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Crafting a Winning

Business Plan

Crafting a Winning

Business Plan

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The more concrete and complete the plan, the more likely it is to earn the respect of outsiders and their support in necessary financial matters.

-----Jesse Werner

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Learning ObjectivesLearning Objectives

Explain why every entrepreneur should create Explain why every entrepreneur should create a business plan and list the benefits of such a a business plan and list the benefits of such a planplanDescribe the elements of a solid business planDescribe the elements of a solid business planUnderstand the keys to making an effective Understand the keys to making an effective business plan presentationbusiness plan presentationExplain the Explain the ““five Cs of creditfive Cs of credit”” and why they and why they are important to potential lenders and investors are important to potential lenders and investors reading business planreading business plan

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Planning The Planning The Business OperationBusiness Operation

Business PlanBusiness Plan-- Document Describes Document Describes Internal/External Elements/Strategies For Internal/External Elements/Strategies For New VentureNew VenturePlan (Road Map)Plan (Road Map)

ShortShort--TermTermLongLong--TermTerm

Author = EntrepreneurAuthor = EntrepreneurInternet Internet -- ResourceResource

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Business Plan AudiencesBusiness Plan Audiences

1)1) EmployeesEmployees

2)2) Investors/Venture CapitalistsInvestors/Venture Capitalists

3)3) Lenders/SuppliersLenders/Suppliers

4)4) CustomersCustomers

5)5) Advisors/ConsultantsAdvisors/Consultants

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The Business PlanThe Business Plan

Business plan Business plan –– a written summary of:a written summary of:an entrepreneuran entrepreneur’’s proposed business ventures proposed business ventureits operational and financial detailsits operational and financial detailsits marketing opportunities and strategyits marketing opportunities and strategyits managersits managers’’ skills and abilities skills and abilities

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The Business Plan:The Business Plan:Three Essential FunctionsThree Essential Functions

1.1. Guiding the company by charting its future Guiding the company by charting its future course and defining its strategy for course and defining its strategy for following it.following it.

2.2. Attracting lenders and investors who will Attracting lenders and investors who will provide needed capital.provide needed capital.

3.3. Demonstrating that the entrepreneur Demonstrating that the entrepreneur understands the business venture and what understands the business venture and what will make it succeed. will make it succeed.

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A Plan Must Pass Three TestsA Plan Must Pass Three TestsThe Reality Test The Reality Test -- proving that:proving that:

a market really does exist for your product or service. a market really does exist for your product or service. you can actually build or provide it for the cost estimates you can actually build or provide it for the cost estimates in the plan.in the plan.

The Competitive Test The Competitive Test -- evaluating: evaluating: a companya company’’s position relative to its competitor.s position relative to its competitor.managementmanagement’’s ability to create a company that will gain s ability to create a company that will gain an edge over its rivals.an edge over its rivals.

The Value Test The Value Test –– proving that:proving that:a venture offers investors or lenders an attractive rate of a venture offers investors or lenders an attractive rate of return or a high probability of repayment.return or a high probability of repayment.

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Why Take the Time to Why Take the Time to Build a Business Plan?Build a Business Plan?

Although building a plan does not Although building a plan does not guarantee success, it does increase guarantee success, it does increase your chances of succeeding in your chances of succeeding in business.business.A plan is like a road map that A plan is like a road map that serves as a guide on a journey serves as a guide on a journey through unfamiliar, harsh, and through unfamiliar, harsh, and dangerous territory. Dondangerous territory. Don’’t t attempt the trip without a map!attempt the trip without a map!

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Key Elements of a Business PlanKey Elements of a Business Plan

Executive SummaryExecutive SummaryMission StatementMission StatementCompany HistoryCompany HistoryBusiness and Industry ProfileBusiness and Industry Profile

The relationship among mission, goals, and objectives.

Mission

Goals

Objectives

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Key Elements of a Business PlanKey Elements of a Business Plan

Executive SummaryExecutive SummaryMission StatementMission StatementCompany HistoryCompany HistoryBusiness and Industry ProfileBusiness and Industry ProfileBusiness StrategyBusiness StrategyDescription of Products/ServicesDescription of Products/Services

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Features vs. BenefitsFeatures vs. Benefits

FeatureFeature –– a descriptive fact about a a descriptive fact about a product or service (product or service (““an ergonomically an ergonomically designed, more comfortable handledesigned, more comfortable handle””).).

BenefitBenefit –– what a customer gains from the what a customer gains from the product or service feature. product or service feature.

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Key Elements of a Business PlanKey Elements of a Business Plan

Marketing StrategyMarketing StrategyCompetitor AnalysisCompetitor AnalysisDescription of Management Description of Management TeamTeamPlan of OperationPlan of OperationForecasted Financial Forecasted Financial StatementsStatementsLoan or Investment ProposalLoan or Investment Proposal

(continued)(continued)

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I Executive SummaryI Executive SummaryA. Company name, address, and phone number A. Company name, address, and phone number B. Name(s), addresses, and phone number(s) of B. Name(s), addresses, and phone number(s) of

all key people all key people C. Brief description of the business, its products C. Brief description of the business, its products

and services, and the customer problems they and services, and the customer problems they solvesolve

D. Brief overview of the market for your D. Brief overview of the market for your products and services products and services

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Executive Summary (Contd.)Executive Summary (Contd.)

E. Brief overview of the strategies that will E. Brief overview of the strategies that will make your firm a success make your firm a success

F. Brief description of the managerial and F. Brief description of the managerial and technical experience of key people technical experience of key people

G. Brief statement of the financial request G. Brief statement of the financial request and how the money will be usedand how the money will be used

H. Charts or tables showing highlights of H. Charts or tables showing highlights of financial forecasts financial forecasts

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II Vision and Mission statement II Vision and Mission statement

A. Entrepreneur's vision for the company A. Entrepreneur's vision for the company B. "What business are we in?" B. "What business are we in?" C. Values and principles on which the C. Values and principles on which the

business stands business stands D. What makes the business unique? What D. What makes the business unique? What

is the source of its competitive is the source of its competitive advantage? advantage?

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III Company History (for existing III Company History (for existing businesses only) businesses only)

A. Company founding A. Company founding B. Financial and operational highlights B. Financial and operational highlights C. Significant achievements C. Significant achievements

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IV Business and Industry ProfileIV Business and Industry Profile

A. Stage of growth (startA. Stage of growth (start--up, growth, maturity) up, growth, maturity) B. Company goals and objectives B. Company goals and objectives

1. Operational 2. Financial 3. Other 1. Operational 2. Financial 3. Other C. Industry analysis C. Industry analysis

1. Industry background and overview 1. Industry background and overview 2. Significant trends 2. Significant trends 3. Growth rate 3. Growth rate 4. Key success factors in the industry 4. Key success factors in the industry 5. Outlook for the future 5. Outlook for the future

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V Business strategy V Business strategy

A. Desired image and position in marketA. Desired image and position in marketB. SWOT analysis B. SWOT analysis

1. Strengths 1. Strengths 2. Weaknesses 2. Weaknesses 3. Opportunities 3. Opportunities 4. Threats 4. Threats

C. Competitive strategy C. Competitive strategy 1. Cost1. Cost--leadership 2. Differentiation 3. Focus leadership 2. Differentiation 3. Focus

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VI Company Products and Services VI Company Products and Services

A. Description A. Description 1. Product or service features1. Product or service features2. Customer benefits 2. Customer benefits 3. Warranties and guarantees3. Warranties and guarantees4. Uniqueness 4. Uniqueness

B. Patent or trademark protection B. Patent or trademark protection

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Company Products and Services Company Products and Services (Contd.)(Contd.)

C. Description of production process (if C. Description of production process (if applicable) applicable) 1. Raw materials 1. Raw materials 2. Costs 2. Costs 3. Key suppliers 3. Key suppliers

D. Future product or service offeringsD. Future product or service offerings

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VII Marketing Strategy VII Marketing Strategy A. Target market A. Target market

1. Complete demographic profile 1. Complete demographic profile 2. Other significant customer characteristics2. Other significant customer characteristics

B. Customers' motivation to buy B. Customers' motivation to buy C. Market size and trends C. Market size and trends

1. How large is the market? 1. How large is the market? 2. Is it growing or shrinking? How fast? 2. Is it growing or shrinking? How fast?

D. Advertising and promotion D. Advertising and promotion 1. Media used1. Media used--reader, viewer, listener profiles reader, viewer, listener profiles 2. Media costs 2. Media costs 3. Frequency of usage 3. Frequency of usage 4. Plans for generating publicity4. Plans for generating publicity

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Marketing Strategy (Contd.)Marketing Strategy (Contd.)

E. Pricing E. Pricing 1. Cost structure 1. Cost structure

a. Fixed a. Fixed b. Variable b. Variable

2. Desired image in market 2. Desired image in market 3. Comparison against competitors' prices 3. Comparison against competitors' prices F. Distribution strategy F. Distribution strategy

1. Channels of distribution used 1. Channels of distribution used 2. Sales techniques and incentives 2. Sales techniques and incentives

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VIII Location and Layout VIII Location and Layout A. Location A. Location

1. Demographic analysis of location vs. target 1. Demographic analysis of location vs. target customer profile customer profile

2. Traffic count 2. Traffic count 3. Lease/Rental rates 3. Lease/Rental rates 4. Labor needs and supply 4. Labor needs and supply 5. Wage rates 5. Wage rates

B. Layout B. Layout 1. Size requirements 1. Size requirements 2. Ergonomic issues 2. Ergonomic issues 3. Layout plan (suitable for an appendix) 3. Layout plan (suitable for an appendix)

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IX Competitor Analysis IX Competitor Analysis

A. Existing competitors A. Existing competitors 1. Who are they? Create a competitive profile matrix. 1. Who are they? Create a competitive profile matrix. 2. Strengths 2. Strengths 3. Weaknesses 3. Weaknesses

B. Potential competitors: Companies that might B. Potential competitors: Companies that might enter the market enter the market 1. Who are they? 1. Who are they? 2. Impact on your business if they enter 2. Impact on your business if they enter

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X Description of management teamX Description of management team

A. Key managers and employees A. Key managers and employees 1. Their backgrounds 1. Their backgrounds 2. Experience, skills, and know2. Experience, skills, and know--how they bring how they bring

to the companyto the company

B. Resumes of key managers and B. Resumes of key managers and employees (suitable for an appendix)employees (suitable for an appendix)

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XI Plan of Operation XI Plan of Operation

A. Form of ownership chosen and A. Form of ownership chosen and reasoning reasoning

B. Company structure (organization chart)B. Company structure (organization chart)C. Decision making authority C. Decision making authority D. Compensation and benefits packages D. Compensation and benefits packages

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XII Financial Forecasts (suitable XII Financial Forecasts (suitable for an appendix) for an appendix)

A. Financial statements A. Financial statements 1. Income statement 1. Income statement 2. Balance sheet 2. Balance sheet 3. Cash flow statement 3. Cash flow statement

B. BreakB. Break--even analysis even analysis C. Ratio analysis with comparison to C. Ratio analysis with comparison to

industry standards (most applicable to industry standards (most applicable to existing businesses) existing businesses)

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XIII Loan or Investment Proposal XIII Loan or Investment Proposal

A. Amount requested A. Amount requested B. Purpose and uses of funds B. Purpose and uses of funds C. Repayment or "cash out" schedule (exit C. Repayment or "cash out" schedule (exit

strategy) strategy) D. Timetable for implementing plan and D. Timetable for implementing plan and

launching the business launching the business

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XIV AppendicesXIV Appendices--Supporting documentation, Supporting documentation, including market research, financial statements, including market research, financial statements, organization charts, resumes, and other items. organization charts, resumes, and other items.

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Guidelines for PreparingGuidelines for Preparinga Business Plana Business Plan

Remember: No one can create your plan Remember: No one can create your plan forfor you.you.Potential lenders want to see financial Potential lenders want to see financial projections, but they are more interested in the projections, but they are more interested in the strategiesstrategies for reaching those projections.for reaching those projections.Show how you plan to set your business apart Show how you plan to set your business apart from competitors; don't fall into the from competitors; don't fall into the ““me toome too””trap.trap.Identify your target market, and offer evidence Identify your target market, and offer evidence that customers for your product or service exist. that customers for your product or service exist.

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Tips on PreparingTips on Preparinga Business Plana Business Plan

Make sure your plan has an attractive cover. Make sure your plan has an attractive cover. (First impressions are crucial.)(First impressions are crucial.)Rid your plan of all spelling and grammatical Rid your plan of all spelling and grammatical errors. errors. Make your plan visually appealing. Make your plan visually appealing. Include a table of contents to allow readers to Include a table of contents to allow readers to navigate your plan easily. navigate your plan easily. Make it interesting. Make it interesting.

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Tips on PreparingTips on Preparinga Business Plana Business Plan

(continued)(continued)

Your plan must prove that the business will Your plan must prove that the business will make money (not necessarily immediately, but make money (not necessarily immediately, but eventually).eventually).Use spreadsheets to generate financial forecasts.Use spreadsheets to generate financial forecasts.AlwaysAlways include cash flow projections. include cash flow projections. Keep your plan Keep your plan ““crispcrisp”” –– between 25 and 50 between 25 and 50 pages long.pages long.Tell the truth Tell the truth –– alwaysalways. .

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Presenting the PlanPresenting the Plan

Demonstrate enthusiasm, but donDemonstrate enthusiasm, but don’’t be t be overemotional.overemotional.Know your audience thoroughly. Know your audience thoroughly. ““HookHook”” investors quickly with an upinvestors quickly with an up--front front explanation of the venture, its opportunities, and explanation of the venture, its opportunities, and its benefits to them.its benefits to them.Hit the highlights; focus on the details later.Hit the highlights; focus on the details later.Keep your presentation simple Keep your presentation simple –– 2 or 3 major 2 or 3 major points. points.

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Presenting the PlanPresenting the Plan

Avoid overloading your audience with Avoid overloading your audience with technological jargon.technological jargon.Use visual aids.Use visual aids.Close by reinforcing the nature of the Close by reinforcing the nature of the opportunity. opportunity. Be prepared (with details) for potential Be prepared (with details) for potential investorsinvestors’’ questions.questions.Follow up with every investor to whom you Follow up with every investor to whom you make your presentation.make your presentation.

(continued)(continued)

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Five Cs of Credit: Criteria lenders and investors use to evaluate the creditworthiness of entrepreneurs seeking financing.

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The The ““5 Cs5 Cs”” of Creditof Credit

CapitalCapital

CapacityCapacity

CollateralCollateral

CharacterCharacter

ConditionsConditions

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What lenders and investors look What lenders and investors look for in a Business Planfor in a Business Plan

Capital:Capital: Lenders expect small businesses Lenders expect small businesses to have an equity base of investment by to have an equity base of investment by the owner(s) that will help support the the owner(s) that will help support the venture during times of financial strainventure during times of financial strainCapacity: Capacity: A synonym for capacity is cash A synonym for capacity is cash flow. The bank must be convinced of the flow. The bank must be convinced of the firmfirm’’s ability to meet its financial s ability to meet its financial obligations and to repay the bank loanobligations and to repay the bank loan

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What lenders andWhat lenders and……(Contd.)(Contd.)

Collateral: Collateral: It includes any assets that owner It includes any assets that owner pledges to the bank as security for repayment pledges to the bank as security for repayment of the loanof the loanCharacter: Character: Before approving a loan to a small Before approving a loan to a small business, the banker must be satisfied with the business, the banker must be satisfied with the ownerowner’’s characters characterConditions: Conditions: The conditions (interest rates, the The conditions (interest rates, the health of the nationhealth of the nation’’s economy, industry s economy, industry growth rates, etc.) surrounding a loan request growth rates, etc.) surrounding a loan request which affect the ownerwhich affect the owner’’s chance of receiving s chance of receiving fundsfunds

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Reasons For Plan FailureReasons For Plan Failure1.1. Unreasonable GoalsUnreasonable Goals2.2. Goals Not MeasurableGoals Not Measurable3.3. No Total CommitmentNo Total Commitment4.4. Lack Of ExperienceLack Of Experience5.5. No Understanding Of Threats Or No Understanding Of Threats Or

WeaknessesWeaknesses6.6. Customer Need Not EstablishedCustomer Need Not Established