EC 3

Business Plan: Overview

• A business plan is a written summary of an entrepreneur's proposed business venture, including operational and financial details, marketing strategies, and the managers' skills/abilities.
• It serves as insurance against launching a failing business or mismanaging a potentially successful one.

Business Plan: Essential Functions

• Guiding the company by setting future direction and strategy.
• Attracting lenders and investors to provide capital.

Components of a Business Plan

• Title Page and Table of Contents: To allow easy navigation.
• Executive Summary: Concise summary of the business venture, catching the reader's attention.
• Vision and Mission Statement: Expresses the company's purpose and direction.
• Company History: Highlights major financial and operational events.
• Business and Industry Profile: Describes the industry and company's goals.
• Business Strategy: Explains how to meet and beat competition while accomplishing objectives.
• Description of Products/Services: Outlines the product line, its position in the market, and any relevant trademarks/patents.
• Marketing Strategy: Describes the target market, positioning, advertising, distribution, and selling strategies.
• Competitor Analysis: Compares the company's strengths/weaknesses against competitors.
• Management Team: Qualifications and experience of key personnel.
• Operational Plan: Explains the operational steps necessary to succeed.
• Financial Statements(Forecasted): Includes forecasted financial statements.
• Loan or Investment Proposal: Outlines the amount requested and repayment plan.

Business Plan Tests

• Reality Test: Assesses if a true market exists for the product/service and if it can be delivered at the estimated cost.
• Competitive Test: Evaluates the company's position against rivals, and management's ability to gain an advantageous edge.
• Value Test: Assesses if the venture offers investors an attractive rate of return or a high probability of repayment.

Why Develop a Business Plan?

• Although a plan doesn't guarantee success, increasing the chances of success in business.
• A plan acts like a road map in unfamiliar, harsh, and dangerous territory.

Preparing a Business Plan: Tips

• Include a well-designed, attractive cover page.
• Proofread carefully for spelling and grammatical errors.
• Make the plan visually appealing.
• Include a table of contents for easy navigation.
• Use spreadsheets for financial forecasts.
• Make the plan concise (between 25-50 pages).
• Be truthful.

What Lenders Look For in a Business Plan

• Capacity: Demonstrating the ability to pay back the loan.
• Character: Credit behavior based on credit report scores and history.
• Capital: The amount of personal investment in the business.
• Collateral: Assets pledged to secure the loan.
• Conditions: Market trends and analysis of the industry.

Presenting the Plan

• Demonstrate enthusiasm, but avoid being overly emotional.
• Thoroughly understand the audience.
• Begin with a compelling explanation of the venture's benefits.
• Focus on key points, highlighting the most important details.
• Present the plan concisely (2-3 major points).
• Avoid overwhelming the audience with visual aids/jargon.
• Be prepared for investors' questions.
• Follow up with investors.

Major Shift in Business Plans

• From financial capital to intellectual capital (human, structural, customer)

Strategic Management and Competitive Advantage

• A strategic plan is crucial for establishing a sustainable competitive advantage.
• This advantage helps create a unique position in the market that is superior to competitors.

Building a Competitive Advantage

• Consider five aspects: products, services, pricing, selling methods, and values.

Key Core Competencies

• A unique set of capabilities/qualities (quality, customer service, innovation, etc.) that allows the company to outperform competitors.
• Emphasizes the company's strengths; often related to its size.

Balanced Scorecard

• A set of unique measurements that include financial and operational measures.
• A way to provide managers with a quick and comprehensive picture of the company's performance.

Key Success Factors

• Variables that determine the success of market participants in a specific, controlled market segment.
• Examples include cost factors (unit costs in manufacturing, distribution), superior product/service quality, positive customer relations, well-trained sales staff, prime location.

Competitor Analysis

• Identification and analysis of competitors (direct and indirect), allowing for avoidance of surprises, identifying new threats, better reaction times to competitors' actions and anticipating rivals' moves.

How to Analyze Competitors

• Monitor industry publications.
• Talk to customers and suppliers.
• Interview employees.
• Review sales literature and employment ads.
• Perform patent searches.
• Learn about competitors' raw materials and equipment.
• Directly observe competitor business operations.

Competitor Profile Matrix

• Shows a company's competitive position and strengths/weaknesses concerning competition.

Mission Statement Elements

• Purpose of the company
• Business
• Values
• Concise and clear
• Unique aspects of the business
• Future concern
• Worthwhile for employees
• Review other business plans.

Steps in the Strategic Management Process

• Develop a vision and translate it into a mission statement.
• Assess company strengths and weaknesses.
• Scan for opportunities and threats.
• Identify key success factors, including costs and competitive advantages.
• Analyze competitors, including direct, indirect, potential, and existing competitors.
• Create goals and objectives.
• Formulate strategies.
• Translate plans into actions.
• Establish accurate controls.