Presentation by Blanche M. Johnson, Ph.D. February 2004
That First Lasting Impression • A Business Plan is often the first contact entrepreneurs have with a funding source. • Funding sources, e.g., VCs, “angels”, bankers, all review Business Plans. • Due diligence performed by a funding source starts with the Business Plan. • A powerful, first class Business Plan leads to a meeting with a funding source.
What is a Business Plan? • A document written for fund raising. • A description of the plans for a business. • The “road map to success” for company employees and the Board of Directors. • All the above….
A Business Plan Describes… • The business - What business are we in? • The markets - Where is the opportunity? • Industry forces - What are the competitive threats? What’s our competitive edge? • Who is the team to implement the Plan? • What resources are available for success? • How much capital is required? • What are the financial rewards to investors?
Questions to Ask Yourself Before You Write: #1 Who will be reading the Plan? Who is my audience? • Financial Investors are your audience IF… you have expertise to develop/market your product BUT need money for employees and equipment • Business Partners are your audience IF… you need technical expertise to develop your product or marketing/distribution to reach customers
Questions to Ask Yourself Before You Write: #2 What do I want to accomplish with this Business Plan? • Capture the interest of the audience with the unusual opportunity presented. • Provide sufficient data to convince the audience your business is worthwhile. • Show realistic economic returns justifying the requested funding/partnership.
Questions to Ask Yourself Before You Write: #3 How can I write this Business Plan to accomplish these objectives? Address these core elements: •Product •Market •Competition •Management Team •Finance
Sections to a Business Plan • Executive Summary • Product or Service • Markets and Customers • Competitor/Industry Analysis • Company-Management-Operations • Financials • Appendices
What VCs Read First • Executive Summary = #1 • Company-Team-Operations = #2 • Markets and Customers = #3 • Competition = #4 • Financials = #5 if start-up, they will ignore • Appendices
Executive Summary Describes the Principal Determinants for Success • Present an overview of the niche markets your product serves, show how you will market your product, compare your product to competitive products, show revenue/profit/cash flow. • Present the amount and types of funds needed and what is the financial return to the investor or partner for funds/partnering. • Present a concise Summary of the key points from each Section of the Business Plan.
Product or Service • Describe your product or service in sufficient detail for the audience to understand its function and differentiating characteristics. • Pinpoint the value to your customer. • Present current stage of development and your plans to exploit the product fully in the market. • Describe the Life Cycle of your product, i.e., is it new, mature, a commodity? Proprietary? Protected by patent or copyright?
Addressable Markets • Demonstrate the demand for your product: how many units can you sell at what price. • Support how you determined the above projections, e.g., market survey, current buying habits. • Define your markets – who will buy? e.g., individuals, businesses, government, overseas? Where are customers located?
Addressable Markets continue… • Describe how you will reach these customers, e.g., direct mail, ads, sales force, trade magazines; describe how long it will take from initial contact to completing a sale to getting revenue (sales cycle). • Present the methods you will use to deliver your product, i.e., distribution. • Describe how your customer will pay for the products. Will you finance?
Competitor/Industry Analysis • Identify competitors (domestic and foreign), potential competitors and possible substitutes in your marketplace. How do their products compare? How profitable are these competitors? • What are the Societal and Industry trends affecting your product? Describe regulatory issues - federal, state, local, foreign. Show potential for growth within the industry. • What advantages/disadvantages do you have versus the competition: price, quality, features, maintenance and service. How can you develop or sustain a competitive edge?
Company -- Team -- Operations Purpose: To convey to your audience a stable company (or your plan to set up a stable company) run by experienced and committed managers. • Provide a description of your company – how long established, where located, number of employees, revenue generated (if any). • Present description of each of the key managers responsible for the business; provide information about their direct and relevant experience, education/training and ownership interest (if any). • Summarize the operating plan that supports how the company is organized to meet product/service projections.
Financials • Discuss the amount and type of funding desired (debt, equity, convertible debt) and the timing of the funds needed to sustain the business for a five year period. • Show how the funds will be used. • Show how and when revenue will generated (accrual and cash) to pay back loans (if any) and to provide investors appropriate returns on their investment.
Financials cont…. • Present 24-month and 5 year projections in the form of Summary Income Statements, Balance Sheets and Cash Flow Statements • Show Full Statements in Appendices • Support financial projections with analyses from competitors’ data and or industry averages (called “comparables”).
Appendices Purpose: to support information presented in the Business Plan • Full Financial Statements • Management Resumes • Photos/drawings of product, brochures • Competitive Analyses • Industry Comparables for Investors’ Exit: Show how others have made $$$$$ whose performance is similar to your business model
Purpose of a Business Plan • Document written for fund raising Goal: get a first meeting w/ funding source • Description of plans for a business Goal: put in writing your plans for the business • Road map for employees and Board Goal: restate plans for an ongoing business
What Resources are Available? • Text books on “how to”, BPlan “kits” • Consultants to write it…buyer beware! • Small Business Administration (sba.gov) • Univ. of Maryland Dingman Center • Check out Business Schools at Maryland, Loyola, Georgetown – business students to help with research, writing, financials for a fee • Hopkins Homewood Campus library • TEDCO; www.myownbusiness.org, incubators