Part III – Developing the Part III – Developing the Entrepreneurial Plan Entrepreneurial Plan

Chapter 7 – Environmental Assessment: Chapter 7 – Environmental Assessment: Preparation for a New Venture Preparation for a New VentureChapter 8 – Marketing Research forChapter 8 – Marketing Research for New Ventures New VenturesChapter 9 – Financial Preparation forChapter 9 – Financial Preparation for Entrepreneurial Ventures Entrepreneurial VenturesChapter 10 – Developing an EffectiveChapter 10 – Developing an Effective Business Plan Business Plan

Copyright (c) 2004 by South-Western, a division of Thomson Learning. All rights reserved.

Chapter 10 – Developing AnChapter 10 – Developing An Effective Business Effective Business Plan Plan

Pitfalls to Avoid in PlanningPitfalls to Avoid in Planning• Pitfall 1: No Realistic GoalsPitfall 1: No Realistic Goals• Pitfall 2: Failure to AnticipatePitfall 2: Failure to Anticipate

Roadblocks Roadblocks• Pitfall 3: No Commitment or DedicationPitfall 3: No Commitment or Dedication• Pitfall 4: Lack of Demonstrated Pitfall 4: Lack of Demonstrated

Experience Experience (Business or Technical) (Business or Technical)

• Pitfall 5: No Market Niche (Segment)Pitfall 5: No Market Niche (Segment)

What is a Business Plan?What is a Business Plan?A business plan is the written document that details the A business plan is the written document that details the

proposed venture. It must describe current status, proposed venture. It must describe current status, expected needs, and projected results of the new expected needs, and projected results of the new

business. Every aspect of the venture needs to be business. Every aspect of the venture needs to be covered: the project, marketing, research and covered: the project, marketing, research and

development, manufacturing, management, critical development, manufacturing, management, critical risks, financing, and milestones or a timetable. A risks, financing, and milestones or a timetable. A description of all of these facets of the proposed description of all of these facets of the proposed

venture is necessary to demonstrate a clear picture of venture is necessary to demonstrate a clear picture of what that venture is, where it is projected to go, and what that venture is, where it is projected to go, and how the entrepreneur proposes it will get there. The how the entrepreneur proposes it will get there. The

business plan is the entrepreneur’s roadmap for a business plan is the entrepreneur’s roadmap for a successful enterprise.successful enterprise.

Benefits of a Business PlanBenefits of a Business PlanSpecifically for the entrepreneur:Specifically for the entrepreneur:• The time, effort, research, and discipline needed to The time, effort, research, and discipline needed to

put together a formal business plan force the put together a formal business plan force the entrepreneur to view the venture critically and entrepreneur to view the venture critically and objectively.objectively.

• The competitive, economic, and financial analysis The competitive, economic, and financial analysis included in the business plan subject the included in the business plan subject the entrepreneur to close scrutiny of his or her entrepreneur to close scrutiny of his or her assumptions about the venture’s success.assumptions about the venture’s success.

Benefits of a Business Plan, cont.Benefits of a Business Plan, cont.• Since all aspects of the business venture must be Since all aspects of the business venture must be

addressed in the plan, the entrepreneur develops and addressed in the plan, the entrepreneur develops and examines operating strategies and expected results examines operating strategies and expected results for outside evaluators.for outside evaluators.

• The business plan quantifies objectives, providing The business plan quantifies objectives, providing measurable benchmarks for comparing forecasts measurable benchmarks for comparing forecasts with actual results.with actual results.

• The completed business plan provides the The completed business plan provides the entrepreneur with a communication tool for outside entrepreneur with a communication tool for outside financial sources as well as an operational tool for financial sources as well as an operational tool for guiding the venture towards success.guiding the venture towards success.

Benefits of the Business PlanBenefits of the Business PlanSpecifically for the financial sources:Specifically for the financial sources:• Details of the market potential and plans for Details of the market potential and plans for

securing a share of that market.securing a share of that market.• The venture’s ability to service debt or provide an The venture’s ability to service debt or provide an

adequate return on equity.adequate return on equity.• Identifies critical risks and crucial events with a Identifies critical risks and crucial events with a

discussion of contingency plans.discussion of contingency plans.• A clear, concise document that contains the A clear, concise document that contains the

necessary information for a thorough business and necessary information for a thorough business and financial evaluation.financial evaluation.

Developing a Well-Developing a Well-Conceived Business PlanConceived Business Plan

The Five-Minute ReadingThe Five-Minute ReadingStep 1: Determine the characteristics of the venture and its Step 1: Determine the characteristics of the venture and its

industryindustry

Step 2: Determine the financial structure of the plan (amount of Step 2: Determine the financial structure of the plan (amount of debt or equity investment required)debt or equity investment required)

Step 3: Read the latest balance sheet (to determine liquidity, net Step 3: Read the latest balance sheet (to determine liquidity, net worth, and debt/equity)worth, and debt/equity)

Step 4: Determine the quality of entrepreneurs in the venture Step 4: Determine the quality of entrepreneurs in the venture (sometimes the most important step)(sometimes the most important step)

Step 5: Establish the unique feature in this venture (find out Step 5: Establish the unique feature in this venture (find out what is different)what is different)

Step 6: Read the entire plan over lightly (this is when the entire Step 6: Read the entire plan over lightly (this is when the entire package is paged through for a casual look at graphs, charts, package is paged through for a casual look at graphs, charts, exhibits, and other plan components)exhibits, and other plan components)

Putting the Package TogetherPutting the Package Together

• AppearanceAppearance

• LengthLength

• The cover and title pageThe cover and title page

• The executive summaryThe executive summary

• The table of contentsThe table of contents

Guidelines to RememberGuidelines to Remember• Keep the Plan Respectably ShortKeep the Plan Respectably Short• Organize and Package the Plan AppropriatelyOrganize and Package the Plan Appropriately• Orient the Plan Toward the FutureOrient the Plan Toward the Future• Avoid ExaggerationAvoid Exaggeration• Highlight Critical RisksHighlight Critical Risks• Give Evidence of an Effective Entrepreneurial TeamGive Evidence of an Effective Entrepreneurial Team• Do Not OverdiversifyDo Not Overdiversify• Identify the Target MarketIdentify the Target Market• Keep the Plan Written in the Third PersonKeep the Plan Written in the Third Person• Capture the Reader’s InterestCapture the Reader’s Interest

Elements of a Elements of a Business PlanBusiness Plan

Complete Outline of a Business PlanComplete Outline of a Business Plan

Section I: Executive SummarySection I: Executive Summary

Section II: Business DescriptionSection II: Business Description

A. General description of businessA. General description of business

B. Industry backgroundB. Industry background

C. Goals and potential of the business C. Goals and potential of the business and milestones (if any) and milestones (if any)

D. Uniqueness of product or serviceD. Uniqueness of product or service

Complete Outline of a Business Plan, cont.Complete Outline of a Business Plan, cont.

Section III: MarketingSection III: MarketingA. Research and analysisA. Research and analysis

1. Target market (customers) identified1. Target market (customers) identified2. Market size and trends2. Market size and trends3. Competition3. Competition4. Estimated market share4. Estimated market share

B. Marketing planB. Marketing plan1. Market strategy – sales and1. Market strategy – sales and

distribution distribution2. Pricing2. Pricing3. Advertising and promotions3. Advertising and promotions

Complete Outline of a Business Plan, cont.Complete Outline of a Business Plan, cont.

Section IV: OperationsSection IV: Operations

A. Identify locationA. Identify location

1. Advantages1. Advantages

2. Zoning2. Zoning

3. Taxes3. Taxes

B. Proximity to suppliesB. Proximity to supplies

C. Access to transportationC. Access to transportation

Complete Outline of a Business Plan, cont.Complete Outline of a Business Plan, cont.

Section V: ManagementSection V: Management

A. Management team – key personnelA. Management team – key personnel

B. Legal structure – stock agreements,B. Legal structure – stock agreements, employment agreements, ownership employment agreements, ownership

C. Board of directors, advisors, C. Board of directors, advisors, consultants consultants

Complete Outline of a Business Plan, cont.Complete Outline of a Business Plan, cont.

Section VI: FinancialSection VI: Financial

A. Financial forecastA. Financial forecast

1. Profit and loss1. Profit and loss

2. Cash flow2. Cash flow

3. Break-even analysis3. Break-even analysis

4. Cost controls4. Cost controls

5. Budgeting plans5. Budgeting plans

Complete Outline of a Business Plan, cont.Complete Outline of a Business Plan, cont.

Section VII: Critical RisksSection VII: Critical Risks

A. Potential ProblemsA. Potential Problems

B. Obstacles and risksB. Obstacles and risks

C. Alternative courses of actionC. Alternative courses of action

Section VIII: Harvest StrategySection VIII: Harvest Strategy

A. Transfer of assetA. Transfer of asset

B. Continuity of business strategyB. Continuity of business strategy

C. Identify successorC. Identify successor

Complete Outline of a Business Plan, cont.Complete Outline of a Business Plan, cont.

Section IX: Milestone ScheduleSection IX: Milestone Schedule

A. Timing and objectivesA. Timing and objectives

B. Deadlines and milestonesB. Deadlines and milestones

C. Relationship of eventsC. Relationship of events

Section X: Appendix or BibliographySection X: Appendix or Bibliography

Presentation of the Business PlanPresentation of the Business Plan

• Know the outline thoroughlyKnow the outline thoroughly

• Rehearse the presentationRehearse the presentation

• Be familiar with any equipmentBe familiar with any equipment

Business Plan Assessment: Business Plan Assessment: Complete Evaluation of Complete Evaluation of

Each ComponentEach Component

What To Do When a Venture Capitalist What To Do When a Venture Capitalist Turns You Down: Ten PointsTurns You Down: Ten Points

1.1. Confirm the decisionConfirm the decision2.2. Sell for the futureSell for the future3.3. Find out why you were rejectedFind out why you were rejected4.4. Ask for adviceAsk for advice5.5. Ask for suggestionsAsk for suggestions6.6. Get the nameGet the name7.7. Find out whyFind out why8.8. Work on an introductionWork on an introduction9.9. Develop a reasonable excuseDevelop a reasonable excuse10.10. Know your referralKnow your referral