How to write a perfect Business Plan and deliver an ...

GOVERNANCE AND ACCOUNTING IN SMESPROF. ENRICO BRACCI

Lecture 5How to write a perfect Business Plan and

deliver an effective Pitch

2Prof. Enrico Bracci 2 How to write a perfect Business Plan

Agenda

1. Describe what a feasibility analysis is and choose when tocreate one.

2. Identify primary business plan contents.3. Summarize the various purposes for a business plan and the

audiences for one.4. Recognize and demonstrate proper development and

formatting of a business plan5. Understand the importance of an effective pitch and how to

prepare one


Business plan: the road ahead

"If you don't know where you're going, any road will take you there" George Harrison ‘Any Road’

4Prof. Enrico Bracci How to write a perfect Business Plan

ØThe easiest part of launching a new business iscoming up with the ideaØBut, the great idea is just the start

ØPlanning for a new business requires:1. Feasibility analysis: should we proceed with this

idea?2. Business model: how should we proceed with this

idea?3. Business plan: transforming the idea into a

successful business

New Business Planning


Industry & Market feasibility

Product/service

feasibility

Financial feasibility

Entrepreneurial

feasibility

Elements of a Feasibility Analysis


ØIndustry and Market Feasibility AnalysisØTwo areas of focus:

1. Determining how attractive an industry is overall as a “home” for a new business

2. Identifying possible niches a small business can occupy profitably

Conducting a Feasibility Analysis

7Prof. Enrico Bracci 7Prof. Enrico Bracci How to write a perfect Business Plan

Why does industry profitability differ?

Source: Porter (2008)


Porter’s Five Forces Model

ü Supply side economy ofscale

ü Demand side benefitsof economy of scale

ü Customer switchingcost

ü Capital requirementsü Unequal access to

distrubition channelsü Restrictive government

policiesü Expected retaliation

ü Concentrated supplymarket

ü Supplier goup does notdepend on the indutryfor its revenues

ü Differentiated productsupply or patented

ü Risk of verticalintegration of supplier

ü Few buyersü The industry product is

standardizedü Few swithcing costü Risk of vertical

integration of buyersü High price sensitivity

ü Offers an attractive price-performancetrade off

ü Low buyer’s switching costs

ü Competitors arenumerous or are equalin size and power

ü Industry growth is slowü Exit barriers are highü Rivals are committed

for leadershipü Firms cannot read each

other’s signal wellü Standard/perishable

product



Five Forces Matrix


2. Product or Service Feasibility Analysis: Is There aMarket?ØDetermines the degree to which a product or service

idea appeals to potential customers and identifies theresources necessary to produce it

ØTwo questions:ØAre customers willing to purchase our good or

service?ØCan we provide the product or service to customers

at a profit?



ØPrimary research: collect data firsthand and analyze itØCustomer surveys and questionnairesØFocus groupsØPrototypesØIn-home trialsØ“Windshield” research



ØSecondary research: gather data that already hasbeen compiled and analyze itØTrade associations and business directoriesØIndustry databasesØDemographic dataØForecastsØMarket researchØArticlesØLocal dataØThe Internet



3. Financial Feasibility Analysis: Is There Enough Margin?ØCapital requirements

§ Must have an estimate of how much start-up capital is required to launch the business

ØEstimated earnings

§ Forecasted income statementsØTime out of cash

§ Surviving at current rate of negative cash flow ØReturn on investment:

§ How much investors can expect their investments to return



4. Entrepreneur Feasibility: Is This Idea Right for Me?ØEntrepreneurial readiness: knowledge,

experiences, and skills necessary to have any chance of being successful



A Business Model

ØBusiness model– a systematic plan on how tocreate value to clients, shareholders andstakeholders.

ØBusiness Model Canvas – a visual representationof the core components.


Business Model defined

A business model is created using an analytical process throughwhich an entrepreneur collects and analyze information neededto make choices on:ü Strategic positioning (e.g. markets to serve,

products/services to offer, and the role to play in the industry).ü Capabilities and resources needed to execute the strategy

(e.g. employees and partners, infrastructure, operating and do-to-market plans, and financing).

ü Value proposition for all stakeholders (e.g. customers,partners, employees, owners, and investors).


Business Model Canvas

Ø The Business Model Canvas is a strategic management andstartup template for developing new or documenting existingbusiness models.

Ø It is a visual chart based on 9 elements describing a firm's orproduct'sØValue propositionØKey partnerØKey activitiesØCustomers segments and relationshipØDistribution channelsØRevenue streamsØCost structureØKey resources

See: http://www.businessmodelgeneration.com/canvas/bmc


Business Model Canvas

http://www.businessmodelgeneration.com/canvas/bmc

For whom are wecreating value?Who are our mostimportant customer?- Mass market- Niche Market- Segmented- Diversified- Multi-sided markets

What value do wedeliver to the customer?Which customer needsare we satisfying?Which custmoerproblem are wesolving?

How do we reach and communicate with customer segments?- Direct- Indirect (who?)

What type of relationship does eachof our customersegment expect? How effective they are?- Personal assistance- Dedicated personel- Self service

For what value are our customers reallywilling to pay? How do they currentlypay? How do they prefer to pay? How much revenue streams contribute to overall revenue?

What key resources do our value propositionsrequire? Our customerrelationship?- tangible/intangible

What key activities do our Value Propositionsrequire? Operations- Platform/network- Problem solving- Marketing

Who are our keypartner? Who are ourkey suppliers? Whichkey resources are weacquiring from partners?- Optimization and

efficienty- Reduction of risk- Knowledge

acquisition- Resources acquisition

What are the most important costs inherentin our business model? Which key resourcesare the most expensive Which key activiesare the most expensive?- Fixed /variable cost- economies of scale/scope


Value proposition

§ Your Value Proposition is: a statement that includesyour important customer and market§ Need along with your new, compelling, anddefensible

§ Approach to address that need with superior§ Benefits per costs when compared to the§ Competition and/or other alternatives

§ Successful Value Propositions are quantitative andeasy to understand and remember

§ The four parts of your value proposition are thefundamentals: they must always be answered


Value proposition Canvas: a model

Describe the key attributes of the product and/or services

Describe the way yourproduct/service generates valuefor customers

Describe if yourservice/productproducesadvantages tocustomers

Describe the outcomescustomers wantto achieve

Describe the negative results, the risks and obstaclescustomersexperience

Describe whatthe customersare looking forin their job and life


Value proposition Canvas: an example


ØDeveloping a business model is a four phases process:1. Create an initial business model canvas2. Test the problem that the entrepreneur thinks the business

solves for the customer3. Test the business model in the marketØBusiness prototypingØLean start-upØMinimum viable product

4. Make changes and adjustments in the business pivots

Developing and Testing a Business Model

GOVERNANCE AND ACCOUNTING IN SMESPROF. ENRICO BRACCI

If feasible…then plan it!


ØBusiness plan: a written summary of an entrepreneur’sproposed business venture, its operational and financialdetails, its marketing opportunities and strategy, and itsmanagers’ skills and abilities

ØDocument that thoroughly explains a business idea andhow it will be carried out.ØStory of what the business is and will be.ØAll costs and a marketing plan.ØDescription of financing.ØEstimate of projected earnings.

The Benefits of Creating a Business Plan


Uses of the Business Plan


The Need for a Business PlanPrimary Functions4To provide a clearly articulated statement of goals

and strategies for internal use• Imposes discipline on the entrepreneur and management

team• Is an opportunity to test ideas and determine whether viable

business opportunities exist.

4To serve as a selling document to be shared withoutsiders• Provides a credible overview for prospective customers,

suppliers, and investors• Helps secure favorable credit terms from suppliers• Opens approaches to lenders and other sources of financing


Keeping the Right Perspective

Good business plans don’t ensure success.4Effective implementation is what succeeds.

Writing a business plan is an ongoing process and onlysecondarily the means to an outcome.4The process is just as important as—if not more so than—the

finished product.4The plan represents what is has been anticipated; a good

entrepreneur adapts the plan to fit the unexpected.


Types of Business Plans

Dehydrated Plan4A short form of a business plan that presents only the most

important issues and projections.

Comprehensive Plan4A full business plan that provides an in-depth analysis of the

critical factors that will determine a firm’s success or failure,along with all the underlying assumptions.


Common elements of a business plan:ØTitle page and table of contentsØExecutive summaryØMission statementØCompany historyØBusiness and industry profileØBusiness strategyØDescription of products/servicesØMarketing planØOperations and development planØOwnership & management planØFinancial goals and objectives

The Elements of a Business Plan


Executive summary: an example

1.1 The Opportunity1) Thai food is one of the fastest growing food trends in the U.S. and is rapidly moving into the

mainstream1.2) Americans are leading a busier lifestyle and thus rely more on meals outside the home. Restaurants

account for 46% of total food dollars spent2, up from 44.6% in 1990 and 26.3% in 19603. By 2010, 53% of food dollars will be spent on away-from-home sources4.

3) Americans are demanding better quality food and are willing to pay for that quality. As a result, fast food establishments have recently added premium items to their menu. For example, Arby’s has a line of “Market Fresh” items5; Carl’s Jr. offers “The Six Dollar Burger.”6

The fast casual segment emerged to meet the demands for better-quality foods at a slightly higher price than that of fast food. Despite the immense popularity of Asian food, and Thai food in particular, the fast casualsegment is dominated by cafes/bakeries (Panera Bread, Au Bon Pain) and Mexican food restaurants (Chipotle Grill, Baja Fresh, Qdoba). In recent years, however, Asian fast casual players have begun to emerge in various regions in the U.S. Such players include Mama Fu’s, Nothing but Noodles, and Pei Wei Asian Diner, but are still considered regional competitors.

Therefore, customers are limited in choices: • Thai food patrons are currently limited to full-service restaurant options, requiring more time and money

than fast food or fast casual options.• Busy consumers are currently limited to hamburgers, sandwiches, pizzas, and Mexican food, when it

comes to fast-serve options.

1.2 The Company• Benjapon’s is a fast-casual restaurant serving fresh Thai food, fast, at affordable prices, in a fun and

friendly atmosphere. We will open two company locations, with future plans to grow through franchising.• The restaurant will be counter-order and table-service with an average ticket price of $8.50. Store hours

are from 11am–10pm, seven days a week. We expect 40% of our business to come from take-out orders.


The Content of a Business Plan (cont’d)

Industry Description4Broader industry in which the firm will compete

• Industry size, growth rate, trends, and competitors4Different segments of the industry4Niche in which the firm plans to participate

Target Customers4Who are the company’s target customers?4How many of them are in the trading area of the company?4Demographics and psychological variables—values, attitudes, and

fears4What do they buy? How they buy, Who is buying? When do they

buy?4What expectation customers have toward the product?4Will the company look for a niche?



Competitor Analysis4Presents the description of the main competitors, their share of

the market, their product, location, and strategies.4It helps to sustain the strategic positioning of the company.4It helps to answer to the following questions:

• Who are the company’s key competitor?• What are their strengths and weaknesses?• What are their strategies?• What’ market image do they have?• How successful they are?• How is the company’s offer different from those of the

competitors? Will the differences produce a competitive edge?



Company Description4When and where was this business started?4What is the history of the company?4What are the firm’s objectives?4What changes in structure and/or ownership?4In what stage of development is the firm?4What has been achieved to date?4What is the firm’s distinctive competence?4What are the nature and activity of the business?4What is its primary product or service?4What customers will be served?4What is the firm’s form of organization?4What are the projected economic states of the industry?4How is ownership of the firm to be structured?



Products/Service Plan4Describes the product and/or service to be provided and

explains its merits

Marketing Plan4It represents a key point of the BP. It should show how

the company will get to the customers and the coherenceof the marketing tool adopted with the overall strategy.

4It shows the Marketing Ps• Product• Pricing• Promotion• Place (Distribution Channel)



Operations and Development Plan4How product will be produced or service provided4The location of the production facilities4The dimension and capacity4The internal layout4The logistic issues4The cost of the investment needed (i.e. Plants, equipment,

buildings)

Ownership & Management Plan4Describes the firm’s organizational structure and the

backgrounds and qualifications of key personnel



Financial Plan4Identifies the hypothesis of the financial plan and the potential

risks that may be encountered by an investor4Indicates to an investor how much money is needed and

when, and how the money will be used4Projects the company’s financial position based on well-

substantiated assumptions and explains of how the figureshave been determined

4Pro forma statements project a firm’s financial condition for upto five years.


The financial plan: the main elements

Financial area Economic area

a. Source and use of Capital

b. Balance sheet

c. Income statement (or profit & loss statement)

d. Cash-flow projections

e. Break even analysis

f. Financial ratios


The financial plan

ü It shows the financial and economic viability of the businessü It is fundamental to state clearly the hypothesis on which the

data are computedü It is important to show the soundness of the main hypothesisü The financial plan must present at least a three-year

projection up to five years.ü The income statement should present data on a quarterly

basis, at least for the first three years.ü The cash flow statement should present data on a monthly or

seasonal basis


The financial plan: the main hypothesis

MacroeconomicsHypothesis

FINANCIALPLAN

MicroeconomicHypothesis

ü Economic growthü Industry growthü Inflationü Labour cost

inflationü Interest rateü Taxation

ü Production costü Payable turnoverü Receivable turnoverü Inventory turnü Depreciationü Sales growth


Capital investement

Financial plan: the conceptual relations

Asset

-Depreciation

= Net Assets

Sales and productionNet Sales

Inventory change

Material cost

+Depreciation

+other production cost

= Cost of goods sold

Period costPersonnel cost

+Depreciation

=Total period cost

+ other expenses

Balance Sheet: Assets

Fixed Assets

- Depreciation

Other assets

Inventory

Receivables

Other credit

Payables

Other current liabilities

Long term liabilities

Capital

Reserves

Liabilities

Net Worth

Income statementNet sales

Cost of goods sold

- Period cost

= Gross profit

= Net profit

Cash Flow

Net profit

- Investments

Working capitalchange

+ Depreciation

+ Financing

= Net cash flowCash/Bank


Sources and uses of capitalItem €

a) Start-up expenses• Insurance• Legal and consultant fees• Payroll• Rent• Utilities---

b) Start-up investment• Initial cash balance to start the business• Equipment• Furniture• Machinery…

(c = a+b) Total Start up requirements

d) Sources of Funds• Equity• Line of credit• Mortgage• …

(e= c-d) Balance


Cash flow statement calculations

Item €

Starting Cash balance (+)

Cash in from operations (sales of the period, previous period accounts receivable) (+)

Cash out from operations (payments of expenses of the period, previous periodaccounts payble)

(-)

Cash in from Investing (Equity infusion, Earnings from investment) (+)

Cash out from investing (Equipment purchases, repaying investors) (-)

Cash in from financing (loans) (+)

Cash out from financing (repayment of debt) (-)

Ending cash balance (Starting blance fro Next period) (=)

NB: The cash from operations can also be computed through an indirect method:

Net income – Depreciation – other no monetary expenses +/- non-cash current assetsand liabilities = Cash flow from operations


Balance sheet summary

Item €

Assets

Cash

Accounts receivable

Inventory

Fixed assets

Other assets

Total assets €xxxxx

Liabilities

Short-term liabilities

Long-term liabilities

Owner’s Equity

Total Liabilities & Owner’s Equity €xxxxx


Income statement summary

Item €

Net sales revenue (+)

Cost of Goods Sold (-)

Gross Profit (=)

Operating expenses (-)

General expenses (-)

Other expenses (-)

Net Income before taxes (=)

Taxes (-)

Net Income (=)


Other financials

ü A sensitivity analysis is needed, showing what would happen inat least three scenarios:q Worst case scenarioq Probable scenarioq Best case scenario

q Break-even point analysis

q Ratio analysis



Appendix of Supporting Documents4Supplementary materials and attachments to expand the

reader’s understanding of the plan:

• Résumés of key investors and owners/managers• Professional references• Photographs of products, facilities, and buildings• Marketing research studies• Pertinent published research• Analytic financial sheets• Signed contracts of sale


Making an Effective Written Business Plan

ü Insist on confidentiality and require written receiptsü Use good grammarü Limit to a reasonable lengthü Go for an attractive, professional appearanceü Provide solid evidence for any claimsü Describe the product in lay termsü Emphasize the qualifications of the management teamü Analyze the market thoroughlyü Include financial statements that are neither overly detailed

nor incompleteü Don’t hide weaknesses—identify potential fatal flaws


Features of Plans Unattractive to Investors

Plans that create unfavorable reactions:4Show an infatuation with the product or service and downplay

market needs or acceptance.4Are based on financial projections at odds with accepted industry

norms.4Have unrealistic growth projections.4Contain a need for custom or applications engineering,

which makes substantial growth difficult.4Based on outdated financial information or industry comparisons4Lacking of marketing strategies4Being overly optimistic4Avoid or disguise potential negative aspects4Don’t have any personal equity in the company4Ignoring macro-environment4Use bad grammar


Business Plan creation process: an overview

1.Identify product opportunity(The Idea)

2. Determine market feasibility

5. Go/no go decision

3. Determine market size (in € and q)

4. Complete competitive analysis

6. Develop marketing strategy

7. Identify marketing mix components

9. Determine location, size, type, and layout of facilities

8. Determine beginninginvetory and projections

11. Estimate the initial capital requirements

10. Establish organisation and personnel requirements

14. List possible sources of capital and their amount

12. Choose legal form of the organisation

13. Identify critical risks and assumptions to develop plans

15. Prepare an opening balance sheet bases on 11&14

18. Prepare a pro forma balance sheet (3-5years)

19. Compute financial ratios

20. Prepare executive summary of the plan

16. Prepare pro forma IncomeStatement (3-5 years)

17. Estimate monthly/seasonalcash flow (3-5 years)


Business plan pitch

Please make sure you watch thus video before proceeding!

https://www.youtube.com/watch?reload=9&v=k3PY_p_M-8w


Presenting the Business Plan to Investors(or Business Pitch)

Understanding the Investor’s Perspective4Entrepreneurs are optimists; investors are skeptics.

4Investors focus on break-even and positive cash flow.

4Investors have a short attention span (Max presentation duration20-30 minutes).

4Bad information and poor preparation cause investors to loseinterest quickly.


The Business Plan Pitch: key elements

The presentation must cover five basic areas:1. The company and its products and services. What does

your company do? And what are you looking for?2. The problem to be solved. What’s the customers’ problem

to be solved?3. A description of the company’s solution to the problem.

How the product solve the problem?4. The company business model. How competitive

advantage will be achieved?5. The company’s competitive edge. How competitive

advantage will be maintained?


1. Prepare2. Practice your delivery and then practice some more3. Demonstrate enthusiasm about the business but don’t be

overemotional4. Focus on communicating the dynamic opportunity your idea

offers and how you plan to capitalize on it5. Hook investors quickly with an up-front explanation of the

new venture, its opportunities, and the anticipated benefits tothem

6. Follow Guy Kawasaki’s 10/20/30 rule for PowerPointpresentations

7. Explain how your company’s products or services solvesome problem and emphasize the factors that make yourcompany unique

8. Offer proof

The Pitch: Making the Business Plan Presentation


9. Hit the highlights10. Keep the presentation “crisp” just like your business plan and

se visual aids11. Avoid the use of technical terms12. Remember to answer the question “What’s in it for me?”13. Close by reinforcing the potential of the opportunity14. Be prepared for and anticipate questions15. Follow up with each potential investor

The Pitch: Making the Business Plan Presentation


When presenting a BP be ready to answer to several questions, such as:- Why? Why is this opportunity/product unique? Why it is the right moment to

invest? Why are the founder and the team best positioned to exploit theopportunity?

- Who? Who are the key stakeholders for the business? Who makes the buyingdecision in the market? Who are the founders and the management team?

- Where? Where are the key customers, suppliers, partners and talent located?Where is the company located? Where will the product developed, sold and used?

- What? What products and services will be offered and at what price? What are thekey milestone and deliverables? What differentiate this offering from others in themarket place?

- When? When will the first product reach the market? When will follow-up offerings,markets, and business launched? When will returns delivered to investors? Whenwill key milestones be reached?

- How? How will founders attract resources and build capabilities required to meetkey milestone? How do they plan to build products and develop services? How willthey market, sell, and deliver their offerings? How will they attract key stakeholdersand ensure customer loyalty and engagement?

The Pitch: feedback questions


Title slide1. Executive summary2. Market positioning/problem description3. Product Positioning4. Business Network (Ecosystem) positioning5. Competition or Substitutes6. Customer Benefits7. Operations8. Financials9. Risks10.Implementation, Status and Traction, and FinancingClosing Slide

The Pitch: a powerpoint structure


ü It is a written document that quickly conveys to the listener whatthe company is proposing, why is relevant.

ü It can be read or told from 15 seconds to 2 minutes maximum(The length of an elevator ride)

ü It needs to be effective, to attract attention and interest. Then amore formal presentation of the Business Plan can be delivered.

The “Elevator” Pitch


After a personal presentation and role in the company (who you are), the elevator pitch needs to continue with the following structure.

The “Elevator” Pitch: the structure


The “Elevator” Pitch: an example


The “Elevator” Pitch: template example


Readings

Hatten, (2014), Small Business Management, CengageLearning, Chapter 4.

Sahlman, W.A. (1997), How to Write a Great Business Plan, Harvad Business Review, July-August.

Additional readings

Osterwalder A., Yves Pigneur, Alan Smith, (2010), Business Model Generation,

https://en.wikipedia.org/wiki/Yves_Pigneur

http://www.businessmodelgeneration.com/

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