Presentation on theme: "Developing a Business Plan"— Presentation transcript:
1 Developing a Business Plan Why a Business Plan is ImportantWhat Goes into a Business Plan?How to Create an Effective Business PlanChapter 3
2 Why Businesses FailAccording to the U.S. Small Business Administration (SBA), over 50% of small businesses fail within the first 5 yearsLack of experienceInsufficient capitalPoor locationPoor inventory managementOver investment in fixed-assetsPoor credit arrangementsPersonal use of business fundsUnexpected growthCompetitionLow sales
3 The Business Plan Business Plan A written document that describes all the steps necessary for opening and operating a successful businessIt describes yourproductsmanufacturing methodscustomersmanagementsupplierscompetitive strategieshow business will earn a profitfuture growth plansBesides the idea, what’s the next most important part of starting your own business?
4 The Business PlanBusiness plans may be internally or externally focusedInternally – to educate employees on new business directionsExternally – to make outsiders aware of your business; specifically investorsBank LoansAngel InvestorsVenture Capitalists
5 Investors Bank Loans SBA Loan Programs 7(a) Loan Program Up to $750,000Available to start ups with less than $7 million net worthMost require 2-3 years of financial statements and some owners equity in business504 Loan ProgramSupplies funds for asset purchases (i.e. land or equipment)Up to $1,000,00040% from a Certified Development Company (CDC)10% equity of the borrower7(m) Microloan ProgramUp to $35,000Must enroll in technical assistance classes administered by the micro-lender intermediaries
6 Investors Angel Investors An affluent individual who provides capital for a business start-up, usually in exchange for ownership equityU.S. Angels invest a total of around $20 billion per year in around 60,000 businesses.Angels invest in around 1 out of every 10 business investment deals considered, or 10%.The average Angel Investor is 47 years old, college educated, and self employedThe average angel investor has an annual income of $90,000, a net worth of $750,000, and invests $37,000 per venture.9 out of 10 angel investments are devoted to start-ups with fewer than 20 employees, and 7 out of 10 angel investments are made locally (within 50 miles of the Angel’s home).9 out of 10 angels provide additional support via personal loans or loan guarantees to the firms in which they invest.Angels expect a 26% average annual return at the time they invest – and expect about one-third of their investments to result in a substantial capital loss.Angels spend an average of 3.5 months conducting due diligence on each investment.The most common reasons angels reject deals are insufficient growth potential, overpriced equity, insufficient talent of the management, or lack of information about the entrepreneur or key personnel.
7 Investors Venture Capitalists A firm that manages the pooled money of others in a professionally-managed fundVenture capitalists (VCs) invest a total of around $30 billion per year in around 4,000 businesses.VCs invest in only about 1 out of every 100 business investment deals considered, or 1%.VCs look at substantially more deals than Angel Investors.The average VC invests $7.5 million per venture and expects a 25% average annual return.Although most VC firms have a website and other ways of sending in cold call solicitations, it is best to be referred to a VC by someone who is known to the VC.VCs conduct significantly more due diligence than angel investors do, spending an average of 5 months on due diligence for each investment.Overall, VCs have more sector experience, invest in larger firms, and conduct more sector research. They meet an entrepreneur more often before investing, take more independent references on the entrepreneur, and analyze the financials more thoroughly. VCs demand a more comprehensive business plan from the entrepreneur; incur more research costs; document their investment process more; consult more people before investment; and take longer to invest.
8 Purposes of a Business Plan explains the idea behind your businesshow your product or service will be produced and soldsets specific objectives and how your business will achieve themdescribes the experience of the people who will run the business
9 Importance of a Business Plan makes you think about all aspects of your businessmay help you secure financinghelps you communicate your ideas to otherscan serve as a tool for managing your business
10 Basic Elements of a Business Plan The main body of a business plan should be organized into the following elements:IntroductionMarketingFinancial ManagementOperationsConcluding Statement
11 Introduction A detailed description of business goals Ownership and legal structure of the businessYour skills and experienceThe competitive advantages of the business
12 Introduction Detailed Description Describe how you came up with your businessOutline the business goals for theShort-termMedium-termLong-term
13 Introduction Ownership and Legal Structure sole proprietor, partnership, or corporationidentify leadership teamlist number of shareholders
14 Introduction Skills and Experience of the Leadership Team list all of your relevant business experiencepaid workvolunteer workhobbieslist all of the relevant business experience of your leadership team
15 Introduction Advantages Performance Quality Reliability Distribution PricePromotionPublic image or reputation
17 Marketing Products and/or services What are you providing How is it different from your competitionUnique features/benefits
18 Marketing Target Market Market Segmentation – breaking down a group of consumers into smaller groups with shared common characteristicsDemographicsage, marital status, gender, ethnicity, education, income, etc.Example: women business owners b/w 25 – 40 who earn $50,000+ per yearPsychographicstastes, opinions, personality traits, lifestyle habitsExample: people who live in the city and like to listen to jazzGeographic Datageographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codesExample: number of people who live within 5 miles of your business
19 Marketing How is it different from your competition SWOT Analysis Strengths, Weaknesses, Opportunities, and ThreatsStrengthsWeaknessesInnovationFast Store OpeningsStrong FinancialsLow Employee SatisfactionUS-focused OrganizationSmall Product MixOpportunitiesThreatsInvestment in New MarketsNew Store OpeningsIncreasing Specialty Coffee MarketIncreasing CompetitionChange in Customer PerceptionChange in Economic Environment
20 Marketing Industry External factors affecting your business Growth potentialEconomic trendsTechnology trends
21 MarketingLocationOne of the most important decisions when starting up a new businessIs the facility easily accessible to your potential customers?Is the location convenient to where you live?Can you find a number of qualified employees in the area in which the facility is located?Are the lease terms and rent favorable?Is the facility consistent with the image you'd like to maintain?Is the facility located in a safe neighborhood with a low crime rate?Are neighboring businesses likely to attract customers who will also patronize your business?Are there any competitors located close to the facility? If so, can you compete with them successfully?Is parking space available and adequate?If your business expands in the future, will the facility be able to accommodate this growth?
22 Financial Management Identification of Risks Prospective lenders and investors will want to know what risks your business faces and how you plan to deal with them.
23 Financial Management Financial Statements pro forma financial statementa financial statement based on projected revenues and expensesFunding Request and Return on Investmentborrowed moneypersonal investmentanticipated return on investment
24 Operations Daily business management Hiring and personnel procedures InsuranceLease or rental agreementsEquipment
25 Operations Harvest Strategy the way an entrepreneur intends to extract his or her money from a business after it is operating successfullyAlso known as an Exit Strategy
26 Concluding Statement Summarize goals and objectives. Emphasize your commitment to the success of your business.
27 Completing the Business Plan Introductory ElementsCover letterTitle pageTable of ContentsStatement of purposeExecutive Summary
28 Completing the Business Plan Cover Lettera letter that introduces and explains an accompanying document or set of documentsGenerally one page at most in length
29 Completing the Business Plan Title PageTable of ContentsStatement of PurposeExplanation of why you are asking for a loan and what you plan to do with the money
30 Completing the Business Plan Executive SummaryShort restatement of the reportShould be well-written and clearly state your main pointsOften this is the only page executives read and can determine whether or not they even consider your requestShould include the following information:Description of your business concept; what is unique about itSales projections, costs, and profitsNeeds assessment (inventory, land, building, equipment, etc.)Capital requirements (how much you want to borrow)
32 Completing the Business Plan AppendixIncludes supporting documents that provide additional information to support the body of the reportAnything potential investors would want to know before lending you money…Tax returnsPersonal financial statement of the ownerCopy of proposed leaseCopy of licenses and other legal documentsCopy of resume of the ownerLetters of recommendationCopy of letters of intent from suppliersCopies of any large sales contracts
33 Business Plan Outline Introductory Element Main Body Cover LetterTitle PageTable of ContentsStatement of PurposeExecutive SummaryMain BodyIntroductionMarketingFinancial ManagementOperationsConcluding StatementAppendix or Supporting Documents
34 How to Create an Effective Business Plan ? ResearchMost entrepreneurs spend 50 to 100 hours developing their business plans.ResourcesRealistic
35 Resources Small Business Administration (SBA) an independent agency of the federal governmenthelps Americans develop new businessesSmall Business Development Centers (SBDC)a cooperative effort of the private sector, the educational community, and federal, state, and local governmentsprovides free help for businesses that cannot afford a private consultantService Corps of Retired Executives (SCORE)retired executives provide free, confidential advice to entrepreneurseither in person or over the Internetbusiness related workshopsboth short-term and long-term assistance is available
36 Resources Chamber of Commerce Trade Associations provides information on local business trendsTrade Associationsorganizations that are made up of professionals in a specific industryprovide educational and networking opportunitiesProfessional Consultantsexperts who will provide business assistance for a feeFinancial InstitutionsBankers and accountants can provide information about loans and financial statements
37 Resources Print Resources Online Resources Library Magazines Government DocumentsOnline Resourcesprovide information similar to print informationwebsites targeted to entrepreneurs and small business ownersprovide business plan templates
38 Mistakes in Business Planning Avoid making the following mistakes:Unrealistic financial projectionsAn undefined target marketPoor researchIgnored competitionInconsistencies in the business plan