Chapter 4 Crafting a Business Plan PDF

Chapter 4 Crafting a Business Plan and Building a Solid Strategic Plan Lecture 1 Copyright © 2016 Pearson Education, Inc. 5-1 1. Explain the benefits of an effective business plan. 2. Describe the elements of a solid business plan. 3. Explain the “five Cs of credit” and...

Chapter 4 Crafting a Business Plan and Building a Solid Strategic Plan Lecture 1 Copyright © 2016 Pearson Education, Inc. 5-1 1. Explain the benefits of an effective business plan. 2. Describe the elements of a solid business plan. 3. Explain the “five Cs of credit” and why they are important to potential lenders and investors reviewing business plans. 4. Understand the keys to making an effective business plan presentation. Copyright © 2016 Pearson Education, Inc. 5-2  (continued) 5. Understand the importance of strategic management to a small business. 6. Explain why and how a small business must create a competitive advantage in the market. 7. Develop a strategic plan for a business using the nine steps in the strategic management process. Copyright © 2016 Pearson Education, Inc. 5-3 Copyright © 2016 Pearson Education, Inc 4-4 ❖It is a planning tool that builds on the foundation of the idea assessment, feasibility analysis, and business model. ❖It provides a more comprehensive and detailed analysis than the first three steps in the new business planning process ❖It describes in greater detail how to turn the model into a successful business Ch. 3: Business Model and Strategic Plan 3-5 ❖The primary goals of a business plan are: 1. To guide entrepreneurs as they launch their businesses 2. To help them acquiring the necessary financing to launch Ch. 3: Business Model and Strategic Plan 3-6 ❖Business plan: ❖A written summary of: ✓An entrepreneur’s proposed business venture ✓The operational and financial details ✓The marketing opportunities and strategy ✓The managers’ skills and abilities Copyright © 2016 Pearson Education, Inc. 5-7 ❖The business plan serves as an entrepreneur’s road map on the journey toward building a successful business ❖It describes which direction the company is taking, what its goals are, where it wants to be, and how it intends to get there Ch. 3: Business Model and Strategic Plan 3-8 ❖A business plan is the best insurance against launching a business destined to fail or mismanaging a potentially successful company. Ch. 3: Business Model and Strategic Plan 3-9 A business plan serves two essential functions: 1. Guiding the company by charting its future course and defining its strategy for following it. 2. Attracting lenders and investors who will provide needed capital. Copyright © 2016 Pearson Education, Inc. 5 - 10 1. Guiding the company by charting its future course and defining its strategy for following it. It provides a battery of tools: A mission statement Goals, objectives, budgets, financial forecasts Target markets, and entry strategies Ch. 3: Business Model and Strategic Plan 3 - 11 2. Attracting lenders and investors who will provide needed capital. A business plan must prove to potential lenders and investors that a venture will be able to repay loans and produce an attractive rate of return Ch. 3: Business Model and Strategic Plan 3 - 12 To get external financing, the plan must pass three test with potential lenders and investors: 1. The Reality Test: proving that: ❖A market really does exist for your product or service. ❖You can actually build or provide it for the cost estimates in the plan. 2. The Competitive Test: evaluates: ❖A company’s position relative to its competitors. ❖Management’s ability to create a company that will gain an edge over its rivals. Copyright © 2016 Pearson Education, Inc. 5 - 13 3. The Value Test: proving that: ❖A venture offers investors or lenders an attractive rate of return or a high probability of repayment. Ch. 3: Business Model and Strategic Plan 3 - 14 1. The Reality Test There two components of the reality test: A. External component B. Internal component ❖ The external component involves providing that a market for the product or service really does exist. It focuses on industry attractiveness , market niches, potential customers, market size, degree of competition ✓ The internal component of the reality test focuses on the product or service itself: it is truly different from what competitors are already selling? Does it offer customers something of value? Ch. 3: Business Model and Strategic Plan 3 - 15 2. The Competitive Test It has two components: external and internal The external component evaluates the company’s relative position to its key competitors ✓How do the company’s strengths and weaknesses match up with those of the competition ✓Do these reactions threaten the new company’s success and survival ✓A value proposition that is properly constructed answers the following questions: Ch. 3: Business Model and Strategic Plan 3 - 16  Who is our target market?  What current options exist for this market?  What do/will we offer the target market  What is the key problem it solves?  Why is it better than other options the target market has to choose from? The internal component focuses on management’s ability to create a company that will gain an edge over existing rivals. The plan must prove the quality, skill, an experience of the venture’s management team Ch. 3: Business Model and Strategic Plan 3 - 17 3. The Value Test ▪ To convince the lenders and investors to put their money into the venture, a business plan must prove to them that it offers a high probability of repayment or an attractive rate of return Ch. 3: Business Model and Strategic Plan 3 - 18