CHAPTER 35 Developing a Business...

INTRODUCE THE CHAPTER

This chapter introduces students to the business plan. It stresses the importance of business planning in developing a business idea and in evaluating results. The chapter details how to conduct a self-analysis and a marketing analysis for a new business and ways to obtain capital to start a business.

BUILD BACKGROUND

Ask students to consider which method would be the best way to reach a destina-tion: 1) using a road map, or 2) relying on your intuition. Write “business plan” and “road map” on the board. Tell students that a business plan is a road map that helps people choose the best route and mark progress. Tell them that the business plan also helps determine if a business idea will work.

35

EXPLORE THE PHOTO

Market Talk Have students discuss what some of the diffi culties of opening a new business might be. Topics might include: having enough capital to get started, knowing what customers want, knowing where to get the best supplies, hiring good employees.

Quick Think Answers will vary. Many entrepreneurs will encounter fi nancial needs when planning a new business or expanding a business so it is important to explore all possible sources of capital.

Ask students to think of three businesses

they would like to start someday. As students share their ideas, list the types of businesses on the board.

REVIEW THE OBJECTIVESExplain the purpose and importance of a busi-ness plan. A business plan is a proposal that outlines a strategy to turn a business idea into a reality. It is presented to potential investors and lenders who will consider it before granting credit or start-up capital.Identify external planning considerations. trading area analysis; geographic, demographic, and economic data; competitive analysis; market seg-ment analysisDevelop a business’s organization plan. The orga-nizational section of a business plan is a

blueprint or foundation for the structure of the proposed business. Construct a marketing plan. A marketing plan outlines the way a business will price, promote, and distribute products. Identify the fi nancial elements of a business plan. The fi nancial sections contain start-up costs, personal and external sources of capital, and projected income and expenses for the fi rst three years of operation. Describe fi nancing sources for businesses. Equity capital is raised by selling part of your interest in the company. Debt capital is a term used to describe borrowed funds that must be repaid.

736 UNIT 11 — ENTREPRENEURSHIP AND FINANCE

C H A P T E R 35

Chapter ObjectivesAfter reading this chapter, you should be able to:

• Explain the purpose and importance of a business plan

• Identify external planning considerations

• Develop a business’s organization plan

• Construct a marketing plan

• Identify the fi nancial elements of a business plan

• Describe fi nancing sources for businesses

Market Talk By the time a business opens

its doors, it should have a business plan and

a marketing plan in place. While the marketing

plan outlines market analysis and marketing

strategies, the business plan defi nes the larger

picture and includes a mission statement and

a detailed fi nancial plan for all functions of

the business. Entrepreneurs must look at all

available sources of funding and opportunities

to raise capital.

Quick Think Why must a small business

entrepreneur make creative funding decisions

when planning a new business or expanding an

existing one?

Developing a Business Plan

EXPLORE THE PHOTO

Image Source/Jupiter Images

736

For the Teacher TeacherWorks™ Plus

Teacher Resources at glencoe.com

Interactive Chalkboard ExamView® Assessment Suite Fast File Unit 11

For the StudentMarketing Essentials Online Edition

Student Activity Workbook Marketing Math Workbook Marketing Research Project Workbook School-to-Career Activity Workbook Competitive Events Workbook BusinessWeek Reader with Case Studies

Interactive Student EditionStudent Resources at glencoe.com

35

Discuss the performance indicators for the

DECA events listed, so that students understand

how to demonstrate their understanding.

The event acronyms stand for:

AAM: Apparel and Accessories Marketing

Series

ADC: Advertising Campaign Event

ASM: Automotive Services Marketing

Series

BSM: Business Services Marketing Series

EMDM: E-Commerce Management Team

Decision Making Event

FMAL: Food Marketing Series, AL

FMDM: Financial Analysis Management

Team Decision Making Event

FMML: Food Marketing Series, ML

FSRM: Full Service Restaurant Manage-

ment Series

HMDM: Hospitality Services Management

Team Decision Making Event

HRR: Hospitality and Recreation Market-

ing Research Event

MMS: Marketing Management Series

QSRM: Quick Serve Restaurant Manage-

ment Series

RFSM: Restaurant and Food Service

Management Series

RMS: Retail Merchandising Series

SEM: Sports and Entertainment Marketing

Series

SMDM: Sports and Entertainment Marketing

Management Team Decision Making

Event

TMDM: Travel and Tourism Marketing

Management Team Decision Making

Event

TSE: Technical Sales Event

Find timed DECA Prep activities correlated to the Competitive Events Workbook for students and DECA tips for teachers at the Marketing Essentials OLC through glencoe.com.

Chapter 35 — Developing a Business Plan 737

ROLE PLAY Check your understanding of DECA performance indicators with the DECA activity in this chapter’s review. For more information and DECA Prep practice, go to the Marketing Essentials OLC through glencoe.com.

DECA Events These acronyms represent DECA com-petitive events that involve concepts in this chapter:AAM*ADCASMBMDM*BSM*

EMDMFMAL*FMMLHLMHMDM

MMS QSRMRFSMRMS*SEM

SMDMTMDM

Performance Indicators The performance indicators represent key skills and knowledge. Relating them to the concepts explained in this chapter is your key to success in DECA competitive events. Keep this in mind as you read, and write notes when you fi nd mate-rial that helps you master a key skill. In these DECA competitive events, you should follow these perfor-mance indicators:• Conduct an environmental scan to obtain business

information• Describe the need for marketing informationThe events with an asterisk also include:• Assess personal interests and skills needed for

success in businessSome events include two additional performance indicators:• Explain the nature of business plans• Explain external planning considerationsThese events are:ACT FMML RFSMADC HLLM SEMBMDM HMDM SMDMEMDM MMS TMDMFMDM QSRM TSE

glencoe.com

737

http://www.glencoe.com





SECTION 35.1

BELLRINGER ACTIVITY

Have several copies of fairly detailed business plans available. Have students work in groups of three or four. Ask them to skim each section of the business plan and write down why each section is useful, e.g., the competition analysis tells how needed the new business is. Ask them also to evaluate whether they would invest in this new business and why. After students are fi nished, have each group share responses.

Preteaching

VOCABULARYKEY TERMS Give students ten minutes to look through the chapter, write down each key term, and attempt to de-fi ne the term. When students are fi nished, check their understanding of each term.ELL Have students write the key terms in their own language fi rst, then in English.

ACADEMIC VOCABULARY Refer students to the OLC through glencoe.com for the Academic Vocabulary Glossary before they read the section.

GRAPHIC ORGANIZERModel using the graphic organizer for students. Tell students to go to the OLC through glencoe.com for a printable graphic organizer.

NCLB

NCLB connects academic correlations to book content.

READING GUIDE

Tell students that, to convince a lender to offer fi nancial backing, you must develop a business plan that

describes the proposed business; and details the organization, marketing, and fi nancial plan for the business.

D Develop Concepts

THE MAIN IDEAAsk students to briefl y state the reasons new businesses need a business plan.

Ask students to jot down notes as they read indicating questions a lender

might ask.

BEFORE YOU READ

C Critical ThinkingAnalyze Ask students to think about what lenders and investors gain from providing start-up funds to new business-es. Investors will get a share of the profi ts of the new business if it is profi table, and lenders will get interest on their loans.

Description and Analysis


Developing the Business PlanIf you want to establish your own business, you will probably

need financial assistance. A business plan will help you secure that assistance. A business plan is a proposal that outlines a strategy to turn a business idea into a reality. It describes a busi-ness opportunity, such as a new business or plans to expand an existing one, to potential investors and lenders. They will review the business plan before granting you credit or start-up capital.

THE MAIN IDEAA business plan helps an entrepreneur develop goals, determine resources, and identify how the business will operate. It also helps lenders decide to invest in the business.

GRAPHIC ORGANIZERDraw this chart to identify elements in the first component of a business plan.

Go to the OLC through glencoe.com for printable graphic organizers, Academic Vocabulary definitions, and more.

READING GUIDE

OBJECT IVES• Explain the purpose and

importance of a business plan

• Identify external planning considerations

KEY TERMS• business plan

• business philosophy

• trading area

• buying behavior

ACADEMIC VOCABULARYYou will find these words in your reading and on your tests. Make sure you know their meanings.• expand

• source

Predict What might happen if you started a business without a plan?

SECTION 35.1

BEFORE YOU READ

The Business Plan

ACADEMIC STANDARDSEnglish Language ArtsNCTE 1 Read texts to acquire new information.

English Language ArtsNCTE 3 Apply strategies to interpret texts.

Connect Suppose

you want to launch a

business. List three

questions a lender

would ask before

loaning you money.

NCLB

D

C

738




SECTION 35.1

Extended ActivityAsk students to consider why it is impor-tant that a business plan be well orga-nized and easy to read. Answers might include: lenders and investors do not have time to read complex or unclean business plans, a sloppy business plan refl ects poorly on the person who wrote it, an unclear plan may indicate that the business person has not thought through the new business, etc. Have students share their ideas in class.

Discussion Starter

BUSINESS PHILOSOPHY AND PRODUCTSAsk students to consider the following business philosophies and discuss what kind of business each philosophy would be appropriate for:

1. We get it there on time.2. We provide the highest-quality

product.3. We pamper the customer.

This exercise will allow students to see the variety of philosophies possible. Dis-cussion will vary, but the fi rst philosophy might be good for a restaurant delivery service or a mailing service. The second might be good for a furniture maker or other crafts person. The third might be good for a spa, gym, or luxury hotel.

Demonstrate Bring in a variety of ads that show a business philosophy. Have students browse through the ads and deter-mine the business philosophy expressed in the ad.

Clarify Explain to students how a business philosophy guides business decisions. A hotel focusing on pampering the customer might buy the thickest beach towels even though the towels are expensive, while a hotel focusing on attracting business travelers might buy less expensive towels but provide free Internet access.

R Reading StrategyUnderstand Concepts Preview the following words by reading them in context:

• trends directions • potential lenders fi nancial backers • licenses permissions

Discuss the meaning of these words with the students. Encourage students to name synonyms.


In addition to helping you obtain financing, a business plan will guide you as you open the business and plan for its management.

Your business plan should convince inves-tors and lenders that your business idea is profitable, identify procedures necessary to legally establish the business, and work as a management tool to identify the month-to-month steps necessary to operate a profitable business. A business plan must be well orga-nized and easy to read. It should contain four main components:

• Description and analysis of the proposed business

• Organizational plan • Marketing plan • Financial plan

Although the formats of business plans vary, the outline in Figure 35.1 on page 740 is a comprehensive model.

Description and AnalysisThe description and analysis section intro-

duces the business concept. This section should clearly identify the products and ser-vices the business will sell. It includes your personal business philosophy, as well as a self-analysis that describes your business experi-ence, education, and training. This section of your business plan also describes the trading area, market segment, and location.

When preparing your plan, be as factual as possible. Where can you get up-to-date information online and off? For regional and national business information, consult recent issues of BusinessWeek, Entrepreneur, Fortune, Money, the Wall Street Journal, Forbes, and other business publications. Trade and professional associations as well as indus-try groups can also be a source of data. Tap into research conducted by local and state economic advisory boards, councils, and government agencies. The U.S. Small Busi-ness Administration and its resource partner, the Senior Corps of Retired Executives (SCORE), can also refer you to potential sources of information and classes for aspiring entrepreneurs.

Business Philosophy and Products

Begin your plan with a company descrip-tion. In this section, you will review significant trends that will influence the success of your business. Explain how a current or changing situation has created an opportunity for the business to fulfill consumer demand.

Business PhilosophyIn your company description, state your

business philosophy, which explores how you think the business should be run and demonstrates your understanding of your business’s role in the marketplace. It reveals your attitude toward your customers, employees, and competitors. It should also include a mission statement and a vision statement. A mission statement expresses the specific aspirations of the company. A vision statement states the scope and purpose of the company.

Product and Service PlanDescribe the products or services you will

offer. Explain the potential consumer ben-efits and why your product or service will be successful. Include as many facts, trends, and statistics as you can, and be thorough in your research and documentation. Specula-tion and statements of belief do not convince investors and lenders to lend you money.

Self-AnalysisThe next part of your business plan includes

an analysis of your management team’s edu-cation, training, and strengths.

Experiences and SkillsIn this part of the business plan, you

need to highlight your management team’s strengths and skills. You should also describe how you will acquire the skills you lack through additional training or by hiring other professionals.

Indicate the education and training you and your management team have had that will prepare you for operating the new business. This shows potential lenders that your man-agement team understands the industry and

R

739

CONTINUED

SECTION 35.1

D Develop ConceptsGuided PracticeOutline for a Business Plan To help students understand the outline, have them imagine what would happen if a business did not have one or two of the elements of the business plan. For ex-ample, ask students what would happen if a business did not have a management team plan or an organizational plan. Answers will vary; the lack of a manage-ment team plan might result in confusion about who is in charge of what.

Explain Make sure students understand that an executive summary summarizes the business plan. It lets readers quickly inden-tify the main points of the plan.

Role Play Role-play an entrepreneur pitching a new business to a lender or investor, then ask students to perform similar role plays. The entrepreneur should give the business a name, explain to the lender or investor the information that will be included in the business plan, and tell the lender or investor why it is important that he or she read the busi-ness plan.

Extended ActivityHave students debate which part of the business plan is most important. Help students understand that ulti-mately, each part is equally important.

35.1 Outline for a Business Plan

Discussion Have students think of a business they have worked for or another local business. Ask them to speculate on what might be contained in each part of the business plan for this busi-ness. Relating the business plan outline to a business students know will help them understand the parts of the business plan.

Caption Answer As time passes, the market, the business, and the competition will all change. The business plan will need to be revised to account for these changes.

For instructions, ideas, and answer guide, go to the Teacher Center at the Marketing Essentials OLC through glencoe.com.

Ask students to think of a type of business they would like to start. Ask each student to complete one section of the business plan with this new business in mind.

Section 4 identifies the sources of capital and projects income and expenses.

Section 1 describes the general concept of the proposed business, outlines the entrepreneur’s special skills, and analyzes the potential market.

Section 2 discusses how the business will be organized, describes the product or service to be offered, and details the marketing plan.

Section 3 describes the way the business will price, promote, and distribute its products and services.

740 UNIT 11 — ENTREPRENEURSHIP AND FINANCE glencoe.com

I. Description and analysisA. Type of businessB. Business philosophyC. Product and service planD. Self-analysis

1. Education and training2. Strengths and weaknesses3. Plan for personal development

E. Trading area analysis1. Geographic, demographic, and economic data2. Competitive analysis

F. Market segment analysis1. Target market2. Customer buying behavior

G. Operational plan

II. Organizational planA. Proposed organization

1. Type of ownership2. Steps in establishing business3. Personnel needs

B. Proposed good/service1. Manufacturing plans and inventory policies2. Suppliers

III. Marketing plan A. Pricing policiesB. Promotional activities

IV. Financial planA. Sources of capital

1. Personal sources2. External sources

B. Projected income and expenses1. Personal financial statement2. Projected start-up costs3. Projected personal needs4. Projected business income5. Projected business expenses6. Projected income statement(s)7. Projected balance sheet8. Projected cash flow

BUSINESS PL AN OUTLINE

1

2

4

35.1 Outline for a Business Plan• Business Plan Outline Developing a business plan is like outlining a strategy for turning your business idea into

a reality.

Why should a business plan be a continuing work-in-progress?

Go to the Marketing Essentials OLC through glencoe.com to find a project on business plans.

3

D

740




CONTINUED

SECTION 35.1

S Skill PracticeIndependent PracticeSelf-Analysis

L1 Have students write a four-paragraph self-analysis. The fi rst paragraph should include their education and training. The second should explore their strengths. The third should describe their weaknesses. The fourth should con-tain their plan for personal development.

L2 Have students choose a type of business they would like to operate. Then, have them research the training and education needed to be successful in that fi eld. Ask each student to give a fi ve-minute oral report on their fi ndings.

L3 Ask students to work in pairs to interview one another about their self-analysis. Each should take turns asking each other to describe education and training, strengths, weaknesses, and plans for personal development. Then, each student should introduce his or her partner to the class by describing their partner’s self-analysis.

Model Write your own self-analysis and share it with the class.

Demonstrate Invite a lender or inves-tor to visit the class. Have the lender talk about what he or she expects for a business plan, especially the self-analysis section.

Using the Web Wisely

Discussion Have students think of the last time they visited an online business. Ask what attracted them to the site, what they found helpful, and what they found unhelpful.

Answer: Through the Internet an entrepreneur can obtain geographic, demographic, and economic data, information about steps to be taken to establish a business, pricing and promotional policies used by competitors, loca-tion of competitors, templates for fi nancial statements, and sources of capital to assist with the development of a business plan.


Chapter 35 — Developing a Business Plan 741glencoe.com

also has the required skills for running a successful business.

Personal TraitsFinally, include your special personal traits

and work habits that will help you manage the business. Examples of past leadership activi-ties, personal initiatives, and willingness to work hard add strength to your business plan.

Trading Area AnalysisThe trading area analysis describes your

trading area. A trading area is the geograph-ical area from which a business draws its cus-tomers. Before going into business, you must analyze the trading area to become familiar with geographic, demographic, and economic data, as well as with the competition.

Information about the population in your trading area is available from your local chamber of commerce or state department of commerce. You can also consult the most recent local U.S. census data in your library or on the Internet.

Geographic, Demographic, and Economic DataGeographic data include population dis-

tribution figures: how many people live in a

certain area. Demographics are identifiable and measurable population statistics such as age, gender, marital status, and race/eth-nicity. Knowing the demographics of your trading area will help you identify market trends that may have a direct impact on your business.

Prevailing economic conditions are among the major factors affecting a business. Economic factors include economic growthprojections, trends in employment, interest rates, business mergers, and governmental regulations. Tax increases or decreases levied by the local, state, and federal governments will affect consumer buying power.

It is important to include how much dis-posable income the potential consumers in your trading area have. This is the personal income remaining from wages after all taxes are taken out. Disposable income is also referred to as buying income.

A special measurement called a buying power index (BPI) has been developed to help new business owners determine the buy-ing power for a given target market. The BPI index factors total population, total income,

Using the Web Wisely

Even if your dream business is a conventional one, use of the Internet can still be part of your business plan. Donna Boone, a swim school instructor, profited from an electronic alternative to word-of-mouth marketing in building a customer base for her swim school in suburban Wash-ington, D.C. Providing excellent personal service to small classes of students, she counted on parents to sing her praises through com-munity online newsletters and Web logs, or blogs. One former student’s online letter of praise resulted in 36 new pupils.

Expansion PlansBoone’s marketing plan was successful.She is now the owner of a profitable school, and she has plans to open four more in the next five years. Though her business is land- or water-based, her marketing plan made good use of the virtual universe.

What other aspects of a business plan could the Internet help you to address?

Go to the Marketing Essentials OLC through glencoe.com to find an activity about the Internet and business plans.

S

741




CONTINUED

SECTION 35.1

D Develop ConceptsDrawing ConclusionsTrading Area and Competition Have students select two small businesses in your community that are in direct com-petition (for example, two dry cleaners). Have students determine: 1) what each business does to differentiate itself from the competition, 2) how each business keeps abreast of the competition, and 3) what indirect competition each business faces. Ask students to defi ne indirect competition. Indirect competition is created by prod-ucts that are the same as yours but of-fered through a different outlet or through a newly applied technology.

Clarify Ask students to generate a list of popular local businesses. Then, ask stu-dents to work in groups of three or four to group the businesses according to their trading areas. For example, stores selling popular music might all have the same trading area, whereas stores selling grocer-ies would have a different trading area. Ask each group to write a few sentences explaining each trading area. Emphasize that there are no right answers.

PHOTO GUIDE • A BIG EXCEPTION

Discussion Discuss with students why auto dealers are an exception to the rule of not locating a business near competitors. Answers might include: Each dealer sells a different brand of auto, and customers may shop with their minds set on a particular brand. Locating near other auto dealers offers convenience to shoppers and provides visibility.

Caption Answer Most dealerships prefer to be near competitors. They are often near freeways or on major streets where people can see them easily.

Ask students what types of shops offer goods or services that are complementary to auto dealers. Where are they located?


and total retail sales figures to determine an overall indicator of an area’s sales potential. A market can be a state, region, county, or metro-politan statistical area (MSA). These factors are then expressed as a percentage of total poten-tial U.S. sales. You can find more information on buying power indexes in Demographics USA (formerly known as the Survey of Buying Power Index), which is published annually by Trade Dimensions International.

A good source of information on local economic conditions is your local bank. Bank officials often have business projec-tions for major geographical areas and for most types of businesses located in their immediate area. In addition, the Small Busi-ness Administration (SBA) has funded over 1,100 small business development centers (SBDCs) to provide counseling, training, and technical assistance to small businesses and new entrepreneurs. Since 1980, over nine million rural and urban entrepreneurs have received services from SBDCs. Other

good sources of information are related business publications available at schools, public libraries, colleges, and universities, or on the Internet.

Competitive Analysis As a new business owner, you must ana-

lyze your competition. List all the competi-tors in your trading area: products, prices, locations, general quality of products, and strengths and weaknesses. Try to estimate your competitors’ sales volume and identify how they promote and sell their products. You should be able to use these factors to demonstrate how your business will be supe-rior to the competition.

Some good sources of information about your competitors can be found through annual reports, the local chamber of com-merce, trade associations, the Yellow Pages, the Internet, business publications, and reports such as those published by Dun & Bradstreet.

• A BIG EXCEPTION Usually, businesses do not locate right next to competitors, but auto dealerships are an exception. An “auto row” with multiple dealerships lets customers see all of their options.

What kind of location do auto dealerships prefer?

Najiah Feanny/CORBIS

D

742

CONTINUED

CONCEPTSAsk students to recall the purpose of a business plan. Answers should include that a business plan is a proposal that outlines a strategy to turn business ideas into a reality. It describes a business opportunity, such as a new business or plans to expand an existing one, to potential investors and lenders.

KEY TERMSHave students review key terms, their spellings, and defi nitions in small groups. Students might work in pairs to quiz one another on the key term defi nitions.

Extended ActivityMarketing to DifferencesTell students that, even though a professional 40-year-old man with children and a single 20-year-old man with no children might both buy computers, businesses would market computers differently to the two people. Have students discuss the potential differences in marketing to these two people. For example, the 20-year-old man might be sold on real-time e-mail access to friends, while the 40-year-old man might be more interested in online shopping to save time.

INDEPENDENT REVIEW

L1 Assign and review Chapter 35activities in the Student Activity Workbook.

L2 Assign and review Chapter 35 activities in the Marketing Math Workbook.

L3 Assign and review Chapter 35 activities in the BusinessWeek Reader with Case Studies.

SECTION 35.1

C Critical ThinkingLocation Analysis Have students list fi ve different types of successful busi-nesses in your community and analyze why each is located where it is. They should consider such things as acces-sibility to the public, to suppliers, and to transit routes. (For example, manufac-turers and wholesalers value low space costs and good access to transit routes over accessibility by the public.) Encour-age students to share their fi ndings in


Market Segment AnalysisYour business plan should contain a

market segment analysis, a description of your target market, and the buying behavior of your potential customers.

Target Market As you know, your target market is the spe-

cific group of people you want to reach. You can identify your target market by common geographic characteristics such as region, county size, size of city, density of popula-tion, and climate of the area. You can also categorize it by demographic characteristics such as age, gender, marital status, family size, income, occupation, education, religion, cul-ture, or ethnic background.

You must carefully identify your target mar-ket so that you will know the needs and wants of different markets for your goods and ser-vices. Your task as an entrepreneur is to decide which market to target and how to do it.

Customer Buying Behavior After you have identified your target mar-

ket, you will need to explain how the mar-ket’s buying behavior will be good for your business. Buying behavior is the process individuals use to decide what they will buy, where they will buy it, and from whom they will buy it.

Operational PlanAs part of the description and analysis

section of the business plan, your opera-tional plan will describe your business loca-tion and facilities. It will also describe your production processes and quality control procedures. There are many things to con-sider when selecting a location.

Buy, Lease, or Build?Should you buy, lease, or build your facil-

ity? The advantages of leasing outweigh the other options for most new businesses. With leasing, you avoid a large initial outlay of cash, your risk is reduced by the shorter com-mitment, and your lease expenses are tax deductible. The process of buying or building

is more complex and almost always requires major financing.

Regardless of whether you buy, lease, or build, you need to compare certain terms of each potential method of financing your property. Those terms include monthly rent or payments and the length of commitment. You will also need to find out who is respon-sible for insurance.

You should have an attorney review any lease or contract before you sign it. He or she will help you fully understand your obliga-tions and negotiate the best possible terms before completing the deal.

Competing and Complementary Businesses

Before you decide, consider the number and size of potential competitors in the area. If your business is similar in size and merchan-dise to its competitors, you may want to locate near them. This can encourage comparison shopping. On the other hand, a larger business that offers more variety than the competition should be able to generate its own customers and therefore can be situated away from the competition.

A complementary business is one that would help generate store traffic. A shoe or accessories store located next to a clothing store is one example of a complementary business.

Hours of Operation The nature of your business will dictate

if you locate your business in a mall, neigh-borhood shopping center, freestanding location, or online. That location, in turn, will determine your hours of operation and the number of customers who will see and patronize your business.

Visibility Restaurants and other businesses that rely

on high visibility or prime locations may spend the extra money to locate in a high-traffic location. Such a site may not be a prior-ity or profitable for all businesses.

C

743

SECTION 35.1

CULMINATING ACTIVITY

Ask students to complete the following statement:The three key functions of a business plan are _______. obtain fi nancing, guide opening business, and manage the business successfully.

Extended ActivityAsk students how the geography of a country might affect what is sold there. For example, if you have a store in a warm part of the country like Florida, does that mean you can never sell seasonal winter gear?

AFTER YOU READHave students complete the Section 35.1 After You Read section review.

ONLINE STUDY TOOLSHave students go to the Marketing Essentials OLC through glencoe.com for the Section 35.1 practice test.

NCLB

NCLB Activity correlated to Mathematics and Social Studies Standards

Find answers at the Marketing Essentials OLC through glencoe.com.

Key Terms and Concepts

1. A business plan is important because: 1) It describes the proposed business to poten-tial investors or lenders; 2) it guides you as you open the business; and 3) it helps you to manage the business profi tably.

2. description and analysis of the business situation, organizational plan, marketing plan, and fi nancial plan.

3. A trading area is the geographical area from which a business draws its custom-ers. Before going into business, you must analyze the trading area with respect to geographic, demographic, and economic data, as well as competition.

Academic Skills

4. Buying Power Index � .00972; (.5 � .0103) � (.3 � .0099) � (.2 � .008) � .00515 � .00297 � .0016 � .00972

5. Students should include such factors as employment levels, major industries, income, education, cultural/ethnic charac-teristics, etc., in their reports.

35.1 AFTER YOU READ

Algebra: Buying Power Index Formula The buying power index formula involves a number of dif-ferent variables. To solve for the buying power index, substitute the known value for the variables and multiply. 1. To solve this problem, write out the

buying power index formula. 2. Insert the given percentages for city

A into the formula, and multiply to determine the buying power index.

For help, go to the Math Appendix located at the back of this book.


Safety Customer safety should be a consider-

ation when choosing a business location. Research the community’s crime rate. You do not want to open your operation where cus-tomers feel uncomfortable or are reluctant to visit. Find out whether the fire depart-ment is a volunteer or municipal one; contact them to inquire about safety codes that apply to your business.

Customer Accessibility Make sure your customers can get to your

location easily. Identify the highways, streets, and public transportation options that they

would have to use in getting to your site. Will traffic be an obstacle? Will they find sufficient parking easily and for a reasonable charge? Are the location, route, and parking wheelchair accessible?

Zoning and Other Regulations Now, you are ready to find a specific site.

Your first step should be to learn about any local ordinances or laws that may affect your business. Research and discover any restric-tions that might prevent you from locating your business in a particular area. Plans to build or renovate an office or building will require building permits. Operating a regu-lated business, such as a service station, will call for the necessary local zoning approvals as well as state licenses.

Check your answers at the Marketing Essentials OLC through glencoe.com.

Academic SkillsMath

4. Compute the buying power index for city A, given the following formula and information

Buying Power Index = .5 × Area’s Percentage for U.S. Effective Buying Power + .3 × Area’s Percentage of U.S. Retail Sales + .2 × Area’s Percentage of U.S. PopulationCity A Percentage of U.S. Effective Buying Power = .0103City A Percentage of U.S. Retail Sales = .0099City A Percentage of U.S. Population = .008

Social Studies

5. Investigate the economic and demographic data available for your community by consulting with your local chamber of commerce, the city government, the U.S. Census Bureau, or the Internet. Include such factors as employment levels, major industries, income, educa-tion, etc. Summarize your findings in a one-page written report.

Key Terms and Concepts 1. Why is it important to develop a business plan? 2. Identify the four major parts of a business plan.3. What is a trading area?

35.1 AFTER YOU READ

NCLB

744





SECTION 35.2

BusinessPlan

OrganizationalPlan

MarketingPlan

FinancialPlan


The Organizational, Marketing, and Financial Plans

The business plan explains how you will organize the new business. It describes your current and anticipated staffing needs. It describes your potential suppliers, manufacturing or selling methods. Your marketing plan details your marketing mix

Connect Think of a

business and list facts

it might use in its

marketing plan.

Go to the OLC through glencoe.com for printable graphic organizers, Academic Vocabulary definitions, and more.

READING GUIDE

THE MAIN IDEAThe organizational plan explains to investors how a business will function. The marketing plan explains how it will market its products. The financial plan projects its future profitability.

GRAPHIC ORGANIZERDraw this chart to describe three business plan components discussed in this section.

OBJECT IVES• Develop a business’s

organizational plan

• Construct a marketing plan

• Identify the financial elements of a business plan

• Describe financing sources for businesses

KEY TERMS• job descriptions

• organization chart

• equity capital

• debt capital

• collateral

• credit union

ACADEMIC VOCABULARYYou will find these words in your reading and on your tests. Make sure you know their meanings.• authority

• fund

Predict What might a lender look for in the marketing plan section of a business plan?

SECTION 35.2

BEFORE YOU READ

The Marketing and Financial Plans

ACADEMIC STANDARDSEnglish Language ArtsNCTE 1 Read texts to acquire new information.

English Language ArtsNCTE 3 Apply strategies to interpret texts.

BELLRINGER ACTIVITY

Have each student pick a partner in the class. Each pair should brain-storm a list of the things that might be included in (1) the organizational plan and (2) the marketing plan. Review students’ answers, creating a board list of their answers under column headings marked organiza-tional plan and marketing plan.

Preteaching

VOCABULARYKEY TERMS Have one student dic-tate the key terms, while another writes them on the board. Ask students to guess the meanings of the words and then check the meanings in the text.ACADEMIC VOCABULARY Refer students to the OLC through glencoe.com

for the Academic Vocabulary Glossary before they read the section.

GRAPHIC ORGANIZERModel using the graphic organizer for students. Tell students to go to the OLC through glencoe.com for a printable graphic organizer.

NCLB

NCLB connects academic correlations to book content.

Extended ActivityAsk students: Why is it important to anticipate staffi ng? Answers may include the fact that it sometimes takes a while to advertise new jobs, interview candidates, and make hires. Therefore, it is good to know in ad-vance what staffi ng needs will be.

READING GUIDE

Answers might include ideas related to pricing and promotional activities.

BEFORE YOU READ

NCLB

D

Tell students that a lender will be looking at your plans for operation including your proposed organization,

including type of ownership; personnel needs; and proposed products or services. Under your marketing plan

the lender will be looking for your pricing and promotional plans for the business.

D Develop Concepts

THE MAIN IDEAHave students list possible components of the marketing and fi nancial sections of the business plan.

745




746

SECTION 00.00SECTION 35.2

DiscussionStarter

PROPOSED ORGANIZATION AND JOB DESCRIPTIONSHave students think of a job description they have read. Provide examples from want ads if your students are unfamiliar with job descriptions. Ask students to list and describe the common elements of job descriptions.Answers should include the purpose and/or title of the job, the qualifi cations and/or skills needed, the duties of the job, and often the equipment to be used.

Clarify Ask students to discuss what might be on a job description for a teacher or principal at your school. Then, show stu-dents the actual job descriptions so that they can check their understanding of job descriptions.

Expand Have students think of a job they have had or would like to have. Then, have them write a one-page job descrip-tion for that job. Be sure they include the purpose of the job, the qualifi cations and skills needed, the duties to be performed, and the equipment to be used.

Extended ActivityAsk students to write a two- to three- paragraph essay on why it is important that job descriptions be rewritten when a job itself changes.


Go to the Marketing Essentials OLC through glencoe.com to find an activity about business plans.

Design Is About More Than Looks!

The designers of Apple’s first computer mouse and the first laptop computer formed IDEO in 1991. Throughout the 1990s, the company was a design leader in the tech field, focusing on making products user-friendly. Adding capabilities in psychology and architecture, it has become well-known for designing environments and processes, in addition to products and services. IDEO’s innovative approach to design and solving problems has resulted in rave reviews from its clients, who range from Amtrak to clothing designer Prada.

The New Office

The popular comic strip Dilbert focuses on the challenges of working in a typical office cubicle. Scott Adams, Dilbert’s creator, worked with IDEO to create a cubicle that would answer people’s complaints about lack of privacy, space, tools, and control of the cubicle environment.

The walls of Dilbert’s Ultimate Cubicle are snap-in modular blocks, some hollow for storage. Workers can choose from a catalog of different floor and wall modules and furnishings, including a hammock that snaps out of sight, an aquarium, or a hamster wheel. Floor modules flip over to reveal different textures and colors. Extra storage is found in hollow floor blocks, and seating folds down from the cubicle wall.

The cubicle is playful, but also efficient and comfortable. Rather than building expensive new space, IDEO redesigns spaces to be more pleasant, often saving companies money while enhancing the working environment for everyone.

How would a design consulting firm like IDEO fit into a business plan for a neighborhood coffee shop?

strategies and promotional plans. Your finan-cial plan projects the future profitability of the business.

Organizational PlanThe organizational section of your busi-

ness plan is a blueprint or a foundation for the structure of your proposed business. You must construct a clear, solid founda-tion around which to build the rest of your future business.

Types of Ownership There are three main types of business own-

ership structures: sole proprietorships, part-nerships, and corporations. Identify which structure you have chosen and why. The struc-ture you choose for your business will impact the remainder of the business plan.

Steps in Establishing Your Business Next, you will outline the steps you plan to

take to establish your business. The specific steps

Reprinted by permission of Ideo

Design Is About More Than Looks!

Discussion Ask students to think about and describe places where they have worked or have seen others working. Was the space effi cient or ineffi cient? Comfortable or uncomfort-able? Have students explain their responses.

Answer: IDEO might design comfortable tables and chairs, an area for games, a section for reading and storing magazines, a way of providing Internet access, or even a more effi cient area for making coffee.


Ask students to use graph paper or computer software to design an offi ce cubicle. Make sure they include room for a chair, computer, and telephone.

746




CONTINUED

SECTION 35.2

D Develop ConceptsGuided PracticeProposed Product or Service Ask students to provide an example of a business they might like to start, such as a café or a video store. Then, have the class list all the information they would need to gather on this product or ser-vice. Lists will vary. Make sure students note information on inventory needed, methods of storing and tracking the in-ventory, services provided, and methods of providing these services.

Model Invite a local businessperson to class to talk about inventory storage and tracking at his or her business or visit a local business to see inventory storage and tracking fi rsthand.

Clarify Explain to students that storing inventory can be expensive. Introduce the concept of “just in time” delivery. This method of delivering products only as they are needed cuts down on storage costs.

Extended ActivityA Business PlanUse the Internet to obtain SBA copies of the Business Plan for Retailers, the Business Plan for Small Manufacturers, and the Business Plan for Home-Based Businesses. Give each student a copy of each business plan. Have each student compare and contrast these plans, and write a maximum three-page report on the information.


will depend on how you organize your business and any plans for organizational change.

StaffingYou need to demonstrate to potential inves-

tors and lenders that you know how to staff the business so that it operates efficiently and successfully. List your personnel needs in your business plan and identify the people who will perform those jobs. For example, if you are opening a small coffee shop, what staffing needs will you have?

Many new businesses begin as one-person operations. It is not unusual for an entrepre-neur to handle everything from manage-ment to financial oversight to advertising and promotion.

Job DescriptionsPrepare job descriptions for your partners,

employees, and yourself. Job descriptions are written statements listing the requirements of a particular job and the skills needed to ful-fill those requirements. Each job description includes the purpose of the job, qualifications and skills needed, duties to be performed, equipment to be used, and expected work-ing conditions. Detailed job descriptions help employees know exactly what is expected of them and help you measure their performance against those expectations.

Organization ChartOnce you have completed the job descrip-

tions, develop an organization chart to estab-lish the chain of command within your business. An organization chart is a dia-gram of the company’s departments and jobs with lines of authority clearly shown. Your organization chart tells employees to whom they report and to whom they can turn with problems or questions. It also establishes department responsibilities.

Outside ExpertsTrained professionals will help you avoid

mistakes that could damage your prospects for success. If you decide to use outside profes-sionals, identify them and their responsibili-ties on your organization chart. Professionals

who can help include accountants, attorneys, bankers, and insurance agents.

You can also use technical assistance to identify employment practices in your state or locality. State agencies such as state depart-ments of civil rights, commerce, labor, licens-ing, and regulation publish many inexpensive or free publications and offer technical assis-tance to help new entrepreneurs under-stand various employment laws, rules, and regulations.

Manufacturing Processes Your organizational plan should include

information on your suppliers and your man-ufacturing plans. Your investors or lenders will also want to know what the associated costs will be.

If you are selling a product, you will need to develop a plan that details all of the purchas-ing or manufacturing requirements as well as the anticipated costs. You need to show how you will manage the products you purchase or manufacture. How much, for example, will you keep on hand? How will you keep track of what to order and what has been sold? Where will you store the products that you have in stock?

For a service business, you need to develop an organizational plan that addresses who will provide the service to your customers and how the services will be provided. In your plan, state the services and estimate the costs of providing services.

Marketing Plan You are now ready to develop your market-

ing policies, that is, the way you will price, pro-mote, and distribute your products. Marketing mix strategies are vital to the success of your business (see Figure 35.2 on page 749).

Pricing Policies Your business plan must outline your pric-

ing policies. As you learned in Unit 8, you must be able to set a price high enough to cover your costs and make a profit, but com-petitive enough to attract customers.

Reread Chapters 25, 26, and 27 to review the important factors in pricing.

D

747

CONTINUED

SECTION 35.2


Promotional Activities Once pricing policies have been established,

you need to describe your promotional activi-ties. Identify how to reach the greatest number of potential customers in your target market in the most efficient and effective way.

You will need visibility, too. That comes from the promotional mix. A firm’s promo-tional mix encompasses advertising, public relations, promotions, and personal selling. Your business plan will outline the mix that will be most effective in persuading prospects (wholesalers, retailers, and consumers) to do business with you. The plan will explain why you have selected this mix and what costs you anticipate. Specify an annual budget for each activity.

Financial Section of the Business Plan

In the financial section of a business plan, lenders and investors can see what monies are needed to start and operate the business. They will also review the entrepreneur’s statements of personal and external sources of capital. In addition, the financial section contains state-ments of projected income and expenses for at least the first three years of operation.

Sources of Capital Capital is the funding needed to finance

the operation of a business. It includes all goods used to produce other goods. In busi-ness, capital may include owned property as well as cash resources. In this chapter, the term capital refers to anything that can be converted into money.

Equity Capital Raising money from within your com-

pany or selling part of your interest is called using equity capital. The advantage of using equity capital is that you do not need to repay the money or pay interest. However, the investor becomes a co-owner in your busi-ness. The larger the share of your business that you sell, the more control you relinquish to

your investors. Equity capital sources include personal savings, partners, and shareholders.

Personal SavingsThe most common method of financing a

business is using personal savings. Although you may not prefer this option, you probably cannot avoid investing part of your savings. As you know, starting any new business involves risk. Your prospective investors and lenders will expect you to share in that risk.

PartnersHaving partners is another way to raise

capital for your business. Partners may bring in their own money and have access to other sources. As with equity investors, you may have to share control of the business.

ShareholdersYou may sell stock to shareholders as a

way of raising capital. You will need to form a corporation first (see Chapter 33). Share-holders have some influence over general corporate policy decisions, but as long as you hold a majority of the shares, you control the corporation’s daily activities.

Debt Capital Debt capital is a term used to describe

borrowed funds that must be repaid. Some debt capital sources are banks, credit unions, the Small Business Administration, friends, rela-tives, suppliers, and previous business owners.

Debt capital can work to your advantage when you finance a new business because borrowing money and repaying it on a timely basis builds a good credit standing. In turn, a good credit standing makes it easier for you to borrow additional money. Although interestmust be paid with the loan, that interest becomes a tax-deductible business expense. Inaddition, by financing with debt capital, you donot share control of the business with lenders.

There is a major disadvantage to debt capi-tal, however. If you cannot pay back your debt, you could be forced into bankruptcy.

Defi ne What is equity capital?

D Develop ConceptsSources of Capital Read the introduc-tory paragraph to this section aloud. Then ask students to respond to the following question: If you were an investor who was asked to put money into a business that had no business plan, what factors would determine whether you would do it? Possible responses include: whether the potential owner is starting a brand new business or buying an existing business; if the latter, whether the existing busi-ness is successful; the potential owner’s experience with the type of business; and local market needs for the business.

Demonstrate Have a loan offi cer from a local lending institution speak about obtaining fi nancing for business start-up. Ask this person to bring to class copies of loan applications so students can become familiar with the terminology and documentation needed to begin the loan application process.

W Writing SupportEquity Capital Ask students to make a list of some advantages and disadvan-tages of using equity capital to fi nance a business. Advantages might include that the busi-ness owner does not have to pay back or pay interest on the equity capital. Disad-vantages might be that the owner might lose his or her personal savings, and that taking on partners or shareholders may decrease the amount of control the busi-ness owner has of the business.

Demonstrate Invite a business owner to come to class and talk about how the owner fi nanced his or her business.

Answer Equity capital is the raising of money

from within your company or selling part of your interest.

Extended ActivityBusiness FinancingTell students that in a 1999 Levi Institute Survey of Small Businesses, 20 percent of the small com-panies surveyed relied on a variety of non-bank forms of fi nancing. Ask students if they think state economic development agencies should use public dollars to create economic development loans for small businesses. Ask students to list advantages and disadvantages of such an arrangement. A sample advantage might be that new business expansions create jobs and help the economy. A sample disadvantage might be that the government would be using public tax dollars and public employees to aid private businesses.

W

D

748

CONTINUED

SECTION 35.2

C Critical ThinkingExplain Ask students: Why might lend-ers and investors read the fi nancial sec-tion of a business plan more closely than other parts of the plan? A sample answer might be that they want to make sure the business is profi table so that they do not lose money.

Extended ActivityAsk students: Before taking on a fi nan-cial partner, what might the business owner want to know about the person? Answers might include knowing the person’s background, education, work experience, business philosophy, and fi nancial situation.

35.2 Organization and Marketing

Discussion Have students discuss what a potential lender might look for in the three aspects of business outlined in this section. Answers might include: A lender would look at 1) organization to be sure a startup includes employees adequate to the job; 2) products and services, to determine the cost and market potential of products; and 3) marketing, to be sure the products will be aggressively marketed.

Caption Answer Answers may include that organization may be affected by the investment of money, availability of time, and expertise and experience of those involved.


ORGANIZATION

PRODUCTS AND SERVICES

MARKETING

glencoe.com Chapter 35 — Developing a Business Plan 749

• How It Will Work The second part and third part of a business plan describe the organization of the company

and outline the marketing efforts that will be used to promote the company’s products and services. Below are three

aspects of a business summarized.

What factors affect a company’s organization?

35.2 Organization and Marketing

These three entrepreneurs have decided to

become partners in an Internet café, and are

signing partnership agreements that set out their

responsibilities. They have already identified the

perfect location and are negotiating a lease. Their

business plan calls for the three partners to be

the sole employees until the business becomes

profitable, and they are willing to work 70–80 hours

a week to make the café a success.

This partner is arranging for Internet service. In

the meantime, another is negotiating with coffee

wholesalers and equipment suppliers, while the

third is working with designers to choose furnishings

and fixtures.

The partners’ business plan calls for low pricing

early on to build a customer base. The owners have

confidence that the great pastries and coffee drinks

will keep people coming in after the price for online

service is increased. Another planned marketing

move is putting a sandwich board ad in front of the

café.

Go to the Marketing Essentials OLC through glencoe.com to find a project on planning a business’s organization and marketing.

(tr)

Jim

Cra

igm

yle/

Cor

bis,

(cl

) E

lena

Roo

raid

/Pho

toE

dit,

(br)

Cha

pman

/The

Imag

e W

orks

, Inc

.

C

749




SECTION 35.2

FPO[Insert picture C22-05A]


That does not always mean the business must close, but creditors might take control of the company away from the owner.

Banks Commercial banks are one of the most

common sources of business financing. They know their local areas and economies well and offer a number of different loans and services on competitive and government-regulated terms.

To evaluate a business owner’s credit wor-thiness, banks rely on criteria called the six Cs of credit: capital, collateral, capability, character, coverage, and circumstances.

• How much of your own money, or capital, is to be invested in your new business? Banks, like other potential investors, will want to know how much

capital you are willing to invest into your new venture.

• What assets (anything of value that you own) can be used as collateral for a loan? Collateral is something of value that you pledge as payment for a loan in case of default. Lenders will usually require that the value of the collateral be greater than the amount of the loan. Some businesses may use accounts receivable, which is the sum of money owed to a business by its customers, as collateral. Banks want to know that your loan will be repaid, even if your business fails.

• A résumé of your previous training and related work experience, including professional and personal references, will answer questions about your capability and character. Your personal credit

Targeting the MarketCellular and long-distance phone companies know that marketing to the Hispanic population is good business. Hispanic Americans use cell phones 10 percent more than the national average.

Immigrants from Mexico and Central and South America tend to call their families back home more than other Americans call these areas. Plans that offer inexpensive rates for calls to countries in Latin America compete for the Hispanic phone dollar. Plans that allow unlimited calling between family members in the States are also more popular with Hispanic customers. And the lack of computers and scarcity of e-mail in many Central American countries means that the phone gets more use by people doing business with vendors in those countries.

Phone companies have learned it is important to distinguish between different segments of the Hispanic market. People whose first language is English have different phone needs than those whose first language is Spanish. It is important for phone companies to target their marketing campaigns to the right customer base, or they will be unsuccessful.

In creating a marketing campaign targeted to an ethnic group, what factors would you want to know about the group?

Go to the Marketing Essentials OLC through glencoe.com to find an activity about business plans and international business.

CONCEPTSAsk students to recall the purpose of the marketing section of the business plan. The marketing section outlines how you intend to organize the business and explains how you will use advertising and promotional activities to help your busi-ness grow and prosper.

KEY TERMSHave students review key terms in small groups. For example, students can each take turns using one of the key terms in an original sentence.

INDEPENDENT REVIEW

L1 Assign and review Chapter 35activities in the Student Activity Workbook.

L2 Assign and review Chapter 35 activities in the Marketing Math Workbook.

L3 Assign and review Chapter 35 activities in the BusinessWeek Reader with Case Studies.

AFTER YOU READHave students complete the Section 35.2 After You Read section review.

ONLINE STUDY TOOLSHave students to the Marketing Essentials OLC through glencoe.com for the Section 35.2 practice test.

Targeting the MarketDiscussion Tell students that high school students are also a group that phone companies might market to. Ask students to share what they might want in a phone service.

Answer: When marketing to specialized markets such as an ethnic group, it is important to know about the particular culture, social habits, and lifestyles of that group.

For instructions, ideas, and answer guide, go to the Teacher Center at theMarketing Essentials OLC through glencoe.com.

Have students imagine that they are marketing a phone service to immigrants who want to make frequent international calls to friends and family. Ask students to select their market and create appropriate ads.750





SECTION 35.2

CULMINATING ACTIVITY

• Have students write a 50- to 100-word summary that describes the contents of the organization and marketing sections of a busi-ness plan.

• Ask students to recall the purpose of the fi nancial section of the busi-ness plan. The purpose is to estimate the money needed to state and operate the business and to ensure the busi-ness will be profi table.

Extended ActivityA Small Business PlanHave students contact a small busi-ness owner and review his or her business plan. Have students report on: diffi culties creating the plan; how the diffi culties were overcome; and how the plan helps fi nd investors. Ask students to summarize their fi ndings in a 10-minute oral presentation.

NCLB

NCLB Activity correlated to Mathematics and Social Studies Standards

Find answers at the Marketing Essentials OLC through glencoe.com.

35.2 AFTER YOU READ

Key Terms and Concepts

1. proposed organization (including types of ownership, steps in organizing the busi-ness, personnel needs), proposed good or service, and proposed marketing plan

2. An organization chart is a diagram of the various jobs and functions that are found in a company. It establishes clear lines of

authority and offi cial reporting responsibili-ties for organizations.

3. The six Cs of credit include capital, collateral, capability, character, coverage, and circumstances.

Academic Skills

4. $13,062.50; Original loan $12,500 � Interest $562.50 (12,500 � .045) � $13,062.50

5. Each student should identify the lending source, the monthly loan payment, and the total amount of interest charged over the fi ve-year period.

Number and Operations:Interest Rates Interest is paid when money is lent. Interest rates are ex-pressed as percents of the money that was borrowed.1. To solve this problem, convert the

percent to a decimal number by moving the decimal point two places to the left.

2. Multiply the dollar amount that was borrowed by the decimal equivalent of the percent plus one to determine the total amount owed after one year.


glencoe.com Chapter 35 — Developing a Business Plan 751

history will also be reviewed to see if you regularly pay your bills on time.

• Banks will want to know the amount of insurance coverage that you carry and the general circumstances of your business. This is outlined in the description and analysis section of your business plan.

Credit Unions A credit union is a cooperative asso-

ciation formed by labor unions or groups of employees for the benefit of its members. Credit unions often charge lower interest rates on loans than banks do. To borrow money from a credit union, however, you must be a

member. Check with your parents, guardians, and relatives to determine your eligibility, since credit unions often accept memberships for relatives. Credit unions also use the six Cs of credit to decide whether they will accept your loan application.

Financial Statements After you have identified your source or

sources of capital, the last part of your busi-ness plan is to develop your financial state-ments. Your financial statements display your business’s projected income and expenses and help persuade investors to lend you money. (See Chapter 36.)

Check your answers at the Marketing Essentials OLC through glencoe.com.

Key Terms and Concepts 1. What are the major parts in the organizational section and the

marketing section of the business plan? 2. How is an organization chart used in a business? 3. What are the six Cs of credit?

35.2 AFTER YOU READ

Academic SkillsMath

4. A relative decides to lend you $12,500 at a simple 4.5 percent interest rate, payable one year after the start of your new business. How much will you owe at the end of the year?

Social Studies/Economics

5. Investigate a five-year balloon loan from a local lending institution in your community. Find out the rate of interest on a five-year balloon loan of $25,000. Identify the lending source, your monthly loan payment, and the total amount of interest that you would be charged over the five-year period.

NCLB

751





DANIEL KRASOFSKIOWNER, SPECIALIST, MASSAGE THERAPISTVEDAVIA

What do you do at work?

I am an educator and massage specialist. I travel around North America teaching quality control, basic and advanced spa skills, ancient Ayurvedic philosophy and westernized spa services, aromatherapy theory and applications, and customized and advanced massage. I teach at the world’s

top spas, including Canyon Ranch Fitness Resorts, Four Seasons, The Ritz, Elizabeth Arden, and Fairmont Hotels’ Willow Stream Spas. I have been a professional massage therapist at spas in Wisconsin and Arizona. In Los Angeles I am a massage therapist and director of massage at Ona Spa, and I am affi liated with Tara Spa Therapy. I also work with individuals in the home setting.

What skills are most important to you?

Listening, intuition, and people skills are at the top of the list. Having properly trained hands and the knowledge of how to use that training is vital.

What is your key to success?

Many clients believe my success is due to the varied amount of training I have, along with the ability to utilize many different techniques in one session. I base my own success on the fact that I really enjoy what I do. Promoting my business is essential, too. Word of mouth is one of the best promotions any business can have. Consistency of service is vital to your business. Spa guests talk around the dinner table, and if one person has a negative or positive experience, it will affect you and your entire team. Other valuable ways I have promoted my business are through charitable donations, television interviews, and magazine articles.

Courses physical therapy, anatomy, physiology, business

Degrees High School, BS

Develop varied and advanced skills. Specialize in specifi c techniques like NMT, Rolfi ng, Craniosacral, Ayurveda, Thai, Sports, or Polarity. This wide range gives a therapist the ability to expand horizons.

Growth about as fast average for the next ten years

Source: Occupational Outlook Handbook

Keeping centered and balanced are key skills. It is important to stay focused and centered, and to maintain the proper balance of nutrition and self-care.

Go to the Marketing Essentials OLC through glencoe.com to fi nd a career-related activity.

If you were to start any therapeutic business, what steps would you take to develop your business plan?

Lifelong Learning

CAREER INFORMATION Have students go to the Marketing Essentials OLC through glencoe.com and fi nd Chapter 35 Careers page and click on the link for the American Marketing Association’s Careers Strategies and Tips. Ask students to select one article, read it, and summarize it in three short paragraphs.

BUSINESS AND MARKETING PLANSDue to the importance of the business plan, encourage students to further research this area of marketing and business. Business magazines and books devoted to the subject include Inc. magazine’s How to Write a Successful Business Plan. Taking courses on writing a business plan would also be valuable.

Primary SourceAsk students to go to the Marketing Essentials OLC through glencoe.com and fi nd Chapter 35 Resources. Ask them to click on the link for American Marketing Association’s marketing dictionary and read the defi nitions of any terms related to devel-oping a business plan that they fi nd.

Answers should include doing competitive research and preparation, and developing an outline of a business plan—description and analysis, organizational plan, market-ing plan, and fi nancial plan.


Test-Taking StrategiesGive students the opportunity to review their notes or ask questions before giving in-class assignments. For example, you might list the parts of a business plan on the board, and then ask students to explain why each part is important.

752






See the Glossary at the back of this book for defi nitions of Key Terms. Academic Vocabu-lary defi nitions are on the book’s OLC.

1. Sample answers might read:Key Terms A business plan is a pro-posal that outlines a strategy for turning a business idea into a reality. Academic Vocabulary A source is one that provides information.

Ask volunteers to read each summary aloud. After each one, give students a few minutes to ask questions for clarifi cation.

2. Self-analysis identifi es your personal education, strengths, weaknesses, and a plan for personal develop-ment. It is important because it shows potential lenders that you can understand the industry and have the required skills for running a successful business.

3. Disposable income is personal income minus taxes. You need to know if the potential market has enough customers with enough buy-ing income to support a proposed business.

4. The Internet, Yellow Pages, annual reports, trade associations, the local Chamber of Commerce, Small Business Development Centers, and business publications.

5. Potential investors need to know that you can identify the essential jobs your business will need to run properly.

6. Promotion plans will differ de-pending on the product. You must identify your target market and determine the promotional mix that will best reach that market.

7. Debt capital is money that is raised from lenders. Equity capital is money that is raised by selling part of the business.

8. The most common method of fi nanc-ing a business is personal savings.

9. The second section of the business plan explains how you will organize the new business, which will include potential suppliers, manufacturing or selling methods, among other things.

10. sole proprietorship, partnership, and corporations

11. Professional outside experts help businesses avoid mistakes that could damage their prospects for success.

CHAPTER 35 REVIEW


C H A P T E R 35 R E V I E W

SECTION 35.1• The four components of a business plan are description and analysis of the proposed

business; organizational plan; marketing plan; and fi nancial plan.

• The description and analysis should include: type of business; business philosophy;

product or service; self-analysis; trading area analysis; and market segment analysis.

SECTION 35.2• The organizational plan and marketing plan outline how the business will be organized and

how it will be promoted.

• Most entrepreneurs need to borrow money to start a business. Investors and lenders

want to see fi nancial information about a business before they commit to making an

investment.

• The fi nancial plan should include sources of capital for the business and projections of

income and expenses.

Key Terms• business plan (p. 738)• business philosophy (p. 739)• trading area (p. 741)• buying behavior (p. 743)• job descriptions (p. 747)

• organization chart (p. 747)• equity capital (p. 748)• debt capital (p. 748)• collateral (p. 750)• credit union (p. 751)

Academic Vocabulary• expand (p. 738)• source (p. 739)• authority (p. 747)• fund (p. 748)

1. On a sheet of paper, use each of these key terms and academic vocabulary words in a written sentence.

2. Why should aspiring entrepreneurs conduct a

self-analysis as part of a business plan? (35.1)

3. Why is it important to know the disposable

income of potential customers? (35.1)

4. What sources can an entrepreneur use to

research the competition? (35.1)

5. Why should personnel needs be identifi ed in

a business plan? (35.2)

6. What is the best way to promote a new

business? (35.2)

7. What are debt capital and equity capital?

(35.2)

8. What is the most common method of

fi nancing a business? (35.2)

9. List some things that are in the second

section of a business plan. (35.2)

10. Name the three main types of ownership.

(35.2)

11. Why is it a good idea to hire outside experts?

(35.2)

753

12. Workplace Skills Students should display an under-

standing of the concept of govern-ment involvement via licensing.

13. Technology Applications Lists should display an understand-

ing of the resources needed by an entrepreneur.

CHAPTER 35 REVIEW

14. Math Practice Jonesville has the larger BPI and is a

more favorable location.

Jonesville Buying Power Index �.02277; (.5 � .0271) � (.3 � .0194) � (.2 � .017) � .02277

Leadville � .01431; (.5 � .0151) � (.3 � .013) � (.2 � .0143) � .01431

15. English Language Arts Accept all reasonable reports that

adequately refl ect what should be included in a business plan, based on the types of businesses students select.

16. Decide for Yourself Student answers should demonstrate

an understanding of the conse-quences of failing to repay debt discussed in the chapter. While some investors or co-owners may not force bankruptcy, they may insist on telling the owner how to run the business.

17. The Organizational Plan Presentations should contain a

budget, selection of media, promo-tional events, and a plan to evaluate effectiveness.


12. Workplace Skills Legal Some businesses and their employees

must be licensed before they can open or

perform their duties. Prepare a 250-word

paper on the reasons that government

agencies often require a license for certain

business owners and their employees.

13. Technology ApplicationsFinding Resources Research on the

Internet all the sources of business

information that may be useful to an

entrepreneur. List your fi ndings and organize

the information and URLs into broad

categories such as government resources,

trade organizations, and so on.

14. Math Practice Number Crunching Determine the buying

power indexes for the cities of Jonesville

and Leadville. Which city would be a more

favorable location for a new business?

Buying Power Index = .5 × Area’s Percentage

for U.S. Effective Buying Power

+ .3 × Area’s Percentage of U.S. Retail Sales

+ .2 × Area’s Percentage of U.S. Population

Jonesville Percentage of... • U.S. Effective Buying Power = .0271 • U.S. Retail Sales = .0194 • U.S. Population = .017 Leadville Percentage of... • U.S. Effective Buying Power = .0151 • U.S. Retail Sales = .013 • U.S. Population = .0143

Problem Solving: Buying

Power Index The buying power index is

determined by multiplying a given constant by

several variables, usually given as percents.


15. English Language Arts Business Plans Choose a type of business

that interests you and develop an abbreviated

business plan.

16. Decide for Yourself

“While debt capital can work to your

advantage when establishing a business,

there are many disadvantages if you cannot

pay back your debt. Bankruptcy is one of

these disadvantages, however it may not be

the worst one.” Explain what this statement

means and decide whether you agree or

disagree.

17. The Organizational Plan Continue the business plan that you

created in the previous activity. Create

an organizational chart for your proposed

business. The plan should contain a budget,

pricing policies, and a method to evaluate its

effectiveness. List special promotional events

for each month of the year for your business.

Activity Using a word processing and a

spreadsheet program, present the plan to the

class as if they were lenders.


Formative AssessmentFormative assessment is an essential component of classroom work. This type of assessment provides information that is then used as feedback to modify teaching and meet student needs.

L1 Read defi nitions of the key terms and have students name the corresponding term.

L2 List all the parts of the business plan on the board. Ask students to provide examples of what might go in each part.L3 Ask students to create an outline for a business plan for a business they would like to start.

If the results of this formative assessment seem low, consider the following activity:

Write the elements of a business plan on the board in a random order. Have students rewrite them in correct order and describe the purpose of each.

754

18. Finding Small Business

Resources Students should demonstrate an

understanding of the resources avail-able on the SBA Web site.

CHAPTER 35 REVIEW

STANDARDIZED TEST PRACTICE

ANSWERS

1. A 2. F

TEST-TAKING TIPSWhen your students have a standardized test coming up, these last-minute tips and strate-gies will help students relax and do their best.

Test Format Help your students become familiar with the format of the specifi c test they are going to take by practicing with test items that imitate the actual test items.

Test Timing Have your students take one or more timed practice tests so that they become comfortable with the test format.

Chapter 35 — Developing a Business Plan 755glencoe.com


Role PlayMarketing InternSituation Assume the role of intern for a

marketing fi rm that specializes in helping

aspiring entrepreneurs to complete their

business plans. Part of your training includes

becoming familiar with the parts of a business

plan. Your supervisor (judge) has assigned you

the task of learning about the self-analysis

portion of the business plan.

Activity You are to make an outline of the

self-analysis portion of the business plan.

You are to also offer an explanation of each

component of the self-analysis. You will then

make an oral presentation to your supervisor

(judge) about the self-analysis portion of the

business plan.

Evaluation You will be evaluated on how well

you meet the following performance indicators:

• Assess personal interests and skills needed

for success in business.

• Assess personal strengths and weaknesses.

• Explain the nature of business plans.

• Demonstrate orderly and

systematic behavior.

• Make oral

presentations.

For more information and DECA Prep practice, go to the Marketing Essentials

OLC through glencoe.com.

18. Finding Small Business Resources

Find the U.S. Small Business Administration

(SBA) Web site. Summarize at least fi ve

resources that are available through the SBA

for new business start-ups in a one- to two-

page written report.

1. Directions Choose the letter of the best answer. Write the letter for the answer on a separate piece of paper.

What is the total amount owed on a $34,000 loan with 3.5 percent interest?

A $35,190 B $37,500 C $40,000 D $34,180

2. Directions Choose either True or False as the answer. Write the letter for the answer on a separate piece of paper.

Collateral is something that is paid in addition to the amount of money that is borrowed.

T

F

Study for tests over a few days or weeks, and continually review class material. Do not wait until the night before or try to learn everything at once.

Test-Taking Tip

STANDARDIZED TEST PRACTICE

MINI-QUIZAdminister the Mini-Quiz orally. Have students fi ll in the blanks.

1. A proposal that describes every part of a new business to an investor is called a(n) . (business plan)

2. A business tells how an in-dividual thinks a business should run and demonstrates an understand-ing of its role in the marketplace. (philosophy)

3. Written statements about the requirements of a particular job are known as . (job descriptions)

For an expanded chapter quiz, go to Chapter 35 in the TeacherWorks™ Plus DVD and to Chapter 35 in the ExamView® Assessment Suite.

The students should be evaluated on the performance indicators noted in the role play. For another DECA role play, go to the Competitive Events Workbook or the Student Activity Workbook, or go to the Marketing Essentials OLC through glencoe.com.


DECA Advisors CornerUsing the guidelines for the Entrepreneurship Participating Event from the DECA Guide, have each student develop a business prospectus for starting his or her own business. The advisor can put together judges and have a competition to decide which plans will be entered in state competition.

755





CHAPTER 35 Developing a Business...

Documents

Transcript of CHAPTER 35 Developing a Business...