1. Entrepreneurship and Small Business Management
Chapter 4
The Business Plan:
Road Map to Success

2. Ch. 4 Performance Objectives
Know what a feasibility analysis is and when to create one.
Know what a business plan is and how to describe it.
Explain the various purposes for a business plan and the audience for it.
Understand the components of a business plan.
Be able to demonstrate proper development and formatting of a business plan.

3. What Is a Feasibility Analysis?
A study to assist in making the “go/no go” decision
Used to test a business concept in three areas:
Product and/or service feasibility
Market and industry feasibility
Financial feasibility

4. Analyzing Product and/or Service Feasibility
Can the product or service be produced and delivered at a profit, in an ongoing manner?
Is there sufficient customer demand for the product or service?

5. Analyzing Market and Industry Feasibility
How attractive is the opportunity in the proposed industry?
Do any strategic, defensible niches exist in the proposed market?

6. Porter’s Five Forces Analysis
Competitive Rivalry Among Existing Firms
Bargaining Power of Suppliers
Threat of Substitute Products
Bargaining Power of Customers
Threat of New Entrants

7. Competitive Rivalry Factors More Attractive If… Number of firms
Size of firms
Industry size/trend
Differentiation
Larger or fewer than five
Varied
Growing rapidly
Differentiation matters

8. Barriers to Entry Factors More Attractive If… Low for entry
Capital requirements
Cost advantage
Economies of scale
Switching costs
Brand loyalty
Distribution channels
Public policies
Low for entry
Not based on firm size
Minimal or absent
Low cost to change suppliers
Customer resistance to change is low
Channels established, but open
Policies do not impede entry; may facilitate entry

9. Threat of Substitutes Factors More Attractive If… Convenience
Substitute pricing
Supply of substitutes
Switching costs
Public policies
Not readily available
Prices not significantly lower
Supply is uneven or limited
High cost to change suppliers
Make substituting difficult or illegal

10. Supplier Power Factors More Attractive If… Brand reputation
Substitutes for supplies
Switching costs
Impact of individual supplier on costs
Not critical
Easy substitution
Relatively low
Small portion of overall costs of finished products

11. Buyer Power Factors More Attractive If… Variable Buyer size
Number of buyers
Product importance
Delivery demands
Switching costs
Product differentiations
Information availability
Variable
Large number of buyers
Small part of costs of goods
Restricted geographic area
Relatively high
More differentiation, fewer commodities
Hard for customers to compare features and prices

12. Analyzing Financial Feasibility
How much start-up capital is required?
How much revenue is expected (based on anticipated pricing and volume)?
What are the expected costs?
Projected revenues, less projected costs, equals potential profit. Evaluate the return on the capital invested to make a “go/no go” decision.

13. What Is a Business Plan?
Document that thoroughly explains a business idea and how it will be carried out
Story of what the business is and will be
All costs and a marketing plan
Description of financing
Estimate of projected earnings

14. Why Create a Business Plan?
Saves time and money
Key to raising capital
Serves as an operations guide

15. Business Plan Components
Cover page
Table of contents
Executive summary
Mission, vision, and culture
Company description
Opportunity analysis
Marketing strategy and plan
Management and operations
Financial analysis and projections
Funding request
Exit strategy
Appendices

16. Cover Page and Table of Contents
Name of the business
Name of the principals
Date
Contact information
Confidentiality statement
Include enough detail to easily find a section.
Avoid excessive detail which uses too many pages.

17. Executive Summary Should Be:
Clear—identify concept and purpose
Concise—one to two pages long
Comprehensive—answer basic who, what, when, where, and how questions
Compelling—generate enthusiasm
Written last

18. Mission, Vision, and Culture
Mission—concise communication of strategy with a business definition and competitive advantage; expressed in a statement
Vision—broad “picture” of what you want the organization to become
Culture—beliefs, values, and behavioral norms of the organization which will form the business “environment”

19. Company Description If company is already established…
Summary of company’s founding
Overview of track record: business progress and financial success
If a start-up venture…
Brief background story
What has been done so far, and why
Legal form of the business

20. Opportunity Analysis
Industry analysis—definition, size, and growth/decline of the industry
Environmental analysis—how community, region, nation, world relates to the business
Proof of market—evidence of opportunity in terms of dollars and units

21. Opportunity Analysis (continued)
Target market segments—groups defined by common factors such as demographics, psychographics, age, and geography
Competitive analysis—comparison of the business to direct and indirect competitors

22. Marketing Strategy and Plan
Marketing mix (the Four P’s)
Products/Services
Pricing
Promotion
Place
Marketing plan—statement of marketing goals and the strategies to achieve them

23. Management and Operations
Management team and employees
Research and development
Physical location(s) of facilities with emphasis on logistics and workforce
Production processes
Inventory control systems
Quality assurance methods

24. Financial Analysis and Projections
Sources and uses of capital
Cash flow projections
Cash flow statement shows cash receipts less cash disbursements over a time period
Balance sheet projections
Assets = Liabilities + Owner’s Equity

25. Financial Analysis and Projections (continued)
Income statements for three years
Also called profit and loss statements (P&L)
Summarize income and expense activity
Breakeven analysis
Fixed Cost ($) ÷ Gross Profit per Unit ($) = Breakeven Units
Ratio analysis
Risks and assumptions

26. Funding Request & Exit Strategy
Amount of funds needed
Type of financing, including terms
Proposed exit scenarios, such as:
Buyout plan
Initial public offering (IPO)
Sold when benchmarks or date reached
Succession plan
Implementation schedule (milestones)

27. Appendices Management resumes
Specifications/photos/diagrams of products and packaging
Advertising and promotional samples
Detailed financial projections
Other supportive materials

28. Business Plan Suggestions
Write for your audience.
Show that you have “skin in the game.”
Be clear and concise.
Use current industry data and reports.
Select a “voice” and stick with it.
Use a consistent, easy-to-read format.
Number and label items throughout the plan.
Present the plan professionally.

29. Presenting the Business Plan
Presentations may be formal or informal.
Presentation time may be limited to between 5 and 20 minutes.
Prepare an “elevator pitch” (15-30 sec.)
Multimedia formats work well in formal situations.
Business plan competitions may provide cash prizes and access to capital.