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Business Plan Preparation For New Ventures Chapter Outline
Business Plan Preparation For New Ventures Chapter Outline
CHAPTER OUTLINE
I.
II.
III.
IV.
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VI.
VII.
VIII.
L.
Appendix and/or bibliography segment
Updating the Business Plan
A.
A practical example of a business plan
Presentation of the Business Plan: The Pitch
A.
Suggestions for preparation
B.
Suggestions for presentation
C.
What to expect
Summary
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CHAPTER OBJECTIVES
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3.
4.
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6.
7.
8.
9.
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CHAPTER SUMMARY
This chapter provided a thorough definition and examination of an effective business
plan. The critical factors in planning and the pitfalls to be avoided were discussed. Indicators of
these pitfalls and ways to avoid them were also presented.
Next, the benefits for both entrepreneurs and financial sources were discussed.
Developing a well-conceived plan was presented from the point of view of the audience for
whom the plan is written. The typical six-step reading process of a business plan was presented
to help entrepreneurs better understand how to put the business plan together. Ten guidelines in
developing a business plan were provided, collated from the advice of experts in venture capital
and new-business development.
The next section illustrated some of the major questions that must be answered in a
complete and thorough business plan. The business plan was outlined with every major
segment addressed and explained.
The chapter then presented some helpful hints for preparing a business plan, along with
a self-analysis checklist for doing a careful critique of the plan before it is presented to
investors.
Finally, the chapter closed with a review of how to present a business plan to an
audience of venture capital sources. Some basic presentation tips were listed, together with a
discussion of what to expect from the plan evaluators.
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LECTURE NOTES
BUSINESS PLAN PREPARATION FOR NEW VENTURES
I.
II.
III.
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or distributed without the prior consent of the publisher.
B.
IV.
V.
VI.
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or distributed without the prior consent of the publisher.
VII.
VIII.
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or distributed without the prior consent of the publisher.
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(3)
Since all the aspects of the business venture must be addressed in the plan, the
entrepreneur develops and examines operating strategies and expected results for
outside evaluators.
(4) The business plan quantifies goals and objectives, which provides measurable
benchmarks for comparing forecasts with actual results.
(5) The completed business plan provides the entrepreneur with a communication tool for
outside financial sources as well as an operational tool for guiding the venture toward
success.
Financial Sources:
(1) The business plan provides for financial sources the details of the market potential and
plans for securing a share of that market.
(2) Through prospective financial statements, the business plan illustrates the ventures
ability to service debt or provide an adequate return on equity.
(3) The plan identifies critical risks and crucial events with a discussion of contingency
plans that provide opportunity for the ventures success.
(4) By providing a comprehensive overview of the entire operation, the business plan
gives financial sources a clear, concise document that contains the necessary
information for a thorough business and financial evaluation.
(5) For a financial source with no prior knowledge of the entrepreneur or the venture, the
business plan provides a useful guide to assessing the individual entrepreneurs
planning and managerial ability.
5. What are the three major viewpoints to be considered when developing a business
plan?
The first viewpoint is the entrepreneurs since he or she is the one developing the
venture and clearly has the most in-depth knowledge of the technology or creativity
involved. This is the most common viewpoint in business plans and it is essential.
More important than high technology or creative flair is the marketability of a new
venture. Referred to as market driven, this type of enterprise convincingly demonstrates
the benefits to users, the particular group of customers it is aiming for, and the existence of
a substantial market. This viewpoint, that of the marketplace, is the second critical
emphasis with which a business plan must be written.
The third viewpoint is related to the marketing emphasis just discussed. The investors
point of view is concentrated on the financial forecast. Sound financial projections are
necessary if investors are to evaluate the worth of their investment.
6. Describe the six-step process venture capitalists follow when reading a business plan.
(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, net worth, 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 what is different).
(6) Read the entire plan over lightly (this is where the entire package is paged through for
a casual look at graphs, charts, exhibits, etc.).
7. What are some components to consider in the proper packaging of a plan?
(1) Appearancethe binding and printing must not be sloppy, nor should the presentation
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be too lavish. A plastic spiral binding holding together a pair of cover sheets of a
single color provides both a neat appearance and sufficient strength to withstand
handling by a number of people without damage.
(2) Lengtha business plan should be no more than 40 pages long. Adherence to this
length forces entrepreneurs to sharpen their ideas and results in a document likely to
hold investors attention.
(3) The cover and the title pagethe cover should bear the name of the company, its
address and phone number, and the month and year in which the plan is issued. An
interested investor wants to be able to contact a company easily and to request further
information or express an interest either in the company or in some aspect of the plan.
Inside the front cover should be a well-designed title page on which the cover
information is repeated and in an upper and lower corner, the legend copy number
should be provided. Besides helping entrepreneurs keep track of plans in circulation,
holding down the number of copies outstanding (usually to no more than 20) has a
psychological advantage. After all, no investor likes to think that the prospective
investment is shopworn.
(4) The executive summarythe two pages immediately following the title page should
concisely explain the companys current status, its products or services, the benefits to
customers, the financial forecasts, the ventures objectives in three to seven years, the
amount of financing needed, and how investors will benefit.
This is a tall order for a two-page summary, but it will either sell investors on
reading the rest of the plan or convince them to forget the whole thing.
(5) The table of contentsafter the executive summary, include a well-designed table of
contents. List each of the business plans sections and mark the pages for each
section.
8. Identify five of the ten guidelines to be used for preparing a business plan.
(1) Keep the plan respectably short. Readers of business plans are important people who
refuse to waste time. Therefore, entrepreneurs should explain the venture not only
carefully and clearly, but concisely as well.
(2) Organize and package the plan appropriately. A table of contents, an executive
summary, an appendix, exhibits, graphs, proper grammar, a logical arrangement of
segments, and overall neatness are critical elements in the effective presentation of a
business plan.
(3) Orient the plan toward the future. Entrepreneurs should attempt to create an air of
excitement in the plan by developing trends and forecasts that describe what the
venture intends to do and what the opportunities are for the use of the product or
service.
(4) Avoid exaggeration. Sales potentials, revenue estimates, and the ventures growth
should not be inflated. Many times a best case, worst case, and probable case
scenario should be developed for the plan. Documentation and research are vital to
the credibility of the plan.
(5) Highlight critical risks. The critical risks segment of the business plan is important in
that it demonstrates the entrepreneurs ability to analyze potential problems and
develop alternative courses of action.
9. Briefly describe each of the major segments to be covered in a business plan.
(1) The Summary: Many people who read business plans (bankers, venture capitalists,
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investors) like to see a summary of the plan that features its most important parts.
Such a summary gives a brief overview of what is to follow and helps put all of the
information into perspective and should be no longer than three pages.
(2) Business description: The name of the venture should be identified, with any special
significance related (e.g., family name, technical name, etc.). The industry
background should also be presented. The new venture should be thoroughly
described along with its proposed potential. Also, the potential advantages the new
venture possesses over the competition should be discussed at length.
(3) Market segment: In this segment of the report the entrepreneur must convince
investors that there is a market, that sales projections can be achieved, and that the
competition can be beaten.
(4) Research, design, and development segment: The extent of any research, design, and
development in regard to cost, time, and special testing should be covered in this
segment. Investors need to know the status of the project in terms of prototypes, lab
tests, and scheduling delays.
(5) The location segment: This segment should always begin by describing the location of
the new venture. The chosen site should be appropriate in terms of labor availability,
wage rate, proximity to suppliers and customers, and community support. In addition,
local taxes and zoning requirements should be sorted out, and the support of area
banks for new ventures should be touched upon.
(6) The management segment: This segment should identify the key personnel, their
positions and responsibilities, and the career experiences that qualify them for those
particular roles. Complete resumes should be presented for each member of the
management team.
(7) The financial segment: The financial segment of a business plan must demonstrate the
potential viability of the undertaking.
(8) The harvest strategy segment
(9) The milestone schedule segment: This segment provides investors with a timetable for
the various activities to be accomplished. It is important to demonstrate that realistic
time frames have been planned and that the interrelationship of events within these
time boundaries are understood.
(10) The appendix and/or bibliography segment: The final segment is not mandatory, but it
allows for additional documentation that is not appropriate in the main parts of the
plan. Diagrams, blueprints, financial data, vitae of management team members, or
bibliographical information that supports the other segments of the plan are examples
of material that can be included.
10. Why is the summary segment of a business plan written last? Why not first?
The summary should be written only after the entire business plan has been completed.
In this way, particular phases or descriptions from each segment can be identified for
inclusion in the summary. Since the summary is the first, and sometimes the only part of a
plan that is read, it must present the quality of the entire report.
11. What are five elements included in the marketing segment of a business plan?
Market niche and market share, competition analysis, pricing policy, advertising plan,
and market strategy.
12. What is the meaning of the term critical risks?
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This means that potential risks such as the following should be identified: effect of
unfavorable trends in the industry, design or manufacturing costs that have gone over
estimates, difficulties on long lead times encountered in purchasing parts or materials, or
new competition that was not planned for.
13. Describe each of the three financial statements that are mandatory for the financial
segment of a business plan.
(1) The pro forma balance sheetpro forma means projected, as opposed to actual. The
pro forma balance sheet projects what the financial condition of the venture will be at
a particular point in time. Pro forma balance sheets should be prepared at start-up,
semiannually for the first years, and at the end of the first three years.
(2) The income statementthe income statement illustrates the projected operating
results based on profit and loss. The sales forecast, which was developed in the
marketing segment is essential to this document.
(3) The cash flow statementin new-venture creation, the cash flow statement may be
the most important document since it sets forth the amount and timing of expected
cash inflows and outflows. This section of the business plan should be constructed
carefully.
14. Why update a business plan?
There are several reasons for updating a business plan; for example, financial needs
may change, additional financing may be needed, markets may change, new products or
services may be considered for launching, new members may be added to the management
team, and due to the general changing nature of the business the reality the entrepreneur
faces may change.
15. Outline some of the critical points to capture in an elevator pitch.
(1) Focus on the pain your venture will address.
(2) Demonstrate the reachable market.
(3) Explain the business model.
(4) Tout the management team.
(5) Explain your metrics that were used in generating your revenue projections.
(6) Motivate the audience.
(7) Explain why you are the right venture and why this the right time to be launched.
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business executive said, "I think something's wrong if we're not having a crisis." Even if
there is marketing and sales planning, the programs are often derailed by one crisis or
another. It happens in every company because no one says that staying on track is essential.
The prospect database wasn't completed because something else intervened. The telephone
follow-ups weren't made because Sally had to fill in for someone who was out sick. The
prospect calls didn't get made because someone was "putting out a fire."
5. Focus on competitors. It often appears that companies lacking good planning may be
taking their cues--their direction--from the competition. While competitive intelligence is
essential, companies make decisions based on unsubstantiated rumors picked up on the street.
Because they lack adequate planning, they leave themselves vulnerable to reacting in
capricious and costly ways. The tendency to play "follow the competitor" may be a major
error since competitors make mistakes, too.
6. An unclear image. The image inside a company may be quite different from the way it is
perceived on the outside. One financial services firm has a very clear picture of itself. A
customer survey, however, revealed what the company viewed as its strengths were
perceived as less than adequate.
Another company's sales force takes great pride in building personal relationships with
customers; yet, a customer survey revealed that personal relationships were at the bottom of
the list of customer priorities. One of the essential objectives of good planning is shaping
and protecting the brand.
7. A lack of anticipatory thinking. Good planning is the result of anticipating the results of an
idea, program, activity or project. A lack of planning generally produces half-baked action.
What does this mean? At one company, there were endless meetings about an upcoming
trade show event. There was plenty of interest and excitement, but no focus. No one asked,
"Why are we going? What do we want to accomplish?" Fun took precedence over business
objectives. Thinking about the outcome of actions is the essence of planning.
8. Confusion between strategy and tactics. To put the issue in as few words as possible,
tactics are fun but strategy is tough. It's easy to get interested in what the direct mail piece
will look like. The question of why it's being done and who should receive it sounds like
work. It is.
Far too many ads and brochures are designed with the idea of winning awards rather than
figuring out how to meet a clearly defined objective.
9. Difficulty in understanding branding. It's almost impossible to escape a new book, article
or seminar on branding. Yet, for all the talk, it's amazing that there is so little translation into
making certain every aspect of a business coheres to the company's brand concept.
Branding doesn't begin and end with a great logo and a glitzy tagline. Planning makes
branding possible.
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10. Mistakes. The best has been saved for the last. Errors are one of the clearest indicators of
poor planning. Mistakes in marketing and sales programs generally come about because of a
lack of serious thought or, as we call it, anticipatory thinking.
Try this and then jump to the next idea. Run ads this quarter and then switch to email
blitzing. Drop that and rush to direct mail. Throw in a "special offer" for the month. Without
a plan, it's one mistake after another. We all make them, of course. But good planning keeps
us from making them all the time.
If it isn't down (on paper) in black-and-white and if it isn't reviewed regularly and updated
often, it isn't a plan. It's just another exciting idea that will waste time and turn out poorly.
2. How might you respond to the following question? "I'm looking to start an online
business. I already have a business plan, but I have no clue how online businesses work.
Are there any Websites that will guide me step-by-step? Should I hire professionals, or
just do it myself?"
A. It is important for students to appreciate that the process of writing the business plan will
allow for a detailed understanding of the business model and industry. A thorough business
plan cannot be written if you don't know the business, if the person wants to participate in ecommerce, they will have to spend ample time researching and educating them so that they
can identify their market, choose the right payment options and build a competitive Website,
among other key responsibilities.
Start by reading tutorial books such as Starting an Online Business For Dummies (For
Dummies; $24.99) by Greg Holden. Also. see if there are any colleges or organizations in
your area offering training courses. The New Jersey Small Business Development Centers
(www.njsbdc.com) is a network that helps small businesses. It also provides comprehensive
e-commerce counseling services. And SCORE (www.score.org), another organization
helping entrepreneurs, teamed with Verizon to offer free online business training workshops
(www.score.org/online_courses.html).
In learning how online businesses work, you'll become familiar with what you'll need to
function properly, the types of professionals you should seek, and how best to carve out a
space on the Internet.
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