The Business Plan Entrepreneurship Fall 2012

Chapter 3 Slide 2 The Business Plan business plan a written document that describes all the steps necessary for opening and operating a successful business A business plan will: describe your ideas to investors serve as a guide for you as you start your business

Chapter 3 Slide 3 Purposes of a Business Plan A business plan: explains the idea behind your business how your product or service will be produced and sold sets specific objectives and how you will achieve them describes the experience of the people who will run the business

Who Needs a Business Plan? Anyone running or thinking about running a business Entrepreneurs with solid business ideas Any current successful business Start-up companies Companies seeking financial backing Businesses in both pre-launch and post-launch stages Businesses going through periods of intense change and/or stress

Chapter 3 Slide 5 Why is a business plan important to an entrepreneur? A business plan: makes you think about all aspects of your business may help you secure financing helps you communicate your ideas to others can serve as a tool for managing your business

Are There Disadvantages of a Business Plan? Inflexibility – Sticking to the plan no matter what, even when it’s failing or market or industry conditions change Discouragement – There are so many unknown aspects of a business, some find it difficult to write a solid plan or “guesstimate” Tunnel Vision – A narrow plan may result in overlooking beneficial opportunities Time Consuming – Takes time away from business operations, customer meetings, etc.

Do it Right! According to a Belmont University survey, “many plans fail because those involved do not spend the time or energy, or have the expertise, necessary to make the plan comprehensive enough to have true value.” “People don’t plan to fail. They fail to plan.”

Basic Elements of a Business Plan 1.Executive Summary 2.Introduction 3.Analysis of Business Situation 4.Planned Operation of the Proposed Business 5.Planned Financing 6.Conclusions 7.Bibliography 8.Appendix

Failure Statistics 99.9% of all US businesses are “small businesses” (< 500 employees, < $500K sales) 0.1% or 17,000 businesses are “large businesses” Small business failures have increased every year since As noted by Small biz loan, failure rates grew from 2.4 percent in 2004 to 11.9 percent in (Almost 12%)

THE TOP TEN REASONS FOR BUSINESS FAILURE #10 – Over expansion # 9 – Poor capital structure # 8 – Failure to control the controllable costs # 7 – Failure to prepare for volatility of uncontrollable costs # 6 – Add new products or divisions that reduce the profitable ones

THE TOP TEN REASONS FOR BUSINESS FAILURE # 5 – Poor internal controls and execution # 4 – Poorly designed business model # 3 – Reliance on critical financing that dries up # 2 – Failure to adapt to a changing market # 1 – Management in complete denial!

Improve Chances of Success