Chapter 6

10 most important questions a business plan should answer

1. Is the business plan just an idea, or is it an opportunity with real potential 2. Does the firm have an exciting and sensible business model? Will other firms be able to easily copy it? 3. Is the product or service viable? Does it add significant value the customer? Was a feasibility analysis completed? 4. Is the industry in which the product or service will be competing growing, stable, or declining? 5. Does the firm have a well-defined target market? 6. Is the management team experienced, skilled, and up to the task of launching the new firm? 7. Is the firm organized in an appropriate manner? Are its strategy and business practices legal and ethical? 8. Are the financial projections realistic, and do they project a bright future for the firm? What rate of return can investors expect? 9. How will the firm's competitors react to its entrance into their markets? 10. What are the critical risks surrounding the business, and does the management team have contingency plans in place if risks become actual problems?

Ten powerpoint slides to include in an investor presentation

1. Title slide 2. Problem 3. Solution 4. Business model 5. Management team 6. Industry and target market 7. Competition 8. Intellectual property 9. Financial projections 10. Current status, amount of money requested, and projected use of funds

Summary business plan

-10-15 pages -Works best for new ventures in the early stages of development that want to "test the waters" to see if investors are interested in their idea

Full business plan

-25-35 pages -Works best for new ventures who are at the point where they need funding or financing -Serves as a "blueprint" for the company's operations

Operational business plan

-40-100 pages -Is meant primarily for an internal audience -Works best as a tool for creating a blueprint for a new venture's operations and providing guidance to operational managers

Two primary audiences for business plan

-A firm's employees -Investors and other external stakeholders

Business Plan

-A written narrative, typically 25-35 pages long, that describes what a new business plans to accomplish

Appendix

-Any material that does not easily fit into the body of a business plan -Resumes of the top management team members, photos or diagrams of product or product prototypes, certain financial data, and market research projections

Company structure, ownership, and intellectual property

-Begin by describing the structure of the new venture, including the reporting relationships among the top management team members -Next part should explain how the firm is legally structured -Third part should discuss intellectual property the firm owns, including patents, trademarks, and copyrights

Industry analysis

-Begin by discussing major trends in the industry in which the firm intends to compete along with important characteristics of the industry, such as its size, attractiveness and profit potential -How the firm will diminish or sidestep the forces that suppress its industry's profitability -Target market should be discussed along with an analysis of how it will compete in tat market

Firm's employees

-Business plan articulates the vision and future plans of the firm, helps the employees of a firm operate in sync and move forward in a consistent and purposeful manner

Investors (and other external stakeholders)

-Business plan makes the case that the firm is a good use of an investor's funds or the attention of other external stakeholders -Key is to include facts generated through a properly conducted feasibility analysis -Business plans ring hollow if they are based strictly on what an entrepreneur or team of founders "thinks" will happen

Dual-Use Document

-Business plan used both inside and outside the firm -Inside the firm, the plan helps the company develop a "road map" to follow in executing its strategies and plans -Outside the firm, it introduces potential investors and other stakeholders to the business opportunity the firm is pursuing and how it plans to pursue it

Sense of excitement

-Business plans should project a sense of anticipation and excitement about the possibilities that surround a new venture

-Content of business plan

-Clear and concise information on all the important aspects of the proposed venture -It must be long enough to provide sufficient information yet short enough to maintain reader interest -Most are 25-35 pages long

Outline of a business plan

-Cover page and table of contents -Executive summary -The business -Management team -Company structure, ownership, and intellectual property -Industry analysis -Marketing plan -Operations plan -Financial Plan -Critical risk factors -Appendix

Operations plan

-Deals with day-to-day operations of the company -Overview of manufacturing plan (or service delivery plan) should be followed by a description of the network of suppliers, business partners, and service providers that will be necessary to build the product or produce the service the firm will sell -Any risks or regulations pertaining to the operations of the firm should be disclosed, such as non-routine regulations regarding waste disposal and worker safety

Critical risk factors

-Depict the truly critical risks

The business

-Describe the opportunity the entrepreneur has identified--the problem to solve or the need to be filled--and then describe how the business plans to address the issue -Description of the opportunity should be followed by a brief history of the company, along with the company's mission statement and objectives -An explanation of the company's competitive advantage and a brief description of the business model follow

-Software packages

-Many available to employ an interactive, menu-driven approach to assist in the writing of a business plan -Some programs are very helpful, but entrepreneurs should avoid a boilerplate plan that looks like it came from a "canned" source

Financial plan

-Must demonstrate financial viability of the business. -Should begin with an explanation of the funding that will be needed by the business during the next three to five years along with an explanation of how the funds will be used (called a sources and uses of funds statement) -The next portion of this section includes financial projections, which are intended to further demonstrate the financial viability of the business -3-5 years of pro forma income statements, balance sheets, and statements of cash flows -Should be based on realistic proportions -Entrepreneurs are held accountable for their numbers in their projections

Tips on making an oral presentation to investors

-Prepare a set of PowerPoint slides that will fill the time slot permitted -Should be smooth and well-rehearsed. Slides should be sharp and not cluttered with material -Follow instructions (number one rule), especially with timing

Making a presentation to investors

-Present the plan in person -First meeting with an investor is generally very short, about one hour (20-30 minute PowerPoint presentation and time for questions) -If the investor is impressed and wants to learn more about the venture, the firm will be asked back for a second meeting

Executive summary

-Short overview of the entire business plan -Provides a busy reader with everything that needs to be known about the new venture's distinctive nature -Investors sometimes ask first for a copy of this and will request a full copy of the business plan only if this is convincing enough

Marketing plan

-Should immediately follow the industry analysis and provide details about the new firm's products or services -Investor should be confident that the firm's overall approach to its target market and its product strategy, pricing strategy, channels of distribution, and promotional strategy are in sync with one another and make sense

Cover page and table of contents

-Should include name of company, its address, phone number, the date, and contact information for the lead entrepreneur

Management team

-Strength of this is important to investors -If the team doesn't "pass muster," most investors won't read further -Include brief summary of the qualifications of each member of the team, including their relevant employment and professional experiences, significant accomplishments, and educational background

Guidelines for writing a business plan

-Structure -Content -Type of business plan

Types of business plans

-Summary business plan -Full business plan -Operational business plan

Structure of business plan

-To make the best impression, a business plan should follow a conventional structure -Some entrepreneurs want to show creativity in everything they do, but departing from the basic structure of the conventional business plan format is usually a mistake -Investors are usually very busy and want a plan where they can easily find critical information -Software packages -Sense of Excitement