Small Business Management

The Business Plan:Visualizing the DreamPowerPoint Presentation by Charlie CookThe University of West AlabamaCopyright © 2006 Thomson Business & Professional Publishing.All rights reserved.Part 3 Developing the New Venture Business PlanCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–3What Is a Business Plan?•Business Plan–A document that sets out the basic idea underlying a business and related startup considerations•Identifies the nature and context of the business opportunity•Presents the entrepreneur’s approach to exploiting the opportunity•Identifies factors affecting the venture’s success•Serves as the entrepreneur’s tool for raising capitalCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–4The Need for a Business Plan•Primary Functions–To provide a clearly articulated statement of goals and strategies for internal use•Imposes discipline on the entrepreneur and management team–To serve as a selling document to be shared with outsiders•Provides a credible overview for prospective customers, suppliers, and investors•Helps secure favorable credit terms from suppliers•Opens approaches to lenders and other sources of financingCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–8Telling the Story to Others•Attracting Investors–A business plan must be an effective marketing document that quickly captures investor interest.•Understanding the Investor’s Perspective–Entrepreneurs are optimists; investors are skeptics.–Investors focus on break-even and positive cash flow.–Investors have a short attention span.–Bad information and poor preparation cause investors to lose interest quickly.Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–9Features of Plans that Attract Investors•Plans that speak the investors’ language:–Are brief, not extremely long in written length.–Have an attractive overall appearance.–Are well-organized with a table of contents and numbered pages.–Are market-oriented in meeting customer needs; are not product-oriented.–Show evidence of customer acceptance of the proposed product or service.Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–10Business Plans that Attract Investors (cont’d.)–Recognize the investors’ needs for required rates of return on investments.–Demonstrate evidence of focus on a limited number of products or services–Have a proprietary market position through patents, copyrights, and/or trademarksCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–11Features of Plans Unattractive to Investors•Plans that create unfavorable reactions:–Show an infatuation with the product or service and downplay market needs or acceptance.–Are based on financial projections at odds with accepted industry norms.–Have unrealistic growth projections.–Contain a need for custom or applications engineering, which makes substantial growth difficult.Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–12Features of a Successful Business Plan•It must be arranged appropriately, with an executive summary, a table of contents, and chapters in the right order.•It must be the right length and have the right appearance—not too long and not too short, not too fancy and not too plain.•It must give a sense of what the founders and the company expect to accomplish three to seven years into the future.•It must explain in quantitative and qualitative terms the benefit to the user of the company’s products or services.•It must present hard evidence of the marketability of the products or services.•It must justify financially the means chosen to sell the products or services.•It must explain and justify the level of product development which has been achieved and describe in appropriate detail the manufacturing process and associated costs.Exhibit 6.2Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–13Features of a Successful Business Plan (cont’d.)•It must portray the partners as a team of experienced managers with complementary business skills.•It must suggest as high an overall ―rating‖ as possible of the venture’s product development and team sophistication.•It must contain believable financial projections, with the key data explained and documented.•It must show how investors can cash out in three to seven years, with appropriate capital appreciation.•It must be presented to the most potentially receptive financiers possible to avoid wasting precious time as company funds dwindle.•It must be easily and concisely explainable in a well-orchestrated oral presentation.Exhibit 6.2 (cont’d)Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–14Preparing a Business Plan•Two issues critical in preparing a business plan:–The basic format and effectiveness of the written presentation•Clear writing that effectively communicates–The content of the plan•Factual support for the concept in the form of strong supporting evidenceCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–15Suggestions for Writing a Business Plan•Provide a table of contents and section tabs.•Use a loose-leaf binder in case of revisions.•Use visual aids—graphs, exhibits, and tabular summaries.•Indicate that all information is confidential.•Number copies of the plan and require written receipts.•Be careful about divulging competitive information or proprietary designs/technology.•Ask other entrepreneurs to review the plan.Copyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–21What Not to Do•Mistakes to avoid in preparing a business plan:–Failing to provide solid data–Failing to describe the product in lay terms–Failing to thoroughly analyze the market–Including financial statements that are overly detailed or incomplete–Hiding weaknesses–Overlooking the fatal flaw–Using bad grammar–Making the overall plan too longCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–22Resources for Business Plan Preparation•Computer-Aided Business Planning–Word processors–Spreadsheets–Specialized business plan software packages•Professional Assistance–Attorneys–Marketing specialists–Engineering and production experts–Accounting firms–Incubator organizations–Small business development agenciesCopyright © 2006 Thomson Business & Professional Publishing. All rights reserved. 6–23Keeping the Right Perspective•Good business plans don’t ensure success.–Effective implementation is what succeeds.•Writing a business plan is primarily an ongoing process and only secondarily the means to an outcome. –The process is just as important as—if not more so than—the finished product.•The business plan represents what is anticipated; a good entrepreneur adapts the plan to fit the unexpected.