lect ch 04
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This document provides guidance on writing an effective business plan. It discusses that a business plan is typically 25-35 pages and serves both internal and external purposes. There are two primary audiences: a firm's employees and investors/stakeholders. The document outlines the key sections of a business plan, including an executive summary, industry and market analysis, company description, marketing plan, financial projections, and appendices. It emphasizes that the plan should be concise, clear, and follow a conventional structure to communicate the merits of the new venture to outsiders.
lect ch 04
- 1. Chapter 4 Writing a Business Plan Bruce R. Barringer R. Duane Ireland • Business Plan A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business plans to accomplish. What Is a Business Plan? • Dual-Use Document Used both inside & outside the firm. Internal Reasons Forces the founding team to systematically think through every aspect of their new venture External Reasons Communications the merits of a new venture to outsiders, such as investors and bankers Two Primary Reasons for Writing a Business Plan
- 2. Audience What They are Looking For: A Firm’s Employees A clearly written business plan 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 others. There are two primary audiences for a firm’s business plan Guidelines for Writing a Business Plan • Structure of the Business Plan • Content of the Business Plan • Style/Format of the Business Plan • Recognition the Elements of the Business Plan may change. • Follow a conventional Biz Plan structure. • Not the time or place to demonstrate: Departing from the basic structure of the conventional business plan format is usually a: Assume investors are busy people who want a plan where they can easily find critical information. Structure of the Business Plan
- 3. Structure of the Business Plan •Facts, Figures, & Financial Analysis •Narrative •Explanation of the possibilities that surround a new venture. •Sense of anticipation & Excitement Content of the Business Plan • Clear & concise information on all the important aspects of the proposed venture. • Long enough to provide sufficient information yet short enough to maintain reader interest. • For most plans, 25 to 35 pages is sufficient. Summary Biz Plan 10-15 pages Works best for new ventures in the early stages of development that want to “test the waters” to see if investors are interested in their idea Full Biz Plan 25-35 pages works best for new ventures that are at the point where they need funding or financing: serves as the “blueprint” for the companies operations Operational Biz Plan 40-100 pages is meant primarily for an internal audience; works best as a tool for creating a blueprint for a new venture’s operations and providing guidance to operational managers Types of Business Plans
- 4. Recognizing the Elements of the Plan May Change • Important to recognize that the plan will usually change while being written & implemented. • New insights invariably emerge when writing the plan and start getting feedback from others. Outline of Business Plan • Most business plans DO NOT include all the elements introduced in the sample plan; included them here for the purpose of completeness. • Each entrepreneur must decide which elements to include in his or her plan. Biz Plan Outline • Section I Executive Summary • Section II Industry Analysis • Section III Company Description • Section IV Market Analysis • Section V The Economics of the Business • Section VI Marketing Plan • Section VII Design and Development Plan • Section VII Operational Plan • Section IX Management Team/Organization Structure • Section X Overall Schedule • Section XI Financial Projections • Appendices
- 5. Section 1: Executive Summary • Executive summary is a short overview of the entire business plan. • Provides reader with what they need to be known about the new venture’s distinctive nature. • Shouldn’t exceed two single-spaced pages. • Written last!!!! • Investor may ask for a only a copy of a firm’s executive summary • Ask for a copy of entire biz plan only if the executive summary is sufficiently convincing. • Consider the Executive summary the most important section of a business plan. Executive Summary - Key Insights Section II: Industry/Competitive Analysis - Competitive Scouting Report S W O T Define Playing Field
- 6. Section II: Industry Analysis • Industry size, • Growth rate • Sales projections • Industry structure • Nature of participants • Key success factors • Industry trends • Long-term prospects Copyright ©2012 Pearson Education, Inc. publishing as Prentice Hall Section III: Company Description -Key Insights • Section is extremely important. • Demonstrates that you know how to translate an idea into a business. Section III: Company Description • Company description • Company history • Mission statement • Products and services • Current status • Legal status and ownership • Key partnerships (if any)
- 7. Undifferentiated Market Segmented Markets 1 Individual Heterogeneous All individuals different & Unique Needs 1 Market All the Needs Same Homogeneous Section IV: Market Analysis - Key Insights Section IV: Market Analysis •Market Research •Market segmentation •Target market selection •Buyer behavior •Competitor analysis Focus on Mass Market Focus on servicing a specific target market(s) Section IV: Market Analysis - Key Insights for Marketing Decision Making Understand of target market & their buying behavior.
- 8. Revenue = Price X Quantity Sold Section V: The Economics of the Business - Key Insights Profit = Revenue - Expenses Expenses = Variable + Fixed Costs Breakeven in Units = Total Fixed Costs Unit Contribution Margin Section V: The Economics of the Business • How profits will be earned. • High Margin vs Low Margin Operation • Items to include in this section: • Start-up costs • Fixed and variable costs • Revenue drivers and profit margins • Operating leverage and its implications • Break-even chart and calculations gin me y High Margin Low Volume Strategy 1V = P = $1,000,000 Sales Revenue = Low Margin High Volume Strategy P = $1 V = 1,000,000 Sales Revenue = Two companies in the same industry may make profits in different way Which is a Better Pricing Strategy?
- 9. Nothing Happens till you SELL something!!!!! Section VI: Key Insights Section VI: Marketing Plan • How the business will market & sell its product or service. • Items to include in this section: • Overall marketing strategy • Product, price, promotions, and distribution • Sales process (or Cycle) • Sales tactics USP Section VI: Marketing Plan - Key Insights Marketing Objectives How to Achieve Objectives How we are going to Sell Products/Services
- 10. Section 7: Design and Development Plan - Key Insights Critical section for businesses developing a completely new product or service • Many start-ups never get off the ground because their product development efforts stall/ to expensive • Actual development of the product or service is more difficult than thought Section VII: Design & Development Plan • Developing a completely new product or service • What is status of your development efforts. • Timelines & tasks • Challenges & risks • Projected development costs • Proprietary issues (patents, trademarks, copyrights, licenses, brand names) Section VIII: Operations Plan • How your business will be run • How your product or service will be produced. • “Back stage” (unseen to the customer) • “Front stage” (seen by the customer) • Items to include in this section: • General approach to operations • Business location • Facilities and equipment
- 11. Section VII: Operations Plan - Key Insights BalanceAdequately Describing How.. Providing to much Detail Section IX: Management Team & Company Structure - Key Insights What Degree of Involvement? Who is Involved? Do Individual have the: Skill Ability Knowledge Motivation Section IX: Management Team & Company Structure • Founders and a handful of key management personnel. • Items to include in this section: • Management team • Board of directors • Board of advisers • Company structure
- 12. Section X: Overall Schedule - Timeline • The schedule should be in the format of milestones critical to the business’s success. • Examples of milestones: • Incorporating the venture • Completion of prototypes • Rental of facilities • Obtaining critical financing • Starting production • Obtaining the first sale Section X: Overall Schedule -Key Insight What needs to be done, by whom and when. Section XI: Financial Projections • The final section of a business plan presents a firm’s pro forma (or projected) financial projections. • Items to include in this section: • Sources and uses of funds statement • Assumptions sheet • Pro forma income statements • Pro forma balance sheets • Pro forma cash flows • Ratio analysis
- 13. Section XI: Financial Projections Key Insights - Pro-forma Statements Numbers the Language of Business • Credit history (personal & business) • Resumes of key managers • Product pictures • Letters of reference • Details of market studies Appendix Provided to readers on an as-needed basis. • Relevant magazine articles or book references • Licenses, permits or patents • Legal documents • Copies of leases • Building permits • Contracts 3 Years Tax Returns
- 14. Store layout design Parking Site Plans 3 D Renderings Organizational Charts Key Personnel Resumes Professionally Presented
- 15. Spelling and grammar is difficoult chalanging hard. Business Plan Software: • Interactive, menu-driven approach to assist in the writing of Biz Plan. • Programs can be very helpful. • Avoid boilerplate plan that looks as though it came from a “canned” source. The Oral Presentation • First rule in making an oral presentation is to follow directions. • If you’re told you have 15 minutes, don’t talk for more than the allotted time. • Presentation should be smooth & well-rehearsed. • Slides should be sharp & not cluttered.
- 16. Twelve PowerPoint Slides to Include in an Investor Presentation 1. Title Slide 2. Problem 3. Solution 4. Opportunity & target market 5. Technology 6. Competition 7. Marketing & sales Presenting the Business Plan to Investors Twelve PowerPoint Slides to Include in an Investor Presentation 8. Management team 9. Financial projections 10. Current status 11. Financing sought 12. Summary Presenting the Business Plan to Investors The smart entrepreneur has a good idea of the questions that will be asked, and will be prepared for those queries.