UAB - Departament d’Economia de l’Empresa
“The Business Plan: Guide-summary for its elaboration Dr. Alex Rialp / Dr. Christian Serarols
Bergamo, 2011
Outline of the presentation 1. Introduction to the Business Plan
2. Different sections of the Business Plan
1.1. What is it?
2.1. Executive summary
1.2. Concept and importance
2.2. Market analysis and Marketing plan
1.3. Reasons to write or not a BP 1.4. What can happen without a BP
2.3. Operation/production plan
1.5. What investors like and dislike?
2.4. Human Resources and organization plan
1.6. Short Business Plan Outline
2.5. Fiscal and legal plan
1.7. How to write a BP?
2.6. Financial plan (balance sheet, cash-flow, investment, etc. ) 2.7. Appendices 2.8.Refinements
1.1. What is a Business Plan? 1) According to Veciana (1988), a business plan (BP) is:
A written manuscript that explains and details the project of a new business A guideline that shows the different steps that the entrepreneur has to follow to create the start-up, what to do, how to do it and why to do it. A written document that synthesizes the conception of a new business and analyses in advance the future of the venture and shows its economic, technical and financial viability/feasibility
1.1. What is a Business Plan? 2) A BP is also:
A story about the future
A product of an ongoing discovery process
A sales tool
Capital Providers
Partners
Employees
Suppliers
Customers
A working model of a (new) business
A basis for operating a (new) business
A basis for valuation of a (new) business
NOT simply a commercialization/marketing plan
1.2. Concept and Importance of the Business Plan
A Business Plan (BP) is essentially a written document outlying and explaining a new and innovative business idea or opportunity. OM..IM: Out of your Mind…and Into the Marketplace Has to provide well documented, justified and convincing arguments to answer the following key questions: •
• •
Is there really an opportunity to serve an important customer need or want? =>Value Proposition Do the financials work out favorably? =>Business Model viability Does the opportunity really match the founder-manager’s personal goals and values, and will he/she have the abilities and resources required to exploit the opportunity?
It can be developed to start a new venture or to develop a new business unit within an established firm
1.2. Concept and Importance of the Business Plan
A well developed BP is useful both: -internally, for the entrepreneur or founding team (as a guide to help in each phase of venture/business creation) -externally (it will be useful in gaining external finance by convincing investors (banks, VC or BA), negotiating more favorable terms with clients/suppliers, attracting key personnel, establishing agreements and alliances, etc.).
Business plan assistance as a service offered by a specialist (consultant, business incubator staff, etc.) usually represents one of the most important tools for the novice entrepreneur in the new firm creation process.
1.3. Reasons to write a Business Plan
Entrepreneur/founding team (internal)
Banks and venture capitalists
Potential clients and customers
Resource providers
Human capital attraction
1.3. Reasons to write a Business Plan
Evidence of your ability to plan
To sell yourself on your business
Map and compass for the future
Operation and financial plans
To obtain bank funding
To obtain investment funds
Communicate more clearly
To arrange a strategic alliance
To obtain a large contract and/or large client base
To attract key employees
To complete mergers and acquisitions
To motivate and focus your management team
1.3. Reasons often given to avoid writing a Plan
“I don’t need one”
“I have one in my head”
“I don’t know how to begin”
“I don’t have enough time to do it”
“I’m not a numbers person”
“Lots of famous entrepreneurs didn’t write any”
“I’m making more than enough money”
1.4. What can happen without a plan?
Inefficient control over costs and quality of output
Poor inventory/stock control
Under pricing of goods sold
Poor relations with suppliers
Inability of management to reach decisions and act on them
Failure to minimize tax obligations
Poor and lax credit control
Failure to anticipate market trends
Insufficient working capital and key personnel
Inability to cope adequately with competition
1.5. What investors and bankers like? A clear definition of the business (mission)
What problem/need does it meet?
Evidence of marketing capability
How will the business add significant value for the benefit of the consumer?
Evidence of management capability
Is the opportunity a good fit with the founders?
An attractive financial arrangement
Is there a robust market / margin / money-making potential? Is there provision for harvest/liquidity in reasonable time and in reasonable circumstances?
1.5. What they don’t like?
Too much obsession with product issues only Unrealistic financial projections (mostly sales and profits)
Inability to come to terms with the details
Failure to deal with potential critical risks
A “prepackaged” plan or fill in the blanks: while helpful, it can result in too much standardized info and lack of linkage to the new venture reality
1.6. Short Business Plan Outline The business plan can be structured along the following key lines: 1.
(Executive) summary
2.
Analysis of the environment: Market analysis
3.
Marketing plan
4.
Operations/production plan
5.
Human Resources and organization plan
6.
Fiscal and/or legal plan
7.
Economic-Financial plan (balance sheet, cash-flow, investment, etc. )
8.
Appendices: Founding entrepreneur/team and management team, time scale/milestones, potential risks and problems, company offer or request for finance, others).
1.7. How to write a Business Plan
Do not consider all the different parts/sections in a too isolated manner (write constructively) The narrative (qualitative) and the financials (quantitative) sections of the business plan must fit The briefer, more well-structured, concise and realistic, the better Max. 40 pages (appendices can be set apart) Written preferably by the entrepreneur or founding team (sometimes helped by other specialists) The rather generic business plan template presented hereafter should be conveniently modified to suit the specific type of business and the audience for which it is written/presented.
2.1. Executive summary Executive summary 2-3 pages describing the most relevant issues:
business idea, object and activity of the new venture/project, general strategy, marketing, production and financing strategies, competitive advantages of the product/service, estimation of the capacity to generate profits, potential risks and problems, and the main characteristics of the entrepreneur/founding team
It is more convenient to write/refine it at the end of the elaboration process
2.2. Environment-Market analysis
Needs/wants to satisfy
Products/services offered to fulfil these needs Environmental/external general analysis (macro-environment: economic, technological, socio-cultural, qualified labour, industrial policy, etc.) Market analysis (market structure, potential customers, substitutive products, direct and indirect competitors, etc.)
2.2. Marketing Plan
General strategic determination of marketing policy What product/service it is, how it will become known and appealing (client attention), how it will be brought to the market, at what price it will be sold, what accompanying services will be offered… Precise definition of the segmentation of the market and sales forecast
2.2. Marketing Plan
Product/service strategy (characteristics)
Communication strategy (advertising and sales promotion) Placement/Distribution strategy (direct or indirect) Customer’s service policy (pre-sales, post-sales, maintenance, guaranties, financing, etc.)
Price policy: price setting (based upon costs, demand or competition), payment terms/means.
2.3. Operation/production plan
Production/operational processes (how much is produced, capacity, resources, technology, etc.)
Infrastructures, equipments and work force requirements
Technology plans
Stock management: procurement and stocking
Determination of the costs of the product/service (fixed and variable costs)
Quality management/control
Security, hygiene and environmental management (health and safety issues)
2.4. Human Resources and organization plan Organizational structure:
Organizational structure: What sort of organization do we need to design?
Organization organigram/chart? Who is related to whom?, who reports whom? Who does what and how he/she does it?
Human resources planning and management:
Type of personnel being needed
How is the personnel going to be selected, trained?
Contracts and incentives
Socialization, retention, HR development, etc.
2.5. Fiscal and legal plan
Determination and justification of the legal form/status chosen for constituting the company, trade name, etc.
Necessary documents for its legal realization: Licences, permits and registry duties
Employment Contracts (types of contracts selection)
Fiscal obligations (duties/taxes) for starting-up and activity development, responsibility coverage
Registration of brands, trademarks, signs, patents and utility models (legal protection)
2.6. Financial statements A general model for the economic-financial management of the new business:
Initial investment and on-going investments plan
Financial plan (own funds vs external capital resources)
Pro-forma Cash flow statement: Forecast of budget and systems of revenue collection from clients and payment to suppliers Pro-forma Income statement: profit and/or loss account prevision (projected monthly and/or annually) Balance of the situation (balance sheet at the end of X years) Analysis of the equilibrium point (break-even)
Financial plan/budget
Concept Owner’s Personal savings Savings of relatives (family, friends) Bank loans Accounts payable (suppliers) Customer advances s Others
Amount
Total
%
Date
Small Business Plan Template Financial Projections Overview Your business plan needs to include a pro-forma balance sheet, income statement, and cash flow statement. The term ―pro-forma‖ means projected or forecast. Most future business owners who do not have experience with financial statements seek outside help to complete this part of their plan. Whether you plan to prepare your own financials or get outside help, this section is intended to make sure that you know what to include and that you will be well prepared to discuss your financial statements with a banker or investor. Lenders will want to know if the business will be able to repay the loan they are seeking. Investors will want to see if the longer-term growth trends represent a good investment for them. Both lenders and investors will want to see that the business is sufficiently capitalized so that it doesn’t run out of money, and how fast the business can reach break-even and become profitable. Business Plan Outline for Financials should include: • 3-Year Pro-Forma Income Statement (first year also monthly) • Balance Sheet at the end of Years 1, 2 and 3 • 3-Year Pro-Forma Statement of Cash Flow (fisrt year also montly) Recommended: quaterly projections for year 1 and yearly projections for years 2-3
Small Business Plan Template Financial Projections Overview Income Statement: Also known as a profit and loss statement. Shows the company’s revenue, expenses, and profit or loss. Key formula: Total Revenue – Total Expenses = Profit or Loss. Balance Sheet: Shows the value of the company’s assets, liabilities and owner’s equity. Key equation: Assets = Liabilities + Owner’s Equity. Additionally, when creating your sample balance sheet, understand that this is the only financial statement that applies to a single point in time. It is a "snapshot" at a given point in time, unlike the other financial statements that show activity throughout a period of time. A small manufacturing business balance sheet should include assets such as: cash, accounts receivable, inventory and fixed assets. Statement of Cash Flow: Maps inflows and outflows of cash. Sales and profit alone don’t tell the whole story. It’s important to know when money will come in and when money will be going out.
Break-Even Analysis A break-even analysis predicts the sales volume, at a given price, required to recover total costs. In other words, it’s the sales level that is the dividing line between operating at a loss and operating at a profit. Expressed as a formula, break-even is: Breakeven Sales = Fixed Costs/1- Variable Costs (Where fixed costs are expressed in €, but variable costs are expressed as a percent of total sales.) Include all assumptions upon which your break-even calculation is based.
Break-Even Point (BEP)
2.7. Appendices Any additional and relevant information relevant for the best understanding of the described entrepreneurial project mostly if it was not included in the previous sections of the BP
Founding entrepreneur or founding team and management team (characteristics, strenghts and weaknesses, CV, motivation, etc.)
Plan of dates or execution calendar (Gantt diagram)
Possible risks and problems that might emerge
Offer made by the firm or asking for financing
Any other information/materials needed to support the assumptions in this plan…brochures and advertising materials, industry studies, blueprints and plans, maps and photos of location, magazine or other articles, detailed lists of equipment owned or to be purchased, copies of leases and contracts, letters of support from future customers, market research studies, list of assets available as collateral for a loan, etc.
2.7. Appendices: Common problems/risks
Changes in sector’s or economy’s trend that can affect forecasts Do not reach sales forecasts or breakeven point when expected Production costs higher that expected A delay in product’s development and time-to-market Competitor’s unexpected reactions Cash-flow problems The lost of a key person or shareholder Procurement difficulties in certain parts of the product New/emerging competitors Possible financial problems
2.7. Appendices: Gantt (Microsoft project)
ACTIVITATS (1) Constitució empresa (2) Disseny del producte (3) Acabament instal·lació (4) Sortida ordres compra (5) Inici producció (6) Sistema distribució (7) Llançament publicitari (8) Recepció de comandes (9) Lliurament de productes (10) Cobrament vendes
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10) Mes1 Mes2 Mes3 Mes4 Mes5 Mes6 Mes7 Mes8 Mes9 Mes10 Mes11 Mes12
2.8 Refining the plan: for raising capital For Bankers: Bankers want assurance of orderly repayment. If you intend using this plan to present to lenders, include:
Amount of loan How the funds will be used What this will accomplish—how will it make the business stronger? Requested repayment terms (number of years to repay). You will probably not have much negotiating room on interest rate but may be able to negotiate a longer repayment term, which will help cash flow.
For Investors: Investors have a different perspective. They are looking for dramatic growth, and they expect to share in the rewards:
Funds needed short-term and in two to five years How the company will use the funds, and what this will accomplish for growth. Estimated return on investment Exit strategy for investors (buyback, sale, or IPO) Percent of ownership that you will give up to investors Milestones or conditions that you will accept Financial reporting to be provided Involvement of investors on the board or in management
2.8 Refining the plan: for type of business (i)
Manufacturing companies Planned production levels Anticipated levels of direct production costs and indirect (overhead) costs— how do these compare to industry averages (if available)? Prices per product line Gross profit margin, overall and for each product line Production/capacity limits of planned physical plant Production/capacity limits of equipment Purchasing and inventory management procedures New products under development or anticipated to come online after startup
2.8 Refining the plan: for type of business (ii)
Service Businesses Service businesses sell intangible products. They are usually more flexible than other types of businesses, but they also have higher labor costs and generally very little in fixed assets. What are the key competitive factors in this activity? Prices and methods used to set prices System of operation management Quality control procedures. Standard or accepted industry quality standards. How will you measure labor productivity? Percent of work subcontracted to other firms. Will you make a profit on subcontracting? Credit, payment, and collections policies and procedures Strategy for keeping client base
2.8 Refining the plan: for type of business (iii) Retail Business Company/brand image Pricing:
Prices and markup policies should be profitable, competitive, and in accordance with image.
Inventory:
Inventory level: Find industry average numbers for annual inventory turnover rate. Multiply your initial inventory investment by the average turnover rate. The result should be at least equal to your projected first year's cost of goods sold. If it is not, you may not have enough budgeted for startup inventory.
Customer service policies: competitive and in accord with company image. Location: Does it give the exposure that you need? Is it convenient for customers? Is it consistent with company image? Promotion: Methods used, cost. Does it project a consistent company image? Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor the cost into prices?
2.8 Refining the plan: for type of business (iv) High Technology Companies: usually have to operate for a long time without profits and sometimes even without sales. If this fits your situation, a banker probably will not want to lend to you. Venture capitalists may invest, but your story must be very good. You must do longer-term financial forecasts to show when profit take-off is expected to occur. Assumptions well argued. Economic outlook for the industry Will the company have information systems in place to manage rapidly changing prices, costs, and markets? Will you be on the cutting edge with your products and services? What is the status of research and development? And what is required to:
Bring product/service to market? Keep the company competitive?
How will the company:
Protect intellectual property? Avoid technological obsolescence? Supply necessary capital? Retain key personnel?
Interesting readings Anatomy of a business plan: outline (by Linda Pinson, 2011) http://www.businessplan.com/outline.html Berry, T.J. (2006): Hurdle: the book on business planning (UK edition). (e-book accesible at http://www.bplans.co.uk) UNCTAD (2002): How to prepare your business plan (e-book accesible at http://www.gazhoo.com)
Additional information BP template/outline and guidelines: http://en.wikipedia.org/wiki/Business_plan http://www.business-plan.com/outline.html http://www.greatbusinessplans.com/business-plan-template http://articles.bplans.com/writing-a-business-plan/a-standard-business-plan-outline/29 http://www.biztree.com/Templates/Business-Plan.html http://web.sba.gov/busplantemplate/BizPlanStart.cfm http://www.myownbusiness.org/s2/#Sess1n2 http://businessplans.fimark.net/sample_business_plan_presentation.html http://office.microsoft.com/en-us/templates/business-plan-for-startup-business-TC001017520.aspx Plus sample business plans, business plan software & (e)books: http://www.business-plan.com/ http://www.bplans.com/ http://www.bplans.co.uk/sample_business_plans.cfm http://www.gazhoo.com http://www.biztree.com
A fictitious business plan example European Foars Company’s sample business plan for fast fenners new SBU to be created in 2001
