THE BUSINESS PLAN

CREATING & STARTING THE VENTURE

Class Room Instructor: Sharad Kamra, Visiting Faculty , Entrepreneurship, IIPM-Jaipur

Source : Arya Kumar, BITS, Pilani

THE BASIC DEFINITION

• A written document describing all relevant internal and external elements and strategies for starting a new venture.

• Should address both short-term & long-term decision making for the first few years.

WHO READS THE PLAN ?

• Venture Capitalists• Employees• Investors• Bankers• Suppliers • Customers• Advisors• Consultants

Three Important Perspectives to be Considered while preparing the plan

1) Perspective of the Entrepreneur

2) Marketing Perspective (Customer point of view)

3) Perspective of the Investor (Sound financial projections needed)

1 2 3

Evaluation of the Plan – Investor’s Perspective

• Ability of the new venture to give the expected returns within a specific period of time.

• Objective analysis of the Business Opportunity

• Potential Risks involved in the Venture

1) Character

2) Cash Flow

3) Collateral

4) Equity Contribution

INFORMATION NEEDS

• The NEED for Information exists in every part of the Business-Plan.

• Firstly define the goals and objectives of your Venture.

• Then the Goals will define the Needs.• Frame the processes to fulfill the Needs.• Then identify the appropriate sources for

information regarding these processes.

Market Information

• Firstly Define the Market (e.g. For men or women? For rural or urban ?)

• Assess the Market Potential• Project subsequent Market goals for the new venture.

• Trade Associations• Government Reports• Publishes Studies• Economic Surveys• Available Market Survey

Reports• Industry Trend Reports• Expert Reviews• INTERNET

Operations Information Needs

• Location• Manufacturing

Operations• Raw Materials• Equipment• Labor Skills• Space• Overhead

Financial Information Needs

1. Expected Sales & Expense figures for at least 1st three years

2. Cash flow figures for the 1st three years

3. Current Balance sheet figures & pro forma balance sheets for 1st three years

INTERNET as a TOOL

• U have to master the Art of GOOGLing !!!

WRITING THE BUSINESS PLAN

• Introduction• Executive Summary

• Industry Analysis• Description of Venture• Operational Plan• Marketing Plan

• Organizational Plan

• Risk Analysis

• Financials

• Exit Strategy

Introduction

• Name & Address of the Company• Name (s) of the Entrepreneur (s)

[telephone numbers, e-mail address, etc]• A paragraph describing the Company &

nature of the Business• Financial Statement [VC’s generally prefer

structuring this by themselves]• Statement of CONFIDENTIALITY

INDUSTRY ANALYSIS

• Future Outlook & Trends on National & International level

Economic Technological Legal Political

• Total Industry sales in the past 5 yrs• Anticipated growth in the Industry• Factors influencing the Industry

INDUSTRY ANALYSIS

• Competition Analysis» How many new firms have entered this

industry in the past 3 yrs ?

» New products that have been recently introduced in this industry

» Nearest Competitors

» How will your Business Operation be better than the existing ones ?

» Strengths & Weaknesses of each Competitor

INDUSTRY ANALYSIS

• Market Segmentation• Who is my Customer ??• Trends in the Specific Market area• Profile of the Target Customer

• Industry Forecasts– Extrapolating historical data– Analyzing factors influencing

the Industry & their affects

Description of Venture

• Mission of the new Venture• Reasons for getting into this Business• Prospects of Succeeding in the Business

& Reasons• Amount of Development work Completed

to Date• Describe your Product(s)/Service(s)

[Patent , Copyright or Trademark Status]

Description of Venture

• Size of Business – A step by step description regarding the scale at which the Business will be started and scaled up or down further along the timeline.

• Infrastructure – Office equipment & Personnel, Location , Site , Building etc.

• Background of Entrepreneurs – A detailed description of the Attributes , Skill sets and Past Experiences of the Entrepreneurs.

Operational Plan /(Production Plan)• Manufacturing Process

» Contractors or Subcontractors » Reasons for selecting them» Costs of Subcontracted Manufacturing [Include copies

of written contracts or Quotations» Layout of Production Process [step by step]» Machinery & Infrastructure required» Cost analysis & Sources of Machinery & Infrastructure» Raw material required» Details of Raw Material Suppliers» Alternatives during Emergencies [on supply or demand

sides]» Future Capital Requirements (for further scaling etc.)

Operational Plan

• For a Service or Retail Operation Details of Suppliers [Include copies of Contracts or

Quotations] How will the Inventory Control System operate A Blue Print of the Entire Operational Plan from

SUPPLIERCOMPANYEND USER Technology Deployed in the Operations Storage Needs Chronologically the steps involved in a Business

Transaction

Marketing Plan

• Describes market conditions & strategy related to how products & services will be Distributed, Priced & Promoted.

• Critical Marketing Strategy decisions & sales forecasts should be supported with appropriate Market Research evidences.

• Potential Investors regard the Marketing Plan as critical to the Success of the Venture as it gives them a clear picture of the Goals of the Venture & the Strategies to be implemented to achieve them.

Organizational Plan

• Helps Investor understand – who controls the organization and how other member will interact in performing their management functions

» Form of Ownership» Identification of Partners & Principal

Shareholders» Authority of Principals» Management-Team Background» Roles & responsibilities of members of the

organization» A legible & well defined Organizational Chart

Risk Analysis

• Firstly indicate the potential risks to the new venture

• Analyze the probable consequences if these risks become reality

• Develop a Contingency Plan that will be employed to Avoid or Minimize the Risks.

Risk Analysis

• Economic / Financial

• Legal• Operational• Marketing• Growth• Competitor

TYPES OF RISKS INVOLVED :

(BREAK EVENANALYSIS)

EXECUTIVE SUMMARY

• It’s the 1st Eye catcher for your B-Plan

• It’s synopsis of the key points of the entire business plan & should inform as well as Excite the reader.

• After reading the Executive Summary if the VC or the Investor is eager to know more, the executive summary has done its job

EXECUTIVE SUMMARY

• The Concept & Opportunity• Product or Service

description• The Market• The Management Team• Financial Requirements• Risks Involved• Exit Strategy

COMPONENTS !!!

EXECUTIVE SUMMARY

• . Lacking a specific focus• . Trying to be all inclusive• . No unique opportunity• . Failing to outline the terms of

the investment sought• . Failing to generate

enthusiasm in the reader• . Make general and

unsubstantiated claims• . Using wordy and unorganized

language

COMMON MISTAKES !!

EXIT STRATEGY

• .Its not about shutting down your business but exiting your business systematically.

• .Includes a strategy for investors to cash out.

.Assures investors of his interests being

taken care of..Projects you as a long term planner.

APPENDIX

• Contain back up Material• Supporting Letter• Market Research data• Leases or Contracts• Price Quotations from Suppliers etc.• Agreement Letters

Why some B-Plans FAIL ??

• Goals set are unreasonable• Goals aren’t measurable• The entrepreneur hasn’t made a total

commitment to the Business• Lack of Experience in the planned Business• Lacking sense of Potential threats or

weaknesses to the business• No customer need was established for the

proposed product or service