Writing an Effective Writing an Effective Business PlanBusiness Plan

44thth April, 2008 April, 2008

What is a Business Plan?What is a Business Plan?

Business plan is a highly detailed written Business plan is a highly detailed written statement that explainsstatement that explainsthe the purpose purpose of creating a new venture, either a new of creating a new venture, either a new venture or a project in an existing firm, to provide venture or a project in an existing firm, to provide products to customersproducts to customers

new firm’s new firm’s business modelbusiness model

How and why the new venture will be able to How and why the new venture will be able to compete compete successfullysuccessfully against established competitors against established competitors

How the firm intends to How the firm intends to obtain, use and organize obtain, use and organize resourcesresources to make and sell the products to make and sell the products

Why is a Business Plan So Why is a Business Plan So Important?Important?External Use for the PlanExternal Use for the Plan

Convince investors to raise fundingConvince investors to raise fundingCooperate or partnershipsCooperate or partnerships

Internal Use for the PlanInternal Use for the PlanClarify your strategic thinkingClarify your strategic thinkingMonitor the progress of the businessMonitor the progress of the business

External Use for the PlanExternal Use for the PlanInvestment FundsInvestment Funds Private equity investors and venture capital Private equity investors and venture capital

firms will ordinarily not consider backing a firms will ordinarily not consider backing a company that company that does not have a written plandoes not have a written plan. .

Investors are seeking evidence of high growth. Investors are seeking evidence of high growth. They want to know how they will They want to know how they will realize their realize their

investment returnsinvestment returns, whether through a public , whether through a public offering, sale of the company, or management offering, sale of the company, or management buyback.buyback.

External Use for the PlanExternal Use for the PlanStrategic AlliancesStrategic Alliances These arrangements covering joint research, These arrangements covering joint research,

product development, and marketing have product development, and marketing have become increasingly vital for young, growing become increasingly vital for young, growing companies. companies.

The arrangement often includes a combination The arrangement often includes a combination of financial backing and access to well-of financial backing and access to well-established distribution channels. established distribution channels.

The joint efforts may last three years or more. The joint efforts may last three years or more. Major corporations invariably want to examine Major corporations invariably want to examine a company’s business plan before committing a company’s business plan before committing themselves to such long-term arrangements.themselves to such long-term arrangements.

External Use for the PlanExternal Use for the PlanMergers and AcquisitionsMergers and Acquisitions As companies increasingly look to acquisitions As companies increasingly look to acquisitions

as a means of expansion, and to divestitures as as a means of expansion, and to divestitures as a means of gaining liquidity, business plans a means of gaining liquidity, business plans become more necessary. become more necessary.

Companies seeking acquisition candidates Companies seeking acquisition candidates typically use the candidates' business plans as typically use the candidates' business plans as one of their first screening tools. one of their first screening tools.

Similarly, if the managers of an acquisition Similarly, if the managers of an acquisition candidate want to stay on after an acquisition, candidate want to stay on after an acquisition, they will probably be extremely interested in the they will probably be extremely interested in the long-term plans of the acquirer.long-term plans of the acquirer.

External Use for the PlanExternal Use for the Plan Customer and Distributor Customer and Distributor

RelationshipsRelationships For many growth companies, obtaining a large For many growth companies, obtaining a large

customer or gaining a commitment from a major customer or gaining a commitment from a major distributor can be an important milestone. distributor can be an important milestone.

Large, well-known organizations are often reluctant Large, well-known organizations are often reluctant to enter into arrangements with companies that are to enter into arrangements with companies that are an unknown entity. an unknown entity.

A convincing business plan can help to dispel A convincing business plan can help to dispel doubts.doubts.

Internal Use for the PlanInternal Use for the PlanA business plan is an important management A business plan is an important management

tool. tool. It enables management to plan company growth It enables management to plan company growth

and to anticipate changes in a and to anticipate changes in a structured waystructured way. . Most important, the business plan commits the Most important, the business plan commits the

entire management team to the same goals. entire management team to the same goals.

The process of working out the plan’s The process of working out the plan’s objectives invariably forces executives to objectives invariably forces executives to reconcile different visions of where the reconcile different visions of where the company stands and where it is headed.company stands and where it is headed.

Internal Use for the PlanInternal Use for the Plan

A written business plan can be an important A written business plan can be an important internal document for companies with internal document for companies with multiple locations and operations. multiple locations and operations.

Top management can monitor the business Top management can monitor the business plans not only to be certain that formal plans not only to be certain that formal planning is occurring, but also to determine planning is occurring, but also to determine whether the finished plans are consistent whether the finished plans are consistent with long-term financial and market goals.with long-term financial and market goals.

The Structure of a Business PlanThe Structure of a Business Plan

Executive SummaryExecutive Summary Business Description Business Description Plan of OperationsPlan of Operations Management TeamManagement Team Industry Analysis Industry Analysis Competitor AnalysisCompetitor Analysis Marketing Plan Marketing Plan Financial PlanFinancial Plan Conclusion Conclusion Appendix Appendix Glossary of Business TermsGlossary of Business Terms ReferencesReferences

Executive SummaryExecutive SummaryAn executive summary captures and An executive summary captures and

presents succinctly the presents succinctly the essenceessence of the of the business planbusiness plan

It is a capsulated version of the entire It is a capsulated version of the entire planplan

It is not simply a background statement, It is not simply a background statement, nor an introduction. It is in a sense the nor an introduction. It is in a sense the business plan in business plan in miniatureminiature

Many business plan reviewers are Many business plan reviewers are inundated with proposals, they use the inundated with proposals, they use the executive summary for executive summary for a quick a quick understandingunderstanding of the total plan of the total plan

Executive SummaryExecutive SummaryThe executive summary should beThe executive summary should be

brief (1-2 pages)brief (1-2 pages)

composed of short, focused paragraphs composed of short, focused paragraphs that contain a coherent and succinct that contain a coherent and succinct version of the business planversion of the business plan

The writing should be one of the The writing should be one of the last last stepssteps of the business planning process of the business planning process

But it should be But it should be the first itemthe first item in the in the final document.final document.

Executive SummaryExecutive SummaryYour Executive Summary:Your Executive Summary:The businessThe businessBusiness strategy and competitive Business strategy and competitive

advantageadvantageKey operation issuesKey operation issuesManagement teamManagement teamMarket opportunityMarket opportunityKey markets and distribution issuesKey markets and distribution issuesKey risk factorsKey risk factorsProfitabilityProfitabilityFinancial RequestFinancial Request

Executive SummaryExecutive Summary

Use these questions to help in writing Use these questions to help in writing your executive summary:your executive summary:

• • Are you starting a new business or have you been in Are you starting a new business or have you been in business?business?

• • What types of product will you be selling?What types of product will you be selling?• • How many products do you plan to produce and sell?How many products do you plan to produce and sell?• • How do you plan on selling your products and who How do you plan on selling your products and who

will buy your products?will buy your products?• • What makes your products different from your What makes your products different from your

competitors?competitors?• • What are your key success factors? Key risk areas?What are your key success factors? Key risk areas?• • Who is the management team and why will they Who is the management team and why will they

succeed?succeed?• • What is the product’s profit and growth potential?What is the product’s profit and growth potential?• • How much money do you need?How much money do you need?

Business DescriptionBusiness DescriptionThe mission statement

describes the purpose of the firm answers the question "What business or businesses are you in?" It is a short (two to five sentences), but broad statement of business scope, purpose, and operation. The mission statement reflects the core values and beliefs of the individuals who lead the business and distinguishes one company from another

Coca-Cola Mission Statement 1998Coca-Cola Mission Statement 1998 We exist to create value for our share owners on a long-term We exist to create value for our share owners on a long-term

basis by building a business that enhances The Coca-Cola basis by building a business that enhances The Coca-Cola Company's trademarks. This also is our ultimate commitment. Company's trademarks. This also is our ultimate commitment.

  As the world's largest beverage company, we refresh the world. As the world's largest beverage company, we refresh the world. We do this by developing superior soft drinks, both carbonated We do this by developing superior soft drinks, both carbonated and non-carbonated, and profitable non-alcoholic beverage and non-carbonated, and profitable non-alcoholic beverage systems that create value for our Company, our bottling partners systems that create value for our Company, our bottling partners and our customers. and our customers.

In creating value, we succeed or fail based on our ability to In creating value, we succeed or fail based on our ability to perform as stewards of several key assets: perform as stewards of several key assets:

1.Coca-Cola, the world's most powerful trademark, and other highly 1.Coca-Cola, the world's most powerful trademark, and other highly valuable trademarks. valuable trademarks.

2.The world's most effective and pervasive distribution system. 2.The world's most effective and pervasive distribution system. 3.Satisfied customers, who make a good profit selling our products. 3.Satisfied customers, who make a good profit selling our products. 4.Our people, who are ultimately responsible for building this 4.Our people, who are ultimately responsible for building this

enterprise. enterprise. 5.Our abundant resources, which must be intelligently allocated. 5.Our abundant resources, which must be intelligently allocated. 6.Our strong global leadership in the beverage industry in particular 6.Our strong global leadership in the beverage industry in particular

and in the business world in general.and in the business world in general.

Microsoft http://www.microsoft.comhttp://www.microsoft.com Since its inception in 1975, Microsoft’s Since its inception in 1975, Microsoft’s

mission has been t create software for the mission has been t create software for the personal computer that empowers and personal computer that empowers and enriches people in the workplace, at school enriches people in the workplace, at school and at home. and at home.

Microsoft’s early vision of a computer on Microsoft’s early vision of a computer on every desk and in every home is coupled every desk and in every home is coupled today with a strong commitment to today with a strong commitment to Internet- related technologies that expand Internet- related technologies that expand the power and reach of the PC and its the power and reach of the PC and its users. As the world’s leading software users. As the world’s leading software provider, Microsoft strives to produce provider, Microsoft strives to produce innovative products that meet customers’ innovative products that meet customers’ evolving needs.evolving needs.

Business DescriptionBusiness Description

Use the following questions to help in writing your mission plan:

• What business are you in?

• Why does your firm exist?

• What customer needs does your firm serve?

• What values are most important to you and your firm?

Business DescriptionBusiness Description The business description outlines

your business background information, current stage of development, and future plans.

It explains who you are, what you do, and why you do it.

The section also describes the legal ownership structure

Business DescriptionBusiness Description

Use the following questions to help in writing your business description:

What is your firm history?– How long have you been in business?– Why was your firm founded?– How has your firm changed over time?– What is your firm’s sales, profit, growth, etc.

record?

Business DescriptionBusiness Description

What is your firm’s current position?– Where are you located?– What resources do you have physical,

financial, human?– What are your key products and services?– What are your strengths and weaknesses?=

Business DescriptionBusiness Description What is your firm’s future plans?

– What are your goals?Goals are more general, longer-term desires of the owners/operators that help clarify the firms purpose.

– What are your objectives?Objectives are quantifiable and straightforward

strategies that are selected to permit management to reach the specific goals. Each objective should have two characteristics: (1) it can be measured, and (2) there is a given time in which to accomplish it.

What is your ownership structure?Are you an LLC, Corporation, sole

proprietorship, or partnershipWhy did you select this ownership structure?

Business DescriptionBusiness DescriptionYour Mission StatementYour Business Description

– History– Current position– Future plans– Goals:

• Objectives: When? Who?• Goal (1)• Goal (2)

Ownership structure

Plan of OperationsPlan of Operations

• The plan of operations explains how The plan of operations explains how your firm will work on a daily basis, your firm will work on a daily basis, such as how the products produced. such as how the products produced.

• The section lists the facilities, The section lists the facilities, equipment, and personnel needed for equipment, and personnel needed for operating your firm.operating your firm.

Management TeamManagement Team The management section of the business plan should The management section of the business plan should

consist of a brief narrative for each member of the consist of a brief narrative for each member of the management team. management team.

The narrative should begin by describing the duties and The narrative should begin by describing the duties and responsibilities of the position, and then describe the responsibilities of the position, and then describe the individuals past experiences and achievements as they individuals past experiences and achievements as they relate to the area of responsibility. relate to the area of responsibility.

The most recent information should be listed first, and The most recent information should be listed first, and educational and/or professional backgrounds should be educational and/or professional backgrounds should be mentioned only briefly. mentioned only briefly.

If the firm uses a board of If the firm uses a board of advisors and/or other advisors and/or other consultantconsultant they should be mentioned in this section. they should be mentioned in this section.

Remember that investors are looking for Remember that investors are looking for balanced balanced management teamsmanagement teams with a history of success in the with a history of success in the appropriate fields.appropriate fields.

Management TeamManagement Team

Name in Bold, Name in Bold, General ManagerGeneral Manager Name in Bold, Name in Bold, Sales managerSales manager Name in Bold, Name in Bold, HR manager HR manager Name in Bold, Name in Bold, Production manager Production manager …………....

Industry AnalysisIndustry Analysis

The industry analysis describes forces taking The industry analysis describes forces taking place in your industry that will affect your place in your industry that will affect your firm. firm.

The section presents background industry The section presents background industry information, distribution patterns, historical information, distribution patterns, historical trends, current consumption patterns and trends, current consumption patterns and other factors affecting the industry and your other factors affecting the industry and your firm. firm.

The goal is to show the opportunities and The goal is to show the opportunities and threats that your firm will be facing.threats that your firm will be facing.

Five-force model can be sued for industry Five-force model can be sued for industry analysisanalysis

Industry AnalysisIndustry AnalysisUse the following questions to help in Use the following questions to help in

writing your industry analysis:writing your industry analysis: What are the historical and current What are the historical and current

trends affecting the industry?trends affecting the industry? Consider consumption, production, Consider consumption, production,

distribution, consolidation,distribution, consolidation, technological, social/cultural, demographic, technological, social/cultural, demographic,

and economic trends.and economic trends. What governmental regulations affect What governmental regulations affect

the industry?the industry? Environmental regulationsEnvironmental regulations Legal regulationsLegal regulations TaxesTaxes Permits: firm license, sales licensesPermits: firm license, sales licenses

Industry AnalysisIndustry AnalysisYour Industry Analysis:Your Industry Analysis: Industry Analysis consumption trendsconsumption trends Product mix trendsProduct mix trends Growth trendsGrowth trends Economic trendsEconomic trends Demographic changesDemographic changes Social/cultural changesSocial/cultural changes Environmental regulationsEnvironmental regulations Legal regulationsLegal regulations Taxation issuesTaxation issues Permits/licensesPermits/licenses

Competitor AnalysisCompetitor Analysis The competitor analysis is an objective The competitor analysis is an objective

comparison between your firm and your comparison between your firm and your competitors. competitors.

Direct and indirect competitors are Direct and indirect competitors are identified and their strengths and identified and their strengths and weaknesses pointed out each competitor’s weaknesses pointed out each competitor’s product mix, production history, product mix, production history, reputation, location, marketing strategy, reputation, location, marketing strategy, customer base, etc. should be identified. customer base, etc. should be identified.

The goal is to accurately describe your The goal is to accurately describe your competitors and show how your business competitors and show how your business fits in the market.fits in the market.

SWOT analysisSWOT analysis

Competitor AnalysisCompetitor Analysis

List and describe other your competitors- both List and describe other your competitors- both direct and indirectdirect and indirect

What are their general characteristics?What are their general characteristics? Location, years in business, managers, philosophyLocation, years in business, managers, philosophy

What is their marketing strategy?What is their marketing strategy? Target market, product mix, promotion campaignTarget market, product mix, promotion campaign

What is their financial position?What is their financial position? Why are they successful?Why are they successful? How are your products different from your How are your products different from your

competitors?competitors? What is your sustainable competitive advantage?What is your sustainable competitive advantage? Why will customers buy your products?Why will customers buy your products?

Competitor AnalysisCompetitor AnalysisYour Competitor AnalysisYour Competitor Analysis Names of competitorsNames of competitors General characteristics of competitorsGeneral characteristics of competitors Competitors marketing strategyCompetitors marketing strategy Competitors financial positionCompetitors financial position Competitors strengthsCompetitors strengths Competitors weaknessesCompetitors weaknesses Your fit in the marketplaceYour fit in the marketplace Your sustainable competitive advantageYour sustainable competitive advantage

Marketing Plan

The ultimate purpose of the marketing plan is The ultimate purpose of the marketing plan is to explain to explain howhow you will get your products you will get your products known and purchased by customers. known and purchased by customers.

The section begins by The section begins by identifying the target identifying the target marketmarket or group of customers to whom the or group of customers to whom the firm aims its marketing effort. firm aims its marketing effort.

The target market is not simply whoever is The target market is not simply whoever is buying or will buy your products, but rather buying or will buy your products, but rather those individuals or businesses that you those individuals or businesses that you identify as your identify as your most desirable customersmost desirable customers..

Marketing PlanUse the following questions to identify your target

market: Who are your most Who are your most desirabledesirable customers? customers? Is this segment of the market profitable Is this segment of the market profitable

and does it offer and does it offer growth potentialgrowth potential?? Does your firm have a Does your firm have a competitive competitive

advantageadvantage (CA) in meeting the needs (CA) in meeting the needs and wants of customers in this segment?and wants of customers in this segment?

Is your CA Is your CA sustainablesustainable??

Marketing Plan

Marketing strategies are presented Marketing strategies are presented following the traditional four P's of following the traditional four P's of marketing:marketing:

Product, Price, Promotion, and Place. Product, Price, Promotion, and Place. Product strategy examines the products Product strategy examines the products

being sold, packaging, and position in the being sold, packaging, and position in the market. market.

Pricing strategy discusses various Pricing strategy discusses various methods of formulating price strategy and methods of formulating price strategy and looks at the impact prices have on looks at the impact prices have on customers and profitability. customers and profitability.

Marketing Plan

Promotion strategy focuses on getting Promotion strategy focuses on getting your product known. It examines your product known. It examines promotional techniques such as promotional techniques such as advertising, public relations, sales advertising, public relations, sales promotions, and networking. promotions, and networking.

Place strategy examines various Place strategy examines various distribution channelsdistribution channels and discusses and discusses activities involved in moving goods from activities involved in moving goods from the producer to customer.the producer to customer.

Marketing BudgetMarketing Budget– How much money will you allocate towards How much money will you allocate towards

marketing your products?marketing your products?

Marketing Plan

Your Marketing PlanYour Marketing Plan

Target MarketTarget Market

ProductProduct

PricePrice

PromotionPromotion

Place or DistributionPlace or Distribution

Marketing BudgetMarketing Budget

Financial PlanFinancial Plan► A detailed financial plan can help you avoid A detailed financial plan can help you avoid

financial difficulties. financial difficulties. ► The financial plan is usually the The financial plan is usually the longest longest

and most critical sectionand most critical section of the business of the business plan, and it begins with a three to four plan, and it begins with a three to four paragraph narrative. paragraph narrative.

► The first paragraph should state The first paragraph should state how muchhow much money you are seeking and how you plan money you are seeking and how you plan to to useuse it. it.

► The second paragraph should note which The second paragraph should note which financial financial statements and documentsstatements and documents are are included in the financial plan. included in the financial plan.

► The next paragraph should describe the The next paragraph should describe the exit strategyexit strategy for investors (when they can for investors (when they can expect to withdraw their funds).expect to withdraw their funds).

Financial PlanFinancial PlanThe financial plan should consist of the following The financial plan should consist of the following

sections:sections:► Balance sheetsBalance sheets► Quarterly projections for the first yearQuarterly projections for the first year► Annual projections for years 2 and 3Annual projections for years 2 and 3► Existing business should provide balance sheets from the past 3 Existing business should provide balance sheets from the past 3

yearsyears► Income statementsIncome statements► Monthly projections for the first yearMonthly projections for the first year► Annual projections for years 2 and 3Annual projections for years 2 and 3► Existing business should provide balance sheets from the past 3 Existing business should provide balance sheets from the past 3

yearsyears► Cash flow statementsCash flow statements► Monthly projections for the first yearMonthly projections for the first year► Annual projections for years 2 and 3Annual projections for years 2 and 3► Existing business should provide balance sheets from the past 3 Existing business should provide balance sheets from the past 3

yearsyears► Start up costsStart up costs► Here you list the various capital assets necessary for you Here you list the various capital assets necessary for you

operationoperation► Include costs for buildings, equipment, machines, etc.Include costs for buildings, equipment, machines, etc.

Financial PlanFinancial PlanFinancial assumptionsFinancial assumptions► Here you list all the financial assumptions used in generating Here you list all the financial assumptions used in generating

your pro forma (projected) balance sheets, income your pro forma (projected) balance sheets, income statements, and cash flow statements. You should also explain statements, and cash flow statements. You should also explain how you arrived at the various assumptions.how you arrived at the various assumptions.

► Break even analysisBreak even analysis • • The break even analysis is usually presented in a graph and The break even analysis is usually presented in a graph and

shows how many cases of wine must be sold to cover the shows how many cases of wine must be sold to cover the variable and fixed costsvariable and fixed costs

• • The break even point is where you begin to become The break even point is where you begin to become profitableprofitable

► Sources and use of fundsSources and use of funds • • Here you list how much money you need, who is supplying Here you list how much money you need, who is supplying

the money, and how you intend on using the fundsthe money, and how you intend on using the funds

Financial PlanFinancial Plan► Sensitivity analysisSensitivity analysis

Sensitivity analysis is a means of evaluating the Sensitivity analysis is a means of evaluating the uncertainty of an investmentuncertainty of an investment by varying the underlying by varying the underlying assumptions. assumptions.

It helps investors identify key variables and risks It helps investors identify key variables and risks associated with various projects. When performing a associated with various projects. When performing a sensitivity analysis one should alter various variables, one sensitivity analysis one should alter various variables, one at a time, and record their affect on the businesses at a time, and record their affect on the businesses profitability.profitability.

► Exit strategyExit strategy Here you describe how and when investors will get their Here you describe how and when investors will get their

money back.money back.► The balance sheet, income statement, and The balance sheet, income statement, and

statement of cash flows are three financial statement of cash flows are three financial statements used in financial analysis.statements used in financial analysis.

Conclusion

The conclusion summarizes prior sections and makes final statements regarding the firms profitability and long run prospects. It prioritizes tasks and sets a schedule for what needs to be accomplished in the next one, three, and five years.

Conclusion

Use the following questions to help in writing the conclusion:Can your business be profitable?What are the keys to your businesses success?What are the long-term plans of your business?What tasks must be accomplished in the next, one, three, and five years?

Glossary of Business TermsGlossary of Business Terms List all jargons; E.g. Licensing The granting of permission by one company t

o another to use its products, trademark, or name in a limited, particular manner.

Limited Partnership An investment method whereby investors have limited liability and exercise no control over a company or enterprise; the general Partner(s) maintain control and liability.

Limited Liability Company (“LLC”) LLCs are a hybrid form of business. They provide the equivalent tax benefits of a Limited Partnership and equivalent protection of a C-Corporation or an

S-Corporation. LLCs can only be privately held companies.

Appendix

The appendix section should include information or documents that further explain any aspects of the business plan or the business.

Entrepreneur resumes, new product designs, credit reports, licenses and permits, historical business records are commonly included in the appendix. Note: the information included in the appendix will vary according to the audience.

Appendix

Use the following questions to help in completing the appendix section:

Who will be reading the business plan?

What additional information will interest them?

Do any aspects of the business plan need further explanation?

Are all the necessary supporting materials included?

ReferencesReferences

• List all your references List all your references

Business Plan FormatBusiness Plan Format

Should be impeccable in its format:Should be impeccable in its format: Clarity in all aspectsClarity in all aspects Each business plan submitted to third pEach business plan submitted to third p

arties should include among others, naarties should include among others, name of business concept, name of personme of business concept, name of persons submitting, confidentiality clasue, illuss submitting, confidentiality clasue, illustration where necessarytration where necessary

Table of contentsTable of contents

Business Plan FormatBusiness Plan Format

Confidentiality Clause The information included in this

business plan is strictly confidential and is provided on the understanding that it will not be disclosed to third parties without the expressed written consent of Novella Reid.

Good Luck!