Business Plan

The Business Plan

BU113: Foundations of
Business Administration
BU113: Foundations of Business Administration
Memorable statistics
 New business start-  Business failures
ups each year: each year:
150,000-190,000 50,000-100,000
Reasons for Failure and Success of
Businesses
Failure due to Success due to
1. Managerial 1. Hard work, drive,
incompetence or and dedication
inexperience 2. Market demand for
2. Neglect product/service
3. Weak control 3. Managerial
systems competence
4. Insufficient capital 4. Luck
Business Plan—definition
 Definition (Ebert & Griffin, 2007): A document in which
the entrepreneur summarizes her or his business
strategy for the proposed new venture and how that
strategy will be implemented.
 A detailed description of the proposed business,
including types of customers, competitors, and facilities
needed for production
 Includes 3 functions of business: management,
marketing, and finance
 Includes all supporting documents
Purpose
 Explain the concept of the proposed business
(incl. the nature of the product).
 Analyze the market.
 Present strategy.
 Outline the projected development of the
business.
 Define capital needs and procurement.
 Project financial performance.
 Present management’s credentials.
Target Audience: Who might use
the Business Plan?
 Investors
 Owners of the company (the management
team)
 Banks or other lenders (creditors)
 Potential suppliers
The Cover Sheet
 Company name
 Address of the head office
 The Management Team
 Phone numbers
 Note: Mark it “Confidential.”
Business Plan—Format & Components
 Start with a Table of Contents, including page
numbers!
 Use Report form – headings, no indentations.
 Your company’s mission statement
 The business:
 Management: Organization, goals, strategies for
obtaining them, & implementation
 Marketing Plan
 Financial Plan
 Supporting documents
 Revised resumes
 Company logo
 Organization chart
 PowerPoint slides in handout form
Mission Statement
 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
 “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
http://ir.homedepot.com/faq.cfm?FAQPage=FAQ
Business Plan—Management
 Type of organization /
form of business XYZ Company
ownership
 Organization chart General Manager

 Management team
Marketing Manager 2 Finance Manager Marketing Manager 2
 Experience
 Skills
 Roles in the business
 Supporting documents:
Resumes
Business Plan—Marketing
 Product / Service
 Key characteristics, uniqueness
 Picture, design / model
 Supplier
 Amount of inventory to be ordered

 Target market
 Users -- demographics
 Benefits
 Economic / social / cultural characteristics
 Projected sales (revenue): calculated
Business Plan—Marketing
 Competition
 Who?
 Strengths
 Weaknesses
Business Plan—Marketing
 Price
 Pricing strategy
 Pricing strategy vs. competition
 Promotion
 Promotional strategy: developing demand for product
 Place / distribution
 Getting
the product from production to the
consumer
Supporting documents
 List of Shareholders: Attach a table with the
information about your shareholders’ investment.
 name
 contact information
 number of shares invested
 percent ownership in the company based on
the number of shares owned
 Revised resumes of each manager
 Company logo
 PowerPoint slides in handout form (6 slides per
page)
Business Plan—Finance
 Concerns of investors
 Demand for product
 Management characteristics and experience
 Innovation
 Track record
 Rate of return
 Amount of risk
 Financial projections
 Outlook for competitiveness of business
 Growth curve of business

 Future plans
Financial
Financial Plan
Plan
BU113: Foundations of
Business Administration
BU113: Foundations
of Business
Administration
Purpose—Financial Plan
 Determine feasibility of business
 Determine capital needed to start business
 Estimate return to shareholders
Capital Needed to Start
Business
 Determine total amount of capital needed
to start the business
 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
 Stock sales: 25 cents/share
 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
 Capital needed: $100
o Outside 20 shares:
$5 = 5%
o Inside 380 shares
(calculated as: remaining $95 / $.25
per share = 380 shares):
$95 = 95%
o Total Raised: $100 = 100%
o Total Shares Issued:
400 shares
Sale of Service
 No capital needed
o Outside 20 shares:
$5 = 20%
o Inside 80 shares
(calculated as: remaining 80 shares
* $.25 per share = $20):
$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
Less: 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: 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

Sales $10 $30 $150 $40 $30 $30 $290

Expenses
Cost of 0 10 50 12 10 10 92
Goods Sold
Advertising 2 2 4
Gas 6 6 12
Total 8 10 52 18 10 10 108
Expenses
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
 Projected Return on Equity
 As a start up business, consider your equity to be the money
you raise from selling stock to inside and outside
shareholders
 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
 Liquidating Dividend to be paid at end of semester
 Different from a regular dividend real companies pay
 = Distribution of all the cash of the company after payment of all
liabilities.
 Purpose: to close the business down
 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