Barringer2e ch04

Entrepreneurship:
Successfully Launching
New Ventures, 2/e
Bruce R. Barringer
R. Duane Ireland

Chapter 4

©2008 Prentice Hall

4-1

Chapter Objectives
(1 of 2)

1. Explain the purpose of a business plan.
2. Discuss how a business plan can be a dual-use
document.
3. Explain how the process of writing a business plan
can be as important as the plan itself.
4. Identify the advantages and disadvantages of using
software packages to assist in preparing a business
plan.
5. Explain the difference between a summary business
plan, a full business plan, and an operational
business plan.

4-2

Chapter Objectives
(2 of 2)

6. Explain why the executive summary may be the
most important section of a business plan.
7. Describe a milestone and how milestones are used
in business plans.
8. Explain the purpose of a “sources and uses of
funds” statement.
9. Describe a liquidity event.
10. Detail the parts of an oral presentation of a business
plan.

4-3

What Is a Business Plan?
• Business Plan
– A business plan is a written narrative, typically 25 to 35
pages long, that describes what a new business plans to
accomplish.

• Dual-Use Document
– For most new ventures, the business plan is a dual-purpose
document used both inside and outside the firm.
• Inside the firm, the plan helps the company develop a “road map”
to follow in executing its strategies and plans.
• Outside the firm, it introduces potential investors and other
stakeholders to the business opportunity the firm is pursuing and
how it plans to pursue it.


4-4

Who Reads the Business Plan—And What
Are They Looking For?
There are two primary audiences for a firm’s business plan
Audience

What They are Looking For

A Firm’s
Employees

A clearly written business plan, which articulates the
vision and future plans of the firm, helps the employees of
a firm operate in sync and move forward in a consistent
and purposeful manner.

Investors and
Other External
Stakeholders

A firm’s business plan must make the case that the firm is a
good use of an investor’s funds or the attention of other
external stakeholders. The key is to include facts generated
through a properly conducted feasibility analysis. A
business plan rings hollow if it is based strictly on what an
entrepreneur or team of founders “thinks” will happen.


4-5

Guidelines for Writing a Business Plan
(1 of 4)

• Structure of the Business Plan
– To make the best impression, a business plan should follow
a conventional structure, such as the outline for the
business plan shown in the chapter.
– Although some entrepreneurs want to demonstrate
creativity in everything they do, departing from the basic
structure of the conventional business plan format is
usually a mistake.
– Typically, investors are very busy people and want a plan
where they can easily find critical information.


4-6

(2 of 4)

• Structure of the Business Plan (continued)
– Software Packages
• There are many software packages available that employ an
interactive, menu-driven approach to assist in the writing of a
business plan.
• Some of these programs are very helpful. However, entrepreneurs
should avoid a boilerplate plan that looks as though it came from a
“canned” source.

– Sense of Excitement
• Along with facts and figures, a business plan needs to project a
sense of anticipation and excitement about the possibilities that
surround a new venture.

4-7

(3 of 4)

• Content of the Business Plan
– The business plan should give clear and concise
information on all the important aspects of the proposed
venture.
– It must be long enough to provide sufficient information
yet short enough to maintain reader interest.
– For most plans, 25 to 35 pages is sufficient.

• Types of Business Plans
– There are three types of business plans, which are shown
on the next slide.

4-8

(4 of 4)
Types of Business Plans


4-9

Outline of Business Plan
• Outline of Business Plan
– A suggested outline of a business plan is shown on the next
several slides.
– Most business plans do not include all the elements
introduced in the sample plan; we include them here for the
purpose of completeness.
– Each entrepreneur must decide which elements to include
in his or her plan.


4-10

Exploring Each Section of the Plan
(1 of 10)

• Cover Page and Table of Contents
– The cover page should include the name of the company,
its address, its phone number, the date, and contact
information for the lead entrepreneur.

• The Executive Summary
– The executive summary is a short overview of the entire
business plan; it provides a busy reader with everything
that needs to be known about the new venture’s distinctive
nature.
• In many instances, an investor will first ask for a copy of the
executive summary and will request a copy of the full business
plan only if the executive summary is sufficiently convincing.

4-11

(2 of 10)

• The Business
– The most effective way to introduce the business is to
describe the opportunity the entrepreneur has identified–
that is, the problem to solve or the need to be filled–and
then describe how the business plans to address the issue.
– The description of the opportunity should be followed by a
brief history of the company, along with the company’s
mission statement and objectives.
– An explanation of the company’s competitive advantage
and a brief description of the business model follow.


4-12

(3 of 10)

• Management Team
– As mentioned earlier, one of the most important things
investors want to see when reviewing the viability of new
ventures is the strength of its management team.
– If the team doesn’t “pass muster,” most investors won’t
read further.
– The material in this section should include a brief summary
of the qualifications of each member of the management
team, including his or her relevant employment and
professional experiences, significant accomplishments, and
educational background.

4-13

(4 of 10)

• Company Structure, Ownership, and Intellectual
Property
– This section should begin by describing the structure of the
new venture, including the reporting relationships among
the top management team members.
– The next part of the section should explain how the firm is
legally structured.
– The third part of this section should discuss the intellectual
property the firm owns, including patents, trademarks, and
copyrights.


4-14

(5 of 10)

• Industry Analysis
– This section should begin by discussing the major trends in
the industry in which the firm intends to compete along
with important characteristics of the industry, such as its
size, attractiveness, and profit potential.
– This section should also discuss how the firm will diminish
or sidestep the forces that suppress its industry’s
profitability.
– The firm’s target market should be discussed next, along
with an analysis of how it will compete in that market.


4-15

(6 of 10)

• Marketing Plan
– This marketing plan should immediately follow the
industry analysis and should provide details about the new
firm’s products or services.
– After reading this section of the plan, an investor should be
confident that the firm’s overall approach to its target
market and its product strategy, pricing strategy, channels
of distribution, and promotional strategy are in sync with
one another and make sense.


4-16

(7 of 10)

• Operations Plan
– This section of the plan deals with the day-to-day
operations of the company.
– An overview of the manufacturing plan (or service delivery
plan) should be followed by a description of the network of
suppliers, business partners, and service providers that will
be necessary to build the product or produce the service the
firm will sell.
– Any risks or regulations pertaining to the operations of the
firm should be disclosed, such as nonroutine regulations
regarding waste disposal and worker safety.

4-17

(8 of 10)

• Financial Plan
– The financial section of the plan must demonstrate the
financial viability of the business. A careful reader of the
plan will scrutinize this section.
– The financial plan should begin with an explanation of the
funding that will be needed by the business during the next
three to five years along with an explanation of how the
funds will be used.
• This information is called a sources and uses of funds statement.

– The next portion of this section includes financial
projections, which are intended to further demonstrate the
financial viability of the business.

4-18

(9 of 10)

• Financial Plan (continued)
– The financial projections should include three to five years
of pro forma income statements, balance sheets, and
statements of cash flows, as described in Chapter 8.
– It is important to remember that the business plan should be
based on realistic projections.
• If it is not and the company gets funding or financing, there will
most certainly be a day of reckoning. Investors and bankers hold
entrepreneurs accountable for the numbers in their projections.


4-19

(10 of 10)

• Critical Risk Factors
– Although a variety of potential critical risks may exist, a
business should tailor this section to depict its truly critical
risks.

• Appendix
– Any material that does not easily fit into the body of a
business plan should appear in an appendix. Examples of
materials that might appear in the appendix include:
• Resumes of the top management team members, photos or
diagrams of product or product prototypes, certain financial data,
and market research projections.

4-20

Putting It All Together
(1 of 2)
The 10 Most Important Questions a Business Plan Should Answer

Is the business just an idea, or is it an
opportunity with real potential?

Does the firm have an exciting and
sensible business model? Will other
firms be able to easily copy it?

Is the product or service viable? Does it
add significant value to the customer?
Was a feasibility analysis completed?

Is the industry in which the product or
service will be competing growing,
stable, or declining?

Does the firm have a well-defined
target market?


4-21

Putting It All Together
(2 of 2)
The 10 Most Important Questions a Business Plan Should Answer

Is the management team experienced,
skilled, and up to the task of launching
the new firm?

Are the financial projections realistic,
and do they project a bright future for
the firm? What rate of return can
investors expect?

Is the firm organized in an appropriate
manner? Are its strategy and business
practices legal and ethical?

How will the firm’s competitors react
to its entrance into their markets?

What are the critical risks surrounding the business,
and does the management team have contingency
plans in place if risks become actual problems?

4-22

Presenting the Business Plan to Investors
(1 of 3)

• Making a Presentation to Investors
– If the business plan successfully elicits the interest of
potential investors, the next step is to meet with the
investors and present the plan in person.
– The first meeting with an investor is generally very short,
about one hour. The investor will typically ask the firm to
make a 20- to 30-minute presentation using PowerPoint
slides and use the rest of the time to respond to questions.
– If the investor is impressed and wants to learn more about
the venture, the firm will be asked back for a second
meeting.

4-23

(2 of 3)

• Tips on Making an Oral Presentation to Investors
– When asked to meet with an investor, the founders of a
new venture should prepare a set of PowerPoint slides that
will fill the time slot permitted.
– The presentation should be smooth and well rehearsed.
The slides should be sharp and not cluttered with material.
• The first rule in making an oral presentation is to follow
instructions. If an investor tells an entrepreneur that he or she has
one hour and that the hour will consist of a 30-minute presentation
and a 30-minute question-and-answer period, the presentation
shouldn’t last more than 30 minutes.


4-24

(3 of 3)
Ten PowerPoint Slides to Include in an Investor Presentation
1. Title slide
2. Problem
3. Solution
4. Business model
5. Management team
6. Industry and target market
7. Competition
8. Intellectual property
9. Financial projections
10.Current status, amount of money requested, and
projected use of funds

4-25

Barringer2e ch04

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