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Learning Objectives After studying this chapter you should be
ready to describe:
1. The format of a business plan.
2. The marketing aspects of new
ventures.3. The operational aspects of new
ventures.
4. The financial plan of new ventures.
5. The sources of financial and business
support systems.EUW 224 ENGINEERING
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The Importance of Planning
Planning is essential to the success of any
undertaking. Critical factors that must beaddressed when planning are:
Realistic goals. These must be specific,
measurable, and set within time parameters.
Commitment. The venture must be supported by
all involvedfamily, partners, employees, team
members.
Milestones. Subgoals must be set for continualand timely evaluation of progress.
Flexibility. Obstacles must be anticipated, and
alternative strategies must be formulated.EUW 224 ENGINEERINGENTREPRENEURSHIP 3
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What is a Business Plan? A written document that details the proposed
venture:
Describes the current status, expected needs, and
projected results of the new business.
Covers the project, marketing, research anddevelopment, manufacturing, management,
critical risks, financing, and milestones or a
timetable.
Demonstrates a clear picture of what that venture
is, where it is projected to go, and how the
entrepreneur proposes it will get therea
roadmap for a successful enterprise.EUW 224 ENGINEERING
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Individuals Who Need a
Business Plan
Entrepreneurs
Shareholders
Bankers/Creditors/Financial InstitutionsInvestors
Management/ Employees
Clients/Customers
Suppliers
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Benefits of a Business Plan
For the Entrepreneur: The time, effort, research, and discipline
required to create a formal business plan
forces the entrepreneur to view operating
strategies and expected results critically and
objectively.
For Outside Evaluators:
The business plan provides a tool for use in
communications with outside financial
sources.EUW 224 ENGINEERING
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Benefits of the Business Plan
(contd)
Specifically for the Financial Sources:
Details the market potential and plans for securing
a share of that market.
Shows how the ventures intends to service debt
or provide an adequate return on equity.
Identifies critical risks and crucial events with adiscussion of contingency plans.
Contains the necessary information for a thorough
business and financial evaluation.EUW 224 ENGINEERING
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Developing a Well-Conceived Business Plan The Five-Minute Reading
1. Determine the characteristics of the venture and its
industry.
2. Determine the financial structure of the plan (amount of
debt or equity investment required).
3. Read the latest balance sheet (to determine liquidity, networth, and debt/equity).
4. Determine the quality of entrepreneurs in the venture
(sometimes the most important step).
5. Establish the unique feature in this venture (find out whatis different).
6. Read the entire plan over lightly (this is when the entire
package is paged through for a casual look at graphs,
charts, exhibits, and other plan components).EUW 224 ENGINEERINGENTREPRENEURSHIP 8
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Putting the Package Together
Appearance
Length
The cover and title page The executive summary
The table of contents
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Guidelines to Remember
Keep the plan respectably short
Be focused
Organize and package the plan appropriately
Orient the plan toward the future
Avoid exaggeration
Highlight critical risks
Give evidence of an effective entrepreneurial team
Do not over-diversify
Identify the target market
Capture the readers interest
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Questions to Be Answered Is your plan organized so key facts leap out at the reader?
Is your product/service and business mission clear and
simple?
Are you focused on the right things?
Who is your customer?
Why will customers buy? How much better is yourproduct/service?
Do you have a competitive advantage?
Do you have a favorable cost structure?
Can the management team build a business?
How much money do you need?
How does your investor get a cash return?EUW 224 ENGINEERING
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Elements of a Business Plan Section I: Executive Summary
Section II: Business DescriptionA. General description of business
B. Industry background
C. Goals and potential of the business and milestones (if any)
D. Uniqueness of product or service
Section III: Marketing
A. Research and analysis
1. Target market (customers) identified
2. Market size and trends
3. Competition
4. Estimated market shareEUW 224 ENGINEERING
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Elements of a Business Plan (contd) Section III: Marketing (contd)
B. Marketing plan
1. Market strategysales and distribution
2. Pricing policy
3. Advertising and promotions plans
Section IV: Operations
A. Identify location
1. Advantages
2. Zoning
3. Taxes
B. Proximity to suppliers
C. Access to transportationEUW 224 ENGINEERINGENTREPRENEURSHIP 13
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Elements of a Business Plan (contd) Section V: Management
A. Management teamkey personnel
B. Legal structurestock and employment agreements, and
ownership
C. Board of directors, advisors, and consultants
Section VI: Financial
A. Financial forecast (pro forma financial statements)
1. Profit and loss
2. Cash flow
3. Break-even analysis
4. Cost controls
5. Budgeting plans EUW 224 ENGINEERINGENTREPRENEURSHIP 14
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Elements of a Business Plan (contd)
Section VII: Critical Risks
A.Potential problems
B.Obstacles and risksC.Alternative courses of action
Section X: Appendix or Bibliography
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Updating the Business Plan
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FinancialChanges
Changes in
the Market
AdditionalFinancing
Launch of a NewProduct or
Service
NewManagement
Team
Reflect the NewReality
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Presentation of the Business Plan:
The Pitch Know the outline thoroughly.
Use key words that help recall examples, visual aids,
or other details.
Rehearse the presentation to get the feel of itslength.
Be familiar with any equipment to be used in the
presentationuse your own laptop.
The day before, practice the complete presentation
using all visual aids and equipment.
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MARKETING PLAN
This marketing plan should immediately
follow the industry analysis and should
provide details about the new firms
products or services.
After reading this section of the plan, an
investor should be confident that the firms
overall approach to its target market and its
product strategy, pricing strategy, channelsof distribution, and promotional strategy are
in sync with one another and make sense.
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Marketing is a process of creating and
attracting customers to the company
Elements needed in a marketing plan:
1. Description of products or services.
Describes the products or services offered by the
company in detail (the uniqueness).
2. Target market
Explain about the customers profile in the target
market.
Do a segmentation: demographic factors such as
age, occupation, gender, education level, social
class of income. EUW 224 ENGINEERINGENTREPRENEURSHIP 19
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3. Market Size
Is usually estimated in unit of products or
sales(which would be in RM) or both.
4. Competitors
List at least 3 competitors in the same target
market, together with their strengths and
weakness.5. Market Share
Is computed as a percentage of the market size.
6. Sale Forecast Is done on a monthly basis for the first year of
business and extended to cover sales for the
second and third year on a yearly basis.EUW 224 ENGINEERING
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7. Marketing Strategy
Is a stage to determine whether the business
is able to enter the market or compete withother competitors in the market and in the
same business sectors.
It involves the following marketing mix:i. Product/service strategy
Brand, quality, packaging, protection,
ease of use, product differentiation,attractiveness, safety, labeling, design.
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ii. Pricing strategy
Cost-based pricing, value based
pricing, competition-based pricing
and factors affecting price.
iii. Distribution strategy
Sales directly to customers, through
retailers, wholesalers or agents.
iv. Promotion strategy
Advertising, sales promotion,
publicity through flyers, pamphlets,
business cards.EUW 224 ENGINEERING
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8. Manpower Planning
Lists the employees in the marketing
department in terms of their positions
and the number of employees in each
position.
9. Schedule of Tasks and Responsibilities
The main tasks and responsibilities for
each position in the marketingdepartment.
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10. Remuneration Plan
EPF and SOCSO11. Marketing Budget
List all the administrative expenses
under the following categories:
capital expenditure/fixed assets
expenses
working capital/monthly expenses
other expenses
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OPERATIONAL PLAN
This section of the plan deals with the day-to-day
operations of the company.
An overview of the manufacturing plan (or service
delivery plan) should be followed by a description
of the network of suppliers, business partners, andservice providers that will be necessary to build the
product or produce the service the firm will sell.
Any risks or regulations pertaining to the
operations of the firm should be disclosed, such as
nonroutine regulations regarding waste disposal
and worker safety.
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h h ld f h
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The entrepreneurs should focus on areas where
a distinct advantage exists.
1. Operational /innovation Process
The key steps in the operational process towards
producing the products or services of the
company.
2. Process Flow Chart The operational process of the company is
depicted in the form of a flow chart.
3. Production Schedule/Capacity Planning
Operational outputs
4. Material Requirements
Raw materials(price, quantity, name of suppliers)EUW 224 ENGINEERING
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5 M Pl i
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5. Manpower Planning
All the employees under the operation section of
the business are listed according to the relevant
position.
6. Schedule of Task and Responsibilities
Lists the main tasks and responsibilities of each
position.7. Remuneration Plan
EPF and SOCSO.
8. Machines and Equipment All machines and equipment must be listed
together with the estimated price, number of
units and suppliers name.EUW 224 ENGINEERING
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9. Operational Layout Plan
Draw the floor plan of the operational space.
10. Location of operations Site of business operations(building)
11.Operational Overheads
Consist of water, electricity, telephone and gasfacilities.
12.Operational Budgets
Capital expenditures/fixed asset expenses Working capital/monthly expenses
Other expenses
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FINANCIAL PLAN The financial section of the plan must demonstrate
the financial viability of the business. A carefulreader of the plan will scrutinize this section.
The financial plan should begin with anexplanation of the funding that will be needed by
the business during the next three to five yearsalong with an explanation of how the funds will beused.
This information is called a sources and uses of
funds statement. The next portion of this section includes financial
projections, which are intended to furtherdemonstrate the financial viability of the business
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Financial Reporting
31
Common mistake among business owners:
Failing to collect and analyze basic financial
data.
One-third of entrepreneurs run their
companies without any kind of financial plan. Only 11 percent of business owners analyze
their companies financial statements as part
of the managerial planning process.
Financial planning is essential to running a
successful business and is not that difficult!
i i i l
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Basic Financial Reports
Balance SheetSnapshot. Estimates the firms
worth on a given date; built on the accountingequation:
Assets = Liabilities + Owners Equity
Income StatementMoving picture. Compares
the firms expenses against its revenue over a
period of time to show its net income (or loss):
Net Income = Sales Revenue - Expenses
Statement of Cash Flowsshows the change inthe firm's working capital over a period of time
by listing the sourcesof funds and the usesof
these funds.
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Format of:
Balance sheet
Income Statement
Statement of Cash Flow
(lecturer will show on the whiteboard)
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Breakeven Analysis
The breakeven point is the level of operation atwhich a business neither earns a profit nor
incurs a loss.
It is a useful planning tool because it shows
entrepreneurs minimum level of activity
required to stay in business.
With one change in the breakeven calculation,
an entrepreneur can also determine the salesvolume required to reach a particular profit
target.
Calculating the Breakeven
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Calculating the Breakeven
Point
Step 1. Determine the expenses the business can expectto incur.
Step 2. Categorize the expenses in step 1 into fixedexpenses and variable expenses.
Step 3. Calculate the ratio of variable expenses to netsales. Then compute the contribution margin:
Contribution Margin = 1 -Variable Expenses
Net Sales Estimate
Step 4. Compute the breakeven point:
Breakeven Point$
=Total Fixed Costs
Contribution Margin
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Breakeven Chart
Sales Volume
Total Expense
Line
Revenue
Line
Fixed Expense
Line
Breakeven Point
Sales = $682,212
$682,212
$682,212
0
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The Importance of Getting Financing or Funding The Nature of the Funding and Financing Process
Few people deal with the process of raising investment
capital until they need to raise capital for their own firm.
As a result, many entrepreneurs go about the task of
raising capital haphazardly because they lack experience
in this area.
Why Most New Ventures Need Funding
There are three reasons most new ventures need to raise
money during their early life.
The three reasons are shown on the following slide.
SOURCES OF FINANCING
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Al i f R i i M f
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Alternatives for Raising Money for a
Start-Up Firm
Personal Funds
Family and friends
Banks and OtherFinancial InstitutionsGovernment Loan
RetirementLoan
Stock Market
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Personal Funds/Personal savings
First source of capital.
Example: savings account, current
account and money in a safe at home or
cash .Family and Friends
Family members, friends or colleagues
who are in position to lend money.
The terms of the loan should be written
down clearly and precisely.EUW 224 ENGINEERING
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Retirement AccountsEntrepreneur would have saved funds for retirement
purposes. He can use this money to fund the
development of his venture.
Stock Market
Offering stock in the entrepreneurs venture to the
public.
Investor will be able to share any profits equal to the
value of the share they contribute (dividends).
Government LoansGrants and Government subsidized loans.
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Banks and Other Financial InstitutionsBanks and financial institutions offer loans to
individuals who have assets that can serve ascollateral for the loan.
There are 3 types of financing provided by
banks and financial institutions :
i. Long-term financing
525 years
ii. Medium-term financing 27 years
iii. Short-term financing
OverdraftEUW 224 ENGINEERING
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Business Support System
1. Financial Support System2. Entrepreneur and Management Training
3. Technological Support
4. Infrastructure Support (location andpremise)
5. Marketing Support
6. Research and project Recognition7. Informational Support
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Fi i l S S
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Financial Support System
Majlis Amanah Rakyat (MARA)
Commercial Banks
Bank Pembangunan Infrastruktur Malaysia
Berhad (BPIMB)
Malaysian Industrial Development Finance
Berhad (MIDF)
Bank Pertanian Malaysia Berhad
SME Bank
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E t d M t
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Entrepreneur and Management
Training
Majlis Amanah Rakyat (MARA)
Malaysian Entrepreneurship
Development Centre (MEDEC)
State Economic Development
Corporation (SEDC) National Productivity Corporation (NPC)
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Technological Support
Palm Oil Research Industry Malaysia
(PORIM)
Forest Research Institute of Malaysian(FRIM)
Malaysian Institute of Microelectronic
System (MIMOS)
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I f S (l i
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Infrastructure Support (location
and premise)
Urban Development Authority
(UDA)
Majlis Amanah Rakyat (MARA)
State Economic Development
Corporation (SEDC)
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Marketing Support
Federal Agricultural Marketing Authority(FAMA)
Malaysian External Trade Development
Corporation (MATRADE)Ministry of International Trade and
Industry (MITI).
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Research and Project Recognition
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Standard and Industrial Research Instituteof Malaysia (SIRIM)
Malaysian Palm Oil Board (MPOB)
Research Rubber Institute Malaysia(RRIM)
Malaysian Agricultural research and
Development Institute (MARDI)
Informational Support
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Informational SupportInformational assistance is offered to an
entrepreneur in the form of business
opportunities, statistics, discovery, researchdevelopment and technological development.
Example:
Forest Research Institute of Malaysia (FRIM)
Malaysian Industrial Development Authority
(MIDA)
Malaysian External Trade DevelopmentCorporation (MATRADE).
Standard and Industrial Research Institute of