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Business Plan

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A document that outlines the basic concept underlying a business and describes how that concept will be realized.

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What Should the Business Plan layout consist of:

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It should layout your basic idea for the venture, and include descriptions of where you are now, where you want to go, and how you intend to get there.

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Equally Important, writing a business plan can:

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convince yourself that what appears to be a good idea is also a good investment opportunity, both financially and in terms of personal goals.

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For the entrepreneur starting a new venture, a business plan has 3 basic objectives:

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1.) To ID the nature and the context of the business opportunity-- that is, why does such opportunity exist? 2.) To outline the approach the entrepreneur plans to use to exploit the opportunity. 3.) Recognize factors that will determine whether the venture will be successful.

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Users of the Business Plan are:

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Insiders: Internal users of the plan, the entrepreneur and the new firms management, and employees. Outsiders: these people are critical to the firms success, it is prospective customers, suppliers, lenders, and investors. Types of investors could be family and friends, private investors, venture capitalists.

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The Primary Functions of a business Plan is to...

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1.) To provide a clearly articulated statement of goals and strategies for internal use. The business plan helps the entrepreneur and the management team focus on important issues and activities. It also, helps in communication of his/hers vision to current and prospective employees. 2.) To serve as a selling document to be shared with outsiders. The entrepreneur has to convince the outsiders to become linked in with the firm. Why should they do business with your startup, rather than with an established firm?

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By enhancing the ventures credibility , the business plan serves as an effective selling tool with prospective customers, suppliers, as well as investors, with this...

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A well-prepared business plan can be helpful in gaining a suppliers trust and securing favorable credit terms or a plan can improve sales prospects by convincing customers that the new firm is likely to be around for a while to service a product or to continue as a source of supply.

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What are some factors affecting the extent of a business plan:

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1.) Cost in time and money to prepare the plan, these are always short in supply. 2.) Management style and ability 3.) Preferences of the management team 4.) Complexity of the business 5.) Competitive environment 6.) Level of uncertainty

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At the extremes, an entrepreneur has two basic choices when it comes to writing a business plan:

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1.) Dehydrated Plan= A short form of a business plan that presents only the most important issues and projections for the business 2.) Comprehensive Plan= This is a full business plan that provides an in-depth analysis of the critical factors that will determine a firm's success or failure, along with all the underlying assumptions.

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Dehydrated Plan

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This type of plan will often be adequate for seeking outside financing from banks, epically if it includes past and projected financial results. Also, focusing heavily on market issues, such as pricing, competition, and distribution channels. This plan provides a way of supporting information.

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Comprehensive Plan

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This plan is beneficial when you are describing a new opportunity (start-up), facing change in the business external environment (demographics, new legislation, developing industry trends), or explaining a complex business situation.

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The Content and Basic Format of a Business Plan:

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1.) Opportunity 2.) Critical Resources 3.) Entrepreneurial Team 4.) Financing Structure 5.) Context

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Opportunity (Basic Format of Business Plan)

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this should reflect the potential and the attractiveness of the market and industry

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Resources (Basic Format of Business Plan)

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this includes not just money, but also human assets (suppliers, accountants, lawyers, investors) and hard assets (accounts receivables, inventories) you should try to minimize these

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Entrepreneurial Team (Basic Format of Business Plan)

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must posses integrity and breadth and depth of experience

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Financing Structure (Basic Format of Business Plan)

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this is how the firm is financed. DEBT vs. EQUITY and how the ownership % is shared by the founders and investors.

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Context (Basic Format of Business Plan)

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These are also called external factors. Opportunities include regulatory environment, interest rates, demographic trends, inflation, and other things that cannot be controlled by the entrepreneur.

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executive summary

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a section of the business plan that conveys a clear and concise overall picture of the proposed venture

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Product/Service Plan

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A section of the business plan that describes the products and or services to be provided and explains it merits

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Marketing Plan

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A section of the business plan that describes the user benefits of the product or service and the type of market that exists. This is a way of attracting customers, selling approach, promotions, advertising, etc.

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Operations and development plan

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the section of the business plan that offers info on how a product will be produced or a service will be provided. Including descriptions of the new firms facilities, labor, raw materials, and processing requirements. this is how operations will create value for the customer and contribute to firms competitive advantage.

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Management Team

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A section of the business plan that describes a new firms organizational structure and the backgrounds of its key players.

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Critical Risk

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This part of the Business Plan, ID the potential risk that may be encountered by an investor. Common Risk include: Lack of market acceptance (customers dont by product), competitor relation, longer time and higher expenses, inadequate financing, government regulations.

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Offering

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A section of the business plan that indicates to an investor how much money is needed, and when and how the money will be used. Sources: Bank Debt, Equity. Uses: Product development, personnel costs, working capital.

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exit strategy

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This part of the business plan looks at and focuses on options for cashing out of the investment.

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Financial Plan

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This part of the plan projects the company's financial position based on well-substantiated assumptions and explains how the figures have been determined.

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Revenue Model

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A component of the business model that ID's the different types of revenue streams a firm expects to receive. Also defines the nature and types of a company's sources of revenues

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Cost Structures

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A component of the business model that provides a framework for estimating the nature & types of costs and expenses a firm may incur. Also ______ drives the company's costs and expenses. Common types of ____________ are COGS, Payroll, Marketing Activities, Admin Cost, and Marketing Expenses.

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Maximum Investment

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A component of the business model that provides estimates of the types and amounts of investment required to achieve positive profits and cash flows. Also_____ will be required to make the business profitable and cash flows positive. It not only includes the amount of investment in hard assets, such as equipment, and buildings, but in the amount of working capital like, operating cash, accounts receivable and inventory.

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Cost Structures include:

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1.) Fixed Costs: Costs that don't vary at all with volume, example is rent expense. 2.) Variable Costs: Expenses that vary directly and proportionately with changes in volume, example would be sales commissions 3.) Semi-Variable Costs: expenses that include both variable and fixed

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SCORE

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this stands for Service Corps of Retired Executives. Good for business advice, like how to write the business plan, investigate market potential, and manage cash flows. ____ counselors work out of local chapters throughout the US and can be found by contacting the national office.

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business Model

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an analysis of how a firm plans to create profits and cash flows given its revenue sources, its cost structures and the required size of investment.

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Single Stream (Rev Model)

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A firms revenues come from a single product or service

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Multiple Streams (Rev Model)

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A business realizes revenues from a combination of multiple products and services

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Interdependent streams (Rev Model)

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A company's revenues come from selling 1 or more products/services as a way to generate revenues from other products and or services. Examples: Printers and Printer Cartridges

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Volume Or Unit Based (Rev Model)

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Customers pay a fixed price per unit in exchange for a product or service

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Subscription/Membership (Rev Model)

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Customers pay a fixed amount at regular intervals, prior to receiving a product or service

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Advertising-Based (Rev Model)

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Customers pay only a fraction of the true value of the product or service

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Licensing (Rev Model)

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Customers pay a one-time licensing fee to be able to use or recall the product or service.

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When forecasting revenues ask these key questions...

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1.) Who are your most likely customers 2.) How are they different from the general population? 3.) What events will trigger the need or desire for your type of product or service? 4.) When will this trigger occur? Can it be predicted? 5.) How will customers make decisions on whether or not to buy your product or service? 6.) What will be the key decision factors? 7.) How will your product or service compare to that of the competition on these key factors? 8.) Will these differences be meaningful to the customer? 9.) Are these differences known to the customer? 10.) How can your product or service be exposed to your most likely potential customers?

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Three Key Elements make up a Business Model:

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1.)Revenue Mode 2.) Cost Structures 3.) The Investments needed to achieve positive profits and cash flows.

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What are the 3 basic objects of the business plan:

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1.) ID the nature and the context of a business opportunity 2.) To Present the approach the entrepreneur plans to take to exploit the opportunity 3.) Recognize factors that will determine whether the venture will be successful or not.

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What are the KEY SECTIONS! in the business Plan:

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1.) Cover Page 2.) Table of Contents 3.) Executive Summary 4.) Industry, Target customer, and competitor analysis 5.) Company description 6.) Product/Service Plan 7.) Marketing Plan 8.) Operations/Development plan 9.) Management Team 10.) Critical Risk 11.) Offering 12.) Exit Strategy 13.) Financial Plan 14.)Supporting Documents

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Proforma Statement:

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Projections of a company's financial statements for up to 5 years, including balance sheets, income statements, and statements of cash flows as well as cash budgets.

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