BBE 2313 FUNDAMENTAL OF ENTREPRENUERSHIP CHAPTER 5 Crafting

BBE 2313 • FUNDAMENTAL OF ENTREPRENUERSHIP CHAPTER 5 Crafting a Winning Plan

Objectives • Explain why every entrepreneur should create a business plan. • Describe the elements of a solid business plan. • Explain the three tests every business plan must pass. • Understand the keys to making an effective business plan presentation. • Explain the "5 Cs of Credit" and why they are important to potential lenders and investors reading business plans. BENTR 2101 Fundamental of Entrepreneurship 2

Topics covered • • • What is a business plan? Pitfall to avoid in planning Benefits of business plan Developing a business plan Elements of a business plan BENTR 2101 Fundamental of Entrepreneurship 3

A Business Plan Is… • a systematic evaluation of a venture’s chances for success. • a way to determine the risks facing a venture. • a game plan for managing a business successfully. • a tool for comparing actual and target results. • an important tool for attracting capital. BENTR 2101 Fundamental of Entrepreneurship 4

A Business Plan • A written summary of: – an entrepreneur’s proposed business venture – its operational and financial details – its marketing opportunities and strategy – its managers’ skills and abilities. BENTR 2101 Fundamental of Entrepreneurship 5

A Business Plan: Two Essential Functions 1. Guiding the company by charting its future course and defining its strategy for following it. 2. Attracting lenders and investors who will provide needed capital. BENTR 2101 Fundamental of Entrepreneurship 6

A Business Plan • A plan is a reflection of its creator. • Sometimes the primary benefit of preparing a plan is the realization that a business idea just won’t work! • The real value in preparing a plan is not as much in the plan itself as it is in the process of creating it. BENTR 2101 Fundamental of Entrepreneurship 7

Why Take the Time to Build a Business Plan? • Although building a plan does not guarantee success, it does increase your chances of succeeding in business. • A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map! BENTR 2101 Fundamental of Entrepreneurship 8

Covering the Bases in a Business Plan • Key people • Promising opportunity • Business context • Risks and rewards BENTR 2101 Fundamental of Entrepreneurship 9

Key Elements of a Business Plan • • • Executive summary Mission statement Company history Business and industry profile Business strategy Description of products/services BENTR 2101 Fundamental of Entrepreneurship 10

Features vs. Benefits • Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”). • Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”). BENTR 2101 Fundamental of Entrepreneurship 11

Marketing Strategy • Prove that a market exists – Show customer interest – Document market claims with research • Business prototyping • • • Describe target customers Advertising and promotion Market size and trends Location analysis Pricing Distribution BENTR 2101 Fundamental of Entrepreneurship 12

Key Elements of a Business Plan • Marketing strategy Ø Competitor analysis Ø Owners’ and managers’ résumés Ø Plan of operation Ø Financial forecasts Ø Request for fund BENTR 2101 Fundamental of Entrepreneurship 13

Financial Forecasts • Projected financial statements – Monthly for one year – Quarterly for next two • • Income statement Balance sheet Cash Flow Capital expenditures BENTR 2101 Fundamental of Entrepreneurship 14

Financial Forecasts • Three forecasts – Pessimistic – Most Likely – Optimistic • Realistic! • Include assumptions on which forecasts are based BENTR 2101 Fundamental of Entrepreneurship 15

Tips on Preparing a Business Plan • Rid your plan of all spelling and grammatical errors. • Make your plan visually appealing. • Leave ample “white space” in margins. • Make sure your plan has an attractive cover. (First impressions are crucial. ) • Include a table of contents to allow readers to navigate your plan easily. BENTR 2101 Fundamental of Entrepreneurship 16

Tips on Preparing a Business Plan • Write in a conversational style and use “bullets. ” • Support claims with facts and avoid generalizations. • Avoid overusing industry jargon. • Make it interesting! • Use spreadsheets to generate financial forecasts. BENTR 2101 Fundamental of Entrepreneurship 17

Tips on Preparing a Business Plan • Always include cash flow projections. • Keep your plan “crisp” – between 25 and 50 pages long. • Tell the truth – always. BENTR 2101 Fundamental of Entrepreneurship 18

Your Plan Must Pass Three Tests • The Reality Test - proving that : – A market really does exist for your product or service. – You can actually build or provide it for the cost estimates in the plan. • The Competitive Test - evaluates: – A company’s position relative to its customers. – Management’s ability to create a company that will gain an edge over its rivals. • The Value Test – proving that: – A venture offers investors or lenders an attractive rate of return or a high probability of repayment. BENTR 2101 Fundamental of Entrepreneurship 19

Presenting the Plan • Prepare! • Demonstrate enthusiasm, but don’t be overemotional. • Start by communicating the dynamic opportunity your business idea offers. • “Hook” investors quickly with an upfront explanation of the venture, its opportunities, and its benefits to them. BENTR 2101 Fundamental of Entrepreneurship 20

Presenting the Plan • Use visual aids. • Hit the highlights; focus on the details later. • Keep your presentation “crisp” – 2 or 3 major points. • Avoid overloading your audience with technological jargon. BENTR 2101 Fundamental of Entrepreneurship 21

Presenting the Plan • Answer every lender or investor’s question: “What’s in it for me? ” • Close by reinforcing the nature of the opportunity. • Be prepared (with details) for questions investors are likely to ask. BENTR 2101 Fundamental of Entrepreneurship 22

Presenting the Plan • Learn to read the pattern of investors’ questions and address the issues that concern them. • Follow up with every investor to whom you make your presentation. BENTR 2101 Fundamental of Entrepreneurship 23

The "5 Cs" of Credit • Capital BENTR 2101 • Capacity • Collateral • Character • Conditions Fundamental of Entrepreneurship 24