Transcript Entrepreneurship: Week 7

Developing a Business Plan
BIT Final Year Project
Learning Outcomes
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Understand the objectives of the
business planning process for a start up
venture.
Gain an insight into how to write such a
business plan.
Understand what the various audiences
who will see the plan will be looking for.
Presentation Structure
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Business plan overview
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Content of a Business Plan
Why prepare a Business Plan?
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The primary objective of many business
plans is to set out a convincing case to
secure financing, either internal or
external, for the start-up or expansion of
a business venture.
However, just as importantly, business
plan is a ‘living document’ that should
be updated on a regular basis.
Useful Websites
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www.investni.com
- Student Enterprise Awards
- Kauffman Fellowships
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www.nibusinessinfo.co.uk
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www.nisp.co.uk
Audience
Internal Audience
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Self
Management team
Board of Directors
Employees
Audience
External audience (potential funders).
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Banks
Government agencies
Business Angels
Venture Capitalists
Corporate Partners
Bank
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Banks provide loan capital.
Overdraft, short term, payable on demand.
Business Loan, fixed term.
SFLGS, reduces risk to bank
Key issues: Security, interest & capital
repayment therefore not suitable for hi-tech
start-up ventures, little security and no early
cashflow.
Government Agencies
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Invest NI, provides grant support.
Business Development
Revenue, Marketing, Management Salary,
Preference Shares.
R&D
COMPETE, SMART
Key issues: Additionality, Admissibility,
percentage contribution, export focus.
Business Angels
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Business Angels provide risk capital seeking
a return over 5-10 years.
High net worth individual
Probably ‘exited’ from previous venture
Brings skills, expertise and cash.
Key issues: <£100k, ‘hands-on’ role, capital
growth.
Venture Capital
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Investment fund of risk capital, which will
seek a return in circa 5 years.
Local funds: Crescent Capital, Enterprise
Equity, Viridian Growth Fund (Clarendon).
May bring sectoral expertise, contacts and
experience of similar ventures.
Relatively high investment threshold, high
fixed costs.
Key issue: >£400k, capital growth, Board
seat, focus.
Other Funders
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Seed Capital Funders: QUBIS Ltd &
University Challenge Fund (NI).
Basically a VC investing £10k to £100k.
Return on Investment
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Investors, whether business angels,
venture capitalists, banks will all be
looking for a return on their investment.
The size of that return and the cost of
their money is governed by the risk of
the project.
Key Elements within a Business
Plan
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Executive Summary
Background
Corporate Objectives
Product/Technology
Manufacture
Market
Marketing/Sales
Management Team/Structure
Finance/Funding
Corporate Objectives
This section should set out objectives for 3/5 years:
 Financial projections - sales
- profits
- return on investment
 Markets - geographic
- market segments
 Customers
 Products
 Management and organisation
Product/Technology
This section should answer the following questions:
 What are you going to make/will there be a
product range?
 How much will the product cost to produce?
 What are the product features/how does it work?
 What are the product applications?
 What is the R&D plan and cost?
 How long/much will it take to get the product to
market?
 What is novel about your product/IP?
 What associated services are being offered?
Product Vs Service
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A product based business model is scalable;
a service based business model is not.
To increase sales in a service business you
have to add bodies.
To increase sales in a product business you
don’t.
Ideally service based businesses should be
profitable from day 1.
Services can be useful in reducing risk during
the product development phase.
Technology -ve
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Unproven technology, this will require a
lot of product development, i.e. time and
money before there is a product which
can be sold.
Frequent problem with hi-tech start-up
proposals which can often be
‘technology’ and not ‘market’ led.
Technology +ve
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Early stage sales, especially ‘good
quality’ early stage sales, i.e. blue chip
customers who appreciate the
technology/product.
Provides an endorsement of
technology,especially if the product has
been sold to a ‘knowledgeable’
customer.
Manufacture
This section should answer the following questions:
 In-house or sub-contract manufacture?
 What is the production process?
 What are the plant and equipment requirements?
 What is the capital spend and timetable?
 What are the production inputs – premises,
labour, suppliers, raw materials?
 What are the production and quality control
procedures?
Manufacture Checklist
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How will you make the product and
what inputs are required?
What plant and machinery is required
and what are the costs?
What management and labour skills are
required?
What management/quality controls are
in place?
Market
This section should answer the following questions:
 What is your target market?
 What size is the market and is it growing?
 What market segments will you target?
 What is the market structure and how does the
market operate?
 Who are your customers, where, how many, how
big, purchasing power?
 What are your customers’ requirements and how
do your customers buy?
 Who are your competitors, where, market share,
strengths/weaknesses?
Market Research Sources
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Libraries – Invest NI, Belfast Central Library,
Queen’s, UU
Internet
Published reports
Customers/potential customers
Competitors – annual reports, promotional
material, product manuals
Magazines/newspapers
Trade Associations
Companies Registry
Market -ve
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#1 turn off
Gaining a small % of a BIG number
Plan to achieve 1% of the UK/EU/US
etc market within one/two/three years
will result in sales of £10m
Market +ve
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Clear knowledge of the existing marketplace
and a ‘channel to market’.
Knowledge of the existing competitors, i.e.
who they are and their strengths and
weaknesses.
Awareness of the potential end
user/customer needs, i.e. what they want and
how the existing products/services fall short.
Route to Market Checklist
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What is the geographic scope of the market:
world, Europe, local?
What is the market value in terms of units and
value?
How fast is the market growing and where
are the opportunities?
Which market segments will you concentrate
on & why?
What is your target market share?
Route to Market Checklist
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If there is no existing market or if the market
is being developed, what is the expected take
up rate?
How will your company’s entry affect the
market?
What is the market structure?
What are the key customer requirements?
How will you meet these?
Route to Market Checklist
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Who are your major competitors?
What are their strengths and
weaknesses?
What is their pricing, profitability etc?
How will they react to your entry?
What are your competitive advantages?
Bottled Water – the UK market
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2001 – 1.6 billion litres; £900 million
12% growth on 2000; £1.1 billion forecast for 2003
10-12% growth to 2006 => 2.6 billion litres
Average consumption/person/year – UK 26 litres; French 139 litres;
Italians 183 litres; Euro average 93 litres
40+ producers
Top five producers = 52% of market
Customers – supermarkets (50% of total); independent grocery outlets;
petrol station forecourts; CTN’s; sandwich bars; kiosks; department
stores; variety stores;on-trade (pubs, restaurants, hotels); off licences
End customer needs – healthier lifestyles; convenience; working
lunches; hot(!!) summers
Own label; branded; packaging and labelling
Planned; impulse
Spring; mineral; flavoured
Still 82%; sparkling 18%
End market segments – young professionals, especially females;
children; sports people; housewives; office workers; diners; drivers
Marketing/Sales
This section should answer the following questions:
 What are your target market segments?
 What are your competitive advantages?
 How will you sell to your customers?
 What promotional activities will you undertake ?
 What prices will you charge/discounting?
 How will you transport your products?
 What customer service will you offer?
 Will you brand your products?
 What packaging and labelling will be used?
Marketing -ve
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Waiting for the telephone to ring.
Developing the ‘perfect’ product.
Note: only sales generate income;
everything else is a cost.
Marketing +ve
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Knowing your customers and markets.
Being proactive, persistent and
professional.
Note: customers will only buy from
suppliers they believe will have a long
term market presence.
Marketing Checklist
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Who are your customers and what are
their needs?
What are your competitive advantages?
How will you sell and support that sales
effort through promotional activities and
customer service?
What pricing and distribution strategies
will you use?
Management Team/Structure
This section should answer the following questions:
 Who will execute the plan and deliver the
projected returns?
 How will the various individuals fit together/what
roles will they play?
 What are their strengths?
 What are their weaknesses and how will they be
addressed?
 What is the balance of company ownership?
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What is the organisational structure?
What are the management control systems?
An ‘A’ Quality Team
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Investors will invest in an ‘A’ quality
team and a ‘B’ quality product, but not
the other way around.
An investment decision is based on
many things but one of the main
elements is the combination of
individuals who make up the team
Management -ve
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‘All conquering hero’.
Not prepared to acknowledge areas of
weakness.
Note: hi-tech start-up businesses have
a certain level of business naivety.
Management +ve
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‘Previous’.
Substantial previous business
experience, possibly specific
experience.
Ability to bring together a strong team
and address areas of potential
weakness.
Management Team Checklist
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Who are the key team members?
What are their skills and experience?
What are their roles and
responsibilities?
What are the gaps in the team?
How are you going to plug those gaps?
Finance
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Cash flow
Balance Sheet
Profit & Loss Account
Note: Financial forecasts within start–up
venture business plans are heavily
discounted.
Cashflow
Year 1 to 30-Aug-04
1
2
3
4
5
6
7
8
9
10
11
12
Total
INFLOWS
Sales
Share Capital
Other Income
82,000
-
-
12,500
-
2,500
-
2,500
14,367
2,500
5,000
2,500
-
12,500
15,567
2,500
-
2,500
-
2,500
14,367
2,500
5,000
TOTAL INFLOWS
82,000
-
12,500
2,500
16,867
7,500
2,500
28,067
2,500
2,500
16,867
7,500
45,000
82,000
54,300
181,300
OUTFLOWS
Materials
Managing Director
Salaries & Wages
Motor and Travel Expenses
Telephone
Data Comms
Insurance
Printing & Stationery
Marketing & Advertising
Audit and Accountancy Fees
Professional Fees
General Expenses
Heat, Light & Power
Rent & Rates
Bank Interest
CapEX
Project Spend
Labour
Technical Consultancy
Design Consultancy
Sub-contracting Charges
Sub-contracting Charges (outside NI)
Materials
Intellectual Property
Travel and Subsistence
Trials and Testing
Others
TOTAL OUTFLOWS
625
500
150
80
500
5,000
200
625
500
150
80
500
-
625
500
150
80
500
-
625
500
150
80
500
-
625
500
150
80
500
-
625
500
150
80
5,732
500
-
200
625
500
150
80
500
-
625
500
150
80
500
-
625
500
150
80
2,000
500
-
625
500
150
80
500
-
625
500
150
80
500
-
200
625
500
150
80
2,000
500
-
600
7,500
6,000
1,800
960
9,732
6,000
5,000
9,375
500
16,730
9,375
500
11,930
9,375
500
250
11,980
9,375
500
11,730
9,375
500
11,730
9,375
2,000
500
1,000
250
20,712
9,375
500
11,930
9,375
500
11,730
9,375
500
250
13,980
9,375
5,000
16,230
9,375
1,000
12,230
9,375
1,000
1,000
250
15,680
112,500
2,000
11,500
2,000
1,000
166,592
NET FLOW
65,270
(11,930)
520
(9,230)
5,137
(13,212)
(9,430)
16,337
(11,480)
(13,730)
4,637
(8,180)
OPENING BALANCE
0
65,270
53,340
53,860
44,630
49,767
36,555
27,125
43,461
31,981
18,251
22,888
0
CLOSING BALANCE
65,270
53,340
53,860
44,630
49,767
36,555
27,125
43,461
31,981
18,251
22,888
14,708
14,708
14,708
Balance Sheet
FIXED ASSETS
Tangible Assets
CURRENT ASSETS
Stocks & WIP
Debtors
Cash at Bank and in Hand
CURRENT LIABILITIES
Bank Overdraft
Trade Creditors
NET CURRENT ASSETS
Year 1 to 31-Aug-03
6
7
1
2
3
4
5
8
9
10
11
12
4,861
4,722
4,583
4,444
4,306
4,167
12,500
65,270
77,770
15,000
53,340
68,340
5,000
53,860
58,860
5,000
44,630
49,630
5,000
49,767
54,767
0
200
200
0
0
0
0
0
0
0
0
0
77,570
68,340
58,860
0
0
82,431
31-Aug-03
4,028
3,889
3,750
3,611
3,472
3,333
3,333
15,000
36,555
51,555
15,000
27,125
42,125
5,000
43,461
48,461
5,000
31,981
36,981
5,000
18,251
23,251
15,000
22,888
37,888
15,000
14,708
29,708
15,000
14,708
29,708
0
0
0
0
200
200
0
0
0
0
0
0
0
0
0
0
0
0
0
200
200
0
0
0
49,630
54,767
51,355
42,125
48,461
36,981
23,251
37,688
29,708
0
0
0
0
29,708
0
0
0
0
0
0
0
0
0
0
0
73,062
63,443
54,074
59,072
55,521
46,152
52,350
40,731
26,862
41,160
33,041
33,041
82,000
82,000
82,000
82,000
82,000
82,000
82,000
82,000
82,000
82,000
82,000
82,000
82,000
431
-8,938
-18,557
-27,926
-22,928
-26,479
-35,848
-29,650
-41,269
-55,138
-40,840
-48,959
-48,959
82,431
73,062
63,443
54,074
59,072
55,521
46,152
52,350
40,731
26,862
41,160
33,041
33,041
LONG TERM LIABILITIES
Loans
NET ASSETS
FINANCED BY
Share Capital
P&L Account
Year 1
Year 2
Year 3
Year 4
Year 5
Profit & Loss Account
Year 1 to
1
2
3
4
5
6
30-Aug-04
7
8
9
10
11
12
Total
INCOME
Sales
COST OF SALES
12,500
200
2,500
0
2,500
0
2,500
0
2,500
0
12,500
200
2,500
0
2,500
0
2,500
0
2,500
0
12,500
200
2,500
0
GROSS PROFIT
12,300
2,500
2,500
2,500
2,500
12,300
2,500
2,500
2,500
2,500
12,300
2,500
60,000
600
0
59,400
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
5,732
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
2,000
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
0
0
0
0
0
500
0
0
0
625
500
150
0
80
0
2,000
0
0
0
0
500
0
0
0
7,500
6,000
1,800
0
960
0
9,732
0
0
0
0
6,000
0
0
9,375
0
0
0
0
139
0
0
500
0
0
11,869
9,375
0
0
0
0
139
0
0
500
0
0
11,869
9,375
0
0
0
0
139
0
0
500
0
250
12,119
9,375
0
0
0
0
139
0
0
500
0
0
11,869
9,375
0
0
0
0
139
0
0
500
0
0
11,869
9,375
0
0
0
0
139
0
2,000
500
1,000
250
20,851
9,375
0
0
0
0
139
0
0
500
0
0
11,869
9,375
0
0
0
0
139
0
0
500
0
0
11,869
9,375
0
0
0
0
139
0
0
500
0
250
14,119
9,375
0
0
0
0
139
0
0
5,000
0
0
16,369
9,375
0
0
0
0
139
0
0
1,000
0
0
12,369
9,375
0
0
0
0
139
0
0
1,000
1,000
250
15,619
112,500
0
0
0
0
1,667
0
2,000
11,500
2,000
1,000
162,659
431
-9,369
-9,619
-9,369
-9,369
-8,551
-9,369
-9,369
-11,619
-13,869
-69
-13,119
-103,259
0
0
0
0
14,367
5,000
0
15,567
0
0
14,367
5,000
54,300
431
-9,369
-9,619
-9,369
4,998
-3,551
-9,369
6,198
-11,619
-13,869
14,298
-8,119
-48,959
EXPENSES
Operating Overheads
Managing Director
Salaries & Wages
Motor and Travel Expenses
Telephone
Data Comms
Insurance
Printing & Stationery
Marketing & Advertising
Audit and Accountancy Fees
Patent Fees
General Expenses
Heat, Light & Power
Rent & Rates
Depreciation
Bank Interest
R&D Project Spend
Labour
Technical Consultancy
Design Consultancy
Sub-contracting Charges
Sub-contracting Charges (outside NI)
Equipment Depreciation
Materials
Intellectual Property
Travel and Subsistence
Trials and Testing
Others
NET PROFIT(LOSS) PRE GRANT
Grant
NET PROFIT (LOSS)
Project Costs/Source of Funds
Project Costs
R&D
Others
194750
50609.5
245359.5
Source of Funds
UCF
QUBIS Ltd
Promoters
Revenue
COMPETE
Bus Dev
Timing Adj
50000
15000
17000
80000
92400
10,000
-19,040
245359.5
Finance -ve
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‘Hockey stick’ projected sales growth.
16000
14000
12000
10000
Sales £000
Profit £000
8000
6000
4000
2000
0
Year 1
Year 2
Year 3
Year 4
Finance +ve
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
Cash investment from promoters.
Cash investment from other
‘knowledgeable’ investor.
Raising Funding

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
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3Fs, Friends, Family & Fools
Self, from your own resources
Revenue generated
Grants
J/V or Commercial Partner
Business Angels
Venture Capital
Finance Checklist
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What is the project cost?
How will the project be funded?
When will income begin?
What are the costs?
When will profitability be achieved?
What is the level of profitability?
Executive Summary
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This section is critical, it may be the only part
of the plan that an investor reads!
The purpose of the plan
The business opportunity
The market the product is aimed at
The competitive advantages
The management team
Financial profile
Executive Summary Checklist
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What is the business name and activity?
Who are the key contacts?
What is the scope of the business and the
market potential for its products?
What are the competitive advantages?
What resources (human & financial)are
needed for the venture to succeed?
What skills and expertise do the team bring?
Appraisal of the Business Plan
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Management team: capability,
experience and balance.
Market: size, potential for growth,
competitive nature.
Finance: funding, realism of projections
and profitability.
i.e. Man/Market/Money
Ideally have some initial sales