chapter 4_writing a business plan
DESCRIPTION
Chapter 4_writing a Business PlanTRANSCRIPT
Merger Fundamentals
DEVELOPMENT OF NEW ENTERPRISE
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Mergers, Consolidations & Holding Companies.
Acquiring versus Target Companies.
Friendly versus Hostile Takeovers.
Motives for Merging.
Types of Mergers
CHAPTER
OUTLINE
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WHAT IS A BUSINESS PLAN?
A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new business intends to accomplish and how it intends to accomplish it.
REASONS FOR WRITING A BUSINESS PLAN
1. First,writing a business plan forces a firm’s founders to systematically thinkthrough each aspect of their new venture.2. The second reason to write a business plan is to create a selling document for a company.
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WHO READS THE BUSINESS PLAN?Who Reads the Business Plan—And What Are They Looking For?Who Reads the Business Plan—And What Are They Looking For?Who Reads the Business Plan—And What Are They Looking For?
A Firm’s Employees - A clearly written business plan, which articulates the vision and future plans of a firm, is important for both the management team and the rank-and-file employees.
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WHO READS THE BUSINESS PLAN?
Investors and Other External Stakeholders - External stakeholders who are being recruited to join a firm such as investors, potential business partners, and key employees are the second audience for a business plan. To appeal to this group, the business plan must be realistic and not reflective of overconfidence on the firm’s part.
GUIDELINES FOR WRITING A BUSINESS PLAN
Structure of the Business Plan
• should follow a conventional structure
• should be tailored to the individual business
• Along with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture—a task best accomplished by the creators of the business themselves.
STRUCTURE OF THE BUSINESS PLAN
Red Flag Explanation
Founders with none of their own money at risk
If the founders aren’t willing to put their own money at risk, why should anyone else?
A poorly cited plan A plan should be built on hard evidence and sound research, not guesswork or what an entrepreneur “thinks” will happen. The sources for all primary and secondary research should be cited.
Defining the market size too broadly
Defining the market for a new venture too broadly shows that the true target market is not well defined. For example, saying that a new venture will target the $550-billion-per-year pharmaceutical industry isn’t helpful. The market opportunity needs to be better defined. Obviously, the new venture will target a segment or a specific market within the industry.
Overly aggressive financials
Many investors skip directly to this portion of the plan. Projections that are poorly reasoned or unrealistically optimistic lose credibility. In contrast, sober, well-reasoned statements backed by sound research and judgment gain credibility quickly.
Sloppiness in any area It is never a good idea to make a reader wade through typos, balance sheets that don’t balance, or sloppiness in any area. These types of mistakes are seen as inattention to detail, and hurt the credibility of the entrepreneur.
RED FLAGS IN BUSINESS PLAN
Content of the Business Plan
• The business plan should give clear and concise information on all the important aspects of the proposed new venture. It must be long enough to provide sufficient information, yet short enough to maintain reader interest.
• For most plans, 25 to 35 pages (and typically closer to 25 than 35 pages) are sufficient.
• After a business plan is completed, it should be reviewed for spelling, grammar, and to make sure that no critical information has been omitted.
CONTENT OF THE BUSINESS PLAN
• Must be carefully thought out
• Should look sharp but not give impression that a lot of money was spent to produce it
• Overuse of design elements such as font sizes, colors, clipart makes a business plan look amateurish rather than professional
STYLE OR FORMAT OF THE BUSINESS PLAN
Summary Business Plan
•10–15 pages•Works best for new ventures in the early stages of development that want to “test the waters” to see if investors are interested in their idea
Full Business Plan
•25–35 pages•Works best for new ventures that are at the point where they need funding or financing; serves as a “blueprint” for the company’s operations
Operational Business Plan
•40–100 pages•Is meant primarily for an internal audience; works best as a tool for creating a blueprint for a new venture’s operations and providing guidance to operational managers
TYPES OF BUSINESS PLANS
• A plan usually change as it is being written and as the business evolves
• New insights emerge when an entrepreneur or team of entrepreneurs immerse themselves in writing the plan and getting feedback from others
RECOGNIZING THE ELEMENTS OF THE PLAN MAY CHANGE
OUTLINE OF THE
BUSINESS PLAN
• A cover page should include family name, address, phone number, date, contact information and web address
• A table of contents should follow the cover letter. It should list the sections and page numbers of the business plan and the appendices
COVER PAGE AND TABLE OF CONTENTS
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
EXECUTIVE SUMMARY
Industry Analysis
• Describes the industry the business will enter in terms of its size, growth rate and sales projections
• Focuses strictly on the industry including promising areas and points of vulnerability
• Industry structure- refers to how concentrated and fragmented an industry is
• Industry trends including both environmental and business trends
• Should conclude with a brief statement of beliefs regarding the long-term prospects of the business
INDUSTRY ANALYSIS
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
COMPANY DESCRIPTION
• It is also called as the company profile. • Brief history of the company’s year of incorporation• Origin of the name of company• Mission-vision statement• Goal and tagline of the company.• Current position in the industry• Milestone achieved by the company.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
COMPANY DESCRIPTION
* A milestone is significant or important events that transpire from the day of the company’s incorporation until the present time.
* Some companies also include in its profile its strategic partners in order to fully emphasize its existence and strong point in the industry.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
COMPANY DESCRIPTION
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
A competitor’s analysis is a detailed analysis of a firm’s competitors. It helps a company understand the position of its major competitors and the opportunities that are available in order to obtain a competitive advantage in one or more areas. These competitors are
classified as direct, indirect and future competitors
MARKET ANALYSIS
• It focuses on a particular portion of the industry like segment and target market.
• Market segmentation is the process of dividing the market into distinct segments - geography, demography and psychographic variables.
• Segmentation by geography pertains to regions, provinces and city or municipalities.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
ECONOMICS OF BUSINESS
* Target profit is an essential part of business.
* Profit will serve as the goal intended to achieve at the end of every plan.
* Financial analysis should be done in order to know how profits will be earned and its corresponding inputs should be identified.
* A break-even analysis is a computation of how many units of its product a business must sell before it breaks even and starts earning a profit.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
A competitor’s analysis is a detailed analysis of a firm’s competitors. It helps a company understand the position of its major competitors and the opportunities that are available in
order to obtain a competitive advantage in one or more areas. These competitors are classified as direct, indirect and future competitors
MARKET ANALYSIS
*Demographic segmentation deals with age, gender and income.
*Segmentation by psychographic variables tackles about the lifestyle, personality and values.
*Consumer behaviour - specific preference of in a specific location in a market.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
ECONOMICS OF BUSINESS
• A company’s variable costs vary by sales, while its fixed costs are costs a firm incurs whether it sells something or not.
• A company’s operating leverage is an analysis of its fixed cost against variable costs.
• Operating leverage is highest in companies that have a high proportion of fixed costs relative to their variable costs.
•Operating leverage is lowest in companies that have a low proportion of fixed costs relative to variable costs.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
MARKETING PLAN
• It focuses on how the business will market and sell its product or service.
• It deals with the fundamentals of marketing in terms of price, promotion, distribution, and sales.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
MARKETING PLAN
•Identifying its marketing strategy, positioning and its differentiation in the market.
•Prices, promotional mix & sales process and distribution strategy.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
MARKETING PLAN
• Marketing strategy refers to the general approach for marketing its products and/or services.
• A company’s overall approach - market positioning & product differentiation.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
PRODUCT/SERVICE DESIGN AND DEVELOPMENT PLAN
● Critical stage in businesses especially in manufacturing and service industry.
●logical path of development–product conception, prototyping, initial production, and full production.
● product prototype - unfinished or in preliminary form.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
PRODUCT/SERVICE DESIGN AND DEVELOPMENT PLAN
* Service prototype - what the service will be like and how it will be experienced by the customer.
* Virtual prototype is a computer-generated 3-D image of a product or service idea.
Executive Summary
• a short overview of the entire business plan; it provides a busy reader with everything she needs to know about the new venture’s distinctive nature.
• is arguably the most important section of the business plan.
• It should be written last since a plan evolve as it is written
OPERATIONS PLAN
* The aspect of how a business will be run and how a product or service will be produced.
* Identify general approach and secondary aspect.
* Location, equipments and facilities is important.
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MANAGEMENT TEAM & COMPANY STRUCTURE
typically consists of the founder or founders and key management personnel
Each profile should include the following information:_ Title of the position_ Duties and responsibilities of the position_ Previous industry and related experience_ Previous successes_ Educational background
A brief profile of each member of the management team should be provided
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MANAGEMENT TEAM & COMPANY STRUCTURE
If a start-up has a board of directors and/or a board of advisers they should be included as part of management team
Board of directors - is a panel of individuals elected by a corporation’s shareholders to oversee the management of the firm
Board of advisers - is a panel of experts asked by a firm’s management to provide counsel and advice on an ongoing basis
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MANAGEMENT TEAM & COMPANY STRUCTURE
The final portion of this section of business plan focuses on how the company will be structured.
Organizational chart –The most effective way to illustrate how a company will be structured and the lines of authority and accountability that will be in place. - is a graphic representation of how authority and responsibility are distributed within the company
ORGANIZATIONAL SET-UPThe Metrobank structure
BOARD OF DIRECTORS
PRESIDENT
TRUSTCOMMITTEE
AUDITCOMMITTEE
RISK MGT.COMMITTEE
NBBS TG TBG CBG ComBank CLG SAMG AAMDG IOSG
OPG CRG RSK HRMG IAG ITG GSG COG OP34
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OVERALL SCHEDULE
should be prepared that shows the major events required to launch the business.
be in the format of milestones critical to the business’s success
A simple Gantt chart
GANTT CHART
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FINANCIAL PROJECTIONS
1. sources and uses of funds statement - which is a document that lays out specifically how much money a firm needs, where the money will come from, and what the money will be used for.
2. assumptions sheet - explanation of the most critical assumptions that your financial statements are based on
The pro forma (or projected) financial statements - the heart of the financial section of a business plan- similar to the historical statements an established firm prepares.- Most experts recommend 3 – 5 years of pro forma statements
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FINANCIAL PROJECTIONS
BALANCE SHEET
INCOME STATEMENT
CASH FLOW STATEMENT
FS DATA ARE INTERPRETED
VIA RATIO ANALYSIS
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APPENDIX
Any material that does not
easily fit into the body of a business plan should appear
in this section.
in summary, writers should determine if the most important questions about the viability of their business venture have been answered.
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PRESENTING THE BUSINESS PLAN TO INVESTORS
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ORAL PRESENTATION OF BUSINESS PLAN
first rule in making an oral presentation is to follow instructions
> The presentation should consist of plain talk and should avoid technical jargon.
JARGON – Specialized or technical language
of a trade, field, profession or social
group
QUESTIONS AND FEEDBACK TO EXPECT FR INVESTORS
investors typically focus on whether a real opportunity exists
investors will evaluate whether the managers are highly confident in their own venture
how well entrepreneurs think and how knowledgeable they are about the business venture
QUESTIONS AND FEEDBACK TO EXPECT FR INVESTORS