Chapter 5 :The Business Plan (Creating and Starting The) Venture

Learning Objectives To define what the business plan is, who prepares it, who reads it, and how it is evaluated. To understand the scope and value of the business plan to investors, lenders, employees, suppliers, and customers To identify information needs and sources for each critical section of the business plan. To present examples and a step by step explanation of the business plan.

What is Business Plan? The business plan is a written document prepared by the entrepreneur that describes all the relevant internal and external elements and strategies for starting a new venture. It is a integration of functional plans such as marketing, finance, manufacturing, sales and human resources.

The Importance of planning Plans provide guidance and structure in a rapidly changing market environment. Plans get finalized as the entrepreneur has a better sense of the market, the product or services, the management team, and the financial needs of the venture.

They help meet short-term or long-term business goals. Cont. Planning is a process than never ends for a business. It is extremely important in the early stages of any new venture when the entrepreneur will need to prepare a preliminary business plan. They help meet short-term or long-term business goals.

Using and Implementing The Business Plan The business plan is designed to guide the entrepreneur through the first year of operations. Business plan not end up in a drawer somewhere once the financing has been attained and the business launched.

Who should write the plan? The business plan should be prepared by the entrepreneur. The entrepreneur may consult with many other sources in its preparation, such as lawyers, accountants, marketing consultants, and engineers.

Scope and Value of the Business Plan – Who Reads The Plans? The business plan may be read by employees, investors, bankers , suppliers, customers, advisors, and consultants. There are 3 perspectives should be considered in preparing the plan : Perspective of the entrepreneur Marketing perspective Investor’s perspective

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.

Scope and Value … project management, the term scope has two distinct uses- Project Scope and Product Scope. Scope involves getting information required to start a project, and the features the product would have that would meet its stakeholders requirements Project Scope "The work that needs to be accomplished to deliver a product, service, or result with the specified features and functions.” Product Scope ” The features and functions that characterize a product, service, or result.”

How do Potential Lenders and Investors Evaluate The Plan? Place more emphasis on the entrepreneur’s character. Their ability to meet debt and interest payments Cash flow The collateral or tangible assets being secured.(valuable property owned by someone who wants to borrow money) Equity of Contribution or the amount of personal equity that has been invested by the entrepreneur. Focus on market and financial projections ,

Internet can be a valuable resource. Information Needs The information, obtainable from many sources should focus on Marketing (segmenting, targeting, and positioning), Finance (list of all possible expenses, demand forecast, revenue), Production (location, manufacturing operations, raw materials, equipment, labor skills, space, overhead) . Internet can be a valuable resource.

Outline of a Business Plan Introductory Page Name and address of business Name(s) and address(es) of principal(s) Nature of business Statement of financing needed Statement of confidentially of report

Outline … Executive Summary – Three to four pages summarizing the complete business plan What is the business concept or model? How is this business concept or model unique? Who are the individuals starting this business? How will they make money and how much?

Description of Venture Product(s) Service(s) Size of business Office equipment and personnel Background of entrepreneurs

Production Plan Manufacturing process (amount subcontracted) Machinery and equipment Names of suppliers of raw materials Ex:

Operational Plan Description of company’s operations Flow of orders for goods and/or services Technology utilization

Marketing Plan Pricing Distribution Promotion Product forecasts Controls

Organizational Plan Form of ownership Identification of partners or principal shareholders Authority of principals Management-team background Roles and responsibilities of members of organization

Financial Plan Pro forma income statement Cash flow projections Pro forma balance sheet Break-even analysis Sources and applications of funds

Appendix (contains backup material) Letters Market research data Leases or contracts Price lists from suppliers

http://www.youtube.com/watch?v=SMr_uLZV-eM

Measuring Plan Progress Entrepreneur should check the profit and loss statement, cash flow projections for the previous month such as , Inventory control Production control Quality control Sales control Disbursements

Updating the Plan The most effective business plan can become out-of-date if condition change. If the changes are likely to affect the business plan, the entrepreneur should determine what revisions are needed. In this manner, the entrepreneur can maintain reasonable targets and goals and keep the new venture on a course that will increase probability of success.

Why Some Business Plans Fails? Goals set by the entrepreneur are unreasonable. Goals are not measurable The entrepreneur has not made a total commitment to the business or to the family. The entrepreneur has no experience in the planned business. The entrepreneur has no sense of potential threats or weaknesses to the business. No customer need was established for the proposed product or service.