Developing a Business Plan

BIT Final Year Project

Learning Outcomes

Understand the objectives of the business planning process for a start up venture.

Gain an insight into how to write such a business plan.

Understand what the various audiences who will see the plan will be looking for.

Presentation Structure

Business plan overview

Content of a Business Plan

Why prepare a Business Plan?

The primary objective of many business plans is to set out a convincing case to secure financing, either internal or external, for the start-up or expansion of a business venture.

However, just as importantly, business plan is a ‘living document’ that should be updated on a regular basis.

Useful Websites

www.investni.com - Student Enterprise Awards

- Kauffman Fellowships

www.nibusinessinfo.co.uk

www.nisp.co.uk

Audience

Internal Audience

Self Management team Board of Directors Employees

Audience

External audience (potential funders).

Banks Government agencies Business Angels Venture Capitalists Corporate Partners

Bank

Banks provide loan capital. Overdraft, short term, payable on demand. Business Loan, fixed term. SFLGS, reduces risk to bank

Key issues: Security, interest & capital repayment therefore not suitable for hi-tech start-up ventures, little security and no early cashflow.

Government Agencies

Invest NI, provides grant support. Business Development Revenue, Marketing, Management Salary,

Preference Shares. R&D COMPETE, SMART

Key issues: Additionality, Admissibility, percentage contribution, export focus.

Business Angels

Business Angels provide risk capital seeking a return over 5-10 years.

High net worth individual Probably ‘exited’ from previous venture Brings skills, expertise and cash.

Key issues: <£100k, ‘hands-on’ role, capital growth.

Venture Capital Investment fund of risk capital, which will seek a

return in circa 5 years. Local funds: Crescent Capital, Enterprise Equity,

Viridian Growth Fund (Clarendon). May bring sectoral expertise, contacts and

experience of similar ventures. Relatively high investment threshold, high fixed

costs.

Key issue: >£400k, capital growth, Board seat, focus.

Other Funders

Seed Capital Funders: QUBIS Ltd & University Challenge Fund (NI). Basically a VC investing £10k to £100k.

Return on Investment

Investors, whether business angels, venture capitalists, banks will all be looking for a return on their investment.

The size of that return and the cost of their money is governed by the risk of the project.

Key Elements within a Business Plan

Executive Summary Background Corporate Objectives Product/Technology Manufacture Market Marketing/Sales Management Team/Structure Finance/Funding

Corporate Objectives

This section should set out objectives for 3/5 years: Financial projections - sales

- profits

- return on investment Markets - geographic

- market segments Customers Products Management and organisation

Product/Technology

This section should answer the following questions: What are you going to make/will there be a

product range? How much will the product cost to produce? What are the product features/how does it work? What are the product applications? What is the R&D plan and cost? How long/much will it take to get the product to

market? What is novel about your product/IP? What associated services are being offered?

Product Vs Service

A product based business model is scalable; a service based business model is not.

To increase sales in a service business you have to add bodies.

To increase sales in a product business you don’t.

Ideally service based businesses should be profitable from day 1.

Services can be useful in reducing risk during the product development phase.

Technology -ve

Unproven technology, this will require a lot of product development, i.e. time and money before there is a product which can be sold.

Frequent problem with hi-tech start-up proposals which can often be ‘technology’ and not ‘market’ led.

Technology +ve

Early stage sales, especially ‘good quality’ early stage sales, i.e. blue chip customers who appreciate the technology/product.

Provides an endorsement of technology,especially if the product has been sold to a ‘knowledgeable’ customer.

Manufacture

This section should answer the following questions: In-house or sub-contract manufacture? What is the production process? What are the plant and equipment requirements? What is the capital spend and timetable? What are the production inputs – premises,

labour, suppliers, raw materials? What are the production and quality control

procedures?

Manufacture Checklist

How will you make the product and what inputs are required?

What plant and machinery is required and what are the costs?

What management and labour skills are required?

What management/quality controls are in place?

Market

This section should answer the following questions: What is your target market? What size is the market and is it growing? What market segments will you target? What is the market structure and how does the

market operate? Who are your customers, where, how many, how

big, purchasing power? What are your customers’ requirements and how

do your customers buy? Who are your competitors, where, market share,

strengths/weaknesses?

Market Research Sources

Libraries – Invest NI, Belfast Central Library, Queen’s, UU Internet Published reports Customers/potential customers Competitors – annual reports, promotional material,

product manuals Magazines/newspapers Trade Associations Companies Registry

Market -ve

#1 turn off Gaining a small % of a BIG number Plan to achieve 1% of the UK/EU/US

etc market within one/two/three years will result in sales of £10m

Market +ve

Clear knowledge of the existing marketplace and a ‘channel to market’.

Knowledge of the existing competitors, i.e. who they are and their strengths and weaknesses.

Awareness of the potential end user/customer needs, i.e. what they want and how the existing products/services fall short.

Route to Market Checklist

What is the geographic scope of the market: world, Europe, local?

What is the market value in terms of units and value?

How fast is the market growing and where are the opportunities?

Which market segments will you concentrate on & why?

What is your target market share?

Route to Market Checklist

If there is no existing market or if the market is being developed, what is the expected take up rate?

How will your company’s entry affect the market?

What is the market structure? What are the key customer requirements? How will you meet these?

Route to Market Checklist

Who are your major competitors? What are their strengths and

weaknesses? What is their pricing, profitability etc? How will they react to your entry? What are your competitive advantages?

Bottled Water – the UK market 2001 – 1.6 billion litres; £900 million 12% growth on 2000; £1.1 billion forecast for 2003 10-12% growth to 2006 => 2.6 billion litres Average consumption/person/year – UK 26 litres; French 139 litres;

Italians 183 litres; Euro average 93 litres 40+ producers Top five producers = 52% of market Customers – supermarkets (50% of total); independent grocery outlets;

petrol station forecourts; CTN’s; sandwich bars; kiosks; department stores; variety stores;on-trade (pubs, restaurants, hotels); off licences

End customer needs – healthier lifestyles; convenience; working lunches; hot(!!) summers

Own label; branded; packaging and labelling Planned; impulse Spring; mineral; flavoured Still 82%; sparkling 18% End market segments – young professionals, especially females;

children; sports people; housewives; office workers; diners; drivers

Marketing/SalesThis section should answer the following questions: What are your target market segments? What are your competitive advantages? How will you sell to your customers? What promotional activities will you undertake ? What prices will you charge/discounting? How will you transport your products? What customer service will you offer? Will you brand your products? What packaging and labelling will be used?

Marketing -ve

Waiting for the telephone to ring. Developing the ‘perfect’ product.

Note: only sales generate income; everything else is a cost.

Marketing +ve

Knowing your customers and markets. Being proactive, persistent and

professional.

Note: customers will only buy from suppliers they believe will have a long term market presence.

Marketing Checklist

Who are your customers and what are their needs?

What are your competitive advantages? How will you sell and support that sales

effort through promotional activities and customer service?

What pricing and distribution strategies will you use?

Management Team/StructureThis section should answer the following questions: Who will execute the plan and deliver the

projected returns? How will the various individuals fit together/what

roles will they play? What are their strengths? What are their weaknesses and how will they be

addressed? What is the balance of company ownership? What is the organisational structure? What are the management control systems?

An ‘A’ Quality Team

Investors will invest in an ‘A’ quality team and a ‘B’ quality product, but not the other way around.

An investment decision is based on many things but one of the main elements is the combination of individuals who make up the team

Management -ve

‘All conquering hero’. Not prepared to acknowledge areas of

weakness.

Note: hi-tech start-up businesses have a certain level of business naivety.

Management +ve

‘Previous’. Substantial previous business

experience, possibly specific experience.

Ability to bring together a strong team and address areas of potential weakness.

Management Team Checklist

Who are the key team members? What are their skills and experience? What are their roles and

responsibilities? What are the gaps in the team? How are you going to plug those gaps?

Finance

Cash flow Balance Sheet Profit & Loss Account

Note: Financial forecasts within start–up venture business plans are heavily discounted.

Cashflow1 2 3 4 5 6 7 8 9 10 11 12 Total

INFLOWS

Sales - - 12,500 2,500 2,500 2,500 2,500 12,500 2,500 2,500 2,500 2,500 45,000 Share Capital 82,000 - - - - - - - - - - - 82,000 Other Income - - - - 14,367 5,000 - 15,567 - - 14,367 5,000 54,300

- TOTAL INFLOWS 82,000 - 12,500 2,500 16,867 7,500 2,500 28,067 2,500 2,500 16,867 7,500 181,300

OUTFLOWS

Materials - 200 - - - - 200 - - - - 200 600 Managing Director - - - - - - - - - - - - - Salaries & Wages 625 625 625 625 625 625 625 625 625 625 625 625 7,500 Motor and Travel Expenses 500 500 500 500 500 500 500 500 500 500 500 500 6,000 Telephone 150 150 150 150 150 150 150 150 150 150 150 150 1,800 Data Comms - - - - - - - - - - - - - Insurance 80 80 80 80 80 80 80 80 80 80 80 80 960 Printing & Stationery - - - - - - - - - - - - - Marketing & Advertising - - - - - 5,732 - - 2,000 - - 2,000 9,732 Audit and Accountancy Fees - - - - - - - - - - - - - Professional Fees - - - - - - - - - - - - - General Expenses - - - - - - - - - - - - - Heat, Light & Power - - - - - - - - - - - - - Rent & Rates 500 500 500 500 500 500 500 500 500 500 500 500 6,000 Bank Interest - - - - - - - - - - - - - CapEX 5,000 - - - - - - - - - - - 5,000 Project Spend

Labour 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 112,500 Technical Consultancy - - - - - - - - - - - - - Design Consultancy - - - - - - - - - - - - - Sub-contracting Charges - - - - - - - - - - - - - Sub-contracting Charges (outside NI) - - - - - - - - - - - - - Materials - - - - - - - - - - - - - Intellectual Property - - - - - 2,000 - - - - - - 2,000 Travel and Subsistence 500 500 500 500 500 500 500 500 500 5,000 1,000 1,000 11,500 Trials and Testing - - - - - 1,000 - - - - - 1,000 2,000 Others - - 250 - - 250 - - 250 - - 250 1,000 TOTAL OUTFLOWS 16,730 11,930 11,980 11,730 11,730 20,712 11,930 11,730 13,980 16,230 12,230 15,680 166,592

NET FLOW 65,270 (11,930) 520 (9,230) 5,137 (13,212) (9,430) 16,337 (11,480) (13,730) 4,637 (8,180) 14,708

OPENING BALANCE 0 65,270 53,340 53,860 44,630 49,767 36,555 27,125 43,461 31,981 18,251 22,888 0

CLOSING BALANCE 65,270 53,340 53,860 44,630 49,767 36,555 27,125 43,461 31,981 18,251 22,888 14,708 14,708

Year 1 to 30-Aug-04

Balance Sheet1 2 3 4 5 6 7 8 9 10 11 12 31-Aug-03

FIXED ASSETSTangible Assets 4,861 4,722 4,583 4,444 4,306 4,167 4,028 3,889 3,750 3,611 3,472 3,333 3,333

CURRENT ASSETSStocks & WIPDebtors 12,500 15,000 5,000 5,000 5,000 15,000 15,000 5,000 5,000 5,000 15,000 15,000 15,000Cash at Bank and in Hand 65,270 53,340 53,860 44,630 49,767 36,555 27,125 43,461 31,981 18,251 22,888 14,708 14,708

77,770 68,340 58,860 49,630 54,767 51,555 42,125 48,461 36,981 23,251 37,888 29,708 29,708CURRENT LIABILITIESBank Overdraft 0 0 0 0 0 0 0 0 0 0 0 0 0Trade Creditors 200 0 0 0 0 200 0 0 0 0 200 0 0

200 0 0 0 0 200 0 0 0 0 200 0 00

NET CURRENT ASSETS 77,570 68,340 58,860 49,630 54,767 51,355 42,125 48,461 36,981 23,251 37,688 29,708 29,708

LONG TERM LIABILITIESLoans

0 0 0 0 0 0 0 0 0 0 0 0 0

NET ASSETS 82,431 73,062 63,443 54,074 59,072 55,521 46,152 52,350 40,731 26,862 41,160 33,041 33,041

FINANCED BY

Share Capital 82,000 82,000 82,000 82,000 82,000 82,000 82,000 82,000 82,000 82,000 82,000 82,000 82,000P&L AccountYear 1 431 -8,938 -18,557 -27,926 -22,928 -26,479 -35,848 -29,650 -41,269 -55,138 -40,840 -48,959 -48,959Year 2Year 3Year 4Year 5

82,431 73,062 63,443 54,074 59,072 55,521 46,152 52,350 40,731 26,862 41,160 33,041 33,041

Year 1 to 31-Aug-03

Profit & Loss Account1 2 3 4 5 6 7 8 9 10 11 12 Total

INCOME

Sales 12,500 2,500 2,500 2,500 2,500 12,500 2,500 2,500 2,500 2,500 12,500 2,500 60,000COST OF SALES 200 0 0 0 0 200 0 0 0 0 200 0 600

0GROSS PROFIT 12,300 2,500 2,500 2,500 2,500 12,300 2,500 2,500 2,500 2,500 12,300 2,500 59,400

EXPENSES

Operating Overheads

Managing Director 0 0 0 0 0 0 0 0 0 0 0 0 0Salaries & Wages 625 625 625 625 625 625 625 625 625 625 625 625 7,500Motor and Travel Expenses 500 500 500 500 500 500 500 500 500 500 500 500 6,000Telephone 150 150 150 150 150 150 150 150 150 150 150 150 1,800Data Comms 0 0 0 0 0 0 0 0 0 0 0 0 0Insurance 80 80 80 80 80 80 80 80 80 80 80 80 960Printing & Stationery 0 0 0 0 0 0 0 0 0 0 0 0 0Marketing & Advertising 0 0 0 0 0 5,732 0 0 2,000 0 0 2,000 9,732Audit and Accountancy Fees 0 0 0 0 0 0 0 0 0 0 0 0 0Patent Fees 0 0 0 0 0 0 0 0 0 0 0 0 0General Expenses 0 0 0 0 0 0 0 0 0 0 0 0 0Heat, Light & Power 0 0 0 0 0 0 0 0 0 0 0 0 0Rent & Rates 500 500 500 500 500 500 500 500 500 500 500 500 6,000Depreciation 0 0 0 0 0 0 0 0 0 0 0 0 0Bank Interest 0 0 0 0 0 0 0 0 0 0 0 0 0R&D Project Spend

Labour 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 9,375 112,500Technical Consultancy 0 0 0 0 0 0 0 0 0 0 0 0 0Design Consultancy 0 0 0 0 0 0 0 0 0 0 0 0 0Sub-contracting Charges 0 0 0 0 0 0 0 0 0 0 0 0 0Sub-contracting Charges (outside NI) 0 0 0 0 0 0 0 0 0 0 0 0 0Equipment Depreciation 139 139 139 139 139 139 139 139 139 139 139 139 1,667Materials 0 0 0 0 0 0 0 0 0 0 0 0 0Intellectual Property 0 0 0 0 0 2,000 0 0 0 0 0 0 2,000Travel and Subsistence 500 500 500 500 500 500 500 500 500 5,000 1,000 1,000 11,500Trials and Testing 0 0 0 0 0 1,000 0 0 0 0 0 1,000 2,000Others 0 0 250 0 0 250 0 0 250 0 0 250 1,000

11,869 11,869 12,119 11,869 11,869 20,851 11,869 11,869 14,119 16,369 12,369 15,619 162,659

NET PROFIT(LOSS) PRE GRANT 431 -9,369 -9,619 -9,369 -9,369 -8,551 -9,369 -9,369 -11,619 -13,869 -69 -13,119 -103,259

Grant 0 0 0 0 14,367 5,000 0 15,567 0 0 14,367 5,000 54,300

NET PROFIT (LOSS) 431 -9,369 -9,619 -9,369 4,998 -3,551 -9,369 6,198 -11,619 -13,869 14,298 -8,119 -48,959

Year 1 to 30-Aug-04

Project Costs/Source of Funds

R&D 194750 UCF 50000Others 50609.5 QUBIS Ltd 15000

245359.5 Promoters 17000

Revenue 80000COMPETE 92400Bus Dev 10,000Timing Adj -19,040

245359.5

Project Costs Source of Funds

Finance -ve

‘Hockey stick’ projected sales growth.

0

2000

4000

6000

8000

10000

12000

14000

16000

Year 1 Year 2 Year 3 Year 4

Sales £000

Profit £000

Finance +ve

Cash investment from promoters. Cash investment from other

‘knowledgeable’ investor.

Raising Funding

3Fs, Friends, Family & Fools Self, from your own resources Revenue generated Grants J/V or Commercial Partner Business Angels Venture Capital

Finance Checklist

What is the project cost? How will the project be funded? When will income begin? What are the costs? When will profitability be achieved? What is the level of profitability?

Executive Summary

This section is critical, it may be the only part of the plan that an investor reads!

The purpose of the plan The business opportunity The market the product is aimed at The competitive advantages The management team Financial profile

Executive Summary Checklist

What is the business name and activity? Who are the key contacts? What is the scope of the business and the

market potential for its products? What are the competitive advantages? What resources (human & financial)are

needed for the venture to succeed? What skills and expertise do the team bring?

Appraisal of the Business Plan

Management team: capability, experience and balance.

Market: size, potential for growth, competitive nature.

Finance: funding, realism of projections and profitability.

i.e. Man/Market/Money Ideally have some initial sales