Business plans MGT 470

Feasibility Study versus Business Plan Feasibility = screening opportunities to decide the conditions under which you are willing to go forward Business Plan = execution plan for implementing the business

Business Plan A formal, written expression of the entrepreneur’s vision for converting ideas into a profitable, going business The entry card for serious consideration by venture capitalists, banks, and other sources of funding

Purpose of the Business Plan Reality Check—What’s it going to take? Living Guide to the Business Statement of intent for third parties –Investors –Bankers/lenders –Potential management –Strategic partners –Suppliers

Bankers/Lenders Margins –How much room for error? Cash flow –Can you pay them back? Qualifications and track record of management team –Do they have what it takes to execute the plan?

Investors Predictors of growth Qualifications and track record of the management team Deal structure Exit

Strategic Partners Growth plans indicate potential business Ability to pay Future management –Where do they fit in?

The entrepreneur: A Living Document A business plan changes often as a new business develops. Do just enough business planning to get the new company started. Refine the plan with information gathered from running the new venture.

What Every Plan Needs What need is being served? Do you have a team that can serve that need? Why is now the right time to launch this business concept? Can you make money at it?

The Components The business concept The industry/market analysis Competition The founding team + Management Development, production, location

The Components (cont.) Marketing plan Financial plan Contingency plan Growth plan Scheduling and milestones Deal structure Appendices

The Executive Summary Arguably the most important part of the business plan Stimulates an investor, bankers, or other interested party to read the business plan Should be no more than two pages Contains the most important points from all sections of the plan Must capture the reader’s attention instantly

Background, Product, and Purpose What is the nature of the idea driving your company and how did it arise? What does the product have to offer? What is the basic nature of the company? What is the company’s mission?

Market Analysis What have you done to identify the market? How large is the market? How will products or services be promoted? What do you know about competing products and companies? How will the product or service be priced?

Development, Production, and Location Where are the products or services in the development process? What are the projected costs and timetable for making the product or delivering the service? What steps have been taken to assure quality and safety?

Management Team Do team members have the experience, expertise, skills, and personal characteristics needed? Do team members having good working relationships?

Financial Plans and Projections Proforma balance sheet Proforma income statement Cash flow statement Break-even analysis

Critical Risks Price cutting by competitors Unforeseen industry trends Sales projections not achieved Costs exceed estimates Schedules not met Difficulties raising financing Unforeseen trends

Harvest and Exit Management succession Exit strategies

Scheduling and Milestones Formal incorporation Completion of design Completion of prototypes Hiring of initial personnel Product displays Agreements Moving into production Receipt of orders First sales Profitability

The Intangibles The extra “something” Pay attention to organization, clarity, word choice, and style Have good writers read your plan Revise according to their suggestions You must support your claims

Seven Deadly Sins Plan is poorly prepared Plan looks too slick Executive summary is too long Development stage of product is unclear Fails to answer “Why would anyone ever want to buy one?” Doesn’t state management qualifications Financial projections are wishful thinking

Oral Presentation Answer the fundamental questions Be under a half hour Catch the audience’s attention in the first sixty seconds Involve the key members of the founding team Demonstrate the product or service where possible

Take-Aways List what students took away from the discussion in real time