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HIT 220 LECTURE 2

OBJECTIVESAt the completion of this exercise, you should

be able to: o Define a business plan Describe the importance of a business plan Identify the elements of an effective business

plan

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TEXTS

Timmons and Spinelli (2004) NEW VENTURE CREATION: Entrepreneurship for the 21st century, 6th edition,McGrawhill

Barringer and Ireland (2006) ENTREPRENEURSHIP: Successfully launching new ventures, Pearson

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BUSINESS PLAN

is a written document, which describes in detail the overall plans of a business in which an entrepreneur aims to get involved.

A business plan is a roadmap detailing the business concept, the goals of the business, how ownership/ management intends to achieve those goals, and the specific data needed to support the financial objectives for the business

Usually 25-35pages document It isn’t a contract or a budget

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WHY WRITE A BUSINESS PLAN?

It is an internal doc which acts as a roadmap for the initial mgt and employees of the firm.

It helps to focus ideas and serves as a feasibility study of the business's chances for success and growth.

The process of putting a business plan together forces the person preparing the plan to look at the business in an objective and critical manner. a business plan is an ideal tool to check facts and to comprehensively examine the practicality of an idea before putting it into action.

It is a selling doc for the firm, it presents the young firm to potential investors, suppliers,, business partners and job seekers.

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WHY WRITE A BUSINESS PLAN?

o It is a strong communication tool for your business. It defines your purpose, your competition, your management and personnel.

o The process of constructing a business plan can be a strong reality check.

o The finished business plan provides the basis for your financing proposal.

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WHY WRITE A BUSINESS PLAN?

Overcome subjectivity bias

Increase awareness of key

challenges

Convince other stakeholders

EmployeesCapital

ProvidersPartners

Angel DebtVC

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WHO READS THE BZ PLAN AND WHAT ARE THEY LOOKING FOR?

A firm’s employees Investors and other stake holders Potential bankers Potential alliance and potential major

customers Merger and acquisition candidates

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WHO READS THE BUSINESS PLAN—AND WHAT ARE THEY LOOKING FOR?

There are two primary audience for a firm’s business plan

Audience What They are Looking For

A Firm’s Employees

Investors and other external stakeholders

A clearly written business plan helps the employees of a firm operate in sync and move

forward in a consistent and purposeful manner.

A firm’s business plan must make the case that the firm is a good use of an investor’s funds or the

attention of others.

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DO’S AND DON’T’S OF PREPARING A BUSINESS PLAN

DO Involve all of the management in the preparation of the business

plan. Make the plan logical, comprehensive, readable and as short as

possible. Demonstrate commitment to the venture by investing a

substantial amount of time and some money in the preparation of the plan.

Articulate what the critical risks and assumptions are and how and why they are tolerable.

Disclose and discuss any current and potential problems in the venture.

Let realistic market and sales projections drive the assumptions underlying the financial spreadsheets, rather than the reverse.

Have a non- disclosure statement that state that information in the plan is proprietary and cannot be copied, disclosed shared or otherwise compromised.

Be more convincing in the first pages.

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DON’TS Have unnamed mysterious people on the

management team. Make ambiguous or unsubstantiated

statements, such as estimating sales on the basis of what the team would like to produce.

Describe technical products or manufacturing processes using jargon or in a way that only experts can understand, this limits the usefulness of the plan.

Say you “think” or “believe” the product will work. Rather use facts to support your assertions.

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WHO SHOULD WRITE THE BUSINESS PLAN?

the owner of the business Consultants can be hired

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BUSINESS PLAN OUTLINE

Cover page Table of contents Executive Summary Company profile/ Business description Management and Organization The Marketing Plan The Operational Plan The Financial Plan

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BUSINESS PLAN APPEARANCE

Folder or binder Quality paper and printer Free of spelling errors and grammatical

inconsistencies

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COVER PAGE

The cover page answers these questions: Who wrote the plan and how can they be

contacted? Why was the plan developed? To whom is it presented? – includes the name of the company, its

address, its phone numbers, the date and contact details of the lead entrepreneur

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TABLE OF CONTENTS

Follows the cover page Lists the major components of the plan and

corresponding page numbers

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The Executive Summary cont.The following information should be

addressed in the executive summary: Company profile Nature of the product/service being offered Size and growth trend of the market Make-up and background of the

management team Financing requirements Key projections (sales, gross profits, net

income) Proposed use of funds Proposed exit strategy including projected

ROI

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COMPANY PROFILE/ BUSINESS DESCRIPTION intro this section by describing the opportunity the

entrepreneur has identified i.e the problem to be solved or the need to be filled

1.1vision 1.2 mission 1.3 objectives 1.4 company history. 1.5 Technology and The product 1.6 intellectual property

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MANAGEMENT AND ORGANIZATION

2.1Company Structure and Ownership 2.1.2Existing Shareholders 2.1.2 New Shareholders 2.2Organizational Structure and Management 2.2.1 Key Management and Personnel Proposed Organizational Chart 2.2.2Risk Reduction Strategies

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THE MARKETING PLAN

3.1Market Analysis 3.1.1 Target Market 3.1.2 Market segmentation 3.1.3 Demand forecasts 3.1.4 Market Trends 3.1.5 Industry Analysis 3.1.6 Competitor Analysis- Direct - Indirect 3.2 Marketing Strategies

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The Operational Plan 4. 1the Production / Manufacturing Process 4.2 Resources Required – Including HR

(Specifically For Operations) 4.3Techiques 4.4 Size, Capacity, Location, Facilities 4.5 Operational Work Flow

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THE FINANCIAL PLAN

5.1 Capital requirements 5.2 Source of funds 5.3 Financial statements

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APPENDICES AND SUPPORTING DOCUMENTATION

The following supporting documentation, inter alia, should be included where applicable:

newspaper clippings, promotional literature, product brochures, market research, trade and industry publications

partnership, association or shareholders' agreements offers to purchase, purchase and sale agreements contracts, orders, letters of intent memoranda of understanding, lease, franchise, agency or

distribution agreements documentation relating to licences, copyrights, trademarks and

patents quotations or pro-forma invoices for capital items to be

purchased detailed personal balance sheets of the entrepreneurs copies of identity documents and marriage certificates of the

entrepreneurs schedules of life assurance and endowment policies of the

entrepreneurs

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APPENDICES CONTINUED

copies of company or close corporation certificates and registration documents

drawings, work flow charts, plans, factory layouts, maps, etc  a list of persons to whom reference can be made regarding

creditworthiness, product and service quality, and the skills, abilities and integrity of the entrepreneurs

Resumes 

Credit information, include in Appendix 

Quotes or Estimates 

Letters of Intent from prospective customers 

Letters of Support from credible people who know you 

Leases or Buy/Sell Agreements 

Legal Documents relevant to the business 

Census/Demographic data

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WHY VENTURE CAPITALISTS REJECT BUSINESS PLANS

Unacceptable management team52%

Company not market driven38%Time frame too long33%

Inadequate financing plan25%

No proprietary position15%

No experience in industry (VC)12%

Other pitfalls: too long, opportunity too small, poor organization, lack of focus

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ELABORATION & SYNTHESIS

CHARACTERISTICS OF AN INNOVATIVE PRODUCT OR SERVICE CHARACTERISTICS OF AN INNOVATIVE PRODUCT OR SERVICE

NOVELTY

RESOLUTION

Originality

(Is it new or different?)

• Does it solve the problem or help manage the challenge?

• Is it useful and practical?• Does it work?• Does it provide value?• Is it cost-effective

• Is it understandable?• Is it well presented?• Is it attractive and credible?• Will people ‘buy it’?• Can it be commercialized?

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Thank you