The Business Plan

1
The Business Plan
Business Plan

• BU113 Foundations of Business Administration

BU113 Foundations of Business Administration
2
Memorable statistics

• New business start-ups each year
• 150,000-190,000

• Business failures each year
• 50,000-100,000

3
Reasons for Failure and Success of Businesses

• Success due to
• Hard work, drive, and dedication
• Market demand for product/service
• Managerial competence
• Luck

• Failure due to
• Managerial incompetence or inexperience
• Neglect
• Weak control systems
• Insufficient capital

4
The Process, the Plan and BU113

• Idea
• Test
• Plan
• Execute
• Evaluate

5
What is a Business Plan?

• Blueprint of your business
• Written plan detailing operational and financial
  aspects of your company
• Explanation of the business concept
• Analysis of the market
• Presentation of the strategy
• Outline of projected development of the business
• Definition of capital needs of the business
• Projection of financial performance
• Presentation of managements credentials/positions

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Who needs a Business Plan?

• Business associates
• Bankers
• Other investors
• Management
• Potential employees

• Direction and purpose
• Financing
• Funding for growth
• Internal plans
• Join the company?

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Concerns of Investors

• How are you unique?
• Proprietary technology
• Unique product
• Management track record
• Great ideas wont go anywhere without good
  management.
• Depth of management
• Rate of Return
• High risk requires potential for high return
• Where on the growth curve is the business?
• Are financial projections reasonable?
• Exit Strategy
• How to get out with mega profit (go public, sell
  out)
• When?

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Cover Page

• Company XYZ
• October, 200_
• Business Plan Copy Number 5
• This document contains confidential and
  proprietary information belonging exclusively to
  XYZ Company
• John Smith
• Chief Executive Officer
• 123 Executive Drive
• Maple Valley, VT 55555
• (802)555-555
• This is a business plan. It does not imply an
  offering of securities.

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Business PlanFormat Components

• Cover Page
• Table of Contents (with page numbers)
• Your companys mission statement
• The business
• Management Management Structure/Background
• Marketing Plan
• Financial Plan
• Supporting documents
• Revised resumes
• Company logo
• Organization chart
• PowerPoint slides in handout form

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Mission Statement

• A mission statement is a brief description of a
  companys fundamental purpose. A mission
  statement answers the questions, Why do we
  exist? What do we hope to achieve in the
  future?
• The mission statement articulates the companys
  moral/ethical position, public image, the target
  market, products/services, the geographic domain
  and expectations of growth and profitability
  (Center for Business Planning http//www.business
  plans.org).

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Mission -- Examples

• It is the mission of Saint Michaels College to
  contribute through higher education to the
  enhancement of the human person and to the
  advancement of human culture in the light of the
  Catholic faith. (SMC Catalogue)
• The Home Depot is in the home improvement
  business and our goal is to provide the highest
  level of service, the broadest selection of
  products and the most competitive prices. We are
  a values-driven company and our eight core values
  include the following
• Excellent customer service
• Taking care of our people
• Giving back
• Doing the "right" thing
• Creating shareholder value
• Respect for all people
• Entrepreneurial spirit
• Building strong relationships
• Source Home Depot Our Company Values

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Components of the Plan Management

• Type of organization / form of business ownership
  / Background
• Organization chart
• Management team
• Roles in the business
• Experience
• Skills
• Supporting documents Resumes

XYZ Company
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Components of the Plan Marketing

• Product / Service
• Key characteristics, uniqueness
• Picture, design / model
• Supplier
• Amount of inventory to be ordered
• Target market
• Users -- demographics
• Benefits
• Economic / social / cultural characteristics
• Projected sales (revenue) calculated

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Components of the Plan Marketing (contd)

• Competitive Environment
• Competitors
• Competitors Strengths
• Competitors Weaknesses

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Components of the Plan Marketing (contd)

• Price
• Pricing strategy
• Pricing strategy vs. competition
• Promotion
• Promotional strategy developing demand for
  product
• Place / distribution
• Getting the product from production to the
  consumer

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Supporting documents

• List of Shareholders Attach a table with the
  information about your shareholders investment.
• name
• contact information
• number of shares invested
• percent ownership in the company based on the
  number of shares owned
• Revised resume of each manager
• Company logo
• PowerPoint slides in handout form (6 slides per
  page)

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Shareholder List
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Business PlanFinance

• Concerns of investors
• Demand for product
• Management characteristics and experience
• Innovation
• Track record
• Rate of return
• Amount of risk
• Financial projections
• Outlook for competitiveness of business
• Growth curve of business
• Future plans

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Financial Plan
Financial Plan

• BU113 Foundations of Business Administration

BU113 Foundations of Business Administration
20
PurposeFinancial Plan

• Determine feasibility of business
• Determine capital needed to start business
• Estimate return to shareholders

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Capital Needed to Start Business

• Determine total amount of capital needed to start
  the business
• Do you need to
• Buy equipment?
• Buy product/raw materials for product to sell?
  (Include in product cost transportation
  packaging)
• Buy supplies for advertising
• Pay taxes?

22
Financing Sources How to Raise Money

• Sources Selling stock or borrowing money
• Stock sales 25 cents/share
• Inside shareholders (management team). What
  percent of company do you want to own?
• Outside shareholders (sell to others at
  marketplace)
• You must offer at least 20 shares to outside
  shareholders.
• Specify what percent ownership 1 share
  represents
• EX If you plan to sell 100 total shares to
  management and outsiders, 1 share 1 ownership
  in the company.

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Financing Sources Examples

• Sale of Product
• Capital needed 100
• Outside 20 shares 5 5
• Inside 380 shares(calculated as remaining 95 /
  .25 per share 380 shares) 95 95
• Total Raised 100 100
• Total Shares Issued 400 shares

• Sale of Service
• No capital needed
• Outside 20 shares 5 20
• Inside 80 shares(calculated as remaining 80
  shares .25 per share 20) 20 80
• Total Raised 25 100
• Total Shares Issued 100 shares

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Projected Income Statement

• Sales Number of units of product/service
  expected to be sold per week X sales price
• Less Cost of Goods Sold (COGS) number of units
  of product expected to be sold each week X cost
  to buy including taxes, shipping, etc. (no COGS
  with a service)
• Less Advertising and other expenses actual
  amount expected to be spent during a particular
  week
• Less Taxes 10 of profit before taxes (EBT)
• Note You cannot pay management wages.

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ABC CompanyProjected Income StatementFor the
Six-Week Period Ending ____ , 200_
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Projected Return on Equity

• As a start up business, consider your equity to
  be the money you raise from selling stock to
  inside and outside shareholders
• Projected ROE tells shareholders what they
  expect to earn on their investment in terms of
  return
• ROE Total Projected Net Income / Raised
  from sale of stock to management
  and outside shareholders
• EX 163.8 projected NI / 25 Common stock
  proceeds
• ROE 655

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Liquidating Dividend

• Liquidating Dividend to be paid at end of
  semester
• Different from a regular dividend real companies
  pay
• Distribution of all the cash of the company
  after payment of all liabilities.
• Purpose to close the business down
• Liquidating Dividend Per Share
• Ending cash ( from sale of stock to
  managers and
  outsiders Net Income)
• - Liabilities (including taxes payable)
  divided by total Shares outstanding