RSM Writing a Business Plan

Writing a Business Plan

Prof. R.S.Mathur

Tuesday, April 11, 2023

Prof. R.S.Mathur 2

Syllabus E5 Business Plan Development This component of program would result in development

of a business plan based on research and survey. Work outline based on academic inputs and training, the

candidate would finally develop a business plan that can be submitted for funding.

The candidate will undertake the necessary research, survey and field work to develop a viable business plan in a format acceptable to financial institutions.

This will be evaluated by team of experts including invitees from financial institutions.

Evaluation would reflect the willingness of the financial institutions do fund the business proposition.

There are 50 points for the business plan and 50 points for the negotiation presentation.


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Business existed long before computers, spreadsheets, and detailed projections,

So did business plans


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IT WAS the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was

the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was

the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were

all going direct to Heaven, we were all going direct the other way- in short, the period was so far like the present

period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative

degree of comparison only.

Tale of Two Cities,-Charles Dickens

Its been both ways now and ever…


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Traditional vs. Entrepreneurial Career Paths

High School

University

Big Company

Retire

High School

University

Practical Experience

Management Training

Well Managed, High Growth Firm

Startup Venture

Another Startup?

Venture Capital or Angel Investor

Never really retire


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Target Audience for Business Plans

• VCs / Angel investors

• Bankers

• Financial Institutions

• Potential senior employees

• Attorneys and accountants

• Leasing companies


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What is a Business Plan?

The business plan is a written document that clearly identifies and defines the goals of a business

It precisely outlines the methods for achieving them. It is a complete and detailed description of exactly how

you intend to operate your proposed business, A business Plan is a communications tool for investors

and Others interested in understanding the operations and

goals of your business. Your plan will be a working tool, -a blueprint on how you

are going to build your company, A succinct document that specifies the components of a

strategy with regard to your business mission.


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Purpose of Business Planning

• Tangibalizing the vague ideas

• Quantifying the approximate numbers

• Freezing the milestones and deliverables

• Estimating the funding requirements

• Sizing up the scale of operations


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Major Benefits of a Good BP

1. A business plan offers a path to follow in making crucial startup decisions.

It is a management and financial "blueprint." In short, it is your most important guide to starting, building and managing a successful business.

cont…


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Major Benefits of a Good BP cont…

2. The plan clarifies your ideas and establishes a plan of action.

It explains how the business will function in the marketplace. It describes what you are selling, your background and qualifications, who your prospective customers are, where they can be found, what is needed to build the business, how you plan to promote and determine the viability of the venture in a designated market. Cont…


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3. It is an operational tool. The business plan is a tool that clearly

depicts characteristics which, when properly used, will help you manage your business and work toward its success. It is a means for communicating your ideas to others by measuring operational progress.

cont….


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4. Your business plan is a financial tool. By determining how much money will be

needed for start-up costs, it details how the business will be financed. And, as a prospectus for potential investors, it is an important tool to help obtain financing by anticipating ongoing capital and cash requirements to reassure lenders or backers. Cont….


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5. It is a benchmark for good operational management.

The finished plan will be an operational tool that provides guidance to the entrepreneur in organizing planning activities to help move the business forward.

cont…


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6. Finally, a business plan provides for future growth.

An explanation of how you plan to keep your business growing -- a detailed guide of what you are going to do, and how you are going to increase your profits. These plans should outline your specific goals for the coming one, two and three years. By breaking your objectives down into annual milestones, your plan will be accepted as providing a realistic determinant of your ultimate success.


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Contents of a Good Business Plan

A normal business plan, one that follows the advice of business experts, includes a standard set of elements.

Plan formats and outlines vary, but generally, a plan will include standard components such as descriptions of the company, product or service, market, forecasts, management team, and financial analysis.

Your plan depends on your specific situation. For example, if you're developing a plan for internal use only (not for sending out to banks or investors), you may not need to include all the background details that you already know.

Description of the management team is very important for investors, while financial history is most important for banks. Make your plan match its purpose.

Although there are no rigid rules, the general guideline suggest following outline of contents:


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Executive Summary

While appearing first, this section of the business plan is written last.

Its not an introduction. It summarizes the key elements of the

entire business plan.


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The Industry Environment

An overview of the industry sector that your business will be a part of, including industry trends, major players in the industry, and estimated industry sales.

This section of the business plan will also include a summary of your business's place within the industry.


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Product or Service

Describe what you're selling. Focus on customer benefits.


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Market Analysis

An examination of the primary target market for your product or service, including

1. Geographic location,

2. Demographics,

3. Your target market's needs and how these needs are being met currently

4. Market forecasts


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Competitive Analysis

An investigation of your direct and indirect competitors:

1. With an assessment of their competitive advantage and

2. An analysis of how you will overcome any entry barriers to your chosen market.


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Strategy and Implementation

Define the business precisely in terms of:

1. Customer group,2. Customer function and3. Alternative technology Management responsibilities and Budget.


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Business Definition `

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Marketing Plan

A detailed explanation of your:

1. sales strategy,

2. Pricing plan,

3. Proposed advertising and promotion activities, and

4. Product or service's benefits.


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Marketing Plan

Focus on how and why prospective customers will buy from you, and pay you money.

Focus on milestones (more than calendar dates)


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Management Plan An outline of your business's

1. Legal structure,

2. Management resources, including your internal management team, external management resources, and human resources needs.

3. Include backgrounds of key members of the team,

4. Personnel strategy.


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Operating Plan A description of your business's

1. Physical location, facilities and equipment,

2. Kinds of employees needed,

3. Inventory requirements and suppliers, and

4. Any other applicable operating details, such as a description of the manufacturing process.


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Financial Plan A description of your funding requirements, your detailed financial statements, and a financial

statement analysis including

1. Profit and loss,

2. Cash flow,

3. Balance sheet,

4. Break-even analysis,

5. Assumptions,

6. Business ratios, etc.


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Sources of Funds

Idea / Concept: Personal savings Prototype: Loan from friends and

relatives Incubation: Angel / Early stage fund Organization building: VC, first round Scale up: Second round / growth/ scale

up funds IPO: Investment bankers, underwriters


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Possible Financing OptionsPossible Financing Options

Entrepreneur’s personal resources

Financial institutions

Angel investorsUnusual

resources

Financing Financing OptionsOptions

Venture capitalists Public offering

Business development programme


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Evaluating Financing OptionsEvaluating Financing OptionsPersonal

Personal Potential Control

Risk Reward

Personal Resources H HH

Financial Institutions(Debt Financing) L - M L

L – MVenture Capitalists(Equity-Debt Financing) L – M L

L –MAngel Investors (Equity Financing) L – M L

L – MPublic OfferingsEquity Financing) L L

L – HBusiness Development Program L – M L

L – MUnusual Sources L – H L

L- H

L – Low M – MediumH - High


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Appendices and Exhibits

Any additional information that will help establish the credibility of your business idea, such as:

1. Marketing studies,

2. Photographs of your product, and/or

3. Contracts or other legal agreements pertinent to your business.


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What's Most Important in a Plan?

It depends on the case, but usually it's the cash flow analysis and specific implementation details.

Cash flow :is both vital to a company and hard to follow. Cash is usually misunderstood as profits. Profits don't guarantee cash in the bank. Many of profitable companies go under because of cash flow problems. Being intuitive is no help.

Implementation details: are what make things happen. Brilliant strategies and beautifully formatted planning documents are just theory unless responsibilities are assigned, with budgets and a time frame, follow up with those responsible, and track results. Business plans are really about getting results and improving your company.


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What is a financer looking for in a BP?

• Basic value proposition

• Market size, segmentation, target customers, competitors

• Entry barriers, IP protection, Unique Selling Points

• Technology expertise and domain knowledge

• Alliance and strategic partnerships

• Promoters, Board of Directors, Top management (VPs) cont…


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What is a financer looking for in a BP? Cont…

• Team (Project management, execution capabilities)• Scalability and growth potential• Marketing and selling plan: channels, distributors,

customer acquisition costs• Milestones and deliverables (prototype, proof-of-

concept, beta customers)• Requirement and application of funds: Setting

offices, where, how many?• Equity/Capital structure, financing policies

(debt/equity ratio) cont…


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What is a financer looking for in a BP? Cont….

• Revenue model: Sources of revenue (service/product mix)• Profitability, break even point, growth estimates (revenue,

team size)• Risks and contingencies: De-risking/risk management/risk

containment plan• Projected (pro-forma) financial statements • Exit strategy (IPO, equity buyer, strategic buyer, Merger &

Acquisition)• Valuation and offer


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Writing a Plan is Tough Work

It requires disciplined balance:

1. It is visionary but logical,

2. It is financially perfect but flexible,

3. It is for today but also for the next 3-4 years,

4. It is a formal plan but easy to read, and

5. It is creative but follows the basic rules


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Preparatory Work

• Information collection

• Validation of the assumptions

• Analysis and planning

• Articulation of your basic value proposition


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Lecture Outline

Business plan basics: What? For whom?

Fund raising process Structure of a business plan Details of the individual sections Final checklist Sources of material


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Business Plan (BP)

BP is a proper document and not a bunch of PPT slides

It documents agreed program of expectations, actions, and results to which the whole team is willing to commit

It describes why, how, and when the firm will accomplish economic viability which basically comes from sustained positive cash flows


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Target Audience for the Business Plan

VCs / Angel investors

Potential senior employees

Bankers

Attorneys and accountants

Leasing companies


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Stages in the Growth of a Company

Idea / Concept

Prototype / Proof of the concept

Incubation / Product development

Organization building

Scale up (alliances, partnerships)

IPO: Initial Public Offer


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Funds Requirements at each Stage

Idea / Concept: USD 10K Prototype: USD 50K Product development: USD 0.5M – 2M Organization building: USD 8M-10M Scale up: USD 50M IPO: Initial Public Offer


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Sources of Funds

Idea / Concept: Personal savings Prototype: Loan from friends and

relatives Incubation: Angel / Early stage fund Organization building: VC, first round Scale up: Second round / growth/ scale

up funds IPO: Investment bankers, underwriters


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Cost of Equity

Angels would expect higher rate of returns than VCs

Typical VC expectations is 40-50% compounded annual return

Risk-return curve: New venture increasingly reduces its risk as it goes through stages


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VC Fund Raising Process

Introduction (phone call, e-mail, referral) Submit business plan / executive summary Presentation Company visit Due diligence (management reference checks,

customer calls, market analysis) More meeting(s) Term sheet Legal / Closing


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VC Firm’s Annual Throughput

10,000 qualified business plans

1000 meetings

400 company visits

25 new investments


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What is the VC Looking For in a BP ?

Basic value proposition Market size, segmentation, target customers,

competitors Entry barriers, IP protection, Unique Selling Points Technology expertise and domain knowledge Alliance and strategic partnerships Promoters, Board of Directors, Top management

(VPs)


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Team (Project management, execution capabilities)

Scalability and growth potential Marketing and selling plan: channels,

distributors, customer acquisition costs Milestones and deliverables (prototype, proof-

of-concept, beta customers) Requirement and application of funds: Setting

offices, where, how many? Equity/Capital structure, Financing policies

(debt/equity ratio)


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Revenue model: Sources of revenue (service/product mix)

Profitability, break even point, growth estimates (revenue, team size)

Risks and contingencies: De-risking/risk management/risk containment plan

Projected (pro-forma) financial statements Exit strategy (IPO, equity buyer, strategic buyer,

Merger & Acquisition) Valuation and offer (equity price, number of

shares)


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Business Plan Structure

BP is a document about 30-35 pages long

It has subject matter with text and graphs and pictures

It is supplied with a 3-4 page executive summary

It has a few appendixes with contain allied material


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Business Plan Sections

1. Executive summary2. Introduction / Company overview3. Concept / Proposition / Product description4. Market opportunity5. Competition survey6. Development plan and milestones7. Marketing plan8. Team 9. Financials10. Offer11. Appendix


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Introduction / Company Overview

History of the company, when incorporated

Founders and their brief profiles Form of the organization:

Partnership, Private Limited Product / Service Current revenues and profits (if

any)


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Business Concept / Value Proposition

Description of the product / service

Intellectual property protection

Unique selling points – differentiators

Unfair advantage over competitors ?


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Market Opportunity

What unfulfilled need is satisfied by your product

Market size, segmentation

Target customers, demographics

Is it a new market, growing market, or mature market ? (S Curve)


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Competition Survey

Existing competitors

Substitute products

Potential competitors

SWOT analysis


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Development Plan and Milestones

Prototype : How will it look

What will be in version 1 – what features

Precise description of the milestones and dates

Initial team size and team scale-up


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Marketing Plan

Strategy – selling direct or through channels

Quantitative marketing goals (revenues, team size)

Branding strategy, co-branding, if any

Distribution and alliances

Pricing and promotion


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Team

Team structure – CEO, CFO, CIO, CTO

Vice Presidents (marketing, finance, engineering)

Board of Directors, Technology Advisory Board

Organizational chart (show filled and empty slots)

Basic reporting structure


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Financials

Pro forma (Projected) (3 year) and/or existing financial statements

Balance sheet

Profit and loss statement

Cash flow statement

Break even analysis


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Offer

Valuation

Basis for valuation (P/E, Revenue multiples)

Percent of the company for investment

Exit routes for the investors

Capitalization structure


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Appendixes

Endorsement from reference customers

Letter of Intents from potential customers

Product block diagrams

Detailed resumes of the promoters

Quotations from suppliers

Survey reports-


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Executive Summary

Compress the whole plan to 3 pages

Each section in the plan becomes a 3-4 line paragraph

Avoid clichés and jargon

Start with something that grabs attention

Don’t write the executive summary before the business plan


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A Question of Style

Use a simple conversational writing style

Avoid long and complex sentences Use technical terms sparingly and

explain them clearly Keep your paragraphs short, simple and

succinct Use bullet points whenever possible Use tables and charts when possible Quote reputable sources to reinforce

your position


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Final Checklist !!

Look for spelling mistakes

Provide a table of contents

Check page number consistency

Do not use too many colours and fonts

Explicitly add confidentiality clause in the beginning


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Concluding Remarks

Business plan preparation is a serious process which takes 2-4 months

The Founder CEO is perpetually writing a business plan (besides doing many other things)

Fund raising itself takes 4-7 months

Business plan must be treated as dynamic document with a potential for continuous and incremental improvement


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Material Available on the Internet

Venture Finance http://www.vfinance.com http://www.nvca.org

Small Business Issues http://www.sba.gov http://www.startupjournal.com http://www.bplans.com

RSM Writing a Business Plan

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