Crafting a Winning Business Plan Chapter 6 Business
Crafting a Winning Business Plan Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 1
A Business Plan Is… n n n Chapter 6: Business Plan 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. Copyright 2006 Prentice Hall Publishing Company 2
A Business Plan n A written summary of: Ø an entrepreneur’s proposed business venture Ø its operational and financial details Ø its marketing opportunities and strategy Ø its managers’ skills and abilities. Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 3
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. Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 4
A Business Plan A plan is a reflection of its creator. n Sometimes the primary benefit of preparing a plan is the realization that a business idea just won’t work! n The real value in preparing a plan is not as much in the plan itself as it is in the process of creating it. n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 5
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. n 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! n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 6
Covering the Bases in a Business Plan n Key people n Promising opportunity n Business context n Risks and rewards Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 7
Key Elements of a Business Plan Executive summary n Mission statement n Company history n Business and industry profile n Business strategy n Description of products/services n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 8
Features vs. Benefits Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”). n Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”). n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 9
Key Elements of a Business Plan n Chapter 6: Business Plan (Continued) Marketing strategy Copyright 2006 Prentice Hall Publishing Company 10
Marketing Strategy n Prove that a market exists Show customer interest Ø Document market claims with research Ø n n n n Chapter 6: Business Plan Business prototyping Describe target customers Advertising and promotion Market size and trends Location analysis Pricing Distribution Copyright 2006 Prentice Hall Publishing Company 11
Key Elements of a Business Plan n (Continued) Marketing strategy Competitor analysis n Owners’ and managers’ résumés n Plan of operation n Financial forecasts n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 12
Financial Forecasts n Projected financial statements Ø Monthly for one year Ø Quarterly for next two Income statement n Balance sheet n Cash Flow n Capital expenditures n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 13
Financial Forecasts (Continued) n Three forecasts Ø Pessimistic Ø Most Likely Ø Optimistic Realistic! n Include assumptions on which forecasts are based n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 14
Key Elements of a Business Plan n (Continued) Marketing strategy Competitor analysis n Owners’ and managers’ résumés n Plan of operation n Financial forecasts n Request for funds n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 15
Tips on Preparing a Business Plan n n Chapter 6: 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. Copyright 2006 Prentice Hall Publishing Company 16
Tips on Preparing a Business Plan n n Chapter 6: Business Plan (Continued) 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. Copyright 2006 Prentice Hall Publishing Company 17
Tips on Preparing a Business Plan (Continued) n Always include cash flow projections. n Keep your plan “crisp” – between 25 and 50 pages long. Tell the truth – always. n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 18
Your Plan Must Pass Three Tests n The Reality Test - proving that : A market really does exist for your product or service. Ø You can actually build or provide it for the cost estimates in the plan. n The Competitive Test - evaluates: Ø A company’s position relative to its customers. Ø Management’s ability to create a company that will gain an edge over its rivals. n The Value Test – proving that: Ø A venture offers investors or lenders an attractive rate of return or a high probability of repayment. Ø Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 19
Presenting the Plan Prepare! n Demonstrate enthusiasm, but don’t be overemotional. n Start by communicating the dynamic opportunity your business idea offers. n “Hook” investors quickly with an upfront explanation of the venture, its opportunities, and its benefits to them. n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 20
Presenting the Plan (Continued) Use visual aids. n Hit the highlights; focus on the details later. n Keep your presentation “crisp” – 2 or 3 major points. n Avoid overloading your audience with technological jargon. n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 21
Presenting the Plan (Continued) Answer every lender or investor’s question: “What’s in it for me? ” n Close by reinforcing the nature of the opportunity. n Be prepared (with details) for questions investors are likely to ask. n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 22
Presenting the Plan (Continued) Learn to read the pattern of investors’ questions and address the issues that concern them. n Follow up with every investor to whom you make your presentation. n Chapter 6: Business Plan Copyright 2006 Prentice Hall Publishing Company 23
The "5 Cs" of Credit Chapter 6: Business Plan n Capital n Capacity n Collateral n Character n Conditions Copyright 2006 Prentice Hall Publishing Company 24
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