Unit 4 Business Plan

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copyright 2003 Jack M. Kaplan

ow to Prepare a

W inning Business P lan

Preparing a Business Plan

Patterns of Entrepreneurship

Chapter 4


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Purp se f a Business Plan

Attracts Investors

Evaluates Feasibility of Business Concept

Serves as an Operating Guide

Attracts Potential Business Partners and KeyEmployees

Attracts Potential Customers and Suppliers


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Business Plan Devel pment Guide

Outline: !e E"ecutive Summary

Business #escription $ar%et Analysis

!e $anagement eam

Operations

Critical &is%s !e Financial Pro'ections

Appendi"


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The Executive Summary

Objective: Capture interest of investors

General overvie( of business idea )o( (ill it (or%

Bullet form

Emp!asi*e %ey issues

+o more t!an ,-. pages S!ould be (ritten last


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Include the following: Company pro/le

+ature of t!e product or service o0eringemp!asi*ing any competitive advantages

Identify foreign1domestic mar%ets to be targeted

Si*e and gro(t! trend of mar%et

$a%e-up and bac%ground of t!e managementteam - include individual s%ills

Financing re2uirements

Key pro'ections 3i4e45 sales5 gross pro/ts5 +4I46

The Executive Summary


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Business Descripti n

Objective: Provide a detailed overvie( of t!e company and

t!e nature of t!e product1service o0ering4 S!o( long-term commitment to developing t!e

venture4

S!o( defensible competitive advantage4


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Business Descripti n

Include: $ission statement

)istory be!ind t!e idea or current business

Company7s current or proposed legal form Proposed entry strategy

#escription of t!e initial product1service3including any anticipated competitive

advantages6 Product researc! and development


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ar!et "nalysis

Objective: Prepare an opportunity mar%eting analysis4

#emonstrate !o( to capture a large s!are tosupport t!e venture4

S!o( !o( to support claims and customerinterest4


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ar!et "nalysis

Address: #escription of industry

#escription of region and1or countries

3international business6 argeted mar%ets

$ar%eting researc!

Competition

Barriers to entry $ar%eting strategy

8 deliver products1services to t!e targeted mar%ets


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anagement Team

Objective: S!o( t!at t!e team can e0ectively manage

t!e product1service into foreign or domestic

mar%ets4

#oes management !ave t!e bac%ground ands%ills to ma%e t!e venture a success9

)ig!lig!t synergistic s%ills4

S!o( !o( de/ciencies (ill be covered4

#o not give up more control t!an absolutelynecessary4


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Address: Bac%ground and primary responsibilities of t!e

management team

Organi*ational structure

Board of directors1advisors1international tradespecialists

O(ners!ip

anagement Team


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Exit Strategy

o be determined up-front

Some options include:8 going public

8 selling t!e business

8 a stoc% buy-bac% at t!e going rate

8 leveraged buy-out

8 second round of investment


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#ritical $is!s

Objective: Identify potential problems t!at could

signi/cantly a0ect t!e ne( company4

;et potential investors %no( up-front t!at t!ereare ris%s associated (it! t!e venture4


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#ritical $is!s

Internal8 loss of %ey employees

8 inade2uate (or%ing capital

8 unproductive &


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Continued: Contingency Plans

8 probabilities

Insurance Provisions8 /re

8 liability

8 automobile

8 (or%er7s compensation

8 %ey person

#ritical $is!s


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%perati ns

Objective: Focus on relevant cost4

#emonstrate ability to carry out implementation4 Integrate operation costs (it! t!e /nancial

section4


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Address: International Considerations

8 mar%et development activities

8 transportation

8 e"port documentation

8 foreign contacts and personal relations!ips

Future &esearc! and #evelopment Plans

8 cannot be built around a single service or product

8 present t!e planned directions of &


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Continued: Production Plan

8 procuring and transforming critical resources

8 internally

8 e"ternally

8 time line of events

Customer Support8 focus on getting and %eeping customers

8 customer service

8 (!at role it plays in ac!ieving sales goals

%perati ns


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Continued: Personnel

8 creating management and infrastructure c!arts

8 !iring

8 training

%perati ns


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The &inancial Pr 'ecti ns

Objective: Convince t!e investor t!at t!e venture ma%es

sense from a /nancial standpoint4

Pro'ections must address:

8 allocation of e"penses

8 return on investment

8 cas! =o( management


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)istorical /nancial data

First year /nancial pro'ections by mont!

Balance S!eet

Income Statement

Cas! Flo( Statement

Second year /nancial pro'ections by 2uarter

Five year annual forecasts Brea%-Even Analysis

&atio Analysis

The &inancial Pr 'ecti ns


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(aluati n

>&esidual ?alue@ commonly used by investors4

S!ould be done before meeting (it! investors4

ill !elp you to assess (!at o(ners!ip you may !ave

to give up based on t!e e"pected &OI for your type ofventure4

se t!e >time value of money@ e2uation: n Future ?alue Present ?alue 3Di6

i estimated rate of return investors (ill re2uire based on t!e

perceived ris% associated (it! your type of venture

n number of years


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Calculate t!e future value of t!e up-frontinvestment needed4

E"ample: Funds needed HH5HHHAverage annual return on investment 3&OI6 J

F? HH5HHH 3D46

F? HH5HHH 34,H6

F? ,5,DH5,.

(aluati n


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Example: #etermine t!e point in time t!at (ill be used in

t!e valuation calculations4

E"ample: years

!at are t!e pro'ected after-ta" pro/ts9

E"ample: D55HH 3year 6

#etermine t!e valuation factor by loo%ing atsimilar companies in your industry4

E"ample: DH times after ta" earnings

D55HH " DH D5H5HH

(aluati n


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#etermine t!e amount of e2uity you may !ave togive up5 based on t!e value of t!e venture5 andt!e future value of t!e potential investors7 initial

investment4

E"ample:

,5,DH5,.-------------- D,JD5H5HH

(aluati n


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Balance Sheet

C Position

Capital Asset Position

Capital StructurePro Forma alance !heet:Current Assets Current ;iabilitiesFi"ed Assets ;ong-term #ebtIntangible Assets E2uity

otal Assets otal ;iabilities E2uity


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#ash &l w Statement

Objective: #emonstrate t!at you !ave suLcient cas! to run

t!e operation4

Assess t!e timing of future cas! =o(s4

#evelop a plan for subse2uent rounds of/nancing4


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Cash Provided "used# from Operations+et income 3loss6#epreciation

Ad'usted net income 3loss6Cash Provided b$ %or&ing Capital

Accounts receivable 3increases6 decreasesInventories 3increases6 decreasesAccrued liabilities 3decreases6 increases

Prepaid e"penses 3decreases6 increases

Cash Provided "used# b$ ContinuingOperations

#ash &l w Statement


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Continued:

Cash Provided "used# from Financing

Activities;ong-term debt 3decreases6 increasesInterest on notesCas! dividends paidIssuance of stoc%

'otal Cash Provided "used# fromFinancing Activities

#ash &l w Statement


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Continued:

Cash Provided "used# from

Investment ActivitiesPurc!ase of property5 plant and e2uipmentProceeds from sale of assetsOt!er ac2uisitions

Cash Provided "used# fromInvestment ActivitiesIncrease 3decrease6 in cas!Cas! at beginning of periodCas! at end of period

#ash &l w Statement


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)nc me Statement

&evenue Pro'ections

Cost &elations!ips

ie into t!e Operating Strategy


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)nc me Statement

Pro Forma Income !tatement

&evenue

- Cost of Goods Sold

Gross Pro/t $argin

- Operating E"penses

+et Income Before Interest and a"es

- Interest- a"es

+et Income 3;oss6


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$easuring Plan Progress

Business plan pro'ections are made on a D,-mont! sc!edule but t!e entrepreneur s!ouldfre2uently c!ec% on:

Pro/t and loss statement4

Cas! =o( pro'ections4

Inventory control4

Production control4

Muality control4

Sales control4

#isbursements4

eb site control4

Using and Implementing theBusiness Plan (cont.)


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pdating t!e Plan

Entrepreneurs must be sensitive to c!angesin t!e company5 industry5 and mar%et4

#etermine (!at revisions are needed ifc!anges are li%ely to a0ect t!e businessplan4

!is !elps entrepreneurs to:

$aintain reasonable targets and goals4

Keep t!e ne( venture on a course to !ig!probability of success4

Using and Implementing theBusiness Plan (cont.)


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Why Some Business Plans

&ail Goals are unreasonable4

Ob'ectives are not measurable4

Entrepreneur !as not made a total

commitment to t!e business or to t!e family4 ;ac% of e"perience in t!e planned business4

+o sense of potential t!reats or (ea%nesses

to t!e business4 +o customer need (as establis!ed for t!e

proposed product or service4

Documents

Unit 4 Business Plan