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Preparing a Business Plan

Presentation Outline ....

Establishing Priorities and doing Market Research

Conceptualizing your business Plan (Ten Questions that your Business Plan must answer)

Business Plan Types, format and contents

Establishing Your Priorities

Writing a business plan is not the immediate task

Critically evaluating merits of opportunity is THE most important thing you should do at outset

Gather “hard facts” to convince ...

  • yourself of the merits of spending more time on it

  • others to join you in the task (team and employees)

  • investors to back you

Venture Opportunity Profile

Industry and

Economic

Competitive

Management

Market

Advantage

Team

Issue

Market

Profit after tax

Control over costs,

Entrepreneurial

price & distribution

team

-need

ROI

Barriers to entry

Industry and

technical

experience

-customer

Capital

Legal advantage

I

requirement

-user benefit

Sales growth

Contacts and

 

-value added

networks

-product life

Cash flow

Key people

 

Market Size

Break even

   

Growth rate

     

Four Essential Qualities of an Opportunity

Attractive
Attractive
Timely
Timely
Opportunity
Opportunity
Durable
Durable

Anchored in a

product,servic,or

business that creates or adds value for its

buyer or end user

Window of Opportunity

It’s the -time for new product is established

-market grows ,firms enter and try to established

position

-market matures and the window of opportunity

closes

Markets & Industries Are Different

Markets consist of current and potential Buyers who have common needs

Industries consist of Sellers whose offerings satisfy buyer needs in a variety of ways

It is highly unlikely that both your market and industry will be attractive

Knowing Your Customer is Key

Is there a group of customers that share common pains for whom your product offers compelling, tangible

benefits (better, cheaper, faster

...

)

  • share a common problem (need)

  • are aggravated by the problem (pain)

  • no remedy on offer (relief)

“The purpose of a business is to win a customer” Peter Drucker

Is My Market Attractive?

attractiveness and market size are closely related

  • larger markets often have many reasonably sized segments

  • growing markets also offer more room for competitors

  • emerging markets offer prospects for different approaches

“For entrepreneurs seeking venture capital, look for target markets that provide entrees into other market segments”

Is My Industry Attractive?

Michael Porter five forces framework ...

  • threat of entry

  • bargaining power of suppliers

  • bargaining power of customers

  • rivalry among existing competitors

  • threat of substitutes

Who Do We Know? Who Knows Us?

How well connected is the team up, down and across the value chain?

  • do we know by name key people to approach as suppliers

  • do we know by name key people to approach as customers

  • do we know by name who is available to fill in gaps in the management team

  • do we have a breadth of contacts in our industry to act as listening posts

Is it any wonder that successful, high growth ventures are started in

the same domain as that in which the entrepreneur recently left either voluntarily or involuntarily

Doing Market Research to refine your

idea ...

Prioritize information needs based on using prototype business designs to identify key assumptions Conduct expert interviews and gather market, customer and business insights Develop a Secondary and primary research data gathering plan Conduct secondary data review and initial primary research

Revise assumptions and data gathering plan based on initial learning.

Conduct further expert interviews, primary research and review additional secondary data

Review and revise business assumptions, initial strategy and access viability of the business concept.

Business Plan ….

Business Plans are written for at least five different reasons: • To help you understand an
Business Plans are written for at least
five different reasons:
• To help you understand an opportunity and what it will
take to exploit it
• To recruit prospective partners and senior colleagues
• To monitor progress and keep you on track following
start-up
• To rejuvenate and re-focus a business following start-up
• To raise investment finance to support growth

The Plan is Obsolete as Soon As It is Written

New discoveries are made, new products and processes displace old Prices change, competitors enter, partners leave, suppliers merge, buyers change, investors commit You learn something new

The Concerns of the Investor

Does it create value for end users? Is it a “must buy” so the end user is willing to

pay a premium?

Is that “must buy” market

  • large?

  • high growth?

  • high margin?

  • with significant barriers to entry?

Does the venture’s team fit the opportunity?

Ten Questions Your Business Plan Should Answer

Question 1: Where Is Your Company Now?

At the outset investors need to know whether your company has …

been incorporated; if “yes” when and by whom completed a design or developed a prototype developed or launched its first product/service secured customer commitments or orders generated any revenue; if so, how much, from where, etc. secured finance from any source (including government grants)

Start by providing an engaging snapshot of where you have got to. Underpin this with a compelling statement of who is involved and what their experience, track record and commitment to business are.

Question 2: What is your product / service?

Begin with a succinct description of the product/service proposition,

then move on to set out …

how the proposition is anchored in a real market opportunity

the specific benefits and value that a customer will derive from using the product

the way in which these benefits can be demonstrated and measured why the customer will purchase on an ongoing basis

the distinctive advantages of your product and why it is a potential winner

At the outset it is essential to establish the link between the market opportunity and your product or service.

Typical mistakes at this stage include ...

being so close to the product that you cannot describe it clearly providing excessive product detail - this can follow later assuming that the customer benefits are self-evident - they may only be so to you! failing to assess the durability of your advantage - how easily might others replicate it? not demonstrating how your skills and those of your team position you to exploit the opportunity in a timely fashion

Very early on in the plan you need to convey to

the reader a clear picture …

This is the market opportunity

Very early on in the plan you need to convey to the reader a clear picture

This is my product

Very early on in the plan you need to convey to the reader a clear picture

These are the key benefits: the value proposition

Very early on in the plan you need to convey to the reader a clear picture

This is the evidence that substantiates the value proposition

Very early on in the plan you need to convey to the reader a clear picture

And these are the people who will make it happen - and why

Question 3: What is your market?

Having understood your core proposition the reader wants a clear

picture of your market in terms of …

market size market segmentation and niches actual and projected growth rates in target market geographic breadth and variation market context - relevant environmental, regulatory, technological, demographic/social changes

How do people make money in this market?

basis of competition - price, differentiation, range, discount structure, etc. nature and number of substitutes (and “near substitutes”) the ease or difficulty of gaining market entry the margin opportunity - current and future

It is essential to demonstrate a real understanding of what makes the

market “tick”, why it is an attractive market, and why it will remain so

for some time.

You then need to explain where in the market you will compete ...

choice of target market segment and rationale for this precise description of target customers key buying factors the purchasing process: who buys and over what time frame?

And how you will compete …

product positioning in the market: performance, image, quality, etc. pricing and discount structure product support and service customer retention strategy scope for follow-on sales

In addressing these issues beware of ...

market data unsupported by factual evidence lack of basic, first-hand market research the risks inherent in under-pricing equating a large, growing market with ease of gaining share

You need to impart a clear understanding of ...

Market definition

You need to impart a clear understanding of ... Market definition Market attractiveness Market focus: where

Market attractiveness

You need to impart a clear understanding of ... Market definition Market attractiveness Market focus: where

Market focus: where you will compete

You need to impart a clear understanding of ... Market definition Market attractiveness Market focus: where

Market approach: how you will compete

You need to impart a clear understanding of ... Market definition Market attractiveness Market focus: where

Market position: your projected outcome

Question 4: How will you reach the market?

Every new venture has to build a bridge to its market. How is your bridge going to be constructed?

To answer this, you will need to define your strategy in respect of:

marketing and promotion selling distribution

Marketing and Promotion: Making the product known, creating interest

mechanics of promotion - direct mail, advertising, platform work, trade fairs, editorial/media coverage

identifying target customers for promotion activities

your promotion budget and its uses

Selling: Converting interest into sales

choice of sales method - in-house sales force, telemarketing, use of third parties

role of distributors, wholesalers and retailers

the mix of methods and their rationale

Distribution: Delivering to the customer

order processing and fulfillment

physical stockholding and dispatch

use of third parties

projected volumes and variations

Question 5: Who will you compete against?

Basic competitor analysis tells us about competitors’

identity, size, financial results, etc. product range and performance market reputation - quality, service, image market positioning - price, support, selling methods

But this is only a photograph: what you (and everyone else) can see!

The best business plans move beyond the surface to address ...

how the dynamics of competition might evolve over time in terms of price, margin erosion, etc.

how existing competitors are likely to respond to your market entry other potential entrants to the market

Typical weaknesses in this part of a business plan include …

suggesting that the concept is so unique it has no competitors assuming that today’s competitors will be tomorrow’s focusing only on direct competition, not indirect and substitutes

Question 6: How will your product be produced?

The operational part of the plan should set out ...

what is involved in producing the product or delivering the service resources required to do this: labour, material, facilities, etc. capital expenditure - amount and phasing which activities will be controlled in-house (eg. design or assembly) and which will be sub-contracted (eg. packaging) what it will take to gear up production post start-up status of any agreements with suppliers

In describing production and operations be

sure that you do not …

overburden the reader with excessive detail assume technological knowledge on the reader’s part use technical terms without explanation

imagine that the reader finds the production process as fascinating as you (likely) do

ignore the risks associated with production, particularly as volumes build up post start-up

Question 7: Who are the people?

The question with which most investors start. In describing yourself and your team you need to focus on ...

directly relevant industry, market experience and skills accomplishments and track record (P&L responsibility) range, depth and quality of relevant contacts: customers, suppliers, key personnel and the like experience that the team has had in working together status and nature of the commitment of both yourself and the team key recruits still to be found

In describing yourself and the team it is a mistake to ...

conceal relevant information; the due diligence process will quickly flush this out

disguise gaps in the portfolio of skills and expertise that you have assembled

assign people to roles for which they are not fully equipped

Do remember that the section on management is not the only place

where the team is presented. Use any opportunity in the plan to

demonstrate your and the team’s suitability to pursue the venture.

Question 8: What are your financial projections?

This part of the plan should focus on ...

core assumptions behind the financial model the link between these assumptions and your market data key financial indicators - projected cash flow, maximum cash requirement, summary profit & loss statement, balance sheet your expected base case and rationale for it

the potential downside (what happens if “the wheels fall off”) and upside (what happens if “it really takes off”)

Business plans often fall apart at this point ...

too many spreadsheets masses of indigestible financial date (in small fonts) endless sensitivity analyses disproportionate time devoted to the financials

Focus attention on articulating each core assumption, validating

each assumption and demonstrating how it gives credence to your base case

Question 9: How much money do you need?

Your summary financial projections will drive the funding requirement. For investors, the key issues are ...

how much money is needed

what it is need for: staff, premises, capital expenditures, research & development, market testing, and so on

when and in what stages it is required the key milestones against which funds will be drawn down the form in which the finance is required

Your prospective investor will also be interested in how he will get his money back. You should therefore outline ...

the projected timetable for the business to achieve lift off target time to break even, generate positive cash and profit the most likely exit route valuations achieved by comparable businesses

Do not feel obliged to propose a deal in the plan. Work out what this

might look like but keep it in reserve.

Question 10: What are the risks?

Risk is inherent in starting a business. Your aim is to identify and

minimize all potential risks ….

list all risks relevant to key aspects of the business: product/service, market, technology, management team identify those risks that are more/less critical work out precisely what you can do to ameliorate key risks

keep refining the list - and your intended actions - until you are left with a clear summary of the core risks: i.e. those that present the greatest threat but where you can do least to mitigate them, at least before start-up

Summary: 10 Questions

  • 1. Where is the company now?

  • 2. What is your product or service?

  • 3. What is your market?

  • 4. How will you reach the market?

  • 5. Who will you be competing against?

  • 6. How will your product be produced?

  • 7. Who are the people?

  • 8. What are your financial projections?

  • 9. How much money will you need?

10What are the risks?

Business Plan…Format

Three Types of Plans

Summary Plan

10 pages, 3 important points

Comprehensive Plan

10-40 pages, seeking capital or alliances

Operational Plan

40+ pages, for going concerns, part of an annual process

The Summary Plan

The Business

Legal Structure, Products or Services, Management, Personnel, Record Keeping

Marketing

Target Market, Competition, Advertising

Financials

Summary of Needs, Use of Funds, 3 Year Cash Flow Projections, Income Projections

Comprehensive Business Plan

Some Rules of Thumb…

The Expanded Executive Summary is written

last.

(4 to 5 pages long)

A one page FACT sheet is used for introductions.

An expanded Analysts Appendix will be added later

The appendix provides analyst: financial detailed spreadsheets, contracts, full resumes,

patents & marketing info.

Contd…

No paragraph longer than 6 or 7 lines Present key subjects in a table, chart or graph

Do not use “we”, “our” or “I” but use only the company name or initials

Write each Section with summary first then follow with supporting detail (this is opposite of Univ. writing)

Simple subject verb- adjective 8-12 grade writing

Business Plan Sections

A. One Page FACT Sheet-Ex. Sum:

  • Business Description:

  • Technology Description:

  • Proprietary Description:

  • Regulatory Issues:

  • Market Size:

  • Sales & Profit Projections:

  • Customers:

  • Funding:

  • Next Major Milestones:

  • Management Team:

Business Plan Sections

B. Company History, Mission & Goals:

  • What business

  • Quality, customer service & excellence

  • Technology

  • Employees

  • Sales goals

  • Research & development

  • Overview of management, organization & product

  • Industry & market trends

  • Milestones accomplished

Business Plan Sections

C. Technology, Products & Processes:

  • Product purpose & samples

  • Product features, design & pricing

  • Product protection & life cycle

  • Actual market experience, beta tests, etc.

  • R&D plans

  • New Product applications, budget & timelines

Business Plan Sections

D. Market Analysis:

  • Target market size, segments & geography

  • Customer profiles

  • History of market & expected growth

Business Plan Sections

E. Competition Analysis:

  • Types, classes, segments

  • Market share

  • Product comparison & substitutes

  • Pricing & service

  • Ad & promotion analysis

  • Expected impact, reaction & risks

creative insights…

These aspects are the heart of plan must be based on real investigation

exhaust secondary sources

  • industry analysis

  • trade associations

  • Trade periodicals

talk to potential customers (primary market research)

The investor wants to invest in professionally implemented creativity…

… but the investor is cynical

How did

What about Govt. Approval?

you calculate

your market size?

I can’t visualize

Where’s your manufacturing expertise?

your product.

Is there anything that is patentable?

What about foreign competitors? Your distributors are family-run small businesses. How do you contact them? What
What about foreign competitors?
Your distributors are family-run small businesses.
How do you contact them?
What about Approvals.
Who are
You guys??
Portals don’t
make money.
What is
What’s your
The Fatal Flaw ?
breakeven ?

Product Liability will kill you

How much advertising can you buy for Rs.100,000?

Who writes

your content?

I’m not convinced the consumer thinks he has a problem?

How did you validate your market assumptions?

It’s not scaleable. Why not just sell the patent?

What stops someone producing it for less?

Why should I finance your lifestyle?

Business Plan Sections

F. Marketing Strategy:

  • Segment differentiation

  • Features and Pricing

  • Roll-out plan

  • Ads & promotions

  • Packaging Shipping & Distribution

  • Credit Policies/warranty/returns

Business Plan Sections

G. New Product Applications:

  • Vertical integration options

  • Features & new product development analysis

  • Budget, resources & timelines

Business Plan Sections

H. Management:

  • Key management, Board of Directors & advisors

  • Ownership & structure

  • Policies & performance

I . FINANCIALS

How Much $$$ Do I Need?

Determine start up costs and estimate monthly operating costs to determine

your working capital

needs

I . FINANCIALS How Much $$$ Do I Need? • Determine start up costs and estimate

Financial Plan

THE PRIMARY EVALUATING TOOL

Support all information Make conservative projections

Start-up Budget: amount needed to open Operating Budget: ongoing expenses once open Sources and Uses Sheet

Financing Your New Business

Start up loans are very difficult to obtain Chances are you have to rely on the funds you can

personally raise

Financing Your New Business • Start up loans are very difficult to obtain • Chances are

Methods of Financing

Personal funds Family/ friend loans and gifts Angel investor Venture capital Grants Personal loan Business loan

Financial Plan: Startup Budget

Personnel (costs prior to opening) Occupancy (lease, rent, or mortgage) Legal/ Professional Fees Equipment Supplies Salary/ Wages Utilities Payroll Expenses Internet Licenses/ Permits Insurance Advertising/ Promotions

Financial Plan: Operating Budget

Personnel Lease/ Rent/ Mortgage Loan Payments Legal Fees Accounting Supplies Salaries/ Wages Dues/ Subscriptions/ Fees Repairs/ Maintenance

Insurance Advertising/ Promotions Depreciation Payroll Expenses Internet Travel/ Entertainment Miscellaneous

3-6 Months of Operating Capital

Financial Plan: Sources and Uses

Sources of funds Details of requested financing

Amount Use Terms

SOURCES & USES OF FUNDS

SOURCES OF FUNDS

INVESTMENT CAPITAL

Cash on Hand

Investment by Founder

Investment by Others

Incentives and Grants

DEBT CAPITAL

Bank Business Loan

Bank Personal Loan

SBA Guaranteed Loan

Other Loans

TOTAL

APPLICATION OF FUNDS

Rent & Security Deposits

Equipment/ Fixtures

Leasehold Improvements

Initial Inventory

Working Capital

Insurance

Professional Fees

Advertising

Signage

Contingency Reserve

TOTAL

SOURCES & USES OF FUNDS SOURCES OF FUNDS INVESTMENT CAPITAL Cash on Hand Investment by Founder
SOURCES & USES OF FUNDS SOURCES OF FUNDS INVESTMENT CAPITAL Cash on Hand Investment by Founder
SOURCES & USES OF FUNDS SOURCES OF FUNDS INVESTMENT CAPITAL Cash on Hand Investment by Founder

CASH FLOW PROJECTION

Month

Cash In-Flows

Sales

Other Income

Total In-Flows

Year One

1

2

3

4

5

6

7

8

9

10

11

12

Total

CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3
CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3

Cash Out-Flows

Cost of Goods Sold

Rent/ Mortgage

Owner's Salary

Other Salaries

Advertising/ Promotion

Utilities

Loan Payments (current)

Loan Payments (previous)

Telephone

Office Expense

Dues/ Subscriptions

Accounting

Insurance

Professional Fees

Internet

Repairs/ Maintenance

Licenses/ Permits

Travel/ Entertainment

Legal Fees

Bank Charges

Miscellaneous

Total Out-Flows

Beginning Cash Balance

Ending Cash Balance

CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3
CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3
CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3
CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3
CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3
CASH FLOW PROJECTION Month Cash In-Flows Sales Other Income Total In-Flows Year One 1 2 3

Pro-Forma Income Statement

Year

1

2

3

Gross Profit

Sales

Less: Cost of Goods Sold

Pro-Forma Income Statement Year 1 2 3 Gross Profit Sales Less: Cost of Goods Sold Operating

Operating Expenses

Rent/ Mortgage

Owner's Salary

Other Salaries

Payroll Taxes

Advertising & Promotion

Telephone

Office Expense

Dues and Subscriptions

Accounting

Insurance

Professional Fees

Internet

Repairs & Maintenance

Licenses & Permits

Travel & Entertainment

Legal Fees

Bank Charges

Miscellaneous

Depreciation

Amortization

Interest

Total Operating Expenses

Net Profit Before Taxes

Pro-Forma Income Statement Year 1 2 3 Gross Profit Sales Less: Cost of Goods Sold Operating
Pro-Forma Income Statement Year 1 2 3 Gross Profit Sales Less: Cost of Goods Sold Operating
Pro-Forma Income Statement Year 1 2 3 Gross Profit Sales Less: Cost of Goods Sold Operating
Pro-Forma Income Statement Year 1 2 3 Gross Profit Sales Less: Cost of Goods Sold Operating

Pro-Forma Balance Sheet

(Opening Day of Business)

CURRENT ASSETS

Cash

Accounts Receivable

Inventories

Prepaid Expenses

Other Current Assets

TOTAL CURRENT ASSETS

FIXED ASSETS

Land

Leasehold Improvements

Equipment

Vehicles

Other Fixed Assets

Subtotal Fixed Assets

Less: Accumulated Depreciation

TOTAL FIXED ASSETS

TOTAL ASSETS

CURRENT LIABILITIES

Accounts Payable

Short-Term Debt

Accrued Expenses

Other Current Liabilities

TOTAL CURRENT LIABILITIES

LONG-TERM DEBT

OWNER'S EQUITY

Paid-In Capital

Retained Earnings

TOTAL OWNER'S EQUITY

TOTAL LIABILITIES & OWNER'S EQUITY

Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other
Pro-Forma Balance Sheet (Opening Day of Business) CURRENT ASSETS Cash Accounts Receivable Inventories Prepaid Expenses Other

Appendices

May Contain

  • Short CVs of team and profiles of partners

  • Contracts, patents, correspondence

  • Pictures of product

  • Market research details

  • Rollout schedule

  • Pro-formas, assumptions and sensitivities

state fully sources of each data item Reader should be able to trace logic from raw data in appendix to statements in body

Summary Slide

Summary Slide planning

planning

Summary Slide planning
Summary Slide planning

Conclusion

Entrepreneurship is a profession

Mediocrity fails Excellence scales

Tenacity gets rewarded Be determined, but flexible

Execute, Execute, Execute
Execute, Execute, Execute