Post on 16-Jul-2015
1
Enterprise Creation & Development
Lecture 4:
Importance of
a Business Plan
Mr Khoo Chen En
(6460 8016; kce3@np.edu.sg)
ECD Oct 14/Lecture 4/kce 1
ECD Assignment 1
• Due Wed, 26 Nov 2014, 3pm.
• Drop it at the project box, blk 72 level 9.
• Marks will be deducted for late submission.
2ECD Oct 14/Lecture 4/kce
Lecture Objectives
• What is a business plan?
• Purpose of a business plan
• Pitfalls to avoid in planning
• Benefits of a business plan
• A guideline on developing a business plan
• Effective presentation of a business plan
3ECD Oct 14/Lecture 4/kce
Recommended Reading
4
• Donald F. Kuratko ENTREPRENEURSHIP –THEORY, PROCESS AND PRACTICE, 9th Edition, CENGAGE, Chp 12
ECD Oct 14/Lecture 4/kce
Additional Resources
• www.business.gov.sg
• Gives advice on how to plan a business, tips on writing business plans & building a network of contacts
• www.gmarketing.com
• www.bplans.com
• www.ace.sg
5ECD Oct 14/Lecture 4/kce
What is a Business Plan?
It is a written document prepared by the entrepreneur that describes all the relevant internal & enternal elements involved in starting a new venture.
7ECD Oct 14/Lecture 4/kce
Purpose of a Business Plan
Marketing
R&D
Manufact-uring
Mgmt
Critical Risks
Financing
Milestones
It is often an integration of functional plans, like:
8ECD Oct 14/Lecture 4/kce
Purpose of a Business Plan
1) A business plan describes current status, expected needs & projected results of the new business.
9ECD Oct 14/Lecture 4/kce
Purpose of a Business Plan
2) Allows the entrepreneur entrance into the investmentprocess.
3) Describes to investors & financial sources all of the events that may affect the proposed venture.
4) Used internally as a ‘roadmap’ for the operations.
10ECD Oct 14/Lecture 4/kce
Recent Trends
Increasingly important to include
in your business plan:
• How your business will impact
the environment
• What will people do with your
product when they have
finished using it?
• Eg TVs, plastic bottles
11ECD Oct 14/Lecture 4/kce
Critical Factors in Planning
Realistic goals – these must be specific, measurable and set within time parameters
Commitment –supported by all involved-family, partners, employees, team members
Milestones – sub-goals must be set for continual and timely evaluation of progress
Flexibility – obstacles must be anticipated and alternative strategies must be formulated
12ECD Oct 14/Lecture 4/kce
Pitfalls to avoid in Planning
Pitfall 1:
Goals are unrealistic and/or immeasurable.
Pitfall 2:
Failure to anticipate roadblocks eg threats or weaknesses to business.
Pitfall 3:
No commitment or dedication.
13ECD Oct 14/Lecture 4/kce
Pitfalls to avoid in Planning
Pitfall 4:
Lack of demonstrated experience & knowledge.
Pitfall 5:
No market niche. Customers’ needs not established.
14ECD Oct 14/Lecture 4/kce
Benefits of a Business Plan
FOR THE INVESTOR:
1) To assess the
entrepreneur’s planning
& managerial ability.
2) Provides a
comprehensive overview
of the entire operation
(i.e. through business
and financial evaluation)
15ECD Oct 14/Lecture 4/kce
Benefits of a Business PlanFOR THE INVESTOR:
3) Illustrates the venture’s
ability to service debt or
provide an adequate return
on equity.
4) Provides details of the
market potential & plans for
securing a share of that
market.
5) Identifies critical risks and
crucial events
16ECD Oct 14/Lecture 4/kce
Benefits of a Business Plan
Analyses all aspects of the venture
Prepares strategy for uncertainties
Forces critical and objective view
Closely scrutinises entrepreneur’s assumptions (i.e. competitive, economic )
For the
entrepreneur
17ECD Oct 14/Lecture 4/kce
Benefits of a Business Plan
Develops & examines operating strategies & expected results
Quantifies objectives & provides measurable benchmarks (i.e. forecasts vs actual results)
Provides a communication tool for outside financial sources
Provides an operational tool for guiding the venture toward success
For the
entrepreneur
(cont’d)
18ECD Oct 14/Lecture 4/kce
No Standard Business Plan Format• Plans vary from industry to industry.
• Craft your plan to correspond to your specific conception of your business.
• Use sample plans mainly to stimulate your thinking.
19ECD Oct 14/Lecture 4/kce
Who Reads your Business Plan?
• Venture capitalists, bankers, angel investors, potential corporate customers, lawyers, consultants and suppliers.
• 3 MAIN VIEWPOINTS
• YOU, the entrepreneur
• YOUR CUSTOMERS – what benefits do they get?
• YOUR POTENTIAL INVESTORS - $$$ -Financial projections
20ECD Oct 14/Lecture 4/kce
Executive Summary: 1 or 2 pages
Table of contents: List sections & mark the pages
Cover & Title Page:Visible contact detail. Well-designed
Length: No more than 20 pages
Appearance: Binding & printing must not be sloppy
Putting the Package Together
21ECD Oct 14/Lecture 4/kce
10 Guidelines to Remember!
1. Keep the Plan Respectably Short2. Organise and Package the Plan
Appropriately3. Orient the Plan towards the future4. Avoid Exaggeration5. Highlight Critical Risks6. Give Evidence of an Effective Entrepreneurial
Team7. Do Not Over Diversify8. Identify the Target Market 9. Keep the Plan Written in the Third Person10.Capture the Reader’s Interest
22ECD Oct 14/Lecture 4/kce
Outline of a Business
Plan
1. Cover Page/Table of Contents2. Executive Summary3. Company & its Industry4. Product/Service5. Market & Competitive Analysis6. Marketing Plan7. Manufacturing & Operations8. Management Team9. Financial Plan10. Critical Risks11. Harvest Strategies
12. Milestones13.Appendices
23ECD Oct 14/Lecture 4/kce
Elements of a Business Plan1. Executive Summary
• Written after the entire business plan has been completed
• A clever snapshot of the complete plan
• Lets the reader know if:
• Your basic business concept makes sense & has been thoroughly planned
• The management is capable
• A clear-cut market exists
• Your business has significant competitive advantages
• Your financial projections are realistic
• Investors or lenders have an excellent chance to get their money back
24ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
2. Business Description
• Name of the venture
• Industry background presented in terms of current status & future trends
• Venture to be thoroughly described, along with its proposed potential.
• Potential competitive advantages egpatents, special technological or market advantages
DESCRIBE WHY YOUR SOLUTION MAKES CUSTOMERS VERY HAPPY.
25ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
3. Marketing
(Lecture 8 – Developing the Business)
• Research, design & development
• Market niche & market share
(BIGGER IS BETTER!)
• Competitive analysis
• Marketing strategy
• Pricing Policy
• Advertising Plan
26ECD Oct 14/Lecture 4/kce
Markets andCompetitive Analysis
Customers
• Who are your customers and what are their needs?
• Be precise in the specific groups of customers.
• What are the customer-buying patterns?
Note: Questionnaires be drawn up to conduct surveyon customers’ needs and preferences.
Competition
• Who are your direct/indirect competitors ?
• Compare and contrast your competitors with your product/service
Note: Competitive analysis table be set up to show the comparisons.
27ECD Oct 14/Lecture 4/kce
Competitor Analysis for Car Wash (adapted from Entrepreneurship Ideas in Action
by Cynthia L. Greene)
28ECD Oct 14/Lecture 4/kce
Target Customer ProfileWith Market Segmentation, develop a profile of the potential target customer.
Sample Customer Profile For A Sporting Goods Store in Jurong Point
Individual 23 to 52 years of age
Participates in sports regularly
Wants good-quality sports equipment
Lives in western Singapore
Average income of $50,000 per year.(Source : Entrepreneurship Ideas in Action by Cynthia L. Greene)
29ECD Oct 14/Lecture 4/kce
Marketing – 4 P’s
• Product/Service
• Place - Selling/Distribution policy
• Promotion - Advertising, Sales Promotion, Public Relations, Personal Selling
• Pricing/Service Policy
NOTE : As far as possible, make use of guerillamarketing tactics. It would be useful to prepare marketing materials (samples, brochures, etc).
30ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
4. Manufacturing & Operations
• Location
• Labour availability
• Wage rate
• Proximity to suppliers & customers & community support
• Local taxes
• Facilities (plant, warehouse, offices)
• Equipment (machinery, computers & vehicles)
31ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
5. Management
• Organisational structure
• Management team & critical personnel
• Experience & technical capabilities of the personnel
• Ownership structure & compensation agreements
• Board of directors & outside consultants & advisors
33ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
6. Financial
(Lecture 7 – Financing the Business II)
• Potential viability of the venture
• Pro forma balance sheet
• Income statement
• Cash-flow statement
34ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
7. Critical Risks – potential risks that could cripple the business.
• Potential risks should be identified:
• Effect of unfavourable trends in the industry
• Design or manufacturing costs that have gone over estimates
• Difficulties of long lead times encountered when purchasing parts or materials
• Unplanned –for new competition
• Regulatory risks
• Weather-related physical risks
• Reputational risks
35ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
7. Critical Risks
• In addition, Cover the what-ifs
• What if the competition cuts prices?
• What if the industry slumps?
• What if the market projections are wrong?
• What if the patents do not come through?
• What if the management team breaks up?
• Suggestions for alternative courses of action
36ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
8. Harvest (Exit) strategy (Lecture 5 – Starting the business)
• Management succession and investor exit strategies
• Capital cow, employee stock ownership plan, merger, outright sale, public offering
“Build a great company but do not forget to harvest”
Think harvesting as a vehicle to reduce risk & create future entrepreneurial choices & options.
9. Milestone schedule
• Provides investors with a timetable for the various activities to be accomplished
37ECD Oct 14/Lecture 4/kce
Elements of a Business Plan
10. Appendix and/or bibliography
• Additional information not appropriate in the main parts of the plan.
• diagrams, blueprints
• Operations manuals
• resumes of management team
• financial data
• Evidence of market research activity –competitor’s analysis, questionnaires & responses
• Marketing brochures
38ECD Oct 14/Lecture 4/kce
Effective Presentation of a Business Plan
Important points to note as you prepare for an oral presentation of your business plan.
1. Hook the readers, especially in the Executive Summary
• Have a compelling opportunity where you can:
• Identify a need/opportunity in a large and growing market
• Conceptualize a business that will fill that need or take advantage of that opportunity.
• Demonstrate that you have the know-how and the team to effectively build a profitable and sustainable business.
39ECD Oct 14/Lecture 4/kce
Effective Presentation of a Business Plan
2. Prioritise the points you are making into 3 categories:
• Essential - without this the plan makes no sense.
• Good to know - directly supports and gives context to your essential points.
• Interesting - provides a higher level of understanding of market dynamics, industry, etc.
40ECD Oct 14/Lecture 4/kce
Effective Presentation of a Business Plan
3. Articulate the size of your market:
who are your customers, why they will purchase your product or service, how much they will buy at what price.
4. Include evidence of customers.
5. Discuss the competition and why they will buy your product/ service vs the others.
6. Articulate your marketing strategy:
How will they become aware of your product/service, and how will you communicate the benefits?
41ECD Oct 14/Lecture 4/kce
Effective Presentation of a Business Plan
7. Be specific when discussing your team.
8. Edit for the details – clarity and typos – a sloppy presentation says a lot!
9. Know the outline thoroughly.
10. Utilise key words – in the outline that help recall examples, visual aids, or other details.
11. Rehearse the presentation.
42ECD Oct 14/Lecture 4/kce
Last but not least….
• DON’T GIGGLE
• DON’T TALK AMONGST YOURSELVES WHEN YOUR MEMBER IS PRESENTING
• DON’T MUMBLE
• DON’T COME IN SLIPPERS AND/OR SHORTS
• DON’T FIDGET OR SLOUCH WHEN YOUR MEMBER IS PRESENTING
• DON’T BE LATE!
43ECD Oct 14/Lecture 4/kce