Chapter 11: Business Plan 1 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Crafting a Winning Business Plan

Chapter 11: Business Plan 2 Copyright 2005 Prentice Hall Inc. A Pearson Education Company The Business Plan Business plan – a written summary of: Business plan – 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 11: Business Plan 3 Copyright 2005 Prentice Hall Inc. A Pearson Education Company The Business Plan: Three 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. 3. Demonstrating that the entrepreneur understands the business venture and what will make it succeed.

Chapter 11: Business Plan 4 Copyright 2005 Prentice Hall Inc. A Pearson Education Company A 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 - evaluating: The Competitive Test - evaluating:  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 11: Business Plan 5 Copyright 2005 Prentice Hall Inc. A Pearson Education Company 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 11: Business Plan 6 Copyright 2005 Prentice Hall Inc. A Pearson Education Company 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

The relationship among mission, goals, and objectives. Mission Goals Objectives

Chapter 11: Business Plan 8 Copyright 2005 Prentice Hall Inc. A Pearson Education Company 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 11: Business Plan 9 Copyright 2005 Prentice Hall Inc. A Pearson Education Company 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 11: Business Plan 10 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Key Elements of a Business Plan Marketing Strategy Marketing Strategy Competitor Analysis Competitor Analysis Description of Management Team Description of Management Team Plan of Operation Plan of Operation Forecasted Financial Statements Forecasted Financial Statements Loan or Investment Proposal Loan or Investment Proposal (continued)

Chapter 11: Business Plan 11 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Guidelines for Preparing a Business Plan Remember: No one can create your plan for you. Remember: No one can create your plan for you. Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections. Potential lenders want to see financial projections, but they are more interested in the strategies for reaching those projections. Show how you plan to set your business apart from competitors; don't fall into the “me too” trap. Show how you plan to set your business apart from competitors; don't fall into the “me too” trap. Identify your target market, and offer evidence that customers for your product or service exist. Identify your target market, and offer evidence that customers for your product or service exist.

Chapter 11: Business Plan 12 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Tips on Preparing a Business Plan Make sure your plan has an attractive cover. (First impressions are crucial.) Make sure your plan has an attractive cover. (First impressions are crucial.) 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. 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. Make it interesting. Make it interesting.

Chapter 11: Business Plan 13 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Tips on Preparing a Business Plan Your plan must prove that the business will make money (not necessarily immediately, but eventually). Your plan must prove that the business will make money (not necessarily immediately, but eventually). Use spreadsheets to generate financial forecasts. Use spreadsheets to generate financial forecasts. 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 11: Business Plan 14 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Presenting the Plan Demonstrate enthusiasm, but don’t be overemotional. Demonstrate enthusiasm, but don’t be overemotional. Know your audience thoroughly. Know your audience thoroughly. “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. Hit the highlights; focus on the details later. Hit the highlights; focus on the details later. Keep your presentation simple – 2 or 3 major points. Keep your presentation simple – 2 or 3 major points.

Chapter 11: Business Plan 15 Copyright 2005 Prentice Hall Inc. A Pearson Education Company Presenting the Plan Avoid overloading your audience with technological jargon. Avoid overloading your audience with technological jargon. Use visual aids. Use visual aids. Close by reinforcing the nature of the opportunity. Close by reinforcing the nature of the opportunity. Be prepared (with details) for potential investors’ questions. Be prepared (with details) for potential investors’ questions. Follow up with every investor to whom you make your presentation. Follow up with every investor to whom you make your presentation. (continued)

Chapter 11: Business Plan 16 Copyright 2005 Prentice Hall Inc. A Pearson Education Company The “5 Cs” of Credit Capital Capital Capacity Capacity Collateral Collateral Character Character Conditions Conditions