session 4 -1preparing a business plan
TRANSCRIPT
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Preparing a Business Plan
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Presentation Outline....
Establishing Priorities and doing Market Research
Conceptualizing your business Plan (Ten Questions thatyour Business Plan must answer)
Business Plan Types, format and contents
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Establishing Your Priorities
Writing a business plan is not the immediate task
Critically evaluating merits of opportunity is THE mostimportant thing you should do at outset
Gather hard facts to convince ...
yourself of the merits of spending more time on it
others to join you in the task (team and employees)
investors to back you
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Venture Opportunity Profile
Industry andMarket
Economic CompetitiveAdvantageIssue
ManagementTeam
Market Profit after tax Control over costs,price &distribution
Entrepreneurialteam
-need ROI Barriers to entry Industry andtechnicalexperience
-customer Capital
requirement
Legal advantage I
-user benefit-value added
Sales growth Contacts andnetworks
-product life Cash flow Key people
Market Size Break even
Growth rate
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Knowing Your Customer is Key Is there a group of customers that share common pains
for whom your product offers compelling, tangiblebenefits (better, cheaper, faster ...)
share a common problem (need) are aggravated by the problem (pain) no remedy on offer (relief)
The purpose of a business is to win a customerPeter Drucker
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Is My Market Attractive?
attractiveness and market size are closely related
larger markets often have many reasonably sized segments
growing markets also offer more room for competitors
emerging markets offer prospects for different approaches
For entrepreneurs seeking venture capital, look for targetmarkets that provide entrees into other market segments
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Is My Industry Attractive?
Michael Porter five forces framework ...
threat of entry
bargaining power of suppliers
bargaining power of customers
rivalry among existing competitors
threat of substitutes
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Doing Market Research to refine your
idea... Prioritize information needs based on using prototype business
designs to identify key assumptions Conduct expert interviews and gather market, customer and
business insights Develop a Secondary and primary research data gathering plan Conduct secondary data review and initial primary research
Revise assumptions and data gathering plan based on initiallearning.
Conduct further expert interviews, primary research andreview additional secondary data Review and revise business assumptions, initial strategy and
access viability of the business concept.
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Business Plan .
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Business Plans are written for at leastfive different reasons:
To help you understand an opportunity and what it willtake to exploit it
To recruit prospective partners and senior colleagues To monitor progress and keep you on track following
start-up
To rejuvenate and re-focus a business following start-up
To raise investment finance to support growth
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The Plan is Obsolete as Soon As Itis Written New discoveries are made, new products and
processes displace old
Prices change, competitors enter, partners leave,suppliers merge, buyers change, investors
commit
You learn something new
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The Concerns of the Investor
Does it create value for end users?
Is it a must buy so the end user is willing to
pay a premium? Is that must buy market
large?
high growth?
high margin? with significant barriers to entry?
Does the ventures team fit the opportunity?
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Ten Questions Your Business Plan Should Answer
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Question 1: Where Is Your Company Now?
At the outset investors need to know whether your company has
been incorporated; if yes when and by whom
completed a design or developed a prototype
developed or launched its first product/service
secured customer commitments or orders
generated any revenue; if so, how much, from where, etc.
secured finance from any source (including government grants)
Start by providing an engaging snapshot of where you have got to.
Underpin this with a compelling statement of who is involved and
what their experience, track record and commitment to business are.
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Question 2: What is your product / service?
Begin with a succinct description of the product/service proposition,then move on to set out
how the proposition is anchored in a real market opportunity the specific benefits and value that a customer will derive from using
the product
the way in which these benefits can be demonstrated and measured
why the customer will purchase on an ongoing basis
the distinctive advantages of your product and why it is a potentialwinner
At the outset it is essential to establish the link between the market
opportunity and your product or service.
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Typical mistakes at this stage include ...
being so close to the product that you cannot describe it clearly
providing excessive product detail - this can follow later
assuming that the customer benefits are self-evident - they may onlybe so to you!
failing to assess the durability of your advantage - how easily mightothers replicate it?
not demonstrating how your skills and those of your team positionyou to exploit the opportunity in a timely fashion
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Very early on in the plan you need to convey tothe reader a clear picture
This is the market opportunity
This is my product
These are the key benefits: the value proposition
This is the evidence that substantiates the value proposition
And these are the people who will make it happen - and why
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Question 3: What is your market?
Having understood your core proposition the reader wants a clearpicture of your market in terms of
market size market segmentation and niches
actual and projected growth rates in target market
geographic breadth and variation
market context - relevant environmental, regulatory, technological,demographic/social changes
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How do people make money in this market?
basis of competition - price, differentiation, range, discount
structure, etc. nature and number of substitutes (and near substitutes)
the ease or difficulty of gaining market entry
the margin opportunity - current and future
It is essential to demonstrate a real understanding of what makes the
market tick, why it is an attractive market, and why it will remain so
for some time.
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You then need to explain where in the marketyou will compete ...
choice of target market segment and rationale for this
precise description of target customers
key buying factors the purchasing process: who buys and over what time frame?
And howyou will compete
product positioning in the market: performance, image, quality, etc.
pricing and discount structure product support and service
customer retention strategy
scope for follow-on sales
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In addressing these issues beware of ...
market data unsupported by factual evidence
lack of basic, first-hand market research the risks inherent in under-pricing
equating a large, growing market with ease of gaining share
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You need to impart a clear understanding of ...
Market definition
Market attractiveness
Market focus:where you will compete
Market approach: how you will compete
Market position:your projected outcome
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Question 4: How will you reach the market?
Every new venture has to build a bridge to its market.
How is your bridge going to be constructed?
To answer this, you will need to define your strategy in respect of:
marketing and promotion
selling
distribution
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Marketing and Promotion: Making the product known, creatinginterest
mechanics of promotion - direct mail, advertising, platform work, trade fairs, editorial/mediacoverage
identifying target customers for promotion activities
your promotion budget and its uses
Selling: Converting interest into sales choice of sales method - in-house sales force, telemarketing, use of third parties
role of distributors, wholesalers and retailers
the mix of methods and their rationale
Distribution: Delivering to the customer order processing and fulfillment
physical stockholding and dispatch
use of third parties
projected volumes and variations
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Question 5: Who will you compete against?
Basic competitor analysis tells us about competitors
identity, size, financial results, etc. product range and performance
market reputation - quality, service, image
market positioning - price, support, selling methods
But this is only a photograph: what you (and everyone else) can see!
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The best business plans move beyond thesurface to address ...
how the dynamics of competition might evolve over time in terms ofprice, margin erosion, etc.
how existing competitors are likely to respond to your market entry
other potential entrants to the market
Typical weaknesses in this part of a business plan include
suggesting that the concept is so unique it has no competitors assuming that todays competitors will be tomorrows
focusing only on direct competition, not indirect and substitutes
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Question 6: How will your product be produced?
The operational part of the plan should set out ...
what is involved in producing the product or delivering the service resources required to do this: labour, material, facilities, etc.
capital expenditure - amount and phasing
which activities will be controlled in-house (eg. design or assembly)and which will be sub-contracted (eg. packaging)
what it will take to gear up production post start-up status of any agreements with suppliers
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In describing production and operations besure that you do not
overburden the reader with excessive detail assume technological knowledge on the readers part
use technical terms without explanation
imagine that the reader finds the production process as fascinatingas you (likely) do
ignore the risks associated with production, particularly as volumesbuild up post start-up
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Question 7: Who are the people?
The question with which most investors start. In describing yourselfand your team you need to focus on ...
directly relevant industry, market experience and skills
accomplishments and track record (P&L responsibility)
range, depth and quality of relevant contacts: customers, suppliers,key personnel and the like
experience that the team has had in working together status and nature of the commitment of both yourself and the team
key recruits still to be found
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In describing yourself and the team it is a
mistake to ...
conceal relevant information; the due diligence process will quicklyflush this out
disguise gaps in the portfolio of skills and expertise that you haveassembled
assign people to roles for which they are not fully equipped
Do remember that the section on management is not the only placewhere the team is presented. Use any opportunity in the plan todemonstrate your and the teams suitability to pursue the venture.
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Question 8: What are your financial
projections?
This part of the plan should focus on ...
core assumptions behind the financial model the link between these assumptions and your market data
key financial indicators - projected cash flow, maximum cashrequirement, summary profit & loss statement, balance sheet
your expected base case and rationale for it
the potential downside (what happens if the wheels fall off) andupside (what happens if it really takes off)
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Business plans often fall apart at this point...
too many spreadsheets
masses of indigestible financial date (in small fonts)
endless sensitivity analyses
disproportionate time devoted to the financials
Focus attention on articulating each core assumption, validatingeach assumption and demonstrating how it gives credence to yourbase case
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Question 9: How much money do you need?
Your summary financial projections will drive the fundingrequirement. For investors, the key issues are ...
how much money is needed
what it is need for: staff, premises, capital expenditures, research &development, market testing, and so on
when and in what stages it is required
the key milestones against which funds will be drawn down the form in which the finance is required
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Your prospective investor will also be interested in how he
will get his money back. You should therefore outline ...
the projected timetable for the business to achieve lift off
target time to break even, generate positive cash and profit
the most likely exit route
valuations achieved by comparable businesses
Do not feel obliged to propose a deal in the plan. Work out what thismight look like but keep it in reserve.
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Question 10: What are the risks?
Risk is inherent in starting a business. Your aim is to identify andminimize all potential risks .
list all risks relevant to key aspects of the business: product/service,market, technology, management team
identify those risks that are more/less critical
work out precisely what you can do to ameliorate key risks
keep refining the list - and your intended actions - until you are leftwith a clear summary of the core risks: i.e. those that present thegreatest threat but where you can do least to mitigate them, at leastbefore start-up
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Summary: 10 Questions
1. Where is the company now?
2. What is your product or service?
3. What is your market?
4. How will you reach the market?
5. Who will you be competing against?
6. How will your product be produced?
7. Who are the people?
8. What are your financial projections?9. How much money will you need?
10What are the risks?
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Three Types of Plans Summary Plan
10 pages, 3 important points
Comprehensive Plan 10-40 pages, seeking capital or alliances
Operational Plan
40+ pages, for going concerns, part of an annualprocess
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The Summary Plan The Business
Legal Structure, Products or Services,
Management, Personnel, Record Keeping Marketing
Target Market, Competition, Advertising
Financials Summary of Needs, Use of Funds, 3 Year CashFlow Projections, Income Projections
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Comprehensive Business Plan
Some Rules of Thumb The Expanded Executive Summary is written
last. (4 to 5 pages long)
A one page FACT sheet is used forintroductions.
An expanded Analysts Appendix will be addedlater
The appendix provides analyst:financialdetailed spreadsheets, contracts, full resumes,patents & marketing info.
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Contd
No paragraph longer than 6 or 7 lines Present key subjects in a table, chart or graph
Do not use we, our or I but use only the companyname or initials Write each Section with summary first then follow with
supporting detail (this is opposite of Univ. writing) Simple subject verb- adjective 8-12 grade writing
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Business Plan Sections
A. One Page FACT Sheet-Ex. Sum: Business Description:
Technology Description:
Proprietary Description: Regulatory Issues:
Market Size:
Sales & Profit Projections:
Customers: Funding:
Next Major Milestones:
Management Team:
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Business Plan Sections
B. Company History, Mission & Goals: What business
Quality, customer service & excellence
Technology Employees
Sales goals
Research & development
Overview of management, organization & product Industry & market trends
Milestones accomplished
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Business Plan Sections
C. Technology, Products & Processes: Product purpose & samples
Product features, design & pricing Product protection & life cycle
Actual market experience, beta tests, etc.
R&D plans
New Product applications, budget & timelines
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Business Plan Sections
D. Market Analysis: Target market size, segments & geography
Customer profiles History of market & expected growth
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Business Plan Sections
E. Competition Analysis: Types, classes, segments
Market share Product comparison & substitutes
Pricing & service
Ad & promotion analysis
Expected impact, reaction & risks
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creative insights
These aspects are the heart of plan
must be based on real investigation exhaust secondary sources
industry analysis trade associations
Trade periodicals
talk to potential customers (primary market research)
The investor wants to invest in professionallyimplemented creativity
but the investor is cynical
What about Govt. Approval?I t i li
How didyou calculate
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What is
The Fatal Flaw ?
Its not scaleable.
Wheres your manufacturing expertise?
Why not just sell the patent?
Why should I finance your lifestyle?
Im not convinced the consumer thinks he has a problem?
How much advertising can you buy for Rs.100,000?
Is there anything that is patentable?
Your distributors are family-run small businesses.How do you contact them?What about foreign competitors?
pp
What about App rovals.
Whats yourbreakeven ?
Who writes
your content?
What stops someone
producing it
for less?
How did you validate
your market
assumptions?
Product Liability will kill you
Portals dont
make money.
I cant visualize
your product.
you calculate
your market
size?
Who are
You guys??
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Business Plan Sections
F. Marketing Strategy: Segment differentiation
Features and Pricing Roll-out plan
Ads & promotions
Packaging Shipping & Distribution
Credit Policies/warranty/returns
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Business Plan Sections
G. New Product Applications:Vertical integration options
Features & new product development analysis
Budget, resources & timelines
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Business Plan Sections
H. Management: Key management, Board of Directors & advisors
Ownership & structure Policies & performance
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I . FINANCIALS
How Much $$$ Do I Need?
Determine start up
costs and estimatemonthly operatingcosts to determineyour working capital
needs
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Financial Plan THE PRIMARY EVALUATING TOOL
Support all information
Make conservative projections Start-up Budget: amount needed to open
Operating Budget: ongoing expenses once open
Sources and Uses Sheet
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Financing Your New Business
Start up loans are verydifficult to obtain
Chances are you have to
rely on the funds you canpersonally raise
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Methods of Financing
Personal funds
Family/ friend loans and gifts
Angel investor
Venture capital Grants
Personal loan
Business loan
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Financial Plan: Startup Budget Personnel (costs prior to opening) Occupancy (lease, rent, or mortgage) Legal/ Professional Fees
Equipment Supplies Salary/ Wages Utilities Payroll Expenses Internet Licenses/ Permits Insurance Advertising/ Promotions
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Financial Plan: Operating Budget
Personnel Lease/ Rent/ Mortgage Loan Payments
Legal Fees Accounting Supplies Salaries/ Wages Dues/ Subscriptions/
Fees Repairs/ Maintenance
Insurance Advertising/ Promotions Depreciation
Payroll Expenses Internet Travel/ Entertainment Miscellaneous 3-6 Months of Operating
Capital
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Financial Plan: Sources and Uses
Sources of funds
Details of requested financing
Amount Use
Terms
SOURCES & USES OF FUNDS
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SOURCES & USES OF FUNDS
SOURCES OF FUNDS
INVESTMENT CAPITAL
Cash on Hand
Investment by Founder
Investment by Others
Incentives and Grants
DEBT CAPITAL
Bank Business Loan
Bank Personal Loan
SBA Guaranteed Loan
Other Loans
TOTAL
APPLICATION OF FUNDS
Rent & Security Deposits
Equipment/ Fixtures
Leasehold Improvements
Initial Inventory
Working CapitalInsurance
Professional Fees
Advertising
Signage
Contingency Reserve
TOTAL
CASH FLOW PROJECTION
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CASH FLOW PROJECTION Year OneMonth 1 2 3 4 5 6 7 8 9 10 11 12 Total
Cash In-Flows
Sales
Other Income
Total In-Flows
Cash Out-Flows
Cost of Goods Sold
Rent/ Mortgage
Owner's Salary
Other Salaries
Advertising/ Promotion
Utilities
Loan Payments (current)
Loan Payments (previous)
TelephoneOffice Expense
Dues/ Subscriptions
Accounting
Insurance
Professional Fees
Internet
Repairs/ Maintenance
Licenses/ Permits
Travel/ Entertainment
Legal FeesBank Charges
Miscellaneous
Total Out-Flows
Beginning Cash Balance
Ending Cash Balance
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Pro-Forma Income Statement
Year 1 2 3
Sales
Less: Cost of Goods Sold
Gross Profit
Operating Expenses
Rent/ Mortgage
Owner's Salary
Other Salaries
Payroll Taxes
Advertising & Promotion
Telephone
Office ExpenseDues and Subscriptions
Accounting
Insurance
Professional Fees
Internet
Repairs & Maintenance
Licenses & Permits
Travel & Entertainment
Legal FeesBank Charges
Miscellaneous
Depreciation
Amortization
Interest
Total Operating Expenses
Net Profit Before Taxes
P F B l Sh t
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Pro-Forma Balance Sheet(Opening Day of Business)
CURRENT ASSETS
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Other Current Assets
TOTAL CURRENT ASSETS
FIXED ASSETS
Land
Leasehold Improvements
Equipment
Vehicles
Other Fixed Assets
Subtotal Fixed Assets
Less: Accumulated Depreciation
TOTAL FIXED ASSETS
TOTAL ASSETS
CURRENT LIABILITIES
Accounts Payable
Short-Term Debt
Accrued Expenses
Other Current Liabilities
TOTAL CURRENT LIABILITIES
LONG-TERM DEBT
OWNER'S EQUITY
Paid-In Capital
Retained Earnings
TOTAL OWNER'S EQUITY
TOTAL LIABILITIES & OWNER'S EQUITY
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Appendices
May Contain Short CVs of team and profiles of partners
Contracts, patents, correspondence
Pictures of product
Market research details
Rollout schedule
Pro-formas, assumptions and sensitivities
state fully sources of each data item Reader should be able to trace logic from rawdata in appendix to statements in body
Summary Slide
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planning
Summary Slide
C l i
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Conclusion
Entrepreneurship is a profession
Execute, Execute, Execute
Mediocrity fails Excellence scales
Tenacity gets rewarded
Be determined, but flexible