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Chapter 5Copyright © 2010 by Nelson Education Ltd. Developing an Effective Business Plan 5 PowerPoint Presentation by Ian Anderson, Algonquin College
Chapter 5Copyright © 2010 by Nelson Education Ltd. Looking Ahead After studying this chapter, you should be able to: 1.Answer the question “What is a business plan?” 2.Explain the need for a business plan from the perspectives of the entrepreneur, the investor, and the lenders. 3.Describe what determines how much planning an entrepreneur and a management team are likely to do. 4.List practical suggestions to follow in writing a business plan and outline the key sections of a business plan. 5.Identify available sources of assistance in preparing a business plan. 5-2
Chapter 5Copyright © 2010 by Nelson Education Ltd. What Is a Business Plan? Business Plan A document that sets out the basic idea underlying a business and related start-up considerations Identifies the nature and context of the business opportunity Presents the entrepreneur’s approach to exploiting the opportunity Identifies factors affecting the venture’s success Serves as the entrepreneur’s tool for raising capital Writing a business plan is an ongoing process, not just the means to an end product or outcome 5-3
Chapter 5Copyright © 2010 by Nelson Education Ltd. The Need for a Business Plan Primary Functions To provide a clearly articulated statement of goals and strategies for internal use Imposes discipline on the entrepreneur and management team To serve as a selling document to be shared with outsiders Provides a credible overview for prospective customers, suppliers, and investors Helps secure favourable credit terms from suppliers Opens approaches to lenders and other sources of financing 5-4
Chapter 5Copyright © 2010 by Nelson Education Ltd. Users of Business Plans Exhibit 5-1 5-5
Chapter 5Copyright © 2010 by Nelson Education Ltd. Common Business Plan Flaws Overly optimistic financial projections, inadequate competitive analysis and/or weak environmental assessments Vague marketing strategies Lack of research Unprofessional presentation Hazy timelines, vague risk assessment 5-6
Chapter 5Copyright © 2010 by Nelson Education Ltd. The Investor’s Perspective Plans that speak the investors’ language: Are concise, not extremely long in written length. Have an attractive overall appearance. Are well-organized with a table of contents and numbered pages. Are market-oriented in meeting customer needs; are not product-oriented. Show evidence of customer acceptance of the proposed product or service. 5-7
Chapter 5Copyright © 2010 by Nelson Education Ltd. Features of Plans that will Repel Investors Plans that create unfavourable reactions: Show an infatuation with the product or service and downplay market needs or acceptance. Are based on financial projections at odds with accepted industry norms. Have unrealistic growth projections. Contain a need for custom or applications engineering, which makes substantial growth difficult. 5-8
Chapter 5Copyright © 2010 by Nelson Education Ltd. Business Plans that Attract Investors Recognize the investors’ needs for required rates of return on investments. Demonstrate evidence of focus on a limited number of products or services Have a proprietary market position through patents, copyrights, and trademarks 5-9
Chapter 5Copyright © 2010 by Nelson Education Ltd. The Lender’s Perspective Bankers assess business plans on the following 5 Cs of Credit: –Collateral assets to put toward credit –Capacity strength of cash flow –Capital personal investment in business –Conditions industry risk and conditions –Character competence and credit history 5-10
Chapter 5Copyright © 2010 by Nelson Education Ltd. Business Planning Needed and Influencing Factors Factors affecting the extent of a business plan: Cost in time and money to prepare the plan Preferences of the management team Complexity of the business Competitive environment Level of uncertainty 5-11
Chapter 5Copyright © 2010 by Nelson Education Ltd. Preparing a Business Plan Two issues critical in preparing a business plan: The basic format and effectiveness of the written presentation. Clear writing that presents the concept in an accurate, comprehensible and enthusiastic way The content of the plan. Factual support for the concept in the form of strong supporting evidence 5-12
Chapter 5Copyright © 2010 by Nelson Education Ltd. Deciding on the Content of a Business Plan The People Those involved in starting and running the venture The Opportunity The business’ profile—products, customers, expected growth, profitability, and anticipated challenges and problems The Context The big picture—the firm’s competitive environment Risk and Reward Assessment of potential problems and responses 5-13
Chapter 5Copyright © 2010 by Nelson Education Ltd. Business Plan Overview Title Page Table of Contents Executive Summary Synopsis Narrative Mission Statement and Goals Company Overview Products and/or Services Plan Marketing Plan Operating Plan Financial Plan Appendix of Supporting Documents 5-14
Chapter 5Copyright © 2010 by Nelson Education Ltd. Specialized Plans within the Business Plan Products and/or Services Plan Describes the product and/or service to be provided and explains its merits Marketing Plan Describes the user benefits of the product or service and the type of market that exists Management Plan Describes the new firm’s organizational structure and the backgrounds of its key players …continued 5-15
Chapter 5Copyright © 2010 by Nelson Education Ltd. Specialized Plans within the Business Plan Operating Plan Offers information on how the product will be produced or a service provided, including descriptions of the new firm’s facilities, labour, raw materials, and processing requirements Financial Plan Provides an account of the new firm’s financial needs and sources of financing and a projection of its revenues, costs, and profits Pro forma statements—Reports that project a firm’s financial condition 5-16
Chapter 5Copyright © 2010 by Nelson Education Ltd. Resources for Business Plan Preparation Computer-Aided Business Planning Word-processing Spreadsheets Specialized Business Plan Software Packages (BizPlan) Professional Assistance Lawyers Marketing specialists Engineering and production experts Accounting firms Incubator organizations Small business development agencies 5-17
Chapter 5Copyright © 2010 by Nelson Education Ltd. A Business Plan Checklist Executive Summary Marketing Section Operations Section The Management Team The Financial Section Appendixes 5-18
Chapter 5Copyright © 2010 by Nelson Education Ltd. Research to Support the Plan Both primary and secondary research must be carried out by the writer of the business plan. Secondary Research –secondary published sources –books, published reports, newspaper, journal articles, statistics databases, and Internet sites Primary Research –derived directly from people –experts in the field, professionals such as lawyers and accountants, industry contacts such as trade association representatives or suppliers and potential customers 5-19
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