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Hisrich Peters Shepherd Chapter 7 The 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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Presentation on theme: "Hisrich Peters Shepherd Chapter 7 The Business Plan: Creating and Starting the Venture Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin."— Presentation transcript:

1 Hisrich Peters Shepherd Chapter 7 The Business Plan: Creating and Starting the Venture Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

2 7-2  “Be careful not to get drunk on your own dreams. Starting a new venture requires flexibility and an open mind about change. Entrepreneurship is a process of vision and revision.” - Jordan Entrepreneur’s Adage #16

3 7-3 Planning as Part of the Business Operation  Plans provide guidance and structure in a rapidly changing market environment.  “Sanity Structure” that forces thinking on critical business issues.  Plans evolve as the entrepreneur has a better sense of the market, the product or services, the management team, and the financial needs of the venture.

4 7-4 What is the Business Plan?  A written document describing all relevant internal and external elements, needs and strategies for starting a new venture.  An integration of functional (marketing, operations, financial, organizational, etc.) plans  Generally addresses decision making for the first three to five years of operation.

5 7-5 Characteristics of Good Business Plans  Comprehensive but succint enough to quickly give any potential investor a complete picture and understanding of the new venture.  Helps the entrepreneur clarify his or her thinking about the business.  As detailed as possible about strategy and specific elements of the business.

6 7-6 Who Should Write the Plan?  The plan should be prepared by the entrepreneur or entrepreneurial team in consultation with other sources.  Consultants  Attornies  Accountants  The entrepreneur should objectively evaluate his or her own skills before deciding to hire a consultant.

7 7-7 Scope and Value of the Business Plan—Who Reads the Plan?  The plan’s target audience should determine the plan’s content and focus.  In preparing the plan it is important to consider the:  Entrepreneur’s /organization’s perspective.  Marketing (suppliers’ and customers’) perspective.  Investor's perspective.

8 7-8 Scope and Value of the Business Plan—Who Reads the Plan? (cont.)  Depth and detail in the business plan depend on:  Size and scope of the proposed new venture  The extent of the competition  Access to information and early ideation flow  Requirements of Funders, Customers, Suppliers  Time to market considerations  GENERAL RULE: “The more, the merrier; unless it delays the launch unnecessarily.”

9 7-9  “Don’t obsess over business structure, permits, licenses and other administrative formalities… Obsess over your idea, its execution and its weak points.” - Jordan Entrepreneur’s Adage #17

10 7-10  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 financing.  Inspires confidence amongst stakeholders. Scope and Value of the Business Plan—Who Reads the Plan? (cont.)

11 7-11 How do Potential Lenders and Investors Evaluate the Plan?  Lenders are interested in the venture’s ability to pay back 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.  Conservatism - Banks often cringe at new ideas and uncertain innovation.

12 7-12  Investors, particularly venture capitalists, have different needs:  Place more emphasis on the entrepreneur’s character.  Spend much time conducting background checks and business due diligence.  Demand high rates of return.  Focus on market and financial projections to determine their projected IRR in the project. How do Potential Lenders and Investors Evaluate the Plan? (cont.)

13 7-13 Presenting the Plan  The entrepreneur is expected to “sell” the business concept – the so-called “Elevator Pitch”  Focus on why this is a good opportunity right now.  Provide an overview of the marketing program; sales and profits.  Address risks and how to overcome them.  Issues not covered in the plan ALWAYS come up.  Investors will raise many questions – some of them unanswerable. DO NOT “BS” your way through them!

14 7-14 Using the Internet as a Resource  The Internet can provide information for industry analysis, competitor analysis, and measurement of market potential.  An entrepreneur can access:  Popular search engines.  Competitors’ Web sites.  Social networks, blogs, and discussion groups.  Syndicated data sources (for a fee)

15 7-15  Introductory Page  Name and address of the company.  Name of the entrepreneur(s), telephone number, fax number, address, and Web site address if available.  Description of the company and nature of the business.  Statement of financing needed.  Statement of confidentiality of report. Writing the Business Plan

16 7-16  Executive Summary  About two to three pages in length summarizing the complete business plan.  Written AFTER all other sections have been completed.  Environmental and Industry Analysis  The environmental analysis assesses external uncontrollable variables that may impact the business plan.  Examples: Economy, culture, technology, legal concerns, etc.  The industry analysis involves reviewing industry trends and competitive strategies.  Examples: Industry demand, competition, etc. Writing the Business Plan (cont.)

17 7-17 Critical Issues for Environmental & Industry Analysis

18 7-18  “If you can read about it at Barnes & Noble, you’re probably too late.” - Jordan Entrepreneur’s Adage #19

19 7-19 Describing the Venture

20 7-20 Production Plan

21 7-21  Operations Plan  All businesses (manufacturing or nonmanufacturing) should include an operations plan as part of the business plan.  It goes beyond the manufacturing process.  Describes the flow of goods and services from production or purchase to the customer.  Web/digital concepts need a navigation flowchart with “Control Flow”. Writing the Business Plan (cont.)

22 7-22  Marketing Plan  Describes strategy related to how the product/service will be distributed, priced, and promoted (the “4 P’s”).  Marketing research evidence to support any of the marketing decision strategies as well as for forecasting sales should be described in this section.  Potential investors regard a solid marketing plan as critical to the success of the new venture. Writing the Business Plan (cont.)

23 7-23  Organizational Plan  Describes the form of ownership and lines of authority and responsibility of members of the new venture.  For partnerships, the terms of the partnership should be included.  For corporations, the following should be included:  Shares of stock authorized, issued and any share options.  Names, addresses, and resumes of directors and officers.  Organization chart Writing the Business Plan (cont.)

24 7-24  Assessment of Risk  The entrepreneur should indicate:  Potential risks to the new venture.  Potential impact of the risks.  Strategy to prevent or mitigate the risk.  Major risks could result from:  Competitor’s reactions.  Weaknesses in marketing/ production/ management team.  New advances in technology and/or business models that make yours obsolete.  Shortfalls in funding and inaccurate financial projections. Writing the Business Plan (cont.)

25 7-25  Financial Plan  Contains projections of key financial data that determine the economic feasibility of the concept and the necessary financial investment commitment.  It should contain:  Pro-forma Income Statements for at least the first three years.  Pro-forma Cash Flow Statements / Budgets for the first three years.  Pro-forma Balance Sheets for the first three years.  Break-Even Analyses for the first three years. Writing the Business Plan (cont.)

26 7-26  Appendix  Contains any backup material does not belong in the body text of the document.  It may include:  Letters, agreements or quotes from customers, distributors, or subcontractors.  Secondary data or primary research data used to support plan decisions.  Leases, contracts, or other types of agreements.  Price lists from suppliers and competitors.  Partnership documents or corporate documents (i.e. Articles of Incorporation, Bylaws, etc.) Writing the Business Plan (cont.)

27 7-27  “Get ready to work 7 days a week, hours a day and over the holidays. And then expect to work some more.” - Jordan Entrepreneur’s Adage #20

28 7-28 Using and Implementing the Business Plan  The business plan is primarily designed to guide the entrepreneur through the first year of operations.  The plan should contain control points to ascertain progress and to initiate contingency plans if necessary.  Businesses fail due to entrepreneur’s inability to plan effectively.

29 7-29  Updating the Plan  Entrepreneurs must be sensitive to changes in the company, industry, and market.  Determine what revisions are needed if changes are likely to affect the business plan.  This helps entrepreneurs to:  Maintain reasonable targets and goals.  Keep the new venture on a course to a high probability of success. Using and Implementing the Business Plan (cont.)

30 7-30 Why Some Businesses Fail  Goals are unreasonable.  Loss of key team member.  Entrepreneur has not made a total commitment to the business.  Lack of experience in the planned business.  No sense of potential threats or weaknesses to the business.  No real customer need was established for the proposed product or service.  People management issues.  People and resources are stretched too thin.

31 7-31  “Be careful not to let the glory of someone else’s business sway you into opening the same thing. You have to be passionate about the work as well as the results.” - Jordan Entrepreneur’s Adage #21


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