The Business Plan

The Business Plan :The Business Plan :Creating and Starting Creating and Starting

The VentureThe VentureMASTERS OF MANAGEMENT MASTERS OF MANAGEMENT

ADMINISTRATION(BIRLA ADMINISTRATION(BIRLA SCHOOL OF MANAGEMENT)SCHOOL OF MANAGEMENT)

Entrepreneurship Entrepreneurship

MASTERS OF MANAGEMENT MASTERS OF MANAGEMENT ADMINISTRATION(BIRLA ADMINISTRATION(BIRLA

SCHOOL OF MANAGEMENT)SCHOOL OF MANAGEMENT)

Entrepreneurship Entrepreneurship

Learning ObjectivesLearning Objectives To define what the business plan is, who prepares it, To define what the business plan is, who prepares it,

who reads it, and how it is evaluated.who reads it, and how it is evaluated. To understand the scope and value of the business To understand the scope and value of the business

plan to investors, lenders, employees, suppliers, and plan to investors, lenders, employees, suppliers, and customerscustomers

To identify information needs and sources for each To identify information needs and sources for each critical section of the business plan.critical section of the business plan.

To enhance awareness of the ability of the internet To enhance awareness of the ability of the internet as an information resource and marketing tool.as an information resource and marketing tool.

To present examples and a step by step explanation To present examples and a step by step explanation of the business plan.of the business plan.

To present helpful questions for the entrepreneur at To present helpful questions for the entrepreneur at each stage of the planning process.each stage of the planning process.

To understand how to monitor the business plan.To understand how to monitor the business plan.

Planning as Part of The Planning as Part of The Business OperationBusiness Operation

Planning is a process than never ends for a Planning is a process than never ends for a business.business.

It is extremely important in the early It is extremely important in the early stages of any new venture when the stages of any new venture when the entrepreneur will need to prepare a entrepreneur will need to prepare a preliminary business plan.preliminary business plan.

As the venture grow up to mature As the venture grow up to mature business, planning will continue … business, planning will continue …

Plan may be short term or long term, Plan may be short term or long term, strategic or operational.strategic or operational.

What is Business Plan?What is Business Plan? The business plan is a written document The business plan is a written document

prepared by the entrepreneur that prepared by the entrepreneur that describes all the relevant internal and describes all the relevant internal and external elements and strategies for external elements and strategies for starting a new venture.starting a new venture.

It is a integration of functional plans such It is a integration of functional plans such as marketing, as marketing,

finance, finance, manufacturing, manufacturing, sales and sales and human resources.human resources.

Definition-Business PlanDefinition-Business Plan

Document that can convince the Document that can convince the reader that the business can produce reader that the business can produce enough revenue to make a enough revenue to make a satisfactory profit and therefore satisfactory profit and therefore attractive as an investment attractive as an investment opportunityopportunity

Who should write the plan?Who should write the plan?

The business plan should be The business plan should be prepared by the prepared by the entrepreneurentrepreneur..

The entrepreneur may consult with The entrepreneur may consult with many other sources in its many other sources in its preparation, such as preparation, such as lawyers, lawyers, accountants, accountants, marketing consultants and engineers.marketing consultants and engineers.

Who is it for?Who is it for?

SelfSelf Investor/Venture capitalists Investor/Venture capitalists

DebtDebtEquityEquity

Key employeesKey employeesSignificant others ( suppliers, Significant others ( suppliers,

bankers…)bankers…)

Scope and Value of the Business Plan – Scope and Value of the Business Plan – Who Reads The Plans?Who Reads The Plans?

The business plan may be read by The business plan may be read by employees, employees, investors, venture capitalistsinvestors, venture capitalists bankers, suppliersbankers, suppliers customers, advisors, and consultantscustomers, advisors, and consultants & by the entrepreneur himself& by the entrepreneur himself

There are three perspectives should be There are three perspectives should be considered in preparing the plan :considered in preparing the plan : Perspective of the entrepreneurPerspective of the entrepreneur Marketing perspectiveMarketing perspective Investor’s perspectiveInvestor’s perspective

Scope and Value …Scope and Value …

The business plan is valuable to the The business plan is valuable to the entrepreneurentrepreneur, , potential investorspotential investors, or , or even new even new personnelpersonnel, who are trying to familiarize , who are trying to familiarize themselves with the venture, it goals, and themselves with the venture, it goals, and objectives.objectives.It helps determine the viability of the It helps determine the viability of the

venture in a designated marketventure in a designated marketIt provides guidance to the entrepreneur in It provides guidance to the entrepreneur in

organizing his or her planning activitiesorganizing his or her planning activitiesIt serves as an important tool in helping to It serves as an important tool in helping to

obtain financing. obtain financing.

How do Potential Lenders and How do Potential Lenders and Investors Investors Evaluate The PlanEvaluate The Plan??

Four Cs of Credit:Four Cs of Credit:CharactersCharactersCash flowCash flowCollateralCollateral Contribution of Contribution of

Equity Equity

Another …Another …MarketableMarketablePayback Payback

periodperiodRiskRiskFeasibility, etcFeasibility, etc

Presenting The PlanPresenting The Plan

It is often necessary for an entrepreneur to It is often necessary for an entrepreneur to orally present the business plan before an orally present the business plan before an audience of potential investors.audience of potential investors.

In this typical forum the entrepreneur In this typical forum the entrepreneur would be expected to provide a short would be expected to provide a short (perhaps 20-minutes or half-hour) (perhaps 20-minutes or half-hour) presentation of the business plan.presentation of the business plan.

Information NeedsInformation Needs Before committing time and energy to Before committing time and energy to

preparing a business plan, preparing a business plan, the entrepreneur should do a quick feasibility the entrepreneur should do a quick feasibility

study of the businessstudy of the business concept concept The information, obtainable from many sources The information, obtainable from many sources

should focus on should focus on marketing (segmenting, targeting, and marketing (segmenting, targeting, and

positioning),positioning), finance (list of all possible expenditures, finance (list of all possible expenditures,

demand forecast, revenue), demand forecast, revenue), and production (location, manufacturing and production (location, manufacturing

operations, raw materials, equipment, operations, raw materials, equipment, labor skills, space, overhead) .labor skills, space, overhead) .

Internet can be a valuable resource. Internet can be a valuable resource.

Outline of a Business PlanOutline of a Business Plan

Introductory PageIntroductory PageName and address of businessName and address of businessName(s) and address(es) of principal(s)Name(s) and address(es) of principal(s)Nature of businessNature of businessStatement of financing neededStatement of financing neededStatement of confidentially of reportStatement of confidentially of report

Outline …Outline …

Executive SummaryExecutive Summary – Three to four – Three to four pages summarizing the complete business pages summarizing the complete business planplanWhat is the business concept or model?What is the business concept or model?How is this business concept or model How is this business concept or model

unique?unique?Who are the individuals starting this Who are the individuals starting this

business?business?How will they make money and how How will they make money and how

much?much?

Outline …Outline … Environmental and Industry AnalysisEnvironmental and Industry Analysis

Future outlook and trendsFuture outlook and trends Analysis of competitorsAnalysis of competitors Industry and market forecastsIndustry and market forecasts

Description of VentureDescription of Venture Product(s)Product(s) Service(s)Service(s) Size of businessSize of business Office equipment and personnelOffice equipment and personnel Background of entrepreneursBackground of entrepreneurs

Outline …Outline …

Production PlanProduction Plan Manufacturing process (amount Manufacturing process (amount

subcontracted)subcontracted) Physical plantPhysical plant Machinery and equipmentMachinery and equipment Names of suppliers of raw materialsNames of suppliers of raw materials

Operational PlanOperational Plan Description of company’s operationsDescription of company’s operations Flow of orders for goods and/or servicesFlow of orders for goods and/or services Technology utilizationTechnology utilization

Outline …Outline … Marketing PlanMarketing Plan

PricingPricing DistributionDistribution PromotionPromotion Product forecastsProduct forecasts ControlsControls

Organizational PlanOrganizational Plan Form of ownershipForm of ownership Identification of Identification of

partners or principal partners or principal shareholdersshareholders

Authority of Authority of principalsprincipals

Management-team Management-team backgroundbackground

Roles and Roles and responsibilities of responsibilities of members of members of organizationorganization

Outline …Outline …Assessment of RiskAssessment of Risk

Evaluate weakness of businessEvaluate weakness of businessNew technologiesNew technologiesContingency PlansContingency Plans

Outline …Outline …Financial PlanFinancial Plan

Pro forma income statementPro forma income statementCash flow projectionsCash flow projectionsPro forma balance sheetPro forma balance sheetBreak-even analysisBreak-even analysisSources and applications of fundsSources and applications of funds IRR and NPV projectionsIRR and NPV projectionsBudgetBudget

Outline …Outline …

Appendix (contains backup material)Appendix (contains backup material)LettersLettersMarket research dataMarket research dataLeases or contractsLeases or contractsPrice lists from suppliers.Price lists from suppliers.

Using and Implementing The Using and Implementing The Business PlanBusiness Plan

The business plan is designed to guide The business plan is designed to guide the entrepreneur through the first year the entrepreneur through the first year of operations.of operations.

Implementation of the strategy contain Implementation of the strategy contain control point to ascertain progress and control point to ascertain progress and to initiate contingency plan if necessary. to initiate contingency plan if necessary.

Measuring Plan ProgressMeasuring Plan Progress Entrepreneur should check Entrepreneur should check

the profit and loss statement,the profit and loss statement, cash flow projections, and cash flow projections, and information on inventory, production, quality, sales, information on inventory, production, quality, sales,

collection of accounts receivable, and disbursements collection of accounts receivable, and disbursements for the previous month.for the previous month.

Inventory controlInventory controlProduction controlProduction controlQuality controlQuality controlSales controlSales controlDisbursementsDisbursements

Updating the PlanUpdating the Plan

The most effective business plan can become out-The most effective business plan can become out-of-date if condition change.of-date if condition change.

If the change are likely to affect the business plan, If the change are likely to affect the business plan, the entrepreneur should determine what revisions the entrepreneur should determine what revisions are needed.are needed.

In this manner, the entrepreneur can maintain In this manner, the entrepreneur can maintain reasonable targets and goals and keep the new reasonable targets and goals and keep the new venture on a course that will increase probability venture on a course that will increase probability of success.of success.

Why Some Business Plans Why Some Business Plans Fails?Fails?

Goals set by the entrepreneur are unreasonable.Goals set by the entrepreneur are unreasonable. Goals are not measurableGoals are not measurable The entrepreneur has not made a total The entrepreneur has not made a total

commitment to the businesscommitment to the business The entrepreneur has no experience in the The entrepreneur has no experience in the

planned business.planned business. The entrepreneur has no sense of potential The entrepreneur has no sense of potential

threats or weaknesses to the business.threats or weaknesses to the business. No customer need was established for the No customer need was established for the

proposed product or service.proposed product or service.

Packaging the PlanPackaging the Plan

It is a ”living” documentIt is a ”living” documentNo right/wrong way: the need of No right/wrong way: the need of

reader is essentialreader is essentialWhat are the challenges/ questions What are the challenges/ questions

that can be raised by reader: answer that can be raised by reader: answer these. these.

Packaging the PlanPackaging the Plan

Include supporting materialsInclude supporting materialsDon’t make unsupported statementsDon’t make unsupported statementsDesignate an outside reviewer/ Designate an outside reviewer/

reader that can critique planreader that can critique plan