Chapter 06 Revised

7/27/2019 Chapter 06 Revised

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The Business Plan:

Visualizing the

Dream

PowerPoint Presentation by Charlie Cook

The University of West Alabama

Copyright 2006 Thomson Business & Professional Publishing.

All rights reserved.

Part 3 Developing the New

Venture Business Plan


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 62

Looking Ahead

After studying this chapter, you should be able to:1. Explain what a business plan is, when it is needed,

and what form it might take.

2. Explain how to tell a new ventures story to outsiders,

especially investors.3. List practical suggestions to follow in writing a

business plan and outline the key sections of a

business plan.

4. Identify available sources of assistance in preparing abusiness plan.

5. Maintain the proper perspective when writing a

business plan.


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What Is a Business Plan?

Business PlanA document that sets out the basic idea underlying a

business and related startup considerations

Identifies the nature and context of the business opportunity

Presents the entrepreneurs approach to exploiting theopportunity

Identifies factors affecting the ventures success

Serves as the entrepreneurs tool for raising capital


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The Need for a Business Plan

Primary FunctionsTo provide a clearly articulated statement of goals and

strategies for internal use

Imposes discipline on the entrepreneur and management

team

To serve as a selling document to be shared with

outsiders

Provides a credible overview for prospective customers,

suppliers, and investors Helps secure favorable credit terms from suppliers

Opens approaches to lenders and other sources of financing


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Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 65Exhibit 6.1

Users of Business Plans


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Types of Business Plans

Summary PlanA short form of a business plan that presents only the

most important issues and projections for the business

Comprehensive Plan

A full business plan that providesan in-depth analysis of the critical

factors that will determine a firms

success or failure, along with all the

underlying assumptions


7/24Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 67

How Much Business Planning is Needed?

Factors affecting the extent of a business plan:Cost in time and money to prepare the plan

Management style and ability

Preferences of the management team

Complexity of the business

Competitive environment

Level of uncertainty



Telling the Story to Others

Attracting InvestorsA business plan must be an effective marketing

document that quickly captures investor interest.

Understanding the Investors Perspective

Entrepreneurs are optimists; investors are skeptics.

Investors focus on break-even and positive cash flow.

Investors have a short attention span.

Bad information and poor preparation cause investors

to lose interest quickly.



Features of Plans that Attract Investors

Plans that speak the investors language:Are brief, not extremely long in written length.

Have an attractive overall appearance.

Are well-organized with a table of

contents and numbered pages.

Are market-oriented in meeting

customer needs; are not

product-oriented.

Show evidence of customer

acceptance of the proposed

product or service.



Business Plans that Attract Investors

(contd.)

Recognize the investors needs for required rates of

return on investments.

Demonstrate evidence of focus on a limited number of

products or servicesHave a proprietary market position

through patents, copyrights,

and/or trademarks


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Features of Plans Unattractive to Investors

Plans that create unfavorable reactions:Show an infatuation with the product or service and

downplay market needs or acceptance.

Are based on financial projections at odds with

accepted industry norms.Have unrealistic growth projections.

Contain a need for custom or

applications engineering,

which makes substantialgrowth difficult.


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Features of a Successful Business Plan

It must be arranged appropriately, with an executive summary, a

table of contents, and chapters in the right order.

It must be the right length and have the right appearancenot too

long and not too short, not too fancy and not too plain.

It must give a sense of what the founders and the company expect

to accomplish three to seven years into the future.

It must explain in quantitative and qualitative terms the benefit to the

user of the companys products or services.

It must present hard evidence of the marketability of the products or

services.

It must justify financially the means chosen to sell the products orservices.

It must explain and justify the level of product development which

has been achieved and describe in appropriate detail the

manufacturing process and associated costs.

Exhibit 6.2


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Features of a Successful Business Plan (contd.)

It must portray the partners as a team of experienced managers

with complementary business skills.

It must suggest as high an overall rating as possible of the

ventures product development and team sophistication.

It must contain believable financial projections, with the key data

explained and documented.

It must show how investors can cash out in three to seven years,

with appropriate capital appreciation.

It must be presented to the most potentially receptive financiers

possible to avoid wasting precious time as company funds dwindle.

It must be easily and concisely explainable in a well-orchestrated

oral presentation.

Exhibit 6.2 (contd)


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Preparing a Business Plan

Two issues critical in preparing a business plan:The basic format and effectiveness of the written

presentation

Clear writing that effectively communicates

The content of the plan Factual support for the concept

in the form of strong supportingevidence


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Suggestions for Writing a Business Plan

Provide a table of contents and section tabs.

Use a loose-leaf binder in case of revisions.

Use visual aidsgraphs, exhibits, and tabular

summaries.

Indicate that all information is confidential.

Number copies of the plan and require written receipts.

Be careful about divulging competitive information or

proprietary designs/technology.

Ask other entrepreneurs to review the plan.


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Deciding on the Content of a Business Plan

Factors that help determine the content of abusiness plan for a startup:

The entrepreneurial team

The opportunity

The resourcesThe deal structure

The big picture


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Good Opportunities Have Good Fit

Exhibit 6.4


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Contents of a Business Plan

Title Page Table of Contents

Executive Summary

Synopsis

Narrative

Vision and Mission

Statement

Company Overview

Products and/orServices Plan

Marketing Plan

Operating Plan

Financial Plan

Appendix of

Supporting

Documents


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Specialized Plans within the Business Plan

Products and/or Services PlanDescribes the product and/or service to be provided

and explains its merits

Marketing Plan

Describes the user benefits of the product or serviceand the type of market that exists

Management Plan

Describes the new firms organizational structure and

the backgrounds of its key players


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Specialized Plans (contd.)

Operating PlanOffers information on how the product will be

produced or a service provided, including descriptions

of the new firms facilities, labor, raw materials, and

processing requirements

Financial Plan

Provides an account of the new firms financial needs

and sources of financing and a projection of its

revenues, costs, and profits Pro forma statementsReports that project a firms financial

condition


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What Not to Do

Mistakes to avoid in preparing a business plan:Failing to provide solid data

Failing to describe the product in lay terms

Failing to thoroughly analyze the market

Including financial statements that are overly detailedor incomplete

Hiding weaknesses

Overlooking the fatal flaw

Using bad grammar

Making the overall plan too long


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Resources for Business Plan Preparation

Computer-Aided Business PlanningWord processors

Spreadsheets

Specialized business plan software packages

Professional AssistanceAttorneys

Marketing specialists

Engineering and production experts

Accounting firms

Incubator organizations

Small business development agencies


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Keeping the Right Perspective

Good business plans dont ensure success.Effective implementation is what succeeds.

Writing a business plan is primarily an ongoing

process and only secondarily the means to an

outcome.The process is just as important asif not more so

thanthe finished product.

The business plan represents what isanticipated; a good entrepreneur adapts the

plan to fit the unexpected.


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Copyright 2006 Thomson Business & Professional Publishing All rights reserved 624

Key Terms

business plan

summary plan

comprehensive plan

prospectus

executive summary

mission statement

products and/or services plan

marketing plan

management plan

operating plan

financial plan

pro forma statements