CH 07 Entrepreneurship.pptx

Hisrich
Peters
Shepherd
Chapter 7
The Business Plan:
Creating and
Starting the Venture
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin

7-2
What is the Business Plan?
 A written document describing all relevant
internal and external elements, and
strategies for starting a new venture.
 It is an integration of functional plans;
addresses short-term and long-term
decision making for the first three years of
operation.

7-3
Who Should Write the Plan?
 The plan should be prepared by the
entrepreneur in consultation with other
sources.
 The entrepreneur should make an
objective assessment of his or her own
skills before deciding to hire a consultant.
 Lawyers, accountants, marketing
consultants, and engineers are useful in
the preparation of the business plan.

7-4
Scope and Value of the Business
Plan—Who Reads the Plan?
 Who is expected to read the plan can often
affect its actual content and focus.
 In preparing the plan it is important to
consider the following three perspectives:
 Entrepreneur’s perspective.
The entrepreneur understands the business better
than anyone else. He must be able to clearly
articulate what the venture is all about.

7-5
Plan—Who Reads the Plan?
 In preparing the plan it is important to
consider the:
 Marketing perspective.
(Entrepreneurs must try to view their business
through the eyes of their customers)
 Investor's perspective.
(Entrepreneurs must try to view their business
through the eyes of their investors)

7-6
Plan—Who Reads the Plan? (cont.)
 Depth and detail in the business plan
depend on:
 Size and scope of the proposed new venture.
 Size of the market.
 Competition.
 Potential growth.

7-7
 The business plan is valuable because it:
 Helps determine the viability of the venture in a
designated market.
 Guides the entrepreneur in organizing his or her
planning activities.
 Serves as an important tool in obtaining
financing.
 This process provides a self-assessment by
the entrepreneur.
Plan—Who Reads the Plan? (cont.)

7-8
How do Potential Lenders and
Investors Evaluate the Plan?
 The business plan must reflect:
 The strengths of management and personnel.
 The product/service.
 Available resources.
 Lenders are interested in the venture’s
ability to pay back the debt.
 Focus on the four Cs of credit - Character, cash
flow, collateral, and equity contribution.
 Banks want an objective analysis of the
business opportunity and the risks.

7-9
 Investors, particularly venture capitalists,
have different needs:
 Place more emphasis on the entrepreneur’s
character.
 Spend much time conducting background
checks.
 Demand high rates of return.
 Focus on market and financial projections.
How do Potential Lenders and
Investors Evaluate the Plan? (cont.)

7-10
Presenting the Plan
 The entrepreneur is expected to “sell” the
business concept.
 Focus on why this is a good opportunity.
 Provide an overview of the marketing program;
sales and profits.
 Address risks and how to overcome them.
 Audience includes potential investors who
may raise questions.

7-11
Writing the Business Plan
 A business plan should be comprehensive
enough to give any potential investor a
complete picture and understanding of the
new venture.
 It should help the entrepreneur clarify his
or her thinking about the business.

7-12
 Section 1: Introductory Page
 Name and address of the company.
 Name of the entrepreneur(s), telephone
number, fax number, e-mail address, and Web
site address.
 Description of the company and nature of the
business.
 Statement of financing needed.
 Statement of confidentiality of report.
Writing the Business Plan (cont.)

7-13
 Section 2: Executive Summary
 About two to three pages in length summarizing
the complete business plan.

7-14
 Section 3: Environmental and Industry
Analysis
 The environmental analysis assesses external
uncontrollable variables that may impact the
business plan.
 Examples: Economy, culture, technology, legal concerns,
etc.
 The industry analysis involves reviewing industry
trends and competitive strategies.
 Examples: Industry demand, competition, etc.

7-15
Table 7.5 - Critical Issues for
Environmental and Industry Analysis

7-16
 Section 4: Description of Venture
Provides a complete overview of product(s),
services, and operations of the new venture.

7-17
Table 7.6 - Describing the Venture

7-18
 Section 5: Production Plan
Details how product(s) will be manufactured.

7-19
Table 7.7 - Production Plan

7-20
 Section 6: Operations Plan
 All businesses (manufacturing or
nonmanufacturing) should include an operations
plan as part of the business plan.
 It goes beyond the manufacturing process.
 Describes the flow of goods and services from
production to the customer.
 The major distinction between services and
manufactured goods is services involve
intangible performances.

7-21
 Section 7: Marketing Plan
 It describes market conditions and strategy
related to how the product/service will be
distributed, priced, and promoted.
 Potential investors regard the marketing plan as
critical to the success of the new venture.

7-22
 Section 8: Organizational Plan
 It describes the form of ownership and lines of
authority and responsibility of members of new
venture.
 In case of a partnership, the terms of the
partnership should be included.
 In case of a corporation, the following should be
included:
 Names, addresses, and resumes of directors and
officers.
 Organization chart.

7-23
 Section 9: Assessment of Risk
 Identifies potential hazards and alternative
strategies to meet goals and objectives.
 The entrepreneur should indicate:
 Potential risks to the new venture.
 Impact of the risks.
 Strategy to prevent, minimize, or respond to the risk.
 Major risks could result from:
 Competitor’s reaction.
 Weaknesses in marketing/ production/ management
team.
 New advances in technology.

7-24
 Section 10: Financial Plan
 It contains projections of key financial data that
determine economic feasibility and necessary
financial investment commitment.
 It should contain:
 Summarized forecasted sales and appropriate
expenses for at least the first three years.
 Cash flow figures for three years.
 Projected balance sheet.

7-25
 Section 11: Appendix
 It contains any backup material that is not
necessary in the text of the document.
 It 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.

7-26
Why Some Business Plans Fail
 Goals are unreasonable.
 Objectives are not measurable.
 Entrepreneur has not made a total
commitment to the business or to the
family.
 Lack of experience in the planned business.
 No sense of potential threats or weaknesses
to the business.
 No customer need was established for the
proposed product or service.

CH 07 Entrepreneurship.pptx

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