BADM 336 Chapter 6

tagline

a phrase that is used consistently in a company's literature, advertisements, promotions, stationery, and even invoices to develop and to reinforce the position the company has staked out in its market

executive summary

a quick overview of the entire business plan that provides a busy reader everything that he or she needs to know about the distinctive nature of the new venture certainly when requested, it arguably becomes the most important section of the business plan

mission statement

a statement that describes why a firm exists and what its business model is supposed to accomplish.

business plan

a written document describing all the aspects of a business venture, which is usually necessary to raise money and attract high quality business partners a written narrative, typically 25 to 35 pages long, that describes what a new business intends to accomplish and how it intends to accomplish it.

Industry structure

how concentrated or fragmented an industry is. Fragmented industries are more receptive to new entrants than industries that are dominated by a handful of large firms.

position

how the entire company is situated relative to its competitors

milestone

in a business plan context, a noteworthy event in the past or future development of a business

pro forma (projected) financial statements Pro forma financial statements include the pro forma income statement, the pro forma balance sheet, and the pro forma cash flow statement. They are usually prepared in this order because information flows logically from one to the next.

statements that are at the heart of the financial section of a business plan

operational business plan

A blueprint for a company's operations; primarily meant for an internal audience. (40-100 pgs)

full business plan

A document that spells out a company's operations and plans in much more detail than a summary business plan; the format that is usually used to prepare a business plan for an investor.

demonstrates to your reader that you know how to translate an idea into a business. The company history section should be brief, but should explain the origin of the idea for the company and the driving force behind its inception.

Company Description

The cover page should include the company's name, address, and phone number; the date; the contact information for the lead entrepreneur; and the company's website address if it has one. The company's Facebook page and Twitter and Instagram names can also be included. The contact information should include an e-mail address, a smartphone number, and a landline number if you have one. This information should be centered at the top of the page. The bottom of the cover page should include information alerting the reader to the confidential nature of the plan. If the company already has a distinctive trademark, it should be placed somewhere near the center of the page. A table of contents should follow the cover letter

Cover Page

The final section of a business plan presents a firm's pro forma (or projected) financial projections. The first thing to include is a sources and uses of funds statement, which is a 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 the money will be used. The next item to include is an assumptions sheet, which is an explanation of the most critical assumptions on which the financial statements are based.

Financial Projections

Inside the firm, the plan helps the company develop a "road map" to follow to execute 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.

For most new ventures, the business plan is a dual-purpose document that is used both inside and outside the firm.

The main body of the business plan begins by describing the industry in which the firm intends to compete. This description should include data and information about various characteristics of the industry, such as its size, growth rate, and sales projections. It is important to focus strictly on the business's industry and not its industry and target market simultaneously. Most industries have 6 to 10 key factors in which all participants must establish competence as a foundation for competing successfully. Most participants try to then differentiate themselves by excelling in two or three areas Industry trends should be discussed, including both environmental and business trends. The industry analysis should conclude with a brief statement of your beliefs regarding the long-term prospects for the industry.

Industry Analysis

A PowerPoint deck is a short set of PowerPoint slides that describe a business idea, and an executive summary is a one- to two-page overview of the full plan.

Investors vary in terms of the reliance they place on formal business plans.9 Initially, many investors ask for a PowerPoint deck or the executive summary of a business plan.

typically consists of the founder or founders and a handful of key management personnel. A brief profile of each member of the management team should be provided, starting with the firm's founder or founders. Each profile should include the following information: Title of the position Duties and responsibilities of the position Previous industry and related experience Previous successes Educational background The final portion of this section of your business plan focuses on how your company will be structured. Even if you are a start-up, you should outline how the company is currently structured and how it will be structured as it grows. (organizational chart)

Management Team

The marketing plan focuses on how the business will market and sell its product or service. It deals with the nuts and bolts of marketing in terms of price, promotion, distribution, and sales. The best way to describe a company's marketing plan is to start by articulating its marketing strategy, positioning, and points of differentiation, and then talk about how these overall aspects of the plan will be supported by price, promotional mix and sales process, and distribution strategy.

Marketing Plan

A schedule should be prepared that shows the major events required to launch the business. The schedule should be in the format of milestones critical to the business's success, such as incorporating the venture, completion of prototypes, rental of facilities, obtaining critical financing, starting the production of operations, obtaining the first sale, and so forth.

Overall schedule

The first issue to address is to describe the present stage of the development of your product or service. Most products follow a logical path of development that includes product conception, prototyping, initial production, and full production. A section labeled "Challenges and Risks" should be included and disclose any major anticipated design and development challenges and risks that will be involved in bringing the product or service to market. A final section should describe any patents, trademarks, copyrights, or trade secrets that you have secured or plan to secure relative to the products or services you are developing.

Product (or service) design and development plan

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T/F: A cover letter should accompany a business plan that is sent to an investor or other stakeholders. The cover letter should briefly introduce the entrepreneur and clearly state why the business plan is being sent to the individual receiving it. each person who receives a copy of the plan should be carefully selected on the basis of being a viable investor candidate.

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T/F: A final guideline for writing a business plan is to recognize that the plan will usually change as it is being written and as the business evolves.

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T/F: Although some entrepreneurs want to demonstrate creativity in everything they do, departing from the basic structure of the conventional business plan format is usually a mistake.

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T/F: Even though the executive summary appears at the beginning of the business plan, it should be written last. The plan itself will evolve as it is written, so not everything is known at the outset

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T/F: Overly optimistic statements or projections undermine a business plan's credibility, so it is foolish to include them. At the same time, the plan must clearly demonstrate that the business idea is viable and offers potential investors financial returns greater than lower-risk investment alternatives. The same is true for potential business partners, customers, and key recruits. Unless the new business can show that it has impressive potential, investors have little reason to become involved with it.

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T/F: The most compelling facts a company can provide in its business plan are the results of its own feasibility analysis and the articulation of a distinctive and competitive business model. a business plan should disclose all resource limitations that the business must address before it is ready to start earning revenues.

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T/F: The most critical point to remember when writing an executive summary is that it is not an introduction or preface to the business plan; instead, it is meant to be a summary of the plan itself. An executive summary shouldn't exceed two single-spaced pages. The cleanest format for an executive summary is to provide an overview of the business plan on a section-by-section basis. Two identical versions of the executive summary should be prepared—one that is part of the business plan and one that is a stand-alone document.

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T/F: a consultant or outside adviser shouldn't be the primary author of the plan. Along with facts and figures, a business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture—a task best accomplished by those who created the business

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T/F: it is anticipated that the research conducted to complete the plan, and the preceding feasibility analysis, will place the founders in touch with potential customers, suppliers, business partners, and others, and that the feedback obtained from these key people will cause the plan to change as it is being written.20 It's also anticipated that the business itself will iterate and change after it is launched, based on additional feedback.

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T/F: it's often not the idea or market that wins funding among competing plans, but the perception that one management team is better prepared to execute its idea than the others.

This section begins the financial analysis of a business, which is further fleshed out in the financial projections. It addresses the basic logic of how profits are earned in the business and how many units of a business's product or service must be sold for the business to "break even" and then start earning a profit. The next section should provide an analysis of the business's fixed and variable costs. The business's one-time start-up costs should be estimated and placed into a table. These costs include legal expenses, fees for business licenses and permits, website design, business logo design, and similar one-time expenses. This section should conclude with a break-even analysis, which is an analysis of how many units of its product a business must sell before it breaks even and starts earning a profit.

The economics of the business

A clearly written business plan, one that articulates a firm's vision and future, is important for both the management team and the rank-and-file employees. (particularly useful for the functional department heads of a young firm) External stakeholders who are being recruited to join a firm, such as investors, potential business partners, and key employees, are the second audience for a business plan.

There are two primary audiences for a firm's business plan

summary business plan

a business plan 10 to 15 pages long that works best for companies very early in their development that are not prepared to write a full plan

virtual prototype

a computer generated 3-D image of an idea

competitor analysis

a detailed evaluation of a firm's direct, indirect, and future competitors

sources and uses of funds statement

a document, usually included in the financial section of a business plan, that lays out specifically how much money a firm needs, where the money will come from, and what the money will be used for

marketing strategy

a firm's overall approach for marketing its products and services A firm's overall approach typically boils down to how it positions itself in its market and how it differentiates itself from competitors. The next section should deal with your company's approach to product, price, promotion, and distribution. If your product has been adequately explained already, you can move directly to price. Price, promotion, and distribution should all be in sync with your positioning and points of differentiation, as described previously. The final section should describe the company's sales process or cycle and specific sales tactics it will employ.

organizational chart

a graphic representation of how authority and responsibility are distributed within a company

board of advisors

a panel of experts asked by a firm's management to provide counsel and advice on an ongoing basis possesses no legal responsibility for the firm and gives nonbinding advice

board of directors

a panel of individuals who are elected by a corporation's shareholders to oversee the management of the firm

market analysis

an analysis that breaks the industry into segments and zeros in on the specific segment (or target market) to which the firm will try to appeal The final section of the market analysis estimates a firm's annual sales and market share. There are four basic ways for a new firm to estimate its initial sales

operating leverage

an anlysis of the firm's fixed costs versus its variable costs This is highest in companies that have a high proportion of fixed costs relative to their variable costs. In contrast, operating leverage is lowest in companies that have a low proportion of fixed costs relative to variable costs.

assumptions sheet

an explanation in a new firm's business plan of the sources of the numbers for its financial forecast and the assumptions used to generate them

the selling price minus the cost of goods sold or variable costs

gross margin for a revenue driver

The operations plan section of the business plan outlines how your business will be run and how your product or service will be produced. You can frame the discussion in terms of "back stage," or behind-the-scenes activities, and "front stage," or what the customer sees and experiences. The next section of the operations plan should describe the geographic location of your business. This section should also describe a firm's facilities and equipment.

operations plan

ratio analysis

ratios showing the relationships between items on a firm's financial statements that are used to discern whether a firm is meeting its financial objectives and how it stacks up against industry peers

contribution margin

the amount per unit of sale that is left over and is available to "contribute" to covering the firm's fixed costs and producing a profit

fixed costs

the costs that a company incures in operating a business whether it sells something or not (overhead).

variable costs

the costs that are not fixed that a company incures as it generates sales.

product prototype

the first physical manifestation of a new product, often in a crude or preliminary form

cost of goods sold

the materials and direct labor needed to produce a firm's revenue

Due diligence

the process investors go through after they tentatively commit to an investment.

market segmentation

the process of studying the industry in which a firm intends to compete to determine the different potential target markets in that industry Markets can be segmented in many ways, such as by geography (city, state, country), demographic variables (age, gender, income), psychographic variables (personality, lifestyle, values), and so forth

summary full operational

three types of business plans

First, writing a business plan forces a firm's founders to systematically think through each aspect of their new venture. (internal) The second reason to write a business plan is to create 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. (external)

two primary reasons to write a business plan