The Business Plan

BU113: Foundations of Business Administration

Project Paper PRP 3204

Business Plan

Memorable statistics

New business start-ups each year:

150,000-190,000

Business failures each year:

50,000-100,000

Reasons for Failure and Success of Businesses Failure due to

1. Managerial incompetence or inexperience

2. Neglect

3. Weak control systems

4. Insufficient capital

Success due to

1. Hard work, drive, and dedication

2. Market demand for product/service

3. Managerial competence

4. Luck

The Process, the Plan

Idea Test Plan Execute Evaluate

What is a Business Plan?

Blueprint of your business Written plan detailing operational and financial aspects

of your company Explanation of the business concept Analysis of the market Presentation of the strategy Outline of projected development of the business Definition of capital needs of the business Projection of financial performance Presentation of management’s credentials/positions

Who needs a Business Plan?

Business associates: Bankers: Other investors: Management:

Potential employees:

Direction and purpose Financing Funding for growth Internal plans Join the company?

Concerns of Investors How are you unique?

Proprietary technology Unique product

Management track record Great ideas won’t go anywhere without good management. Depth of management

Rate of Return High risk requires potential for high return Where on the growth curve is the business? Are financial projections reasonable?

Exit Strategy How to get out with mega profit (go public, sell out) When?

Cover PageCompany XYZ

October, 200_

Business Plan

This document contains confidential and proprietary information belonging exclusively to XYZ Company

John SmithChief Executive Officer

123 Executive DriveMaple Valley, VT 55555

(802)555-555

This is a business plan. It does not imply an offering of securities.

Business Plan—Format & Components Cover Page Table of Contents (with page numbers) Executive Summary Your company’s mission statement The business:

Management: Management Structure/Background Marketing Plan Financial Plan Supporting documents

Revised resumes Company logo Organization chart PowerPoint slides in handout form

Executive Summary

A one page write up on your overall business plan.

It should provide the basis for the reader to read your BP.

It should cover your products, people, marketing, and financial espects.

1.Mission Statement A mission statement is a brief description of a

company’s fundamental purpose. A mission statement answers the questions, “Why do we exist?” “What do we hope to achieve in the future?”

The mission statement articulates the company’s

moral/ethical position, public image, the target market, products/services, the geographic domain and expectations of growth and profitability (Center for Business Planning: http://www.businessplans.org).

Mission -- Examples “It is the mission of Saint Michael’s College to contribute through higher

education to the enhancement of the human person and to the advancement of human culture in the light of the Catholic faith.” (SMC Catalogue)

The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are a values-driven company and our eight core values include the following: Excellent customer service Taking care of our people Giving back Doing the "right" thing Creating shareholder value Respect for all people Entrepreneurial spirit Building strong relationships

Source: Home Depot – Our Company – Values

2. Components of the Plan: Management

Type of organization / form of business ownership / Background

Organization chart Management team

Roles in the business Experience Skills Supporting documents:

Resumes

General Manager

Marketing Manager 1 Finance Manager Marketing Manager 2

XYZ Company

3. Components of the Plan: Marketing Product / Service

Key characteristics, uniqueness Picture, design / model Supplier Amount of inventory to be ordered

Target market Users -- demographics Benefits Economic / social / cultural characteristics Projected sales (revenue): calculated

Components of the Plan: Marketing (cont’d) Competitive Environment

Competitors Competitors’ Strengths Competitors’ Weaknesses

Components of the Plan: Marketing (cont’d)

Price Pricing strategy

Pricing strategy vs. competition

Promotion Promotional strategy: developing demand for product

Place / distribution Getting the product from production to the

consumer

Supporting documents

List of Shareholders: Attach a table with the information about your shareholders’ investment. name contact information number of shares invested percent ownership in the company based on

the number of shares owned Revised resume of each manager Company logo

Shareholder List

Name Contact Info # Shares Bought

Outside or Management Shareholders

4.Business Plan—Finance

Concerns of investors Demand for product Management characteristics and experience

Innovation Track record

Rate of return Amount of risk Financial projections Outlook for competitiveness of business Growth curve of business

Future plans

Financial Plan

BU113: Foundations of Business Administration

Financial Plan

Purpose—Financial Plan

Determine feasibility of business Determine capital needed to start business Estimate return to shareholders

Capital Needed to Start Business Determine total amount of capital needed

to start the business Do you need to:

Buy equipment? Buy product/raw materials for product to sell?

(Include in product cost: transportation & packaging)

Buy supplies for advertising Pay taxes?

Financing Sources: How to Raise Money

Sources: Selling stock or borrowing money Stock sales: 25 cents/share

Inside shareholders (management team). What percent of company do you want to own?

Outside shareholders (sell to others at marketplace) You must offer at least 20 shares to outside

shareholders. Specify what percent ownership 1 share represents

o EX: If you plan to sell 100 total shares to management and outsiders, 1 share = 1% ownership in the company.

Financing Sources: ExamplesOwnSavings Partnership with friends

Borrowing o From banks

o Investment banks

o From friends etc

Projected Income StatementSales = Number of units of product/service expected to be

sold per week X sales price

Less: Cost of Goods Sold (COGS) = number of units of

product expected to be sold each week X cost to buy

including taxes, shipping, etc. (no COGS with a service)

Less: Advertising and other expenses = actual amount

expected to be spent during a particular week

Less: Taxes = 10% of profit before taxes (EBT)

Note: You cannot pay management wages.

ABC CompanyProjected Income StatementFor the 12 Month Period Ending ____ , 200_

Mth 1 Mth2 Mth 3 Mth4 Mth 5 Mth 6 Total

Sales $10 $30 $150 $40 $30 $30 $290

Expenses

Cost of Goods Sold

2 10 50 12 10 10 92

Advertising 0 2 4

Gas 6 6 12

Total Expenses

8 10 52 18 10 10 108

EBT 2 20 98 22 20 20 182

Taxes (10%) .20 2 9.80 2.20 2 2 18.20

Net Income 1.8 18 88.20 19.8 18 18 163.8

Projected Return on Equity

As a start up business, consider your equity to be the money you raise from selling stock to inside and outside shareholders

Projected ROE: tells shareholders what they expect to earn on their investment in terms of % return ROE = Total Projected Net Income / $ Raised from

sale of stock to management and outside shareholders

EX: $ 163.8 projected NI / $25 Common stock proceeds

ROE = 655%

Cash flow Statement

Monthly for the first year Yearly for the next four year. Should include residual and carried

forward balances To calculate the IRR

5 Conclusion

Brief summary on your results – returns