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Developing A Business PlanDeveloping A Business PlanPart DeuxPart Deux
Alan BarefieldAlan Barefield
Southern Rural Development CenterSouthern Rural Development Center
Mississippi State University Extension ServiceMississippi State University Extension Service
[email protected]@srdc.msstate.edu
(662) 325-3207(662) 325-3207
Let’s back up for a moment…Let’s back up for a moment…
Why are we here?Why are we here? Who is our clientele?Who is our clientele? What types of businesses are they What types of businesses are they
wanting to start?wanting to start? Where are they at on an entrepreneurial Where are they at on an entrepreneurial
timeline?timeline? What are we willing to do for them?What are we willing to do for them? How far are we willing to go?How far are we willing to go?
What WorriesWhat WorriesSmall Business Owners?Small Business Owners?
0 5 10 15 20 25
Macroeconomy
Retirement/transition
Financing Issues
Unexpected growth
Succession 4%
6%
7%
19%
25%
What do lenders & investors What do lenders & investors consider important?consider important?
The Company – 15%The Company – 15%
The Product or Service – 15%The Product or Service – 15%
The Market and Marketing Strategy – 35%The Market and Marketing Strategy – 35%
Management – 25%Management – 25%
Financial Summary – 10%Financial Summary – 10%
What do lenders & investors What do lenders & investors consider important?consider important?
The Company (15% Weight)The Company (15% Weight)– What business are you in?What business are you in?
– Purpose of the businessPurpose of the business
– Brief summary of the company, history, Brief summary of the company, history, legal organization, publicly or privately heldlegal organization, publicly or privately held
– Overall strategy and objectivesOverall strategy and objectives
What do lenders & investors What do lenders & investors consider important?consider important?
The Product or Service (15%)The Product or Service (15%)– Important features and user benefitsImportant features and user benefits– Relationship between the products and/or Relationship between the products and/or
services supplied and market needsservices supplied and market needs– Pricing strategiesPricing strategies– Present status – current stage of develop-Present status – current stage of develop-
ment, expected life cyclement, expected life cycle– Proprietary positionProprietary position– Products and projects plannedProducts and projects planned
What do lenders & investors What do lenders & investors consider important?consider important?
The Market and Marketing Strategy The Market and Marketing Strategy (35% Weight)(35% Weight)– Who buys the product and why?Who buys the product and why?– Comprehensive market descriptionComprehensive market description– Competition characteristicsCompetition characteristics– What market needs are satisfied?What market needs are satisfied?– Unique characteristicsUnique characteristics– Marketing plans and penetrationMarketing plans and penetration
What do lenders & investors What do lenders & investors consider important?consider important?
Management (25% Weight)Management (25% Weight)– Background and abilities of key individualsBackground and abilities of key individuals– How can they do this job?How can they do this job?– What do they bring to the company?What do they bring to the company?– History of management working together History of management working together
as a teamas a team– Immediate personnel needs and costsImmediate personnel needs and costs– Organizational structure, decision making Organizational structure, decision making
framework, who holds the authority?framework, who holds the authority?
What do lenders & investors What do lenders & investors consider important?consider important?
Financial Summary (10% Weight)Financial Summary (10% Weight)– Funds requiredFunds required– Uses of fundsUses of funds– Projections of sales revenues, income, and Projections of sales revenues, income, and
expenses over a three to five year periodexpenses over a three to five year period– Security offerings planned (if any)Security offerings planned (if any)– Payback period estimation for investorPayback period estimation for investor– Funding needs at developmental stagesFunding needs at developmental stages
The Business PlanThe Business Plan
Many potential business people focus too Many potential business people focus too much on the numbersmuch on the numbers
Focus on these factors:Focus on these factors:– The People – Management TeamThe People – Management Team– The Opportunity – Marketing Plan & ResearchThe Opportunity – Marketing Plan & Research– The Context – Overall Macroeconomic The Context – Overall Macroeconomic
Environment and MarketplaceEnvironment and Marketplace– Risk and Reward – Acknowledgement of risk, Risk and Reward – Acknowledgement of risk,
how to deal with it, financial planhow to deal with it, financial plan
William A. Sahlman, Harvard University
The PeopleThe People
Who are the “people?”Who are the “people?”– The men and women starting and running The men and women starting and running
the businessthe business– Includes outside parties who provide key Includes outside parties who provide key
services or resourcesservices or resources» AccountantsAccountants» LawyersLawyers» SuppliersSuppliers
– Also needs to include key labor needsAlso needs to include key labor needs
Management InformationManagement Information
Names of Directors and OfficersNames of Directors and Officers Personal InformationPersonal Information
– Financial statements, Other income Financial statements, Other income sources, etc.sources, etc.
Statement of IntegrityStatement of Integrity Experience in running this (or any other) Experience in running this (or any other)
type of businesstype of business Goals with regard to the businessGoals with regard to the business
Key Labor NeedsKey Labor Needs
What jobs (tasks) need to be What jobs (tasks) need to be performed?performed?
What are the labor requirements for What are the labor requirements for these jobs?these jobs?– Education, previous training, experience, Education, previous training, experience,
age, lifting capabilityage, lifting capability Hiring, retention, evaluation, and Hiring, retention, evaluation, and
dismissal policiesdismissal policies
Operations PlanOperations Plan
Should be the best understood part of Should be the best understood part of the planthe plan
Writing this for a “lay” audience may be Writing this for a “lay” audience may be extremely difficultextremely difficult
Important to let your audience know that Important to let your audience know that you know what you are doingyou know what you are doing
Include equipment, raw material, labor Include equipment, raw material, labor and time requirementsand time requirements
Expansion plans and opportunitiesExpansion plans and opportunities
Financial PlanFinancial PlanWhy Not Numbers?Why Not Numbers?
Entrepreneurs are wildly optimisticEntrepreneurs are wildly optimistic Numbers are usually paddedNumbers are usually padded Investors know about this and discount Investors know about this and discount
the numbersthe numbers Leads to a cycle of inaccuracyLeads to a cycle of inaccuracy Plan should contain some numbers that Plan should contain some numbers that
demonstrate a business model such as demonstrate a business model such as manufacturing yieldmanufacturing yield
Financial PlanFinancial PlanBut It Is Still ImportantBut It Is Still Important
Financing SoughtFinancing Sought Existing Capital StructureExisting Capital Structure CollateralCollateral GuaranteesGuarantees Financial ObjectivesFinancial Objectives Financial StatementsFinancial Statements
– Actual or estimatedActual or estimated– Pro FormaPro Forma
Financial PlanFinancial Plan
Basic financial statementsBasic financial statements– Balance sheet, income statement, cash Balance sheet, income statement, cash
flow statement, budgetflow statement, budget Types of financing neededTypes of financing needed
– Startup versus operationalStartup versus operational Sources of fundsSources of funds Reinvestment strategiesReinvestment strategies Family living expensesFamily living expenses
Risk and RewardRisk and Reward
All sane people want to avoid riskAll sane people want to avoid risk Entrepreneurs want to capture the reward and Entrepreneurs want to capture the reward and
give the risk to othersgive the risk to others Need to show people, opportunity, and context Need to show people, opportunity, and context
from both good and bad perspectivesfrom both good and bad perspectives Talk about the end of the business processTalk about the end of the business process
Unawareto Aware
EarlyStage
Pre-launch& Launch
OperatingStart-up Growth
Harvestor Exit
Attributes of SuccessAttributes of Success
Decisions are made on the bottom Decisions are made on the bottom lineline
Attributes of SuccessAttributes of Success
Decisions are made on the bottom Decisions are made on the bottom lineline
Gross revenue is not treated like Gross revenue is not treated like manna from heavenmanna from heaven
Attributes of SuccessAttributes of Success
Decisions are made on the bottom Decisions are made on the bottom lineline
Gross revenue is not treated like Gross revenue is not treated like manna from heavenmanna from heaven
If a task can’t be accomplished in-If a task can’t be accomplished in-house in a cost effective manner, house in a cost effective manner, outsource itoutsource it
Attributes of SuccessAttributes of Success
Employ quality, trainable Employ quality, trainable individuals: don’t become a individuals: don’t become a residual employer for otherwise residual employer for otherwise unemployable relativesunemployable relatives
Attributes of SuccessAttributes of Success
Employ quality, trainable Employ quality, trainable individuals: don’t become a individuals: don’t become a residual employer for otherwise residual employer for otherwise unemployable relativesunemployable relatives
Constantly seek out new Constantly seek out new products and servicesproducts and services
Attributes of SuccessAttributes of Success
Employ quality, trainable Employ quality, trainable individuals: don’t become a individuals: don’t become a residual employer for otherwise residual employer for otherwise unemployable relativesunemployable relatives
Constantly seek out new Constantly seek out new products and servicesproducts and services
Grow a new market or diversify Grow a new market or diversify into other enterprisesinto other enterprises
Attributes of SuccessAttributes of Success
Employ quality, trainable Employ quality, trainable individuals: don’t become a individuals: don’t become a residual employer for otherwise residual employer for otherwise unemployable relativesunemployable relatives
Constantly seek out new Constantly seek out new products and servicesproducts and services
Grow a new market or diversify Grow a new market or diversify into other enterprisesinto other enterprises
Attributes of SuccessAttributes of Success
They are not timid about tooting They are not timid about tooting their own horn about their their own horn about their products and/or servicesproducts and/or services
Attributes of SuccessAttributes of Success
They are not timid about tooting They are not timid about tooting their own horn about their their own horn about their products and/or servicesproducts and/or services
Does not dwell on the challenges Does not dwell on the challenges of the competition; realizes that of the competition; realizes that some have it and some don’tsome have it and some don’t
Entrepreneurial StudyEntrepreneurial Study
Beginning financial position is importantBeginning financial position is important Entrepreneurs recognize that quality Entrepreneurs recognize that quality
products and marketing skills are products and marketing skills are essentialessential
Their overall managerial ability is above Their overall managerial ability is above averageaverage
Owner time requirements are worse Owner time requirements are worse than milking cowsthan milking cows
Warning Signs of PendingWarning Signs of PendingFinancial DifficultiesFinancial Difficulties
Significant increase in the level of Significant increase in the level of accounts payableaccounts payable
Significant increase in the frequency Significant increase in the frequency and amount of impulse purchasesand amount of impulse purchases
Decrease in the level of available Decrease in the level of available working capitalworking capital
Record keeping practices become less Record keeping practices become less importantimportant
Warning Signs of PendingWarning Signs of PendingFinancial DifficultiesFinancial Difficulties
Hides a large portion of financial Hides a large portion of financial activities from other family members activities from other family members and lendersand lenders
Diversion of sales proceedsDiversion of sales proceeds Living expenses increase rapidly and Living expenses increase rapidly and
expenditures for capital assets increaseexpenditures for capital assets increase Works less and plays harderWorks less and plays harder Domestic situation changesDomestic situation changes