developing a business plan part deux alan barefield southern rural development center mississippi...

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%


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


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


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


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?


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



Gross revenue is not treated like Gross revenue is not treated like manna from heavenmanna from heaven



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


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



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


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


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

developing a business plan part deux alan barefield southern rural development center mississippi...

Documents

lenders investors

important features

marketing strategy

history of management

weightwhat business

financial summary

key services

worriessmall business