entrepreneurship and small business management chapter 4 the business plan: road map to success

Entrepreneurship and Small Business Management

Chapter 4The Business Plan:

Road Map to Success

© 2012 Pearson Education, Upper Saddle River, NJ 07458.

All Rights Reserved.2

Entrepreneurship and Small Business Management, 1/eBy Steve Mariotti and Caroline Glackin

Ch. 4 Performance Objectives

Know what a feasibility analysis is and when to create one.

Know what a business plan is and how to describe it.

Explain the various purposes for a business plan and the audience for it.

Understand the components of a business plan.

Be able to demonstrate proper development and formatting of a business plan.




What Is a Feasibility Analysis? A study to assist in making the

“go/no go” decision

Used to test a business concept in three areas: Product and/or service feasibility Market and industry feasibility Financial feasibility




Analyzing Product and/or Service Feasibility Can the product or service be

produced and delivered at a profit, in an ongoing manner?

Is there sufficient customer demand for the product or service?




Analyzing Market andIndustry Feasibility

How attractive is the opportunity in the proposed industry?

Do any strategic, defensible niches exist in the proposed market?




Porter’s Five Forces Analysis




Competitive RivalryFactors

Number of firms

Size of firms

Industry size/trend

Differentiation

More Attractive If…

Larger or fewer than five

Varied

Growing rapidly

Differentiation matters




Barriers to EntryFactors Capital requirements Cost advantage Economies of scale Switching costs Brand loyalty Distribution channels Public policies

More Attractive If… Low for entry Not based on firm size Minimal or absent Low cost to change suppliers Customer resistance to

change is low Channels established, but

open Policies do not impede entry;

may facilitate entry




Threat of SubstitutesFactors

Convenience

Substitute pricing

Supply of substitutes

Switching costs

Public policies


Not readily available

Prices not significantly lower

Supply is uneven or limited

High cost to change suppliers

Make substituting difficult or illegal




Supplier PowerFactors

Brand reputation

Substitutes for supplies

Switching costs

Impact of individual supplier on costs


Not critical

Easy substitution

Relatively low

Small portion of overall costs of finished products




Buyer PowerFactors Buyer size Number of buyers Product importance Delivery demands Switching costs Product

differentiations Information

availability

More Attractive If… Variable Large number of buyers Small part of costs of goods Restricted geographic area Relatively high More differentiation, fewer

commodities Hard for customers to

compare features and prices




Analyzing Financial Feasibility How much start-up capital is required? How much revenue is expected (based

on anticipated pricing and volume)? What are the expected costs?

Projected revenues, less projected costs, equals potential profit. Evaluate the return on the capital invested to make a “go/no go” decision.




What Is a Business Plan?

Document that thoroughly explains a business idea and how it will be carried out

Story of what the business is and will be

All costs and a marketing plan Description of financing Estimate of projected earnings




Why Create a Business Plan?

Saves time and money

Key to raising capital

Serves as an operations guide




Business Plan Components Cover page Table of contents Executive summary Mission, vision, and

culture Company

description Opportunity analysis Marketing strategy

and plan

Management and operations

Financial analysis and projections

Funding request Exit strategy Appendices




Cover Page and Table of Contents

Cover Page

Name of the business

Name of the principals

Date

Contact information

Confidentiality statement

Table of Contents

Include enough detail to easily find a section.

Avoid excessive detail which uses too many pages.




Executive SummaryShould Be: Clear—identify concept and purpose Concise—one to two pages long Comprehensive—answer basic who,

what, when, where, and how questions

Compelling—generate enthusiasm Written last




Mission, Vision, and Culture Mission—concise communication of

strategy with a business definition and competitive advantage; expressed in a statement

Vision—broad “picture” of what you want the organization to become

Culture—beliefs, values, and behavioral norms of the organization which will form the business “environment”




Company Description If company is already established…

Summary of company’s founding Overview of track record: business

progress and financial success If a start-up venture…

Brief background story What has been done so far, and why Legal form of the business




Opportunity Analysis Industry analysis—definition, size, and

growth/decline of the industry

Environmental analysis—how community, region, nation, world relates to the business

Proof of market—evidence of opportunity in terms of dollars and units




Opportunity Analysis(continued)

Target market segments—groups defined by common factors such as demographics, psychographics, age, and geography

Competitive analysis—comparison of the business to direct and indirect competitors




Marketing Strategy and Plan Marketing mix (the Four P’s)

Products/Services Pricing Promotion Place

Marketing plan—statement of marketing goals and the strategies to achieve them




Management and Operations Management team and employees Research and development Physical location(s) of facilities with

emphasis on logistics and workforce Production processes Inventory control systems Quality assurance methods




Financial Analysis and Projections

Sources and uses of capital

Cash flow projectionsCash flow statement shows cash receipts less cash disbursements over a time period

Balance sheet projectionsAssets = Liabilities + Owner’s Equity




Financial Analysis and Projections(continued) Income statements for three years

Also called profit and loss statements (P&L)

Summarize income and expense activity Breakeven analysis

Fixed Cost ($) ÷ Gross Profit per Unit ($) = Breakeven Units

Ratio analysis Risks and assumptions




Funding Request & Exit Strategy Amount of funds needed Type of financing, including terms Proposed exit scenarios, such as:

Buyout plan Initial public offering (IPO) Sold when benchmarks or date reached Succession plan

Implementation schedule (milestones)




Appendices Management resumes Specifications/photos/diagrams of

products and packaging Advertising and promotional

samples Detailed financial projections Other supportive materials




Business Plan Suggestions

Write for your audience. Show that you have “skin in the game.” Be clear and concise. Use current industry data and reports. Select a “voice” and stick with it. Use a consistent, easy-to-read format. Number and label items throughout the

plan. Present the plan professionally.




Presenting the Business Plan Presentations may be formal or informal. Presentation time may be limited to

between 5 and 20 minutes. Prepare an “elevator pitch” (15-30 sec.) Multimedia formats work well in formal

situations. Business plan competitions may provide

cash prizes and access to capital.

entrepreneurship and small business management chapter 4 the business plan: road map to success

Documents

business plan

pearson education

upper saddle river

eby steve mariotti

business concept

caroline glackinbarriers

caroline glackinporters

caroline glackinwhat