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Chapter #4 – Writing a Business Plan

Explain the purpose of a business plan
A written narrative that describes what a new business intends to accomplish and how it plans to achieve its goals
Two reasons for writing a business plan?
a. Business plan is a dual-purpose document used both inside and outside the firm. 1. Inside the firm, it helps the company develop a road map to follow in executing its strategies. 2. Outside the firm (investors and bankers), it acquaints potential investors and other stakeholders with the business opportunity the firm is pursuing and describes how the business will pursue that opportunity
Who reads a business plan and what they’re looking for
a. A firm’s employees, and investors and other external stakeholders
b. Firm’s employees are looking for a clearly written business plan that helps the employees of the firm operate in sync and move forward in a consistent and purposeful manner.
c. For investors, the plan must make the case that the firm is a good use of an investor’s funds or the attention of others
Summary Business Plan
10 to 15 pages and works best for companies in the early stages of development that want to test the waters to see if investors are interested in their idea. These companies don’t have the information needed for a full business plan but may put together a summary business plan to see if potential investors are interested in their idea
Full Business Plan
25-35 pages, spells out a company’s operations and plans in much more detail than a summary business plan and is the usual format for a business plan prepared for an investor. Works best for new ventures who are at the point where they need funding or financing, serves as a blueprint for the company’s operations.
Operational Business Plan
Usually prepared for an internal audience. It is 40-100 pages long and provides a blueprint for a new venture’s operations and providing guidance to operational managers.
Structure of the business plan
-To make the best impression a business plan should follow a conventional structure (outline) – don’t try and be creative
-Software packages can assist in the making of a business plan
-Business plan needs to project a sense of excitement and anticipation about the possibilities that surround the new venture
-Give clear and concise information on all the important aspects of the proposed venture
– Long enough to provide sufficient info, but short enough to maintain reader interest
-Important to recognize that the plan will usually change while writtenDes
1. Executive Summary
Why the executive summary may be the most important section of a business plan?
It is a quick overview of the entire business plan and provides busy readers with everything they need to know about the distinctive nature of the new venture. In many instances, an investor will ask for a copy of a firm’s executive summary and will request a copy of the business plan only when the executive summary is sufficiently convincing. It should not exceed two single-spaced pages
2. Industry Analysis
Describes the industry the business will enter in terms of size, growth rate, and sales projections
Should Include: industry size, growth rate, and sales projections; industry structure; nature of participants; key success factors; industry trends; long-term prospects
3. Company description
General description of the company
– company description
-company history
-mission statement
-products and services (position relative to rivals)
-current status (milestones)
-Legal status and ownership
-Key partnerships
Mission Statement
Why a company exists and what it aspire to become
Milestone
A significant or noteworthy event in the life of a business. Milestones are used to track progress and to identify the most important steps remaining to be completed
4.Market Analysis
Breaks the industry into segments and zeros in on the specific segment (or target market) to which the firm will try to appeal
-market segmentation and target market selection (divide market into distinct segments – geography, demographics)
-buyer behavior
-competitor analysis
Why it is important to include separate sections on a firm’s industry and its target market in a business plan
An industry analysis describes the industry a business will enter. The market analysis, which is a separate section, breaks the industry analysis into segments and zeroes in on the specific segments to which the firm will seek to appeal.
5. The economics of the business
The basic logic of how profits are earned in the business and how many units of a business’s profits must be sold for the business to break even and then start earning a profit
-Revenue drivers and profit margins
-fixed and variable costs
-operating leverage and its implications
-start-up cost
-break-even chart and calculations
6. Marketing Plan
Focuses on how the business will market and sell its product or service
-overall marketing strategy
-Product, price, promotions, and distribution
-Sales process/tactics
7. Design and Development Plan
if you are developing a completely new product or service, you need to include a section in your business plan that focuses on the status of your development efforts
-development status and tasks
-Challenges and risks
-Projected development costs
-Proprietary issues (patents, trademarks)
*This is a very important section for businesses developing a completely new product or service, because many promising start-ups never get off the ground because their product development efforts stall
8. Operations Plan
Outlines how your business will be run and how your product or service will be produced. Describe it as “back stage” and “front stage” (seen by the customer)
-general approach to operations
-business location
-facilities and equipment
9. Management team and company structure
The management team of a new venture typically consists of the founder or founders and a handful of key management personnel (management team, board of directors and advisers, and company structure)
*Many investors and others who read business plans look first at the executive summary and then go directly to the management team section to assess the strength of the people starting the firm
10. Overall Schedule
Many investors and others who read business plans look first at the executive summary and then go directly to the management team section to assess the strength of the people starting the firm
(milestones: obtaining first sale, rental of facilities, obtaining critical financing)
11. Financial Projections
Presents a firm’s projected financial projections
-sources and uses of funds stmt
-assumptions sheet
-income statement, balance sheet
-cash flow
-ratio analysis
Purposes of a sources and uses funds statement and an assumptions sheet
a. The sources and uses of funds statement is a document that lays out specifically how much money a firm needs, where the money will come from, and what it will be used for.
b. An assumptions sheet is an explanation of the most critical assumptions that a business’s financial analysis is based on
Presenting the business plan to investors
Consists of 15 to 20 minutes of formal remarks, 12 PowerPoint slides, and 30 minuets of questions and answers. The presentations should be smooth and well rehearsed. Slides should be sharp and not cluttered with material

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