Essentials of a Business Plan

Why do we need a Business Plan?
Helps to describe:

 Merits
 Requirements
 Risks & Potential rewards
 Develop and examine operating strategies and expected results
 Quantifies objectives, providing measurable benchmarks for
comparing forecasts with actual results.
 Provides the entrepreneur with a communication tool for
 outside financial sources and
 an operational tool for guiding the venture towards success.
 Raise capital
 Attract key advisors, directors or team members
Contents
 Executive Summary
 The industry and the firm
 Market Research and Analysis
 The Economics of the business
 Marketing Plan
 Design and Development Plan
 Manufacturing and Operational Plan
 Management Team
 Overall Schedule
 Critical Risks, Problems and Assumptions
 Financial; Plan
 Appendices
Executive Summary
 Very important –compelling and appealing
 One or two pages
 Usually prepared after the other sections are completed
 Business concept and the business
 Should explain how product or service will change the way customers
currently do certain things
 Proprietary technology, trade secrets, or unique capabilities
The opportunity and strategy
 Summarize the opportunity
 Why it is compelling
 Entry strategy to exploit it

Target market and projections
 Primary customer groups
 Positioning of product(s) & service(s)
 How to reach and service these groups
 Structure of the market
 Market size and anticipated share
 Pricing strategy

The competitive advantage
 The economics, profitability, and harvest potential
 Gross & operating margins
 Expected profitability
 Durability
 Break-even and positive cash flow
 Key financial projections
 The team
 The financial plan

The Industry and the Company
 A major area of consideration is the company, its concept for its
product(s) & service(s), and its interface with the industry in which it
will be competing
 The industry
 Current status & prospectus
 Market size, growth trends, & competitors
 Any new products or developments, new markets & customers, new
requirements
 National or economic trends & factors that could affect the venture
The company and the concept

 Concept of the business, product(s) or service(s), principal customers
 The product(s) and service(s)
 Describe in some detail each product or service
 Application of the product or service and describe end use as well as any
significant secondary applications
 Unique features of the product or service; how value will be added; pay
back period to the customer

Any possible drawbacks
 Present state of development of the product or service and the time &
money needed to fully develop, test, & introduce
 Any head start
 Patents, trade secrets, or proprietary features
 Opportunities for expansion of product line

Entry and growth strategy
 Key success variables in the marketing plan
 Pricing, distribution, advertising, and promotion plans
 How fast you intend to grow

Market Research and Analysis
 Most important and most difficult section
 Prepare this section before any other

 Customers
 Describe customers for product(s) or sevices(s)
 Segmentation
 Location of the customers –regional, national, international
 Whether customers are easily reachable
 Describe customers’ purchasing processes
 Why they might change current purchasing decisions
 Any orders, contracts, or letters of commitment
Market size and trend
 Current market size & anticipated share by market segment and/or by
regions and/or country
 Potential annual growth for three years
 Major factors affecting market growth

Competition and competitive edges
 Realistic assessment of the strengths & weaknesses of competitors
 Compare fundamental value added or created by your product or service

 Discuss current advantages and disadvantages of existing products
 Indicate any knowledge of competitors’actions, their profit trends
 Discuss three or four key competitors and why customers buy from them
and why they leave them

Estimated market share and sales
 Mentioning assumptions of advantages of your product, the market size
and trend, customers, competition, estimate your market share

Ongoing market evaluation
 Plan for ongoing market evaluation to guide product-improvement
programs.
The Economics of the Business
Economic and financial characteristics need to support the
fundamental attractiveness of the opportunity
 Gross and operating margins
 Profit potential and durability
 Fixed, variable, and semi-variable costs
 Show relevant industry benchmarks
 Months to breakeven
 Months to reach positive cash flow
Marketing plan
 Shows how sales projections will be attained

 Overall marketing strategy
 Describe specific marketing philosophy
 Plans for identifying and contacting potential customers
 What features of the product or service will be emphasized to
generate sales
 Introduction of product –regional, national, or international
 Seasonal trends that underlie the cash conversion cycle in the
industry
 Plans to obtain institutional contracts
 Pricing

 Discuss pricing strategy and compare this with that of the major
competitors
 Whether gross profit margin large enough to cover all costs and
still allow a profit
 Justify your pricing strategy in terms of economic payback to
customers
 If product priced lower than that of competitors, how will maintain
profitability
 Describe any discount allowance for prompt payment or volume
purchases
 Sales tactics
 Describe the methods
 Discuss the value chain and the margins for
intermediaries
 Special policies regarding discounts, exclusive
distribution rights
 How intermediaries will be selected
 Present a selling schedule and sales budget
Service and warranty policy
 Indicate importance to the customers’purchasing decisions and
discuss your method of handling service problems
 Describe the kind and term of warranties
 Compare service and warranty policies to those of your
competitors

Advertising and promotion
 Trade show participation, direct mailing, trade magazine
advertisement, use of advertising agencies
 Schedule and approximate costs
Distribution
 Methods and channels of distribution
 Sensitivity of shipping cost as a percent of the selling
price
 If international sales are involved, how these will be
handled
Design and Development Plan
Design and development costs are often underestimated
 Development status and tasks
 Current status of each product or service and what remains to be done
 Competence and expertise of the company has or will require

Difficulties and risks
 Possible effect on the cost of design & development, on the time to market
introduction

Costs
 Design and development budget
 Discuss the impact on cash flow projections of underestimating this budget

Proprietary issues
 Describe any patent, trademark, copyright you own or are seeking
 Contractual rights or agreements
Manufacturing and Operational Plan
Operating cycle
 Lead/lag times
 Plan for handling any seasonal production load
Geographical location
 Advantages and disadvantages of the site location
Facilities and improvements
 How & when the necessary facilities to start production will be acquired
 Equipment & space –leased or acquired
 Future equipment needs
Strategy and plans
 Describe the manufacturing process
 Potential subcontractors
Production plan
 Approach to quality control, production control, inventory control
Regulatory and legal issues
 State, national, or foreign regulatory requirements
 Any pending regulatory changes that can affect the nature of opportunity
and its timing
Management Team
Organization
 Key management roles and individuals who will fill these

Key management personnel
 Detailed background about each key person
 Describe exact duties and responsibilities of each of the key
members
 Complete resumes for each key member to be included as an exhibit

Management compensation and ownership
 Other investors
 Board of directors
 Supporting professional advisors and services
Overall Schedule
 Shows the timing and interrelationship of the major events necessary
to launch the venture
 Deadlines or milestones critical to the venture’s success
 Incorporation of the venture
 Completion of design & development
 Completion of prototypes
 Obtaining of sales representatives
 Ordering of materials in production quantities
 Starting of production or operation ……
 Receipt of first order
 Delivery on first sale
 Receiving the first payment on accounts receivable

 Activities most likely to cause a schedule slippage and
impact on the venture’s operation; steps to be taken
correct such slippages

Critical Risks, Problems, & Assumptions
 Major problems or risks
 Running out of cash before orders are secured
 Potential price cutting by competitors
 Any potentially unfavorable industry wide trend
 Sales projections not achieved
 Difficulty encountered in obtaining needed bank credit
 Running out of cash after orders pour in

 Assumptions concerning sales projections, customer
orders etc.
The Financial Plan
 Indicates the venture’s potential and presents a
timetable for financial viability

 Pro forma income statements for at least three years
 Fully discuss the assumptions (e.g., amount for bad debts and
discounts)
 Highlight any major risks such as the effect of a 20 percent
reduction in sales from those projected
 Pro forma balance sheets for three years
 Pro forma cash flow analysis –monthly for first year
 Determine the need for and timing of additional financing and indicate
peak requirements for working capital
 How additional financing will be obtained
 Discuss assumptions and sensitivity of cash flow to these assumptions

 Break-even chart
 How the break-even might be lowered
 Cost control
 Mechanisms for the control of various cost elements

 Highlights
 Maximum amount of cash required and the timing
 Amount of debt and equity needed
 How fast can the debt be paid
 Desired financing
 Use of funds
Appendices
 Product specifications or photos
 List of references
 Suppliers of critical components
 Special location factors
 Facilities or technical analysis
 Reports from consultants or technical experts
 Copies of any regulatory approval, licenses etc.
Possible drawbacks in a business plan
 No realistic goals
 Failure to anticipate roadblocks
 No commitment or dedication
 Lack of demonstrated experience (business or
technical)
 No market niche
Don’t forget…
1. Keep the plan respectably short

2. Organize and package the plan appropriately

3. Orient the plan towards the future

4. Avoid exaggeration

5. Highlight critical risks

Don’t forget…
6. Give evidence of an effective entrepreneurial team

7. Do not over diversify

8. Identify the target market

9. Plan should be written in the third person

10. Attempt to capture the reader’s interest

Prepare your B-plan

Work hard

Watch your business grow

Sign up to vote on this title
UsefulNot useful