Chapter 5

Why is Planning Important

• Need to plan because:• Investors, guide for owners and managers,

direction and motivation for employees, provide an environment to attract customers.

• Neglect to plan because:• No time, fear of seeing problems, don’t know how,

don’t think future changes can be planned for.

Strategic PlanningStrengthsInternal

WeaknessesInternal

OpportunitiesExternal

ThreatsExternal

Mission Statement

• Defines the business scope and describes the organizations capabilities, focus, and activities.

• Provides organizational members with purpose and sense of shared values. It should clarify the organizations climate and assist managers in making decisions regarding objectives, structure, and product development.

External Environment

• Competitors

• Emerging technology

• Clients

• Economy

• Legal and political factors

• Changing demographics

Internal Resources

• Human resources – management, supervisors, sales personnel, engineers, etc.

• Physical resources – buildings, tools and equipment, (low operating costs, effective in distribution)

• Financial resources – cash flow, debt capacity, equity available

• Sales data, accounting records, sales force reports, shipping dept orders, stock levels, etc.

Why do so many small businesses fail?

• Lack of planning

• 3 types of planning• Strategic planning before starting the business• A business plan to attract investors, financiers, and

employees• Continuous operational planning and control before

and after the business starts

Planning• Choose location – depends on type of business• Planning operations – estimate of sales and the

operations needed to produce product• Developing Sources of Supply for Goods and

Materials – largest expense for companies – small business find hard to compete so compete with better quality, service, delivery etc.

• Human Resource – how many workers? Pay?• Legal structure – proprietorship, partnership, corp.?• Approach to Market – size of mkt. Unique features?

Sales promo, distribution.• Records System – maintain employee info. (hours, pay,

benefits) inventory, accounts receivable, payable, taxes, units sold.

• Time schedule – orderly and coordinated program

Importance of a Business Plan• Think about all aspect of your business

• Business strategies, recognize limits, identify problems.

• Secure financing for your business• Need to obtain a business loan.

• Communicate your ideas to others• You believe your ideas will succeed this will

convince others.

• Tool for managing business

Business Plans• Should be a work in progress and updated every

6 to 12 months• Prepared by owner with advisers or team effort if

business is ran by more than one person• People who read plans:

– Bankers, lenders, venture capitalists, etc.– Since hundreds are read each year the plan needs to

stand out. Attractive cover, graphs/charts, etc.– Lending institutions expect 2-5 year projections “pro

formas”

What goes into a business plan?

1) Cover Sheet2) Executive Summary3) Table of Contents4) History and Background5) Description of the Business6) Definition of the Market7) Description of the Products8) Management and Staffing Structure9) Goals and Objectives10) Financial Data (Current and Projected Statements)11) Appendixes

Setting the tone

• Cover Sheet, Table of Contents, Executive Summary

Cover Sheet

• Includes: Business Name, Owners, Date, Address, and Phone Number

• Can have logo/picture

Executive Summary• Most important part of BP• Outlines entire plan, its major objectives, and

expected results (short restatement of plan)– Describes business and what is unique about your

idea– Projections for sales, costs, and profits– Needs – inventory, land, building, equipment, etc.– Amount you are interested in borrowing

• Sometimes sent to investors to see if they have interest in venture before sending entire plan.

• Capture interest!• Written after business plans are complete.

Table of Contents

• Listing of the material included in the publication.

• Important – accuracy!

1. History and Background

• How you came up with your idea.• What you have done to develop the idea.

Example: Betty started a daycare center because she noticed a high demand for quality daycare services in the area.

This helps lenders, investors, and others understand how you business will operate.

Description of Business

• What customer needs the business intends to meet – Statement of Purpose

• List its functions, products, or services.

• Describe, Describe, Describe!

Definition of the marketDescription of Products

• Indicate the target of your marketing efforts• Customers – how large, Competition – what are

your advantages, Substitutes• Marketing Strategy

• Existing and planned products• Legal aspects, patents, trademarks, etc.• Visuals, if available, should be included.

Management Structure

• Describe your management structure and team.

• Shows ability and dedication of owner and staff

• Can include copies of resumes and letters of recommendations

Objectives and Goals• Plans

– How it will be done– When it will be done– Who will do it

• Short-term, long-term

• Vision

• Sales and Production forecasts

• Advertising and Promotion

• How products distributed and sold

Financial Data

• Why should investors provide funds – so the can get a return!

• Expected revenues (take into consideration competitors, future market conditions)

• Don’t be afraid to list potential problems.

• How much you want to borrow and how you plan to use the money.