Business Plan The Business Plan BU113: Foundations of Business Administration BU113: Foundations of Business Administration
New business start-ups each year: 150,000-190,000 Business failures each year: 50,000-100,000 Memorable statistics
Failure due to Managerial incompetence or inexperience Neglect Weak control systems Insufficient capital Success due to Hard work, drive, and dedication Market demand for product/service Managerial competence Luck Reasons for Failure and Success of Businesses
Business Plan—definition • Definition (Ebert & Griffin, 2007): A document in which the entrepreneur summarizes her or his business strategy for the proposed new venture and how that strategy will be implemented. • A detailed description of the proposed business, including types of customers, competitors, and facilities needed for production • Includes 3 functions of business: management, marketing, and finance • Includes all supporting documents
Purpose • Explain the concept of the proposed business (incl. the nature of the product). • Analyze the market. • Present strategy. • Outline the projected development of the business. • Define capital needs and procurement. • Project financial performance. • Present management’s credentials.
Target Audience: Who might use the Business Plan? • Investors • Owners of the company (the management team) • Banks or other lenders (creditors) • Potential suppliers
The Cover Sheet • Company name • Address of the head office • The Management Team • Phone numbers • Note: Mark it “Confidential.”
Business Plan—Format & Components • Start with a Table of Contents, including page numbers! • Use Report form – headings, no indentations. • Your company’s mission statement • The business: • Management: Organization, goals, strategies for obtaining them, & implementation • Marketing Plan • Financial Plan • Supporting documents • Revised resumes • Company logo • Organization chart • PowerPoint slides in handout form
Mission Statement • A mission statement is a brief description of a company’s fundamental purpose. A mission statement answers the questions, “Why do we exist?” “What do we hope to achieve in the future?” • The mission statement articulates the company’smoral/ethical position, public image, the target market, products/services, the geographic domain and expectations of growth and profitability(Center for Business Planning: http://www.businessplans.org).
Mission -- Examples • “It is the mission of Saint Michael’s College to contribute through higher education to the enhancement of the human person and to the advancement of human culture in the light of the Catholic faith.” (SMC Catalogue) • The Home Depot is in the home improvement business and our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are a values-driven company and our eight core values include the following: • Excellent customer service • Taking care of our people • Giving back • Doing the "right" thing • Creating shareholder value • Respect for all people • Entrepreneurial spirit • Building strong relationships http://ir.homedepot.com/faq.cfm?FAQPage=FAQ
Business Plan—Management • Type of organization / form of business ownership • Organization chart • Management team • Experience • Skills • Roles in the business • Supporting documents: Resumes XYZ Company
Business Plan—Marketing • Product / Service • Key characteristics, uniqueness • Picture, design / model • Supplier • Amount of inventory to be ordered • Target market • Users -- demographics • Benefits • Economic / social / cultural characteristics • Projected sales (revenue): calculated
Business Plan—Marketing • Competition • Who? • Strengths • Weaknesses
Business Plan—Marketing • Price • Pricing strategy • Pricing strategy vs. competition • Promotion • Promotional strategy: developing demand for product • Place / distribution • Getting the product from production to the consumer
Supporting documents • List of Shareholders: Attach a table with the information about your shareholders’ investment. • name • contact information • number of shares invested • percent ownership in the company based on the number of shares owned • Revised resumes of each manager • Company logo • PowerPoint slides in handout form (6 slides per page)
Business Plan—Finance • Concerns of investors • Demand for product • Management characteristics and experience • Innovation • Track record • Rate of return • Amount of risk • Financial projections • Outlook for competitiveness of business • Growth curve of business • Future plans
Financial Plan Financial Plan BU113: Foundations of Business Administration BU113: Foundations of Business Administration
Purpose—Financial Plan • Determine feasibility of business • Determine capital needed to start business • Estimate return to shareholders
Capital Needed to Start Business • Determine total amount of capital needed to start the business • Do you need to: • Buy equipment? • Buy product/raw materials for product to sell? (Include in product cost: transportation & packaging) • Buy supplies for advertising • Pay taxes?
Financing Sources: How to Raise Money • Sources: Selling stock or borrowing money • Stock sales: 25 cents/share • Inside shareholders (management team). What percent of company do you want to own? • Outside shareholders (sell to others at marketplace) • You must offer at least 20 shares to outside shareholders. • Specify what percent ownership 1 share represents • EX: If you plan to sell 100 total shares to management and outsiders, 1 share = 1% ownership in the company.
Sale of Product Capital needed: $100 Outside 20 shares:$5 = 5% Inside 380 shares(calculated as: remaining $95 / $.25 per share = 380 shares):$95 = 95% Total Raised: $100 = 100% Total Shares Issued: 400 shares Sale of Service No capital needed Outside 20 shares:$5 = 20% Inside 80 shares(calculated as: remaining 80 shares * $.25 per share = $20):$20 = 80% Total Raised: $25 = 100% Total Shares Issued: 100 shares Financing Sources: Examples
Projected Income Statement Sales = Number of units of product/service expected to be sold per week X sales price Less: Cost of Goods Sold (COGS) = number of units of product expected to be sold each week X cost to buy including taxes, shipping, etc. (no COGS with a service) Less: Advertising and other expenses = actual amount expected to be spent during a particular week Less: Taxes = 10% of profit before taxes (EBT) • Note: You cannot pay management wages.
ABC CompanyProjected Income StatementFor the Six-Week Period Ending ____ , 200_
Projected Return on Equity • As a start up business, consider your equity to be the money you raise from selling stock to inside and outside shareholders • Projected ROE: tells shareholders what they expect to earn on their investment in terms of % return • ROE = Total Projected Net Income/ $ Raised from sale of stock to management and outside shareholders • EX: $ 163.8 projected NI / $25 Common stock proceeds • ROE = 655%
Liquidating Dividend • Liquidating Dividend to be paid at end of semester • Different from a regular dividend real companies pay • = Distribution of all the cash of the company after payment of all liabilities. • Purpose: to close the business down • Liquidating Dividend Per Share = Ending cash (= $ from sale of stock to managers and outsiders + Net Income) - Liabilities (including taxes payable) divided by total # Shares outstanding