Chapter 5

Writing the Winning Business Plan

Objectives

• Value of writing a business plan• Business plan serves as a blueprint for

building a company• Steps towards completing a business plan• Components of a business plan• Business plan to target investors

Introduction

• Entrepreneurs need a business plan for securing capital and growing their business.

• Entrepreneurs often find that developing a business plan forces them to introduce discipline and a logical thought process into all of their planning activities.

• In addition a properly prepared business plan will help entrepreneurs consistently establish and meet goals and objectives for their employees, investors and management.

Interest Groups

• Financial interests want to know the risk/reward formula and the future cash out/in possibilities associated with your new venture.

• Marketers need to know the 4 P’s: product, pricing, placement and positioning.

• Vendors, suppliers want to know what your operation will look like so they can plan to be a part of your supply chain.

• Employees want to feel secure about their job and possible career.

• Partners (if any) want to know their rights and responsibilities for their protection and growth.

The Value of a Business Plan• The main purpose of the business plan is to test the viability of the

business idea:• 1. Test the feasibility of the business concept: business opportunity id

discarded if it is not viable and competition too severe.• 2. Increase the likelihood of the venture’s success: fewer unforeseen

problems.• 3. Improve your business planning process to become more manageable

and effective: provide insight into competitive conditions, what changes need to be made, or what new directions the company growth should take.

• 4. Attract bank loans and investors: solid business plan is required to attract angel investors.

What is a business plan

• A business plan is a 25 page to 40 page document that describes where a business is heading, how it hopes to achieve its goals and objectives, who is involved with the venture, why its products or services are needed in the marketplace, and what it will take to accomplish the business goals.

Setting goals and objectives• A business plan is a vehicle for describing the goals of the business and

how the goals can be reached over the coming years:• 1. Determine whether the business is viable.• 2. Raise capital for the business• 3. Project sales, expenses, and cash flows for the business.• 4. Explain to employees their responsibilities as well as company

expectations.• 5. Improve and assess company performance• 6. Plan for a new product/service development• Entrepreneurs can also use a business plan to establish goals and

document milestones along the business path to success.

Starting the Process to Write the Plan: Five Steps

• Entrepreneurs must tell and retell their story countless times to prospective investors, new employees, outside advisors and potential customers.

• Step 1: Identify the objectives – For investors show the investment is worth the risk – competitive conditions, new opportunities.

• Step 2: Draft the outline (page 108) – section 1: executive summary (1 to 2 pages), section 2: the company, industry, and products and/or services, section 3: market analysis, section 4: marketing and sales plan, section 5: operating plan, section 6: management team, section 7: the financial plan, section 8: funds required and uses, and appendixes.

• Step 3: Review the outline – support for assumptions and assertions.• Step 4 – Draft the plan: collect historical financial information about company

and/or industry, demonstrate viability of business, and finally the executive summary.

• Step 5 – Have the plan reviewed and updated: by independent professional for review and completeness.

Determine what type of business plan is best

• 3 major types of plans exist:• 1. Full Business Plan: To attract potential investors,

strategic partners, or buyers.• 2. Executive Summary Plan: 2 to 5 page document to

gauge investor interest and find strategic partners, attract key employees and persuade friends to invest in the business.

• 3. Action Plan: timetable and list of tasks that should be accomplished within a certain time frame.

Targeting the plan to select groups• Investors must consider which investors or groups are relevant to their

needs and send the plan only to those groups:• Bankers – to provide loans for expansion or equipment purchase.• Business brokers – to sell the business.• New and potential employees – to learn about the company.• Investors – to invest in the company.• The small business administration (SBA) – to approve business loans.• Investment bankers – to prepare a prospectus for an IPO.• Suppliers – to establish credit for purchases.

How long will the preparation take?

• It will take at least 200 hours of dedicated effort to produce a good plan.

• Begin drafting initial ideas, sections where you have some good input, background information, and so on, before there is an urgent need to present the plan to outsiders.

• A well thought out plan will take at least 8 to 12 weeks to produce.

Writing the business plan• A complete business plan should answer the following questions:• 1. What is the primary product or service?• 2. Is there a market for the product or service? • 3. Who are the target customers for the product or service?• 4. What is the pricing structure?• 5. Who is the competition and what are the barriers to entry?• 6. What risks and market constraints are involved?• 7. What sales distribution channels will be needed?• 8. Who is the management team and what are their specific talents?• 9. What is the current financial cash flow and breakeven plan?• 10. What are the immediate financial needs of the business?• 11. What are the future financial goals for the business?

A typical business plan format and content

• Creating the title page and table of contents: Name, address, and phone numbers of the company and the CEO. The table of contents contains the business plan sections and page numbers.

• 1. Executive summary: Synopsis of business plan. No more than 2 to 3 pages. Example for Leafbusters Inc. in chapter 13.

• 2. Overview of company, industry, products, and services: Legal form of company, fundamental activities and nature of business, business, customers, location, current stage of company.

A typical business plan format and content

• 3. Market analysis: why the business is a good investment, market opportunity, competition, marketing strategy, market research, sales forecasts, support material, products and services: physical description, use and appeal, stage of development and testimonials.

• 4. Marketing and sales plans: pricing strategy and plan, advertisers, public relations, and promotional strategies, other elements.

• 5. Operations: product/service development, manufacturing, maintenance and support.

A typical business plan format and content

• 6. Management team: management talents and skills, organizational chart, policy strategy for employees, board of directors and advisory board.

• 7. Financial plan: assumptions, projected income statements, projected cash flow statements, current balance sheet, and other financial projections.

• 8. Amount of funds required: how much money is required, where the funds will be spent, and when they will be needed.

• Exhibits: census data and other population statistics, market potential, process flow (operations), and financial details.

Why business plans fail• Executive summary is unclear, not concise.• Basic concept of business has not been researched and validated.• Business is unique and has no competitors – there are always competitors.• The entrepreneur has never spoken to a real customer.• The financial plans are too optimistic. • How the loan will be repaid or how the investor will get his cash out with a

satisfactory return.• How the board will be constructed.• Valuation of company is high and unrealistic.• Intellectual property search showing no conflict with other companies or

inventors.• Positions that will need to be filled and how it will be accomplished.• Financials do not have sales and distribution costs.• Plan not checked independently.

Summary• Entrepreneurs need a business plan for securing capital and growing their business.• Entrepreneurs often find that developing a business plan forces them to introduce discipline

and a logical thought process into all of their planning activities.• Interest Groups: Financial interests. Marketers. Vendors, suppliers. Employees. Partners.• The main purpose of the business plan is to test the viability of the business idea: 1. Test the

feasibility of the business concept. 2. Increase the likelihood of the venture’s success. 3. Improve your business planning process to become more manageable and effective. 4. Attract bank loans and investors.

• A business plan is a 25 page to 40 page document that describes where a business is heading, how it hopes to achieve its goals and objectives, who is involved with the venture, why its products or services are needed in the marketplace, and what it will take to accomplish the business goals.

• 3 major types of plans exist: 1. Full Business Plan. 2. Executive Summary Plan. 3. Action Plan.• Business plan format: Creating the title page and table of contents, 1. Executive summary, 2.

Overview of company, industry, products, and services, 3. Market analysis, 4. Marketing and sales plans, 5. Operations, 6. Management team, 7. Financial plan, 8. Amount of funds required.

Home Work

• 1. Why do entrepreneurs need a business plan?• 2. What is the value of a business plan?• 3. What is a business plan?• 4. Name the 5 steps of a business plan?• 5. How long (hours and weeks) will it take to produce

a good business plan?• 6. What is a typical business plan format?