PowerPoint Presentation by Charlie Cook The University of West Alabama chapter 8 Part 2: The Enterprising Process © 2008 Cengage Learning All rights reserved. Business Plans and Planning

© 2008 Cengage Learning. All rights reserved.8–2 Key Concepts 1.While many enterprisers start successful businesses without writing business plans, the chances of successfully starting a business increase by 250 percent for those who do write a plan. Just as a sports team benefits from practicing and preparing a game plan that provides a strategy for competition, a business plan provides practice before actually starting a business. It enables you to build your business on paper and record the actions—past, present, and future—you are taking to make your business a reality.

© 2008 Cengage Learning. All rights reserved.8–3 Key Concepts (cont’d) 2.A business plan should demonstrate that you and your partners have the requisite skills to make the business a success, demonstrate that you understand the competitive environment in which your business will operate, explain the need for and benefits of the goods or services you plan to offer, and encourage others to get involved in your business. It should include an action plan that identifies risks and suggests strategies to minimize them. Specific forecasts based on experience—your own and what you learn from others—are another key preparatory step. 3.Most business plans have three main parts: a one- to two-page executive summary with highlights, a body describing the enterprise and its major issues, and an appendix with supporting documents. Business plans are dynamic documents. As you gain knowledge about your industry and experience in running your business, you should revise your plan to reflect this additional information.

© 2008 Cengage Learning. All rights reserved.8–4 Business Plans: Why Bother? Business PlanBusiness Plan  Serves as game plan for business.  Provides opportunity to practice operating the business.  Records the specific tactics and actions taken to make the business a reality.  Can identify strategic flaws.  Helps convince others to become engaged in the business.

© 2008 Cengage Learning. All rights reserved.8–5 The Business Plan Business Plan Defined:Business Plan Defined:  A written plan for a business that:  Documents an enterpriser’s past, present, and future actions  Helps identify the right actions for success.  Shows where enterpriser is going and where the enterpriser has been.  Key Questions Answered by the Business Plan:  Why you?  Whom do you hurt?  Why now?  Why me?

© 2008 Cengage Learning. All rights reserved.8–6 Developing Action Plans Action PlansAction Plans  Are a way to identify the primary risks facing the enterprise and the specific actions to be taken to address these risks. Steps in an Action Plan:Steps in an Action Plan:  Identify risks (condition and consequence)  Develop a response strategy (deliverables and tasks)  Control and monitor the risks and responses.

© 2008 Cengage Learning. All rights reserved.8–7 exhibit 8.1Three Steps to an Action Plan

© 2008 Cengage Learning. All rights reserved.8–8 exhibit 8.2From Project to Task

© 2008 Cengage Learning. All rights reserved.8–9 exhibit 8.3Five Tips for Successful Task Construction 1. 8/80 rule: Tasks should be no smaller than 8 hours or no larger than 80 hours. 2. Tasks should be no longer than the time between reporting periods, for example, reported each week, or every other week. (And, at that meeting, one would report whether the task is “Complete” or “Not Complete.”) 3. Smaller tasks are easier to estimate. 4. Smaller tasks are easier to assign. 5. Smaller tasks are easier to track.

© 2008 Cengage Learning. All rights reserved.8–10 The Critical Path Critical PathCritical Path  The activities required to complete a project and the order in which they must be completed to keep a project on track. MilestoneMilestone  A major project that has been accomplished. ForecastingForecasting  Learn from others—the more you know, the better your forecasts.  The near future will likely resemble the near past.  Don’t minimize likely, but unfamiliar, risks.

© 2008 Cengage Learning. All rights reserved.8–11 Writing the Business Plan Knowns and UnknownsKnowns and Unknowns  What you know  What you know you don’t know  What you don’t know that you don’t know Common Mistakes in Writing Business Plans:Common Mistakes in Writing Business Plans:  Making unrealistic projections  Underestimating time requirements  Failing to understand the competitive landscape.  Doing insufficient due diligence.

© 2008 Cengage Learning. All rights reserved.8–12 Writing the Business Plan (cont’d) Know Your AudienceKnow Your Audience  Consider who they are and why they are reading your plan. Gearing a Plan to Other Readers:Gearing a Plan to Other Readers:  A business plan is like an invitation to a dance, but it is not the dance itself.  The business plan is a reflection of the enterpriser.  Write in words that your reader can understand.  When presenting financial information, it is not quantity, but quality.  Never make promises that you can’t keep.

© 2008 Cengage Learning. All rights reserved.8–13 The Business Plan Format Important: Write Your Own Unique PlanImportant: Write Your Own Unique Plan  Avoid generic or preformatted plans that don’t address the specifics of your business.  Your business plan is the story of your enterprise.  Your business plan must have your “voice” to be regarded as authentic by outsiders.

© 2008 Cengage Learning. All rights reserved.8–14 exhibit 8.4Business Plan Websites

© 2008 Cengage Learning. All rights reserved.8–15 exhibit 8.5The Business Plan Pyramid

© 2008 Cengage Learning. All rights reserved.8–16 The Business Plan Format Executive Summary: The Elevator SpeechExecutive Summary: The Elevator Speech Body of the Business Plan: The Full TourBody of the Business Plan: The Full Tour  Marketing Analysis:  Who Are Our Customers? –Primary customers –Secondary customers  Who Are Our Competitors?  Marketing Strategy:  How Will We Deliver Value to Our Customers?

© 2008 Cengage Learning. All rights reserved.8–17 exhibit 8.6Understanding Your Customers

© 2008 Cengage Learning. All rights reserved.8–18 The Business Plan Format (cont’d) Body of the Business Plan (cont’d)Body of the Business Plan (cont’d)  Implementation: Management and Organization  Who will manage the firm and what activities they will perform?  What key managerial and organizational skills necessary for different positions within the organization?  Implementation: Operations and Execution  Provides a detailed description of the activities necessary to run the day-to-day operations of the business.

© 2008 Cengage Learning. All rights reserved.8–19 exhibit 8.7Questions for Developing a Competitive Strategy 1.Is the market large enough (are there enough customers) for your business to earn the kinds of profits to warrant investment? 2.How are you different (better) than your competitors? 3.What do you do better than other competitors (your strengths)? 4.What are your weaknesses relative to your competition? 5.What will it take for a competitor to gain that same competitive advantage as your business?

© 2008 Cengage Learning. All rights reserved.8–20 The Business Plan Format (cont’d) Body of the Business Plan (cont’d)Body of the Business Plan (cont’d)  Financial Plan: How Will We Measure the Results?  Present results and projections based on the specific financing needs of the organization.  The cash flow statement serves as the fundamental operating document for the day-to-day management of the business.  Benchmark your performance estimates on key industry ratios and standards.  Appendix (Supporting Documents)  Provide detailed facts and evidence of how critical numbers were arrived at.