1. The Role of the Business Plan
Chapter 6
The Role of the Business Plan
In the Spotlight:
Photos Online, Inc.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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2. Learning Objectives: Chapter 6
1. Answer the question “What is a business plan?”
2. Explain the need for a business plan from the perspectives of both the entrepreneur and the investor.
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.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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3. A Business Plan
A business plan is a written document that accomplishes four basic objectives:
It identifies the nature and the context of the business opportunity.
It presents the approach the entrepreneur plans to take to exploit the opportunity.
It identifies the factors that will determine whether the venture will be successful.
It serves as a tool for raising financial capital.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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4. Reasons for Preparing a Business Plan
To provide a clearly articulated statement of goals and strategies for internal purposes
To create a selling document to be shared with outsiders
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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5. Users of Business Plans New Venture Business Plan
Firm’s Management
Insiders
Employees
New Venture Business Plan
Customers
Outsiders
Suppliers
Investors
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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6. Features of Good Business Plans
Business plans should
Be arranged appropriately.
Be the right length and have the right appearance.
Give a sense of the company and what it expects to accomplish.
Explain the benefits of the firm’s product/service to the end user.
Present hard evidence of the product’s marketability.
Justify financially the means chosen to sell the product.
Explain and justify the level of product development attained and the manufacturing process.
Portray the partners as a team of experienced managers.
Indicate a high “rating” of the venture’s product development and the management team’s sophistication.
Contain believable financial projections.
Show how investors can cash out in 3 to 7 years.
Be presented to the right prospective investors.
Be easily and concisely explainable in an oral presentation.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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7. Features of Poor Business Plans
Infatuation with the product / service rather than familiarity with and awareness of marketplace needs
Financial projections that are not in agreement with industry norms
Unrealistic growth projections
Need for custom or applications engineering, which makes substantial growth difficult
Source: Adapted from Phillip Thurston, “Should Smaller Companies Make Formal Plans?” Harvard Business Review (September-October 1983), p. 163.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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8. Factors Affecting the Extent of Business Plans
Time
Money
Management style and ability
Preferences of the management team
Complexity of the business
Competitiveness of the environment
Level of uncertainty
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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9. Factors Affecting the Content of Business Plans
The People
The Opportunity
The Context
Risk and Reward
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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10. Abbreviated Business Plan Outline
Title Page: Provides names, addresses, and phone numbers of the venture and its owners and management personnel; date prepared; copy number; and contact person.
Table of Contents: Provides page numbers for the key sections of the business plan.
Executive Summary: Provides a one- to three-page overview of the total business plan. Written after the other sections are completed, it highlights their significant points and, ideally, creates enough excitement to motivate the reader to continue reading.
Vision and Mission Statement: Concisely describes the intended strategy and business philosophy for making the vision happen.
Company Overview: Explains the type of company, such as manufacturing, retail, or service; provides background information on the company if it already exists; describes the proposed form of organization. Organized as follows: company name and location, company objectives, nature and primary product or service of the business, current status (startup, buyout, or expansion) and history (if applicable), and legal form of organization.
Products and/or Services Plan: Describes the product/service and points out any unique features; explains why people will buy the product or service. Offers the following descriptions: products and/or services; features of the product or service providing a competitive advantage; available legal protection patents, copyrights, trademarks; and dangers of technical or style obsolescence.
Marketing Plan: Shows who the firm’s customers will be and what type of competition it will face; outlines the marketing strategy and specifies the firm’s competitive edge. Offers the following descriptions: analysis of target market and profile of target customer; methods of identifying and attracting customers; selling approach, type of sales force, and distribution channels; types of sales promotions and advertising; and credit and pricing policies.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
6-10A

11. Abbreviated Business Plan Outline
Management Plan: Identifies the key players active investors, management team, and directors citing the experience and competence they possess. Offers the following descriptions: management team, outside investors and/or directors and their qualifications, outside resource people and their qualifications, and plans for recruiting and training employees.
Operating Plan: Explains the type of manufacturing or operating system to be used; describes the facilities, labor, raw materials, and product processing requirements. Offers the following descriptions: operating or manufacturing methods, operating facilities (location, space, and equipment), quality-control methods, procedures to control inventory and operations, sources of supply, and purchasing procedures.
Financial Plan: Specifies financial needs and contemplated sources of financing; presents projections of revenues, costs, and profits. Offers the following descriptions: historical financial statements, as available; pro forma financial statements including income statements, balance sheets, budgets, statements of cash flow and cash budgets; break-even analysis of profits and cash flows; and planned sources of financing.
Appendix of Supporting Documents: Provides materials supplementary to the plan. Offers management team biographies, any other important data that support the information in the business plan, and the firm’s ethics code.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
6-10B

12. Where to Go for More Information
Use computer-aided business planning
Use outside sources of assistance:
Attorneys
Marketing specialists
Engineering and production experts
Accounting firms
Business incubators
Small Business Development Centers (SBDCs)
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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13. BizPlanBuilder on Writing the Narrative (p. 22)
A business plan is an action-oriented document. Many, if not most, readers will not read your plan from start to finish, at least not the first time through. You want readers to be able to quickly find the section they want and locate the information they’re interested in reading within that section. Once they find what they’re looking for, the information must be clear and to the point.
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
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14. BizPlanBuilder on Interrelationship of Vision, Mission, Goals, and Objectives (p. 52)
Where Business Is Headed = VISION
How Business Will Be Conducted = MISSION
Necessary Levels of Achievement = GOALS
Specific Actions to Be Taken = OBJECTIVES
Small Business Management, 11th edition
Longenecker, Moore, and Petty
2000
South-Western College Publishing
6-13