Business Plan Basics - Purdue Agriculture · Business Plan Basics Maria I. Marshall, ... Guiding the company by charting its future course and ... Key Elements of a Business Plan:

Business Plan BasicsBusiness Plan Basics

Maria I. Marshall, Ph.D.Maria I. Marshall, Ph.D.

Department of Agricultural EconomicsDepartment of Agricultural Economics

OverviewOverview

OverviewOverview

What is a business plan?What is a business plan?

OverviewOverview


What are the key elements of a businessWhat are the key elements of a businessplan?plan?

OverviewOverview



What are the three tests must it pass?What are the three tests must it pass?

OverviewOverview



What are the three tests must it pass?What are the three tests must it pass?

What are some free resources?What are some free resources?

A Business Plan IsA Business Plan Is……


a systematic evaluation of a venturea systematic evaluation of a venture’’sschances for success.chances for success.



a way to determine the risks facing aa way to determine the risks facing aventure.venture.




a game plan for managing a businessa game plan for managing a businesssuccessfully.successfully.





a tool for comparing actual and targeta tool for comparing actual and targetresults.results.





a tool for comparing actual and targeta tool for comparing actual and targetresults.results.

an important tool for attracting capital.an important tool for attracting capital.

The Business Plan:The Business Plan:Two Essential FunctionsTwo Essential Functions


Business plan Business plan –– a written summary of: a written summary of:

–– an entrepreneuran entrepreneur’’s proposed business venture.s proposed business venture.

–– its operational and financial details.its operational and financial details.

–– its marketing opportunities and strategy.its marketing opportunities and strategy.

–– its managersits managers’’ skills and abilities. skills and abilities.


Business plan Business plan –– a written summary of: a written summary of:

–– an entrepreneuran entrepreneur’’s proposed business venture.s proposed business venture.

–– its operational and financial details.its operational and financial details.

–– its marketing opportunities and strategy.its marketing opportunities and strategy.

–– its managersits managers’’ skills and abilities. skills and abilities.

It serves two essential functions:It serves two essential functions:

–– Guiding the company by charting its future course andGuiding the company by charting its future course anddefining its strategy for following it.defining its strategy for following it.

–– Attracting lenders and investors who will provideAttracting lenders and investors who will provideneeded capital.needed capital.

The Business PlanThe Business Plan


A plan is a reflection of its creator.A plan is a reflection of its creator.



Realization that a business idea just wonRealization that a business idea just won’’ttwork.work.



Realization that a business idea just wonRealization that a business idea just won’’ttwork.work.

The real value is in the The real value is in the processprocess of creating it. of creating it.

Why Take the Time toWhy Take the Time toBuild a Business Plan?Build a Business Plan?


Although building a plan doesAlthough building a plan doesnot guarantee success, it not guarantee success, it doesdoesincrease your chances ofincrease your chances ofsucceeding in business.succeeding in business.


Although building a plan doesAlthough building a plan doesnot guarantee success, it not guarantee success, it doesdoesincrease your chances ofincrease your chances ofsucceeding in business.succeeding in business.

A plan is like a road map.A plan is like a road map.

Key Elements of a Business Plan:Key Elements of a Business Plan:The Executive SummaryThe Executive Summary


Summary of all the relevant parts of theSummary of all the relevant parts of thebusiness.business.



Maximum of 2 pages.Maximum of 2 pages.




Anyone should be able to understand theAnyone should be able to understand theentire business concept and the companyentire business concept and the company’’sscompetitive advantage.competitive advantage.




Anyone should be able to understand theAnyone should be able to understand theentire business concept and the companyentire business concept and the company’’sscompetitive advantage.competitive advantage.

““the elevator pitchthe elevator pitch””

Key Elements of a Business Plan:Key Elements of a Business Plan:Mission StatementMission Statement


EntrepreneurEntrepreneur’’s vision of what the companys vision of what the companyis, what it is to become, and what it standsis, what it is to become, and what it standsfor.for.


EntrepreneurEntrepreneur’’s vision of what the companys vision of what the companyis, what it is to become, and what it standsis, what it is to become, and what it standsfor.for.

Broadest expression of a companyBroadest expression of a company’’sspurpose and defines the direction in which itpurpose and defines the direction in which itwill move.will move.

Key Elements of a Business Plan:Key Elements of a Business Plan:Business and Industry ProfileBusiness and Industry Profile


CompanyCompany’’s general business goals and itss general business goals and itsimmediate objectives.immediate objectives.



Industry AnalysisIndustry Analysis




Ease of entry and exit, economies of scale/scope,Ease of entry and exit, economies of scale/scope,economic trendseconomic trends–– Summary of Commentary on Current EconomicSummary of Commentary on Current Economic

Conditions.Conditions.




Ease of entry and exit, economies of scale/scope,Ease of entry and exit, economies of scale/scope,economic trendseconomic trends–– Summary of Commentary on Current EconomicSummary of Commentary on Current Economic

Conditions.Conditions.

Provide information on the existing and anticipatedProvide information on the existing and anticipatedprofitability of competing firms.profitability of competing firms.

Key Elements of a Business Plan:Key Elements of a Business Plan:Business StrategyBusiness Strategy


Explain how you plan to gain a competitive edge inExplain how you plan to gain a competitive edge inthe market and what sets your business apart fromthe market and what sets your business apart fromthe competition.the competition.



How you plan to meet goals and objectives in theHow you plan to meet goals and objectives in theface of competition and government regulations.face of competition and government regulations.



How you plan to meet goals and objectives in theHow you plan to meet goals and objectives in theface of competition and government regulations.face of competition and government regulations.

Identify the image the business will project.Identify the image the business will project.

Key Elements of a Business Plan:Key Elements of a Business Plan:Description of Product/ServiceDescription of Product/Service


Explain how customers will use product orExplain how customers will use product orservice.service.



Indicate productIndicate product’’s position in the product lifes position in the product lifecycle.cycle.




Summary of patents, trademarks, orSummary of patents, trademarks, orcopyrights protecting the product/service.copyrights protecting the product/service.




Summary of patents, trademarks, orSummary of patents, trademarks, orcopyrights protecting the product/service.copyrights protecting the product/service.

Focus on customer benefit, not just aFocus on customer benefit, not just adetailed list of the productdetailed list of the product’’s features.s features.

Key Elements of a Business Plan:Key Elements of a Business Plan:Marketing StrategyMarketing Strategy


Prove that a profitable market existsProve that a profitable market exists

–– Show customer interestShow customer interest

–– Document market claimsDocument market claims


Prove that a profitable market existsProve that a profitable market exists

–– Show customer interestShow customer interest

–– Document market claimsDocument market claims

Show customer interestShow customer interest

–– Prove that the target customers need orProve that the target customers need orwant the product/service and are willingwant the product/service and are willingand and ableable to pay for them. to pay for them.

Key Elements of a Business Plan:Key Elements of a Business Plan:Competitor AnalysisCompetitor Analysis


Provide information on competitorsProvide information on competitors’’ market marketshares, products, and strategies.shares, products, and strategies.


Provide information on competitorsProvide information on competitors’’ market marketshares, products, and strategies.shares, products, and strategies.

Demonstrate that your company has anDemonstrate that your company has anadvantage over its competitors.advantage over its competitors.

Key Elements of a Business Plan:Key Elements of a Business Plan:OwnersOwners’’ and Managers and Managers’’ Resumes Resumes


Should include resume of anyone with atShould include resume of anyone with atleast a 20% ownership in the company.least a 20% ownership in the company.



Show that the company has the right peopleShow that the company has the right peopleorganized in the right way.organized in the right way.



Show that the company has the right peopleShow that the company has the right peopleorganized in the right way.organized in the right way.

Ideally, lenders look for managers with atIdeally, lenders look for managers with atleast 2 years of operating experience.least 2 years of operating experience.

Key Elements of a Business Plan:Key Elements of a Business Plan:Plan of OperationPlan of Operation


Construct an organizational chart.Construct an organizational chart.



Describe incentives to keep key personnel.Describe incentives to keep key personnel.



Describe incentives to keep key personnel.Describe incentives to keep key personnel.

Describe firmDescribe firm’’s form of ownership and anys form of ownership and anyleases, contracts, and other relevantleases, contracts, and other relevantagreements pertaining to the operation.agreements pertaining to the operation.

Key Elements of a Business Plan:Key Elements of a Business Plan:Financial ForecastsFinancial Forecasts


Monthly pro forma financial statements for oneMonthly pro forma financial statements for oneyear and by quarter for each of the next 2-3 years.year and by quarter for each of the next 2-3 years.–– Income statementIncome statement

–– Cash flow statementCash flow statement

–– Balance sheetBalance sheet





Three sets of forecasts: optimistic, most likely, andThree sets of forecasts: optimistic, most likely, andpessimistic.pessimistic.





Three sets of forecasts: optimistic, most likely, andThree sets of forecasts: optimistic, most likely, andpessimistic.pessimistic.

Include break-even analysis.Include break-even analysis.

Key Elements of a Business Plan:Key Elements of a Business Plan:The Request for FundsThe Request for Funds


State the purpose of the loan or investment, theState the purpose of the loan or investment, theamount requested, and the plans for repayment oramount requested, and the plans for repayment orcash-out.cash-out.



Financial projection must reflect the firmFinancial projection must reflect the firm’’s ability tos ability torepay loans to lenders and to produce adequaterepay loans to lenders and to produce adequateyields for investors.yields for investors.



Financial projection must reflect the firmFinancial projection must reflect the firm’’s ability tos ability torepay loans to lenders and to produce adequaterepay loans to lenders and to produce adequateyields for investors.yields for investors.

Include an evaluation of the risks of the business.Include an evaluation of the risks of the business.

Tips on Preparing a BusinessTips on Preparing a BusinessPlanPlan


Rid your plan of all spelling and grammaticalRid your plan of all spelling and grammaticalerrors.errors.



Make your plan visually appealing.Make your plan visually appealing.




Leave ample Leave ample ““white spacewhite space”” in margins. in margins.





Make sure your plan has an attractive cover.Make sure your plan has an attractive cover.






Include a table of contents.Include a table of contents.






Include a table of contents.Include a table of contents.

Write in a conversational style and useWrite in a conversational style and use““bullets.bullets.””



Support claims with facts and avoidSupport claims with facts and avoidgeneralizations.generalizations.



Avoid overusing industry jargon.Avoid overusing industry jargon.




Make it interesting!Make it interesting!





Use spreadsheets to generate financialUse spreadsheets to generate financialforecasts.forecasts.






AlwaysAlways include cash flow projections. include cash flow projections.






AlwaysAlways include cash flow projections. include cash flow projections.

Keep your plan Keep your plan ““crispcrisp””

A Plan Must Pass Three TestsA Plan Must Pass Three Tests


The 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 it for the cost estimates in theyou can actually build it for the cost estimates in theplan.plan.





The Competitive Test The Competitive Test - evaluates:- evaluates:

–– a companya company’’s position relative to its key competitors.s position relative to its key competitors.

–– managementmanagement’’s ability to create a company that wills ability to create a company that willgain an edge over its rivals.gain an edge over its rivals.





The Competitive Test The Competitive Test - evaluates:- evaluates:

–– a companya company’’s position relative to its key competitors.s position relative to its key competitors.

–– managementmanagement’’s ability to create a company that wills ability to create a company that willgain an edge over its rivals.gain an edge over its rivals.

The Value Test -The Value Test - proving that: proving that:

–– it offers investors or lenders an attractive rate of returnit offers investors or lenders an attractive rate of returnor a high probability of repayment.or a high probability of repayment.

Available Free ResourcesAvailable Free Resources


Indiana Secretary of StateIndiana Secretary of State–– An Entrepreneur's Guide to Starting A Business in IndianaAn Entrepreneur's Guide to Starting A Business in Indiana

www.in.gov/sos/business/corps/guidewww.in.gov/sos/business/corps/guide




AccessIndianaAccessIndiana–– www.in.gov/ai/business/www.in.gov/ai/business/





Small Business AdministrationSmall Business Administration–– www.sba.govwww.sba.gov






Small Business Development CenterSmall Business Development Center–– www.isbdc.orgwww.isbdc.org







New Ventures Team (Purdue University)New Ventures Team (Purdue University)–– www.agecon.purdue.edu/newventures/www.agecon.purdue.edu/newventures/







New Ventures Team (Purdue University)New Ventures Team (Purdue University)–– www.agecon.purdue.edu/newventures/www.agecon.purdue.edu/newventures/

U.S. Business AdvisorU.S. Business Advisor–– http://http://www.business.govwww.business.gov //

Documents

Business Plan Basics - Purdue Agriculture · Business Plan Basics Maria I. Marshall, ... Guiding the company by charting its future course and ... Key Elements of a Business Plan: