Crafting a Crafting a Winning Winning Business Plan Business Plan

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

Chapter Objectives

1. Explain why every entrepreneur should create a business plan, as well as the benefits of a plan. 2. Describe the elements of a solid business plan. 3. Understand the keys to making an effective business plan presentation. 4. Explain the "5 Cs of Credit" and why they are important to potential lenders and investors reading business plans.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

The Business Plan

Business plan a written summary of:

an entrepreneurs proposed business venture its operational and financial details its marketing opportunities and strategy its managers skills and abilities

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

The Business Plan: Three Essential Functions

1. 2. 3.

Guiding the company by charting its future course and defining its strategy for following it. Attracting lenders and investors who will provide needed capital. Demonstrating that the entrepreneur understands the business venture and what will make it succeed.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

A 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 - evaluating: a companys position relative to its competitors. managements 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.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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. Dont attempt the trip without a map!
Chapter 11: Business Plan Copyright 2005 Prentice Hall Inc. A Pearson Education Company

The relationship among mission, goals, and action.

Mission Goals

Specific Actions

Key Elements of a Business Plan

Executive

Summary

Mission Statement Company History Business and Industry Profile Business Strategy Description of Products/Services

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

Key Elements of a Business Plan

(continued)

Marketing Plan Competitor Analysis Description of Management Team Sales forecast Plan of Operation/Technological

Plan Forecasted Financial Statements Loan or Investment Proposal Summary Appendices

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

Features vs. Benefits of Product

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

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Guidelines for Preparing a Business Plan

Remember: No one can create your plan for you. Potential lenders want to see financial

projections, but they are more interested in the strategies for reaching those projections. Show how you plan to set your business apart from competitors. Identify your target market, and offer evidence that customers for your product or service exist.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Tips on Preparing a Business Plan

Make sure

your plan has an attractive cover. (First impressions are crucial.) Rid your plan of all spelling and grammatical errors. Make your plan visually appealing. Include a table of contents to allow readers to navigate your plan easily. Make it interesting.
Chapter 11: Business Plan Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Tips on Preparing a Business Plan

(continued)

Your plan must prove that the business will

make money (not necessarily immediately, but eventually). Use spreadsheets to generate financial forecasts. Keep your plan between 25 and 50 pages long. Tell the truth always.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Presenting the Plan

Demonstrate enthusiasm, but dont be overly

emotional. Know your audience thoroughly. Hook investors quickly with an up-front explanation of the venture, its opportunities, and its benefits to them. Hit the highlights; focus on the details later.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Presenting the Plan

(continued)

Avoid overloading your audience with

technological jargon. Use visual aids. Close by reinforcing the nature of the opportunity. Be prepared (with details) for potential investors questions. Follow up with every investor to whom you make your presentation.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Explain why every entrepreneur should create a business plan.

A business plan serves two essential functions. First and most important, it guides the company's operations by charting its future course and devising a strategy for following it. The second function of the business plan is to attract lenders and investors. Applying for loans or attempting to attract investors without a solid business plan rarely attracts needed capital.

Chapter 11: Business Plan

Copyright 2005 Prentice Hall Inc. A Pearson Education Company

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Explain the "5 Cs of Credit" and why they are important to potential lenders and investors reading business plans.

Small business owners need to be aware of the criteria bankers use in evaluating the credit-worthiness of loan applicants the five Cs of credit:

capital, capacity, collateral, character, and conditions.

Capital - Lenders expect small businesses to have an equity base of investment by the owner(s) that will help support the venture during times of financial strain.(The financial soundness of the company) Capacity - A synonym for capacity is cash flow. The bank must be convinced of the firm's ability to meet its regular financial obligations and to repay the bank loan. (the viability and liquidity of the business) Collateral - Collateral includes any assets the owner pledges to the bank as security for repayment of the loan.e.g bonds, shares, and, jewels etc Character - Before approving a loan to a small business, the banker must be satisfied with the owner's character. E.g. Goodwill, image, paying habits etc Conditions - The conditions - interest rates, the health of the nation's economy, industry growth rates, business cycle, currency positionetc. - surrounding a loan request also affect the owner's chance of receiving funds.
Copyright 2005 Prentice Hall Inc. A Pearson Education Company

Chapter 11: Business Plan

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