6 - 1 Chapter 6 The Business Plan McGraw-Hill/Irwin New Venture Creation, 7/e © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

6 - 2 The Business Plan Objectives Carefully articulate the merits, requirements, risks, and potential rewards of the opportunity and how it will be seized Demonstrate how the four anchors reveal themselves to the founders and investors by converting all the research, careful thought, and creative problem solving from the Venture Opportunity Screening Exercises into a thorough business plan

6 - 3 What Does It Reveal? A business plan for a high potential venture reveals the business’ ability to: Create or add significant value to a customer or end user Solve a significant problem, or meet a significant want or need for which someone will pay a premium Have robust market, margin, and moneymaking characteristics Fit well with the founder(s) and management team at the time, in the marketplace, and with the risk-reward balance

6 - 4 Who Develops the Plan? Reasons not to hire an outside professional to prepare the business plan Consequences of different strategies and tactics can be considered Human and financial requirements for launching and building the venture can be examined

6 - 5 Writing a Business Plan Steps outlining the process by which a business plan is written Segmenting information Creating an overall schedule Creating an action calendar Doing the work and writing the plan

6 - 6 Business Plan I. EXECUTIVE SUMMARY Description of the business concept and the business opportunity and strategy Target market and projections Competitive advantages Costs Economics, profitability, and harvest potential The team The offering

6 - 7 Business Plan II.THE INDUSTRY AND THE COMPANY AND ITS PRODUCT(S) OR SERVICE(S) The industry The company and the concept The product(s) or service(s) Entry and growth strategy III. MARKET RESEARCH AND ANALYSIS Customers Market size and trends Competition and competitive edge Estimated market share and sales Ongoing market evaluation

6 - 8 Business Plan IV.THE ECONOMICS OF THE BUSINESS Gross and operating margins Profit potential and durability Fixed, variable, and semivariable costs Months to breakeven Months to reach positive cash flow V. MARKETING PLAN Overall marketing strategy Pricing Sales tactics Service and warranty policies Advertising and promotion Distribution

6 - 9 Business Plan VI.DESIGN AND DEVELOPMENT PLAN Development status and tasks Difficulties and risks Product improvement and new products Costs Proprietary issues VII. MANUFACTURING AND OPERATIONS PLAN Operating cycle Geographical location Facilities and improvements Strategy and plans Regulatory and legal issues

Business Plan VIII.MANAGEMENT TEAM Organization Key management personnel Management compensation and ownership Other investors Employment and other agreements and stock option and bonus plans Board of directors Other shareholders, rights, and restrictions Supporting professional advisors and services IX. OVERALL SCHEDULE X.CRITICAL RISKS, PROBLEMS, AND ASSUMPTIONS

Business Plan XI. THE FINANCIAL PLAN Actual income statements and balance sheets Pro forma income statements / forma balance sheets Pro forma cash flow analysis Breakeven chart and calculations Cost control Highlights

Business Plan XII.PROPOSED COMPANY OFFERING Desired financing Offering Capitalization Use of funds Investor’s return XIII. APPENDICES