Making a business plan

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Making a Business Plan

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A business plan is the written representation of your vision for your business.

It is the story of your venture written by you.

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• Business plans are used by entrepreneurs for various purposes.• It can be used to get debt from banks or to get equity funding

from angel investors or venture capitalists.• It can also be used to attract business partners and key employees

or to make business alliances.• One of the important uses of the business plan is to clarify the

exact nature of the business to you.• Often, many lacunae in our business planning come to the fore

only after the plan has been put down in paper.• So, a business plan also gives us an opportunity to think through

and come up with answers to questions we had not considered previously


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• A business plan must describe the company, its product, and its entrepreneurial team.

• It must state the money needed by the business and how it will be spent as well as the objectives of the business and how they will be achieved.

• The business plan must help the entrepreneur understand the business and make him/her confident that the venture’s objectives can be achieved.

• A well-written business plan is an asset to the entrepreneur.

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Key sections in a Business Plan• Executive Summery• The company• The management team• The industry and the market• Operations• The marketing plan• Financial Plan• Risk and contingencies• Appendices

• Depending upon the business idea, some of these sections can be dropped, or there can be some entirely different sections too.

A good business plan should not only concentrate on the strengths of the business but also make a realistic assessment of its risks and shortcomings too. Then only will it make a convincing presentation of the company’s worth.

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FedEx Corporation

• Fred Smith is the son of Frederick C. Smith, the founder of the Toddle House restaurant chain.

• In 1962, Fred entered Yale University to do his graduation in economics. While in Yale, he wrote a paper, outlining a concept of a business based on an overnight delivery service highly reliant on exchange of information and on predicting volumes. His view was that the information about the package was as important as the package itself. His professor was not at all impressed and he received a ‘C’ for this paper.

• The unappreciated paper led to the birth of Federal Express. Fred graduated in 1966 and after a stint in the Marines and a couple of other businesses, he started FedEx Corporation. It commenced operations in 1973 with 14 aircraft connecting 25 cities in the US. Currently, FedEx Corporation is a $34 billion enterprise employing about 2,75,000 people and operating in all major countries of the world.

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Uses of a Business Plan

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Equity Funding• A venture capitalist or an angel investor will very

rarely commit an investment to a start-up without perusing its business plan.

• The venture capitalist will primarily use the business plan to gauge risks and forecast growth prospects.

• The investor will never restrict analysis of the business to just the business plan but it will always remain an important reference point.

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Bank Finance• A banker obviously concentrates on the ability

of the business to repay the debt and on the availability of the collateral or other securities.

• Banks look for at least some specific issues to be addressed in the business plan.

• For example, a bank needs projected balance sheets and profit and loss accounts for the first five years.

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Alliances• An entrepreneurial firm may need to form alliances

with other firms to reach new markets, develop new products, or create common facilities.

• Other firms may want to know more about the business before committing to any long-term arrangement.

• Sometimes, a business plan can help convince a well-established retailer or distributor to commit to the start-up.

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Recruitment• A good business needs support from

experienced top-level employees.

• A business plan will help them understand what they are getting into.

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Explain the Business• A business plan helps in planning.• While writing the business plan, it is likely that

the entrepreneur was able to detect many shortcomings in the original business idea and these shortcomings could be overcome by thinking through and plugging the gaps.

• Later, this plan can serve as a guide or manual to help in business and strategy formulation.

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Miscellaneous Uses• Very often, an entrepreneur seeks moral

support from friends and family.• A business plan can be a good way of

presenting your business to your father, mother, wife and colleagues.

• By going through it, they will have a better appreciation of what you are setting out to do.

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Writing a Business Plan

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• Like any other project, writing a business plan has to be carefully planned and systematically executed.

• This will improve the quality of the final business plan and it will also keep things moving smoothly.

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Define Purpose• The business Plan will serve its purpose better if its

purpose is spelt out in the very beginning.• There may be multiple goals in writing the business plan.• E.g. The entrepreneur may be planning on using the

business plan to secure bank finance as well as to attract a major corporation as a strategic partner.

• It is okay to have multiple goals, but some amount of customizing should be done before placing it in front of different audiences.

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Collect Information• All sorts of information about the business and the

industry should be collected.• List out all the information you already have with you,• Figure out the major gaps in information, and• Go out to get more information.• Do not rate the quality of this information; just gather

it.• At this point, the more you can find, the better.

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Write Down Things• After enough information has been gathered, you can plan

on starting the actual writing.• Think of a rough structure appropriate for the business plan

and start writing.• It is important to note down things on paper without being

too particular about sequence and grammar.• Approach it like a brainstorming session.• Do not be critical of your efforts.• Just make sure that you are putting enough thoughts on

paper.

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Prepare a Rough Draft• Now it is time to give shape to your business plan and make it

concrete.• Correct grammatical mistakes and break up the written account

into meaningful sections.• Compare your writing to your intended outline and make

necessary changes.• As your work progresses, you need to make a note of what else

needs to be added.• For some topics, more information will be needed.• At this stage of writing process, you are going to decide on the

level of detail necessary to be included in the business plan.

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Do Financial Analysis• The numbers will continue to be important.• After all costs and revenue estimates have been

arrived at, pro-forma financial statements are to be drafted.

• That will lead to sensitivity analysis, the ROI calculation, the break-even analysis, and the other financial ratios.

• The numbers should be realistic and consistent.

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Finalize the Plan

• Finalizing the business plan is certainly a hard job.• Language and spellings have to be checked, the numbers

have to be scrutinized and formatting has to be completed.• The business plan should not be ornate but should have a

professional look about it.• Set a deadline for completing it and adhere to the deadline.• One good way to enforce a deadline is to tell some people

that you will be showing them the business plan by a certain date. Then it will be hard for you to ignore the deadline.

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Get the Plan Reviewed• Do not review your business plan yourself.• Ask someone else to do it.• It could be a family member, a friend, or a

professional acquaintance.• Even better would be if you could get a

number of people to do it.• .............

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Get the Plan Reviewed• Even better would be if you could get a

number of people to do it.• After getting comments on your paln, you

should incorporate only those suggestions that you find convincing.

• After all, this is your business plan!!!

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RESOURCES

Business Plan Archive

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Business Plan Archive

• The Business Plan Archive is a unique resource for budding entrepreneurs. (http://www.businessplanarchive.org)

• It is a joint initiative of the Library of Congress, the Center for History and New Media, and the University of Maryland Libraries.

• The Archive collects and preserves business plans and other planning documents from the dot com boom, so that future generations will be able to learn from this remarkable period in the history of technology and entrepreneurship.

• The Archive is built by the voluntary contributions by entrepreneurs and managers of that time.

• Because some of the material may contain proprietary information, contributors retain a lot of control on how the information is treated and who is allowed access to the material.

• It also provide researchers to take a closer look at the crash and find lessons for the future generations of entrepreneurs.

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Business-Plan Competitions

• There are literally hundreds of business-plan competitions being organized by business schools and other technical education centres in India and abroad.

• Some of the better known business-plan competitions are listed here.....

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• National Level1) Eureka: E-cell at IIT Bombay2) Anveshan: Centre for Innovation, Incubation and

Entrepreneurship(CIIE) at IIM Ahemedabad.3) BZZWings: IIM Bangalore4) Ananya: Xavier Institute of Management, Bhubaneshwar5) Lock, Stock and Barrel: S.P. Jain Institute of Management

Studies, Mumbai

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• International Level1) DFJ Venture Challenge: Draper Fisher Jurvetson2) Berkley Business Plan Competition: Hass School of

Business, UC, Berkley3) USF-PSI: University of San Francisco4) HKUST IBPC: Hong Kong University of Science and

Technology

Note: Often, business-plan competitions are discontinued or re-launched with a different name.

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Data Collection

• A business plan is no good if does not include a lot of data.• In that case, financiers who will read the business plan, will

look elsewhere for additional information about the business.• It will really look bad if they are able to come across a lot of

critical information that has not been included in the business plan.

• They might think that you have not researched the business properly and will doubt your ability to run the business.

• They might think that you wilfully withheld information in order to mislead them.

• None of the above scenarios is desirable...

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Data Collection

• If all the data listed below is collected early in the business plan writing process, the writing does not have to be regularly interrupted for lack of information.

• Company Details• Management• Industry and Competitions• Operations• Marketing and Sales• Financial Information

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Data Collection

• Company Details:1) Documents relating to formation2) Shareholding Details3) Permits and Registrations

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Data Collection

• Management:1) Organization chart2) Details of key employees3) Consultants and advisors4) Compensation and other employee agreements

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Data Collection

• Industry and Competitions:1) Market Statistics from secondary sources2) Reports on trends, etc.3) Competitor data4) Customer surveys

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Data Collection

• Operations:1) Product specifications2) Contracts and purchase orders for raw materials3) Competitive advantages4) Details of intellectual property(Patent, licence, and

trademarks)5) Regulatory approvals6) Industry standards as per regulations7) Plant layout and operations plan8) Research and development plans

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Data Collection

• Marketing and Sales1) Marketing Plan2) Advance orders, if any3) Marketing materials

• Financial Information1) Data on fixed and variable costs to be incurred2) Financial forecasts

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Data Collection

• This is not an exhaustive list but is only indicative of the kind of information that may be needed.

• Other data may also be required, depending upon the requirements of your company or the orientation of the business plan.

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Kinds of Business Plans

• Common Question:What should be the ideal length of the business

plan?Well, there is no ideal length.It depends on business idea and also on main

purpose of writing the plan.

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• Broadly, there are five versions of business plans for an entrepreneur to choose from:

• Summary plan• Executive summary• Full business plan• Operational business plan• Oral presentation

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Summary Plan• A ten to fifteen page summary plan can be used by an

entrepreneur interested in testing the investment waters; on finding sufficient interest from the investors, a more comprehensive business plan can be assembled.

• A summary plan may also be appropriate for entrepreneurs with a proven track record.

• In case of seasoned entrepreneurs with a history of success, a venture capitalist may not require as much information from the entrepreneur in the early stages as from an inexperienced first-time entrepreneur.

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Summary Plan• The summary business plan should include

enough information to convince potential investors that1) The business idea is sound and viable;2) The entrepreneurial team is committed and capable to

make the business idea a success; and3) The team has studied the market and has understood the

business.

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Executive Summary• Instead of summary plan, an entrepreneur may use just an executive summary,

of not more than three pages.• It only serves to introduce the business and the entrepreneurial team to the

reader.• The entrepreneur expects that a summary plan will lead to the full business plan

being called upon.

Single-page Snapshot• An interesting variation of executive summary is a single-page snapshot. • One has to be very careful before crafting a single page attempting to describe

the entire business idea.• Only selective highlights can be presented and these highlights may not be able

to properly address the concerns of the readers.• None the less, it is a great presentation tool if done properly.

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Full Business Plan• If you are planning on raising a lot of money, a 30 to 40 page

full business plan is very useful aid.• It helps clarify complicated business models and complex

operations to potential financiers.• It contains all relevant and some irrelevant information

about the proposed business.• It is enriched by a number of exhibits, which present market

analysis, financial and sales forecasts, and technical reports.• All assumptions, risks, and critical factors are laid out in this

business plan for the reader to evaluate.

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Operational Business Plan• An operational business plan becomes important once operations

commence.• This business plan is envisaged as a source of guidance to

managers and other employees.• It serves as a manual on company operations. • It helps managers understand the goals of the company and

directs them towards their role in achieving the goals.• The operational business plan can be very lengthy, maybe even

100 pages and it is likely to have a number of detailed exhibits.• It may also be a good idea to keep revising the operational

business plan from time to time.

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Oral Presentation• It is a very good idea to plan an oral

presentation in which you summarize the business plan and present its significant points.

• A twenty minute oral presentation will suffice.• The presentation should be carefully

structured and a script can be prepared.

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Key sections in a Business Plan• Executive Summery• The company• The management team• The industry and the market• Operations• The marketing plan• Financial Plan• Risk and contingencies• Appendices

• Depending upon the business idea, some of these sections can be dropped, or there can be some entirely different sections too.

A good business plan should not only concentrate on the strengths of the business but also make a realistic assessment of its risks and shortcomings too. Then only will it make a convincing presentation of the company’s worth.

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Importance of Executive Summary• An executive summary is not an abstract of the business plan

and it is certainly not a preface.• It is designed to be complete yet concise business plan by itself.• In a number of B-plan competitions around the world, the

finalists are short-listed on the basis of their executive summary.• A full business plan is required to be submitted only by the short-

listed finalists.• There are some entrepreneurs who first make the executive

summary and then use that as a base for making a detailed business plan.

• Then there are others who first make the detailed business plan and then summarize the important points to make an executive summary.

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Importance of Executive Summary• Include the key strengths of the business: Why you feel that

the business will be successful.• Reasons could be: competent management team, location

advantages, proprietary intellectual property, and many other such factors.

• State some obvious risks and then outline the steps you are taking to mitigate the risks.

• Include numbers: If there are some dramatic cost advantages, then that should be presented in detail.

• If the projections are very attractive, they should be presented and explained in detail.

• It should be able to capture the attention of the reader.

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Description of the Business• History:

• Current Status:

• Future:

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Description of the Business• History:• A start-up is unlikely to have a history of any

significance but it might be relevant to mention some details of the origin of the business idea such as what led to the idea, when was the company formed and who were the initial supporters.

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Description of the Business• Current Status:• Many times, some efforts would have already made towards

establishing the company.• The company may be registered, land may have been

acquired, some amount of product development may have been carried out, and some key employees may already be in place.

• The fact that operations have already started can also serve to demonstrate commitment on the part of the entrepreneurs.

• This subsection will have comprehensive details about current status of the organization, including its legal entity, place of operation, current size, etc.

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Description of the Business• Future: (Projections should be realistic)• Most important subsection to the reader.• Give the reader a sense of direction the company is going to

take in the coming years.• The company’s future should make sense with reference to

the history of the industry and the capabilities of the start-up.

• A company that projects sales increase of 50 % annually for the coming three years does not make a very convincing case if the start-up is not able to articulate any great competitive advantage and during the previous ten years, industry sales have never gone up more than 10% in a particular year.

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Project Report by Consultants• Chartered accountants and other consultants in

cities across India offer project-report making as a service.

• Often, it does not just involve writing a project report or a business plan but also involves presenting the report or plan to the bank and getting the loan sanctioned.

• The consultants may charge a fixed rate, a success fee, or a mix of both.(usually, the success fee is about 2 percent)

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Project Report by Consultants• The consultants may charge a fixed rate, a

success fee, or a mix of both.(usually, the success fee is about 2 percent)

• Sometimes, the success fee can go up to 10 percent or more.

• In such cases, it is clear to both the consultant and the client that the business plan is not good and that the entrepreneur has no intention of seriously doing the business.

•

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The Management Team• While gauging the viability of the start-up, financiers and venture capitalists

focus special attention on the entrepreneur.• They look for the following characteristics from the entrepreneur:

– Technical and professional qualifications– Quality work experience– Experience in the relevant sector– Reputation in the business community– Moral integrity– Financial capacity– Networking with other vital people in the industry

• They are certainly unlikely to find all of the above traits in a single entrepreneur, but every entrepreneur can have his/her own way of prioritizing the above qualities

• This section should present all the strengths of the entrepreneur.• It is good to include a short summary bio-data as a paragraph and then

include a detailed CV as an exhibit.

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The Management Team• This section should present all the strengths of the entrepreneur.• If more than one entrepreneur involved in the start-up, all should

find mention in this section.• In case of some senior employees with good experience in the

sector, they should also be pointed out.• This section can declare any distinguished external consultants

being engaged by the company to help with specific activities.• In case of private-limited company, it may be relevant to talk

about the constituents of the formal board of directors.• It should include the roles and responsibilities of various people

in the organization(organization chart as an exhibit).• Compensation packages being offered to key members of the

management (linked to the long-term well being of the venture).

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Industry and The Market

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Operations

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Marketing Plan

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B-Plan Software• There is a number of software programs that aid you in making a business

plan. • Many of these such as the Business Plan Workbook, Fast Track Business

Plan, and the Ultimate Business Plan Starter are available free on the Net.• One of the leaders in this field is Business Plan Pro by Palo Alto Software.• Currently, the company sells a standard version for $99 and a premium

version for about twice of this price.• Critics of B-Plan software claim that using such a software product tends

to standardize B-Plans and their individuality is lost.• On the other hand, this software will give you access to over 500 sample

business plans and over 9000 industry profiles.• I f not anything else, it certainly adds to the perspective of the

entrepreneur.• Also, using a template means you are less likely to omit any important

aspects of the B-Plan.

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Finance

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Risk and Contingencies

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Appendices