2 “Writing a Business Plan forces you into disciplined thinking, if you do an intellectually honest job. An idea may sound great, but when you put down all the details and numbers, it may fall apart”Eugene Kleiner, Venture Capitalist
4 What is a Business Plan?A Business Plan is the most preferred route of communication between Entrepreneurs/Management of a organization with potential Investors.It is an indispensable tool to plan the organizations goals and objectives and direct activities to achieve them.A document that demonstrates the ability of the business to operate efficiently, effectively and productively to make a satisfactory profit and be attractive to potential backers.Most importantly, a business plan is a document that sells your VISION, and opening the door to investors.
5 Reason for writing a Business Plan BIG IDEA! Put pen to paper.To help you understand an opportunity and how to exploit it.To re-focus a business following start-up.Motivate and focus the management team.Attract key employees.Obtain large contracts.Obtain bank financing.Obtain investment / growth funds from investors.Arrange the most suitable strategic alliances.Complete Mergers & Acquistions.
6 Business Idea Generation Where does the Business Plan fit in?Established companyGrowthEntry toCapital MarketBusiness Start UpFinancing decision – Strategic Investors/VC’sBusiness Idea GenerationBUSINESS PLANInterest of Angel Investors
7 Time HorizonIt takes at least days to prepare a Business Plan after all Market & Business Information such as financials, management information is received.Funding Raising itself takes anywhere between 2- 6 months to complete, from the first meeting to close.
8 Points to keep in mind The Full length Business Plan 10 - 50 pages The Executive Summary:up to 2 pagesThe Summary Business Planup to 10 pagesThe Operational Detailed Business PlanpagesSubject matter should have graphs and picturesAllied material should go to the appendix
9 What should be the Contents? Cover PageExecutive SummaryCompany OverviewMarket OverviewStrategic OverviewFinancial OverviewUse Of ProceedsCurrent Offering
10 Contents of a Business Plan Executive SummaryA Good summaryCaptures the reader’s interest and imaginationConveys a clear picture of what you are trying to doHighlights the salient features of the propositionEstablishes the Management’s credentials at the outsetEncapsulates Financial Opportunity & Key projectionAnd thus persuades the reader to keep reading !
11 Contents of a Business Plan Company OverviewThe Industry & its Size (Historical,Current,In 5 years)The Company (Vision, Mission, Objectives)Founders and their brief profilesThe Products / ServicesFunding till date and funds soughtOverview of Service and Value proposition
12 Understand what stage your company is at and what exactly is your need Company LifecycleUnderstand what stage your company is at and what exactly is your needThe ChasmThe WallStrategic Investors /Venture CapitalCapital MarketAngelInvestors / FoundersIPOEarlyStageStart Up/Seed CapitalLater StageSecondaryOfferingsMezzanineRevenueCBATimeIdea GenerationTestingStart-up/Seed Capital: Market research and product development.Early Stage: Funding full-scale operations and selling products/services. Not yet profitable.Later Stage: Funding expansion and new products. Near break-even.
13 Contents of a Business Plan Company OverviewManagement overviewProfile of Key ManagementWhat are the core competencies of each team member?What value addition does each bring to the company/project?Do not hesitate to explain their relevant industry experience, skills, achievements and track records.What are the gaps in the team and how would you fill them?Use all opportunity in the plan to highlight the ability of your team to pursue any venture
14 Contents of a Business Plan Contents Market OverviewMarket need & opportunity -What unfulfilled need the product satisfies?What is the gap in the market that can be exploited?Define and quantify the opportunity - future and complementary marketTarget Customers and demographicsMarket size & analysisMarket Size & Growth rateIs it a new market, growth market, or established marketCurrent market share
15 Contents of a Business Plan Contents Market OverviewCompetitor analysisOverview of landscapePoint of differentiation of product/offering as compared to competitorSubstitute productsHow the dynamics of competition might evolve over time in terms of price, margin erosion, etc.How existing competitors are likely to respond to your market entryOther potential entrants to the market and SWOT analysisBARRIERS TO ENTRYBe thorough – leave no stone unturned
16 Contents of a Business Plan Strategic OverviewSummarize your GO TO MARKET strategyDefine with respect to the 4 P’s – Product, Pricing, Place and Promotion Mix, 7 P‘s for service offerings.Lay out the design and development plansDevelopment status and tasksDifficulties and RisksProduct improvement and New productsCostsChalk out the Revenue channelsChalk out Revenue ModelsList the key customers
17 Contents of a Business Plan Financial OverviewProvide 5 Year ProjectionsALL KEY ASSUMPTIONS SHOULD BE STATED OUT CLEARLYProvide the Revenue Projections (top line)Financial projection of related expensesFinancial projections of Balance SheetCreate Pro forma cash flows Statements + AnalysisProvide Breakeven chartBE PREPARED TO EXPLAIN NUMBERS – Investors will “drill down“
18 Contents of a Business Plan Contents Financial Overview : Break Even AnalysisBreak Even Point is that point at which sales value, sales volume or production makes no profit or loss. This is the level at which all costs are covered, leaving Nil profits or losses.Break even analysis is a mathematical model that provides answers to many important questions. e.g. (1) If prices increase by 5%, what is the effect on profits? (2) If Fixed Cost decrease by 10%, what happens to the break-even point? (3) If Fixed Cost decrease by 10% prices increase by 5% and you want to increase profits at the rate of 10% how many units must you sell?Variable Costs: Costs that vary directly with number of units sold; they include materials plus labour plus a percentage of overhead directly allocated to the sale of a given number of units.
19 Selling Price (Per Unit) – Variable Cost (Per Unit) Contents of a Business PlanFixed Cost: Costs that remain unchanged with the number of units sold; they include rent, utilities, insurance, salaries, etc.Total costs: Variable costs plus fixed costs.Selling price per unitBreak Even Point (units) := Total Fixed CostSelling Price (Per Unit) – Variable Cost (Per Unit)= Selling Price (in Rs/ $) * Break Even Point (In Units)Break Even Point (in Rupees / Dollars)
20 Financial Overview : Format for Developing Cash Flows
21 Contents of a Business Plan Contents Financial OverviewRISK FACTORSDefine the key risk factorsWhat steps have you undertaken and your plans to combat them in futureProject the possible “UPSIDES“ and “DOWNSIDES“Provide a sensitivity analysis - what if situations.
22 Contents of a Business Plan Use of ProceedsDescribe the funding soughtDefine the need: Plant, premises, technology, staff, research and developmentDetail the usage and stages of fund infusion requiredShow the fund utilisation for the projected tenureDefine the milestonesWhat are the key success factorsWhat would be the key milestones against which funds would be drawnClearly map the risk reduction matrices
23 Contents of a Business Plan Current OfferingsValuation Define the basis for valuationBE PREPARED to justify the same by reference to Industry standards, recent market deals and the tempo of the stock markets.Are there any special factors that drive up the valuation, e.g. – Management, technology, orders in hand, brand strengthWhat percentage of the company are you offeringWhat is the current capital structureWhat is the securities that you can offerWhat are the planned exit routes for investors / Company
25 FAQ’s for making a Business Plan Why do I need a business plan?A business plan is often the entry-level requirement to getting investor capital or bank loans.How many pages is the typical business plan?The length of a typical business plan can greatly vary from a 10 page to a 50 page document. Key is to keep it short simple and yet concise.What ‘tone’ should the plan have? Keep the tone of your business plan factual.Don't use generalizations to describe the Business potential. Investors and lenders use the factual information you present to reach their own conclusions
26 FAQ’s for making a Business Plan Are extensively detailed plans better? Keep your plan succinct. People tend to use too much detail when creating plans. Details could be added in a separate section called “Appendix”How technical should the Business Plan be?Do not make extensive use of Jargon – as that presumes that audience members are experts in your field.Also too much technical details distracts from the main overall focus.
27 FAQ’s for making a Business Plan How much money do you need?More than you think, less might be offered. Taking too much money dilutes the stock. Be realistic – raise sufficient cash to last for 2 to 3 years and resist the temptation to sell out early.How to benchmark costs & profits? Get data for firms in your field or industry association. Compare the numbers with firms ofsimilar size in the same industry.
28 FAQ’s for making a Business Plan How detailed should budgets be? Budgets must highlight all financial aspects in a Budget Summary and have supporting details availableWhich pro forma is most important? Cash flow would be the key. It is nice to project a profit, but if you run out of cash, your business will be dead, so keep your projection updated.However due importance must be given to the Balance Sheets as well as P&L Accounts
29 FAQ’s for making a Business Plan Should I hire an expert to prepare the financials? A potential lender or equity investor wants to see not only that the numbers look good, but also that you understand them inside and out.Be a major decision maker in the preparation of your financials but look for professional help with respect to creation, presentation and negotiations.This is because Professionals / Advisors/ Consultants possess the expertise required in putting together a Winning Business Plan
30 How does a Consultant / Advisor help? Advisors help you to create a robust Business plan, which will be concise and yet comprehensive, and can convey the BIG PICTURE and your COMPANY POTENTIAL to the prospective audience. And also help with respect to creation, presentation and negotiations.They guide you extensively to pitch your Business Plan to VC’s Private Equity, HNI’s as well as Strategic InvestorsConsultants additionally help you to streamline your organizations operations, so as to successfully implement the BIG IDEA
31 What to look for when Recruiting Business Plan Consultants? Be selectiveLook for experienceLook for diversified skill setsClearly articulate your expectationsDemand active involvementAlso assistance to help build & run the company can be sought
33 Commonly Made Mistakes Procrastination :- DelayToo Much InformationHiding WeaknessesNo clear business modelNo real Assessment of RisksFinancial ProjectionsHockey-stick shaped growth projectionsGeneralized Market SizeThe Big DealDistribution ChannelsCompetitor Analysis
34 Commonly Made Mistakes Procrastination: Many business owners under estimate the time & effort required to write a business plan. Don't delay. If your organization is not functioning as desired or you need capital in six months, now is the time to put it togetherToo Much Information: Objective is to focus on key elements of the plan & make your case as succinct as possible. Pages of detailed information can be put in an Appendix and referenced when required.Hiding Weaknesses: Most Business plan writers thinkWhy draw unnecessary attention to negative aspectsIf we ignore the weaknesses, they may go awayOnce we get funding, we can deal with the problematic areasWhat investors don't know won't hurt themIf there is a weakness in your business model or Plan the savvy investor will find it within minutes. Once this blunder is uncovered it is obvious that you haven't been completely forth-right.
35 Commonly Made Mistakes No clear business model: You may have an idea but the business model that you would be following needs to be explained in clear precise words, such as how will you make money, what is the path to profitability etc. Very often writers also loose focus while writing Business Plans, thus it is essential to have a clear focusFinancial Projections: You should be able to provide some rationale as how your projections were put together. Data that is inconsistent with industry norms and overly aggressive should be avoided.Hockey-stick shaped growth projections: Have projections that are conservative so you can defend them. When in doubt, be less optimistic.Generalized Market Size : Claiming your market size as huge will lose credibility of your plan. In the future you can target different segments but for now focus on specific segments you can serve effectively.No real Assessment of Risks: Risks are normally outside the realm of your business. An assessment of what market forces are there that could prevent your plan from being successful in the future.
36 Commonly Made Mistakes Assessment of Risks: Description of RiskCost Overruns in R&D and ProductionFailure to meet production deadlinesProblems with Suppliers and DistributorsSales Projections not attainedUnforseen Economic, Political,Social,Technological DevelopmentsCompetitive Price CuttingUnforseen industry trendsCapital ShortageCyclical FluctuationsOther Risks
37 Commonly Made Mistakes The Big Deal: Your business may have signed a big contact with a major Client and over-emphasis of this deal can be viewed as a weakness. If 80% of your revenues are based on a one-company contract, your company could tank if the deal goes bust. Highlight that your company is adept at winning big contracts or forging strategic partnerships and this skill will be utilized to diversify the client base.Distribution Channels : How the product / service reaches the market is an important aspect of the business plan. Resist the temptation to cover all modes by listing every channel possibility it just shows that you lack a channel strategy.Competitor Analysis: Listing names and addresses of your competitors is NOT a competitive analysis. The investor is interested in knowing what you see from your competitors in the near term; their strategic direction, core competencies, why do customers opt for them, their weaknesses and if they can be exploited.
38 Final checklist Write a nice covering letter Explicitly add confidentiality clause in the beginningProvide a table of contentsCheck all Financials numbers are in consistency with Summary & ProjectionsCheck that all sections are completeMake sure all Appendices are includedGet your plan reviewed by othersWrite in bullet format, rather than narrativeLook for spelling mistakesCheck page number consistencyDont use too many colours & fontsDo not bind in a hard folder
40 What are investors looking for? A keen sense of the pulse of the marketA passionate and never say die attitudeA large market opportunityA reality based/grounded propositionScalability and growth potentialA competitive value testA sound financial value propositionStrong TeamA path way to success with quick returns and high liquidityExit Route
41 Commonly Asked Questions on Business Plan by Investors Team / Key Personnel: Explain the team, their background& working experience (relevant to the venture).Financial Projections: Explain the 3-5 year forecast of all revenue streams, as well as cash flows.Clients: Who are the current clients? And in the pipelineBusiness Model: How do you sell and at what price points, What market segments are you targeting?Competition: Who are the major competitors?Strategies & Tactics: Your USP & differentiationUse of Proceeds: Explain the use of the capital to be raised.Investors: Who are the other investors in the round?
42 Investor/VC Observations Investors/VC’s do not expect you to spend your own moneyBUT they expect you to spend money as though it were your ownInvestors/VC’s do not want you to starveBUT they do want you to be hungry
43 Contact us- firstname.lastname@example.org About UsD’Essence is a Management Consulting, Business Planning & Strategy, M&A Advisory and Consulting boutique firm.We assist organizations to :- Build, Grow and Remain CompetitiveWe advise companies on Start-ups, Entry strategy, Building markets and Sales, Improving productivity and Bottom line performance. Provide Market access and funding through Venture Capital, Private Equity Funds, HNI’s as well as Professional Corporate BodiesWe also aid organizations grow through organic and inorganic routes using tools like M&A - forming Joint Ventures , Partnerships and Strategic AlliancesSince we have operating experience, have set up organizations and created Business Plans for our clients, we could also help you write your WINNING BUSINESS PLANOther Services Include:- India Entry Strategy, Strategic planning , Feasibility studies, Sales and Marketing Strategy, Management Audit & Review, Post-Merger Integration