Entrepreneurship and Small Business Management

1. Entrepreneurship and Small Business Management Chapter 4 The Business Plan: Road Map to Success

2. Ch. 4 Performance Objectives • Know what a feasibility analysis is and when to create one. • Know what a business plan is and how to describe it. • Explain the various purposes for a business plan and the audience for it. • Understand the components of a business plan. • Be able to demonstrate proper development and formatting of a business plan.

3. What Is a Feasibility Analysis? • A study to assist in making the “go/no go” decision • Used to test a business concept in three areas: • Product and/or service feasibility • Market and industry feasibility • Financial feasibility

4. Analyzing Product and/or Service Feasibility • Can the product or service be produced and delivered at a profit, in an ongoing manner? • Is there sufficient customer demand for the product or service?

5. Analyzing Market andIndustry Feasibility • How attractive is the opportunity in the proposed industry? • Do any strategic, defensible niches exist in the proposed market?

6. Porter’s Five Forces Analysis

7. Competitive Rivalry Factors More Attractive If… Larger or fewer than five Varied Growing rapidly Differentiation matters • Number of firms • Size of firms • Industry size/trend • Differentiation

8. Barriers to Entry Factors More Attractive If… Low for entry Not based on firm size Minimal or absent Low cost to change suppliers Customer resistance to change is low Channels established, but open Policies do not impede entry; may facilitate entry • Capital requirements • Cost advantage • Economies of scale • Switching costs • Brand loyalty • Distribution channels • Public policies

9. Threat of Substitutes Factors More Attractive If… Not readily available Prices not significantly lower Supply is uneven or limited High cost to change suppliers Make substituting difficult or illegal • Convenience • Substitute pricing • Supply of substitutes • Switching costs • Public policies

10. Supplier Power Factors More Attractive If… Not critical Easy substitution Relatively low Small portion of overall costs of finished products • Brand reputation • Substitutes for supplies • Switching costs • Impact of individual supplier on costs

11. Buyer Power Factors More Attractive If… Variable Large number of buyers Small part of costs of goods Restricted geographic area Relatively high More differentiation, fewer commodities Hard for customers to compare features and prices • Buyer size • Number of buyers • Product importance • Delivery demands • Switching costs • Product differentiations • Information availability

12. Analyzing Financial Feasibility • How much start-up capital is required? • How much revenue is expected (based on anticipated pricing and volume)? • What are the expected costs? Projected revenues, less projected costs, equals potential profit.Evaluate the return on the capital invested to make a “go/no go” decision.

13. What Is a Business Plan? Document that thoroughly explains a business idea and how it will be carried out • Story of what the business is and will be • All costs and a marketing plan • Description of financing • Estimate of projected earnings

14. Why Create a Business Plan? • Saves time and money • Key to raising capital • Serves as an operations guide

15. Cover page Table of contents Executive summary Mission, vision, and culture Company description Opportunity analysis Marketing strategy and plan Management and operations Financial analysis and projections Funding request Exit strategy Appendices Business Plan Components

16. Cover Page and Table of Contents Cover Page Table of Contents Include enough detail to easily find a section. Avoid excessive detail which uses too many pages. • Name of the business • Name of the principals • Date • Contact information • Confidentiality statement

17. Executive SummaryShould Be: • Clear—identify concept and purpose • Concise—one to two pages long • Comprehensive—answer basic who, what, when, where, and how questions • Compelling—generate enthusiasm • Written last

18. Mission, Vision, and Culture • Mission—concise communication of strategy with a business definition and competitive advantage; expressed in a statement • Vision—broad “picture” of what you want the organization to become • Culture—beliefs, values, and behavioral norms of the organization which will form the business “environment”

19. Company Description • If company is already established… • Summary of company’s founding • Overview of track record: business progress and financial success • If a start-up venture… • Brief background story • What has been done so far, and why • Legal form of the business

20. Opportunity Analysis • Industry analysis—definition, size, and growth/decline of the industry • Environmental analysis—how community, region, nation, world relates to the business • Proof of market—evidence of opportunity in terms of dollars and units

21. Opportunity Analysis(continued) • Target market segments—groups defined by common factors such as demographics, psychographics, age, and geography • Competitive analysis—comparison of the business to direct and indirect competitors

22. Marketing Strategy and Plan • Marketing mix (the Four P’s) • Products/Services • Pricing • Promotion • Place • Marketing plan—statement of marketing goals and the strategies to achieve them

23. Management and Operations • Management team and employees • Research and development • Physical location(s) of facilities with emphasis on logistics and workforce • Production processes • Inventory control systems • Quality assurance methods

24. Financial Analysis and Projections • Sources and uses of capital • Cash flow projections Cash flow statement shows cash receipts less cash disbursements over a time period • Balance sheet projections Assets = Liabilities + Owner’s Equity

25. Financial Analysis and Projections(continued) • Income statements for three years • Also called profit and loss statements (P&L) • Summarize income and expense activity • Breakeven analysis Fixed Cost ($) ÷ Gross Profit per Unit ($) = Breakeven Units • Ratio analysis • Risks and assumptions

26. Funding Request & Exit Strategy • Amount of funds needed • Type of financing, including terms • Proposed exit scenarios, such as: • Buyout plan • Initial public offering (IPO) • Sold when benchmarks or date reached • Succession plan • Implementation schedule (milestones)

27. Appendices • Management resumes • Specifications/photos/diagrams of products and packaging • Advertising and promotional samples • Detailed financial projections • Other supportive materials

28. Business Plan Suggestions • Write for your audience. • Show that you have “skin in the game.” • Be clear and concise. • Use current industry data and reports. • Select a “voice” and stick with it. • Use a consistent, easy-to-read format. • Number and label items throughout the plan. • Present the plan professionally.

29. Presenting the Business Plan • Presentations may be formal or informal. • Presentation time may be limited to between 5 and 20 minutes. • Prepare an “elevator pitch” (15-30 sec.) • Multimedia formats work well in formal situations. • Business plan competitions may provide cash prizes and access to capital.