Hisrich

Peters

Shepherd

Chapter 7The Business Plan:

Creating and Starting the Venture

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Business Plan

Business plan (road map or game plan): Written document describing all relevant external and internal elements and strategies for starting a new venture (in short where am I now? where am I going?).

Business plan is often described as an integration of functional plans (marketing, finance, manufacturing and human resources [organisational]); addresses short-term and long-term decision making for the first three years of business operation.

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Why Business Plan is important?

Business plan provides guidance and structure in a rapidly changing market environment.

Business plan gets finalized as the entrepreneur has a better sense of the market, the product/services, the management team, and the financial needs of the venture.

Business plan should describe operational and strategic goals along with short-term and long-term business objectives.

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Who Should Write the Plan?

The plan should be prepared by the entrepreneur in consultation with other informative sources (lawyers, accountants, marketing consultants, and engineers etc).

The entrepreneur should make an objective assessment (measurable) of his or her own skills before deciding to hire a consultant or offer equity (partnership) to another person who might provide the appropriate expertise in preparing the business plan as well as become an important member of the management team.

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Scope and Value of the Business Plan—Who Reads the Plan? Business plans can differ depending on the

type of business or the anticipated size of the start-up operations.

Whoever is expected to read the plan can often affect its actual content and focus. The business plan may be read by employees, investors, bankers, venture capitalists , suppliers, customers, advisors, and consultants. Therefore plan must try to satisfy the needs of everyone as much possible as needed.

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Scope and Value of the Business Plan—Who Reads the Plan? (cont.)

But least a business plan must consider the perspective of following:- Entrepreneur’s perspective. Marketing perspective. Investor's perspective.

Depth and detail in the business plan depend on: Size and scope of the proposed venture. Size of the market. Competition. Potential growth.

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The business plan is valuable because it: Helps determine the viability of the venture in a

designated market. Guides the entrepreneur in organizing planning

activities. Serves as an important tool in obtaining finance.

The process of development of a business plan provides a self-assessment by the entrepreneur.

Scope and Value of the Business Plan—Who Reads the Plan? (cont.)

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How do Potential Lenders and Investors Evaluate the Plan? The business plan must reflect:

The strengths of management team (personnel). The product/service. Available resources.

Lenders are interested in the venture’s ability to pay the debt. Focus on the four Cs of credit - Character, cash

flow, collateral, and equity contribution.

Banks want an objective analysis of the business opportunity and the risks.

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Investors, particularly venture capitalists, have different needs: Place more emphasis on the entrepreneur’s

character. Spend much time conducting background

checks. Demand high rate of return. Focus on market and financial projections.

How do Potential Lenders and Investors Evaluate the Plan? (cont.)

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Presenting the Plan

The entrepreneur is expected to ‘sell’ the business concept. Focus should be on why this is a good

opportunity. Provide an overview of the marketing program

and sales & profits forecasts. Address associated risks and how to overcome

them.

Audience includes potential investors who may raise questions.

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Information Needs

Before creating a business plan, the entrepreneur must undertake a feasibility study.

Feasible, well-defined goals and objectives must to be established. Based on this, strategy decisions can be

established.

Information for a feasibility study should focus on marketing (1), production (operation) (2), and financial (3) need.

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Information Needs (cont.)

1. Market Information needMarket Positioning: is an effort to influence consumer perception of a brand or product relative to the perception of competing brands or products.

Market objectives: are goals set by a business when promoting its products or services to potential consumers that should be achieved within a given time frame.

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Location- company location and accessibility to customers, suppliers, and distributors need to determine.

Manufacturing operations – which basic machine and assembly operations are need to be adopted.

Raw materials – the needed raw material and who will be the supplier.

Equipment – what equipment would be needed and whether it will be purchased or leased.

Labor skills – number of employees of particular skill. Space – total amount of needed space Overhead – items/services needed to support

manufacturing. Most of the information from the feasibility report is

incorporated directly into the business plan.

Information Needs (cont.)2. Production information needs

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Information Needs (cont.)3. Financial Information Needs

The entrepreneur has to prepare a budget of all possible expenditures and revenue sources, including sales and any external available funds.

The budget includes capital expenditures, direct operating expenses, and cash expenditures.

Industry benchmarks can be used in preparing the final pro forma statements in the financial plan.