The Business Plan
The Business Plan is your formal written expression of your entrepreneurial vision, describing the strategy and operations of your proposed venture.
Your business plan should answer three questions
1. Is there really an opportunity to serve an important customer need or want? 2. Do the numbers work out favorably? 3. Does the opportunity really match your personal goals and values, and will you have the abilities and resources required to exploit the opportunity?
A Business Plan Is:
A written document A story about the future A serialized literary form A working model of a business in WORDS and NUMBERS A sales tool
A A A A
template for operating a business basis (partial) for valuation of a business product of an ongoing discovery process form of disclosure
Capital Providers Partners Employees Suppliers Customers
Four BIG Questions
1.
Is there really an opportunity to serve customers by satisfying important needs or wants?
•
Value Proposition
2.
Can the activities in #1 be accomplished in reasonable time at reasonable cost?
•
Feasibility
3.
•
Do the numbers work out favorably?
Business Model
4.
Does the opportunity really match the personal goals and values of the entrepreneur, and will the entrepreneur and team have the abilities and resources required to exploit the opportunity?
Definition Part 1
A business plan is a document that convincingly demonstrates the ability of your business to sell enough of its product or service to make a satisfactory profit and be attractive to potential backers.
Bygrave - The Portable MBA in Entrepreneurship
Definition Part 2
A business plan is a selling document that conveys the excitement and promise of your business to any potential backers or stakeholders.
Bygrave - The Portable MBA in Entrepreneurship
The Business Plan Helps to:
Identify your objectives Develop strategies to meet those objectives Anticipate problems and suggest ways to solve them Avoid problems altogether
The Business Plan Helps to:
Give structure to your business
Defines responsibilities Assigns activities
Paying investors controlling cash flows budgeting for capital expenditures
Provides a financial framework for:
Eight reasons to write a business plan
1) 2) 3) 4) 5) 6) 7)
To To To To To To To
sell yourself on your business obtain bank financing obtain investment funds arrange a strategic alliance obtain a large contract attract key employees complete mergers and acquisitions
8) To motivate and focus your management team
Bygrave - “The Portable MBA in Entrepreneurship
”
Downside of writing a plan
Time
Upside of writing a plan
Road map
What is the scope of my business Where am I now? Where am I going? How will I get there?
Insurance policy Saves money Required for loans Evidence of your ability to plan Explore personal conflicts
reinvestment vs. a new car leadership vs. “being one of the guys” action & risk vs. complacency long hours vs. family, or golf, or?
Plan for obsolescence
What investors, bankers, and your professor like:
1. A clear definition of the business (mission)
What problem/need does it meet? How will the business add significant value for the benefit of the consumer? Is the opportunity a good fit with the founders?
2. Evidence of marketing capability
3. Evidence of management capability.
4. An attractive financial arrangement.
Is there a robust market / margin / money-making potential?
What we don’t like:
Obsession with product Unrealistic financial projections Inability to come to terms with the details Failure to deal with potential critical risks A “prepackaged” plan or fill in the blanks
Three Important agendas
Entrepreneur - creativity, ownership, etc.
Sell the idea
Who wants it, how many want it, and how much do they want?
Customer/market
Investor - what is in it for them (you)?
Lender - character, cash flow, collateral, & equity contribution Investors - character, involvement, high return, exit
What will happen without a plan?
Inefficient control over costs and quality of output Poor inventory/stock control Underpricing of goods sold Failure to promote and maintain a favorable public image
What will happen without a plan? (cont.)
Poor relations with suppliers Inability of management to reach decisions and act on them Failure to keep pace with management system (record keeping, payments, etc.) Failure to minimize tax obligations Poor and lax credit control
What will happen without a plan? (cont.)
Lack of key personnel Failure to anticipate market trends Insufficient working capital Loss of control through creditors’ demands Competition disregarded due to complacency. Inability to cope adequately with competition
Options for Writing a Business Plan
No Plan Get someone to write one for you. Buy a plan Write your own
Business plan self-help books Software Counseling
No Plan
No Way
Can I Hire Someone to Write My Plan for Me?
Some assistance is possible, but only if you participate in all phases of the plan’s development Your business plan will be reviewed by others and if you don’t know the details of the plan, then you will lose credibility in their eyes Your business plan author will move on, leaving you to decipher the plan as written Before you pay and end the relationship, make sure you understand everything in that plan
Buy a Plan
Pre-written, fill-in-the-blank, business plans are available, usually through:
Franchising Business licensing
Write Your Own Plan
Self Help Books Software Counseling
Small Business Development Centers Service Corps of Retired Executives Business Information Centers Economic Development Groups Professional Assistance (consultant)
Counselor vs. Consultant
A counselor provides services for free and will assist you in evaluating alternatives.
You make the call.
A consultant will charge for services and will make a recommendation.
Attorneys, Accountants, Market Specialists, Product Consultants
Business Plan: Three Components
The Business Definition The Environment Financial Factors
Business Plan Outline
Cover Page Executive Summary Mission Statement Business Description Management Market Served Competition Product or Service Selling Organization
Personnel Financial Data
Start-up costs Cash Flow Analysis
Financing Plan Investment Returns Design and Development Manufacturing and Operations Appendices
Cover page
If you are serious about your plan
Use the symbol, Use a revision date, Note number of copies created. Include a statement of confidentiality.
Table of contents
Every topic, on every page, including all appendices, gets a listing. Every page gets a number.
Executive Summary
Approximately two pages Gives sense of the business and its potential Must answer the questions:
“What’s in it for Me, and how secure will my investment be?” Does your business have a history? If so, a brief summary is appropriate. What makes your business unique, or why will customers come to you as opposed to the competition?
Answer the question: The market needs my particular product/service, at this time and in
Description of the business
Opportunity and strategy
this location because . . .
Quick Screen items may be a useful device.
Target market and sales projections
Use a table and reduce it to units and $ sales if possible What are you selling that the market wants/needs and your competitors don’t have and probably can’t get? Include exit/harvest
Competitive advantage
Profitability and potential
Team – who are the players and what will they be doing? Offering or deal
Mission Statement
Statement of why business exists.
Management Team
Organization
Staffing chart showing responsibilities and numbers of employees
What makes you and your management team the right people to make this business fly?
Key management personnel
Management compensation & ownership Investors & restrictions Employment agreements/stock options Board of directors/advisors
Professional advisors & services
Industry
CONTEXT or background info
You can’t assume the reader knows anything about your business, this is your opportunity to educate him/her
Industry
Growth potential – most important
History Size measures, e.g. number of businesses, unit sales
Barriers to entry Buyer power Supplier power Substitutes Rivalry
Porter’s five forces – industry attractiveness
Company and its Products/Services
Company & concept
Explain your company and where it fits in the industry Where/why is the opportunity? What are you selling?
How will you meet the KSF or key success factors for your industry?
Products/services
Every industry has a set of requirements companies must meet to be successful, for grocery stores the number one KSF is cleanliness, for airlines the number one KSF is a load factor of 62-63%, what is it for your industry?
Entry & growth strategy
How will you attract enough business, fast enough, to avoid running out of cash?
Market Research & Analysis
Customers
Who are they – be specific, who will buy your product or service? In your market, as opposed to the industry Customer buying habits – how much and how often? Who are your competitors? Advantages you have over competitors and vice versa How much of the market can you capture and how long will it take you to do so? Overall/industry forecasts Your market forecast Forecast for your customer base
Market size & trends
Competition & advantages
Estimated market share & sales
Ongoing market potential
The Economics of the Business
Gross & operating margins
Industry averages can be found in Morris, Dun & Bradstreet, and Troy In % and $ Typically, we try and conserve cash, e.g. leasing vs. purchasing, and turn fixed into variable costs, e.g. subcontract out vs. performing inhouse
Profit potential – net profit margin
Fixed & variable costs
Time to breakeven
In units and/or dollars tied to your sales forecasts
Time to positive cash flow Sales forecasts
Adjusted for growth and seasonality
Marketing Plan
Marketing strategy
How will you induce your customer to make an initial purchase? Repeat purchases? Two basic choices
Pricing
low-price with high volume, or a premium price based on differentiation and low-volume
Be consistent, e.g. premium prices suggest premium goods and services What sells you product or service – is it a sales force, location, or? Your money back, no questions asked,e.g. L. L. Bean, Nordstroms, . . ..
Sales tactics
Service &/or warranties
Advertising & promotion
How will you efficiently reach your customers?
How is the product delivered to your customers - many businesses have been built on this factor.
Distribution
Financial Plan
Statements should reflect cyclicality and earnings growth. Actual financial statements (for existing/ongoing businesses only)
Pro forma income Pro forma balance Pro forma cash flow (your check book) Breakeven analysis Cost control Highlights/summaries
Design and Development Plans
Development status & tasks
Restaurants need to design their menus, retailers need to decide which products should be carried, What will you do if three items on your menu account for 90% of your sales? What happens if your bait shop isn’t ready to open on the first day of the season? How will you keep your product fresh in the public’s eye?
Difficulties & risks
Product improvement/new products
Costs Proprietary issues
Manufacturing and Operations Plan
Operating cycle
Hours of operation, seasonality
Geographic location Facilities & improvements
Tenant improvements and costs
Sources of supply, subcontractors, QC, . . . Watch yourself, there are a lot of regulations to trip over!
Strategy & plans
Regulatory & legal
Overall schedule
What do you need to do, and what steps do you need to follow, to get this business up and going? How long will it take you?
Critical Risks, Problems, Assumptions
One area of the business plan that, in my experience, is frequently overlooked. As long as people have been getting along without your business there is going to be a down side. This is also a good place to discuss your business insurance requirements.
What makes it easy for customers to adopt this technology? What factors limit the upside of the market at the time of the case? With the gift of hindsight, what trend may interfere with the long-term market potential?
Proposed Company Offering
Desired financing Use of funds Return to investor(s)
Appendices
Special note:
Adequacy of plan development Professional appearance
“C’s” The Day
Character. What do you bring personally to the business.
Commitment Creativity
What is special about your product/service
Credit Competency Courtesy
“C’s” The Day
Cash. Generally, the bank is going to require borrower to have equity investment of one-third.
Cash for Start-up Cash-In
Accuracy of Revenue Streams
Cash-Out
Costs
“C’s” The Day
Collateral. What the bank will request a right to in event of loan default.
Capital Investment
Property Equipment Inventory Land Vehicles
Contracts
“C’s” The Day
Conditions. How will the following affect the proposed business?
Competition Customers Critical Workers Contracts
Conditional Planning Controls Capacity