1 lecture #7 overview of the business plan. 2 topics to cover in this lecture purpose of the...
TRANSCRIPT
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LECTURE #7OVERVIEW OF THE BUSINESS PLAN
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TOPICS TO COVER IN THIS LECTURE
Purpose of the Business Plan Elements of the Business Plan Environmental Analysis
Techniques Competitive Strategies
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BUSINESS PLANSWHAT IS A BUSINESS PLAN?
1. A plan developed for a proposed or new business
2. A document that explains the Who, What, Why, When & How of the business (Bloomberg On Demand)
3. A business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals (Wikipedia encyclopedia).
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PURPOSE OF THE BUSINESS PLAN
Gives you the opportunity to examine the entire business objectively and give serious thought to chances of its success
The detailed information and analyses help you to: Work out your policy for key business areas Identify areas of weakness and strength Predict possible problems and correct or
prepare for them before they eventually occur.
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PURPOSE OF THE BUSINESS PLAN
In the initial stages of the project, the business plan acts as your “Bible”. It is a working guide against which progress can be measured.
The Plan should be flexible. It details analyses about key aspects of the operation make it easier for you to make adjustments when faced with unexpected changes.
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PURPOSE OF THE BUSINESS PLAN
The Plan describes the business for Lending agencies who need to
evaluate the feasibility of your business idea.
Professionals who will be involved with the business
Your employees who will join the organization at a future date.
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8 REASONS FOR WRITING A BUSINESS PLAN
1. Obtain loan financing & investment funds
2. Attracting partners3. Arrange strategic alliances/suppliers 4. Obtain large contracts/customers5. Attract key employees/ Management6. Complete merger and acquisitions7. Motivate and focus employees
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BUSINESS PLANSBUSINESS PLAN CONTENT / COMPONENTS
The content and format of the business plan is
determined by the goals and audience being
addressed.
A business plan should contain whatever
information is needed to decide whether or not to
pursue a goal.
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BUSINESS PLAN CONTENT / COMPONENTS
The main areas of focus are
The business idea/ concept Marketing Considerations Technical/Operational issues Management & Human resources Financial Considerations
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BUSINESS PLAN CONTENT / COMPONENTS
A Topical Outline of its components is as follows:
Executive Summary Industry Analysis Definition of the Business Purpose of the Business Plan Business Feasibility Justification of the Business Organizations and Management
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BUSINESS PLAN CONTENT / COMPONENTS
A Topical Outline cont’d
Human Resources Operational Considerations Marketing Arrangements Financial Considerations Critical risks Implementation Schedule Appendices References
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BUSINESS PLANSExecutive Summary a succinct highlight of the overall plan -
Located at the front of the business plan but is the last item to write in the business plan
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BUSINESS PLANSExecutive Summary
Explains:What are you planning to do (business / goal)What is the Market Opportunity & related Company StrategyWhy your Management team can best execute this planWhat is the proposal & why is it financially compelling to make this investment
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BUSINESS PLANS
Industry Analysis an overview of the industry, identifying the
business opportunity include consideration of the competition,
legal constraints, statutory requirements, regulatory bodies, etc.
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BUSINESS PLANS
Definition of the Business explanation of the business idea /
concept, the current offering, and the projected growth
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BUSINESS PLANS
Purpose of the Business Plan dominant reason for the preparation
of the business plan e.g. To raise loan funding To attract investors
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BUSINESS PLANS
Business Feasibility analysis of the demand, risk,
environmental impact
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BUSINESS PLANS
Justification of the Business State the economic, social, and personal
benefits to be gained from introduction / operation of the business
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BUSINESS PLANS
Organization and Management Details the mission statement, corporate
goals, managerial competence, organizational chart
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The Organization & Management
Plan
Building an organization that will last requires careful planning and strategy.
Potential investors are interested in the quality of the management team.
The initial organization design is simple.
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The Management Team Management team:
Consists of managers and other key persons who give a company its general direction
Characteristics of a Strong Management Team Capable of securing the resources needed to make business a success
Reassures investors about their investment and the continuity of business
Diversity of talent makes the team stronger than an individual entrepreneur
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BUSINESS PLANS
Human Resources sourcing and staffing considerationsWho are your key staff & Management TeamWhat skills do they have, what skills will you have to outsource Arrangements for Training and
Development Performance Evaluation Occupational Safety and HealthWho are your advisors / Board of Directors
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BUSINESS PLAN COMPONENTSOperations
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BUSINESS PLAN COMPONENTSOperationsWhat are your processesHow will you operate to gain a competitive advantageWhat facilities, equipment and machinery are needed to carry out these operationsDo you have to spend money or capital to implement these processes or can they be outsourced
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BUSINESS PLANS
Operational Considerations Looks at facility location, technical
requirements, suppliers of raw materials, utilities
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BUSINESS PLANS
Marketing Arrangements
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BUSINESS PLANS
Marketing Arrangements target market, definition of the product or
service, pricing, distribution, promotionWho are your customers
Where are they fromHow can you reach themWhat is their spending power
What are the Products or Services you intend to offer
Highlight important or significant aspects of your products/service
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BUSINESS PLAN COMPONENTSMarketingWhat is your Marketing Strategy How will you introduce the
product/service to the market? Who will buy the product/service? Can the money from sales cover the
costs of running the business and will this money come in when needed so you can pay your bills on time?
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THE MARKETING PLAN
Pricing Strategy Promotion and Advertising Product/Packaging Distribution Customer Service Overall – deals with all the seven
P’s.
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The Marketing Plan Section of the BP should focus on strategies for the first three years of the venture:
1. For the first year, goals and strategies should be projected monthly;
2. For years 2 & 3, market results should be projected based on longer term goals;
3. Preparing an annual marketing plan becomes the basis for planning other aspects of the business.
THE MARKETING PLAN –Purpose & Timing
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BUSINESS PLANS
Marketing ArrangementsIncludes a discussion about your Competitors
What are their pricesWhat are their strengths & weaknessesTheir dominant strategies
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The Financial Plan
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The Financial Plan
Provides a complete picture of: How much and when the funds are
coming into the organization. How the funds will be used How much cash will be available The projected financial position of
the firm at the end of specified periods
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BUSINESS PLANS
Financial Considerations sources of financing, capital cost, pre-
operating expenses, working capital requirements, breakeven analysis (where possible), cash budget over three years, budgeted accounting statements over three years.
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The Financial Plan – its components
1. Operating and Capital Budgets2. Pro forma income statements3. Pro forma cash flow4. Pro forma Balance Sheet5. A Break-even Analysis6. Pro forma Sources and Uses of
Funds
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BUSINESS PLAN COMPONENTS Financial PlanShows whether or not the business is financially viableThere are three main financial statements
Balance SheetIncome Statement ( Profit & Loss)Cash Flow projectionA brief explanation of these three statements
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BUSINESS PLAN COMPONENTS
Financial Plan
Balance SheetPresents a picture of your business’ net worth at a particular point in timeIt summarises all the financial data about your business into three categories
AssetsLiabilitiesCapital/ Owner’s Equity
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BUSINESS PLAN COMPONENTSFinancial Plan
Balance Sheet Cont’dAssets
The total of all tangible & intangible objects of financial value that are owned by the company
LiabilitiesIndebtedness of the company for resources provided by someone other than the owner (i.e. Creditors)
Capital/Owner’s EquityThe total amount of resources supplied by & belonging to the owners of the business
Assets = Capital + Liabilities
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BUSINESS PLAN COMPONENTS
Financial Plan
Balance Sheet Cont’dThe Capital/Owner’s Equity or Net worth or value of the business is calculated as follows:
Net Worth = Total Assets - Total Liabilities
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BUSINESS PLAN COMPONENTS
Financial Plan
Income Statement ( Profit & Loss) shows:Revenues for a given periodExpenses for said periodProfits or loss for the period
Revenues – expenses = Profit / Loss
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BUSINESS PLAN COMPONENTS
Financial Plan
Cash Flow projectionShows how cash is expected to flow in & out of the businessShows expected magnitude & timing of cash inflows & outflowsShows whether you will be able to meet your bills as they become due for paymentHelps determine the timing & magnitude of financial investments needed to keep the business operating
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BUSINESS PLAN COMPONENTS
Financial Plan
Cash Flow projection cont’dStrong positive cash flow projections reduce the risk for investors & loan officers, making them more willing to fund your business ventureUsually done on a monthly basis for period of one yearNon-cash items do not appear on a cash flow statementOnly the actual amount of cash received and paid out by the business are captured by this statement
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BUSINESS PLAN COMPONENTS
Financial Plan
Cash Flow projection cont’dMonthly Cash Flow Projections are computed as follows:
Opening cash balancePlus total cash inflows for the monthMinus total cash disbursements for said monthEquals Closing cash balance for that month
Closing cash balance for January becomes the opening cash balance for February and so on.
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BUSINESS PLAN COMPONENTS
Financial Plan
A brief explanation of these three statements
Usually appear as notes to the financial statementsHighlights & explains significant features such as unusual expenditures or incomes & gives a brief explanation. The information contained within the notes not only supplement financial statement information, but they clarify line-items that are part of the financial statements.
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BUSINESS PLAN COMPONENTS
Critical RisksIdentify your Critical Risks
Availability of Raw Materials Changes in TechnologyMarketing StrategyEngagement of key personnelAgreement with key partnersAcquisition of licenses or specific contracts
Discusses assumptions & alternative courses of action in case critical risks are not satisfied
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BUSINESS PLAN COMPONENTS
ProposalDesired Financing
How much money is requiredWhen will various sums be required
OfferingWhat will investors receive in return for their investment
Use of FundsHow will the funds obtained be used
Investor’s returnThe extent to which investors can expect to benefit from this investment
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BUSINESS PLANS Implementation Schedule
stages of activities six months before to six months after the startup date, accompanied by a (Gantt Chart)
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BUSINESS PLANS Appendices
tools used in feasibility study; profile of
management team, letters of commitment from prospective suppliers and clients; samples of product design, labels, promotional campaigns, floor plan and legal documents
References bibliography, credits, acknowledgements
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BUSINESS PLANS End of the Business plan
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An Effective Business Plan
Accomplishes its intended purposeIs clear, unambiguous easy to understandAddresses its intended audienceCredible – critical risks identified and dealt withEmployed the uses of positive upbeat language
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Writing an effective Business Plan
The ProcessConduct relevant research using secondary or primary data as necessaryBrainstorm ideasDiscuss with your partnersDecide how to respond to each item in the business plan templateWrite a statement or paragraph on each itemExpand the statement as necessary to capture the views of the team on the matter
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BUSINESS PLANS
The Process of Writing the PlanHelps the entrepreneur to fully analyse and develop the idea into a real opportunityThe actual writing of the plan should result in the improvement of the business idea enabling it to become a real opportunityMay prove that the idea is not viable – in the form it was originally conceivedCould result in the abandonment of the idea
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The Process of Writing the Plan
Developing the Financial PlanUse real data where possible, make assumptions about othersUse what-if analyses to come up with different scenariosDevelop best case, normal and worst case scenariosEnsure contingencies treat with worst case scenarios State your assumptions in the notes to the financial statements
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PRESENTING THE BUSINESS PLAN
Ensure all members of the team read and fully understand the planAdd graphs, charts and pictures to enhance clarity & attractiveness Ask a trusted colleague or advisor to review the planBe sure to make adjustments where necessary
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Environmental Analysis Techniques
Tools used to analyse the business environment
PESTL Analysis SWOT Analysis
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Environmental Analysis Techniques
PESTL Analysis Political Economical Social Technological Legal
Considers the environment in which the business will operate. Used the develop appropriate
business strategies
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Environmental Analysis Techniques
SWOT Analysis Strengths Weaknesses Opportunities Threats
May be done for the business and for competitors
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Examples of SWOT Factors
Internal Strengths
Core Competencies Financial strength Well-planned strategy Skilled management
Weaknesses Production inefficiencies Inadequate financial
resources Poor management Poorly planned strategy
External Opportunities
Untapped market potential
Favourable shift in market
Emerging technologies
New product Threats
New competition Rising demand Increased government
regulations
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Competitive Strategies
Michael Porter’s Generic Competitive Strategies
Porter’s Five Forces Analysis
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Competitive Strategies
Porter’s Five Forces Analysis Rivalry from existing competitors Threat of new entrants Technical threat of substitutes Bargaining power of buyers Bargaining power of suppliers
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Competitive Strategies
Michael Porter’s Generic Competitive Strategies Cost leadership Differentiation Focus or niche marketing
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End of the lesson