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