business plan

Business Plan Development

February 25, 2011

Dr. Dawn G. GreggInterim Administrative Director &Associate Professor Bard Center for Entrepreneurship

Agenda

• Importance of Planning

• Value of the Business Plan

• Information Needs

• Business Plan Structure

• Implementing the Plan

• Why Business Plans Fail

Importance of Planning

• Plans: provide guidance and structure to management in a rapidly changing market environment. Extremely important in early stages of a new

venture.

Importance of Planning

• Become finalized as entrepreneur has a better sense of: Market. Product or services to be marketed. Management team. Financial needs of the venture.

• Helps meet short-term or long-term business goals.

The Business Plan

• Written document describing all relevant internal and external elements, and strategies for starting a new venture. A road map for the business. An integration of functional plans. Addresses short-term and long-term decision

making for the first three years.

Value of the Business Plan

• Valuable to the entrepreneur, potential investors, or even new personnel.

• It is important to these people because: Helps determine viability of the venture in a

designated market. Provides guidance to the entrepreneur in

organizing his or her planning activities. Serves as an important tool in helping to obtain

financing.

Value of the Business Plan

• The thinking process required to complete the plan is a valuable experience for the entrepreneur. Provides a self-assessment by the entrepreneur. Forces the entrepreneur to bring objectivity to the idea. Helps consider obstacles that might prevent the venture

from succeeding. Similar to role playing. Allows to plan ways to avoid such obstacles.

Evaluating the Plan

• The business plan must address: Strengths of management and personnel. Product or service. Available resources.

• Entrepreneur prepares a first draft of the business plan from a personal viewpoint but also consider Lenders & Investors

Lenders and Investors

• Lenders: Primarily interested ability of the new venture to

pay back the debt.

• Banks: Want facts with an objective analysis.

Lenders and Investors

• Investors, particularly venture capitalists, have different needs: Place more emphasis on the entrepreneur’s

character Spend much time conducting background

checks. Investors will also demand high rates of return.

Information Needs

• Before you begin writing your plan, consider four questions: What service or product does your business

provide and what needs does it fill? Who are the potential customers for your

product or service and why will they purchase it from you?

How will you reach your potential customers? Where will you get the financial resources to

start or run your business.

Feasibility Study

Information for a feasibility study should focus on:

•Marketing.•Finance. •Production.

Operations Information Needs

• Entrepreneur may need information on: Location Manufacturing operations Raw materials Equipment Labor skills Space Overhead

Business Plan Sections

• Table of Contents

• Executive Summary

• Business Description & Vision

• Competitive Analysis

• Description of Products and Services

• Marketing & Sales Strategy

• Organization & Management

• Financial Management

• Appendices

Executive Summary

• Most important section of the plan.

• Should be written last.

• Provides an enthusiastic snapshot of your company, explaining who you are, what you do and why.

• Should be less than 2 pages.

Description of Venture

• Provides complete overview of the product(s), service(s), and operations: Mission statement. Important factors that provide a clear

description and understanding of the business venture.• Product(s) or service(s). • Location and size of the business.• Personnel and office equipment needed.• Background of the entrepreneur(s).• History of the venture.

Competitive Analysis

•Environmental analysis: assessment of external uncontrollable variables that may impact the business plan. Examples: Economy, culture, technology, legal

concerns,

• Industry analysis: reviews industry trends and competitive strategies. Examples: Industry demand, competition

Critical Issues for Competitive Analysis

• How will your business operation be better than this?

• Are the sales of each of your major competitors growing, declining, or steady?

• What are the strengths and weaknesses of each of your competitors?

• What trends are occurring in your specific market area?

• What is the profile of your customers?• How does your customer profile differ from that of

your competition?

Critical Issues for Competitive Analysis

• What are the major economic, technological, legal, and political trends on a national and an international level?

• What are total industry sales over the past five years?

• What is anticipated growth in this industry?• How many new firms have entered this industry

in the past three years?• What new products have been recently

introduced in this industry?• Who are the nearest competitors?

Description of Products & Services

• Identify and describe all products and services.

• Identify and explain product pricing.

• Describe how your products and services are competitive.

• Reference applicable graphics and brochures (in Appendix).

Marketing & Sales Strategy

• Research is the foundation of marketing. Who are my customers and potential

customers? Where do they live? Am I offering the kinds of goods or services

they want at the best place, at the best time, and in the right amounts?

Are my prices consistent with what buyers view as the product's value?


• Describes market conditions and strategy related to how the product(s) and service(s) will be distributed, priced, and promoted.

• Describes: Marketing research evidence. Specific forecasts for a product(s) or service(s). Budget and appropriate controls needed for

marketing strategy decisions.


This section of the plan could include a SWOT analysis to summarize your Strengths, Weaknesses, Opportunities and Threats that could influence your marketing strategy.

Strengths Weaknesses

Opportunities Threats


• A marketing strategy built with the marketing mix -- 4Ps: pricing promotion products place

• Potential investors regard the marketing plan as critical to the success of the new venture.

Organization & Management

• Description of how the company is organized.

• Legal form of ownership.

• Explanation of how things get done.

• Required licenses and permits.

• Bio description of key company managers.

Assessment of Risk

• Identifies potential hazards and alternative strategies to meet business plan goals and objectives.

• Assessment of risk should be based on: Potential risks to the new venture. Discussion of what might happen if risks

become reality. Strategy employed to prevent, minimize, or

respond.

Assessment of Risk

• Major risks for a new venture could result from: Competitor’s reaction. Weaknesses in marketing/ production/

management team. New advances in technology.

Financial Plan

• Projections of key financial data that determine economic feasibility and necessary financial investment commitment.

• Three financial areas: Summarize the forecasted sales and the

appropriate expenses for at least the first three years.

Cash flow figures for three years. Projected balance sheet.

Financial Plan

• Balance Sheet Assets - Liabilities = Net Worth Measures business value Snapshot in time

Financial Plan

• Income Statement Revenue – Expenses = Profit/Loss Measures how a business has performed over

a specific period of time

Financial Plan

• Cash Flow Statement Monthly statement of cash on hand, incoming

cash and expenses. Used to determine projected working capital

availability and shortages.

Financial Plan

• For a New Business Estimate of start-up costs Projected balance sheet (1 year forward) Projected income statement (1 year forward) Projected cash flow statement (12 months

forward)

Financial Plan

• For an Existing Business Balance sheets (last 3 years) Income statements (last 3 years) Cash flow statement (12 months)

Appendix

• Company brochures• Resumes of key employees• List of business equipment• Copies of press articles and advertisements (if

available)• Pictures of your business location and products• Information and/or data supporting the growth of

your industry and/or products• Key business agreements, such as lease,

contracts, etc.

Implementing the Business Plan

• Implementation of the strategy contain control points to: Ascertain progress. Initiate contingency plans if necessary.

Implementing the Business Plan

• Without good planning: Entrepreneur is likely to pay an enormous price. Employees will not understand the company’s

goals.

• Businesses fail due to entrepreneur’s inability to plan effectively.

Measuring Plan Progress

• Entrepreneur should frequently check on: Profit and loss statement. Cash flow projections. Inventory control. Production control. Quality control. Sales control. Disbursements. Web site control.

Updating the Plan

• Entrepreneurs must: Be sensitive to changes in the company,

industry, and market. Determine what revisions are needed If

changes are likely to affect the business plan.

• Helps entrepreneurs: Maintain reasonable targets and goals Keep the new venture on a course to high

probability of success.

Why Business Plans Fail

• Goals set by the entrepreneur are unreasonable.

• Goals are not measurable.

• Entrepreneur has not made a total commitment to the business.

• Entrepreneur has no experience in the planned business.

• Entrepreneur has no sense of potential threats or weaknesses to the business.

• No customer need was established for the proposed product or service.

Sources

• Hisrich, Robert, Peters, Michael and Shepherd, Dean (2007). Entrepreneurship, 7th edition, Irwin/McGraw-Hill, New York, New York.

• FDIC Small Business Resources, “Developing a Marketing Plan” available at: http://www.fdic.gov/about/diversity/sbrp/index.html

• Small Business Administration, “How To Write A Business Plan” available at: http://www.sba.gov/category/navigation-structure/starting-managing-business/starting-business/writing-business-plan