Writing the Business Plan
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Writing the Business Plan Jeffrey A. Carr Clinical Professor of Marketing and Entrepreneurship Executive Director, Berkley Center Agenda Evaluation Criteria Business Plan Overview Business Plan Sections Avoiding Pitfalls Evaluation Criteria

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Writing the Business Plan

Jeffrey A. Carr

Clinical Professor of Marketing and Entrepreneurship

Executive Director, Berkley Center


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Agenda

  • Evaluation Criteria

  • Business Plan Overview

  • Business Plan Sections

  • Avoiding Pitfalls

Berkley Center for Entrepreneurial Studies


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Evaluation Criteria

  • Poor (1) Fair (2) Adequate (3) Good (4) Excellent (5)

  • Executive Summary (10%) Clear, exciting, and effective as a stand-alone overview of the plan.

  • Company Overview (10%) Presents a vision, history, business mission, current status, competitive strategy, goals, and objectives for the business.

  • Products or Services (10%) Describes the key features and benefits, current stage of development, proprietary position, and competitive advantages of the product or service.

  • Market Analysis (10%) Presents the growth trends and key driving forces of the industry; identifies the key characteristics and needs of the target market(s); assesses the competitive environment; details sales/promotion plan; demonstrates market acceptance for the product or service.

Berkley Center for Entrepreneurial Studies


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Evaluation Criteria

  • Management Team (10%) Backgrounds and roles of key individuals; history and ability to work as an effective team; personnel needs; organizational structure.

  • Operating Strategies (10%) Addresses the marketing, production, R&D, personnel, administrative, and financial strategies for the proposed firm.

  • Critical Risks (10%) Realistically identifies the major internal and external critical risks that could threaten the business and presents viable contingency plans to address these issues.

Berkley Center for Entrepreneurial Studies


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Evaluation Criteria

  • Financial Statements (15%) Presents a realistic assessment of income statement and cash flow

    • Projected 5-year period

    • Cash flows are consistent with operating and marketing strategies outlined in the body of the plan

    • Cash flow information detailed for first 2 years, quarterly/annually for years 3-5.

    • Realistic assessment of the working capital and fixed asset requirements of the business

    • Projected capital structure of the business—long term debt and equity positions

    • Balance sheet information is projected annually for 5 years.

Berkley Center for Entrepreneurial Studies


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Evaluation Criteria

  • Funds Required/Used (15%) Clear and concise presentation of amount, timing, type and use of funds required

    • Articulates the proposal/terms to investors

    • What entrepreneur is seeking from investors

    • How much equity will be given up in return for investment capital

    • Realistic assessment of ROI potential

    • Deal structure and possible exit scenarios.

Berkley Center for Entrepreneurial Studies


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Agenda

  • Evaluation Criteria

  • Business Plan Overview

  • Business Plan Sections

  • Avoiding Pitfalls

Berkley Center for Entrepreneurial Studies


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Ten Questions

  • Is the business an opportunity with real potential or just an idea?

  • Does the product or service add significant value to the customer?

  • Is the industry in which the product or service will compete growing, stable, or declining?

  • Does the firm have a well-defined target market?

  • Does the firm have an exciting and sensible business model? Will the firm be able to defend its position?

Berkley Center for Entrepreneurial Studies


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Ten Questions

  • How will the firm’s competitors react to its entrance into its markets?

  • Is the management team experienced, skilled, and up to the task of launching the new firm?

  • Is the firm organized in an appropriate manner?

  • Are the financial projections realistic. Do they project a bright future for the firm? What rate of return can investors expect?

  • What are the critical risks surrounding the business, and does the management team have contingency plans in place if risks become actual problems?

Adapted from Entrepreneurship: Successfully Launching New Ventures by Barringer & Ireland (2006)

Berkley Center for Entrepreneurial Studies


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The Well-Written Business Plan

  • Orderly

  • Succinct

  • Persuasive

    • Draws readers in, keeps their interest, and convinces them of the potential for this opportunity

  • Based on reasonable assumptions

  • Answers the important questions – Articulates how your team will address the 3-5 key drivers of your business

Berkley Center for Entrepreneurial Studies


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Additional Tips

  • Prioritize the points you are making into three categories:

    • Need to know – without this the plan makes no sense

    • Good to know – directly supports and gives context to your essential points

    • Nice to know – to Appendix?

Berkley Center for Entrepreneurial Studies


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Agenda

  • Evaluation Criteria

  • Business Plan Overview

  • Business Plan Sections

  • Avoiding Pitfalls

Berkley Center for Entrepreneurial Studies


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Executive Summary

  • Arguably the most important section of the business plan

  • Highlights from each section of the BP

  • Do not cut and paste!

  • Should be written and re-written during the planning process

Berkley Center for Entrepreneurial Studies


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New Venture Idea

  • What existing need or want does the concept fill? What is the problem you solve?

  • Describe the service/product. How will it change the way people live or work?

  • Who is your customer? What are your market segments?

  • What is the unique selling benefit? (e.g. why will they buy?)

Berkley Center for Entrepreneurial Studies


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Financial Model

  • Sources of revenue and funding—required investment

  • Financial returns

  • What are your cash needs for operations? Cash flow statement—start-up and growth

  • Financial projections—5 year income statement with revenue, cost of goods sold, expenses and projected margins.

  • How do you plan to scale the business?

Berkley Center for Entrepreneurial Studies


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Market Analysis

  • Size of potential market

  • Target segments

  • Current competition and possible new entrants

  • What are the critical success factors/risks and how will you manage them?

  • What is your competitive advantage?

  • How will you “go to market?” What is the marketing plan—branding & 4Ps

Berkley Center for Entrepreneurial Studies


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Operations Plan

  • How does the business work?

    • Product development

    • Logistics

    • Human resources

    • Physical facilities

    • Operating and sales cycle

  • Articulate milestones for new venture. What is your current status?

Berkley Center for Entrepreneurial Studies


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Management

  • What are the team’s qualifications for executing the plan successfully?

  • Who are the necessary key hires?

Berkley Center for Entrepreneurial Studies


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Critical Success/Risk Factors

  • “If anything can go wrong, it will.”

  • Evaluate weaknesses of business

    • Management Risks

    • Marketing Risks

    • Operating Risks

    • Financial Risks

  • Contingency plans

Berkley Center for Entrepreneurial Studies


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Critical Risk Examples

  • Price cutting by competitors

  • Sales projections not achieved, thus reducing cash flows

  • Design, manufacturing, or shipping costs that exceed estimates

  • Product development or production schedules that are not met

  • Problems stemming from top management’s lack of experience

  • Difficulties in raising additional financing

  • Industry trends make the product/service less desirable or marketable

  • Political, economic, social, or technological trends or developments (e.g., new government legislation, recession, new technologies)

Berkley Center for Entrepreneurial Studies


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Social Ventures – 4 Key Issues

  • Social Impact

    • Does the venture make a significant social impact?

  • Social Innovation

    • Is the venture using a new approach to addressing the social/environmental issue?

  • Sustainability

    • Is the venture financially viable? Is the venture positioned to fulfill its mission over the long term?

  • Measurement

    • How does the venture measure its social impact and evaluate success?

    • Are the measurement tools appropriate for this type of venture?

Berkley Center for Entrepreneurial Studies


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Agenda

  • Evaluation Criteria

  • Business Plan Overview

  • Business Plan Sections

  • Avoiding Pitfalls

Berkley Center for Entrepreneurial Studies


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Why Business Plans Fail

  • The plan is poorly prepared and has an unprofessional look

  • The executive summary is unclear and/or not concise

  • The business is “so unique that there are no competitors.”

  • No clear answer is provided to the question: “Why would anyone ever want to buy one?”

  • The entrepreneur has never spoken to a potential customer.

Berkley Center for Entrepreneurial Studies


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Why Business Plans Fail

  • It’s not clear where the product is in terms of development—does it exist? Can it be readily manufactured?

  • Describes technical products or manufacturing processes using jargon in a way that only an expert can understand

  • Financial projections are largely an exercise in wishful thinking

Berkley Center for Entrepreneurial Studies


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Why Business Plans Fail

  • The financials are heavy on irrelevant details but have flaws in the most important assumptions or overly high compensation for the founder.

  • There is no discussion of either how a loan will be repaid or how an investor will get his cash out with a satisfactory return.

  • It gives no clear statement of the qualifications of the management team

  • The entrepreneur has not been completely honest in the document.

Berkley Center for Entrepreneurial Studies


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Questions

  • GOOD LUCK!!

Berkley Center for Entrepreneurial Studies


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