BUSINESS PLANNING

AARTI CHAWLA, MBA(B.E)(2.3), 8141

Memorable statistics
New business start-ups Business failures each

each year: 150,000-190,000 Failure due to 1. Managerial incompetence or inexperience 2. Neglect 3. Weak control systems 4. Insufficient capital

year: 50,000-100,000 Success due to 1. Hard work, drive, and dedication 2. Market demand for product/service 3. Managerial competence 4. Luck

Reasons for Failure and Success of Businesses

What Is a Business Plan?

A roadmap for success Future oriented: What you WILL do, how you WILL do it All business plans should address Business concept (product service description, business structure, how you will take the concept to market, industry trends, etc.) Marketplace (competition, customers, purchasing behaviors, sales cycles, value prop, positioning, etc.) Financial (income and cash flow statements, break even analysis, balance sheet, financial ratios, funding needs, etc.)

WHY DEVELOP A BUSINESS PLAN?

A well developed plan provides: Focus to the entrepreneur Vision to management team, potential funders, suppliers and other stakeholders Organizes ideas and examines feasibility Increases the chances of success Helps attract key employees Maximizes chance of success Helps avoid and eliminate waste The business needs funding!

Entrepreneur without business plan

IMPORTANCE OF BUSINESS PLAN

The time, effort, research, and discipline needed to create a

formal business plan force entrepreneurs to view the venture critically, objectively, and holistically The competitive, economic, and financial analyses included in the business plan subject entrepreneurs to close scrutiny of their assumptions about the ventures success Because all aspects of the business venture must be addressed in the plan, entrepreneurs develop and examine operation strategies and expected results for outside evaluators The business plan quantifies goals and objectives, which provide measurable benchmarks for comparing forecasts with actual results The completed business plan provides entrepreneurs with a communication tool for outside financial sources as well as an operational tool for guiding the venture toward success

Who should write the plan?

The business plan should be prepared by the

entrepreneur. The entrepreneur may consult with many other sources in its preparation, such as lawyers, accountants, marketing consultants, and engineers.

Three Fundamental Types of Business Plans

First Type: The Summary Plan contains only the most important information about a business and its directon business strategy stated in one sentence works best when applying for a loan, if you are well-known, not seeking funding from other investors, need money quickly Type 2: the Full Business Plan introduction detailed, explanatory works best when you want to explain key issues fully, looking for a lot of money, looking for a strategic partner Type 3: the Operational Business Plan internal planning document of an operational company usually much longer because it takes more time to describe ongoing business more history, products, people heavy on the quantitative analysis meant to inspire managers, best for fast-growing company, gives order to growth used as part of an annual review

Information Needs
Before committing time and energy to preparing a

business plan, the entrepreneur should do a quick feasibility study of the business concept to see whether there a any possible barriers to success. The information, obtainable from many sources should focus on marketing (segmenting, targeting, and positioning), finance (list of all possible expenditures, demand forecast, revenue), and production (location, manufacturing operations, raw materials, equipment, labor skills, space, overhead) . Internet can be a valuable resource.

Typical Business Plan Table of Contents

1.

2.
3. 4. 5. 6. 7. 8. 9. 10.

Executive Summary (created last) Company Description Products and Services Marketing Plan Operational Plan Management & Organization Personal Financial Statement Startup Expenses & Capitalization Financial Plan Appendices

2. Company Description & Mission

Services or products offered Mission Statement: 30 words or less (guiding principles) Business Philosophy: How will you conduct business? Facilities, Fixed Assets, Manufacturing Processes Sources of Supply; Outside Services

Customers: Who will be buying product or service?

Industry Overview: Growth industry? Forecast future Strengths, Core Competencies, and Intellectual Property Goals & Objectives: What will happen and when?

Ownership & Legal Structure, Insurance, Tax

considerations

Defines Business Type Retailer/wholesaler Manufacturer Service provider Storefront / Internet Defines Operational Aspects Where will the facilities be located Leasing or buying Zoning Material and equipment needed Special licenses required Describes the Marketplace Target customers Customer needs and expectations How will you reach them Your competition

Goals & Strategy Examples Max of 3 or 4 major goals Measurable quantitative obtainable Goal Examples:

Increase profits 20 % in 3 calendar years Pay off bank loan by August 2015 Strategies & actions required to meet goals: Add 3 sales reps next year & two following year Increase sales by 20% per year

Includes Legal Status of the Business Proprietorship Partnership Corporation Limited Liability Companies

3. Products and Services

What unique items are you selling? Describe your products and or services Focus on benefits rather than features Competitive advantages envisioned Pricing strategy, fees and leasing plans Why customers will buy from you Brand names, trademarks, IP What makes you better? Better quality? Better customer service? More responsive? Better technology? Better customer training? More flexibility? More knowledge? Lower price or better value? What do your customers value/need & will pay for?

4. Marketing Plan
Identifiable Target Groups likely to use your

products or services: Regional, National, Global, Niche Size of potential market, trends Promotional Strategies Pricing Strategies Distribution Methods Competition: Strengths/Weaknesses

Selling and Promotion Who will sell your product? How will you promote your product? Will you use mass communication? Will you work with a Public Relations Firm? Selling Costs (distinct from production cost or other overhead expenses) Pricing How will you Price Your Product/Service? Will it be Profitable? Is it Competitive? Are there cheaper products available? What market share can you get with these prices Seasonal/Cyclic Variations Life Cycle of Product or Service Will you offer credit? How will you deal with poor payers?

COMPETITIVE ANALYSIS
Competitors: Products & services Location Size Market share Yrs in business Ownership Financial strength Importance of business Pricing Advertising & promotion Image Sales approach Distribution Customer Support Customer profile Mfg process & cost Patents & copyrights Summary of strengths Summary of weaknesses A B C You

3 times to be concerned about competition:

1. When you are planning to start-up or buy a business, or planning to enter a new market. 2. When a new competitor arrives on the scene. 3. All the time.

5. Operational Plan

Inventory control Production technology Transportation and delivery Quality control Customer Service

Handling variations in demand

Product development Employees:
Training Full-time, part-time, contractors

Communications (phone, email, website design & hosting) Locations, space, parking

6. Management & Organization

Management Staffing

Owners
Brief resumes of key personnel

- Full resumes in Appendices Personnel Staffing Types of positions, number of employees, salary ranges, timing of employment Professional advisors identified: - Attorney, Accountant, Banker, Insurance Organization Chart with responsibilities

7. Personal Finance Statement

Personal Finances (Independent of Business)

- Monthly & Annual income and expenses Personal Assets and Liabilities Personal assets required to finance a portion of the business startup and continuation May be required to use Personal assets as collateral for repayment Address past credit problems

8. Start Up Expenses & Capitalization

Itemize all expenses anticipated before doors

open Exhaustive and accurate. Do not run the risk of being asked What about X? Add contingency for each expense item Separate item called contingency (typical 20%) Identify each capital item to be purchased

9. Financial Plan
Get expert advice if you need it Cash Flow Flow of cash in and out of the business Income Statement (aka P&L or Earnings Statement) Net income over a period of time Balance Sheet Assets, liabilities, net worth at a point in time Break Even Analysis (when profitable?) Projections rather than facts

Do best guess and worst case

State your assumptions

Prepare statements for 3 to 5 years

by month for early years, quarterly thereafter

Cash Flow Projection

RECEIVABLES - Initial Investment
- Sales Income

DISBURSEMENTS - Startup Expenses

- Cost of Goods Sold - Operating Expenses - Personal Living ?

Cash Flow Statements Show:

1. Cash inflow and Cash outflow 2. Like checkbook register 3. How much cash is generated and when

Income and Expense Statement (P&L) Operating Results for a Period of Time Sales Expenses Net Profit or Loss Balance Sheet Your Financial Position at a Point in Time. (Snapshot of the moving train) What You Own ( Assets). What you Owe (Liabilities). Your Net Worth = Assets minus Liabilities

1. Executive Summary
Created AFTER rest of Plan is prepared:
Defines basic goals
Request for loan and purpose Present status of company Marketing plan summary Financial plan summary Assets and your equity

Appendices & Attachments

Three year Profit and Loss Statement Owners' resumes Leases, contracts, insurance, etc.

List of assumptions for profits and losses

List of capital expenditures Proforma balance sheet (3 years) Estimated cash flow (1st year) Personal financial statement

Brochures & advertising samples

Location maps & photos Industry studies Statistical market data Target customer profile Letters of support

BUSINESS FAILURE
People dont plan to fail. They fail to plan. #10 Over expansion # 9 Poor capital structure # 8 Failure to control the controllable costs # 7 Failure to prepare for volatility of uncontrollable costs # 6 Add new products or divisions that reduce the profitable ones # 5 Poor internal controls and execution # 4 Poorly designed business model # 3 Reliance on critical financing that dries up #2 Failure to adapt to a changing market, and

THE #1 REASON FOR BUSINESS FAILURE IS

Management in complete denial!

MORE REASONS FOR FAILURE

Dun & Bradstreet also claim that business failure results from Lack of market awareness Entrepreneur falls in love with product Lack of financial responsibility and awareness Lack of clear focus Insufficient capital Optimistic/realistic/pessimistic