THE BUSINESS PLAN

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THE BUSINESS PLAN

• GE 401
• Fall 2003
• Bilkent University

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Business Plan Definition

• Business plan is a picture or a model of what a
  business unit will be.
• Business plan contains information on
• product(s)
• markets
• employees
• technology, facilities
• capital, revenues and profitability

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Why a Business Plan

• To get help from others, especially financial
  backers
• Provides a guide for running operations once the
  enterprise is started
• Incidental benefit Pulls the management team
  together and forces owners/managers to fully
  understand the tasks ahead of them

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Target Audience

• VC firm A new venture looking for start up
  equity capital
• Bank A business Seeking a loan
• Headquarters A division of a larger corporation
  engaged in a planning exercise

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The VC Financial Model

• The VC puts money in a start-up in return for
  stock in the new company
• The firm operates and grows for about 3-5 years
• The profitable company is either sold to a large
  corporation or taken public

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VC Investing

• Seed Investing before there is a real product or
  company
• Early stage Investing before first and second
  stages of development
• Expansion Stage financing to provide funds to
  grow to a critical mass
• Later Stage Investing finnancing to grow beyond
  critical mass

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Expectations of the VC firm

• Financial projections that meet its return on
  investment requirements
• A credible market and a realistic plan to reach
  it, in a field that is of interest to the
  investor (VC firm)
• A competent management team

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Venture Capital Financing
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Why is VC financing Important

• Conflicts between managers and investors, i.e.
  The agency problem
• Informational gap between entrepreneurs and
  investors
• The lemon problem
• Limitations of banks in financing innovations
• http//www.nvca.org/

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Forms of Business Organization

• Single Entrepreneurship
• Partnership
• Corporation
• Evaluation wrt
• Ease of formation and life
• liability
• Ease of raising capital
• transfer of ownership

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Business Plan Structure

• Introduction
• Descriptive Section
• Financial Projections

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Business Plan Outline

• Contents
• Executive Summary
• Mission Statement
• Market
• Background
• The Customers
• Product Description
• Competitive Analysis
• Pricing

• Operations
• Sources of Input/Costs
• Processes / Equipment
• Management/Staffing
• Financial Projections
• Current Statements
• Projected Statements
• Application for Funds
• Contingency Planning
• Appendices

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Example Max Uptime Inc.

• Mission Serve the data processing community in
  BigCity by providing on site maintenance and
  repair services on selected high tech equipment
• Market 3 types of service providers
  manufacturers, large providers, local providers.
  Rapid response is currently overpriced.

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Example (Contd)

• Proposed Business Enter independent market for
  service and target computer community provide an
  innovatively packaged rapid response option
• Management Joseph Updike Charles Conners
• Loan Request Need a loan to finance working
  capital until the business is able to fund itself
  from operations 150,000

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The Market

• Background
• The Customer Need
• Two concerns cost and downtime
• Target Customers
• Small to medium sized businesses with modest MIS
  installations
• Service Offerings
• Standard Rapid Response, Rapid Response as Needed

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The Market (Contd)

• Strategy and Approach to the Market
• Rapid response with a cost advantage
• Market Research formal and informal
• Approach to customers
• Direct, personal contact with MIS managers
• Competitive Analysis and Market Share
• The Competition, Market Size and Growth
• Projected Market shares
• Market share will come from competitors

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Operations

• Background
• The availability and skill level of FEs
• Spare parts
• Scheduling and Dispatch
• Max Uptimes Operations
• Office, equipment, financial services, training,
  overhead expenses

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Management and Staffing

• In the beginning C. Conners will be responsible
  for marketing, J. Updyke for operations
• Headquarters employees
• Field Engineering Staff
• Backgrounds of Founders

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Financial Projections

• Forecast of installed base
• Revenues
• Costs
• Presentation of Financial Forecast
• Income Statements
• Balance Sheets
• Statements of Cash Flows
• Summary of Key Elements

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Forecast of Basic Rate
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