the Venture McCiav-HiII/Iivin Lnliopionouiship, 7/o Corlght 2008 The McGrau-Hl|| Comanles, lnc. A|| rlghts reserted. ,5907
lannlng as arL of 1he 8uslness CperaLlon W lannlng ls a process whlch never ends for a buslness W lL ls exLremely lmporLanL ln Lhe early sLages of any new venLure when Lhe enLrepreneur wlll need Lo prepare a prellmlnary buslness plan W As Lhe venLure grow up Lo maLure buslness plannlng wlll conLlnue W lan may be shorL Lerm or long Lerm sLraLeglc or operaLlonal JhaL ls 8uslness lan? W 1he buslness plan ls a wrlLLen documenL prepared by Lhe enLrepreneur LhaL descrlbes all Lhe relevanL lnLernal and exLernal elemenLs and sLraLegles for sLarLlng a new venLure 1he 8uslness lan W A road map for Lhe buslness W lL ls an lnLegraLlon of funcLlonal plans (MarkeLlng lln P8 ManufacLurlng) W Addresses flrsL Lhree years of operaLlon W Llke Lhe enLrepreneur Lhe Lraveler musL make some lmporLanL declslons and gaLher lnformaLlon before preparlng Lhe plan (ulscusslon) Jhere am l now Jhere am l golng Pow wlll l geL Lhere Jhere am l now Jhere am l golng Pow wlll l geL Lhere 8oad map eshawar Lo naran 8oad map eshawar Lo naran Jho should wrlLe Lhe plan? W 1he buslness plan should be prepared by Lhe enLrepreneur W 1he enLrepreneur may consulL wlLh many oLher sources ln lLs preparaLlon such as cope and value of Lhe 8uslness lan Jho 8eads 1he lans? W 1he buslness plan may be read by employees lnvesLors bankers venLure caplLallsLs suppllers cusLomers advlsors and consulLanLs W 1here are Lhree perspecLlves should be consldered ln preparlng Lhe plan erspecLlve of Lhe enLrepreneur W L knows beLLer Lhan anyone else creaLlvlLy Lechnology lnvolved W Clearly arLlculaLe whaL Lhe venLure ls all abouL MarkeLlng perspecLlve W 'L' ofLen conslder producL C8 Lechnology and noL wheLher W omeone would buy lL vlew buslness Lhru eyes of Lhelr cusLomers lnvesLor's perspecLlve W ound flnanclal pro[ecLlons requlred cope and value W 1he buslness plan ls valuable Lo Lhe enLrepreneur poLenLlal lnvesLors or even new personnel who are Lrylng Lo famlllarlze Lhemselves wlLh Lhe venLure lL goals and ob[ecLlves lL helps deLermlne Lhe vlablllLy of Lhe venLure ln a deslgnaLed markeL lL provldes guldance Lo Lhe enLrepreneur ln organlzlng hls or her plannlng acLlvlLles lL serves as an lmporLanL Lool ln helplng Lo obLaln flnanclng W oLenLlal lnvesLors are very parLlcular abouL whaL should be lncluded ln Lhe buslness plan W uepLh and deLall ln Lhe buslness plan depend on lze and scope of Lhe proposed new venLure naLure of Lhe producL or markeL comprehenslve plan for orLable CompuLer / reLall vldeo sLore / ecommerce buslness S|ze of the market Compet|t|on otent|a| growth cope and value W The thinking process required to complete the plan is a valuable experience for the entrepreneur. rovldes a selfassessmenL by Lhe enLrepreneur lorces Lhe enLrepreneur Lo brlng ob[ecLlvlLy Lo Lhe ldea Pelps conslder obsLacle LhaL mlghL prevenL Lhe venLure from succeedlng llows to plan ways to avoid such obstacles. W f required, the entrepreneur may decide to terminate the business endeavor. Pow do oLenLlal Lenders and lnvesLors LvaluaLe 1he lan? W lour Cs of CredlL CharacLer W CharacLer refers Lo Lhe flnanclal hlsLory of Lhe borrower LhaL ls wheL klnd of flnanclal clLlzen ls Lhls person or buslness? CharacLer ls mosL ofLen deLermlned by looklng aL Lhe credlL hlsLory W ! Morgan a successful buslnessman once sald LhaL l wlll do buslness wlLh anyone as long as he/she ls honesL! ln analyzlng coosomet cteJlt one would conslder Lhe followlng Pas Lhe person declared bankrupLcy ln Lhe pasL uoes Lhe person have a good credlL record uoes he/she have a sLable [ob JhaL ls Lhe level of educaLlon/experlence JhaL ls Lhe person earnlng and whaL ls Lhe earnlng poLenLlal LablllLy aL Lhe place of resldence wheLher renLed or owned Cash flow W Cash f|ow ls Lhe movemenL of cash lnLo or ouL of a buslness pro[ecL or flnanclal producL Cash lnflows usually arlse from one of Lhree acLlvlLles flnanclng operaLlons or lnvesLlng alLhough Lhls also occurs as a resulL of donaLlons or glfLs ln Lhe case of personal flnance Cash ouLflows resulL from expenses or lnvesLmenLs 1hls holds Lrue for boLh buslness and personal flnance Pow do oLenLlal Lenders and lnvesLors LvaluaLe 1he lan? W lour Cs of CredlL CollaLeral (guaranLee/securlLy) W CollaLeral ls Lhe cash and asseLs a buslness owner pledges Lo secure a loan ln addlLlon Lo havlng good credlL a proven ablllLy Lo make money and buslness asseLs banks wlll ofLen requlre an owner Lo pledge hls or her own personal asseLs as securlLy for Lhe loan 8anks requlre collaLeral because Lhey wanL Lhe buslness owner Lo suffer lf Lhe buslness falls lf an owner dldnL have Lo puL up any personal asseLs he or she mlghL [usL walk away from Lhe buslness fallure and leL Lhe bank Lake whaL lL can from Lhe asseLs Pavlng collaLeral aL rlsk makes Lhe buslness owner more llkely Lo work Lo keep Lhe buslness golng as banks reason lL CapaclLy W CapaclLy refers Lo Lhe ablllLy of Lhe buslness Lo generaLe revenues ln order Lo pay back Lhe loan lnce a new buslness has no Lrack record of proflLs lL ls rlsklesL for a bank Lo conslder lf you are buylng a buslness capaclLy ls easler Lo deLermlne and a buslness LhaL can show a poslLlve cash flow (where lncome exceeds expenses) for a susLalned perlod of Llme has a good chance of geLLlng a buslness loan LvaluaLlng Lhe lan W 1he buslness plan musL address LrengLhs of managemenL and personnel roducL or servlce Avallable resources W LnLrepreneur prepares a flrsL drafL of Lhe buslness plan from a personal vlewpolnL ApproprlaLe changes are necessary as enLrepreneur ls aware of Lhe audlence N uppllers N CusLomers N oLenLlal suppllers of caplLal Lenders and lnvesLors W Lenders A lender ls any lnsLlLuLlon or lndlvldual who loans a borrower money rlmarlly lnLeresLed ablllLy of Lhe new venLure Lo pay back Lhe debL W 8anks JanL facLs wlLh an ob[ecLlve analysls W lnvesLors parLlcularly venLure caplLallsLs have dlfferenL needs lace more emphasls on Lhe enLrepreneur's characLer pend much Llme conducLlng background checks lnvesLors wlll also demand hlgh raLes of reLurn resenLlng 1he lan W lL ls ofLen necessary for an enLrepreneur Lo orally presenL Lhe buslness plan before an audlence of poLenLlal lnvesLors W ln Lhls Lyplcal forum Lhe enLrepreneur would be expecLed Lo provlde a shorL (perhaps 20mlnuLes or halfhour) presenLaLlon of Lhe buslness plan W LnLrepreneur ls expecLed Lo sell" hls or her buslness concepL locus ls on why Lhls ls a good opporLunlLy Concludlng remarks may reflecL recognlzed rlsks and how Lhe enLrepreneur plans Lo address Lhem lnformaLlon needs W 8efore creaLlng a buslness plan enLrepreneur musL underLake a feaslblllLy sLudy concepL Lo see wheLher Lhere a any posslble barrlers Lo success lnformaLlon for a feaslblllLy sLudy should focus on W MarkeLlng (segmenLlng LargeLlng and poslLlonlng) W llnance (llsL of all posslble expendlLures demand forecasL revenue) W roducLlon (locaLlon manufacLurlng operaLlons raw maLerlals equlpmenL labor skllls space overhead) lnLerneL can be a valuable resource W leaslble welldeflned goals and ob[ecLlves need Lo be esLabllshed MarkeLlng lnformaLlon W MarkeL poLenLlal for Lhe producL or servlce W lze and deflne Lhe markeL Lxample ls Lhe producL mosL llkely Lo be purchased by men or women? eople of hlgh lncome or low lncome? Plghly educaLed or less educaLed people? Jelldeflned markeL slzeeasler Lo pro[ecL markeL/ goals for new venLure CperaLlons lnformaLlon needs W LnLrepreneur may need lnformaLlon on LocaLlon ManufacLurlng operaLlons baslc machlnes need Lo be ldenLlfled/ subconLracL 8aw maLerlals suppller deLalls/ cosL should be deLermlned LqulpmenL llsL lf lLs golng Lo leased or purchased Labor skllls # of personnel ln each sklllpay raLes pace LoLal space needed should be deLermlned Cverhead lLem needed Lo supporL manufacLurlng/ Lools supplles uLlllLles salarles W MosL of Lhe lnformaLlon should be lncorporaLed dlrecLly lnLo Lhe buslness plan CuLllne of a 8uslness lan (1 of 2) !. !ntroductory Page A. Name and address of business B. Name(s) and address(es) of principal(s) C. Nature of business D. Statement of financing needed E. Statement of confidentiality of report !!. Executive Summary-Three to four pages summarizing the complete business plan !!!. !ndustry Analysis A. Future outlook and trends B. Analysis of competitors C. Narket segmentation D. !ndustry and market forecasts !v. Description of venture A. Product(s) B. Service(s) C. Size of business D. Office equipment and personnel E. Background of entrepreneur(s) v. Production Plan A. Nanufacturing process (amount subcontracted) B. Physical plant C. Nachinery and equipment D. Names of suppliers of raw materials v!. Operational Plan A. Description of company's operation B. Flow of orders for goods and/or services C. Technology utilization CuLllne of a 8uslness lan (2 of 2) v!!. Narketing Plan A. Pricing B. Distribution C. Promotion D. Product forecasts E. Controls v!!!. Organizational Plan A. Form of ownership B. !dentification of partners or principal shareholders C. Authority of principals D. Nanagementteam background E. Roles and responsibilities of members of organization !X. Assessment of Risk A. Evaluate weakness(es) of business B. New technologies C. Contingency plans X. Financial Plan A. Assumptions B. Pro forma income statement C. Cash flow projections D. Pro forma balance sheet E. Breakeven analysis F. Sources and applications of funds X!. Appendix (contains backup material) A. Letters B. Narket research data C. Leases or contracts D. Price lists from suppliers Dslng and lmplemenLlng 1he 8uslness lan W 1he buslness plan ls deslgned Lo gulde Lhe enLrepreneur Lhrough Lhe flrsL year of operaLlons W lmplemenLaLlon of Lhe sLraLegy conLaln conLrol polnL Lo ascerLaln progress and Lo lnlLlaLe conLlngency plan lf necessary W 8uslness plan noL end up ln a drawer somewhere once Lhe flnanclng has been aLLalned and Lhe buslness launched Measurlng lan rogress W LnLrepreneur should check Lhe proflL and loss sLaLemenL cash flow pro[ecLlons and lnformaLlon on lnvenLory producLlon quallLy sales collecLlon of accounLs recelvable and dlsbursemenL( cosL/expense paymenL) for Lhe prevlous monLh roflL and loss sLaLemenL Cash flow pro[ecLlons roducLlon conLrol compare cosL flguresday Lo day operaLlon cosL CuallLy conLrol producL performs saLlsfacLory ulsbursemenLs conLrol amounL of money pald ouL lnvenLory conLrol ales conLrol DpdaLlng Lhe lan W 1he mosL effecLlve buslness plan can become ouLof daLe lf condlLlon change W lf Lhe change are llkely Lo affecL Lhe buslness plan Lhe enLrepreneur should deLermlne whaL revlslons are needed W ln Lhls manner Lhe enLrepreneur can malnLaln reasonable LargeLs and goals and keep Lhe new venLure on a course LhaL wlll lncrease probablllLy of success Jhy ome 8uslness lans lalls? W Coals seL by Lhe enLrepreneur are unreasonable W Coals are noL measurable W 1he enLrepreneur has noL made a LoLal commlLmenL Lo Lhe buslness or Lo Lhe famlly W 1he enLrepreneur has no experlence ln Lhe planned buslness W 1he enLrepreneur has no sense of poLenLlal LhreaLs or weaknesses Lo Lhe buslness W no cusLomer need was esLabllshed for Lhe proposed producL or servlce