The Business Plan: Visualizing the Dream CHAPTER 6

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.
PowerPoint 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.
6–2
An Overview of the Business Plan
• Business Plan
 A document that sets out the basic idea underlying a
business and related startup considerations
• The Purpose of a Business Plan
 Identifies the nature and context of the business
opportunity
 Presents the entrepreneur’s approach to exploiting the
opportunity
 Identifies factors affecting the venture’s success
 Serves as the entrepreneur’s tool for raising capital
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6–3
6-1
Users of Business Plans
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6–4
The Need for a Business Plan
• Primary Functions
To provide a clearly articulated statement of goals and
strategies for internal use
 Imposes
discipline on the entrepreneur and
management team
To serve as a selling document to be shared with
outsiders
 Provides
a credible overview for prospective
customers, suppliers, and investors
 Helps
secure favorable credit terms from suppliers
 Opens
approaches to lenders and other sources of
financing
© 2008 Cengage Learning. All rights reserved.
6–5
How Much Business Planning is Needed?
• Factors affecting the extent of a business plan:
Cost in time and money to prepare the plan
Management style and ability
Preferences of the management team
Complexity of the business
Competitive environment
Level of uncertainty
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6–6
Keeping the Right Perspective
• Good business plans don’t ensure success.
 Effective implementation is what succeeds.
• Writing a business plan is an ongoing process
and only secondarily the means to an outcome.
 The process is just as important as—if not more so
than—the finished product.
 The plan represents what is has been anticipated; a
good entrepreneur adapts the plan to fit the
unexpected.
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6–7
Types of Business Plans
• Dehydrated Plan
 A short form of a business plan that presents only the
most important issues and projections.
• 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.
© 2008 Cengage Learning. All rights reserved.
6–8
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
 Clear writing that effectively communicates

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6–9
Deciding on the Content of a Business Plan
• Factors that help determine the content of a
business plan for a startup:
 The entrepreneurial team
 The opportunity
 The resources
 The deal structure
 The big picture
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6–10
6-2
Good Opportunities Have Good “Fit”
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6–11
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
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6–12
The Content of a Business Plan
• Cover Page
 Company name, address, phone number, fax number,
and website
 Tagline and company logo
 Name and contact information of contact person
 Date on which the business plan was prepared
 Confidentiality disclaimer
 Number of the copy
• Table of Contents
 Provides a sequential listing of the sections of the
plan, with page numbers
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6–13
The Content of a Business Plan (cont’d)
• Executive Summary/Synopsis/Narrative
 Description of the opportunity
 Explanation of the business concept
 Industry overview
 Target market
 Competitive advantage to be achieved in the market
 Economics of the opportunity
 Management team description
 Amount and purpose of the money being requested
(the “offering”) if seeking financing
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6–14
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 spent2, up from 44.6% in 1990 and 26.3% in 19603. By 2010, 53% of
food dollars will be spent on away-from-home sources4.
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” items5; 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 11am–10pm, 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
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6–15
The Content of a Business Plan (cont’d)
• Industry Description
 Broader industry in which the firm will compete
 Industry
size, growth rate, trends, and competitors
 Different segments of the industry
 Niche in which the firm plans to participate
• Target Customers
 Demographics and psychological variables—values,
attitudes, and fears
• Competitor Analysis
 Product or service attributes that are or are not
provided by competitors
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6–16
The Content of a Business Plan (cont’d)
• Company Description
 When and where was this business started?
 What is the history of the company?
 What are the firm’s objectives?
 What changes in structure and/or ownership?
 In what stage of development is the firm?
 What has been achieved to date?
 What is the firm’s distinctive competence?
 What are the nature and activity of the business?
 What is its primary product or service?
 What customers will be served?
 What is the firm’s form of organization?
 What are the projected economic states of the industry?
 How is ownership of the firm to be structured?
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6–17
The Content of a Business Plan (cont’d)
• Products/Service Plan
 Describes the product and/or service to be provided
and explains its merits
• Marketing Plan
 Describes the user benefits of the product or service
and the type of market that exists
• Operations and Development Plan
 How product will be produced or service provided
• Management Plan
 Describes the firm’s organizational structure and the
backgrounds and qualifications of key personnel
© 2008 Cengage Learning. All rights reserved.
6–18
The Content of a Business Plan (cont’d)
• Critical Risks
 Identifies the potential risks that may be encountered
by an investor
• Offering
 Indicates to an investor how much money is needed
and when, and how the money will be used
• Financial Plan
 Projects the company’s financial position based on
well-substantiated assumptions and explains of how
the figures have been determined
 Pro forma statements project a firm’s financial
condition for up to five years.
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6–19
The Content of a Business Plan (cont’d)
• Appendix of Supporting Documents
 Supplementary materials and attachments to expand
the reader’s understanding of the plan:
 Résumés
of key investors and owners/managers
 Professional
references
 Photographs
of products, facilities, and buildings
 Marketing
 Pertinent
 Signed
research studies
published research
contracts of sale
© 2008 Cengage Learning. All rights reserved.
6–20
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
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6–21
Presenting the Business Plan to Investors
• Attracting Investors
 A business plan must be an effective marketing
document that quickly captures investor interest.
• Understanding the Investor’s Perspective
 Entrepreneurs are optimists; investors are skeptics.
 Investors focus on break-even and positive cash flow.
 Investors have a short attention span.
 Bad information and poor preparation cause investors
to lose interest quickly.
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6–22
Plan Features that Attract Investors
• Plans that speak the investors’ language:
 Are market-oriented in meeting customer
needs; are not product-oriented.
 Show evidence of target customer acceptance
of the proposed product or service.
 Present credible and not overly optimistic
financial projections.
 Are not a formal prospectus or
offering memorandum.
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6–23
Plans Features that Attract Investors
(cont’d)
 Recognize the investors’ needs for required rates of
return on investments.
 Demonstrate evidence of focus on a limited number of
products or services
 Have a proprietary market position
through patents, copyrights,
and/or trademarks
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6–24
Features of Plans Unattractive to Investors
• Plans that create unfavorable reactions:
Show an infatuation with the product or service and
downplay market needs or acceptance.
Are based on financial projections at odds with
accepted industry norms.
Have unrealistic growth projections.
Contain a need for custom or
applications engineering,
which makes substantial
growth difficult.
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6–25
Resources for Business Plan Preparation
• Computer-Aided Business
Planning
• Professional Assistance
(cont’d)
Word-processors
 Small business
Spreadsheets
development centers
(SBDCs)
 Incubator organizations
 Regional and local
economic development
offices.
 Service Corps of Retired
Executives (SCORE)
 FastTrac Entrepreneurial
Training Program
Specialized business plan
software packages
• Professional Assistance
Accountants
Marketing specialists
Attorneys
Investment banker
Financial intermediary
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6–26
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.
6–27
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.
6–28
What Not to Do
• Mistakes to avoid in preparing a business plan:
 Failing to provide solid data.
 Failing to describe the product in lay terms.
 Failing to thoroughly analyze the market.
 Including financial statements that are overly detailed
or incomplete.
 Hiding weaknesses.
 Overlooking the fatal flaw.
 Using bad grammar.
 Making the overall plan too long.
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6–29