Business Plan The Business Plan BU 113 Foundations

Business Plan The Business Plan BU 113: Foundations of Business Administration

Memorable statistics n New business startups each year: 150, 000 -190, 000 n Business failures each year: 50, 000 -100, 000

Reasons for Failure and Success of Businesses Failure due to 1. Managerial incompetence or inexperience 2. Neglect 3. Weak control systems 4. Insufficient capital Success due to 1. Hard work, drive, and dedication 2. Market demand for product/service 3. Managerial competence 4. Luck

The Process, the Plan and BU 113 n Idea n Test n Plan n Execute n Evaluate

What is a Business Plan? n n n n n Blueprint of your business Written plan detailing operational and financial aspects of your company Explanation of the business concept Analysis of the market Presentation of the strategy Outline of projected development of the business Definition of capital needs of the business Projection of financial performance Presentation of management’s credentials/positions

Who needs a Business Plan? n n n Business associates: Bankers: Other investors: Management: Potential employees: n n n Direction and purpose Financing Funding for growth Internal plans Join the company?

Concerns of Investors n How are you unique? Proprietary technology ¨ Unique product ¨ n Management track record Great ideas won’t go anywhere without good management. ¨ Depth of management ¨ n Rate of Return High risk requires potential for high return ¨ Where on the growth curve is the business? ¨ Are financial projections reasonable? ¨ n Exit Strategy How to get out with mega profit (go public, sell out) ¨ When? ¨

Cover Page Company XYZ October, 200_ Business Plan Copy Number 5 This document contains confidential and proprietary information belonging exclusively to XYZ Company John Smith Chief Executive Officer 123 Executive Drive Maple Valley, VT 55555 (802)555 -555 This is a business plan. It does not imply an offering of securities.

Business Plan—Format & Components n n Cover Page Table of Contents (with page numbers) Your company’s mission statement The business: ¨ Management: Management Structure/Background ¨ Marketing Plan ¨ Financial Plan ¨ Supporting documents n n Revised resumes Company logo Organization chart Power. Point slides in handout form

Mission Statement n n A mission statement is a brief description of a company’s fundamental purpose. A mission statement answers the questions, “Why do we exist? ” “What do we hope to achieve in the future? ” The mission statement articulates the company’s moral/ethical position, public image, the target market, products/services, the geographic domain and expectations of growth and profitability (Center for Business Planning: http: //www. businessplans. org).

Mission -- Examples n n “It is the mission of Saint Michael’s College to contribute through higher education to the enhancement of the human person and to the advancement of human culture in the light of the Catholic faith. ” (SMC Catalogue) The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are a values-driven company and our eight core values include the following: ¨ ¨ ¨ ¨ Excellent customer service Taking care of our people Giving back Doing the "right" thing Creating shareholder value Respect for all people Entrepreneurial spirit Building strong relationships Source: Home Depot – Our Company – Values

Components of the Plan: Management n n n Type of organization / form of business ownership / Background Organization chart Management team Roles in the business ¨ Experience ¨ Skills ¨ Supporting documents: Resumes ¨ XYZ Company Marketing Manager 1 General Manager Finance Manager Marketing Manager 2

Components of the Plan: Marketing n Product / Service Key characteristics, uniqueness ¨ Picture, design / model ¨ Supplier ¨ Amount of inventory to be ordered ¨ n Target market Users -- demographics ¨ Benefits ¨ Economic / social / cultural characteristics ¨ Projected sales (revenue): calculated ¨

Components of the Plan: Marketing (cont’d) n Competitive Environment Competitors ¨ Competitors’ Strengths ¨ Competitors’ Weaknesses ¨

Components of the Plan: Marketing (cont’d) n n Price ¨ Pricing strategy vs. competition Promotion ¨ Promotional n strategy: developing demand for product Place / distribution ¨ Getting the product from production to the consumer

Supporting documents n List of Shareholders: Attach a table with the information about your shareholders’ investment. ¨ ¨ n name contact information number of shares invested percent ownership in the company based on the number of shares owned Revised resume of each manager Company logo Power. Point slides in handout form (6 slides per page)

Shareholder List Name Contact Info # Shares Bought Outside or Management Shareholders

Business Plan—Finance n Concerns of investors ¨ Demand for product ¨ Management characteristics and experience n Innovation n Track record ¨ Rate of return n Amount of risk n Financial projections n Outlook for competitiveness of business n Growth curve of business ¨ Future plans

Financial Plan BU 113: Foundations of Business Administration

Purpose—Financial Plan Determine feasibility of business n Determine capital needed to start business n Estimate return to shareholders n

Capital Needed to Start Business q Determine total amount of capital needed to start the business q Do you need to: Buy equipment? § Buy product/raw materials for product to sell? (Include in product cost: transportation & packaging) § Buy supplies for advertising § Pay taxes? §

Financing Sources: How to Raise Money Sources: Selling stock or borrowing money q Stock sales: 25 cents/share q Inside shareholders (management team). What percent of company do you want to own? § Outside shareholders (sell to others at marketplace) § You must offer at least 20 shares to outside shareholders. § Specify what percent ownership 1 share represents § o EX: If you plan to sell 100 total shares to management and outsiders, 1 share = 1% ownership in the company.

Financing Sources: Examples Sale of Product n Sale of Service Capital needed: $100 n No capital needed o Outside 20 shares: $5 = 5% o Outside 20 shares: $5 = 20% o Inside 380 shares o (calculated as: remaining $95 / $. 25 per share = 380 shares): Inside 80 shares (calculated as: remaining 80 shares * $. 25 per share = $20): $95 = 95% o Total Raised: $100 = 100% o Total Shares Issued: 400 shares $20 = 80% o Total Raised: $25 = 100% o Total Shares Issued: 100 shares

Projected Income Statement Sales = Number of units of product/service expected to be sold per week X sales price Cost of Goods Sold (COGS) = number of units of product expected to be sold each week X cost to buy including taxes, shipping, etc. (no COGS with a service) Less: Advertising and other expenses = actual amount expected to be spent during a particular week Less: n Taxes = 10% of profit before taxes (EBT) Note: You cannot pay management wages.

ABC Company Projected Income Statement For the Six-Week Period Ending ____ , 200_ WK 1 WK 2 WK 3 WK 4 WK 5 WK 6 Total $10 $30 $150 $40 $30 $290 Cost of Goods Sold 2 10 50 12 10 10 92 Advertising 0 Gas 6 Total Expenses 8 10 52 18 10 10 108 EBT 2 20 98 22 20 20 182 Taxes (10%) . 20 2 9. 80 2. 20 2 2 18. 20 Net Income 1. 8 18 88. 20 19. 8 18 18 163. 8 Sales Expenses 2 4 6 12

Projected Return on Equity q As a start up business, consider your equity to be the money you raise from selling stock to inside and outside shareholders q Projected ROE: tells shareholders what they expect to earn on their investment in terms of % return § ROE = Total Projected Net Income / $ Raised from sale of stock to management and outside shareholders § EX: $ 163. 8 projected NI / $25 Common stock proceeds § ROE = 655%

Liquidating Dividend q Liquidating Dividend to be paid at end of semester q Different from a regular dividend real companies pay q = Distribution of all the cash of the company after payment of all liabilities. q Purpose: to close the business down q Liquidating Dividend Per Share = Ending cash (= $ from sale of stock to managers and outsiders + Net Income) - Liabilities (including taxes payable) divided by total # Shares outstanding