Академический Документы
Профессиональный Документы
Культура Документы
Project #3
Business Plans
You will be required to hand in a business plan as your final project. This will be a lot of fun ! Personalize your plan (no cookie cutter approach please) Basic Requirement: How are you going to make money ? Best to leverage off your product proposal (Project #1).
Investors Funding
Define Business
Begin Brainstorming
Retail
Wholesale
Manufacturing
Project Development
Will I market the products myself or will the manufacturers have marketing programs?
Technology
Business Plans
Misconception - The only thing standing between entrepreneurs and success is (Sahlman, HBR 97409): Glossy five color charts Bundle of complicated spreadsheets A decade of month by month financial projections.
NOT So !
Business Plan
The Context: the BIG picture - regulatory, environmental, interest rates, demographic trends, inflation, etc., the factors that will change but cannot be controlled by the entrepreneur
Risk and Reward: an assessment of what can go wrong (risk) and what can go right (pay-off). How can the team respond to problems and uncertainties?
Without the right people and the right team, none of the other parts of the business plan really matter.
Sahlman (HBR 97409)
Every business plan should answer the Following about the personnel !
Where are the founders from ? Where have they been educated ? Where have they worked ? For whom ? What are their accomplishments ? What is their reputation within the business/technical community? What is their relevant experience ? What are their skills, abilities, knowledge ? How realistic are they ? Any essential team members missing ? Can they attract/recruit high quality people ? How will they respond to adversity ? Do they have the stomach to make difficult choices ? How committed are they to the venture ? What are their motivations ?
The opportunity or is it ?
Can you answer the following basic questions ?
(1) Is the total market for the venture large, growing, or both ? (2) Is the industry now, or can it become, structurally attractive for the venture ?
Entrepreneurs or investors look for rapidly growing markets because it is often easier to obtain a share of a growing market than to fight with entrenched competitors for a small piece of a mature market.
What are the cash flow implications: Can your plan answer the following ?
When does the business have to buy resources, such as supplies, materials, and personnel ? How does your business have to pay for them ? How long does it take to get a customer ? How long before the customer sends the business a check ? How much capital is needed ?
Who are the new ventures current competitors ? What resources do they control ? What are their strengths and weaknesses ? How will they respond to your market entry ? How can your new venture respond to the competitions response ? Who else can exploit the same opportunity ?
Competition
Business is very much like chess - you need to anticipate your competitors next move. Dont be naive and pitch an insurmountable lead. You may have a proprietary lead, can you keep it ? All opportunities have promise ! All opportunities have VULNERABILITIES ! You need to identify all of your vulnerabilities !
Context !
Opportunities exist in context
Economy, interest rates, inflation, exchange rates
Govt regulations
Context !
Government Regulations
More than 100 new companies formed when the airline industry deregulated in the late 1970s.
Context !
The Economy Recession in early 1990s mad it hard to get venture financing. However, as capital markets in the middle 1990s heated up, these companies had a high rate of return.
Context
Every business plan should contain certain pieces of evidence of CONTEXT
- Show heightened awareness of new ventures context - Demonstrate that you understand that the venture may change and describe how changes can affect the business - How will management deal with unfavorable changes in context?
opportunity
people
context
opportunity and context as a moving target These categories are fluid and will change over time - key people will leave
True entrepreneurs want to capture all the reward and give all the risk to others. Yet risk is unavoidable.
If you dont know where you are going, any road will get you there.
FOR ENTREPRENEURS-You better know where you will end up and have a map for getting there
A business plan should be the place where the map is drawn, a journey is less risky when you have directions
- What is the depth and duration of negative cash flow? - ideal, cash flow early and often - possibly generate this curve from a sensitivity spreadsheet
t)
Final Thoughts
A business plan is a call for action, must be proactive Risk management is a key, often tilting the venture in favor of reward and away from risk Should be a coherent document
It is a good is idea to invest in a business plan book -- go the local bookstores and library and find one you like.
Table of Contents
Executive Summary
A. Program Overview
Introduction History Products Market Marketing and sales Competition Location Funding requirements Financial goals Return to investors
E. Competition
Perspective Specific competitive products Anticipated competition
F. Operation
Perspective Product R&D Product design Manufacturing Quality
C. Products
Concept Product approach Product design Product, trademark, and regulatory status Future products
Project strengths: List the major strengths of the project (e.g., management team, product features and acceptance, patent status, technical prowess, marketing prowess).
Funding requirements: Describe the funding sought, how it is to be used, how it relates to total long-range funding plans, and what is offered in return. In a brief table below the ending text, summarize for each year of the 5-year model: (1) the required investment, (2) sales, (3) market share and (4) pretax profit.
A. Program Overview
Introduction: The introduction provides an orientation to the broad industry or industry group, describes the more specific industry of the company product, depicts the base technologys state of the art and its strengths and weaknesses, and closes by reviewing the product and how it exploits or extends the technology. (2 - 4 paragraphs) History: Include here a non-detailed list of people recruited and goals achieved to date, such as pertinent history, technical marketing development, management team status, facilities, patent status, and project recognition. (1 - 2 paragraphs)
Products: Describe what the product accomplishes functionally (not what it is), summarize the products technical rationale, and list product attributes labeled important by industry representatives. (1-3 paragraphs)
Competition: This topic is a substantially condensed version of the full section on competition. Modify the presentation format to avoid redundancy. (1 - 2 paragraphs)
Funding requirements: An overview paragraph introduces a table that shows, by project quarter, funding needs and a condensed summary of principle company activities. Breaking up the narrative with a table, a figure, or a list aids readability. (1 paragraph)
Financial goals: Provide intro paragraph citing the financial model as source and briefly list key model assumptions and provide a tabular summary of the following key financial goals for each year of the plan: revenue, expenses, pretax profit, taxes, after-tax profit, number of outstanding stock shares, and earnings per share.
Design the program overview section so that discussion does not duplicate discussion elsewhere. Many general topics are specified repeatedly in the plan, but each occurrence calls for a different approach or distinct level of detail. No direct rehashes of previously presented material should occur anywhere in the plan (except perhaps the executive summary).
Goals: State the models fifth-year sales goals, followed by a bulleted list identifying at least three reasons why it should materialize (e.g. your unique technology, extensive team industry knowledge, current market position, new or extended marketing approaches planned, future products and markets). (1 paragraph)
C. Products
Concept: Describe the fundamental concepts that underlie early products, features that embody said concepts, and expected customer reactions. Outline any significant future enhancements or additional concepts. (1 paragraph) Product approach: Review the specific design approach in general terms. (1 paragraph) Product design: Describe the initial product design in some detail (without revealing proprietary elements) as follows: general nature of product design status, intended use, configuration of various models, a bulleted list of major industry design and functional improvements accomplished (e.g., simple mechanisms, easily produced, reliable components, extended guarantee) and means of production. (3 - 6 paragraphs)
C. Products cont
Patent, trademark, and regulatory status: Review patent status of near-term products, singly or collectively as appropriate; in turn, do the same for trademarks, service marks, and regulatory issues. (1 - 3 paragraphs) Future products: Thoroughly describe the philosophy, organization, budget weight, and leadership of R&D and present its long-term project plans. How will company grow. (1 2 paragraphs)
Market size: Define market size and relevant assumptions; present a table of market size, company sales, and company market share of each plan year; discuss reasonableness of such company market share achievement; and end by listing three strong attributes of your product fostering market penetration (e.g., value, low cost, improved efficiency). (4 paragraphs)
E. Competition
Perspective: Provide an overview of the global market (size, growth, trends, nature of customer, product turnover rate and so forth). Then describe how the material to follow is organized, for example, by product within one market (as is assumed in the next item), by niche within one market, or by markets.
Specific competitive products: Whatever organizational approach is chosen, discuss each competitor by name, addressing size, company age, spectrum of products, competitive strengths and weaknesses (e.g., product development, innovation, design, quality, marketing), products specifically competitive to yours, and the good and bad of theirs versus yours. (1 paragraph per competitor)
E. Competition cont
Anticipated competition: Describe company preparedness for competition in general, including future new market entrants. It is best to emphasize (and actually conduct) continuous marketing research, in-house R&D, aggressive product development and market entry, and any other factors relevant to sound, responsive business and product management.
H. Financial Model
Include barebones of financials here What are your assumptions? Key assumptions used to develop the sales projections; Marketplace and competitive assumptions; Pricing and discount policies and rationale; Rationale for salaries, benefit levels, and other compensation; Average time lag between a sale and actual money receipt; Average time lag between incurring and paying of bills; Major bills or expense categories that cannot be postponed; Functions that are contracted rather than conducted in-house; Rationale for leasing or purchasing large-ticket items; Time-dependent relationships, such as volume purchases; Relevant environmental, social, economic, political, and regulatory issues.
H. Financial Model
Income Statement The income, or profit-and-loss (P&L), statement summarizes income versus expenses. To hold this statement to one page, many data are summarized, which often dictates the need for additional statements extending beyond the three primary ones to present supporting detail. Otherwise, readers of the business plan may erroneously judge primary statement numbers as too arbitrary.
Revenue Net sales Other revenue Total revenue Cost of Goods Sold Contract manufacturing Purchased materials Manufactured materials Labor Total COGS Gross margin Direct Selling Costs Sales expenses Commissions Ads/meetings/shows Selling costs General and Administrative Administration labor Administration expense Technology labor Technology expense Marketing/sales labor Marketing/sales expense Rent, utilities, phone Legal, insurance, accounting Other Total G&A Profit & Loss Profit before tax Less tax @ 37%
Total of all money received A net sales breakdown by component is possible Total of all money to the company Whole product or subassemblies All purchased parts and materials All parts or materials made in-house All direct/support labor involved in manufacturing Total of all COGS Total revenue less total COGS All direct expenses of selling Sales commissions and bonuses Self-explanatory; add rows for finer breakdown Total of all direct selling costs
Labor + personnel overhead for admin. Division All non-labor expenses for administration divisions Labor + personnel overhead for technology division All non-labor expenses for technology division Labor + personnel overhead for marketing division All non-labor expenses for marketing division Include equipment under appropriate division Self-explanatory Break into additional line items as needed for clarity Total of all G&A expenses Algebraic sum of all category headings Consult an accounting professional for the correct percentage The infamous bottom line
H. Financials
Balance Sheet Presented immediately after the income statement, the balance sheet shows the relative balance among assets, liabilities, and company equity. A balance sheet is organized to equate assets with the sum of liabilities and equity, the latter term being the companys net worth. Thus the balance sheet summarizes the companys general financial health, its history, and its projected future evolution.
Current Assets Cash Accounts receivable Raw materials inventory Work-in-progress inventory Finished product inventory Short-term notes receivable Total current assets
Cash, typically the checking account balance Money due the company in normal business conduct Inventory as parts and materials Inventory of partially assembled goods Inventory of finished product fully ready for sale Short-term notes payable to the company Self-explanatory
Long-Term and Fixed Assets Technological rights Non-cash value conveyed by founders, for stock Equipment Purchased large-ticket items Less depreciation Depreciation of equipment (a negative entry) Improvements Improvements made to facilities Long-term-notes receivable Long-term notes payable to the company total L/T&F Assets Self-explanatory total assets Total of all assets; equals liabilities + equity Current and Long-Term Liabilities Accounts payable Money owed by company in normal commerce Short-term loans Short-term loans received by the company Tax, payroll Payroll taxes Tax, other Other taxes; break down if needed for clarity Total current liabilities Total current liabilities Long-term liabilities total L-T liabilities Long-term liabilities owed by the company Total liabilities Total current + total long-term liabilities Equity Common stock Founders stock + stock in return for investment Preferred stock Often this is zero for all time periods Retained earnings Cumulated excess earnings, per income statement total equity Algebraic sum of all equity Total liability & equity Algebraic sum of all liabilities and equity
Appendixes:
Include supporting data and information in appendixes, such as:
Details
Supporting financial data Historical financial data
Summary
A business plan is a map to success. This will really show you the ropes to do a professional job. You can look back on it in 20 years when you are the CEO of Xerox.
We did not modify any of the assumptions in the business plan template that we downloaded form the Internet. To complete the remaining 2% will take as long as it took to create the initial 98% but will cost twice as much. If you take the evidence form the past week for the best of our 50 locations and extrapolate it for all the others. We tried not to find out how many other people have a sixmonth lead. So do other 50 entrants getting funded. We have not yet asked them to pay for it. Also, all of our current customers are relatives. We have not produced anything yet, but we are confident that we will be able to. Only IBM, Microsoft, Netscape, and Sun have announced plans to enter the business. Consuming the product or services. We mailed a copy of the plan to everyone in the Pratts Guide. We are looking for a passive, dumb-as-rock investor.
We only need 10% market share. Customers are clamoring for our product.
We have no competition.
Our management team has a great deal of experience A select group of investors is considering the
If you invest on our terms, you will earn a 68% If everything that could ever conceivably go right does go rate of return. right, you might get your money back.