1. Copyright 2008 Prentice Hall Publishing 1 Chapter 4 Business Plan Buy or build a business

2. Copyright 2008 Prentice Hall Publishing Business Plan 2

3. Copyright 2008 Prentice Hall Publishing It may continue to be successful It may continue to be successful It may already have the best location It may already have the best location Employees and suppliers are established Employees and suppliers are established Equipment is already installed Equipment is already installed Inventory is in place and trade credit is established Inventory is in place and trade credit is established It’s turnkey It’s turnkey New owners can “hit the ground running” New owners can “hit the ground running” New owners can use the previous owner’s experience New owners can use the previous owner’s experience Financing is easier to obtain Financing is easier to obtain It’s a bargain! It’s a bargain! 6 - 3 Advantages of Buying an Existing Business Copyright © 2016 Pearson Education, Inc.

4. Copyright 2008 Prentice Hall Publishing The financial costs are high The financial costs are high It’s a “loser” It’s a “loser” Previous owner may have created ill will Previous owner may have created ill will “Inherited” employees may be unsuitable “Inherited” employees may be unsuitable The location may have become unsatisfactory The location may have become unsatisfactory Equipment and facilities may be obsolete or inefficient Equipment and facilities may be obsolete or inefficient Change and innovation can be difficult to implement Change and innovation can be difficult to implement Inventory may be outdated or obsolete Inventory may be outdated or obsolete Accounts receivable may be worth less than face value Accounts receivable may be worth less than face value The business may be overpriced The business may be overpriced 6 - 4 Disadvantages of Buying an Existing Business Copyright © 2016 Pearson Education, Inc.

5. Copyright 2008 Prentice Hall Publishing Study: 50 to 75% of all business sales that are initiated fall through. Study: 50 to 75% of all business sales that are initiated fall through. The right way: The right way: Analyze your skills, abilities, and interests. Analyze your skills, abilities, and interests. Develop a list of criteria Develop a list of criteria Prepare a list of potential candidates. Prepare a list of potential candidates. Investigate and evaluate candidate businesses and select the best one. Investigate and evaluate candidate businesses and select the best one. 6 - 5 Acquiring a Business Copyright © 2016 Pearson Education, Inc.

6. Copyright 2008 Prentice Hall Publishing Explore financing options Explore financing options Potential source: the seller Potential source: the seller Negotiate a reasonable deal Negotiate a reasonable deal Ensure a smooth transition Ensure a smooth transition Communicate with employees Communicate with employees Be honest Be honest Listen Listen Consider asking the seller to serve as a consultant through the transition Consider asking the seller to serve as a consultant through the transition 6 - 6 Acquiring a Business Copyright © 2016 Pearson Education, Inc.

7. Copyright 2008 Prentice Hall Publishing 6 - 7 The Acquisition Process Copyright © 2016 Pearson Education, Inc.

8. Copyright 2008 Prentice Hall Publishing Go into negotiations with a list of objectives ranked in order of priority. Go into negotiations with a list of objectives ranked in order of priority. Try to understand what the seller’s priorities are. Try to understand what the seller’s priorities are. Work to establish a cooperative relationship based on honesty and trust. Work to establish a cooperative relationship based on honesty and trust. Avoid an “if you win, then I lose” mentality Avoid an “if you win, then I lose” mentality Look for areas of mutual benefit Look for areas of mutual benefit 6 - 8 Negotiating the Deal Copyright © 2016 Pearson Education, Inc.

9. Copyright 2008 Prentice Hall Publishing 9 Chapter 4 Business Plan The Business Plan A written summary of: A written summary of: an entrepreneur’s proposed business venture an entrepreneur’s proposed business venture its operational and financial details its operational and financial details its marketing opportunities and strategy its marketing opportunities and strategy its managers’ skills and abilities. its managers’ skills and abilities. Best insurance against launching a business destined to fail or mismanaging a potentially successful company. Best insurance against launching a business destined to fail or mismanaging a potentially successful company.

10. Copyright 2008 Prentice Hall Publishing 10 Chapter 4 Business Plan The Business Plan: Three Essential Functions 1. Guiding the company by charting its future course and defining its strategy for following it. 2. Attracting lenders and investors who will provide needed capital. 3. Demonstrating that the entrepreneur understands the business venture and what will make it succeed.

11. Copyright 2008 Prentice Hall Publishing 11 Chapter 4 Business Plan A Plan Must Pass Three Tests The Reality Test - proving that : The Reality Test - proving that : a market really does exist for your product or service. a market really does exist for your product or service. you can actually build or provide it for the cost estimates in the plan. you can actually build or provide it for the cost estimates in the plan. The Competitive Test - evaluates: The Competitive Test - evaluates: a company’s position relative to its customers. a company’s position relative to its customers. management’s ability to create a company that will gain an edge over its rivals. management’s ability to create a company that will gain an edge over its rivals. The Value Test – proving that: The Value Test – proving that: a venture offers investors or lenders an attractive rate of return or a high probability of repayment. a venture offers investors or lenders an attractive rate of return or a high probability of repayment.

12. Copyright 2008 Prentice Hall Publishing 12 Chapter 4 Business Plan Why Take the Time to Build a Business Plan? Although building a plan does not guarantee success, it does increase your chances of succeeding in business. Although building a plan does not guarantee success, it does increase your chances of succeeding in business. A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map! A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map!

13. Copyright 2008 Prentice Hall Publishing 13 Chapter 4 Business Plan Key Elements of a Business Plan Title Page and Table of Contents Title Page and Table of Contents Executive Summary Executive Summary Mission Statement Mission Statement Company History Company History Business and Industry Profile Business and Industry Profile

14. Copyright 2008 Prentice Hall Publishing Information Flow in Business Plan Strategy Who are we and where are we going? Market What is our product/service? What is our environment? Logistics How & when will we build our product/service? How & when will we manage our resources? Finance How much will it cost? When will we make money? 14 Chapter 4 Business Plan

15. Copyright 2008 Prentice Hall Publishing 15 Chapter 4 Business Plan Key Elements of a Business Plan Title Page and Table of Contents Title Page and Table of Contents Executive Summary Executive Summary Mission Statement Mission Statement Company History Company History Business and Industry Profile Business and Industry Profile Business Strategy Business Strategy Description of Products/Services Description of Products/Services

16. Copyright 2008 Prentice Hall Publishing 16 Chapter 4 Business Plan Features versus Benefits Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”). Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”). Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”). Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”).

17. Copyright 2008 Prentice Hall Publishing 17 Chapter 4 Business Plan Key Elements of a Business Plan Marketing Strategy Marketing Strategy Competitor Analysis Competitor Analysis Description of Management Team Description of Management Team Plan of Operation Plan of Operation Forecasted Financial Statements Forecasted Financial Statements Loan or Investment Proposal Loan or Investment Proposal (continued)

18. Copyright 2008 Prentice Hall Publishing 18 Chapter 4 Business Plan Guidelines for Preparing a Business Plan Remember: No one can create your plan for you. Remember: No one can create your plan for you. Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections. Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections. Show how you plan to set your business apart from competitors; don’t fall into the “me too” trap. Show how you plan to set your business apart from competitors; don’t fall into the “me too” trap. Identify your target market and offer evidence that customers for your product or service exist. Identify your target market and offer evidence that customers for your product or service exist.

19. Copyright 2008 Prentice Hall Publishing 19 Chapter 4 Business Plan Tips on Preparing a Business Plan Make sure your plan has an attractive cover. (First impressions are crucial.) Make sure your plan has an attractive cover. (First impressions are crucial.) Rid your plan of all spelling and grammatical errors. Rid your plan of all spelling and grammatical errors. Make your plan visually appealing. Make your plan visually appealing. Include a table of contents to allow readers to navigate your plan easily. Include a table of contents to allow readers to navigate your plan easily. Make it interesting. Make it interesting. (Continued)

20. Copyright 2008 Prentice Hall Publishing 20 Chapter 4 Business Plan Tips on Preparing a Business Plan Your plan must prove that the business will make money (not necessarily immediately, but eventually). Your plan must prove that the business will make money (not necessarily immediately, but eventually). Use spreadsheets to generate financial forecasts. Use spreadsheets to generate financial forecasts. Always include cash flow projections. Always include cash flow projections. Keep your plan “crisp” – between 25 and 50 pages long. Keep your plan “crisp” – between 25 and 50 pages long. Tell the truth – always. Tell the truth – always. (Continued)

21. Copyright 2008 Prentice Hall Publishing Business Plan Grading Criteria 21 Chapter 4 Business Plan

22. Copyright 2008 Prentice Hall Publishing 22 Chapter 4 Business Plan Presenting the Plan Demonstrate enthusiasm, but don’t be overemotional. Demonstrate enthusiasm, but don’t be overemotional. Know your audience thoroughly. Know your audience thoroughly. “Hook” investors quickly with an up-front explanation of the venture, its opportunities, and its benefits to them. “Hook” investors quickly with an up-front explanation of the venture, its opportunities, and its benefits to them. Hit the highlights; focus on the details later. Hit the highlights; focus on the details later. Keep your presentation simple – 2 or 3 major points. Keep your presentation simple – 2 or 3 major points.

23. Copyright 2008 Prentice Hall Publishing 23 Chapter 4 Business Plan Presenting the Plan Avoid overloading your audience with technological jargon. Avoid overloading your audience with technological jargon. Use visual aids. Use visual aids. Close by reinforcing the nature of the opportunity. Close by reinforcing the nature of the opportunity. Be prepared (with details) for potential investors’ questions. Be prepared (with details) for potential investors’ questions. Follow up with every investor to whom you make your presentation. Follow up with every investor to whom you make your presentation. (Continued)

24. Copyright 2008 Prentice Hall Publishing Group Presentations When When November 17 th /20 th and the schedule TBD November 17 th /20 th and the schedule TBD All groups should be available All groups should be available Entrepreneur Entrepreneur Investors. Investors. Each team has 20 minutes and that time must include questions (whether during or after the presentation) Each team has 20 minutes and that time must include questions (whether during or after the presentation) 24 Chapter 4 Business Plan

25. Copyright 2008 Prentice Hall Publishing Grade Criteria - Presentation 25 Chapter 4 Business Plan

26. Copyright 2008 Prentice Hall Publishing Grade Criteria - Investors 26 Chapter 4 Business Plan