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Copyright 2008 Prentice Hall Publishing 1Chapter 4 Business Plan
Buy or build a business
Buy or build a business
Copyright 2008 Prentice Hall Publishing
Business Plan
2
Copyright 2008 Prentice Hall Publishing
It may continue to be successful It may already have the best location Employees and suppliers are established Equipment is already installed Inventory is in place and trade credit is
established It’s turnkey New owners can “hit the ground running” New owners can use the previous owner’s
experience Financing is easier to obtain It’s a bargain! 6 - 3
Advantages of Buying an Existing Business
Copyright © 2016 Pearson Education, Inc.
Copyright 2008 Prentice Hall Publishing
The financial costs are high It’s a “loser” Previous owner may have created ill will “Inherited” employees may be unsuitable The location may have become
unsatisfactory Equipment and facilities may be obsolete
or inefficient Change and innovation can be difficult to
implement Inventory may be outdated or obsolete Accounts receivable may be worth less than
face value The business may be overpriced
6 - 4
Disadvantages of Buying an Existing Business
Copyright © 2016 Pearson Education, Inc.
Copyright 2008 Prentice Hall Publishing
Study: 50 to 75% of all business sales that are initiated fall through.
The right way: Analyze your skills, abilities, and
interests. Develop a list of criteria Prepare a list of potential
candidates. Investigate and evaluate candidate
businesses and select the best one.
6 - 5
Acquiring a Business
Copyright © 2016 Pearson Education, Inc.
Copyright 2008 Prentice Hall Publishing
Explore financing options Potential source: the seller
Negotiate a reasonable deal Ensure a smooth transition
Communicate with employees Be honest Listen Consider asking the seller to
serve as a consultant through the transition
6 - 6
Acquiring a Business
Copyright © 2016 Pearson Education, Inc.
Copyright 2008 Prentice Hall Publishing 6 - 7
The Acquisition Process
Copyright © 2016 Pearson Education, Inc.
Copyright 2008 Prentice Hall Publishing
Go into negotiations with a list of objectives ranked in order of priority.
Try to understand what the seller’s priorities are.
Work to establish a cooperative relationship based on honesty and trust. Avoid an “if you win, then I lose”
mentality Look for areas of mutual benefit
6 - 8
Negotiating the Deal
Copyright © 2016 Pearson Education, Inc.
Copyright 2008 Prentice Hall Publishing 9Chapter 4 Business Plan
The Business Plan
A written summary of: an entrepreneur’s proposed business
venture its operational and financial details its marketing opportunities and
strategy its managers’ skills and abilities.
Best insurance against launching a business destined to fail or mismanaging a potentially successful company.
Copyright 2008 Prentice Hall Publishing 10Chapter 4 Business Plan
The Business Plan:Three Essential
Functions
1. Guiding the company by charting its future course and defining its strategy for following it.
2. Attracting lenders and investors who will provide needed capital.
3. Demonstrating that the entrepreneur understands the business venture and what will make it succeed.
Copyright 2008 Prentice Hall Publishing 11Chapter 4 Business Plan
A Plan Must Pass Three Tests
The Reality Test - proving that : a market really does exist for your product
or service. you can actually build or provide it for the
cost estimates in the plan. The Competitive Test - evaluates:
a company’s position relative to its customers.
management’s ability to create a company that will gain an edge over its rivals.
The Value Test – proving that: a venture offers investors or lenders an
attractive rate of return or a high probability of repayment.
Copyright 2008 Prentice Hall Publishing 12Chapter 4 Business Plan
Why Take the Time to Build a
Business Plan? Although building a plan
does not guarantee success, it does increase your chances of succeeding in business.
A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map!
Copyright 2008 Prentice Hall Publishing 13Chapter 4 Business Plan
Key Elements of a Business Plan
Title Page and Table of Contents Executive Summary Mission Statement Company History Business and Industry Profile
Copyright 2008 Prentice Hall Publishing
Information Flow in Business Plan
Strategy
• Who are we and where are we going?
Market
• What is our product/service?• What is our environment?
Logistics
• How & when will we build our product/service?
• How & when will we manage our resources?
Finance
• How much will it cost?• When will we make money?
14Chapter 4 Business Plan
Copyright 2008 Prentice Hall Publishing 15Chapter 4 Business Plan
Key Elements of a Business Plan
Title Page and Table of Contents Executive Summary Mission Statement Company History Business and Industry Profile Business Strategy Description of
Products/Services
Copyright 2008 Prentice Hall Publishing 16Chapter 4 Business Plan
Features versus Benefits
Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”).
Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”).
Copyright 2008 Prentice Hall Publishing 17Chapter 4 Business Plan
Key Elements of a Business Plan
Marketing Strategy Competitor Analysis Description of
Management Team Plan of Operation Forecasted Financial
Statements Loan or Investment
Proposal
(continued)
Copyright 2008 Prentice Hall Publishing 18Chapter 4 Business Plan
Guidelines for Preparing
a Business Plan Remember: No one can create your
plan for you. Potential lenders want to see
financial projections, but they are more interested in the strategies for reaching those projections.
Show how you plan to set your business apart from competitors; don’t fall into the “me too” trap.
Identify your target market and offer evidence that customers for your product or service exist.
Copyright 2008 Prentice Hall Publishing 19Chapter 4 Business Plan
Tips on Preparinga Business Plan
Make sure your plan has an attractive cover. (First impressions are crucial.)
Rid your plan of all spelling and grammatical errors.
Make your plan visually appealing. Include a table of contents to allow
readers to navigate your plan easily. Make it interesting.
(Continued)
Copyright 2008 Prentice Hall Publishing 20Chapter 4 Business Plan
Tips on Preparinga Business Plan
Your plan must prove that the business will make money (not necessarily immediately, but eventually).
Use spreadsheets to generate financial forecasts.
Always include cash flow projections.
Keep your plan “crisp” – between 25 and 50 pages long.
Tell the truth – always.
(Continued)
Copyright 2008 Prentice Hall Publishing
Business Plan Grading Criteria
21Chapter 4 Business Plan
Copyright 2008 Prentice Hall Publishing 22Chapter 4 Business Plan
Presenting the Plan
Demonstrate enthusiasm, but don’t be overemotional.
Know your audience thoroughly. “Hook” investors quickly with an up-
front explanation of the venture, its opportunities, and its benefits to them.
Hit the highlights; focus on the details later.
Keep your presentation simple – 2 or 3 major points.
Copyright 2008 Prentice Hall Publishing 23Chapter 4 Business Plan
Presenting the Plan
Avoid overloading your audience with technological jargon.
Use visual aids. Close by reinforcing the nature of
the opportunity. Be prepared (with details) for
potential investors’ questions. Follow up with every investor to
whom you make your presentation.
(Continued)
Copyright 2008 Prentice Hall Publishing
Group Presentations
When November 17th/20th and the schedule
TBD All groups should be available
Entrepreneur Investors.
Each team has 20 minutes and that time must include questions (whether during or after the presentation)
24Chapter 4 Business Plan
Copyright 2008 Prentice Hall Publishing
Grade Criteria - Presentation
25Chapter 4 Business Plan
Copyright 2008 Prentice Hall Publishing
Grade Criteria - Investors
26Chapter 4 Business Plan
Marks available
Marks gained
Questioners show a good knowledge of the venture concerns – was the venture risks identified and/or missing information about the venture
2
Questions are probing rather than superficial (ie. their purpose is to help decision making)
2
Most of the team participated in the questioning and asked questions throughout presentation, but did not interrupt presentation flow.
1
Questioners can respond effectively to answers (ie. are capable of thinking quickly to ask good follow-up questions)
2
Investment group managed the time slot well
3
TOTAL (Out of 10, Worth 20% of presentation mark) 10