Summary Chapter 6
Chapter 6
Writing a Business Plan
Writing a Business Plan
Business plan is a
written narrative, typically 25 to 35 pages long that describes what a new
business intends to accomplish and how it intends to accomplish it.
The reasons for writing a
business plan
2 primary reason to write
a business plan
1.
Forces a firm’s founders to systematically think through
each aspect of their new venture.
2.
Communicate the merits of a new venture to outsiders,
such as investors and bankers.
Writting a business plan forces a firm’s founders to intently study every
aspect of their business, a process that’s hard
to replicate in any other way.
Who reads the business
plan and what are they looking for?
1.
A Firm’s Employees
à To articulates the vision and the future plan of a firm. A clearly written business plan also helps a firm’s rank and file employees operate in sync and move forward in a consistent and purposeful manner. And the existence of the business plan is particularly useful for the functional department heads of a young firm.
à To articulates the vision and the future plan of a firm. A clearly written business plan also helps a firm’s rank and file employees operate in sync and move forward in a consistent and purposeful manner. And the existence of the business plan is particularly useful for the functional department heads of a young firm.
2.
Investors and
Other External Stakeholders
à External stakeholders who are being recruited to join a firm, such as investors, potential business partner, and key employees, are the second audience for a business plan. To appeal to this group, the business plan must be realistic and not reflective of overconfidence on the firm’s part. Overly optimistic statements or projections undermine a business plan’s credibility, so it is foolish to include them. But at the same time, the plan must clearly demonstrate that the business idea is viable and offers potential investors financial returns greater than lower risk investment alternatives.
à External stakeholders who are being recruited to join a firm, such as investors, potential business partner, and key employees, are the second audience for a business plan. To appeal to this group, the business plan must be realistic and not reflective of overconfidence on the firm’s part. Overly optimistic statements or projections undermine a business plan’s credibility, so it is foolish to include them. But at the same time, the plan must clearly demonstrate that the business idea is viable and offers potential investors financial returns greater than lower risk investment alternatives.
Guidelines for writing a
business plan
1.
Structure of the
business plan
à Business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture- a task best accomplished by the creators of the business themselves.
à Business plan needs to project a sense of anticipation and excitement about the possibilities that surround a new venture- a task best accomplished by the creators of the business themselves.
2.
Content of the
Business Plan
à We should give a clear and concise information on all the important aspect of the proposed new venture. It must be long enough to provide sufficient information, yet short enough to maintain reader interest. And for most plans, 25 to 35 pages (and typically closer to 25 than 35 pages) are sufficient. The entrepreneur has to focus on the content of the plan.
à We should give a clear and concise information on all the important aspect of the proposed new venture. It must be long enough to provide sufficient information, yet short enough to maintain reader interest. And for most plans, 25 to 35 pages (and typically closer to 25 than 35 pages) are sufficient. The entrepreneur has to focus on the content of the plan.
a.
Style or Format of
the Business Plan
à The plan appearance must be carefully thought out. The plan must be look sharp but not give the impression that a lot of money was spent to produce it. A plastic spiral binder including a transparent cover sheet and a back sheet to support the plan is a good choice. And when writing the business plan, we should avoid getting away with the design elements include in word processing program, such as boldfaced type, italics, different font size and colors, clip arts, etc. because if we’re overuse the tools it will makes the business plan look amateurish rather than professional.
à The plan appearance must be carefully thought out. The plan must be look sharp but not give the impression that a lot of money was spent to produce it. A plastic spiral binder including a transparent cover sheet and a back sheet to support the plan is a good choice. And when writing the business plan, we should avoid getting away with the design elements include in word processing program, such as boldfaced type, italics, different font size and colors, clip arts, etc. because if we’re overuse the tools it will makes the business plan look amateurish rather than professional.
§ 3 Types of business plans:
- Summary plan: 10 to 15 pages and works best for companies that are very early in their development and are not prepared to write a full plan. Summary business plans are also used by very experienced entrepreneurs who may be thinking about a new venture but don’t want to take the time to write a full business plan.
-Full business plan: typically 25 to 35 pages long. This type of plan spells out a company’s operations and plans n much more detail than a summary business plan, and it’s the format that is usually used to prepare a business plan for an investor.
- Operational business plan: intended primarily for an internal audience. An operational business plan is a blueprint for a company’s operations. Commonly running between 40 and 100 pages in length, these plans can obviously feature a great amount of detail that provides guidance to operational managers.
- Summary plan: 10 to 15 pages and works best for companies that are very early in their development and are not prepared to write a full plan. Summary business plans are also used by very experienced entrepreneurs who may be thinking about a new venture but don’t want to take the time to write a full business plan.
-Full business plan: typically 25 to 35 pages long. This type of plan spells out a company’s operations and plans n much more detail than a summary business plan, and it’s the format that is usually used to prepare a business plan for an investor.
- Operational business plan: intended primarily for an internal audience. An operational business plan is a blueprint for a company’s operations. Commonly running between 40 and 100 pages in length, these plans can obviously feature a great amount of detail that provides guidance to operational managers.
b.
Rocognizing the
elements of the plan may change
à A final guideline is to recognize that the plan will usually change as it is being written and as the business evolves. New insight invariably emerge when entrepreneurs immerse themselves in writing the plan and start getting feedback from others.
à A final guideline is to recognize that the plan will usually change as it is being written and as the business evolves. New insight invariably emerge when entrepreneurs immerse themselves in writing the plan and start getting feedback from others.
Outline
of the business plan
Exploring
each section of the plan
1.
Cover Page and
Table of Contents: the cover page should include the company’s name, address,
and phone number, the date, the contact information for the lead entrepreneur,
and the company’s website if it has one. The contact information should be
centered at the top of the page it’s because the cover letter and the business
plan could get separated, it’s wise to include contact information in both
places. The bottom of the cover page should include information alerting the
reader to the confidential nature of the plan. And if the company already has a
distinctive trademark, it should be placed somewhere near the center of the
page.
2.
Executive summary:
a short overview of the entire business plan, it provides a busy reader with
everything she needs to know about the new venture’s distinctive nature. The most
critical point to remember when writing an executive summary is that it’s not
an introduction or preface to the business plan, instead, it’s meant to be a
summary of the plan itself. And an executive summary shouldn’t exceed two single
spaces pages. The cleanest format for an executive summary is to provide an
overview of the business plan on a section by section basis. Two identical
versions of the executive summary should be prepared, one that’s part of the
business plan and one that’s a stand alone document. The stand alone document
should be used to accommodate people who ask to see the executive summary
before they decide whether they want to see the full plan. Even though the
executive summary appears at the beginning of the business plan still it should
be written last because if the executive summary written first, it run the risk
of tying to write a plan that fits the executive summary rather than thinking
through each piece of the plan independently.
3.
Industry Analysis:
Describing the industry which the firm intend to compete and this should
include data and information about various characteristics of the industry,
such as its size, growth rate, and sales projections. It’s important to focus
strictly on the business’s industry and not its industry and target market
simultaneously. And before a business selects a target market, it should have a
good grasp of its industry, including where its industry’s promising areas are
and where its points of vulnerability are located. The industry structure refers to how
concentrated or fragmented an industry is. Fragmented industries are more
receptive to new entrants than industries that are dominated by a handful of
large firms. The most important environmental are trends, social trends,
technological advances, and political and regulatory changes. Business trends
include issues such as whether profit margins in the industry are increasing or
declining and whether input costs are going up or down. And the industry
analysis should conclude with a brief statement of your beliefs regarding the
long term prospects for the industry.
4.
Company description:
This section begins with a general description of the company. This is very
important because it’s demonstrates to your reader that you know how to
translate an idea into a business. The company history section should be brief,
but should explain where the idea for the company came from and the driving
force behind its inception. If the idea came from is heartfelt, then tell it.
Mission statement defines why a company exists and what it aspires to become. This should written carefully and used properly, because it can define the path a company takes and act as its financial and moral compass.
Tagline is a phrase that a business plans to use to reinforce its position in the marketplace.
A product or service’s position is how it’s situated relative to its rivals.
A milestone is a noteworthy or significant event.
Mission statement defines why a company exists and what it aspires to become. This should written carefully and used properly, because it can define the path a company takes and act as its financial and moral compass.
Tagline is a phrase that a business plans to use to reinforce its position in the marketplace.
A product or service’s position is how it’s situated relative to its rivals.
A milestone is a noteworthy or significant event.
5.
Market Analysis:
Distinctly different from the industry analysis because its focused on the
industry which a firm intends to compete. The market analysis breaks the
industry into segments and zeroes in on the specific segment to which the firm
will try to appeal.
Competitor analysis is a detailed analysis of a firm’s competitors, should be included.
Competitor analysis is a detailed analysis of a firm’s competitors, should be included.
6.
The economics of
the business: this section begins the financial analysis of a business, which
is further fleshed out in the financial projections. It address the basic logic
of how profits are earned in the business and how many units of a business’s
product or service must be sold for the business to “break even” and then start
earning a profit. The major revenue drivers which are the ways a business earns
money, should be identified.
The cost of goods sold are the materials and direct labor needed to produce the revenue driver.
Contribution margin: The amount per unit of sale that’s left over and is available to “contribute” to covering the business’s fixed costs and producing a profit.
the next section should provide an analysis of the business’s fixed and variable costs. The variable costs (or costs of goods sold) for each revenue driver was figured previously. Add a projection of the business’s fixed cost. A firm variable costs vary by sales, while its fixed costs are costs a company incurs whether it sells something or not.
A firm’s operating leverage is an analysis of its fixed versus variable costs.
The business’s one time start up costs should be estimated and put in a table. These cost include legal expenses, fees for business licenses and permits, website design, business logo design, and similar one time expenses. Normal operating should not be included. And it should conclude with a break even analysis.
The cost of goods sold are the materials and direct labor needed to produce the revenue driver.
Contribution margin: The amount per unit of sale that’s left over and is available to “contribute” to covering the business’s fixed costs and producing a profit.
the next section should provide an analysis of the business’s fixed and variable costs. The variable costs (or costs of goods sold) for each revenue driver was figured previously. Add a projection of the business’s fixed cost. A firm variable costs vary by sales, while its fixed costs are costs a company incurs whether it sells something or not.
A firm’s operating leverage is an analysis of its fixed versus variable costs.
The business’s one time start up costs should be estimated and put in a table. These cost include legal expenses, fees for business licenses and permits, website design, business logo design, and similar one time expenses. Normal operating should not be included. And it should conclude with a break even analysis.
7.
Marketing plan:
focus on how the business will market and sell its product or service. It deals
with the nuts and bolts of marketing in terms of price, promotion,
distribution, and sales. The best way to describe a company’s market plan is to
start by articulating its marketing strategy, positioning, and points of
differentiation, and then talk about how these overall aspects of the plan will
be supported by price, promotional mix and sales process, and distribution
strategy. A firm’s marketing strategy refers to its overall approach for
marketing its product and services. A firm’s overall approach typically boils
down to how it positions itself in its market and how it differentiates it self
from competitors.
8.
Product (or
service) design and development plan: We should describe specifically the point
that your product or service is at and provide a timeline that describes the
remaining steps.
A product prototype is the first physical manifestation of a new product, often in a crude or preliminary form. The idea is to solicit feedback and then iterate.
A product prototype is the first physical manifestation of a new product, often in a crude or preliminary form. The idea is to solicit feedback and then iterate.
9.
Operations plan: is
how your business will be run and how your product will be produces.
10. Appendix: Contain any material that doesn’t easily fit
into the body of a business plan. It contains resumes of the top management
team, photos or diagrams of product or product prototypes, certain financial
data, and market research projections. And the appendix shouldn’t be bulky and
add significant length to business plan. The appendix should just contain the
additional information vita to the plan but not approximate for the body of the
plan itself.
11. Putting it all together
Presenting
the business plan to investors
1.
The oral
presentation of a business plan
2.
Questions and
feedback to expect from investors
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