Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 1 Crafting a Winning Business Plan

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 2 A Business Plan Is… a systematic evaluation of a venture’s chances for success. a systematic evaluation of a venture’s chances for success. a way to determine the risks facing a venture. a way to determine the risks facing a venture. a game plan for managing a business successfully. a game plan for managing a business successfully. a tool for comparing actual and target results. a tool for comparing actual and target results. an important tool for attracting capital. an important tool for attracting capital.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 3 A Business Plan A written summary of: A written summary of:  an entrepreneur’s proposed business venture  its operational and financial details  its marketing opportunities and strategy  its managers’ skills and abilities.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 4 A Business Plan: Two Essential Functions 1. Guiding the company by charting its future course and defining its strategy for following it. 2. Attracting lenders and investors who will provide needed capital.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 5 A Business Plan A plan is a reflection of its creator. A plan is a reflection of its creator. Sometimes the primary benefit of preparing a plan is the realization that a business idea just won’t work! Sometimes the primary benefit of preparing a plan is the realization that a business idea just won’t work! The real value in preparing a plan is not as much in the plan itself as it is in the process of creating it. The real value in preparing a plan is not as much in the plan itself as it is in the process of creating it.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 6 Why Take the Time to Build a Business Plan? Although building a plan does not guarantee success, it does increase your chances of succeeding in business. Although building a plan does not guarantee success, it does increase your chances of succeeding in business. A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map! A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map!

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 7 Covering the Bases in a Business Plan Key people Key people Promising opportunity Promising opportunity Business context Business context Risks and rewards Risks and rewards

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 8 Key Elements of a Business Plan Executive summary Executive summary Mission statement Mission statement Company history Company history Business and industry profile Business and industry profile Business strategy Business strategy Description of products/services Description of products/services

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 9 Features vs. Benefits Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”). Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”). Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”). Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”).

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 10 Key Elements of a Business Plan Marketing strategy Marketing strategy (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 11 Marketing Strategy Prove that a market exists Prove that a market exists  Show customer interest  Document market claims with research Business prototyping Business prototyping Describe target customers Describe target customers Advertising and promotion Advertising and promotion Market size and trends Market size and trends Location analysis Location analysis Pricing Pricing Distribution Distribution

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 12 Key Elements of a Business Plan Marketing strategy Marketing strategy (Continued) Competitor analysis Competitor analysis Owners’ and managers’ résumés Owners’ and managers’ résumés Plan of operation Plan of operation Financial forecasts Financial forecasts

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 13 Financial Forecasts Projected financial statements Projected financial statements  Monthly for one year  Quarterly for next two Income statement Income statement Balance sheet Balance sheet Cash Flow Cash Flow Capital expenditures Capital expenditures

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 14 Financial Forecasts Three forecasts Three forecasts  Pessimistic  Most Likely  Optimistic Realistic! Realistic! Include assumptions on which forecasts are based Include assumptions on which forecasts are based (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 15 Key Elements of a Business Plan Marketing strategy Marketing strategy (Continued) Competitor analysis Competitor analysis Owners’ and managers’ résumés Owners’ and managers’ résumés Plan of operation Plan of operation Financial forecasts Financial forecasts Request for funds Request for funds

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 16 Tips on Preparing a Business Plan Rid your plan of all spelling and grammatical errors. Rid your plan of all spelling and grammatical errors. Make your plan visually appealing. Make your plan visually appealing. Leave ample “white space” in margins. Leave ample “white space” in margins. Make sure your plan has an attractive cover. (First impressions are crucial.) Make sure your plan has an attractive cover. (First impressions are crucial.) Include a table of contents to allow readers to navigate your plan easily. Include a table of contents to allow readers to navigate your plan easily.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 17 Tips on Preparing a Business Plan Write in a conversational style and use “bullets.” Write in a conversational style and use “bullets.” Support claims with facts and avoid generalizations. Support claims with facts and avoid generalizations. Avoid overusing industry jargon. Avoid overusing industry jargon. Make it interesting! Make it interesting! Use spreadsheets to generate financial forecasts. Use spreadsheets to generate financial forecasts. (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 18 Tips on Preparing a Business Plan Always include cash flow projections. Always include cash flow projections. Keep your plan “crisp” – between 25 and 50 pages long. Keep your plan “crisp” – between 25 and 50 pages long. Tell the truth – always. Tell the truth – always. (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 19 Your Plan Must Pass Three Tests The Reality Test - proving that : The Reality Test - proving that :  A market really does exist for your product or service.  You can actually build or provide it for the cost estimates in the plan. The Competitive Test - evaluates: The Competitive Test - evaluates:  A company’s position relative to its customers.  Management’s ability to create a company that will gain an edge over its rivals. The Value Test – proving that: The Value Test – proving that:  A venture offers investors or lenders an attractive rate of return or a high probability of repayment.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 20 Presenting the Plan Prepare! Prepare! Demonstrate enthusiasm, but don’t be overemotional. Demonstrate enthusiasm, but don’t be overemotional. Start by communicating the dynamic opportunity your business idea offers. Start by communicating the dynamic opportunity your business idea offers. “Hook” investors quickly with an up- front explanation of the venture, its opportunities, and its benefits to them. “Hook” investors quickly with an up- front explanation of the venture, its opportunities, and its benefits to them.

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 21 Presenting the Plan Use visual aids. Use visual aids. Hit the highlights; focus on the details later. Hit the highlights; focus on the details later. Keep your presentation “crisp” – 2 or 3 major points. Keep your presentation “crisp” – 2 or 3 major points. Avoid overloading your audience with technological jargon. Avoid overloading your audience with technological jargon. (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 22 Presenting the Plan Answer every lender or investor’s question: “What’s in it for me?” Answer every lender or investor’s question: “What’s in it for me?” Close by reinforcing the nature of the opportunity. Close by reinforcing the nature of the opportunity. Be prepared (with details) for questions investors are likely to ask. Be prepared (with details) for questions investors are likely to ask. (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 23 Presenting the Plan Learn to read the pattern of investors’ questions and address the issues that concern them. Learn to read the pattern of investors’ questions and address the issues that concern them. Follow up with every investor to whom you make your presentation. Follow up with every investor to whom you make your presentation. (Continued)

Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 24 The "5 Cs" of Credit Capital Capital Capacity Capacity Collateral Collateral Character Character Conditions Conditions