The Business Plan: Visualizing the Dream

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–1

Presented by Presented by Pawan VijayPawan VijayE-MAIL:- E-MAIL:- vijaypawan@in.comvijaypawan@in.com

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Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–2

Looking AheadLooking AheadLooking AheadLooking 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 venture’s 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 a business plan.

5. Maintain the proper perspective when writing a business plan.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–3

What Is a Business Plan?What Is a Business Plan?What Is a Business Plan?What Is a Business Plan?

• Business Plan

–A document that outlines the basic idea underlying a business and describes related startup considerations

• Identifies the nature and setting of the business opportunity

• Presents the entrepreneur’s game plan for exploiting the opportunity

• Where are we now, where do we want to go, and how will we get there? (Strategic Questions)

• Identifies factors most likely to affect the venture’s success or failure

• Serves as the entrepreneur’s tool for raising capital

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–4

The Need for a Business PlanThe Need for a Business PlanThe Need for a Business PlanThe Need for a Business Plan

• Primary Functions

–Provides a clear statement of goals and strategies for internal use

• Imposes discipline on the owner and management team

–Serves as a selling document to 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

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–5

Do We Need a Business Plan?Do We Need a Business Plan?Do We Need a Business Plan?Do We Need a Business Plan?

• It Depends on Our Environment…

– Is the environment too unpredictable for good planning?

• There isn’t any information available for planning purposes

• Accessible information is not reliable or trustworthy

• Information is not available in a timely fashion (we need it NOW!)

– Is timing critical?

• Will we miss out on this opportunity if we wait?

– Is ability to adapt more important than planning?

• Are we nimble and flexible; can we react quickly to changes?

– Are you a knowledgeable, logical, systematic thinker?

• Most of us need the discipline/logical structure that is inherent with writing a business plan in order to properly think through our ideas.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–6

Exhibit 6.1

Users of Business PlansUsers of Business PlansUsers of Business PlansUsers of Business Plans

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–7

Two types of Business PlansTwo types of Business PlansTwo types of Business PlansTwo types of Business Plans

• Summary Plan–A short form of a business plan that presents only the

most important issues and projections for the business•Useful in gauging investor interest •If there’s a great amount of uncertainty•it’s better than no plan at all

• Comprehensive Plan–A full business plan that provides an in-depth analysis

of the critical factors that will determine a firm’s success or failure (includes underlying assumptions)

•Describing a new venture opportunity (startup)•Facing a significant change in the business or

environment•Explaining complex business situations

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–8

How Much Business Planning is Needed?How Much Business Planning is Needed?How Much Business Planning is Needed?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

–Who will invest?

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–9

Telling the Story to OthersTelling the Story to OthersTelling the Story to OthersTelling the Story to Others

• Attracting Investors–A business plan must be an effective marketing

document that quickly captures investor interest.

• Understanding the Investor’s Perspective–Entrepreneurs are optimists, and focus on success–Investors are skeptics, and focus on potential failure.–Investors focus on break-even and positive cash flow.–Investors have a short attention span, and are easily

distracted by poor preparation, vague information, and a lack of convincing evidence.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–10

Features of Plans that Attract InvestorsFeatures of Plans that Attract InvestorsFeatures of Plans that Attract InvestorsFeatures 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.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–11

Business Plans that Attract Investors Business Plans that Attract Investors (cont’d.)(cont’d.)

Business Plans that Attract Investors Business Plans that Attract Investors (cont’d.)(cont’d.)

–Have believable financial projections with key data explained and documented

–Recognize the investors’ needs for required rates of return on investments.

–Demonstrate evidence of focus on a limited number of products or services

–Have a proprietary market position (competitive advantage) through patents, copyrights, and/or trademarks

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–12

Features of Plans Unattractive to Features of Plans Unattractive to InvestorsInvestors

Features of Plans Unattractive to Features of Plans Unattractive to InvestorsInvestors

• 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 substantial growth difficult.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–13

How to Write a Great Business Plan! - 1How to Write a Great Business Plan! - 1

W. Sahlman, Harvard Business Review, July/August 1997W. Sahlman, Harvard Business Review, July/August 1997

How to Write a Great Business Plan! - 1How to Write a Great Business Plan! - 1

W. Sahlman, Harvard Business Review, July/August 1997W. Sahlman, Harvard Business Review, July/August 1997

• We conservatively project….– We read a book that said we had to be a $50 million company in 5 years,

so we reverse engineered the numbers

• We took our best guess and divided by 2.– We accidentally divided by .5

• We project a 10% margin.– We did not modify any of the assumptions in the business plan template

that we downloaded from the internet

• The project is 98% complete.– To complete the remaining 2% will take as long as it took to create the

98% but will cost twice as much

• Our business model is proven…– If you take the evidence from the past week for the best of our 50

locations and extrapolate it for all the others

• We have a six-month lead…– We tried not to find out how many other people have a six-month lead

Exhibit 6.2

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–14

How to Write a Great Business Plan! - 2How to Write a Great Business Plan! - 2How to Write a Great Business Plan! - 2How to Write a Great Business Plan! - 2

• We only need a 10% market share– So do the other 50 entrants getting funded

• Customers are clamoring for our product…– We haven’t asked them to pay for it yet…all our current customers are

relatives

• We are the low-cost producer.– We haven’t produced anything yet, but we are confident we will be able to

• We have no competition…– Only IBM, Microsoft, and Apple have announced plans to enter the business

• Our management team has a great deal of experience…– Consuming the product or service

• A select group of investors is considering the plan.– We mailed a copy of the plan to everyone we could think of

• We seek a value-added investor– We are looking for a passive, dumb-as-rocks investor

• If you invest on our terms, you will earn a 68% return.– If everything that could ever conceivably go right does go right, you might

get your money backExhibit 6.2

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–15

Summary Features of a Successful Business Plan – Summary Features of a Successful Business Plan – 11

Summary Features of a Successful Business Plan – Summary Features of a Successful Business Plan – 11

• 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 appearance—not 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 company’s 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 or services.

• 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

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–16

Summary Features of a Successful Business Summary Features of a Successful Business Plan - 2Plan - 2

Summary Features of a Successful Business Summary Features of a Successful Business Plan - 2Plan - 2

• 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 venture’s 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 (cont’d)

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–17

Preparing a Business PlanPreparing a Business PlanPreparing a Business PlanPreparing 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 supporting evidence

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–18

Suggestions for Writing a Business Suggestions for Writing a Business PlanPlan

Suggestions for Writing a Business Suggestions for Writing a Business PlanPlan

• Provide a table of contents and section tabs.

• Use a loose-leaf binder in case of revisions.

• Use visual aids—graphs, 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.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–19

Deciding on the Content of a Business Deciding on the Content of a Business PlanPlan

Deciding on the Content of a Business Deciding on the Content of a Business PlanPlan

• Factors that help determine the content of a business plan for a startup:–The entrepreneurial team–The opportunity–The resources–The deal structure–The big picture

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–20

Good Opportunities Have Good “Fit”Good Opportunities Have Good “Fit”Good Opportunities Have Good “Fit”Good Opportunities Have Good “Fit”

Exhibit 6.4

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–21

Contents of a Business PlanContents of a Business PlanContents of a Business PlanContents of a Business Plan

• Title Page• Table of Contents• Executive Summary

–Synopsis–Narrative

• Vision and Mission Statement

• Company Overview

• Products and/or Services Plan

• Marketing Plan• Management Plan• Operating Plan• Financial Plan• Appendix of

Supporting Documents

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–22

Guiding Questions for Writing a General Overview of the Guiding Questions for Writing a General Overview of the CompanyCompany

Guiding Questions for Writing a General Overview of the Guiding Questions for Writing a General Overview of the CompanyCompany

• When and where is the business to start?

• What is the history of the company?

• What changes have been made in structure or ownership?

• In what stage of development is the company?

• What has been achieved to date?

• What is the company’s distinctive competence?

• What is the basic nature or activity of the company?

• What is its primary product or service?

• Which customers will be served?

• What is the company’s mission statement?

• What are the company’s objectives?

• What is the company’s form of organization?

• What are the current and projected economic states of the industry?

• Does the company intend to become a publicly traded company or an acquisition candidate?

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–23

Specialized Plans within the Business Specialized Plans within the Business PlanPlan

Specialized Plans within the Business Specialized Plans within the Business PlanPlan

• Products and/or Services Plan–Describes the product and/or service to be provided

and explains its merits

• Marketing Plan–Describes the user benefits of the product or service

and the type of market that exists–Convince me that a market exists for us!

• Management Plan–Describes the new firm’s organizational structure and

the backgrounds of its key players

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–24

Specialized Plans… (cont’d.)Specialized Plans… (cont’d.)Specialized Plans… (cont’d.)Specialized Plans… (cont’d.)

• Operating Plan–Offers information on how the product/service will be

produced and delivered, including descriptions of the new firm’s facilities, staffing, raw materials, and processing requirements

• Financial Plan–Provides an account of the new firm’s financial needs

and sources of financing and a projection of its revenues, costs, and profits• Pro forma statements—Reports that project a firm’s

financial condition

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–25

What Not to DoWhat Not to DoWhat Not to DoWhat 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 detailed

or incomplete–Hiding weaknesses–Overlooking the fatal flaw–Using bad grammar–Making the overall plan too long

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–26

Resources for Business Plan PreparationResources for Business Plan PreparationResources for Business Plan PreparationResources for Business Plan Preparation

• Computer-Aided Business Planning–Word processors–Spreadsheets–Specialized business plan software packages

• Professional Assistance–Attorneys–Marketing specialists–Engineering and production experts–Accounting firms–Incubator organizations–Small business development agencies

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–27

Keeping the Right PerspectiveKeeping the Right PerspectiveKeeping the Right PerspectiveKeeping the Right Perspective

• Good business plans don’t 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 as—if not more so

than—the finished product.

• The business plan represents what is anticipated; a good entrepreneur adapts the plan to fit the unexpected.

Submitted by Pawan, PGPSE Student of AFTERSCHOOOL 6–28

Key TermsKey TermsKey TermsKey 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