Section 3

From the Opportunity

to the Business Plan
Chapter 7
The Business Plan: Creating and
Starting the Venture

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 Planning as Part of the Business Operation
Planning is a process that never ends.
• A preliminary business plan which finalizes over time.

There are many different types of plans which all contribute to

the business operation.
• Financial plans, marketing plans, human resource plans, production
plans and sales plans.
• Plans may be short-term or long-term and they be strategic or
operational.

All plans have one purpose: to provide guidance and structure to

management in a rapidly changing market environment.

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 What is the Business Plan?
A business plan is a written document describing all relevant
external and internal elements in starting a new venture.
• Often an integration of the functional plans.
• For startups, it addresses short- and long-term decisions for the first
three years of operation.
• The plan is like a road map of business development.
• External factors are uncontrollable.
• There is some control over manufacturing, marketing, and personnel.

When preparing the plan, the entrepreneur can determine how

much money is needed to achieve the plan.

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 Who Should Write the Plan?
The entrepreneur should write the business plan, but they may
consult many sources.
• Lawyers, accountants, marketing consultants, and engineers are useful.
• The SBA, SCORE, SBDCs, universities, friends, and relatives are sources.
• The entrepreneur could hire or offer equity to others with expertise.

The entrepreneur should assess their own skills to help determine

if they need to hire a consultant.
• An assessment identifies what skills are needed and how to obtain
them.

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 Scope and Value of the Business Plan
Before preparing the business plan, a quick feasibility study
determines any possible barriers to success.
• Clearly define the venture’s goals and objectives.
• If goals and objectives are too general or not feasible, the business
plan will be difficult to control and implement.
• Well defined goals and objectives are important given the impact of
technology on the venture.

Once this foundation is in place, establish strategy decisions.

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 Market Information Needs
The first step is to define the market, making it easier to project
market size and subsequent market goals.

Evaluate general environmental and demographic trends, then

assess trends in the industry from a national perspective.

Next, look at local environmental and demographic trends, then

specifically local industry trends.

Finally, assess strengths and weaknesses of local competitors.

Cumulatively, this assessment leads to market positioning and

market objectives.

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 Operations Information Needs

Location and accessibility.

Basic machinery.
Raw materials, suppliers, and
costs.
Equipment, its cost, and
whether leased or owned.
Labor skills and personnel
needed.
The total amount of space
needed, leased or owned.
Overhead.
Technology needed.
Each item may require some
research.

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 Financial Information Needs
The entrepreneur should prepare a budget for the first year
before completing the financial section of the business plan.
• Include capital expenditures, operating expense, and cash
expenditures.
• Forecast revenues from sales using market data.
• Identify industry benchmarks to prepare pro forma statements.

Use the Internet as a resource tool at very little cost.

The Internet also provides opportunity for e-sales.

Access competitors websites and social media feeds.

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 Writing the Business Plan
The plan should be comprehensive enough that an investor has a
complete understanding of the venture.
• A business plan may take hundreds of hours to prepare.

The title or cover page provides a brief summary and should

include:
• The company’s name and address.
• Name of entrepreneur(s), phone and fax numbers, e-mail and website.
• A paragraph describing the company and nature of the business.
• The amount of financing needed.
• A statement of confidentiality.

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 Executive Summary
This section should be prepared after the total plan is written.

It should be two to three pages in length and highlight key points.

Address questions which include:

• What is the business concept or model?
• How is the business concept or model unique?
• Who are the individuals starting this business?
• How will they make money and how much?

If an IPO is expected, include an exit strategy.

This section should provide motivation to read the entire plan.

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 Environmental and Industry Analysis
An environmental analysis identifies national and international
trends.

Environmental factors include the economy, culture, technology,

and legal concerns – all generally uncontrollable.

An industry analysis focuses on specific industry trends such as

industry demand and competition.

The last part of this section should focus on the specific market.
• Include who the customer is and what the business environment is
like.
• This information is significant to the preparation of the marketing plan.

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 Description of the Venture and Production Plan
The description of the venture should begin with the mission
statement and should include key elements of the venture.
• Location is a function of the type of business and maps may be helpful.

If a new venture is a manufacturer, a production plan is necessary.

• It should describe the entire manufacturing process and whether there
is any subcontracting.
• Describe the physical layout of the plant, machinery and equipment
needed, raw materials and suppliers’ names, cost of manufacturing, and
any future capital equipment needs.
• Eliminate this section if there is no manufacturing.

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 Operations Plan and Marketing Plan
All businesses should include an operations plan.
• It describes the flow of goods and services from production to the
customer – including the steps in completing a business transaction.

The marketing plan describes how the products will be

distributed, priced, and promoted.
• Describe marketing research evidence to support critical marketing
decision strategies.
• Potential investors regard the marketing plan as critical to success.
• This is an annual requirement for short-term decision making.

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 Organizational Plan and Assessment of Risk
The organizational plan describes the venture’s form of
ownership.
• A partnership should include terms of the partnership.
• A corporation should include the number of shares authorized, share
options, and names and addresses of directors and officers.
• Provide an organizational chart which shows investors who controls
the organization and how members interact.

It is important the entrepreneur make an assessment of risk.

• Indicate the potential risks to the new venture.
• Discuss what might happen if these risks become a reality.
• Discuss the strategy to prevent, minimize, or respond to these risks.

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 Financial Plan and Appendix
The financial plan determines investment needed and indicated
feasibility.

Three financial areas are discussed:

• Summarize forecasted sales and expenses for first three years.
• Cash flow figures for three years are needed, monthly for the first year.
• A projected balance sheet shows financial condition at a specific time.

The appendix contains any backup material not included in the

document but referenced in the document.
• Possibilities include: letters from customers, distributors, or
subcontractors; secondary or primary research data; leases, contracts,
and other agreements; price lists from suppliers and competitors.

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 Who Reads the Plan?
The business plan may be read by employees, investors, bankers,
venture capitalists, suppliers, customers, advisors, and consultants.
• Each group reads the plan for different purposes and who is expected to
read the plan affects actual content and focus.

Consider the perspective of the entrepreneur, the customer and

the investor.

The business plan is valuable to the entrepreneur and investors.

• It helps determine market viability of a new venture.
• It guides the entrepreneur is planning activities.
• It is an important tool for obtaining financing.
• It provides a self-assessment of the entrepreneur.

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 How do Lenders and Investors Evaluate the Plan?
Potential suppliers of capital will vary in their needs and
requirements for the business plan.
• Lenders are interested in ability to pay back debt and interest.
• Bankers want an objective analysis and all risks involved.
• Lenders focus on the four C’s of credit: credit history, cash flow,
collateral, and equity contribution.
• Investors place more emphasis on the entrepreneur’s character.
• Venture capitalists want compliant entrepreneurs.
• Investors focus on the market and financial projections.

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 Presenting the Plan
Often universities or locally sponsored business meetings offer
an opportunity for entrepreneurs to present their plan.

The entrepreneur is expected to “sell” their business concept.

An elevator pitch is prepared to illicit interest from potential

investors.

Audiences include investors who may ask questions regarding

the strategies conveyed in the presentation.

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 Using and Implementing the Business Plan
The plan is designed to guide the business through the first year
and should contain control points to ascertain progress.

When measuring plan progress:

• Check plan projections in key areas frequently.
• Control inventory to ensure maximum service to the customer.
• Production controls compare cost figures against operating costs.
• Quality control depends on the production system used.
• Sales controls is information on units, dollars and products sold.
• Control disbursements as well as website and social media control.

Update the plan when environmental factors change the

direction of the plan.

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 Contingency Planning
Be prepared for sudden changes or disasters.

The process will vary by the nature of the business, but include:
• Any factors that can affect the venture.
• Identify roles and duties of personnel, use trainings and walkthroughs.
• Understand the goals of the contingency plan, use a step-by-step plan,
not generalized – be clear on weaknesses.
• Detail who should be contacted and how in the event of a disaster.
• Backup databases using the cloud or some other system.
• Identify who is to contact the media in the event of a crisis.

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 Why Some Business Plans Fail
A poorly prepared business plan may have the following factors:
• Goals were unreasonable.
• Objectives are not measurable.
• The entrepreneur is not fully committed or has no experience.
• The entrepreneur has no sense of potential threats or weaknesses.
• No customer need was established for the product.

Objectives should be specific, measurable, and monitored.

The entrepreneur and their family should be committed.

Gain needed knowledge or team up with someone who has it.

Document customer needs before preparing the plan.

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