EP2150 – Entrepreneurship Unit 2 - Business Planning 2.1 List and discuss the components of a business plan 2.2 Discuss the importance of a business plan for a small business 2.3 List and explain the steps involved in developing a business plan 2.4 Distinguish between a mission and a vision statement 2.5 Assess the importance of strategic planning for a small business

The Stages of Planning a Business Stage 1: Opportunity Screening Stage 2: Business Plan

Stage 1 : The Opportunity Screen

Stage 1: Opportunity Screening must handle a large number of inputs and quickly identify the most promising % should acknowledge that not every opportunity is appropriate for every organization Approaches: – Qualitative – Quantitative

Evaluation methods can be organized according to the intensity of effort:

trade-offs (accuracy vs effort) may range from  ball-park guesstimates  financial ratios and rules of thumb  secondary research  primary research  price quotations

Quantitative Rating scales applied to systematic criteria, such as: – market factors – economic & harvest issues (e.g. profitability, time to B/E, ROI) – competitive advantage issues – management team – fatal flaw / risk issues See Jeffrey Timmons (Harvard): Quickscreen Venture Opportunity Screening Guide

Market Issues CriterionStrongerWeaker NeedIdentifiedUnclear Payback to User< one year> 3 years Product life cycleLong – easy to recover investment Short – difficult to recover investment Industry structureWeak competitionAggressively competitive Total available market$ 100 M< $ 10M Market growth rate30-50 %< 3 % Gross margins30 – 60 % +< 5 % Mkt share attanable (yr 5)20+ %< 5 %

Resource Requirements Opportunity Individual FIT A Qualitative Framework for Opportunity Assessment

Classifying an Opportunity’s Potential: A Starting Point Lifestyle / marginal Stable & profitable High growth

Stage 2 : The Business Plan

The Components of Successful Entrepreneurial Ventures Business Plan The Entrepreneur Opportunity Resources Organization Strategy

Business Plan A “Business Plan” is a “Selling Document” that conveys the excitement and promise of your business to any potential backers and stakeholders.

Reasons for Writing a Business Plan u To sell yourself on the business u To obtain bank financing u To obtain investment funds u To establish strategic alliances u To obtain initial contracts u To attract key employees u To motivate and focus your management team

Types of Business Plans 1. The Summary Business Plan: 10 pages Used for: Bank Loan Application Lifestyle business To gauge initial investor interest

Types of Business Plans 2. The Full Business Plan: pages Used for: Seeking a substantial amount of financing Looking for a Strategic Partner

Types of Business Plans 3. The Operational Plan: 40+ pages Used for: Complex, rapidly growing companies Part of an annual planning process

Key Elements of a Business Plan An economically viable product or service with attractive markets. An established attack plan that can be replicated. A seasoned management team that has demonstrated it can carry out the attack plan.

What Should a Business Plan Contain? 1. Letter of Transmittal 2. Title Page 3. Table of Contents 4. Executive Summary and Fact Sheet 5. Body of the Plan The Company and Industry The Product/Service Offering Market Analysis The Marketing Plan The Development Plan The Production/Operations Plan The Management Team Implementation Schedule and Risks Associated with the Venture The Financial Plan 6. Appendices

A Typical Business Plan 1. Letter of Transmittal 2. Title Page 3. Table of Contents 4. Executive Summary and Fact Sheet Introduce your business plan to the reader Outline the major features that may be of interest Provide identifying information about you and your proposed business. Name, address and contact numbers for the business as well as key company contacts A list of the major headings and sub-headings contained in your plan. A 1-2 page summary of the most important points in your plan May be the most important part of your business plan Your Fact Sheet summarizes the basic information that relates to the venture Business Plan Contents Continued

A Typical Business Plan (Continued) 5. Body of the Plan History and current situation of your company Goals and objectives for the business Principal characteristics and trends in the industry Detailed description of your product or service Outline stage of development and proprietary position Describe the profile of your principal target customers Indicate current market size, trends, and seasonal patterns Assess the nature of your competition Estimate your expected sales and market share Company and the Industry Product-Service Offering Market Analysis Continued

A Typical Business Plan (Continued) Detail the marketing strategy you plan to use Describe your marketing plan insofar as your sales strategy, advertising and promotion plans, pricing policy, and channels of distribution Your Marketing Plan Outline of the development status of your product and what is still required to get it to a market-ready state Are there regulatory, testing or other requirements that still have to be met? Your Development Plan Outline the operating side of your business Describe your location, kind of facilities, space requirements, capital equipment needs, and labour requirements Your Production/Operations Plan Continued 5. Body of the Plan (Continued)

A Typical Business Plan Continued) Continued Present an overall schedule indicating what needs to be done to launch your business and the timing required to bring it about Discuss the major problems and risks that you will have to deal with as well Your Implementation Schedule Identify your key management people, their responsibilities and their qualifications Indicate the principal shareholders of the business, your principal advisors and the members of your Board of Directors Your Management Team 5. Body of the Plan (Continued)

A Typical Business Plan (Continued) Indicate the type and amount of financing you are looking for and how the funds will be used Outline your proposed terms of investment, the potential return to the investor, and what benefit is being provided Provide an overview of the current financial structure of your business Prepare realistic financial projections that reflect the effect of financing. Include: Cash flow forecasts Pro forma profit and loss statements Pro forma balance sheet Breakeven analysis Your Financial Plan Continued 5. Body of the Plan (Continued)

6. Appendices Supporting material for your plan including: Detailed resumes of the management team Product literature and photographs Names of possible customers and suppliers Consulting reports and market surveys Copies of legal documents Publicity material Letters of reference A Typical Business Plan (Continued)

The Business Plan a document describing… –what the venture is –where it is projected to go –how it will get there

Purpose  force the Epr to consider ALL aspects of the venture  force the Epr to view the venture critically & objectively  reduce uncertainty & risk  provide a communications tool for outside stakeholders  provide goals to monitor performance (i.e. control)

Bplan Structure 1.Cover Page 2.Executive Summary 3.Opportunity/Venture 4.Organization & Management 5.Industry & Market 6.Marketing plan 7.Operations plan 8.Financial plan 9.Critical risks 10.Milestones 11.Appendices

Cover Page  Name/address of business  Name(s)/ address(es) of owners  Nature of business  Amount of financing required  Confidentiality statement

Executive Summary  Provides a brief overview  1-2 pages  Helps put all elements in perspective  Written last

Business Description  Identify the type of business & industry  Vision / Mission statement  Thoroughly describe the new venture  Establish your competitive advantage

Organization & Management  Business type & ownership structure  Key mgt. positions and responsibilities  Convince us that the mgt. team can do this!  Provide resumes in Appendix  Identify advisors, mentors, board members  Strategic partnerships

Industry & Business Environment Industry structure & dynamics Business environment: – government – economic – social – technological

Market Must convince readers there is a market Must convince that sales target is achievable Must convince that competition can be beat Identify market niche, market share & growth Develop marketing plan

Operations New product? - development status & timeline Location Equipment (& layout) Inventory needs and suppliers Costing information Quality control Schedule of start-up costs Operating Plan & Budget

Financial schedule of start-up costs opening balance sheet 3 years forecast income statements 3 years forecast balance sheets 1 year monthly cash flow statement

Critical Risks Identify 4-5 major risk factors that could adversely affect the business Provide alternative strategies to address these risks

Milestones A schedule of critical events in the startup process: e.g.  incorporation  complete design & development  hiring  promo  contracts  ordering materials & equip.  renovations & fixtures in place  first sale

Some Tips… Know your audience Be interesting ! Avoid exaggeration Strengthen the key sections Limit to pages

Sample Plans Generico: Price Waterhouse Business Plan Archive: Actual plans from the dot.com era (registration required; highly recommended) 60 Plans from Bplan Pro Index of BPlans: Carnegie Library AllBusiness Samples htmlhttp:// html Royal Bank Web Strategies for BPlans

BPlans: “How-to” Links Price Waterhouse: Developing a Business PlanDeveloping a Business Plan Canada Business Canada Interactive Business Planner no longer available Business Plan for a Startup Business Entreworld

Tips for Developing Your Business Plan Business planning involves a lot of work. Be prepared to spend weeks developing your plan. Work on sections at a time. Be brief but complete. Focus on your intended reader. Use layman’s terms. Be realistic. Discuss the risks associated with the business back up your statements with background data and market information.