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Chapter 7
The Business Plan:
Creating and
Starting the Venture
Hisrich
Peters
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Shepherd
Entrepreneur’s Adage #16
“Be careful not to get drunk on your own
dreams. Starting a new venture requires
flexibility and an open mind about change.
Entrepreneurship is a process of vision and
revision.”
- Jordan
7-2
Planning as Part of the Business
Operation
Plans provide guidance and structure in a
rapidly changing market environment.
“Sanity Structure” that forces thinking on
critical business issues.
Plans evolve as the entrepreneur has a
better sense of the market, the product or
services, the management team, and the
financial needs of the venture.
7-3
What is the Business Plan?
A written document describing all relevant
internal and external elements, needs and
strategies for starting a new venture.
An integration of functional (marketing,
operations, financial, organizational, etc.)
plans
Generally addresses decision making for the first
three to five years of operation.
7-4
Characteristics of Good Business Plans
Comprehensive but succint enough to
quickly give any potential investor a
complete picture and understanding of the
new venture.
Helps the entrepreneur clarify his or her
thinking about the business.
As detailed as possible about strategy and
specific elements of the business.
7-5
Who Should Write the Plan?
The plan should be prepared by the
entrepreneur or entrepreneurial team in
consultation with other sources.
Consultants
Attornies
Accountants
The entrepreneur should objectively
evaluate his or her own skills before
deciding to hire a consultant.
7-6
Scope and Value of the Business
Plan—Who Reads the Plan?
The plan’s target audience should
determine the plan’s content and focus.
In preparing the plan it is important to
consider the:
Entrepreneur’s /organization’s perspective.
Marketing (suppliers’ and customers’)
perspective.
Investor's perspective.
7-7
Scope and Value of the Business
Plan—Who Reads the Plan? (cont.)
Depth and detail in the business plan
depend on:
Size and scope of the proposed new venture
The extent of the competition
Access to information and early ideation flow
Requirements of Funders, Customers,
Suppliers
Time to market considerations
GENERAL RULE: “The more, the merrier;
unless it delays the launch unnecessarily.”
7-8
Entrepreneur’s Adage #17
“Don’t obsess over business structure,
permits, licenses and other administrative
formalities… Obsess over your idea, its
execution and its weak points.”
- Jordan
7-9
Scope and Value of the Business
Plan—Who Reads the Plan? (cont.)
The business plan is valuable because it:
Helps determine the viability of the venture in a
designated market.
Guides the entrepreneur in organizing planning
activities.
Serves as an important tool in obtaining
financing.
Inspires confidence amongst stakeholders.
7-10
How do Potential Lenders and
Investors Evaluate the Plan?
Lenders are interested in the venture’s
ability to pay back the debt.
Focus on the Four Cs of credit - Character,
Cash Flow, Collateral, and Equity
Contribution.
Banks want an objective analysis of the
business opportunity and the risks.
Conservatism - Banks often cringe at new
ideas and uncertain innovation.
7-11
How do Potential Lenders and
Investors Evaluate the Plan? (cont.)
Investors, particularly venture capitalists,
have different needs:
Place more emphasis on the entrepreneur’s
character.
Spend much time conducting background checks
and business due diligence.
Demand high rates of return.
Focus on market and financial projections to
determine their projected IRR in the project.
7-12
Presenting the Plan
The entrepreneur is expected to “sell” the business
concept – the so-called “Elevator Pitch”
Focus on why this is a good opportunity right now.
Provide an overview of the marketing program; sales and
profits.
Address risks and how to overcome them.
Issues not covered in the plan ALWAYS come up.
Investors will raise many questions – some of them
unanswerable. DO NOT “BS” your way through them!
7-13
Using the Internet as a Resource
The Internet can provide information for
industry analysis, competitor analysis, and
measurement of market potential.
An entrepreneur can access:
Popular search engines.
Competitors’ Web sites.
Social networks, blogs, and discussion groups.
Syndicated data sources (for a fee)
7-14
Writing the Business Plan
Introductory Page
Name and address of the company.
Name of the entrepreneur(s), telephone
number, fax number, e-mail address, and Web
site address if available.
Description of the company and nature of the
business.
Statement of financing needed.
Statement of confidentiality of report.
7-15
Writing the Business Plan
(cont.)
Executive Summary
About two to three pages in length summarizing the
complete business plan.
Written AFTER all other sections have been completed.
Environmental and Industry Analysis
The environmental analysis assesses external
uncontrollable variables that may impact the business
plan.
Examples: Economy, culture, technology, legal concerns, etc.
The industry analysis involves reviewing industry trends
and competitive strategies.
Examples: Industry demand, competition, etc.
7-16
Critical Issues for Environmental &
Industry Analysis
7-17
Entrepreneur’s Adage #19
“If you can read about it at Barnes & Noble,
you’re probably too late.”
- Jordan
7-18
Describing the Venture
7-19
Production Plan
7-20
Writing the Business Plan
(cont.)
Operations Plan
All businesses (manufacturing or
nonmanufacturing) should include an operations
plan as part of the business plan.
It goes beyond the manufacturing process.
Describes the flow of goods and services from
production or purchase to the customer.
Web/digital concepts need a navigation
flowchart with “Control Flow”.
7-21
Writing the Business Plan
(cont.)
Marketing Plan
Describes strategy related to how the
product/service will be distributed, priced, and
promoted (the “4 P’s”).
Marketing research evidence to support any of
the marketing decision strategies as well as for
forecasting sales should be described in this
section.
Potential investors regard a solid marketing plan
as critical to the success of the new venture.
7-22
Writing the Business Plan
(cont.)
Organizational Plan
Describes the form of ownership and lines of
authority and responsibility of members of the
new venture.
For partnerships, the terms of the partnership
should be included.
For corporations, the following should be
included:
Shares of stock authorized, issued and any share
options.
Names, addresses, and resumes of directors and
officers.
Organization chart
7-23
Writing the Business Plan
(cont.)
Assessment of Risk
The entrepreneur should indicate:
Potential risks to the new venture.
Potential impact of the risks.
Strategy to prevent or mitigate the risk.
Major risks could result from:
Competitor’s reactions.
Weaknesses in marketing/ production/ management
team.
New advances in technology and/or business models
that make yours obsolete.
Shortfalls in funding and inaccurate financial
projections.
7-24
Writing the Business Plan
(cont.)
Financial Plan
Contains projections of key financial data that
determine the economic feasibility of the
concept and the necessary financial investment
commitment.
It should contain:
Pro-forma Income Statements for at least the first
three years.
Pro-forma Cash Flow Statements / Budgets for
the first three years.
Pro-forma Balance Sheets for the first three years.
Break-Even Analyses for the first three years.
7-25
Writing the Business Plan
(cont.)
Appendix
Contains any backup material does not belong in
the body text of the document.
It may include:
Letters, agreements or quotes from customers,
distributors, or subcontractors.
Secondary data or primary research data used to
support plan decisions.
Leases, contracts, or other types of agreements.
Price lists from suppliers and competitors.
Partnership documents or corporate documents (i.e.
Articles of Incorporation, Bylaws, etc.)
7-26
Entrepreneur’s Adage #20
“Get ready to work 7 days a week, 15-20
hours a day and over the holidays. And
then expect to work some more.”
- Jordan
7-27
Using and Implementing the
Business Plan
The business plan is primarily designed to
guide the entrepreneur through the first
year of operations.
The plan should contain control points to
ascertain progress and to initiate
contingency plans if necessary.
Businesses fail due to entrepreneur’s
inability to plan effectively.
7-28
Using and Implementing the
Business Plan (cont.)
Updating the Plan
Entrepreneurs must be sensitive to changes in
the company, industry, and market.
Determine what revisions are needed if changes
are likely to affect the business plan.
This helps entrepreneurs to:
Maintain reasonable targets and goals.
Keep the new venture on a course to a high probability
of success.
7-29
Why Some Businesses Fail
Goals are unreasonable.
Loss of key team member.
Entrepreneur has not made a total commitment to
the business.
Lack of experience in the planned business.
No sense of potential threats or weaknesses to the
business.
No real customer need was established for the
proposed product or service.
People management issues.
People and resources are stretched too thin.
7-30
Entrepreneur’s Adage #21
“Be careful not to let the glory of someone
else’s business sway you into opening the
same thing. You have to be passionate
about the work as well as the results.”
- Jordan
7-31