and/or services

C. Technology utilization


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Outline of a Business Plan (2 of 2)

VII. Marketing PlanA. Pricing

B. Distribution

C. Promotion

D. Product forecasts

E. Controls

VIII. Organizational PlanA. Form of ownership

B. Identification of partners or principal

shareholders

C. Authority of principals

D. Management-team background

E. Roles and responsibilities of members oforganization

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


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Components of a Business Plan

A business plan:

Should be comprehensive.

Should help the entrepreneur clarify his or her

thinking about the business.


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Environmental and Industry Analysis

Environmental analysis: assessment of externaluncontrollable variables that may impact the

business plan.

Examples: Economy, culture, technology, legalconcerns,

Industry analysis: reviews industry trends and

competitive strategies. Examples: Industry demand, competition


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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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Description of Venture

Provides complete overview of the product(s),service(s), and operations of new venture.Components of the description are:

Mission statement. Important factors that provide a clear description andunderstanding of the business venture.

x Product(s) or service(s).

x Location and size of the business.

x Personnel and office equipment needed.

x Background of the entrepreneur(s).

x History of the venture.


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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)?Describe the product(s) and/or service(s),

including patent, copyright, or trademark status.

6. Where will the business be located?

7. Is your building new? old? in need of renovations? (If renovation is needed, state costs.)

8. Is the building leased or owned? (State the terms.)

9. Why is this building and location right for your business?

10.What office equipment will be needed?

11.Will equipment be purchased or leased?

12.What experience do you have and/or will you need to successfully implement the

business plan?


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Production Plan

Details how the product(s) will be manufactured.

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?


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Operation Plan

All businesses (manufacturing ornonmanufacturing) should include an operationsplan as part of the business plan.

Goes beyond the manufacturing process. Major distinction between services and manufacturedgoods is services involve intangible performances.

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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Marketing Plan

Describes market conditions and strategy related tohow the product(s) and service(s) will bedistributed, priced, and promoted.

Describes: Marketing research evidence.

Specific forecasts for a product(s) or service(s).

Budget and appropriate controls needed for

marketing strategy decisions.

Potential investors regard the marketing plan ascritical to the success of the new venture.


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Organizational Plan

Describes form of ownership and lines of authorityand responsibility of members of new venture.

In case of a: Partnership:

x Terms of the partnership should be included.

Corporation:

x

Shares of stock authorized and share options.x Names, addresses, and resumes of the directors and

officers of the corporation.

x Organization chart.


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Assessment of Risk

Identifies potential hazards and alternative strategiesto meet business plan goals and objectives.

Assessment of risk should be based on:

Potential risks to the new venture.

Discussion of what might happen if risks become reality.

Strategy employed to prevent, minimize, or respond.

Major risks for a new venture could result from:

Competitors reaction.

Weaknesses in marketing/ production/ managementteam.

New advances in technology.


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Financial Plan

Projections of key financial data that determineeconomic feasibility and necessary financialinvestment commitment.

Three financial areas:

Summarize the forecasted sales and the appropriateexpenses for at least the first three years.

Cash flow figures for three years. Projected balance sheet.


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Appendix

Contains any backup material that is not necessaryin the text of the document.

May include: Letters from customers, distributors, or

subcontractors.

Secondary data or primary research data used to

support plan decisions. Leases, contracts, or other types of agreements.

Price lists from suppliers and competitors.


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Using and Implementing the Business Plan

Implementation of the strategy contain controlpoints to:

Ascertain progress.

Initiate contingency plans if necessary.

Without good planning:

Entrepreneur is likely to pay an enormous price.

Employees will not understand the companys goals.

Businesses fail due to entrepreneurs inability toplan effectively.


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Measuring Plan Progress

Business plan projections are made on a 12-monthschedule.

However the entrepreneur should frequently checkon:

Profit and loss statement. Cash flow projections. Inventory control. Production control- compare cost figures-day to day operation cost

Quality control- product performs satisfactory Sales control-A/R collection system to avoid bad

debts Disbursements- control amount of money paid out

W

eb site control.


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Updating the Plan

Entrepreneurs must:

Be sensitive to changes in the company, industry, andmarket.

Determine what revisions are needed If changes arelikely to affect the business plan.

Helps entrepreneurs:

Maintain reasonable targets and goals Keep the new venture on a course to high probability

of success.


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Why Business Plans Fail

Factors can be one of many of the following:

Goals set by the entrepreneur are unreasonable.

Goals are not measurable.

Entrepreneur has not made a total commitment tothe business or to the family.

Entrepreneur has no experience in the plannedbusiness.

Entrepreneur has no sense of potential threats orweaknesses to the business.

No customer need was established for the proposedproduct or service.

Chapter 7 the Business Plan

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