Chapter 12

Developing a sustainable business plan

PowerPoint permissionsCengage Learning Australia hereby permits the usage and posting of our copyright controlled PowerPoint slide content for all courses wherein the associated text has been adopted. PowerPoint slides may be placed on course management systems that operate under a controlled environment (accessed restricted to enrolled students, instructors and content administrators). Cengage Learning Australia does not require a copyright clearance form for the usage of PowerPoint slides as outlined above.

Copyright © 2010 Cengage Learning AustraliaPty Limited

Objectives1. To define a sustainable business plan and demonstrate its value 2. To explore the business planning pitfalls that plague many new ventures 3. To describe the benefits of a business plan 4. To set forth the viewpoints of those who read a business plan 5. To emphasise the importance of coordinating the business plan segments 6. To review key recommendations by venture capital experts regarding a

business plan 7. To present a complete outline of an effective business plan

8. To present some helpful hints for writing an effective business plan 9. To highlight points to remember in the presentation of a business

plan 10. To underline some of the contrarian viewpoints on the

importance of a business plan. 3

But firstQ. What is a ‘business plan’?Q. And what could it be used

for??4

What is a business plan?• A document in which you:

– Make your business case– Describe your operations– Identify your management team– Project the future financial situation

• A tool for determining the essential operations• A primary document for managing the venture and

raising funds• The entrepreneur’s roadmap

5

What about sustainability• Consider ‘impact’, in terms of:

– Greenhouse gases– Energy use– Product life-cycle• Industrial systems (including firms) are not

separate from the biosphere

6

The sustainable business plan

7

Business plan pitfalls1. Green theming2. No realistic goals3. Failure to anticipate roadblocks4. No commitment or dedication

5. Lack of demonstrated experience6. No market niche

8

Benefits of a business plan • For the entrepreneur

– Analyses all aspects of the venture

– Strategy for uncertainties– Critical and objective view– Scrutinises assumptions – Examines operating strategies

and expected results – Measurable benchmarks –A communication tool for

sources of funding– A tool for guiding the

venture

• For the investor– Details of market potential

and securing market share– Ability to service debt and

provide adequate returns– Critical risks and crucial

events – A comprehensive overview

of the entire operation– A useful guide for assessing

planning and managerial ability

9

Who reads the plan?Q. Who might be interested in

reading your plan? (Identify all of the potential audiences)

?10

Who reads the plan?• Venture capitalists• Bankers• Investors• Potential large customers• Lawyers• Consultants• Suppliers

11

Who reads the plan?• Bankers

Stress financial aspects of the proposal• Equity investors and venture capital fund managers

Emphasise market and finance issues • Business angels

Look at the entrepreneur and ‘investor fit’

12

Three viewpoints

1. The entrepreneur’s viewpoint2. The potential customers’ viewpoint3. The investors’ viewpoint

13

The five minute reading• The venture capitalists’ approach:

1. What are the characteristics of the venture and its industry?2. What is the financial structure of the plan?3. What does the balance sheet say about liquidity, net worth

and debt/equity?4. What is the quality of the entrepreneur(s)?

5. What is the unique feature of this venture? 6. Then, they skim read the entire plan

14

Putting the package together• Appearance – middle ground (plastic spiral bound,

mostly single colour)• Length – no more than 50 pages• Cover and title page – company name, address and

issue date• The executive summary – two to three pages• Table of contents

15

Ten guidelines1. 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-diversify

8. Identify the target market 9. Write in the third person

10. Capture the reader’s interest

… and be able to confidently answer the ten questions under the heading ‘Questions to be answered’

16

Business plan outlineQ. What content might you

expect to see included in a business plan??

17

Business plan outline

18

Business plan outline (cont.)

19

Business plan outline (cont.)

20Adapted from: Donald F. Kuratko and Robert C. McDonald, The Entrepreneurial Planning Guide,Bloomington: Kelley School of Business, Indiana University, 2007

Business plan elements (1)I. Executive summary

– Write this after the rest of the business plan– A clever snapshot of the complete plan

II. Business description– Industry background, status and future trends – Thoroughly describe the venture

III. Sustainability– Define sustainability relevant to the business

21

Business plan elements (2)IV. Marketing

– (As per Chapter 10)V. Operations

– Location, labour availability, wage rate, proximity to suppliers, customers and community support, taxes and zoning, plant and equipment

VI. Sustainable development measures of performance– Describe how sustainability can be demonstrated

(including triple bottom line indicators)

22

Business plan elements (3)VII. Management

– Key personnel, advisers, consultants, or members of the board; structure of payment and ownership

VIII. Financial– (As per Chapter 11)– Viability of the undertaking, pro forma balance sheet, income

statement and cash–flow statementIX. Critical risks

– Unfavourable trends and difficulties

23

Business plan elements (4)IX. Harvest strategy

– Management succession and investor exit strategiesX. Milestone schedule

– Provide a timetable for the various activitiesXI. Appendix and/or bibliography

– Additional documentation

24

A practical example

Refer to Appendix 1 for an example business plan – ‘Red River Optical: Affordable reading glasses for Vietnam’

25

The pitchQ. Now it is written.

How can you (verbally) present your plan to an audience?

?26

The pitch• Presenting the plan to stakeholders –

especially funding providers• This is also known as ‘the elevator pitch’• Be organised, well-prepared, interesting and

flexible

27

The pitch• Focus on the plan• Demonstrate a reachable market• Explain the business model• Tout the management team• Explain the metrics• Motivate the audience• Answer: ‘Why you?’ and ‘why now?’

28

Key concepts(close your books)Q. Who will read your business

plan?Q. What are the main sections

in a business plan?

?29

Key concepts• Business plan audiences

– Venture capitalists, bankers, investors, potential large customers, lawyers, consultants and suppliers

• The business plan outline:I. Executive summaryII. Business descriptionIII. Sustainability IV. Marketing V. Operations

VI. Sustainable development measures of performance

VII. Management VIII. Financial IX. Critical risksX. Harvest strategyXI. Milestone scheduleXII. Appendix and/or bibliography

30