Successful Business Plan

The Successful Business Plan:Secrets & Strategies

by Rhonda Abrams

Fourth Edition

Published by

The Planning ShopPalo Alto, California

www.PlanningShop.com

Chapter 1:The Successful Business


Factors of a Successful Business

• Business concept• Understanding the market• Industry health• Clear strategic position• Capable management• Motivated employees• Financial control• Adapting to change• Values and integrity


Business Concepts

• Something new

• Something better

• Underserved or new market

• New delivery system or distribution channel

• Increased integration


Understanding the Market

• Define the market

• Gather market data

• Evaluate the market

• Determine market readiness


What kinds of changes to anticipate?

• Technological changes– new methods of production, distribution

• Sociological change-- market changes due to demographic,

lifestyle, or trend changes

• Competitive changes-- competitive landscape changes due to new

entrants, lower prices, more aggressive marketing


Chapter 2:Getting Your Plan Started


Business Plan Process

• Lay out concept

• Gather data

• Refine concept based on data gathered

• Outline specifics of the business(e.g., the sections of your business plan)

• Put your plan in compelling form


Starting Your Research

Make a statement, then challenge it


• Statement:

There’s a need for a new drycleaner in the neighborhood.

• Challenges: – How many drycleaners are there now?– How much business do they have?– What indications are there that residents are currently

dissatisfied with current drycleaners?– How does that neighborhood’s use of drycleaners

compare to other neighborhoods with similar economic/social characteristics?

– What are trends in drycleaning nationally?


Information Sources

• US Census Bureauwww.census.gov:

• Economic Census• County Business Patterns• Current Industrial Reports

• State data centerswww.census.gov/sdc/www

• Trade associationswww.asaenet.org (“Gateway to Associations”)


Evaluating Data

• Recent data is more likely to be more reliable than older data

• Translate into units (or constant dollars) to account for inflation

• Give most reliable source the most weight when making decisions

• Use the most conservative figures for your projections


Chapter 3:Making Your Plan Compelling


Questions most likely to be asked by readers of your plan:

• Is the idea solid?

• Is the market large enough?

• Are the financial projections realistic and positive?

• Is management experienced and capable?

• How will I get my money back?


Ways to Make a Greater Impact:

• Use hard numbers to support your statements

• Use business and industry terms

• Use objective language

• Include graphs and charts


Chapter 4:The Executive Summary


Executive Summary

• The most important part of your plan

• People read this section first – and then go to the Financials

• You may be asked to send just the Summary and Financials to some investors

• Write it last when you’ve done the work


Two Types of Executive Summaries

• Synopsis: – sums up what’s in rest of plan– good for all types of businesses

• Narrative:– tells a “story”– good for businesses with one or two dominant

elements


Chapter 5:Company Description


Factual Company and Product/Service Overview

• Objectives/mission statement

• Legal issues

• Products/services

• Management

• Location

• Development stage/milestones

• Financial status


Types of Company Names

• Business name

• Legal or corporate name

• “DBA” or fictitious name

• Brand name(s)

• Model name (s)

• Subsidiary company name(s)

• Domain names


Mission Statement

• Nature of products/services

• Commitment to quality

• Service & customer relationship

• Price positioning

• Management style & work environment

• Goals for growth & profit goals

• Social, environmental goals


Legal Issues

• Legal form– corporation, LLC, sole proprietorship,

partnership?

• Ownership

• Intellectual property:– trademarks, patents, copyrights?

• Loans, leases, or obligations

• Contracts, agreements


Products & Services

• General type of products/services

• Number and type of product lines

• Unique features or innovations


Other Descriptive Issues

• Management

• Location

• Development stage/milestones

• Financial status


Chapter 6:Industry Analysis

& Trends


Health of Economic Sector

• Broad general categories (two-digit NAICS codes)

• Includes areas such as:– Retail– Manufacturing– Wholesale trade– Construction– Information


Industry Analysis

• Which industry (industries) are you in?

• What is its size and growth rate?

• How mature is the industry?

• How sensitive is it to economic cycles?

• How affected is it by seasonal factors?

• How affected is it by technological change?


Industry Growth Rate versus GDP Growth Rate

• How does your industry’s growth rate compare to the growth of the overall economy?

• Is your industry gaining or losing ground?


0%

1%

2%

3%

4%

5%

6%

7%

8%

Year1

Year2

Year3

Year4

Year5

Industry

GDP


0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%5.0%

Year1

Year2

Year3

Year4

Year5

Industry

GDP


Factors to Consider to Assess Industry Growth

• Total revenue

• Total number of units/volume sold

• Total employment


Maturity Level & Characteristics

New Industry

Expanding Industry

Stable Industry

Declining Industry

Very high growth, no

market leaders

High growth, emerging

market leaders

Low growth, fixed

market leaders

Little or no growth, decreasing competition


Other Industry Issues

• Economic cycle sensitivity

• Seasonality

• Technological change

• Regulation/certification

• Supply and distribution channels


Financial Characteristics

What financial patterns

characterize your industry?


Chapter 7:Target Market


Target Market Must Be:

• Definable – specific characteristics that define what customers have in common

• Meaningful – characteristics must meaningfully relate to buying decisions

• Sizable – market must be large enough to sustain the business

• Reachable – methods (e.g., media outlets or sales channels) must exist to effectively reach market


Characteristics:

• Demographic

• Geographic

• Lifestyle/business-style

• Psychographic/company culture

• Purchasing patterns

• Buying sensitivities


Demographic

• Basic, objective aspects of customer base

• Specific, factual traits

• Examples: – consumers: age, gender, income level,

ethnic group– businesses: industry, revenues, number

of employees


Geographic

• Area served

• Density/type (suburban, urban, rural, etc.)

• Nature of location (regional mall, industrial park, near transportation, etc.)

• Climate


Lifestyle/Business Style

• Concerns and interests

• Life stage or business stage

• Issues they’re facing

• How they spend their time

• Examples: magazines, where they shop, cars they drive


Psychographic

• Self-image

• Values and attitudes

• Examples: early adopter, fiscally prudent, religious, socially responsible


Purchasing Patterns

• Where they buy

• When they buy

• How they make their purchases

• How often they buy


Buying Sensitivities

• Price

• Convenience

• Service

• Reliability

• Brand name

• Credit terms

• Ratings, recommendations


Market Size

• Too small: possible lack of sufficient customers or unsustainable demand

• Too big: market is very expensive to market to, probably lots of competition


Market Trends

• Is your market growing or shrinking in size?• Are customers changing their need/use of your

product/service?• Is the market changing in demographic or

lifestyle make-up? • Are social values (e.g., the environment, health

concerns) changing market values/demand?• Is technology changing market behavior?


Chapter 8:The Competition


Questions:

• Who are your competitors?

• On what basis do you compete?

• How do you compare?

• Who are potential future competitors?

• What barriers to entry make it difficult for new competitors?


Customer Perception Factors

Examples:

• Features

• Direct Costs

• Indirect Costs

• Quality


Internal/Operational Factors

Examples:

• Financial resources

• Marketing

• Efficiencies

• Strategic partnerships

• Company morale


Market Share Distribution

• What percentage of the market has been captured by each/leading competitor?

• Who are the market leaders in terms of sales/customers?


Market Share Distribution

Company A

Company B

Company C

All Others


Barriers to Entry

• Intellectual property/patents

• High start-up costs

• Substantial expertise

• Licensing, regulation


Chapter 9:Strategic Positioning& Risk Assessment


Strategic Position:

What unique role will your company hold in the marketplace, giving it a defensible competitive position?


Some Strategic Positions/Differentiators:

• Customer perception factors

• Market segment

• Market share

• Operational/technological advantages

• Proprietary products

• Sales channels


Customer Perception

Factors that make customers choose your products/services over competitors:

“Better, faster, cheaper”


Market Segment

• Geography/location

• Age

• Income level

• Gender

• Specific needs


Market Share

Establishing and maintaining market dominance, thus intimidating the competition


Other Strategies

• Operational/technological advantages– improving profit margins through

operational/technological innovation/productivity

• Proprietary products– develop or secure exclusive assets

• Sales channels– develop and maintain unique or improved

sales channels


Types of Risk

• Market risk

• Competitive risk

• Technology risk

• Product risk

• Execution risk

• Capitalization risk


SWOT Chart

Illustrates balance between company’s:

• Strengths

• Weaknesses

• Opportunities

• Threats


Chapter 10:Marketing Plan

& Sales Strategy


Marketing Plan Defines:

• How you make customers aware of you

• The message you’re trying to convey

• The specific methods you use to deliver your message

• How you make actual sales


Marketing vs. Sales

• Marketing – increases customers’ awareness and delivers a message

• Sales – direct actions to solicit and procure orders


Four P’s of Marketing

• Product

• Price

• Place

• Promotion


Five F’s of Marketing

• Functions – what it does

• Finances – what it costs

• Freedom – convenience

• Feelings – self-image, intangibles

• Future – durability, long-term costs


Marketing Vehicles

examples:

• Brochures

• Company’s website

• Ads: print, TV/radio, online

• Advertising specialties

• Direct mail: print or email

• Trade shows


Sales Activities

examples:• On-site: sales personnel, point-of-

purchase displays, etc.• Mail order, catalog• Telemarketing, incoming call center• Online sales, e-commerce• Off-site: sales calls, trade shows• Third-party: distributors, retailers


Prepare the Marketing Budget

• Complete worksheet using known or projected costs for each marketing activity

• Indicate costs in the time period they are anticipated to occur

• If using the Electronic Financial Worksheets, these numbers will automatically be added to the Income Statements and Cash Flow projections



Prepare the Sales Projections

• Enter the projected number of units in each product line to be sold in each time period

• Enter the unit cost of each product line• Enter commission and return rates• If using the Electronic Financial Worksheets,

commissions and returns will be calculated from the Setup worksheet, and all projections will automatically be added to Income Statements and Cash Flow projections



Chapter 11:Operations


Operations Include:

• Facilities• Production planning• Inventory management• Supply• Distribution• Order fulfillment• Research & development• Financial control


As part of a Business Plan, this section is not intended to be

an operations manual!


Facilities

• Location(s)

• Lease

• Improvements

• Utilities/maintenance


Production Planning

• Labor/variable labor

• Productivity

• Capacity

• Quality control

• Equipment and furniture


Supply/Materials Considerations

• Cost of goods

• Reliability of suppliers

• More than one supplier?

• Additional costs

• Terms


Distribution Considerations

• How does product get to consumer?

• Names and numbers of distribution companies

• Effectiveness and reputation of distributors

• Terms

• Alternative distribution methods


Other Operational Issues

• Regulation

• Insurance

• Legal

• Health and safety

• Environmental issues


Start-Up Costs

• Not included in Income Statement but affect the amount of money needed to be raised to start your business

• IRS treatment – some costs must be depreciated over a number of years rather than expensed in the first year of business


Prepare the Start-Up Costs

• Enter the actual or projected costs to get your business underway

• If using the Electronic Financial Worksheets, some of these expenses will automatically get transferred to the Balance Sheet



Chapter 12:Technology Plan


Why a Technology Plan?

• Decisions now may be difficult/expensive to change later

• Good technology can give company a competitive edge

• Inappropriate technologies can be cumbersome, inhibit growth

• Choices may be confusing


Some Technology Uses:

• Industry-specific equipment and/or software

• Financial/accounting software

• Database, customer management

• Inventory control, order tracking

• Production planning


Choosing Technology

• Functions

• Ease-of-use

• Cost

• Security

• Ability to upgrade and expand

• Integration with existing data, technology


Prepare the Technology Budget

• Enter the anticipated or actual costs of hardware, software, telecommunications and other technology expenses

• If using the Electronic Financial Worksheets, these expenses/purchases will automatically be entered on your Income Statement, Cash Flow, and Balance Sheet worksheets



Chapter 13:Management &Organization


Management Team

• Principals

• Key employees

• Board of Directors

• Advisory Committee

• Consultants


Compensation

• Salary

• Bonuses

• Commissions

• Profit sharing

• Equity

• Stock options


Key Employees

• President/CEO

• Chief Operating Officer – COO

• Chief Financial Officer – CFO

• Marketing/Sales Director

• Production Manager

• Human Resources Director

• Chief Technology Officer – CTO


Management Style

• Clear policies

• Communication

• Employee recognition

• Employee’s ability to affect change

• Fairness


Prepare the Staffing and Professional Services Budgets

• Enter the actual or anticipated expenses for staff and consultants in each time period

• If using the Electronic Financial Worksheets, the “Benefits” line will automatically be calculated by the amount entered in the Setup worksheet

• If using the Electronic Financial Worksheets, costs will automatically be entered on your Income Statement and Cash Flow worksheets




Chapter 14:Community Involvement& Social Responsibility


Company Benefits

• Visibility

• Positive corporate image

• Recruitment tool

• Stronger team

• Greater employee satisfaction

• Connect with other companies


Corporate Citizenship

• Obey the law

• Act ethically

• Treat employees fairly

• Honesty and fairness in dealings

• Environmentally aware

• Community involvement


Chapter 15:Development, Milestones

& Exit Plan


Company Development

• Goals

• Strategies

• Priorities

• Milestones


Growth Priorities

• Add employees• Add product lines• Increase marketing• Add locations• Add capacity• Increase profits• Retire debts• Acquire other companies


Milestones

examples:• Incorporation• Product design completed• Trademarks/patents secured• Product shipped• Partnerships/distribution secured• Sales level reached• Profit levels reached• Financing secured


Why an Exit Plan?

• Lets investors know how they’ll get their money back

• Clarifies growth strategy

• Guides expansion decisions

• Reduces friction among principals


Exit Plan Options

• Go public

• Acquisition/merger

• Sale

• Buy-out

• Franchise

• Hand down

• Close


Chapter 16:The Financials


Numbers are merelythe reflection of

decisions you make


Key Financial Documents

• Income statement (also called P&L)

• Cash-flow projection

• Balance sheet


Other Financial Forms

• Sources and use of funds

• Break-even analysis

• Start-up costs

• Assumption sheet


Some Key Terms:

• Gross sales – total sales before any costs• Net sales – sales after commissions and returns• Cost of goods (COG) – cost of inventory,

materials• Gross profit -- income before operating

expenses• G & A – operating & administrative expenses• Net Income/Net Profit – income/profit after all

expenses/costs


GROSS SALES $100,000

(Commissions) ($12,000)

Net Sales $88,000

(Cost of Goods) ($23,000)

GROSS PROFIT $65,000

(Expenses) ($35,000)

Net Income Before Taxes $30,000

(Provision for Taxes) ($5,000)

NET PROFIT $25,000


Guidelines for Preparing Financials

• Be conservative

• Be honest

• Don’t be creative

• Get accountant’s advice

• Follow industry practices

• Choose appropriate accounting method

• Be consistent


Things take longer and cost more than planned


Prepare the Financial Worksheets

• Enter figures from earlier worksheets (e.g., marketing budget, staffing costs) into appropriate lines on each worksheet

• If using Electronic Financial Worksheets, all figures will automatically be entered from one worksheet to appropriate line(s) on Income Statement, Cash Flow, and Balance Sheet worksheets






Chapter 17:The Plan’s Appendix


General Considerations

• An Appendix is not necessary

• Use the Appendix to keep the size of the Business Plan itself from getting too large

• Put informative – but not essential – details in Appendix

• Bind the Appendix separately if very lengthy


What to Put In an Appendix?

• Letters of intent/key contracts• Endorsements• Photos• Location list• Market research results• Managers resumes• Technical/operational information• Marketing material


Chapter 18:Preparing, Presenting &Sending Out Your Plan


“NDA” –Nondisclosure Agreement

• Increases chance of information remaining confidential

• Prohibits recipient from disclosing information in your Business Plan

• Nothing guarantees confidentiality

• Venture capitalists and professional investors will NOT sign NDAs


Cover Sheet

• “Business Plan”

• Name of company

• Date

• Copy number

• Disclaimer

• Company contact information

• Company logo


Layout & Design

• Use a clear typeface

• Bind Business Plan with clear cover, professional/neat binding

• Include graphs and charts

• Use color for emphasis

• Edit plan thoroughly for typos, readability


Computer Presentation

Many investors require PowerPoint ™ presentations of your Business Plan. Include:

• Business concept• Size and nature of market• Competition• Team• Growth projections• Financial highlights – amount to be raised,

revenue projections, profit margins


Chapter 19:Looking for Money


Debt vs. Equity

Debt: loans, must be paid back, often requires personal guarantee

Equity: investment, must share profits and ownership

Convertible debt: loans that can be converted to equity at lenders’ option


Funding Sources

• Venture capitalists

• Angel investors (private investors)

• Government (SBIC/SBA)

• Friends and family

• Yourself

• Sales


Sources of Debt FinancingSource Advantages Disadvantages

Banks No sharing of profits; professional

Difficult to obtain

Loans from

friends/family

Easier to secure Complicated relationships

Credit cards Easy to secure High interest rates; risk personal credit


Sources of Equity FinancingSource Advantages Disadvantages

Venture capitalists

Large amounts; professional

Pressure to exit; difficult to secure

Private investors

Available for smaller amounts

May be unprofessional

Friends and family

Easier to secure

Complicated relationships


Improving Chances of Getting Funded

• Research recipients

• Choose funders active in your industry

• Find intermediaries/introductions

• Tailor plan (executive summary) for specific recipient

• Get everything right

• Follow up


Elevator Pitch

Describes company very concisely – one or two sentences:

Company name:Does:Serves which market:Makes money by:Is like other companies:Will succeed because:Aims to achieve:


Chapter 20:Using Your Plan for

Classes & Competitions


How Class/CompetitionPlans Differ from “Real World”

• More likely to work with team• Leadership isn’t obvious, so decision-

making process must be clarified• Judged by different set of criteria• More emphasis on quality of plan, not just

quality of business• Less likely to have a business

vision/passion


Team Process

• Choose your team• Devise decision-making process• Select the business• Identify key issues• Assign tasks• Re-evaluate assumptions• Integrate the work • Prepare & present the plan


Traits to Look for inTeam Members

• Capability in a functional area

• Responsibility, follow-through

• Intelligence, ability to evaluate data, think creatively

• Communication & interpersonal skills

• Ability to work together in a group

• Willingness to work hard


Decision Making

• Will decisions be made by vote or consensus?

• What areas, if any, will individual team members have control over?

• What happens if you cannot reach agreement?

• Will one person have greater/final decision-making authority?


Choosing Your Project

• Quality of your plan will depend on the nature/quality of the business you choose

• Does one team member have strong vision/idea?

• Brainstorm many ideas

• Narrow down to most reasonable choices


Choosing Your Project

• Do team members skills/knowledge relate to business concept?

• Is the business of interest to the group?• Is it possible to gather information about

the concept in allotted time?• Does business fit the values of team

members?• What business has the best chance of

success?


Identify Key Issues

• Review Business Concept Worksheet in Chapter 1

• Ask yourself tough questions

• Use Research Questions Worksheet in Chapter 2


Assign Tasks

• Functional division – relates to job responsibilities (e.g., marketing, operations)

• Shared tasks – each team member works on entire plan


Next Steps

• Re-evaluate assumptions

• Identify any missing/insufficient information

• Integrate the plan

• Complete the written document and slide presentation

• Decide on which team members will present plan


Special Concerns for Classes

• How well are the separate sections integrated?

• How well documented is the information?• How realistic is it?• Have you included a clear statement of

assumptions?• Is the risk assessment accurate?• What is the quality of the written document

itself?


Chapter 23:Considerations for Internet,

e-Businesses


Four Purposes of An Internet Site

• Transactional – actual sales are made online

• Content – information is the main purpose/commodity

• Promotional – to promote the business but not to actually make online sales

• Relational – customer service and communication with existing customers


e-Business Business Models

• Sales of merchandise• Sales of data/information• Brokering• Download products• Application Services Provider (ASP) – software

use from main server• Advertising/Sponsorships• Subscriptions• Donations• Timed use


Building Customer Loyalty

• Brand name/strategic partners’ brands

• Site quality

• Quality of order fulfillment/customer service

• Feedback, customer ratings

• Ability to reach real human being

• Certification


Front-End Issues

• Site design, look-and-feel

• Usability

• Site map, navigation

• Features and functionality

• “Sticky-ness,” ability to retain visitors

• Personalization

• Merchandising


Back-End Issues

• Which platform?

• Customer service, order fulfillment, inventory management

• Database

• Software:– In-house?– Off-the-shelf?– Customized?


Building Website Traffic

• Search engines (e.g., Google)

• Directories (e.g., Yahoo)

• Purchased advertising

• Partnerships/relationships/links

• Online marketing


General e-Business Principles

• Organize site logically

• Make sure your technology works

• Keep your site fresh

• Display website address on every page

• Keep costs under control


Chapter 24:Considerations for Retailers


Keys to Successful Retailing

• Buying

• Merchandising

• Salesmanship

• Customer service


Chapter 25:Considerations for

Manufacturers


Trends in Manufacturing

• Technological changes

• Improved information systems

• Re-organized production

• Quality management


Manufacturing Strategies

• Just-in-time manufacturing; low inventory

• Subcontracting/out-sourcing

• Joint venturing

• Increased perceived value


Chapter 26:Considerations forService Businesses


Common Factors

• Intangible product

• Subjective judgment of quality

• Few barriers to entry

• Perishable “product”

• Significant time lap between use

• Quality dependent on employee/provider


Service Business Trends

• Increased speed

• Franchising

• Increased integration


Service Business Strategies

• Make tangible product

• Develop distinct identity/image

• Cultivate referrals

• Stay in touch with customers

• Encourage timely purchases

• Stress quality control

• Use excess ‘capacity’


Chapter 27:Business Planning

in a Weak or Strong Economy


How Economic ConditionsAffect Business Planning

• Ability to raise money & terms from investors• Ability to secure conventional loans & interest

rates• Spending habits & financial strength of potential

customers• Cost & availability of labor• Cost & availability of space, materials,

equipment, etc. • Supplier terms• Availability, responsiveness & cost of service

providers


Positive Impact of aSlow Economy

• Market opportunities

• Lower fixed costs

• High quality of labor available

• Lower labor costs

• Smaller “opportunity cost”


Negative Impact of a Slow Economy

• Less investor money available

• Less favorable terms

• Risk-averse customers

• Customers expect bargains

• Bargain-offering competitors


Slow Economy Strategies

• Raise money through sales or conventional financing rather than investment

• Choose counter-cyclical industries• Provide customers with innovative ways to

reduce their current costs• Emphasize customers who bring immediate

income• Keep costs down• Be an outsource provider• Lock in lower costs


Positive Effects of a Strong Economy

• Greater amount of investor funding available

• Better terms from investors

• Customers have more money

• Customers more willing to take risks

• Greater customer demand


Negative Effects of a Strong Economy

• Labor is in greater demand; more expensive

• Competition is tough

• Customers are less price sensitive; harder to compete on price

• Costs are higher

• Space is harder to find


Strong Economy Strategies

• Raise money from investors

• Pick up excess demand from competitors

• Stay flexible

• Spend money wisely

• Put money away
