Part 3 Developing the New Venture Business Plan

Part 3 Developing the New Venture Business Plan CHAPTER 6 The Business Plan: Visualizing the Dream Longenecker • Moore • Petty • Palich © 2008 Cengage Learning. All rights reserved. Power. Point Presentation by Charlie Cook The University of West Alabama

Looking AHEAD After you have read this chapter, you should be able to: 1. Explain the purpose and objectives of business plans. 2. Give the rationale for writing (or not writing) a business plan when starting a new venture. 3. Describe the preferred content and format for a business plan. 4. Offer practical advice on writing a business plan. 5. Explain what investors look for in a business plan. 6. Identify available sources of assistance in preparing a business plan. 7. Maintain the proper perspective when writing a business plan. © 2008 Cengage Learning. All rights reserved. 2

An Overview of the Business Plan • Business Plan Ø A document that sets out the basic idea underlying a business and related startup considerations • The Purpose of a Business Plan Ø Identifies the nature and context of the business opportunity Ø Presents the entrepreneur’s approach to exploiting the opportunity Ø Identifies factors affecting the venture’s success Ø Serves as the entrepreneur’s tool for raising capital © 2008 Cengage Learning. All rights reserved. 3

6 -1 Users of Business Plans © 2008 Cengage Learning. All rights reserved. 4

The Need for a Business Plan • Primary Functions ØTo provide a clearly articulated statement of goals and strategies for internal use v Imposes discipline on the entrepreneur and management team ØTo serve as a selling document to be shared with outsiders v Provides a credible overview for prospective customers, suppliers, and investors v Helps secure favorable credit terms from suppliers v Opens approaches to lenders and other sources of financing © 2008 Cengage Learning. All rights reserved. 5

How Much Business Planning is Needed? • Factors affecting the extent of a business plan: ØCost in time and money to prepare the plan ØManagement style and ability ØPreferences of the management team ØComplexity of the business ØCompetitive environment ØLevel of uncertainty © 2008 Cengage Learning. All rights reserved. 6

Keeping the Right Perspective • Good business plans don’t ensure success. Ø Effective implementation is what succeeds. • Writing a business plan is an ongoing process and only secondarily the means to an outcome. Ø The process is just as important as—if not more so than—the finished product. Ø The plan represents what is has been anticipated; a good entrepreneur adapts the plan to fit the unexpected. © 2008 Cengage Learning. All rights reserved. 7

Types of Business Plans • Dehydrated Plan Ø A short form of a business plan that presents only the most important issues and projections. • Comprehensive Plan Ø A full business plan that provides an in-depth analysis of the critical factors that will determine a firm’s success or failure, along with all the underlying assumptions. © 2008 Cengage Learning. All rights reserved. 8

Preparing a Business Plan • Issues critical in preparing a business plan: 1. The content and basic format of the plan Factual support for the concept in the form of strong supporting evidence 2. The effectiveness of the written presentation v Clear writing that effectively communicates v © 2008 Cengage Learning. All rights reserved. 9

Deciding on the Content of a Business Plan • Factors that help determine the content of a business plan for a startup: Ø The entrepreneurial team Ø The opportunity Ø The resources Ø The deal structure Ø The big picture © 2008 Cengage Learning. All rights reserved. 10

6 -2 Good Opportunities Have Good “Fit” © 2008 Cengage Learning. All rights reserved. 11

6 -3 Abbreviated Business Plan Outline Section Heading • • • • Cover Page Table of Contents Executive Summary Industry, Target Customer, and Competitor Analysis Company Description Product/Service Plan Marketing Plan Operations and Development Plan Management Team Critical Risks Offering Financial Plan Appendix of Supporting Documents © 2008 Cengage Learning. All rights reserved. 12

The Content of a Business Plan • Cover Page Ø Company name, address, phone number, fax number, and website Ø Tagline and company logo Ø Name and contact information of contact person Ø Date on which the business plan was prepared Ø Confidentiality disclaimer Ø Number of the copy • Table of Contents Ø Provides a sequential listing of the sections of the plan, with page numbers © 2008 Cengage Learning. All rights reserved. 13

The Content of a Business Plan (cont’d) • Executive Summary/Synopsis/Narrative Ø Description of the opportunity Ø Explanation of the business concept Ø Industry overview Ø Target market Ø Competitive advantage to be achieved in the market Ø Economics of the opportunity Ø Management team description Ø Amount and purpose of the money being requested (the “offering”) if seeking financing © 2008 Cengage Learning. All rights reserved. 14

6 -5 Benjapon’s Executive Summary 1. 1 The Opportunity 1) Thai food is one of the fastest growing food trends in the U. S. and is rapidly moving into the mainstream 1. 2) Americans are leading a busier lifestyle and thus rely more on meals outside the home. Restaurants account for 46% of total food dollars spent 2, up from 44. 6% in 1990 and 26. 3% in 19603. By 2010, 53% of food dollars will be spent on away-from-home sources 4. 3) Americans are demanding better quality food and are willing to pay for that quality. As a result, fast food establishments have recently added premium items to their menu. For example, Arby’s has a line of “Market Fresh” items 5; Carl’s Jr. offers “The Six Dollar Burger. ” 6 The fast casual segment emerged to meet the demands for better-quality foods at a slightly higher price than that of fast food. Despite the immense popularity of Asian food, and Thai food in particular, the fast casual segment is dominated by cafes/bakeries (Panera Bread, Au Bon Pain) and Mexican food restaurants (Chipotle Grill, Baja Fresh, Qdoba). In recent years, however, Asian fast casual players have begun to emerge in various regions in the U. S. Such players include Mama Fu’s, Nothing but Noodles, and Pei Wei Asian Diner, but are still considered regional competitors. Therefore, customers are limited in choices: • Thai food patrons are currently limited to full-service restaurant options, requiring more time and money than fast food or fast casual options. • Busy consumers are currently limited to hamburgers, sandwiches, pizzas, and Mexican food, when it comes to fast-serve options. 1. 2 The Company • Benjapon’s is a fast-casual restaurant serving fresh Thai food, fast, at affordable prices, in a fun and friendly atmosphere. We will open two company locations, with future plans to grow through franchising. • The restaurant will be counter-order and table-service with an average ticket price of $8. 50. Store hours are from 11 am– 10 pm, seven days a week. We expect 40% of our business to come from take-out orders. Packaged Facts, Marketresearch. com, 2003; 2 “Restaurant Industry Report”, The Freedonia Group, Inc. , 2003; 3 “Restaurant Industry Report; Standard and Poor’s, 2003. 4 National Restaurant Association; 5 Arby’s website: www. arbys. com; 6 Carl’s Jr. website: www. carlsjr. com. 1 © 2008 Cengage Learning. All rights reserved. 15

The Content of a Business Plan (cont’d) • Industry Description Ø Broader industry in which the firm will compete v Industry size, growth rate, trends, and competitors Ø Different segments of the industry Ø Niche in which the firm plans to participate • Target Customers Ø Demographics and psychological variables—values, attitudes, and fears • Competitor Analysis Ø Product or service attributes that are or are not provided by competitors © 2008 Cengage Learning. All rights reserved. 16

The Content of a Business Plan (cont’d) • Company Description Ø When and where was this business started? Ø What is the history of the company? Ø What are the firm’s objectives? Ø What changes in structure and/or ownership? Ø In what stage of development is the firm? Ø What has been achieved to date? Ø What is the firm’s distinctive competence? Ø What are the nature and activity of the business? Ø What is its primary product or service? Ø What customers will be served? Ø What is the firm’s form of organization? Ø What are the projected economic states of the industry? Ø How is ownership of the firm to be structured? © 2008 Cengage Learning. All rights reserved. 17

The Content of a Business Plan (cont’d) • Products/Service Plan Ø Describes the product and/or service to be provided and explains its merits • Marketing Plan Ø Describes the user benefits of the product or service and the type of market that exists • Operations and Development Plan Ø How product will be produced or service provided • Management Plan Ø Describes the firm’s organizational structure and the backgrounds and qualifications of key personnel © 2008 Cengage Learning. All rights reserved. 18

The Content of a Business Plan (cont’d) • Critical Risks Ø Identifies the potential risks that may be encountered by an investor • Offering Ø Indicates to an investor how much money is needed and when, and how the money will be used • Financial Plan Ø Projects the company’s financial position based on well-substantiated assumptions and explains of how the figures have been determined v Pro forma statements project a firm’s financial condition for up to five years. © 2008 Cengage Learning. All rights reserved. 19

The Content of a Business Plan (cont’d) • Appendix of Supporting Documents Ø Supplementary materials and attachments to expand the reader’s understanding of the plan: v Résumés of key investors and owners/managers v Professional references v Photographs of products, facilities, and buildings v Marketing v Pertinent v Signed research studies published research contracts of sale © 2008 Cengage Learning. All rights reserved. 20

Making an Effective Written Presentation • Insist on confidentiality • Use good grammar • Limit the presentation to a reasonable length • Go for an attractive, professional appearance • Provide solid evidence for any claims • Describe the product in lay terms • Emphasize the qualifications of the management team • Analyze the market thoroughly • Include financial statements that are neither overly detailed nor incomplete • Don’t hide weaknesses—identify potential fatal flaws © 2008 Cengage Learning. All rights reserved. 21

Presenting the Business Plan to Investors • Attracting Investors ØA business plan must be an effective marketing document that quickly captures investor interest. • Understanding the Investor’s Perspective ØEntrepreneurs are optimists; investors are skeptics. ØInvestors focus on break-even and positive cash flow. ØInvestors have a short attention span. ØBad information and poor preparation cause investors to lose interest quickly. © 2008 Cengage Learning. All rights reserved. 22

Plan Features that Attract Investors • Plans that speak the investors’ language: Ø Are market-oriented in meeting customer needs; are not product-oriented. Ø Show evidence of target customer acceptance of the proposed product or service. Ø Present credible and not overly optimistic financial projections. Ø Are not a formal prospectus or offering memorandum. © 2008 Cengage Learning. All rights reserved. 23

Plans Features that Attract Investors (cont’d) Ø Recognize the investors’ needs for required rates of return on investments. Ø Demonstrate evidence of focus on a limited number of products or services Ø Have a proprietary market position through patents, copyrights, and/or trademarks © 2008 Cengage Learning. All rights reserved. 24

Features of Plans Unattractive to Investors • Plans that create unfavorable reactions: ØShow an infatuation with the product or service and downplay market needs or acceptance. ØAre based on financial projections at odds with accepted industry norms. ØHave unrealistic growth projections. ØContain a need for custom or applications engineering, which makes substantial growth difficult. © 2008 Cengage Learning. All rights reserved. 25

Resources for Business Plan Preparation • Computer-Aided Business Planning • Professional Assistance (cont’d) ØWord-processors Ø Small business development ØSpreadsheets centers (SBDCs) Ø Incubator organizations Ø Regional and local economic development offices. Ø Service Corps of Retired Executives (SCORE) Ø Fast. Trac Entrepreneurial Training Program ØSpecialized business plan software packages • Professional Assistance ØAccountants ØMarketing specialists ØAttorneys ØInvestment banker ØFinancial intermediary © 2008 Cengage Learning. All rights reserved. 26

Key TERMS • • • business plan dehydrated plan comprehensive plan executive summary products/services plan marketing plan operations and development plan management team offering financial plan pro forma statements prospectus (offering memorandum) © 2008 Cengage Learning. All rights reserved. 27

Suggestions for Writing a Business Plan • Provide table of contents and section tabs. • Use a loose-leaf binder in case of revisions. • Use visual aids—graphs, exhibits, and tabular summaries. • Indicate that all information is confidential. • Number copies of the plan and require written receipts. • Be careful about divulging competitive information or proprietary designs/technology. • Ask other entrepreneurs to review the plan. © 2008 Cengage Learning. All rights reserved. 28

What Not to Do • Mistakes to avoid in preparing a business plan: Ø Failing to provide solid data. Ø Failing to describe the product in lay terms. Ø Failing to thoroughly analyze the market. Ø Including financial statements that are overly detailed or incomplete. Ø Hiding weaknesses. Ø Overlooking the fatal flaw. Ø Using bad grammar. Ø Making the overall plan too long. © 2008 Cengage Learning. All rights reserved. 29