Shiv Kothari

EDI – Jain Program, January 2012

Contents
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Introduction Importance/Purpose Functions Need How to get the data? Analytical Techniques Major Constituents Conclusion

Definition
A Business plan is a formal statement of a set of business goals, the reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. The business plan describes the past and present status of a business, but its main purpose is to present the future of an enterprise.

These 4 questions plague all start ups !!!

Did Bill Gates do a business plan? Who should do a Business plan? When should I do a business Plan? And finally, what exactly is a business plan ?

Business Plan - Introduction

What?
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Roadmap Self-checking tool Funding tool Operating guide

Why?
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1,000,001 questions Infinite number of possibilities Distractions galore 6-9 pages for the narrative, plus financials/ appendices

How Long?

Purpose of a Business Plan
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Provides clarity of thoughts and purpose Introduces Business Model Introduces the company and the team Attempts to persuade investors Highlights risks and challenegs Serves as an entry point for further discussion

Importance of B-Plan
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Supports decision making with various tools “Must have” document because it is “good to have” Conducted prior to commencement of business Covers all aspects related to business Covers Peers, Market, Financial, Strategy etc Risks & Challenges well defined Internally and externally focused.

Need of Business Plan
Mutual understanding within the management team.

To get an Integrated view of the Business

Determining financial needs and applying for funds.

Approval from board of directors & Shareholders.

Informing Employees, lenders and Partners.

Summary – Elevator Pitch

In a nutshell, a B-plan must answer 6 key questions. They are
 What

is my business Idea?  What is the pain point it addresses?  Who is my customer?  Who is my team?  How much money do I need and how will I raise it?  How much money will I make in future years?

How to make B-Plan?

General Rules

Make it an interesting read!
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Bullet points Balance creativity while still getting your point across Use short (1-3 sentence) paragraphs Be careful with using industry jargon Consider using the third-person

Write with objectivity

Focus more on initial future (1-2 years), less on later years

Steps in Business Planning Process
Assessing the Situation

Setting Employee Objectives
Working out the Business Plans

Monitoring the Process

Developing a Mission

Getting Ready

Setting Goals

Assessing a Situation

An assessment of how your customers, partners, competitors and suppliers view on your business. Should be a honest and self critical exercise trying to answer important questions.

Developing a Mission

Developing a Mission can change or reconfirm your direction of the business. Your vision says how you see yourself in the far future. It expresses what you want your company to become. Your mission defines what you want to achieve. It states the benefits your business will bring to clients, employees, shareholders and the community as a whole. Your philosophy expresses the values and beliefs of your organization's culture.

Your strategy indicates how to get there.

Getting Ready

Some important measures you need to do when getting ready are:Appointing a Coordinator Hiring a Facilitator Defining Tasks Identifying team members

Gathering Information

Setting Goals

Setting Goals is a pre-requisite for preparation of the business plan. Goals have to be adjusted in the iterative planning process. Goals should be time-bound, realistic and measurable.

Working Out the Business Plan

Working out the business plan basically involves synthesizing and harmonizing the marketing, sales, development, manufacturing, operations and financing targets in such a way as to enable the enterprise to meet its overall objectives. This “matching work” is usually conducted in an iterative process until full consistency of all elements of the business is achieved.

Setting the Employee Objective

Monitoring the Process

Action plans, monitoring systems and constant feedback should be integrated to ensure successful implementation of the plan and achievement of its objectives. Participation in this process can have a profound effect on the way your team members view their role in the enterprise, and can have an immediate impact on their performance. The key to maximizing the benefits of dynamic planning lies in implementation, action and keeping the plan up to date.

Common Errors in B-Plan
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Not Creating a plan Incomplete Market Research Not being objective Making Unrealistic Assumptions Providing useless information

How to Get the Data?
Taking Help of Subject Matter Experts Comparing with Industry Peers Visit to Business/Enterprise Centre Solicitors, Banks, Trade Association Communicate with Potential Suppliers, Own Research, Local Domain Knowledge of Competitor

Format of a Business Plan
The Cover Table Of Contents Paper Contact Person

Page Numbers

Terms and Acronyms

Margins

Fonts

Size of documents

Sample

Editing & Binding

Overall quality of Presentation

Approaches to convert ideas into action

Analytical Techniques
PEST Analysis SWOT Analysis Competitor Analysis Marketing Audit Political, Environmental, Social and Technological Analysis Strengths - Weakness Opportunities - Threats

Market Share
Idea to Implementation Variance

Business Plan will include the following
1. 2. 3. 4. 5. 6.

Business Description Market Analysis Competitor Assessment Marketing Plan Operating Plan Financial Plan

Business Description
An introduction to your business, the section this section should provide an overview of the business and its objectives. Readers of the business plan will want to know why this business should exist.

Executive Summary

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Write this document after the content section of Business Plan is completed Although, its written last, its presented first Should not exceed one page

Business Description - 1

Vision & Mission Statements
First consider things you want to do  Should communicate the purpose & principles of business  Should accurately explain what your venture hopes to achieve  All other plans should help achieving your mission  Important to express Values nurtured by the venture

Business Description - 2

Business Overview

Summary of current state of venture
Legal Structure  Team/Stakeholders/Major Shareholders  Category (Manufacturing/Services/Retail)  Is it starting from scratch, or as an expansion, or as an acquisition?  History of Business and its primary strengths  Location of Business

Business Description - 3

Products and Services
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Simple Explanation of Products and Services Product Mix, if more than one product Quantitative Goals Timelines to achieve those goals Objectives for Functional Areas like Marketing, Operations etc

SMART Objectives


Functional Objectives

Sample: Company History
ABC Child Care strives to become the most-well known and reputable service provider in the XYZ area, with a targeted focus on safety, enrichment, and comfort. The Company was founded based on a growing trend: quality child care is a key issue for working parents, and has now become a top priority for New York State. The business is owned and operated by its co-founders, John and Jane Doe. Each has had extensive experience working with children prior to opening ABC, in both a teaching and managing capacity. Since opening in March of XXXX, ABC Building Blocks Child Care has reached the following milestones:

Sample: Business Description
JavaNet will provide customers with a unique and innovative environment for enjoying great coffee, specialty beverages, and bakery items. JavaNet, soon to be located in downtown Eugene on 10th and Oak, will offer the community easy and affordable access to the Internet. JavaNet will provide full access to email, WWW, FTP, Usenet and other Internet applications such as Telnet and Gopher. JavaNet will appeal to individuals of all ages and backgrounds. The instructional Internet classes, and the helpful staff that JavaNet provides, will appeal to the audience that does not associate themselves with the computer age. This educational aspect will attract younger and elderly members of the community who are rapidly gaining interest in the unique resources that online communications have to offer. The downtown location will provide business people with convenient access to their morning coffee and online needs.

Market Analysis
This section is a place to discuss the markets and venture’s approach towards it. In this, the venture’s plan to gain an advantage in market place should clearly be communicated using graphs, charts and ground reality data

Star Concerns
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Supplier Power (Suppliers’ Bargaining Power) New Competitor Substitute Products Buyer Power Industry Rivalry Government Regulations related to Products/Services

Target Customer Profile

Selling to Consumers (B2C)
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Are they local, regional, national or international Age group of customers Behavioral characteristics of Customer Cultural & Social Considerations Do their needs differ by industry? Do different region customers have different need? Key Decision Taking Buying/Selling/Vendor Policies of the company

Selling to Businesses (B2B)
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Industry

Define and Describe the industry by;
Size  Growth Rate  Outlook  Key Industry Segments  Demand and Supply Trends  Larger Focus on;

Innovation, Cultural Change, Regulation

Competitor Assessment
All businesses have competitors in some form. Some sell similar products, while others sell products that functions same. Established businesses can not take venture’s entry into market lightly. Defining competitors, profiling them and critical analysis of their strengths and weakness is crucial

Key Points

When reviewing competitors, consider what they have as far as;
Market Share  Relationship with Customer  Advertising Plan  Price  Distribution  Products and Servcies Features  Financial Strenghts  Length of time in Business

Competition
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Describe Direct & Indirect Competition Key Competitors, Market Share, Goals, Strategies List all key entry barriers State how it will be difficult for competitors to copy Competitors and Customers reaction Company’s Competitive Advantage

Sample: Competition (1 of 2)
The main competitors in the retail coffee segment are Cafe Paradisio, Full City, Coffee Corner and Allann Bros. These businesses are located in or near the downtown area, and target a similar segment to JavaNet's (i.e. educated, upwardly-mobile students and business people). Competition from online service providers comes from locally-owned businesses as well as national firms. There are approximately eight, local, online service providers in Eugene. This number is expected to grow with the increasing demand for Internet access. Larger, online service providers, such as AOL and CompuServe are also a competitive threat to JavaNet. Due to the nature of the Internet, there are no geographical boundaries restricting competition.

Sample: Competition (2 of 2)
Due to intense competition, cafe owners must look for ways to differentiate their place of business from others in order to achieve and maintain a competitive advantage. The founder of JavaNet realizes the need for differentiation and strongly believes that combining a cafe with complete Internet service is the key to success. The fact that no cyber-cafes are established in Eugene, presents JavaNet with a chance to enter the window of opportunity and enter into a profitable niche in the market. JavaNet will be the first Internet cafe in Eugene. JavaNet will differentiate itself from the strictly-coffee cafes in Eugene by providing its customers with Internet and computing services.

Competitive Grid
Competitor Offerings Bobo Salon and Styling Men’s/women's cut/styles/color perms Starts at $38 100% markup High traffic, highly visible 20+years, up-to-date trends Set hours, little schedule flexibility Low 11 active chairs Over 4000 Johnny’s Hair Men’s cuts only BEST CUTS Men’s/ women’s cut/ style/ color/ perms Starts at $30 75% markup High traffic, not visible 13+ years, up-to-date trends Custom hours to suit clients needs Sole stylist 1 active chair Over 300

Service Prices Retail Prices Location Expertise Service Turnover Capacity Client Base

Starts at $50 100% markup Moderate traffic, highly visible 15+ years, young hairstylists Manager never there High 8 active chairs ?

Analysis of Competitive Advantages

Analysis of Market Attractiveness

Marketing Plan

Products and Services
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Simple Explanation of Products and Services Product Mix, if more than one product Target Application by Customers, Users Key component of Raw Material and its viability Testing Plans and Budget Product Up gradation, Expansion Product Line Product Attributes, Product Life Cycle,

Pricing

Marketing Plan
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Market research Segmentation and targeting Unique selling points Chosen pricing strategy Promotional plans Distribution strategy (including online) Customer service strategy and Benefits to customers and his buying pattern and motives Measuring Demand, Customer Requirement etc Forecasting Trends and Changes

Marketing and Sales Strategy
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Lay out of basic marketing and sales strategy Details about Strategic Partnership Distribution Strategy and Chain Pricing Strategy Warranties, Sales Support and their impact Quantify the marketing budget

Promotion
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Designing promotional campaign Defining range of promotional tools Choosing the “right” kind of promotion media Combination of Advertising, Personal Selling Efforts and General Public Relations Focus of Target Segment Well within Defined Budget Timelines of Activities

Sample: Market Analysis
The child care industry is an ever expanding segment of today’s business world necessitated by the increase in families who have two working parents. In Anytown and the surrounding areas, these individuals are predominantly between the ages of 30 and 45 years old with a median age of 36.6. The majority have completed high school and many have varying degrees of college education. While the dual incomes (most families earn between $65,000 and $100,000) provide some disposable income, approximately 65% have at least two children under the age of sixteen. These people are wealthy enough to be able to afford day care, but unlikely to have live-in help. Demographic research conducted uncovered the following: • the population of children under the age of six years old is 5,307 within the surrounding three-mile radius • parents of these children seek quality daycare with extended hours to accommodate long work days and schedules ABC Building Blocks will serve children under six years old, and open at 7:00am and remain open until 7:00pm. Parents can conveniently drop their children off on their way to work and pick them up on their way home.

Sample: Marketing Strategy
JavaNet will position itself as an upscale coffee house and Internet service provider. It will serve high-quality coffee and espresso specialty drinks at a competitive price. Due to the number of cafes in Eugene, it is important that JavaNet sets fair prices for its coffee. JavaNet will use advertising as its main source of promotion. Ads placed in The Register Guard, Eugene Weekly, and the Emerald will help build customer awareness. Accompanying the ad will be a coupon for a free hour of Internet travel. Furthermore, JavaNet will give away three free hours of Internet use to beginners who sign up for an introduction to the Internet workshop provided by JavaNet.

Selling – Convincing your customers to buy
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Selling responsibility, channels and methods Targets Aids Training Arguments Client decisions Selling Process time and Payments Incentives Order Processing and order on hands Handling Complaints

Operation Plan

Operation Plan
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Physical location The production process, equipments and Facilities Scale & location of operations Capacity - potential and effective Engineering and design support Materials required, Inventory levels and stock control plans Purchasing arrangements and Sources of supply of key resources Quality control plans

Sample: Production/ Operations (1 of 3)
The Company’s facilities will include a 120-foot live-aboard vessel designed specifically for diving. This vessel will include private rooms, restaurant-like meals, a photo lab, and a dive classroom for divers who want to brush up on dive techniques, and a medical room for treatment of any injuries that might be incurred. Also aboard is a jacuzzi and unlimited dry air supply for air tanks. The land-based office will sit along the beach and have its own covered port for maintaining the vessel and keeping it in good condition when not underway. The office will be easily accessible on a paved road. The Company will carry thirty air tanks, thirty pairs of masks, fins, and snorkels, thirty weight belts, thirty BCU’s, thirty regulators, and fifty pounds of weights. A number of different accessories will be for rent by the dive. Such accessories include underwater cameras, dive knives, underwater lights, and gloves, dive computers, and torpedos. In order to maintain the quality of equipment, all of it, from the snorkel to the boat engine is inspected monthly by owners. Defective items will be returned to suppliers for a new product replacement. The air tanks will be checked yearly as required by law by a licensed technician.

Sample: Production/ Operations (2 of 3)
All equipment will be hosed down with fresh water extensively after every dive to maintain its quality. Salt water will not remain on any equipment to be stored. The restaurant will maintain above standard health code regulations with an extensive cleaning of the all-aluminum kitchen. To keep track of equipment, a weekly count will be taken of all equipment aboard the vessel. There will be a count before passengers board and before passengers leave. Operations will be handled by the owners, by which a handout will be given to all hands daily as to what their assigned jobs will be. The assignments will be fairly routine from day to day. Before each dive, all divers will be surveyed, and given a thorough and illustrated briefing to clear up any confusion.

Sample: Production/ Operations (3 of 3)
Four part-time hands will be hired at $15/ hour, for 20 hours per week each. Owners will cover the employee payroll requirements: medicare, social security, worker’s compensation, unemployment, which will amount to an additional $4 per each employee hour worked. No medical benefits will be offered. Sources of supply include: Jamison Scuba and Water Lung (scuba equipment), Nighthawk Solutions (lighting equipment), Bahamas Boats (live-aboard vessel), and Harvey Foods (food). The Company will purchase supplies in bulk to receive a discount on the merchandise. Bills will be paid off within ten days of arrival to take advantage of the 2% discount. All orders and payments are approved by owners.

Technology
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Technical information of all product services Describe additional or ongoing research and development needs Keep the description in lay terms so that non tech savvy persons can also understand Do Not reveal THE SECRET SAUCE

Location of Business

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Local Market Availability of workers & Living Conditions Supporting Services Material Supply & Transportation Utilities

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Future Development Competition Image Economic Growth Local Authorities Site Accessibility Cost of Premises

Premises of Business
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Licenses Layout Representation Expandability Safety regulations Environmental Issues Buy or rent

Human Resource Plan

List out all the key managers


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Shareholders, Board of directors, Executive/operations management, Middle management, External support services

Sketch Personnel Requirements Skills, Qualifications required Job Descriptions

Intellectual Property
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Briefly Describe your patents, copyrights License agreement, terms and conditions etc Importance increases when the base is science and technology This must occur prior to start up the business

Regulations and Env issues
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Approvals and licensing requirements Social compliance Issues Key Government Regulations Environmental Problems Waste Disposals, Air Pollution, Handling and storing of hazardous materials, noise abatement, treatment of waste. Political Stability

Financial Plan
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Investment appraisal - payback and discounted cash flow Break even analysis Evaluation criteria for performance review Ratio analysis: net profit margin, Gross profit margin, return on capital employed, liquidity and solvency analysis Income Projections Cost Benefit Analysis

Features for Financial Planning
An indication of how profitable your business is expected to be in the future and possible financial risks involved;

A definition of additional funds required for developing the business, i.e. how much money would be needed, when it will needed and when would be paid back.

Financial Plan: Operating Budget
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Personnel Lease/ Rent/ Mortgage Loan Payments Legal Fees Accounting Supplies Salaries/ Wages Dues/ Subscriptions/ Fees Repairs/ Maintenance

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Insurance Advertising/ Promotions Depreciation Payroll Expenses Internet Payroll Taxes Travel/ Entertainment Miscellaneous 3-6 Months of Operating Capital

Elements to be included in Business Plan
Financial history/or start-up information;

Income statement projections/budget;
Balance sheet projections; Cash flow projections; Important financial ratios; Request of funds and other supporting information.

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 W orking Capital Insurance Professional Fees Advertising Signage Contingency Reserve TOTAL

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

Year One 4

5

6

7

8

9

10

11

12 Total

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

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

Forecasts in Business Plan
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Sales forecast Forecast profit and loss account (income statement) Cash flow forecast (cash budget) Forecast balance sheet for each of the first two years (The assumptions behind the forecast should also be included)

Risk and Reward Analysis

Risks

Summarize risks of proposed project(SWOT Analysis, Five Forces PEST Analysis, Investment Economic Forecasts, Change in Technical Obsolesces Summarize how risks will be addressed

Addressing risk

Rewards

Estimate expected pay-off, particularly if seeking funding

Possible Risks

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Key employees leave the business.
Competitors cut their prices. Changes in the rates of exchange affect the exports unfavourably. A key customer cancels a major contract.


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New unforeseen regulatory requirements have a negative impact on sales.
The industry's growth rate drops. An economic crisis decreases the purchasing power of the customers. Design or manufacturing costs exceed the projections. Sales projections are not achieved. An important advertising campaign fails. Important subcontractors fail to make deliveries.

Competitors introduce a new, better product or service at a lower price.
Public opinion with regard to the product or service changes to the disadvantage. Cannot find skilled labour.

Types of Risks
General Economic Environment
• Interest Rates, Fluctuations, Recession, Inflation, Raw Material Prices

Political/Regulatory Issues
• Licenses and Approvals, Tariffs and Quotas, Government Grants, Increase in taxes, New Regulatory Requirements, Exchange Rate Controls

Change in Public Opinion
• Taste and Fashion, Ethical and Green Issues.

Technological
• Underlying Product technology, Production technology

Law Suits

Cont…
Staffing
• Management, Workers, Financial irregularity,

Client Related
• Loss of clients and client payments.

Quality/ Production Problems
• Loss of Information, production failures, quality problems, delays/cost over runs in product development, other cost overruns.

Subcontracting Market
• Sales variation, Stronger Competition

Resource Requirements
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Technology requirements Finance requirements
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Details of capital required and uses External finance required How it is proposed to raise the finance Sources of finance: Short, medium and long term; Debt v equity

Personnel requirements Resource requirements

Financial, distribution, promotion, etc.

External requirements

Products/services/technology required to be purchased outside company

Final Findings and Recommendations
Likelihood of Success Projected returns

Key Highlights Recommendations

Key Issues
Near Term Long Term
• Isolate key decisions and issues that need immediate or near-term resolution • Isolate issues needing long-term resolution • State consequences of decision postponement • State Specific

Seeking Funds

Identify SWOT

Determine which opportunities to pursue CONCLUSION

Identify Competitive Advantages

Provide a background for the formulation of strategy

Summary Slide

planning

Email : kotharishiv@gmail.com

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