ENTR 452 (Business Plan Slides, Chapter 7)

BUSINESS PLAN BASICS The BP is a written summary and explanation of an entrepreneur’s proposed venture, its operational and financial details, its marketing opportunities and strategy, and its managers’ skills and abilities. Describes tasks/goals for first 3-5 years of operations Research shows a link between planning and performance. However, you can be successful without a plan (most businesses are founded without a business plan)

MAJOR PURPOSES OF A BUSINESS PLAN - Opportunity Development - Strategic Planning and Benchmarking - Raising Money - Recruiting Consider who you are writing for: yourself, investors, customers, suppliers, banks, judges

BUSINESS PLAN COVERAGE AREAS Key People Promising Opportunity Business Context Risks and rewards

BUSINESS PLAN BASICS Many different outlines/forms of plan. If you are trying to raise money, I recommend having three documents prepared for potential readers: 1. Executive Summary (most important part of a plan) 2. 5-10 Page Short-Form Plan (PowerPoint Presentation) 3. Full Business Plan

INFORMATION NEEDS Clearly defined business concept. Market data – support the concept by detailing the market potential Operations – must discuss location, equipment, raw materials, supply needs, labor skills, space Financials – at a minimum need a cash budget (full financials w/cash flow statement, income statement, and balance sheet is preferable)

FORMAT/MAJOR SECTIONS Cover Page (name of company, contact info) Table of Contents Executive Summary Description of Product/Service Market Data Analysis of Competition

FORMAT/MAJOR SECTIONS Marketing Plan Management Plan Financial Info Deal Structure/Exit Strategy Appendices (e.g., financial spreadsheets, resumes, supporting marketing material)

BUSINESS PLAN EVALUATION Before you get any financing, investors will conduct “due diligence” (fact checking and background check) on you and your plan You will also have to present your business plan Again, know your target - Bankers - Angel Investors - Venture Capitalists - Competition Judges

ENVIRONMENTAL AND INDUSTRY ANALYSIS Environmental analysis: assessment of external uncontrollable variables that may impact the business plan. Examples: Economy, culture, technology, legal concerns, Industry analysis: reviews industry trends and competitive strategies. Examples: Industry demand, competition

ENVIRONMENTAL AND INDUSTRY ANALYSIS What are the major economic, technological, legal, and political trends on a national and an international level? What are total industry sales over the past five years? What is anticipated growth in this industry? How many new firms have entered this industry in the past three years? What new products have been recently introduced in this industry? Who are the nearest competitors? How will your business operation be better than this? Are the sales of each of your major competitors growing, declining, or steady? What are the strengths and weaknesses of each of your competitors? What trends are occurring in your specific market area? What is the profile of your customers? How does your customer profile differ from that of your competition?

APPENDICES Contains any backup material that is not necessary in the text of the document. 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.

THE THREE TESTS A BUSINESS PLAN MUST PASS Reality Test – is it realistic? Competitive Test – does the firm have an edge over the competition? Value Test – does the firm represent a good financial risk/return?

WHY BUSINESS PLANS FAIL Factors can be one of many of the following: Goals set by the entrepreneur are unreasonable. Goals are not measurable. Entrepreneur has not made a total commitment to the business or to the family. Entrepreneur has no experience in the planned venture. Entrepreneur has no sense of potential threats or weaknesses to the business. No customer need was established for the proposed product or service.

BUSINESS PLAN PRESENTATION Again, you will need to present your plan if you expect to receive any funding. Should cover 5 major areas: Company’s background and its products/services Market analysis and description of the opportunities Competitive edge and marketing strategies Management team (experience and qualifications) Financial analysis (projections)

5 C’s OF CREDIT Lenders/Investors will look at these 5 “C’s”: Capital – Contribution by entrepreneur(s) Capacity – ability to repay loan/provide a return (cash flow) Collateral – assets that back up the loan/investment Character – of the entrepreneur Conditions – that surround the business

LIKELY EVALUATION QUESTIONS SCA????? Quality of management - Hiring agreements w/outsiders if funded - Advisory board Resources controlled by the entrepreneur(s) Financials (assumptions and projections) Exit strategy

OTHER THOUGHTS ON BUSINESS PLANS Before you write anything, should know specifically who your first customer is going to be Business plan software – still a lot of work Hiring a consultant – must work closely w/the consultant in order to ensure vision is expressed Plan does not have to be flashy

OTHER THOUGHTS ON BUSINESS PLANS Read and re-read Avoid “fluff” and overly flattering language Evidence of good research Be optimistic, but realistic Have an advisory board for review purposes

OTHER THOUGHTS ON BUSINESS PLANS Clearly lay out the exit strategy - may be different for different plan readers How will your competition react? Be prepared to defend and constantly update your plan as conditions change