develop a business planpshs.psd202.org/documents/apeters2/1521046033.pdf · 2018-03-14 · develop...

Entrepreneurship: Ideas in Action© Cengage Learning/South-Western

Chapter

Develop a Business Plan

3.1 Why a Business Plan is Important

3.2 What Goes into a Business Plan?

3


Chapter 3

Slide 2

The Business Plan

• business plan

• a written document that describes all the steps necessary for opening and operating a successful business

• A business plan will:

• describe what your business will produce

• how you will produce it

• who will buy your product or service


• explain who will run your business and

who will supply it with goods

• how your business will win over

customers from competitors

• what your business will do to keep

customers

• provide detailed financial information

that shows how your business will

succeed in earning a profit

Chapter 3

Slide 3


• Writing a business plan is one of the

most difficult and important things you

will do as an entrepreneur.

• The plan can make or break your

business.

• The business plan will serve as a guide

for you as you get your business

started

Chapter 3

Slide 4


Chapter 3

Slide 5

Three Main Purposes of a

Business Plan

• A business plan:

• explains the idea behind your business

• how your product or service will be produced

and sold

• sets specific objectives and how you will

achieve them

• sales projections

• describes the experiences of the people

who will run the business


Chapter 3

Slide 6

Importance of a Business Plan

• A business plan:

• makes you think about all aspects of your

business

• may help you secure financing

• helps you communicate your ideas to

others

• can serve as a tool for managing your

business


Chapter 3

Slide 7

Make a list of problems that may

result for an entrepreneur who

doesn’t prepare a business plan.


Chapter 3

Slide 8

Basic Elements of a Business

Plan

• The three basic components of a

business plan are:

• introductory materials

• the main body

• will contain the bulk of the information about the

business idea

• provides details on how the business will

succeed

• the appendix


Chapter 3

Slide 9

• Introduction

• Marketing

• Financial Management

• Operations

• Concluding Statement

• The main body of a business plan

contains the following elements:


Chapter 3

Slide 10

Introduction Section

• The introduction should contain the following

information:

1. A detailed description of the business and its

goals

• describe how you came up with your idea can

help lenders, investors, and others understand

what your business is about

• Outline your short-term, medium-term, and

long-term goals.

• This section will provide you with direction and

focus for your business and activities.


1.1 Mission

The Basket of Goodies' mission is to create the finest gift baskets

available. We exist to attract and maintain customers. When we adhere

to this maxim, everything else will fall into place. Our products

and services will exceed the expectations of our customers.

1.2 Objectives

The objectives for the first three years of operation include:

To create a home-based company whose primary goal is to exceed

customer's expectations.

To increase the number of clients served by at least 20% per year

through superior performance and word-of-mouth referrals.

To develop a sustainable home business, surviving off its own cash

flow.

Chapter 3

Slide 11

Gift Basket Services MfrBasket of Goodies


Company Summary

BOG, soon to be located in Salem, OR will offer a wide range of

gourmet gift baskets, production as well as custom units. BOG will be

hand assembling the baskets out of premier ingredients, local when

possible. The business will be based out of Susan Presento's

home. Although this will be a home-based business, toward the end of

year one Susan will have an employee. If the business goes per the

forecasted plan, the business will achieve profits by the end of year one.

Chapter 3

Slide 12


Chapter 3

Slide 13

2. The ownership of the business and the legal

structure

• sole proprietorship, partnership, or a corporation

• if a partnership, who your partners are

• each legal form of business has an effect on how

the business works and makes profits



2.1 Company Ownership

The Basket of Goodies will be a sole proprietorship, owned by Susan

Presento.

Chapter 3

Slide 14


3. The skills and experience you bring to the

business

• This summary should emphasize all experience

you have that relates to the business, including

paid work experience, volunteer experience,

and any hobbies you have that relate to your

proposed business.

Chapter 3

Slide 15


Management Summary

BOG will be formed as a sole proprietorship, owned and operated by

Susan Presento. There is no compelling need to incorporate. The

advantage of incorporation would be limited liability, yet the

disadvantage would be the set-up costs and maintenance (tax

disadvantages). A comprehensive insurance policy should cover any

liability that BOG is exposed to.

Susan Presento, founder and owner, has a degree in communications

from the University of Portland. During her undergraduate years, Susan

worked at Nothstroms, perfecting her customer-centric perspective. After

graduation, Susan managed a flower shop in Salem. It was during these

three years that Susan gained her insight to the gift giving practices of

Oregonians. Susan also gained valuable management experience in her

work at the florist.

Chapter 3

Slide 16



4. The advantages you and your business

have over your competitors

• You should list your company’s advantages

over the competition. The advantages may

include the following

• Performance

• Quality

• Reliability

• Distribution

• Price

• Promotion

• Public image or reputation

Chapter 3

Slide 17


5.1 Competitive Edge

BOG's competitive advantage will be based on two factors, low overhead

which allows reasonable prices, and an unrelenting desire for the highest

quality product and service.

BOG's overhead is particularly low because it is a home-based

business. Most of the competition is based in retail shopping

areas. While they receive more walk-by traffic and therefore higher sales

numbers, their rent is a large monthly expense. BOG avoids this large

expense by having the business run out of Susan's home. Additionally,

Susan will be using a modified version of just-in-time (JIT) inventory and

assembling. Susan's husband passes by the 90% of Susan's vendors on

his way home from work and is able to pick up needed inventory. This

significantly lowers shipping and carrying costs for inventory. BOG will

have some of the standard baskets in stock for walk-by orders, but will try

not to have large amount in overhead.

Chapter 3

Slide 18



Unrelenting desire for the highest quality product and service. This

market space is already crowded, a mediocre gift basket service will not

succeed, so there must be some sort of differentiation. Susan only uses

the finest quality ingredients and can afford to because of her low

overhead. Additionally, she always follows the maxim that the customer

must be 100% satisfied. That means she is willing to lose money in the

short run if necessary to please a customer, confident that in the long

run that this is a wise business decision.

Chapter 3

Slide 19


Chapter 3

Slide 20

Marketing Section

• The marketing section of the business

plan should describe:

• Products and/or services

• Market

• Industry

• Location


1. Products/Services

• Describe your products and services and

explain how they differ from those already on

the market.

• Highlight any unique features and explain the

benefits customers will receive by purchasing

from your business.

Chapter 3

Slide 21


Products

BOG sells gourmet, hand-assembled gift baskets. Their premier

baskets are: smoked fish basket, fruit basket, pasta dinner basket,

and picnic basket that has caviar, crackers, fruit, and smoked

fish. BOG also offers a custom basket which allow customers to pick

items from a list and BOG will assemble the basket with their custom

ingredients.

For the customer baskets, BOG will provide a list of options grouped

into four different categories. The customer then chooses two items

from each of the four categories and the gift basket is made for

them. BOG highlights four previously mentioned premier baskets. In

addition to these, BOG will typically have one or two specials, often

seasonally based.

Chapter 3

Slide 22



2. Market

• You will explain whom your prospective

customers are, how large the market is for your

product or service, and how you plan to enter

that market.

• You should also explain how you plan to deal

with competition

Chapter 3

Slide 23


Market Analysis Summary

BOG will be going after two distinct market segments, individuals and

corporations. Both groups buy gift baskets as a goodwill gesture,

typically for different reasons. Individuals typically buy the baskets as a

present with over half of sales occur during holidays. Corporations buy

the baskets as presents as well, but usually for events unrelated to the

holidays. By going after both of these groups, sales will be less

seasonal (relative to if only the individuals were targeted).

There are many different "gift basket" retailers in Salem. BOG

will differentiate themselves through the use of premium ingredients in

their baskets. The gourmet baskets, coupled with a custom option and

reasonable prices (attributed to low overhead) will spell success for

BOG.

Chapter 3

Slide 24



4.1 Market Segmentation

BOG's has two distinct groups of customers, individuals and corporate

customers:

Individuals- The individuals are people who are looking to give a

friend, relative, colleague, etc., a gift basket as a gesture of

goodwill. These customers typically do not have a specific type of gift

basket in mind when they look at BOG's product offerings, they just

want to give a gift.

Corporate- The corporate customer is typically buying the basket for a

colleague at work, either as a sign of appreciation, for a special event,

or as a thank you for a customer. The corporate market can be further

broken down to banks, health care, employment gifts, real estate,

apartments, special events/promotions, corporate headquarters,

hotels/vacation resorts, and automobile dealerships.

Chapter 3

Slide 25


3. Industry

• External factors affecting your business, such

as high competition or a lack of certain

suppliers

• Growth potential of the industry, including

growth forecasts

• Economic trends of the industry

• Technology trends that may affect the industry

Chapter 3

Slide 26


4.2 Target Market Segment Strategy

BOG is focusing on individuals and corporate customers because they

are the largest segments of purchasers for gift baskets. Individuals are

the target purchaser of gift baskets. They purchase baskets typically as a

thank you in response for something the recipient did or just to be nice.

The gift basket is unmistakingly a gift so upon receipt there is no

ambiguity why it was sent or at least what it is trying to

accomplish. Within the individual category, women are 69% more likely

to be the purchaser of a gift basket compared to men. This is not to say

that women more often purchase gifts, it just indicates women are more

likely to buy gift baskets.

Chapter 3

Slide 27


Trends


Chapter 3

Slide 28

Market Analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Potential

CustomersGrowth CAGR

Individuals 8% 14,258 15,399 16,631 17,961 19,398 8.00%

Corporations 12% 298 334 374 419 469 12.01%

Total 8.09% 14,556 15,733 17,005 18,380 19,867 8.09%

Growth

Potential


BOG is focusing on the corporate customers as they currently

represent approximately a third of the purchasers of gift baskets. The

corporate customer could be buying the basket for someone within

their company, or they could be buying it for a customer, vendor, etc.

The trend for the corporation to purchase gifts is not a new

phenomenon and therefore would appear to be a solid market segment

to pursue.

4.3 Industry Analysis

There are many different forms of competition in the gift basket

business:

Similar gift basket type retail stores: There are several of these stores

located in Salem. These competitors offer a wide range of gift baskets,

however none of them are concentrating on the higher end, gourmet

product line.

Nut/fruit companies: There are several stores that concentrate on nuts

and or fruit baskets.

Chapter 3

Slide 29

Competition


Bath product gift basket companies: There is currently one gift basket

company that concentrates on bath products. Bath products have a

slightly smaller population of people who appreciate these products

(as women predominately appreciate bath products more then men

do).

Regional gift basket: There is one retailer that sells gift baskets

composed of local products. These type of baskets tend to appeal to

people that are buying gifts for people that are not from this area.

Candy gift baskets: There are several candy stores that offer, as one

on their products, a candy gift basket. Similar to the bath products

basket, candy typically appeals to women a bit more so then men.

Florists: Flowers are a similar product that competes with gift

baskets. Once again flowers tend to appeal to women more so then

men.

The purchasing of gift baskets is very "seasonal." More than half of

the gift basket purchasing occurs during a wide variety of holidays.

Chapter 3

Slide 30


4. Location

• Describe the location of your business

• Location of a business is often a critical factor

to its success

Chapter 3

Slide 31


Chapter 3

Slide 32

Financial Management Section

• Will help determine your financial needs

• It forces you to look at financial risks

and the costs and expenses of running

your business.

• Three elements

• Identification of risks

• Financial statements

• Funding request and return on investment


1. Identification of Risks

• Prospective lenders and investors will want to

know what risks your business faces and how

you plan to deal with them.

• Risks typically faced by new businesses

include competitors cutting prices, costs

exceeding projections, and demand for your

product or service declining

Chapter 3

Slide 33


5.1 Competitive Edge

BOG's competitive advantage will be based on two factors, low overhead

which allows reasonable prices, and an unrelenting desire for the highest

quality product and service.

1. BOG's overhead is particularly low because it is a home-based

business. Most of the competition is based in retail shopping areas. While

they receive more walk-by traffic and therefore higher sales numbers, their

rent is a large monthly expense. BOG avoids this large expense by having

the business run out of Susan's home. Additionally, Susan will be using a

modified version of just-in-time (JIT) inventory and assembling. Susan's

husband passes by the 90% of Susan's vendors on his way home from

work and is able to pick up needed inventory. This significantly lowers

shipping and carrying costs for inventory. BOG will have some of the

standard baskets in stock for walk-by orders, but will try not to have large

amount in overhead.

Chapter 3

Slide 34



2. Unrelenting desire for the highest quality product and service. This

market space is already crowded, a mediocre gift basket service will not

succeed, so there must be some sort of differentiation. Susan only uses

the finest quality ingredients and can afford to because of her low

overhead. Additionally, she always follows the maxim that the customer

must be 100% satisfied. That means she is willing to lose money in the

short run if necessary to please a customer, confident that in the long

run that this is a wise business decision.

Chapter 3

Slide 35


2. Financial Statements

• A new business must include projected

financial statements in its business plan

• A financial statement based on projected

revenues and expenses is called a pro forma

financial statement

• Break-even analysis

• Projected profit and loss

• Projected cash flow

• Projected balance sheet

Chapter 3

Slide 36


Chapter 3

Slide 37


7.2 Break-even Analysis

The Break-even Analysis indicates BOG will need to sell approximately

$4,900 in baskets per month to break even.


3. Funding request and Return on

Investment

• You must indicate how much you need to

borrow and how you plan to use the money.

• You should give investors an idea of how

much money they could expect to earn on

their investment in your business

• You should state how much money you are

personally investing and provide a personal

financial statement.

Chapter 3

Slide 38


Chapter 3

Slide 39



Chapter 3

Slide 40

Start-up

Requirements

Start-up Expenses

Legal $300

Stationery etc. $100

Brochures $200

Consultants $1,500

Office Supplies $100

General Supplies $250

Website Creation $500

Mailings $400

Total Start-up

Expenses$3,350

Start-up Assets

Cash Required $22,650

Start-up Inventory $0

Other Current Assets $0

Long-term Assets $2,000

Total Assets $24,650

Total Requirements $28,000

Start-up Funding

Start-up Expenses to Fund $3,350

Start-up Assets to Fund $24,650

Total Funding Required $28,000

Assets

Non-cash Assets from Start-up $2,000

Cash Requirements from Start-up $22,650

Additional Cash Raised $0

Cash Balance on Starting Date $22,650

Total Assets $24,650


Chapter 3

Slide 41

Operations Section

• Explain how the business will be managed on

a day-to-day basis and discuss hiring and

personnel procedures

• Include information on insurance and lease

or rental agreements

• Describe the equipment that will be

necessary for production


Management Summary

BOG will be formed as a sole proprietorship, owned and operated by

Susan Presento. There is no compelling need to incorporate. The

advantage of incorporation would be limited liability, yet the

disadvantage would be the set-up costs and maintenance (tax

disadvantages). A comprehensive insurance policy should cover any

liability that BOG is exposed to.

Chapter 3

Slide 42


Insurance


Susan Presento, founder and owner, has a degree in communications

from the University of Portland. During her undergraduate years, Susan

worked at Nothstroms, perfecting her customer-centric perspective. After

graduation, Susan managed a flower shop in Salem. It was during these

three years that Susan gained her insight to the gift giving practices of

Oregonians. Susan also gained valuable management experience in her

work at the florist. Susan will be relying on Robert Presento, her

husband to help out in the pick up of the ingredients of her

products. In addition to Robert's help, Susan will be using Jennifer

Simon who works in the purchasing department of a large

corporation. Jennifer will act as a consultant regarding the

purchasing habits of corporations, a niche of the industry that

Susan would like to be a part of.

Chapter 3

Slide 43

Day-to-day operations


6.1 Personnel Plan

The staff of BOG will consist of Susan working full time. Susan's

husband Robert will help with inventory procurement but will not be

listed on the payroll. Robert will be picking up inventory on his way

home from work occasionally and will not be billing BOG for his work.

Jennifer Simon will be a consultant for BOG for insight into the

corporate market. By month eight Susan will bring on board a part-time

employee. This employee will be used for the assembly of the baskets.

Chapter 3

Slide 44


2.2 Start-up Summary

BOG's start-up costs will include all the equipment needed for the home-

based office, legal fees, website creation, and start-up advertising. The

home office equipment will be the largest chunk of the start-up

expenses. This equipment includes a computer system, fax machine,

office supplies, cellular phone, and pager. The computer should have a

500 megahertz Celeron/Pentium processor, 64 megabytes of RAM

(preferably 128), 6 gigabyte hard drive, and a rewritable CD-ROM for

backing up the system. Additionally, there will be the expense

installation of a broadband connection. While a broadband connection is

not totally necessary, it only costs between $40-50 per month for service

and will make working on the Internet significantly faster and easier.

The home office will also require a few pieces of furniture such as a

desk, chair, and bookshelf to transform a standard room into an

office. Lastly, an additional land phone line will be required. The legal

fees are used for the formation of the business as well as for

reviewing/generating standard client contracts. The Web creation fees at

start-up costs are for design and creation of the website. The start-up

advertising will be the production of brochures.

Chapter 3

Slide 45

Equipment


Chapter 3

Slide 46

Concluding Statement Section

• Summarize goals and objectives.

• Emphasize your commitment to the

success of your business.


Chapter 3

Slide 47

Complete the Business Plan

• Introductory elements

• cover letter

• a letter that introduces and explains an

accompanying document or set of documents


Chapter 3

Slide 48


Chapter 3

Slide 49

• Table of Contents

• Statement of Purpose

• a brief explanation of why you are asking for a

loan and what you plan to do with the money

• Title Page


Chapter 3

Slide 50


Chapter 3

Slide 51

• a short restatement of the report

• is written last

• An executive summary should:

• compel the reader to continue reading

• describe your business concept

• include financial projections

• identify physical needs

• state the requested loan value

• Executive Summary


Executive Summary

Introduction

Basket of Goodies (BOG) is a premier gift basket retailer. BOG is

concentrating on making gourmet gift baskets out of a wide range of

high-quality ingredients. In addition to having several flagship baskets,

BOG will also offer the option of a custom basket allowing the customer

to choose the ingredients themselves. BOG will be selling to individuals

as well as corporations. Initially the bulk of BOG's business will be

generated by individuals from word-of-mouth referrals, but as time

passes, corporations will become a growing percentage of sales.

Once up and running with some momentum, BOG will be steadily

producing profits. It is projected that BOG will be making a profit by

December. By the end of year three, it is projected that BOG will be

generating a net profit of approximately $21,000.

Chapter 3

Slide 52


The Company

The Basket of Goodies' mission is to create the finest gift baskets

available. BOG, soon to be located in Salem, OR, will be hand

assembling our products out of premier ingredients, local when possible.

The business will be based out of Susan Presento's home. Although this

will be a home-based business, toward the end of year one Susan will

have an employee.

Susan Presento, founder and owner, managed a flower shop in Salem

for three years and this has given her insight to the gift giving practices

of Oregonians. The primary gift baskets that will be offered are: smoked

fish basket, fruit basket, pasta dinner basket, and picnic basket that has

caviar, crackers, fruit, and smoked fish. BOG also offers a custom

basket which allows customers to pick items from a list and BOG will

assemble the basket with its custom ingredients.

Chapter 3

Slide 53


The Market

The purchasing of gift baskets is very "seasonal." More than half of the

gift basket purchasing occurs during a wide variety of holidays.

BOG's competitive advantage will be based on two factors, low

overhead which allows reasonable prices, and an unrelenting desire for

the highest quality product and service.

Low overhead.

Highest quality product and service.

BOG's sales strategy will be targeted at obtaining both the individual and

corporate clients through word-of-mouth referrals. Customers will be

able to place an order at the office, over the phone or via the website.

Chapter 3

Slide 54


Financials

BOG's start-up costs will include all the equipment needed for the home-

based office, legal fees, website creation, and start-up advertising. The

home office equipment will be the largest chunk of the start-up

expenses. This equipment includes a computer system, fax machine,

office supplies, cellular phone, and pager. Additionally, there will be the

installation of a broadband connection, and furniture for the home office.

Total start-up expenses are expected to be $28,000, all of which will be

provided through Susan Presento's own equity.

The Break-even Analysis indicates BOG will need to sell approximately

$4,900 per month to break even. BOG expects to earn approximately

$14,000 in year two and $21,000 in year three.

Chapter 3

Slide 55


Chapter 3

Slide 56


Chapter 3

Slide 57

• includes supporting documents that provide additional information to support the body of the report

• Put It All Together

• The business plan should be:• neat

• attractive

• well organized

• inviting to read

• Appendix

develop a business planpshs.psd202.org/documents/apeters2/1521046033.pdf · 2018-03-14 · develop...

Documents