Chapter 6: Writing a Business Plan
Marketing strategy
refers to overall approach for marketing products and services Boils down to how it positions itself in market and how it differentiates itself from competitors
Due diligence
refers to process investors go through after they tentatively commit to an investment; based on a thorough investigation of merits of the venture, legal complications existing, and whether claims made in the plan are accurate and realistic
Executive summary
short overview of the entire business plan; provides a busy reader with everything she needs to know about the new venture's distinctive nature Becomes the most important section of the business plan Only acts as a summary, not an introduction or preface Shouldn't exceed two single-spaced pages
types of business plans
summary business plan, full business plan, operational business plan
Summary plan
10-15 pages that works best for companies that are very early in their development and aren't prepared to write a full plan Authors may be asking for funding to conduct analysis needed to write full plan Also used by very experienced entrepreneurs who may be thinking about a venture but don't want to take time to write a full business plan
Full business plan
25-35 pages that spells out company's operations and plans in much more detail than a summary business plan, and it's the format that is usually used to prepare a business plan for an investor
guidelines for writing a business plan
Be sensitive to structure, content, and style of a business plan
content of business plan
Business plan should give clear and concise information on all the important aspects of the proposed new venture Must be long enough to provide sufficient information, but short enough to maintain reader interest 25-35 pages (typically closer to 25) is sufficient
marketing plan
Focuses on how the business will market and sell its product or service Start with marketing strategy, positioning, and points of differentiation
market segments
Geography (city, state country) Demographic variables (age, gender, income) Psychographic variables (personality, lifestyle, values)
one-time start-up costs
Legal expenses Fees for business licenses and permits Website design Business logo design Similar one-time expenses
table of contents
List sections and page numbers of the business plan and appendices
industry analysis
Main body of business plan begins by describing industry in which the firm intends to compete Data and info about various characteristics of the industry (size, growth rate, sales projections) Focus on business's industry and not industry and target market simultaneously
overall schedule
Should be in the format of milestones critical to business's success (incorporating venture, completion of prototypes, rental of facilities, obtaining critical financing, starting production of operations, obtaining first sale, etc.) Can be extremely valuable in convincing potential investors that the management team is aware of what needs to take place to launch the venture and has a plan in place to get there
operations plan
This section outlines how your business will be run and how your product or service will be produced Strike careful balance between adequately describing this topic and providing too much detail Keep this section short and crisp
two primary reasons for a writing a plan
Writing a business plan forces a firm's founders to systematically think through each aspect of their new venture Writing a business plan creates a selling document for a company, it provides a mechanism for a young company to present itself to potential investors, suppliers, business partners, key job candidates, and others
who reads the business plan
a firm's employees investors and other external stakeholders
Contribution margin
amount per unit of sale that's left over and is available to "contribute" to covering the business's fixed costs and producing a profit
Assumptions sheet
an explanation of the most critical assumptions on which financial statements are based
Operative leverage
analysis of fixed versus variable costs; highest in companies that have high proportion of fixed costs relative to their variable costs and vice versa
market analysis
breaks industry into segments and zeroes in on specific segment (or target market) to which firm will try to appeal
what should be on cover page
company name, address, and phone number Date Contact information for lead entrepreneur Land-based phone number Email address Smartphone number Company's website address if it has one
Virtual prototype
computer-generated 3D image of a product or service idea
structure of the business plan
conventional structure; departing from the basic structure for creativity is usually a mistake
Fixed costs
costs a company incurs whether it sells something or not
Mission statement
defines why a company exists and what it aspires to become Can define path a company takes and act as its financial and moral compass Sometimes includes a tagline
Competitor analysis
detailed analysis of a firm's competitors
Product prototype
first physical manifestation of a new product, often in a crude or preliminary form
Sources and used funds statement
first thing to include in financial projections; document that lays out specifically how much money a firm needs (if the intention of the business plan is to raise money), where the money will come from, and how money will be used
Organizational chart
graphic representation of how authority and responsibility are distributed within the company
Pro forma (or projected) financial statements
heart of the financial section of a business plan; fairly straightforward process if preceding sections of your plan are thorough Represent finale of entire plan Similar to historical statements an established firm prepares, except they look forward rather than track the past
Position
how the business is situated relative to rivals
how business plans help outside the firm
introduces potential investors and other stakeholders to the business opportunity the firm is pursuing and how it plans to pursue it
Cost of goods sold
materials and direct labor needed to produce the revenue driver
Milestones
noteworthy or significant event (legal registration of company name, feasibility analysis, developed business model, establishment)
Board of advisors
panel of experts asked by fir's management to provide counsel and advice on an ongoing basis
Board of directors
panel of individuals elected by a corporation's shareholders to oversee management of firm
Tagline
phrase that a business plans to use to reinforce position in marketplace
how business plans help inside the firm
plan helps company develop a "road map" to follow to execute its strategies and plans
Market segmentation
process of dividing market into distinct segments
Ratio analysis
used by most business plan writers to interpret or make sense of a firm's historical or pro forma financial statements
Variable costs
varied cost by sales
Operational business plan
written by some established businesses intended primarily for internal audience Blueprint for a company's operations commonly running between 40-100 pages
Business plan
written narrative, typically 25 to 35 pages long, that describes what a new business intends to accomplish and how it intends to accomplish it