BAEB510 Chapter 5: Business Plan

BAEB501 : ENTREPRENEURSHIPCHAPTER 5:Business Plan

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Chapter 5: Business Plan

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Topic Outlines

5.1. Introduction5.2 Purposes of preparing a Business Plan5.3 Business Plan helps5.4 Who should read your business plan?5.5 5C’s of Credit – Additional information5.6 Business Plan Format5.7 Business Plan5.8 The Executive Summary5.9 State your Mission Statement5.10 Describe your product/service5.11 Analyze the competition5.12 Describe your pricing strategies5.13 Example: Describe any special pricing strategies5.14 Describe your credit policy5.15 Describe your competitive advantage5.16 Describe the market segmentation5.17 Describe your location5.18 Common Location Mistakes5.19 Describe your promotion plan

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Learning Outcomes

After completing this chapter, student should be able to: Explain the business plan Understand the elements in business plan Develop your own business plan

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5.1 Introduction

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What is a business plan?

It is a written document that serves as a blueprint and guide for a proposed business project that one intends to undertake.

A comprehensive document that helps the entrepreneur analyze the market and plan the business strategy

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5.1 Introduction

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What does business plan contains of?

The business plan contains of: Proposed business venture Its operational and financial

details Marketing opportunities and

strategies Manager skills and abilities

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5.1 Introduction

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Why do we write a business plan?

Because: Prepared by a start-up to

avoid costly mistakes

(e.g. in financial plan, marketing plan, right?)

To ensure the future growth is properly managed

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5.2 Purposes of preparing a Business Plan

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To allow the entrepreneur to view and evaluate the proposed business venture in an objective, critical and practical manner.

To analyze and evaluate the viability of a proposed venture.

To convince relevant parties of the investment potential of the project.

As a guideline for managing the business.

To allocate business resources effectively.

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5.3 Business Plan helps

Owner project where they are, where they want to be, and how they plan to get there.

Clarify the goals of your business, the risk you take in starting it, and the possible rewards.

Describes the product you wish to sell and how will you sell it.

Banker an insight into your strategy and market

Investors to decide if you and your ideas are worth their risk.

Sales people and suppliers learn about your operations and goals.

You to analyze and predict competitive and money market situations that help or hurt your business.

Your learn to better manage your finances, marketing and management.

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5.4 Who should read your business plan?

Bankers – who grant loans for equipment and expansion.

Investor – who can supply startup or growth capital.

Business Brokers – who buy and sell businesses.

Initial Stock Offering Consultants – who write prospectus to sell stock or partnership units.

Suppliers of your inventory and materials (if they need to know who they are dealing with).

Marketing managers – if you need outside talent to help you develop marketing and sales plan.

Entrepreneur – to track whether he/she in the right path.

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Are you unique? You must have a unique

product or process with high profit potential.

Desirable to them if you can offer proprietary technology such as pattern, production process, trade secret, chemical formula

Management Team’s Tract Record Must be experienced in

different kind of business Will business continue if

something happen to you

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A track record of profit for the past 3 years.

Seldom consider people seeking startup capital unless have a substantial amount of collateral such as property.

How the loan is used to improve an already efficient operation. How you will generate enough cash from your cash flow to repay your loan.

Debt-to-Equity ratios of less than 3 to 1. This ratio compares what you owe to what you own. Anything less is a sign of risk, and bankers are not in business to take risks.

Conservative financial projections that show reasonable growth with reasonable profits over 2 years (which is what venture capitalists want to see).

Strong analysis of your market and competition.

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5.5 5C’s of Credit – Additional information

Capital – to have own money as a sign of commitment, stable capital base. Willing to lose, handle.

Capacity – cash flow to show ability to repay loan. Money come in.

Collateral – assets pledged as security for repayment of loan. Set when default to recover the loans.

Character – intangible factors such as honesty, competence, intelligence, ability, etc.

Conditions – potential growth in the market, competition, location, form of ownership, loan purpose, etc.

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5.6 Business Plan Format

Cover Letter - To write you purpose of writing

business plan, formal format.

Cover page Title of business plan Name of business/business address Name of writers Date of submission

Table of contents List of topics, list of figures (if there’s

any), paging

Executive Summary

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Main Body of the Business Plan

Introduction (briefly tell what is all about) Purpose (what you focus at) Company Background (all about your company) Owner/Partner background (formal biodata of owners) Location of the business (map, address, why choose) Administrative Plan (organizational chart, description) Marketing Plan (4p’s, marketing strategies, planning) Operation Plan (how the product/service produced) Financial Plan (describe capital, profit, lost, return) Conclusion (summary why writing business plan)

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Appendices

Balance sheet/financial statement

Supplier’s quotation

Agreement letter

Letter of references

Research findings

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5.7 Business Plan

For more understanding what should be in the business plan, herewith I attach you the additional information on Business Plan description. Enjoy reading on next slide!

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5.8 The Executive Summary

It should best be summarized in 1 page (maximum 2 page only). The less the better.

A brief description of the proposed business and the product/service it will provide.

The most important trends in the industry. The type of advertising and promotion that will be implemented. Sales and Profits from the past 3 years (if the company is an existing

business). Projected Sales and Profits for the next 3 years. The education and work experience of the owners and key personnel. Any other information that is critical in understanding how your

business operates.

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5.9 State your Mission Statement

In writing a business plan, please state your mission. This is advisable to prepare good business plan. This can include:

State the purpose of your business.

Identify the products and/or service to be offered.

Describe your management philosophy.

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5.10 Describe your product/service

To include information concerning any applicable data such as:

Size, shape, colors Raw materials Weight, speed Packaging, texture, etc

To include information concerning services such as:

Personalized attention, custom ordering

Guaranteed response time, trial orders

Money-back guarantee, etc.

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5.11 Analyze the competition

Identify 3 of your main competitors by name.

State the distance between you and each of the competitors. (e.g. how far? How long?)

Describe their trading areas in comparison to yours.

Identify the strengths and weaknesses of your competitors by using the following checklist. (Note: Not all information will be available on all competitors).

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5.12 Describe your pricing strategies

State your pricing objective, the goal to be achieved through pricing such as:

A certain level of profit A specific market share To reach a certain sales

volume

Describe the typical markup in this industry and how your prices compare.

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5.12 Describe your pricing strategies

Identify your pricing policies and general pricing guidelines. Examples:

Will you run seasonal sales? Will you try to match the competitors’ prices? Will you use coupons? Will you give employees discounts on merchandise

purchased?

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5.13 Example: Describe any special pricing strategies

Introductory prices – Low prices used to gain entry into market Price Lining – Grouping inventory into categories and then setting the

same price for all items in each category. Odd-ending – Prices set at odd numbers such as RM1.99, RM9.99,

RM29.99, etc Loss-Leader – Selling one or a few items below cost in order to attract

customers. All-One-Price-Setting every item equal to the same price. Bundling – Grouping items together and selling them for less than if

each item were purchased separately.

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5.14 Describe your credit policy

Describe your credit terms to customers.

Compare your credit terms to those of your competitors

State whether you will accept checks, credit cards, etc.

Segmentation – identify target market by separating the customer into groups of similar needs.

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5.15 Describe your competitive advantage

As much details as possible.

Might include: - Quality, Price, Selection (variety of product) - Location, Service - Fast turnaround,

etc

Provide an explanation of how you will achieve your competitive advantage. (Try to combine several advantages, if possible)

Example: -How will you have better quality? -What will make your service

better? -Why is your location better?

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5.16 Describe the market segmentation

1. Geographically – the geographic area you will serve.2. Demographically – the age, sex, race, income, etc. of your target

market.3. Benefit – the benefits customers are buying such as status,

security/safety, convenience, romance, sociability, entertainment, comfort, self indulgence, durability, etc.

4. Usage rate – the % of your customers that account for the largest portion of sales.

5. Psychographically – the values and lifestyle of your customers such as outgoing, introverted, scholarly, partygoers, athletic, family oriented, etc

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5.17 Describe your location

1. Give the business address

2. State whether the property is correctly zoned or if rezoning is necessary

- Residential, commercial, industrial, agricultural

3. Describe your trading area.

4. Provide the demographic data for your trading area giving age, sex, race, income, occupation, etc.

5. Give the average traffic count in front of the outlet.

6. Describe anything hindering accessibility such as medians, one-way streets, congested traffic, difficult entrance, etc.

7. Identify any factors helping accessibility such as multiple entrances, a location near major highways.

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5.17 Describe your location

8. Identify the businesses adjacent to your site. State whether these businesses serve the same customers as your business and whether they have similar operating hours.

9. Research and describe the community’s sign laws. Describe any restrictions that would affect the sales of the business.

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5.18 Common Location Mistakes

Location Mistake 1: Choosing a location because it is close to home

Location Mistake 2: Choosing a location because it is the cheapest

Location Mistake 3: Choosing a location because it is the only one available

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5.19 Describe your promotion plan

List the type of promotion you will use Sales and direct marketing, advertising Publicity and public relations Sales promotion

State your promotional goals. Might include: A specific sales volume A percent increase in awareness To inform customers of a sale To eliminate seasonal merchandise, etc.

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5.19 Describe your promotion plan

Provide information on your inside and or outside sales force, state whether you hire only experienced salespeople or if you hire inexperienced personnel and train them

Describe the compensation packages for the sales force (Salary only, salary plus commission, etc)

Describe how customer accounts are divided among the sales force – geographically, by industry, by company size, etc.

Describe any direct mail, catalogs, or direct response ads that will be used.

State the objectives of the promotions and the total annual cost.

Identify company activities that can be used for publicity.

Any plan to write for the local newspaper concerning the grand opening, expansion plans, new products that are developed, etc. or interesting enough to be featured on local radio or television stations

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