Business Plan

Zainon Che Mat

 Learning Outcomes
• After studying 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 the concept and process for developing a firm’s
business model.
6. Identify available sources of assistance in preparing a business
plan.
7. Maintain the proper perspective when writing a business plan.
 An Overview of Business Plan
• Business plan- a document that outlines the basic
concept underlying a business and describes how
that concept will be realized.

• 3 key elements in a business plan:

1. A logical statement of a problem and its
solution
2. A significant amount of cold, hard evidence
3. Candor about the risks, gaps, and other
assumptions that might be proved wrong
 3 Basic Objectives of a Business Plan

1. To identify the nature and the context of

the business opportunity – that is, why
does such an opportunity exist?

2. To outline the approach the

entrepreneur plans to use to exploit the
opportunity.

3. To recognize factors that will determine

whether the venture will be successful.
 Why Develop a Business Plan?
1. Reality Test – the market really exist.

2. Competitive Test – the company’s

position compared to competitors.

3. Value Test – to convince lenders and

investors to put their money into the
venture, a business plan must prove to
them that it offers a high probability of
repayment or an attractive rate of return.
 Users of Business Plan
Insiders Outsiders
• Entrepreneur and • Potential customers
Management Team • Lenders
• Employees • Suppliers
• Investors
– Family and friends
– Private investors
– Venture capitalists
Do you really need a Business Plan?
●
●For some startups, the environment is too turbulent for

1 extensive planning to be beneficial.

●Ability to adapt more important than a careful plan for the
●

future.

●
●Planning may pose a problem when the timing of the

2 opportunity is a critical factor.

●In some cases, becoming operational as quickly as possible may
●

have to take priority over in-depth planning.

●
●A business may be constrained by a shortage of capital that

3 planning is not an option.

●The limited profit potential and high uncertainty of the
●

opportunity make the benefits low compared to the costs.

How much planning?
• How to engage in effective planning, given the
situation.
• The Dehydrated Plan
– A short form of a business plan that presents only the
most important issues and projections for the business.
• The Comprehensive Plan
– 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.
A Business Plan Identifies the Key Factors for Success

Opportu
nity

Resourc
es

Financing Entreprene
Structure urial Team

Context
 Preparing the Document: The business planning
process

1. Set preliminary goals

2. Conduct initial secondary research
3. Confirm goals
4. Conduct subsequent detailed
research
5. Develop draft business plan
6. Critically assess the proposed plan
7. Implement
8. Evaluate the plan
 Preparing a Business Plan
1. Executive Summary
2. The Industry, Target Customers, and Competitors
3. The Company
4. The Marketing Plan
5. The Operations Plan
6. The Development Plan
7. The Growth Plan
8. The Team
9. The Financial Plan
10.Appendices
 Abbreviated Business Plan Outline
Section Heading Information Provided
Cover Page Company name, logo, tagline, contact information, copy number, date prepared, and disclaimer.
Table of Contents Listing of the key sections of the business plan.
Executive Summary One-to three-page overview of the significant points, intended to motivate the reader to continue reading.
Items: business ideas and goals, marketing, operations and finances.
Background Mission statement, company history, business goals.
Marketing - market research, market analysis (industry, seasonality, competitors, potential strategic allies, SWOT analysis), marketing plan (placement (distribution
channel), promotions and advertising, pricing policy), evaluation of marketing
Industry, Target Customer and Key characteristics of the industry, including the different segments, and the niche where you plan to compare.
Competitor Analysis
Company Descriptions Company objectives, the nature of the business, its primary products or service, its current status (startup, buyout, or expansion) and
history (if applicable), and the legal form of organization
Product/Service Plan Justification for why people will buy the product or service, based on its unique features.
Marketing Plan Marketing strategy, including the methods of identifying and attracting customers, selling approach, type of sales force, distribution
channels, types of sales promotion, and advertising, and credit and pricing policies.
Operations and Production – legal and licensing requirements, management details, organizational structure and staffing, professional advisers, insurance and security needs,
business premises, plant and equipment required, production processes, critical risks and contingency plans
Operations and Development Plan Operating or manufacturing methods, operating facilities (location, space and equipment), quality-control methods, procedures to
control inventory and operations, sources of supply and purchasing procedures.
Management Team Description of the management team, outside investors and/or directors, and plans for recruiting and training employees
Critical Risks Any known inherent risks in the venture
Offering How much capital the entrepreneur needs and how the money will be used (section used to attract investors)
Exit Strategy Ways an investor, and the entrepreneur may be able to harvest their business investment.
Financial projections – basic assumptions and information; financial forecasts (sales mix forecast, cash flow forecast, projected profit and loss statement, balance sheet,
personal expenses, assets and liabilities); and analysis of financial forecasts
Financial Plan Contemplated sources of financing; any historical financial statements, if available; pro forma financial statements for three to five
years; including income statements, balance sheets, cash flow statements, and cash budgets.
Appendix of Supporting Various supplementary materials and attachments to expand the reader’s understanding of the plan.
Documents
Remember…That the Little Things are
the Big Things

1. Use good grammar

2. Limit the presentation to a
reasonable length
3. Go for an attractive,
professional appearance
4. Describe your product or
service in lay terms
 Advice for Writing A Business Plan
1. Analyze the market thoroughly
2. Provide solid evidence for any claims
3. Think like an investor
4. Do not hide weaknesses –Identify potential fatal flaws
5. Maintain confidentiality
6. Remember that the little things are the big things
1. Use good grammar
2. Limit the presentation to a reasonable length
3. Go for an attractive, professional appearance
4. Describe your product or service in lay terms
Understanding the Business Model
• Basic Business Model Framework
 Resources for Business Plan Preparation
• Computer-Aided Business Planning
– A number of business plan software packages
have been designed to help an entrepreneur think
through the important issues in starting a new
company and organize his or her thoughts to
create an effective presentation.
– You can also use websites, workshops and
software packages online to help you write a
business plan.
• Professional Assistance in Business Planning
– Business planning advisor: someone accustomed
to working with small companies, startups, and
owners who lack financial management
experience.
– They might be accountants, marketing specialists,
attorneys, incubator organizations, small business
development corporations and regional and local
economic development offices.
 Tips before hiring
consultants:

1. Get referrals – ask colleagues,

acquaintances, and professionals such as
bankers, accountants, and lawyers for the
names of business plan consultants they
recommend.
2. Look for a fit – find a consultant who is an
expert in helping businesses like yours.
3. Check references- get the names of at
least three clients the consultant has
helped to write business plans.
4. Get it in writing – have a legal contract
outlining the consultant’s services.
 Keeping the Right Perspective
• Business plan. No matter how beneficial, is not a business.

• A good business plan leads to a successful company only

when it is effectively executed by the entrepreneur and
the management team.

• Writing a business plan should be thought of as an

ongoing process and not as the means to an end.

• Your plan represent your vision and goals for the firm, it
rarely reflect what actually happens.

• Business plan is in large part an opportunity for an

entrepreneur and management team to think about the
potential key drivers of a venture’s success or failure.

• Anticipating different scenarios and the ensuing

consequences that enhance an entrepreneur’s
adaptability – quality.
 Do Not Make These Business Plan Mistakes

1. Failure to explain the business opportunity clearly.

2. Trying to be everything to everybody.
3. Falling into the “Chinese soda” trap. (thinking about big
market out there, for a small business – not realistic)
4. Unrealistic financial projections
5. Forgetting the importance of cash flow
6. Overly simplistic assumptions
7. Weak competitor analysis
8. Failure to describe the company’s competitive advantage
9. Counting on a low-price strategy for success
10. A sloppy plan that contains errors
11. Exaggerating the qualifications of the management team
12. A plan that is incomplete
 What Lenders and Investors Look for in a
Business Plan? “5Cs”
1. Capital
– must have a stable capital base.
2. Capacity
– cash flows, ability to meet its regular financial obligations and to
repay loans.
3. Collateral
– assets as security for repayment of a loan.
4. Character
– honesty, integrity, competence, polish, determination,
intelligence, and ability. (FAIL – not competent and high-risk
entrepreneur).
5. Conditions
– conditions surrounding a funding request also affect an
entrepreneur’s chances of receiving financing.
– Potential growth in the market, competition, location, strengths,
weaknesses, opportunities, and threats.
 Feasibility Analysis
1. Industry and Market Feasibility Analysis
– Five forces model – rivalry among competing firms,
bargaining power of suppliers, bargaining power of buyers,
threat of new entrants, and threat of substitute products or
services on an industry
2. Product or Service Feasibility Analysis
– An analysis that determines the degree to which a product
or service idea appeals to potential customers and identifies
the resources necessary to produce the product or provide
the service
3. Prototypes
– An original, functional model of a new product that
entrepreneurs can put into the hands of potential customers
so that they can see it, test it, and use it
4. Financial Feasibility Analysis
– capital requirements, estimated earnings, return on
investment
 Class Discussion 1
• You want to start an online clothing store and need information about the size of
the market for the marking section of your business plan.

• From a Google search, you found that Americans spent $18.3 billion online for
apparel, accessories and footwear last year and that the forecast for their
spending on these items in the coming year is $22.1 billion.

• You have also researched publicly traded apparel companies, like Gap, to discover
trends in online sales for these firms.

• Question 1: Why is your research thus far inadequate for what you need to know?

• Question 2: Do you think it will be difficult to find all the information you need?

• Question 3: What else might you do to find the information you need?
 Class Discussion 2
• A former chef wants to start a business to supply temporary
kitchen help ( such as chefs, sauce cooks, bakers, and meat
cutters) to restaurants in need of staff during busy periods.
Prepare a one-page report explaining which section or
sections of the business plan would be most crucial to this
new business and why.
 References
• Petty, J.W., Palich, L.E., Hoy, F., and Longenecker, J.G. (2012),
Managing Small Business: An Entrepreneurial Emphasis, 16th
edition, South-Western, Cengage Learning.
• Scarborough, N.M. (2014), Essentials of Entrepreneurship and
Small Business Management, 7th edition, Pearson, Global
Edition.
• Schaper, M., and Volery, T. (2007), Entrepreneurship and Small
Business, 2nd Pacific Rim Edition, John Wiley & Sons Australia,
Ltd.