strategic business planning part 4

Copyright © March 2004Wharton Small Business Development Center

STRATEGIC BUSINESS PLANNING

Welcome! Session 4 – July 27, 2004

Instructor - Kevin [email protected]



The Wharton SBDC is part of Wharton Entrepreneurial Programs and the Sol C. Snider Entrepreneurial Research Center. The Wharton Small Business Development Center is in part financed by a grant from the Commonwealth of Pennsylvania, Department of Community and Economic Development. The Wharton SBDC is funded under Cooperative Agreement No. 4-603001-2-0040-24 by the U.S. Small Business Administration. The support given by the U.S. Small Business Administration through such funding does not an expressed or implied endorsement of any of the co-sponsors’ or participants’ opinions, findings, conclusions, recommendations, products, or services.

All SBDC programs are non-discriminatory and open to the public. Reasonable arrangements for persons with disabilities will be made if requested at least two (2) weeks in advance. Please contact Dr. M. Therese Flaherty, Director, Wharton Small Business Development Center, University of Pennsylvania, 433 Vance Hall, Philadelphia, PA 19104, (215) 898-8635.



Agenda – Session 4 Homework Review from Session 3 Bringing It All Together – Writing the Business Plan Attachments and Supporting Documents Milestone Driven Planning Finding and Using an Expert Advisory Board Finishing your Business Plan Accessing Additional SBDC Resources Group Q & A



Session 3 Homework Review Develop Your Financial Plan

Income Statement, Balance Sheet, Cash Flow 5 Year EBITDA Projections? Startup funding requirements? Pre-money valuation?

Revise Your Operating Plan Cost estimates per sales unit and operating expenses that

correspond to values in the financial plan

Revise Your Marketing Plan Pricing per unit and sales volumes that correspond to

revenue estimates and cash flow projections



Analyzing Your Numbers…Total amount of money needed/raisedAngel investor’s expected 5-year ROI

Pro forma 5-year EBITDA estimateValuation (comparable) multipleProjected 5-year value of company

Ownership percentage required by Angel Investors at 5-year exit horizon

Current (pre-money) valuation of company

$_______ - Cash Flow Projections

$__________ (30X) – Roughly 100% ROI per year

$_______ - Income Statement

___ times earnings - Industry research

$__________ - multiply

__% - Projected 5-year value of the company divided by the AI’s expected

5-year return amount

$____________ - Amount of money

raised divided by the AI’s required ownership percentage



Finding Angel Investors…Starting points for finding Angel Investors and other resources…

Wharton SBDC Websitehttp://whartonsbdc.wharton.upenn.edu

Innovation Philadelphiahttp://www.IPphila.com

Inc.com (“Inc. Magazine”) Website http://www.inc.com/guides/finance/20797.html

Google Search EngineEnter these terms - “angel investors” Philadelphia



Reviewing the Business Plan Model

Cost Projections Sales Projections

Pro Forma Financial Statements

Operating Plan Marketing Plan

Financial Plan

What will it cost to produce your product or service?

What will it cost to sell any given amount of your product or service?

How will your business make money? How much? For how long? Risks?

Industry, Buyer & Competitor

Analyses

Opportunity Product/ServiceWhy this business? Why now? Why you?

What are you going to provide and who wants to buy it?



Writing the Business PlanExecutive Summary

Statement of Purpose – Why are you writing a business plan?

Mission Statement – Who do you serve? How? What’s special?

The Opportunity – Why now? Why here? Why you?

The Strategy – How are you going to capitalize on The Opportunity?

Economics – How does the business make money?

Exit/Harvest Strategy – How do investors get paid at the end?

The Offering – How much of the company is available? For how much?



Writing the Business PlanProduct / Service Description

Description of Business – What exactly is it that you plan to do?

Industry Analysis – What is the general business environment like?

Buyer Analysis – How much do you know about prospective buyers?

Competitor Analysis – How much do you know about other providers?

Geographic Analysis – What makes you think this is a good location?



Writing the Business PlanOperating, Marketing, and Financial Plans

Operating Plan – How will the business be run on a day-to-day basis?

Unit Cost Analysis – What are the variable costs associated with one sale?

Marketing Plan – How will you drive demand for your product/service?

Pricing Analysis – How much are people willing to pay you?

Sales Projections – How many units will you be able to sell?

Income Statement and Balance Sheet – Do the numbers agree?

Cash Flow, Sensitivity, and Break Even – How much do you need?



Business Planning is an Iterative Process…

Tell the story…(Draft your narrative sections)

Run the numbers…(Develop your Financial Plan)

Verify the story…(Examine the narrative sections)

1

2

3



Attachments and Supporting Documents Executive team résumés, C.V.’s, professional

certifications/licenses, and letters of recommendation Patents, trademarks, plans, drawings, and other documentation of

intellectual capital related to the business model Flow charts (explaining business processes) Lease agreements and real estate appraisals Agreements (or letters of intent) with customers, suppliers, and

business partners. Brochures and marketing collateral examples, web page printout Market research reports, analyst reports, and news articles Glossary of terms specific to your business model List of current investors/owners (capitalization schedule) Your Milestone Plan (next slide)



Milestone Driven Planning (MDP) Identify the big milestones between “right now” and your objective. Develop a process map describing the important steps you must take

and the achievements you expect along the way. Relate your map to time – put milestones on the calendar.

Product/Service Development Milestones Operating Plan Milestones Marketing and Sales Milestones Funding and Revenue Milestones

What questions do you need to answer along the way? What are the go/no-go decision points?

HINT - Use your financial plan to work backward from a key business goal HINT - Bracket regular intervals (3, 6, 12, and 24 months) HINT - List what must happen in each period to move the business forward Use MDP as a Report Card to yourself and financing sources



Milestone Driven Planning (MDP)NewCo Inc.

Product/Service Milestones By January 1, 2005 By March 31, 2005 By June 30, 2005 By September 30, 2005 By December 31, 2005

1 Develop initial prototype X2 Begin first stage customer tests X3 Revise prototype X4 Begin production (limited run) X

Operating Plan Milestones5 Lease 600 sq/ft facility X6 Expand facility to 1400 sq/ft X7 Hire machine operator X8 Hire assembler X

Marketing and Sale Milestones9 Hire sales & marketing coordinator X

10 Begin customer presentations X11 Finalize list of customers for first stage testing X12 Hire outside sales professional X13 Begin initial marketing campaign X

Funding Milestones ($500K total funding)14 Initial (seed) funding $25,00015 April 1 - June 30 additional funding $32,00016 July 1 - September 30 additional funding $90,00017 October 1 - December 31 additional funding $120,00018 January 1, 2006 - June 30, 2006 funding $233,000

Revenue Milestones19 October 1 - December 31 revenue $50,00020

Projected January 1, 2006 - March 31, 2006 revenue $160,000

21 Projected April 1, 2006 - June 30, 2006 revenue $240,000



- 10 Minute Break -



Types of Expert Advisory Boards

Types Of Advisory Boards

Customer Advisory Board Business Advisory Board Industry Advisory Board

•Form a group of your most strategic customers.

•Invite them to offer perspective concerning your products, competitors, or industry trends.

•Unlike a User Group, this type of Advisory Board is intended to build relationships with the customers or segments that will most directly impact the future of your company.

•Best for companies whose customers' success depends upon the company's product or service delivery.

•Select people who are qualified to evaluate your specific business model.

•The Business Advisory Board can provide direction and provide much needed “reality checks” as you plan your strategy.

•These outside experts should be drawn from various business disciplines (finance, marketing and sales, legal, operations, technology, etc.)

•Ideal for entrepreneurs who need an outside, highly knowledgeable viewpoint.

•Influencers in the industry assemble to discuss the critical issues facing the industry, including lobbying efforts. •This group can be instrumental in bringing an outside understanding of the industry to develop thought leadership and define industry standards

•May include key suppliers, functional specialists, journalists, analysts, and academicians.

Source: Geehan Advisory Boards www.geehanadvisoryboards.com



Finding and Using Expert Advisory BoardsNetworking, Networking, Networking

People you come into contact with everyday People your current contacts can introduce you to People featured in local newspapers, professional

journals, convention keynote speakers, etc. Academic faculty, faculty recommendations Use every opportunity to find people to talk to about your

business – follow up on all expressions of interest!Appropriate Roles for Advisory Boards

Boards help you learn and to stay informed Boards help you evaluate options and understand risks Boards can help you meet prospective customers Boards can provide context for your decisions, but don’t

let advisory boards make your decisions!



Finishing Your Business Plan How much progress have you made during this class? Which sections have been the easiest to write? The most

difficult? What do you have left to do? What needs to be done first? What can you do now? What requires additional research/assistance? When will your first draft (all sections) be completed? What would have helped you prepare for this class? How could this class itself have helped you move forward more?



Accessing Additional SBDC ResourcesFrom this point forward, you’ll get the most out of your contact with the Small Business Development Center if you:

Have completed a first draft of your business plan Have specific questions about sections of your business

plan Need to improve your skills in a specific area Have completed a list of specific objectives or goals to

accomplish over the next three months (Milestones)



Accessing Additional SBDC Resources The Wharton Small Business Development Center website

http://whartonsbdc.wharton.upenn.edu/Index.htm Wharton SBDC Answer Desk

We maintain an answer desk to aid with your business questions. Our answer desk is just a phone call away.

Wharton SBDC Resource Center There are many great resources on the web. We have compiled a

list of the web resources for small businesses we find the most useful.

Entrepreneur’s Guides Local Business Assistance Organizations Wharton SBDC Consultants Additional Wharton SBDC courses Events for entrepreneurs



Group Questions and Answers

Q&

A



Homework Assignments Finish your Business Plans! Complete your Milestone Plans! Stay motivated, stay optimistic, and stay focused. “Discuss – Write – Review – Repeat” Setbacks are to be expected – persistence counts! Try to keep an objective view of your progress. Your are your own first employee. Your are also your own boss. How effective are you at leading that first employee?!

Good luck in your new ventures!