Chapter 06 Revised

The Business Plan: Visualizing the Dream
Part 3 Developing the New Venture Business Plan

PowerPoint Presentation by Charlie Cook The University of West Alabama
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved.
Looking Ahead
After studying this chapter, you should be able to:
1. 2. 3.
4. 5.
Explain what a business plan is, when it is needed, and what form it might take. Explain how to tell a new ventures story to outsiders, especially investors. List practical suggestions to follow in writing a business plan and outline the key sections of a business plan. Identify available sources of assistance in preparing a business plan. Maintain the proper perspective when writing a business plan.
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What Is a Business Plan?

Business Plan
A document that sets out the basic idea underlying a business and related startup considerations
Identifies the nature and context of the business opportunity Presents the entrepreneurs approach to exploiting the opportunity Identifies factors affecting the ventures success Serves as the entrepreneurs tool for raising capital
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The Need for a Business Plan

Primary Functions
To provide a clearly articulated statement of goals and strategies for internal use
Imposes discipline on the entrepreneur and management team
To serve as a selling document to be shared with outsiders

Provides a credible overview for prospective customers, suppliers, and investors
Helps secure favorable credit terms from suppliers

Opens approaches to lenders and other sources of financing
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Users of Business Plans
Exhibit 6.1
Copyright 2006 Thomson Business & Professional Publishing. All rights reserved. 65
Types of Business Plans

Summary Plan
A short form of a business plan that presents only the most important issues and projections for the business
Comprehensive Plan
A full business plan that provides an in-depth analysis of the critical factors that will determine a firms success or failure, along with all the underlying assumptions
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How Much Business Planning is Needed?

Factors affecting the extent of a business plan:
Cost in time and money to prepare the plan Management style and ability Preferences of the management team Complexity of the business Competitive environment Level of uncertainty
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Telling the Story to Others

Attracting Investors
A business plan must be an effective marketing document that quickly captures investor interest.
Understanding the Investors Perspective

Entrepreneurs are optimists; investors are skeptics. Investors focus on break-even and positive cash flow. Investors have a short attention span. Bad information and poor preparation cause investors to lose interest quickly.
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Features of Plans that Attract Investors

Plans that speak the investors language:
Are brief, not extremely long in written length. Have an attractive overall appearance. Are well-organized with a table of contents and numbered pages.
Are market-oriented in meeting customer needs; are not product-oriented.

Show evidence of customer acceptance of the proposed product or service.
Business Plans that Attract Investors (contd.)

Recognize the investors needs for required rates of return on investments. Demonstrate evidence of focus on a limited number of products or services Have a proprietary market position through patents, copyrights, and/or trademarks
610
Features of Plans Unattractive to Investors

Plans that create unfavorable reactions:
Show an infatuation with the product or service and downplay market needs or acceptance. Are based on financial projections at odds with accepted industry norms. Have unrealistic growth projections. Contain a need for custom or applications engineering, which makes substantial growth difficult.
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Features of a Successful Business Plan

It must be arranged appropriately, with an executive summary, a table of contents, and chapters in the right order. It must be the right length and have the right appearancenot too long and not too short, not too fancy and not too plain. It must give a sense of what the founders and the company expect to accomplish three to seven years into the future. It must explain in quantitative and qualitative terms the benefit to the user of the companys products or services. It must present hard evidence of the marketability of the products or services. It must justify financially the means chosen to sell the products or services. It must explain and justify the level of product development which has been achieved and describe in appropriate detail the manufacturing process and associated costs.
Exhibit 6.2
Features of a Successful Business Plan (contd.)

It must portray the partners as a team of experienced managers with complementary business skills. It must suggest as high an overall rating as possible of the ventures product development and team sophistication. It must contain believable financial projections, with the key data explained and documented. It must show how investors can cash out in three to seven years, with appropriate capital appreciation. It must be presented to the most potentially receptive financiers possible to avoid wasting precious time as company funds dwindle.
It must be easily and concisely explainable in a well-orchestrated oral presentation.

Exhibit 6.2 (contd)
Preparing a Business Plan

Two issues critical in preparing a business plan:
The basic format and effectiveness of the written presentation
Clear writing that effectively communicates
The content of the plan

Factual support for the concept in the form of strong supporting evidence
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Suggestions for Writing a Business Plan

Provide a table of contents and section tabs. Use a loose-leaf binder in case of revisions. Use visual aidsgraphs, exhibits, and tabular summaries. Indicate that all information is confidential. Number copies of the plan and require written receipts. Be careful about divulging competitive information or proprietary designs/technology. Ask other entrepreneurs to review the plan.
615
Deciding on the Content of a Business Plan

Factors that help determine the content of a business plan for a startup:
The entrepreneurial team The opportunity The resources The deal structure The big picture
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Good Opportunities Have Good Fit
Exhibit 6.4
Contents of a Business Plan

Title Page Table of Contents Executive Summary
Synopsis Narrative
Vision and Mission Statement Company Overview
Products and/or Services Plan Marketing Plan Operating Plan Financial Plan Appendix of Supporting Documents
618
Specialized Plans within the Business Plan

Products and/or Services Plan
Describes the product and/or service to be provided and explains its merits
Marketing Plan
Describes the user benefits of the product or service and the type of market that exists
Management Plan
Describes the new firms organizational structure and the backgrounds of its key players
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Specialized Plans (contd.)

Operating Plan
Offers information on how the product will be produced or a service provided, including descriptions of the new firms facilities, labor, raw materials, and processing requirements
Financial Plan
Provides an account of the new firms financial needs and sources of financing and a projection of its revenues, costs, and profits
Pro forma statementsReports that project a firms financial condition
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What Not to Do
Mistakes to avoid in preparing a business plan:
Failing to provide solid data Failing to describe the product in lay terms Failing to thoroughly analyze the market Including financial statements that are overly detailed or incomplete Hiding weaknesses Overlooking the fatal flaw Using bad grammar Making the overall plan too long
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Resources for Business Plan Preparation

Computer-Aided Business Planning
Word processors Spreadsheets Specialized business plan software packages
Professional Assistance
Attorneys Marketing specialists Engineering and production experts Accounting firms Incubator organizations Small business development agencies
Keeping the Right Perspective

Good business plans dont ensure success.
Effective implementation is what succeeds.
Writing a business plan is primarily an ongoing process and only secondarily the means to an outcome.
The process is just as important asif not more so thanthe finished product.
The business plan represents what is anticipated; a good entrepreneur adapts the plan to fit the unexpected.
Key Terms
business plan summary plan comprehensive plan prospectus executive summary mission statement products and/or services plan marketing plan management plan operating plan
financial plan
pro forma statements

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The Business Plan: Visualizing the Dream

Part 3 Developing the New Venture Business Plan

What Is a Business Plan?

The Need for a Business Plan

To serve as a selling document to be shared with outsiders

Helps secure favorable credit terms from suppliers

Users of Business Plans

Types of Business Plans

How Much Business Planning is Needed?

Telling the Story to Others

Understanding the Investors Perspective

Features of Plans that Attract Investors

Are market-oriented in meeting customer needs; are not product-oriented.

Business Plans that Attract Investors (contd.)

Features of Plans Unattractive to Investors

Features of a Successful Business Plan

Features of a Successful Business Plan (contd.)

It must be easily and concisely explainable in a well-orchestrated oral presentation.

Preparing a Business Plan

The content of the plan

Suggestions for Writing a Business Plan

Deciding on the Content of a Business Plan

Good Opportunities Have Good Fit

Contents of a Business Plan

Vision and Mission Statement Company Overview

Specialized Plans within the Business Plan

Specialized Plans (contd.)

Resources for Business Plan Preparation

Keeping the Right Perspective

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