chap 16 business plan - of ed-16

7/28/2019 Chap 16 Business Plan - Of ED-16

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ENTREPRENEURIAL VENTUREAND

BUSINESS PLAN


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WHATISBUSINESS PLAN

The Business plan is a written document prepared

by an entrepreneur that describes all the relevant

external and internal elements involved in starting a

new venture.

Describes both short term and long term decision

making

It is also called venture plan, a loan proposal, or an

investment prospect.

Depth and Detailed of the business plan is depends

on size and scope(Manufacturing, service, or

consumer goods or industrial goods) of the new

venture


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BUSINESS PLANIS..

A road map or game plan answers questions like:

1. Where I m now?

2. Where I m going?

3. How will I get there?


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WHOREQUIREORREQUESTFORBUSINESS

PLAN

Potential Investors

Bankers

Venture capitalists

Suppliers

Customers

It is important to these people: Why??????????

It helps in determining the viability of the venture in

designated market It provides guidance to the entrepreneur in organizing

his or her planning activities

It serves as an important tool in helping to obtainfinancing


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WHOSHOULDWRITETHEPLAN

It should be prepared by the entrepreneurs

He or she may consult other sources like:

- Lawyers

- Accountants- Marketing Consultant

- Engineers


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THREEPERSPECTIVEOFBUSINESSPLAN

Fist perspective Entrepreneur

- Who understands better than anyone else

creativity and technology involved in new venture

- The entrepreneur must be able to articulate whatthe venture is all about

Second Perspective Marketing

- Entrepreneurs must try to view their business

through the eyes of their customers Third Perspective Investors

- Sound financial projections are required


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WHYSOMEBUSINESSPLANFAILS

1. Goals set by the entrepreneur are unreasonable

2. Goals are not measurable

3. The entrepreneur has not made a total

commitment to the business or to the family4. The entrepreneur has no experience in a planned

business

5. The entrepreneur has no sense of potential

threats or weaknesses to the business.6. No customer need was established for the

proposed product or service.


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GUIDELINESTOREMEMBER

Keep the plan respectably short

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

Keep the plan written in the third person

Capture the readers interest


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COMPLETEOUTLINEOFTHEBUSINESSPLAN

Section I: Executive Summary

Section II: Business Description

Section III: Marketing Plan

Section IV: Operations PlanSection V: Management Plan

Section VI: Financial Plan

Section VII: Critical Risks

Section VIII: Harvest Strategy

Section IX: Milestone schedule

Section X: Appendix or Bibliography


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SECTION II: BUSINESS DESCRIPTION

A. General Description of the business

B. Industry background

C. Goals and potentials of the business

D. Uniqueness of the business


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SECTION III: MARKETING PLAN

A. Research and Analysis

1. Target market (Customers) identified

2. Market size and trend

3. Competition4. Estimated market share

B. Marketing Plan

1. Marketing strategy sales and distribution

2. Pricing

3. Advertising and promotion


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SECTION IV: OPERATIONS PLAN

A. Identify Location

1. Advantages

2. Zoning

3. TaxesB. Proximity to suppliers

C. Access to transportation


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SECTION V: MANAGEMENT PLAN

A. Management tea, - key personnel

B. Legal structure

C. Board of directors, advisors, consultants


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SECTION VI: FINANCIAL PLAN

A. Financial Forecast

1. profit and loss

2. Cash flow

3. Break even analysis4. Cost controls

5. Budgeting plans


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SECTION VII: CRITICAL RISKS

A. Potential problems

B. Obstacle of business strategy

C. Identify courses of action


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SECTION VIII: HARVEST STRATEGY

Transfer of asset

Continuity of business strategy

Identify successor


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SECTION IX: MILESTONESCHEDULE

Timing and objective

Deadlines and milestones

Relationships of events


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Introductory Page

The name and address of the company

The name of the entrepreneur(s), telephone no., fax

no., e-mail address, and website address if

available

A paragraph describing company and the nature of

the business

The amount of financing needed. The entrepreneur

may offer a package, that is stock, debt, and so on.

A statement of confidentiality of the report.


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Section I: Executive Summary

It is a clever snapshot of the entire plan

Should no longer than two to three pages

Should be written only after entire business plan

has been completed It should touch

- Venture itself

- Market opportunity

- Financial needs and projections- Technology associated

- Risks involved


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Section II: Business Description

General description of the business:

1. What is vision & mission of the business?

2. What is the goal of business?

3. What are your reasons for going into the business?

4. Why will u be successful in this venture?

5. What are your product(s) and service(s)?

6. Describe them.

7. Where will the business be located?

8. Will place be on rent or purchased?9. Will equipment be purchased or leased?

10. What experience do you have and/or will you need to

successfully implement the business plan?


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Industry background

1. What are the major economic, technological, legal, andpolitical trends on a national and international level?

2. What are total industry sales over the last five years?3. What is anticipated growth in this industry?

4. How many new firms entered into this industry in the pastthree years?

5. What new products have been recently introduced in the

industry?6. Who are the nearest competitors?

7. How will your business operations be better than this?

8. Are sales of each of your major competitors growing,declining or steady?

9. What trends are occurring in your specific market area?

10. What is the profile of your customers?

11. How does your customer profile differ from that of yourcompetitors?


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Section III: Marketing Plan

Research and analysis

1. Target Market: Group of people who have need for the newlyproposed product or service.

Mention: Bases for customer purchase decisions like:

- Price

- Quality

- Service

- Availability of the product

- Product performance

- Preferences

2. A. Sales potential: Sales projections at least for three years.

B. Factor affecting market growth: Industry trend,

socioeconomic trends, government policy, population etc.


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c. Mention sources of all projections

d. Market share and sales in terms of unit, dollor

and/or rupees. Competitive analysis:

a. Assess strengths and weaknesses of the

competitors products/services on the bases of:

- Price- Performance

- Service

- Warrantees

b. Gather information regarding each competitors

share in the market their sales, distribution,

advertising etc related strategies.


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Pricing Policy

- When setting a pricing entrepreneur need toconsider three element: Cost, Markups or

margins, Competition

o Distribution:

- Making product available to the customers

Degree of directness of channel

- Market condition- Product attributes

- Cost benefits

- Venture attributes

Number of channel members- Intensive

- Selective

- Exclusive


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Criteria in selecting channel members

- Reputation- Service provided

Number of channels

- One channel for one target market or multiple

target market- Multiple channel for one target market or multiple

target market

o Advertising

- Take the decision which media to select to reach

to particular market


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SECTION IV:OPERATIONS PLAN

All businesses manufacturing and non-manufacturing should include an operations plan as

a part of the business plan. Describes flow of goods and services from

production to customer.

Includes: - Inventory

- Storage- Shipping

- Customer support services etc.

For retailers/non-manufacturer needs to explain the

transaction in a chronological steps in completing abusiness transaction.

For service industry need to focus on Location,personnel, facility layout, service quality etc.


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Production Plan For manufacturer Will you be responsible for all or part of the manufacturing

operations?

If some manufacturing is subcontracted, who will be the

subcontractor?

Why were these subcontractors selected?

What will be the layout of the production process?

What equipment be needed immediately for manufacturing? What raw material will be needed for manufacturing?

Who are suppliers for raw material?

What is the cost of raw material?

What are the costs of manufacturing products? Which are the future capital equipment needs of your venture?


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If Retail or service than:

From whom will merchandise be purchased?

How will the inventory control system operate?

What are the storage needs of the venture and how

will they be promoted?

How will the goods flow to the customers?

What are the steps involved in the business

transaction?

What are the technology utilization requirements toservice customers effectively?


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Location

- How much space is needed?

- Should I buy or lease the building?

- What are the cost per square foot?- Is the site zoned for commercial use?

- What town restrictions exists for signs, parking andso forth?

- Is renovation of the building is necessary?- Is there adequate parking?

- Will the existing facility have room for expansion?

- What is the economic and demographic profile of

the area?- Is there an adequate labor pool is available?

- What are local taxes?

- Is electricity adequate?


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SECTION V: MANAGEMENT PLAN

Organization structure

Management team and critical personnel

Experience and technical capabilities of the

personnel

Ownership structure and compensation agreements

Board of directors and outside consultants andadvisor


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MANAGEMENT TEAMMUSTBEABLETO

INCORPORATETHREEBASICFUNCTIONS:

Execute the business plan

Identify fundamental changes in the business plan

Make adjustments to the plan based on changes in

the environment and market that will maintain

profitability


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IMPORTANTCONSIDERATIONINCREATING

EFFECTIVEMANAGEMENTTEAM

The entrepreneurs desired culture must match the

business strategy outlined in the business plan

The leader(s) of the organization must lead and be

role model for their employees

The entrepreneurs must be flexible enough to try

different things

It is necessary to spend extra time in the hiring

process.

The entrepreneur needs to remember that it is

desire to change a persons behavior than to

change the persons attitude


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ROLEOFBOARDOFDIRECTORS

Functions of board of directors:

1. Reviewing operating budget

2. Developing longer-term strategic plans for growth

and expansion

3. Supporting day to day activities

4. Resolve conflicts among owners or shareholders

5. Ensuring the proper use of assets

6. Developing a network of information source for theentrepreneurs


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CRITERIAFORSELECTINGBOARDOF

DIRECTORS:

Select individuals who can work with a diverse

group and will commit to the venture mission

Select candidates who understand the market

environment or can contribute important skills to the

new ventures achievement of planning and goals

Select candidates who will show good judgment in

business decision making


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SOURCES

Referrals of business associates

External advisor such as banks, lawyers,

accountants, or consultants

COMPENSATION

Stock

Stock options

Direct payment


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BOARDOFADVISOR

Loosely tied with the organization

Would serve the venture only in and advisorycapacity for some of the functions or activities

described

Has no legal status

Compensation:- May be on per meeting basis

- Stock

- Stock options

More desirable alternative than board of directors:

- Flexible

- Number of meetings

- Compensation


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OUTSIDECONSULTANTSORADVISORS

Accountants

Lawyers

Bankers

Advertising agency Market researchers


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SECTION VI: FINANCIAL PLAN

Entrepreneurs needs to prepare:

- Sales budget one year

- Capital budget

- Production or manufacturing budget - one year

- Operating budget one year

Based on all the above information, prepare:

1. Income statement one year or three years

2. Statement of cash flow3. Balance sheet

4. Determine break-even point


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BREAK-EVENFORMULA

By definition break-even is where,

Total revenue (TR) = Total costs (TC)TR = Selling price (SP) * Quantity (Q) and

TC = Total fixed costs (TFC) + Total Variable cost(TVC)

Thus,

SP * Q = TFC + TVC

Where TVC = Variable cost/unit (VC/Unit) * Quantity (Q)

Thus,

SP * Q = TFC + VC/Unit*Q

SP*Q - VC/Unit*Q = TFC

TFC = Q (SP VC/unit)

Q = TFC/(SP VC/unit)


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SECTION VII: CRITICAL RISKS

Risks should be identified such as:

- Effect of unfavorable trends in industry- Manufacturing costs that have gone over estimates

- Competition

- Delays

- Inaccurate projections

Come up with the alternative courses of action to

recover from critical risks.


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SECTION VIII: HARVEST STRATEGY

Insight into future harvest strategy

Useful to keep alive dream of an entrepreneurs, toensure the security of their investors, strengthen

their business in process.

- Deal with issues like management succession and

change management planning- Issues like:

- Orderly transfer of the company assets if ownership

of the business changes

- Continuity of business strategy during transition

- Designation of key individuals to run the business if

the current management team changes


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SECTION IX: MILESTONESCHEDULE

Provide investors with a timetable for various

activities to be accomplished

Important to show realistic time frames, with

interrelationships of events

Time frames may be quarterly, monthly, or weekly

chap 16 business plan - of ed-16

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