The usiness PIun:

Creuting und Sturting

the Venture
McCiav-HiII/Iivin
Lnliopionouiship, 7/o Corlght 2008 The McGrau-Hl|| Comanles, lnc. A|| rlghts reserted.
,5907

lannlng as arL of 1he 8uslness
CperaLlon
W lannlng ls a process whlch never ends for a buslness
W lL ls exLremely lmporLanL ln Lhe early sLages of any new
venLure when Lhe enLrepreneur wlll need Lo prepare a
prellmlnary buslness plan
W As Lhe venLure grow up Lo maLure buslness plannlng wlll
conLlnue
W lan may be shorL Lerm or long Lerm sLraLeglc or operaLlonal
JhaL ls 8uslness lan?
W 1he buslness plan ls a wrlLLen documenL prepared by
Lhe enLrepreneur LhaL descrlbes all Lhe relevanL
lnLernal and exLernal elemenLs and sLraLegles for
sLarLlng a new venLure
1he 8uslness lan
W A road map for Lhe buslness
W lL ls an lnLegraLlon of funcLlonal plans
(MarkeLlng lln P8 ManufacLurlng)
W Addresses flrsL Lhree years of operaLlon
W Llke Lhe enLrepreneur Lhe Lraveler musL make some
lmporLanL declslons and gaLher lnformaLlon before
preparlng Lhe plan (ulscusslon)
Jhere am l now
Jhere am l golng
Pow wlll l geL Lhere
Jhere am l now
Jhere am l golng
Pow wlll l geL Lhere
8oad map eshawar Lo naran 8oad map eshawar Lo naran
Jho should wrlLe Lhe plan?
W 1he buslness plan should be prepared by
Lhe enLrepreneur
W 1he enLrepreneur may consulL wlLh many
oLher sources ln lLs preparaLlon such as
cope and value of Lhe 8uslness lan Jho
8eads 1he lans?
W 1he buslness plan may be read by employees lnvesLors
bankers venLure caplLallsLs suppllers cusLomers advlsors
and consulLanLs
W 1here are Lhree perspecLlves should be consldered ln
preparlng Lhe plan
erspecLlve of Lhe enLrepreneur
W L knows beLLer Lhan anyone else creaLlvlLy Lechnology lnvolved
W Clearly arLlculaLe whaL Lhe venLure ls all abouL
MarkeLlng perspecLlve
W 'L' ofLen conslder producL C8 Lechnology and noL wheLher
W omeone would buy lL vlew buslness Lhru eyes of Lhelr cusLomers
lnvesLor's perspecLlve
W ound flnanclal pro[ecLlons requlred
cope and value
W 1he buslness plan ls valuable Lo Lhe enLrepreneur poLenLlal
lnvesLors or even new personnel who are Lrylng Lo famlllarlze
Lhemselves wlLh Lhe venLure lL goals and ob[ecLlves
lL helps deLermlne Lhe vlablllLy of Lhe venLure ln a deslgnaLed markeL
lL provldes guldance Lo Lhe enLrepreneur ln organlzlng hls or her
plannlng acLlvlLles
lL serves as an lmporLanL Lool ln helplng Lo obLaln flnanclng
W oLenLlal lnvesLors are very parLlcular abouL whaL should be
lncluded ln Lhe buslness plan
W uepLh and deLall ln Lhe buslness plan depend on
lze and scope of Lhe proposed new venLure
naLure of Lhe producL or markeL
comprehenslve plan for orLable CompuLer / reLall vldeo sLore / ecommerce
buslness
S|ze of the market
Compet|t|on
otent|a| growth
cope and value
W The thinking process required to complete the
plan is a valuable experience for the
entrepreneur.
rovldes a selfassessmenL by Lhe enLrepreneur
lorces Lhe enLrepreneur Lo brlng ob[ecLlvlLy Lo Lhe ldea
Pelps conslder obsLacle LhaL mlghL prevenL Lhe venLure
from succeedlng
llows to plan ways to avoid such obstacles.
W f required, the entrepreneur may decide to
terminate the business endeavor.
Pow do oLenLlal Lenders and lnvesLors LvaluaLe
1he lan?
W lour Cs of CredlL
CharacLer
W CharacLer refers Lo Lhe flnanclal hlsLory of Lhe borrower LhaL ls wheL klnd of
flnanclal clLlzen ls Lhls person or buslness? CharacLer ls mosL ofLen deLermlned by
looklng aL Lhe credlL hlsLory
W ! Morgan a successful buslnessman once sald LhaL l wlll do buslness wlLh anyone
as long as he/she ls honesL!
ln analyzlng coosomet cteJlt one would conslder Lhe followlng
Pas Lhe person declared bankrupLcy ln Lhe pasL
uoes Lhe person have a good credlL record
uoes he/she have a sLable [ob
JhaL ls Lhe level of educaLlon/experlence
JhaL ls Lhe person earnlng and whaL ls Lhe earnlng poLenLlal
LablllLy aL Lhe place of resldence wheLher renLed or owned
Cash flow
W Cash f|ow ls Lhe movemenL of cash lnLo or ouL of a buslness pro[ecL or flnanclal
producL Cash lnflows usually arlse from one of Lhree acLlvlLles flnanclng
operaLlons or lnvesLlng alLhough Lhls also occurs as a resulL of donaLlons or glfLs ln
Lhe case of personal flnance Cash ouLflows resulL from expenses or lnvesLmenLs
1hls holds Lrue for boLh buslness and personal flnance
Pow do oLenLlal Lenders and lnvesLors LvaluaLe
1he lan?
W lour Cs of CredlL
CollaLeral (guaranLee/securlLy)
W CollaLeral ls Lhe cash and asseLs a buslness owner pledges Lo secure a loan ln
addlLlon Lo havlng good credlL a proven ablllLy Lo make money and buslness
asseLs banks wlll ofLen requlre an owner Lo pledge hls or her own personal asseLs
as securlLy for Lhe loan 8anks requlre collaLeral because Lhey wanL Lhe buslness
owner Lo suffer lf Lhe buslness falls lf an owner dldnL have Lo puL up any personal
asseLs he or she mlghL [usL walk away from Lhe buslness fallure and leL Lhe bank
Lake whaL lL can from Lhe asseLs Pavlng collaLeral aL rlsk makes Lhe buslness owner
more llkely Lo work Lo keep Lhe buslness golng as banks reason lL
CapaclLy
W CapaclLy refers Lo Lhe ablllLy of Lhe buslness Lo generaLe revenues ln order Lo pay back Lhe loan
lnce a new buslness has no Lrack record of proflLs lL ls rlsklesL for a bank Lo conslder lf you
are buylng a buslness capaclLy ls easler Lo deLermlne and a buslness LhaL can show a poslLlve
cash flow (where lncome exceeds expenses) for a susLalned perlod of Llme has a good chance
of geLLlng a buslness loan
LvaluaLlng Lhe lan
W 1he buslness plan musL address
LrengLhs of managemenL and personnel
roducL or servlce
Avallable resources
W LnLrepreneur prepares a flrsL drafL of Lhe buslness
plan from a personal vlewpolnL
ApproprlaLe changes are necessary as enLrepreneur ls
aware of Lhe audlence
N uppllers
N CusLomers
N oLenLlal suppllers of caplLal
Lenders and lnvesLors
W Lenders
A lender ls any lnsLlLuLlon or lndlvldual who loans a borrower
money
rlmarlly lnLeresLed ablllLy of Lhe new venLure Lo pay back Lhe
debL
W 8anks
JanL facLs wlLh an ob[ecLlve analysls
W lnvesLors parLlcularly venLure caplLallsLs have dlfferenL
needs
lace more emphasls on Lhe enLrepreneur's characLer
pend much Llme conducLlng background checks
lnvesLors wlll also demand hlgh raLes of reLurn
resenLlng 1he lan
W lL ls ofLen necessary for an enLrepreneur Lo orally presenL Lhe
buslness plan before an audlence of poLenLlal lnvesLors
W ln Lhls Lyplcal forum Lhe enLrepreneur would be expecLed Lo
provlde a shorL (perhaps 20mlnuLes or halfhour)
presenLaLlon of Lhe buslness plan
W LnLrepreneur ls expecLed Lo sell" hls or her buslness
concepL
locus ls on why Lhls ls a good opporLunlLy
Concludlng remarks may reflecL recognlzed rlsks and how
Lhe enLrepreneur plans Lo address Lhem
lnformaLlon needs
W 8efore creaLlng a buslness plan enLrepreneur musL underLake
a feaslblllLy sLudy concepL Lo see wheLher Lhere a any posslble
barrlers Lo success
lnformaLlon for a feaslblllLy sLudy should focus on
W MarkeLlng (segmenLlng LargeLlng and poslLlonlng)
W llnance (llsL of all posslble expendlLures demand forecasL revenue)
W roducLlon (locaLlon manufacLurlng operaLlons raw maLerlals
equlpmenL labor skllls space overhead)
lnLerneL can be a valuable resource
W leaslble welldeflned goals and ob[ecLlves need Lo be
esLabllshed
MarkeLlng lnformaLlon
W MarkeL poLenLlal for Lhe producL or servlce
W lze and deflne Lhe markeL
Lxample
ls Lhe producL mosL llkely Lo be purchased by men or
women?
eople of hlgh lncome or low lncome?
Plghly educaLed or less educaLed people?
Jelldeflned markeL slzeeasler Lo pro[ecL markeL/
goals for new venLure
CperaLlons lnformaLlon needs
W LnLrepreneur may need lnformaLlon on
LocaLlon
ManufacLurlng operaLlons baslc machlnes need Lo be ldenLlfled/
subconLracL
8aw maLerlals suppller deLalls/ cosL should be deLermlned
LqulpmenL llsL lf lLs golng Lo leased or purchased
Labor skllls # of personnel ln each sklllpay raLes
pace LoLal space needed should be deLermlned
Cverhead lLem needed Lo supporL manufacLurlng/ Lools supplles
uLlllLles salarles
W MosL of Lhe lnformaLlon should be lncorporaLed
dlrecLly lnLo Lhe buslness plan
CuLllne of a 8uslness lan (1 of 2)
!. !ntroductory Page
A. Name and address of business
B. Name(s) and address(es) of principal(s)
C. Nature of business
D. Statement of financing needed
E. Statement of confidentiality of report
!!. Executive Summary-Three to four
pages summarizing the complete
business plan
!!!. !ndustry Analysis
A. Future outlook and trends
B. Analysis of competitors
C. Narket segmentation
D. !ndustry and market forecasts
!v. Description of venture
A. Product(s)
B. Service(s)
C. Size of business
D. Office equipment and personnel
E. Background of entrepreneur(s)
v. Production Plan
A. Nanufacturing process (amount
subcontracted)
B. Physical plant
C. Nachinery and equipment
D. Names of suppliers of raw materials
v!. Operational Plan
A. Description of company's operation
B. Flow of orders for goods and/or services
C. Technology utilization
CuLllne of a 8uslness lan (2 of 2)
v!!. Narketing Plan
A. Pricing
B. Distribution
C. Promotion
D. Product forecasts
E. Controls
v!!!. Organizational Plan
A. Form of ownership
B. !dentification of partners or principal
shareholders
C. Authority of principals
D. Nanagementteam background
E. Roles and responsibilities of members of
organization
!X. Assessment of Risk
A. Evaluate weakness(es) of business
B. New technologies
C. Contingency plans
X. Financial Plan
A. Assumptions
B. Pro forma income statement
C. Cash flow projections
D. Pro forma balance sheet
E. Breakeven analysis
F. Sources and applications of funds
X!. Appendix (contains backup material)
A. Letters
B. Narket research data
C. Leases or contracts
D. Price lists from suppliers
Dslng and lmplemenLlng 1he 8uslness
lan
W 1he buslness plan ls deslgned Lo gulde Lhe
enLrepreneur Lhrough Lhe flrsL year of operaLlons
W lmplemenLaLlon of Lhe sLraLegy conLaln conLrol polnL
Lo ascerLaln progress and Lo lnlLlaLe conLlngency plan
lf necessary
W 8uslness plan noL end up ln a drawer somewhere
once Lhe flnanclng has been aLLalned and Lhe
buslness launched
Measurlng lan rogress
W LnLrepreneur should check Lhe proflL and loss sLaLemenL cash
flow pro[ecLlons and lnformaLlon on lnvenLory producLlon
quallLy sales collecLlon of accounLs recelvable and
dlsbursemenL( cosL/expense paymenL) for Lhe prevlous monLh
roflL and loss sLaLemenL
Cash flow pro[ecLlons
roducLlon conLrol compare cosL flguresday Lo day operaLlon cosL
CuallLy conLrol producL performs saLlsfacLory
ulsbursemenLs conLrol amounL of money pald ouL
lnvenLory conLrol
ales conLrol
DpdaLlng Lhe lan
W 1he mosL effecLlve buslness plan can become ouLof
daLe lf condlLlon change
W lf Lhe change are llkely Lo affecL Lhe buslness plan
Lhe enLrepreneur should deLermlne whaL revlslons
are needed
W ln Lhls manner Lhe enLrepreneur can malnLaln
reasonable LargeLs and goals and keep Lhe new
venLure on a course LhaL wlll lncrease probablllLy of
success
Jhy ome 8uslness lans lalls?
W Coals seL by Lhe enLrepreneur are unreasonable
W Coals are noL measurable
W 1he enLrepreneur has noL made a LoLal commlLmenL Lo Lhe
buslness or Lo Lhe famlly
W 1he enLrepreneur has no experlence ln Lhe planned buslness
W 1he enLrepreneur has no sense of poLenLlal LhreaLs or
weaknesses Lo Lhe buslness
W no cusLomer need was esLabllshed for Lhe proposed producL
or servlce