CHAPTER 6: The Business Plan factors that will determine a firm’s

success or failure, along with all

AN OVERVIEW OF THE BUSINESS PLAN
the underlying assumptions.
Business Plan
PREPARING A BUSINESS PLAN
 A document that sets out the basic idea Issues critical in preparing a business plan:
underlying a business and related startup  The content and basic format of the plan
considerations o Factual support for the concept in the
The Purpose of a Business Plan
form of strong supporting evidence
 Identifies the nature and context of the
 The effectiveness of the written presentation
business opportunity
o Clear writing that effectively
 Presents the entrepreneur’s approach to
communicates
exploiting the opportunity
Deciding on the Content of a Business Plan
 Identifies factors affecting the venture’s success
 Factors that help determine the content of a
 Serves as the entrepreneur’s tool for raising business plan for a startup:
capital o The entrepreneurial team
o The opportunity
THE NEED FOR A BUSINESS PLAN
o The resources
Primary Functions
o The deal structure
 To provide a clearly articulated statement of
o The big picture
goals and strategies for internal use
o Imposes discipline on the entrepreneur
GOOD OPPORTUNITIES HAVE GOOD “FIT”
and management team
 To serve as a selling document to be shared
with outsiders
o Provides a credible overview for
prospective customers, suppliers, and
investors
o Helps secure favorable credit terms
from suppliers
o Opens approaches to lenders and other
sources of financing

Factors affecting the extent of a business plan:

 Cost in time and money to prepare the plan
 Management style and ability
 Preferences of the management team
 Complexity of the business THE CONTENT OF A BUSINESS PLAN
 Competitive environment  Cover Page
 Level of uncertainty  Table of Contents
 Executive Summary/Synopsis/Narrative
KEEPING THE RIGHT PERSPECTIVE  Industry Description
Good business plans don’t ensure success. o Broader industry in which the firm will
 Effective implementation is what succeeds. compete – Industry size, growth rate,
Writing a business plan is an ongoing process and only trends, and competitors
secondarily the means to an outcome. o Different segments of the industry
 The process is just as important as—if not more o Niche in which the firm plans to
so than—the finished product. participate
 The plan represents what is has been
 Target Customers
anticipated; a good entrepreneur adapts the
o Demographics and psychological
plan to fit the unexpected.
variables—values, attitudes, and fears
 Competitor Analysis
TYPES OF BUSINESS PLANS
o Product or service attributes that are or
Dehydrated Plan
are not provided by competitors
 A short form of a business plan that presents
 Company Description
only the most important issues and projections.
o When and where was this business
Comprehensive Plan
started?
 A full business plan that provides
o What is the history of the company?
an in-depth analysis of the critical
 o What are the firm’s objectives?
o What is the firm’s distinctive
competence?
o What are the nature and activity of the
business?
o What is its primary product or service?
o What customers will be served?
o What is the firm’s form of organization?
o How is ownership of the firm to be
structured?
 Products/Service Plan
o Describes the product and/or service to
be provided and explains its merits
 Marketing Plan
o Describes the user benefits of the
product or service and the type of
market that exists
 Operations and Development Plan
o How product will be produced or
service provided
 Management Plan
o Describes the firm’s organizational
structure and the backgrounds and
qualifications of key personnel
 Critical Risks
o Identifies the potential risks that may
be encountered by an investor
 Financial Plan
o Projects the company’s financial
position based on well-substantiated
assumptions and explains of how the
figures have been determined
 Pro forma statements project a
firm’s financial condition for up
to five years.
Making an Effective Written Presentation
 Insist on confidentiality
 Use good grammar
 Limit the presentation to a reasonable length
 Go for an attractive, professional appearance
 Provide solid evidence for any claims
 Describe the product in lay terms
 Emphasize the qualifications of the
management team
 Analyze the market thoroughly
 Include financial statements that are neither
overly detailed nor incomplete
 Don’t hide weaknesses—identify potential fatal
flaws
Presenting the Business Plan to Investors
 Attracting Investors
o A business plan must be an effective
marketing document that quickly
captures investor interest.
 Understanding the Investor’s Perspective
o Entrepreneurs are optimists; investors
are skeptics.
o Investors focus on break-even and
positive cash flow.
o Investors have a short attention span.
o Bad information and poor preparation
cause investors to lose interest quickly.
Plan Features that Attract Investors
 Plans that speak the investors’ language:
o Are market-oriented in meeting
customer needs; are not product-
oriented.
o Show evidence of target customer
acceptance of the proposed product or
service.
o Present credible and not overly
optimistic financial projections.
o Are not a formal prospectus or
offering memorandum.
o Recognize the investors’ needs for
required rates of return on investments.
o Demonstrate evidence of focus on a
limited number of products or services
o Have a proprietary market position
through patents, copyrights,
and/or trademarks
Features of Plans Unattractive to Investors
 Plans that create unfavorable reactions:
o Show an infatuation with the product or
service and downplay market needs or
acceptance.
o Are based on financial projections at
odds with accepted industry norms.
o Have unrealistic growth projections.
o Contain a need for custom or
applications engineering,
which makes substantial
growth difficult.

Chapter 7: THE MARKETING PLAN
What is Small Business Marketing?
Small Business Marketing
 Business activities that direct the creation,
development, and delivery of a bundle of
satisfaction from the creator to the targeted
user.
Small Business Marketing Activities
• Identification of the target market
• Determining target market’s potential
• Preparing, communicating, and delivering a
bundle of satisfaction to the target market
Marketing Philosophies Make a Difference
 Production-Oriented
o Emphasizes development of the
product and production efficiencies
over other activities.
 Sales-Oriented
o Favors product sales over production
efficiencies and customer preferences.
 Consumer Oriented—The Right Choice
o All marketing efforts begin and end with
customers.
o The focus is on consumers’ needs,
which is most consistent with long-term
success of the firm.
Reasons for Not Adopting a Consumer Orientation
 State of competition
o With no competition or high demand,
firms focus on production.
 Production focus
o Entrepreneurs may have strong
production skills and weak marketing
skills.
 Focus on the present
o Entrepreneurs tend to focus on current
success which is the result of an
overemphasis on selling.
The Formal Marketing Plan
 Market Analysis
o Customer profile
 A description of potential
customers in a target market
o Sales forecasts
 “Most likely,” “pessimistic,” and
“optimistic
 The Competition
o Profile of key management personnel
o Overall strengths and weaknesses
(SWOT)
o Related products being marketed or
tested
o Likelihood of competitors’ entry into
target market

 Marketing Strategy
o Product and/or service section
 Decisions affecting the total
product
o Distribution section
 Decisions regarding product
delivery to customers
o The Formal Marketing Plan (cont’d)
o Pricing section
 Setting an acceptable value on
the product
o Promotional section
 Communicating information to
the target market
The Nature of Marketing Research
 Marketing Research
o The gathering, processing, reporting,
and interpreting of market information
 Outside Sources
o Hiring professional marketing
researchers
o Using the Internet for web-based
surveys
and online focus groups
Steps In the Marketing Research Process
 Identifying the informational need
o Why do we need to know this?
 Searching for secondary data
o Who has researched this topic already?
 Collecting primary data
o Who do we ask and what do we ask
them?
 Interpreting the data
o Got the information, now what does it
mean?
Understanding Potential Target Markets
 Market Ingredients
o A group of (1) customers or potential
customers who have (2) purchasing
power and (3) unsatisfied needs
 Market Segmentation
o The division of a market into several
smaller customer groups with similar
needs
 Focus Strategy
o A type of competitive strategy in which
cost and differentiation-based
advantages are achieved within narrow
market segments.
Market Segmentation and Its Variables
 Segmentation Variables
o The parameters used to distinguish one
form of market behavior from another
for the purpose of market segmentation
  Benefit Variables
o Specific characteristics that distinguish
market segments according to the
benefit sought
 Demographic Variables
o Specific characteristics that describe
customers and their purchasing power
Types of Market Segmentation Strategies
 Unsegmented Strategy (Mass Marketing)
o A strategy that defines the total market
as the target market.
 Multisegment Strategy
o A strategy that recognizes different
preferences of individual market
segments and develops a unique
marketing mix for each.
 Single-Segment Strategy
o A strategy that recognizes the existence
of several distinct segments but focuses
on only the most profitable segment.
Estimating Market Potential
 The Sales Forecast
o A prediction of how much of a product
or service can be sold within a market in
a defined period of time.
 Assesses the new venture’s
feasibility.
 Assists in planning for product
scheduling, setting inventory
levels, and personnel decisions
 Limitations of Forecasting (for Entrepreneurs)
o Unique new business circumstances
o Lack of familiarity with quantitative
methods
o Lack of familiarity with the forecasting
process
The Forecasting Process: Two Dimensions of
Forecasting
 The Starting Point
o Breakdown process (chain-ratio
method)
 Forecasting begins with a
macro-level variable and works
down to the sales forecast (top-
down).
o Buildup process
 All potential buyers

 in various submarkets are
identified and then the
estimated demand is added up
(bottom-up).
 Forecasting and Predicting Variables
 Direct Forecasting
o Use of sales as the predicting variable
 Indirect Forecasting
o Use of related variables related to sales
as proxies to project future sales

CHAPTER 8: The Organizational Plan
Building a Management Team
Management Team
 Managers and other key persons who give an
organization its general direction
Characteristics of a Strong Management Team
 Capable of securing the resources needed to
make business a success
 Reassures investors about the their investment
and the continuity of business
 Diversity of talent makes the team stronger
than an individual entrepreneur
Team Building and Structure
 The required combination of education and
experience depends on the type of business and
the nature of its operations
 The key: achieving a balance of skills and
competencies in functional areas
 Designing an internal management structure
that defines relationships and responsibilities
o Outside professional support can
supplement the skills of a management
team
o An active board of directors can provide
counsel and guidance.
The Sole Proprietorship Option
Sole Proprietorship
 A business owned by one person, who bears
unlimited liability for the enterprise.
Advantages
 Receives all of the firm’s profits.
 Holds title to all of the firm’s assets.
 Can easily sell or transfer ownership of the
company name and assets.
 Can easily sell or transfer ownership of the
company name and assets.
 Requires no registration or filing fee.
 Has absolute freedom from interference by
other stakeholders.
Disadvantages
 Bears all business risk.
 Is subject to all claims of creditors.
 Has unlimited personal liability for business.
 Receives no tax free benefits as an employee.
 Death/incapacity of owner terminates business.
 Is limited to the proprietor’s personal capital.
 Is taxed on business income as personal
income.
The Partnership Option
Partnership
 A legal entity formed by two or more co-owners
to carry on a business for profit.
Questions about Partnership Formation
 What is our business concept?
 How are we going to structure ownership?
 Why do we need each other?
 How do our lifestyles differ?
Partnership Insights
 Choose your partner carefully.
 Be open, but cautious, about partnerships with
friends.
 Test-drive the relationship, if possible.
 Create a combined vision for the business.
 Prepare for the worst.
Rights and Duties of Partners
 Partnership Agreement
o A document that states explicitly
the rights and duties of partners.
 Joint and Several Liability
o The liability of each partner resulting
from any one partner’s ability to legally
bind the other partners.
 Termination of a Partnership
o Provisions for rapidly responding to
death or departure of a partner.
The C Corporation Option
Corporation
 A business organization that exists as a legal
entity and provides limited liability for its
owners.
Legal Entity
 A business organization recognized by the law
as having a separate legal existence (“artificial
 being”); can be sued, hold property, and incur Setting Up and Maintaining Successful Strategic
debt. Alliances

 Steps in Building Strategic Alliances

o Establish a healthy network of contacts.

Rights and Status of Stockholders o Identify and contact individuals within a

firm who are likely to return your call.
 Stock Certificate
o Outline the partner’s potential financial
o A document specifying the number of
benefits from the alliance (clearly a
shares of stock owned by a shareholder.
win–win opportunity).
 Pre-emptive Right
o Learn to speak and understand the
o The right of current stockholders to buy “language” of your partner.
new shares of stock before they are
o Continue to monitor the progress of the
offered to the public.
alliance.
 Legal Status
Making the Most of a Board of Directors
o Ownership provides control over the
Board of Directors
firm.
 The governing body of a corporation, elected by
o Ownership limits liability to investment
the stockholders
in the firm.
o Inside directors work for the firm
o Ownership can be transferred without
affecting the firm’s operations. o Outside directors do not work for the
firm
Criteria for Choosing an Organizational Form
Duties of Directors

 Elect the firm’s officers (top management)

 Approve top management’s strategic plans and

policies

 Review top management’s performance

 Declare dividends

The Board of Directors

 Contributions of Board of Directors

o Bring knowledge and experience

Forming Strategic Alliances
 Review policy decisions
 Strategic Alliances
 Provide general direction
o An organizational relationship that links
 Monitor the firm’s ethical
two or more independent business
behavior
entities in a common endeavor
 Mediate and resolve disputes
o Benefits
among top management
 Reduced cycle times through
Alternative: An Advisory Council
shared resources
 Provides advice but does not have the fiduciary
 Increased performance through
responsibility for the direction of the firm.
synergistic combinations
of financial resources and  May be less threatening and more cooperative
creativity than a board of directors
o Risk

 Difficulty in establishing and

maintaining alliances
 o Using a percentage of the total sales for
a firm as the basis for forecasting the
level of assets. accounts receivable, and
inventories to be held by a firm.

CHAPTER 9: Forecasting Financial Requirements

The Purpose of Financial Forecasting

Pro Forma Financial Statements Determining Financing Requirements

 Project a firm’s financial performance and Basic Principles for Financing of Firms
condition
1. The more assets a firm needs, the greater the
 Purposes of pro forma statements: firm’s financial requirements.

1. How profitable is the firm be expected 2. A firm should finance its growth in such a way
to be, given the projected sales levels as to maintain proper liquidity.
and the expected sales–expense
3. The amount of total debt used in financing a
relationships?
firm is limited by the funds provided by the
2. How much and what type of financing
owners.
(debt or equity) will be needed to
finance the firm’s assets? 4. Some types of short-term debt maintain a
3. Will the firm have adequate cash flows? relatively constant relationship with sales.
If so, how will they be used; if not,
5. Equity ownership comes the investments of
where will the additional cash come
owners, and retained earnings (profits).
from?
Liquidity
Forecasting Profitability
 The degree to which a firm has working capital
Net Income Depends On:
available to meet maturing debt obligations.
 Amount of sales
Current Ratio
 Cost of goods sold
 The firm’s relative liquidity, determined by
 Operating expenses dividing current assets by current liabilities.

 Interest expense Debt Ratio

 Taxes  Debt as a fraction of assets; total debt divided

by total assets.
Forecasting Asset and Financing Requirements
o Spontaneous financing—debts such as
Working Capital
accounts payable that increase as the
 Current assets, accounts receivable, and firm grows.
inventory required in day-to-day operations
Use Good Judgment When Forecasting
Net Working Capital
Practical Suggestions
 Current assets less current liabilities 1. Develop realistic sales projections.
Bootstrapping 2. Build projections from clear assumptions
 Minimizing a firm’s investments about marketing and pricing plans.

Determining Asset Requirements 3. Do not use unrealistic profit margins.

 Industry ratios for assets-to-sales 4. Don’t limit your projections to an income

statement.
o Using an industry average of a “typical”
firm’s assets to its sales to forecast a 5. Provide monthly data for the upcoming year
particular firm’s asset requirements. and annual data for succeeding years.

 Percentage-of-sales technique 6. Avoid providing too much financial information.

7. Be certain that the numbers reconcile—and not

by simply plugging in a figure.
 8. Follow the plan.

Chapter 10: Promoting greater roles of emerging youth

and women entrepreneurs to economic development

Entrepreneurship is a powerful tool for youth and

women’s empowerment.

o it advances economic interests

o opens new avenues for international trade
o partnerships
o job creation.

The youth, among other people, still face a lot of

challenges like lack of entrepreneurial experience, lack
of financial support and the minimal education and/or
trainings on what entrepreneurship really is.

How do we hurdle these challenges?

1. offering support to help develop youth and

women-led projects by learning with and
through peers and networks and also allowing
linkages with other enterprises.
o encouraging schools to develop
entrepreneurial mindsets and provide
guidance on social entrepreneurship
o invest in trainings, conferences,
coaching and mentoring activities like
the GoNegosyo Mentor Me Seminar
2. availability of support services from the
government that would create an avenue for
these entrepreneurs to thrive
o Actively promoting entrepreneurship in
local governments
o Creating partnerships between business
support, finance providers and other
stakeholders in holding business, trade
and networking fairs
3. facilitate an enabling environment or
“ecosystem”
o organization of a group/council of
entrepreneurs
o Meeting trade and professional
organization officials, policymakers,
financiers, banks and other
entrepreneurs