Overview of a Business Plan

Transcription

1 Overview f a Business Plan Prepared By Alan Thmpsn Murdch Business Schl 1 August 2003 Overview f a Business Plan Cpyright Alan Thmpsn 2002

2 Cntents 1.0 Intrductin t the Business Plan Cncept Functin f a Business Plan The Business Plan Narrative Outline f a Business Plan Executive Summary Key pints t cnsider fr yur executive summary: Table f Cntents Narrative Business Descriptin/Backgrund Prduct/Service Technlgy Market Envirnment Cmpetitin Industry Business Mdel Marketing and Sales Strategy Prductin/Operating Plan Management and Persnnel Gvernance and Outside Advisrs Intellectual Prperty Regulatins/Envirnmental Issues Financial Summary Critical Risk Factrs Milestnes Financial Statements & Narrative Financial Narrative Balance Sheet Prjectins Incme Statement Prjectins Cash Flw Prjectins Break-even Analysis Cst Benefit Analysis Appendices...13 Overview f a Business Plan Cpyright Alan Thmpsn 2002

3 1.0 Intrductin t the Business Plan Cncept Befre starting a new business r expanding an existing business, yu shuld develp a business plan. The business plan will serve many purpses. First, it will help yu define the purpse f yur business and rganise it. It als helps yu determine the business s grwth patterns and any cnsequent prblems befre they arise; thus enabling yu t mre effectively deal with them. The business plan is an agreement n hw yur management team plans t carry ut certain functins t achieve business results and serve as a means f measuring the cmpany s perfrmance. Lastly, the business plan is a dcument that will assist when raising capital frm banks, private investrs, r ther surces. The business plan shuld strngly cmmunicate the business cncept, its viability, the business mdel and the management structure that will be used t reach the business bjectives. Here's a rad map, r checklist, t guide yu in yur writing. Althugh every business plan shuld reflect the pprtunities, cncepts and entrepreneurial team that fits a particular business, it is imprtant t cnsider the full range f issues yu and yur ptential investrs are likely t face. A business plan will ften build and refine the key cncepts develped within the Prf f Business Cncept (Feasibility Study) that yu cnducted t frmally justify the business cncept prir t cmmitting the resurces needed t develp a frmal business plan. 2.0 Functin f a Business Plan The best business plans are bth management guides and selling tls. Writing a business plan shuld help yu think thrugh mst f the issues yu will face in starting a business. While yu will nt prevent all surprises, at least yu shuld be able t plan fr the mre likely eventualities, freeing yurself t respnd creatively t the true surprises. Cmmunicating a business plan t partners - including investrs, majr custmers r suppliers, and key emplyees - shuld generate useful feedback n all aspects f the business. Finally, the business plan itself shuld serve as a useful tl - alng with persnal cntact - fr cnvincing such partners t sign n t yur visin. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 1

4 3.0 The Business Plan Narrative Strng business plans cmmunicate a cmpelling stry abut hw a particular business will grw t take advantage f a prmising business pprtunity. There are fur majr sectins f mst plans: The executive summary - which is written last but presented first - pens minds: Here are sme very specific bits f infrmatin, passin and sphisticatin that will make yu want t read the rest f this plan. The prduct-riented sectins educate: Here is my prduct r service and hw it fills a ntable need in the marketing place. The market-riented sectins entice: Lk at the fit between the prduct r service and the niche; lk at the shape and size f the market; there shuld be a great pprtunity evident. The financial and peratinal sectins reassure by anticipating and respnding t typical questins: In case yu were wrried, here is hw we will cpe with the cmpetitin, with industry trends, with regulatry risks, etc. In any case, we have made these very cautius financial assumptins and have a very credible management team capable f respnding t almst anything it cnfrnts. There are sme things that d nt belng in a business plan. Fr example, while many investrs will invest nly if they can see an exit strategy and many appreciate an entrepreneur wh is sensitive t their need t cash ut, few will invest in an entrepreneur wh talks abut exit strategies unless the exit strategy demnstrates a clear business mdel fr return n investment. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 2

5 4.0 Outline f a Business Plan Executive Summary Table f Cntents I. Narrative Business Descriptin/Backgrund Prduct/Service Technlgy Market Envirnment Cmpetitin Industry Business Mdel Marketing and Sales Strategy Prductin/Operating Plan Management and Persnnel Gvernance and Outside Advisrs Intellectual Prperty Regulatins/Envirnmental Issues Financial Highlights Critical Risk Factrs Milestnes II. Financial Statements & Narrative III. Appendices Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 3

6 4.1 Executive Summary The Executive Summary is a summary f all key sectins f the business plan and shuld wrk as a separate, standalne dcument. Investrs and lenders read this dcument first and perhaps glance at the financial sectin when making a decisin. Therefre it is cnsidered the mst imprtant cmpnent f a business plan. Often investrs decide whether t schedule a meeting with the entrepreneur based slely n the Executive Summary. Write this dcument after the business plan is cmpleted. While the ES is written last, it is placed first, either after r befre the Table f Cntents. The ES shuld be n mre than ne t ne and a half pages lng Key pints t cnsider fr yur executive summary: An executive summary shuld explain why yu wrte the reprt, emphasize yur cnclusins and recmmendatin and include nly the essential infrmatin used t supprt thse cnclusins. Executive summaries are usually rganized accrding t the sequence f infrmatin presented in the full reprt, s fllw the rder f yur reprt as yu discuss the reasns fr yur cnclusins. Executive summaries are usually prprtinal in length t the larger wrk they summarise - typically 5%. Mst executive summaries are 1-2 pages maximum. Write the executive summary after yu have cmpleted the reprt and decided n yur recmmendatins. Lk at the first and last sentences f paragraphs t begin t utline yur summary. The executive summary shuld have cntinuity thrugh the use f key wrds frm within the main reprt. Make the summary cncise, but be sure t shw why yu've arrived at yur cnclusins. Yu can nt intrduce any new infrmatin that is nt in yur reprt. Executive summaries shuld cmmunicate independently f the reprt. That is, tell the whle stry in its wn right. Ask smene nt familiar with the reprt's examples t read yur executive summary t see if it makes sense. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 4

7 In taking a simplified apprach the executive summary shuld generally cnsist f three paragraphs, namely: First, cmmunicate the PROBLEM (i.e. intrductin, missin, purpse, apprach). Secnd, cmmunicate the SOLUTION (i.e. analysis, facts and recmmendatins). Third, cmmunicate the SO WHAT (i.e. utcme, success, risk, cnclusin). Remember t spell-check and prf read. Dn't trust the spellchecker. The executive summary is ften the nly cntact that many peple may have with yur reprt/prpsal and as these first impressins are significant, get it right first time. A pr executive summary can adversely affect an therwise great reprt. 4.2 Table f Cntents Include ne! Listing sectins, appendices, and if necessary, figures, tables, etc. 4.3 Narrative Business Descriptin/Backgrund Briefly cver the fllwing tpics: When the cmpany was frmed, by whm, why the entrepreneurs started the business, and the cmpany's missin. Which prduct r prducts the cmpany will initially fcus n. (One t tw sentences. Details belng in the prduct sectin.) Initial target market(s). (One sentence.) Industry. (One sentence.) Investment prfile - wh has invested hw much when. Grwth, size, and market share bjectives, strategy t achieve these, and time frame. Desired exit strategy (sale f cmpany, IPO, etc.) if any, and time frame. Milestnes achieved t date. Fr instance: Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 5

8 T date, the cmpany has cmpleted a business cncept- market feasibility study, has a patent pending in Australia, and is in the prcess f develping a manufacturing system. It has als raised $25,000 frm private investrs in a first rund f seed financing Prduct/Service Describe the cmpany's prduct r service in lay terms. Give a prduct mix if the cmpany will initially be fcusing n mre than ne prduct. Describe hw the custmer uses the prduct r service, e.g.., can they use it themselves r wuld they need t rely n the cmpany in sme way. Describe key cmpnents r raw materials that will be used in the prduct, hw the cmpany will surce these and hw available they are. State the stage f prduct design and develpment. Fr instance: "The designs and specificatins fr the first prduct have been cmpleted, and the prttype will be ready within the next six mnths." Describe plans t test the prduct t ensure it wrks as planned and is sufficiently durable, rugged, secure, etc. (i.e. cnsumer prduct test, beta test with majr cmpany, etc.) Describe plans t upgrade prduct r expand prduct line Technlgy As necessary, prvide further technical infrmatin abut the prduct r service. Describe additinal r nging research and develpment needs. Describe the reliability f the technlgy in terms f prir histry, serviceability, upgradeability and marketability Market Envirnment Target Market: Define and describe the target market(s). Distinguish between end users and custmers. Be clear hw end users and custmers benefit, and why they wuld buy the prduct r service. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 6

9 What is the unmet need yur prduct(s) r service(s) fulfill s beautifully? Hw big is the pprtunity? Fr Business-t-Business Markets: Estimated market size, the industry the target market is in, key players, frequency f prduct purchases, replacement needs vs. expansin, purchasing prcess (i.e. slicits bids, uses preferred vendr lists, ges thrugh cmmittee r multilevel apprval prcess, etc.). Initial targeted gegraphic area. Cmpany's targeted market share. Estimated length f sales cycle. Fr Business-t-Cnsumer Markets: Demgraphic factrs, such as incme level, age range, gender, educatinal level, ethnicity. Psychgraphic factrs. Behaviural factrs such as frequency f prduct purchase and shpping behaviur Cmpetitin Describe direct and indirect cmpetitin (as it pertains t the target markets nly). Fr key cmpetitrs give market share, resurces, prduct and market fcus, gals, strategies, strengths and weaknesses. List all key barriers t entry. Describe what is unique abut the cmpany's prduct/service cmpared t the cmpetitin. Make sure this is cnsistent with the unmet need f the target market(s). State hw difficult it will be fr cmpetitrs t cpy the cmpany's prduct/service. Prvide an estimate length f cmpany's lead time (frm cmpany's prduct launch t cmpetitive launch f a cpied prduct). Describe hw cmpetitrs will mst likely react t the cmpany's prduct launch and the cmpany's respnse strategy. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 7

10 4.3.6 Industry Clearly define and describe the industry in which the cmpany perates. Include the size, grwth rate, and utlk. Define key industry segments and state where cmpany fits in. Describe demand and supply factrs and trends. Describe the larger frces that drive the market - innvatin, cultural change, regulatin, etc Business Mdel Describe the cmpany's business mdel. Hw will the cmpany generate revenue (i.e. sell the prduct; charge licensing, subscriptin r advertising fees; earn cmmissins frm e- cmmerce; etc.)? Will there be recurring revenue? If an exit strategy is prmted within the business plan fr bth yu and investrs, the business mdel must be aligned with this and where pssible, a business valuatin mdel discussed in rder t identify prjected return n investment Marketing and Sales Strategy Lay ut the marketing and sales strategies. Hw have yu identified yur target market, thrugh existing prduct alignment, survey methdlgy r an existing custmer base? Discuss any strategic partnership the cmpany has r is planning t frm. D they prvide critical market access r ther resurces? What are their rights and respnsibilities? Describe the distributin strategy (sell direct t custmers thrugh sales frce, direct mail, Internet r sell thrugh manufacturers' representatives, whlesalers, distributrs r retailers). Prvide typical prfit margin r markup expectatins, cmmissins, and ther expected cmpensatin (c-p advertising, sltting fees, etc.) Describe the pricing strategy and justificatin. Include the expected grss prfit margins. Describe typical payment terms fr custmers. Fr example; Custmers: 60 days frm invice. Vendrs: 30 days frm invice. Other issues and their impact (e.g. warranties, liabilities, cntracts). Quantify the marketing budget fr at least the first year. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 8

11 4.3.9 Prductin/Operating Plan Describe hw and where the cmpany will manufacture, surce r create and deliver the final prduct r service. If prductin and strage will be in-huse: Give lcatin, size, age, cnditin, capacity f planned prductin and warehuse facilities and number f shifts planned. Will space be wned r leased? Will renvatins be required? If s at what cst? Hw cmplex is the manufacturing prcess? Describe equipment needed and csts. If cmpany will utsurce prductin r distribute thers' materials: Describe supply surces. Are surces f supply readily available? Give purchase lead times. Outline the relevant cntract terms, manufacturer's capacity, minimum rder and tling requirements, reputatin, size r financial cnditin. Describe the cmpany's plan t prtect its prprietary prcesses, trade secrets and quality cntrl. If cmpany is prviding a service: Hw will the service be designed, delivered, mnitred and imprved? What partners will the cmpany use? What will be the terms f the cntract? Are there substitute partners? Describe the relevant accunting, inventry, management infrmatin systems, and perating systems. Describe relevant risk management strategies fr general business risks (e.g. wrker's cmpensatin; liability, prperty, casualty and business interruptin insurance; and cntingency plans). Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 9

12 Management and Persnnel Describe yur peple philsphy. List key managers, titles, respnsibilities, relevant backgrund, experience, skills. Briefly describe: Hw key decisins will be made. Hw management will address management cnflicts. Discuss plans t fill pen psitins. Sketch persnnel requirements. What peple will be needed nw, in a year and tw years? Include skills and qualificatins required. If the business plan is in supprt f a new and unprven business, then a detailed prfile (resume) f each key manager shuld be included in appendices Gvernance and Outside Advisrs Describe the wnership structure, including wh will be respnsible fr majr decisins abut strategy and resurce allcatin. Bard f Directrs r Bard f Advisrs. If there is r will be ne, describe briefly its cmpsitin (including internal and external seats), structure, meeting frequency, etc. A clear (visual) representatin f the management and business entity mdel shuld be attached as an appendix and referred t when required in the main reprt. List prfessinal advisrs including rles, experience, qualificatins and firms Intellectual Prperty Briefly describe patents, cpyrights, and trademarks btained and in prcess. Give all names that are n issued patents. Summarize results f patent searches. If cmpany is perating under a licensing agreement r patent assignment, give name f licensr/assignr, describe key terms (i.e. exclusivity, rights, respnsibilities) and give terminatin r renewal date. If the business cncept is a science (research rientated) business, the intellectual prperty is extremely imprtant. The prtcls in managing them, particularly at the initial planning stage are critical. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 10

13 Fr example, if a researcher has published their research findings in an industry jurnal r n the internet prir t ensuring intellectual wnership thrugh cpyright r patent, then the knwledge is cnsidered in the pen dmain and therefre can nt be cnsidered restricted. What quality cntrl measures have been used t mange the intellectual prperty prcess? Regulatins/Envirnmental Issues Key gvernment regulatins and the cmpany's plans fr cmpliance. Inspectins required, including type and frequency. Outline any envirnmental prblems n prperty, plans t address the prblems and assciated csts. Hw the cmpany plans t dispse f any waste materials. Any ther regulatry r plitical issues Financial Summary Within the business plan narrative prvide a srt f executive summary f the financial sectin, highlighting key assumptins, significant lgic, general prjectins (e.g. incme, expenses, prfit all in graph frm), break even analysis, funding needs and timing f thse needs. Put the details - prjectins, assumptins, etc. - in an appendix Critical Risk Factrs Describe critical risks faced by the firm (bth current r in the future). Examples include internal characteristics, uniqueness, investment, external characteristics, sales grwth, prduct availability, custmer availability, technical bslescence, etc. Be sure t describe hw yu will mitigate each risk Milestnes Describe the cmpany's milestnes, the majr events in life f venture by listing the timetable/deadlines fr cmpletin f phases f venture. Be sure t demnstrate the relatinship f events and t keep the milestnes, financial requirements, persnnel requirements, etc. cnsistent. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 11

14 4.4 Financial Statements & Narrative Financial Narrative Highlighting key assumptins underlying and lgic gverning yur prjectins. Include financial histry, if any (e.g. equity and debt) and likely financing stages, including infrmatin abut funding surces and uses. Prvide a page r tw f ftntes fr each financial spreadsheet attached explaining the assumptins behind each majr line item Balance Sheet Prjectins Three years, if pssible. Highlight inflws f capital Incme Statement Prjectins Year 1: Mnthly r quarterly. Years 2 and 3: Annually Cash Flw Prjectins Year 1: Mnthly r quarterly. Years 2 and 3: Annually Break-even Analysis When will the firm begin t turn a prfit? When will investrs begin t see a return? III (linkage t any exit strategy is imprtant) Cst Benefit Analysis The cst benefit analysis shuld have already been cnducted within the feasibility study as t the verall viability f the business cncept and mdel. The cst benefit analysis is traditinally attached as an appendix either as part f the feasibility study r as a separate business plan appendix. The cst benefit analysis will ften be referred t in the business cncept intrductin cmpnent f the business plan and again in the cnclusin if a cnclusin is warranted. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 12

15 4.5 Appendices Management resumes/bis. Cpies f patents. Prmtinal materials. Visualizatin f prduct r service. Management Milestnes table frmat. Business Cncept Study r cmpnents there f. Supprting analysis and / r research References and ther dcumentatin Accuntants Financial Certificatin End f Dcument Special Nte: Prf f Business Cncept (Feasibility Study) vs Business Plan Traditinally a prf f business cncept (feasibility study) is cnducted prir t the business plan being cmpleted. A prf f business cncept prves the fiscal and business viability f the prpsed business. Hwever it is ften the case that n feasibility study is cnducted, and the business manager, wner, r entrepreneur will g directly t the business plan preparatin. It is imprt ant in such cases the business plan als cntain key cmpnents f the prf f business cncept s that the business plan nt nly cmmunicates the management mdel but als prvided evidence f the justificatin (validatin) f the business itself. Overview f a Business Plan Cpyright Alan Thmpsn 2002 Page 13