Seem 3600/3810

Tutorial on Business Plan

WANG, Haohwang@se.cuhk.edu.hk

2

Table of Content

1. What is Business Plan?2. Who needs a Business Plan? And Why?3. Finding the right plan for you4. How will you use your plan5. Elements of Business Plan6. Steps to a Great Business Plan7. What to avoid in your Business Plan8. Does your plan include the following factors?9. Top 10 Do’s and Don’ts

A business plan is so vital to the health of your business

3

What is Business Plan?

• A written description of your business’s future

• A document describes what you plan to do and how you plan to do

• Used by– Investment-seeking entrepreneurs to convey

vision to investors– Firms are trying to attract key employees,

prospect for new business, deal with suppliers or simply to understand how to manage their companies better

4

What is Business Plan?

• Simply stated…– Conveys your business goals– The strategies to meet– Potential problems may confront and way to

solve– Organizational structure– The amount of capital required to finance your

venture

5

Who needs a Business Plan? And Why?

• Anybody beginning or extending a venture will consume resources and expected to return a profit– Should take time to draft some kind of plan

• For startups– Seeking funds to help start a new venture– Most books on business planning seem to be aimed at

startup business owners• Since like guidance

– Business plans are useful at all stages

• For established firms seeking help– Middle stage

• Help them find funding for growth• Help manage an already fast growing business• Convey the miss and prospects of the business to customers,

suppliers or others

6

Finding the right plan for you (1)

• Plans differ widely in their length, their appearance, the detail of their contents, and the varying emphases they place on different aspects of the business

• Roughly, business plans can divided into four different types– Mini-plan– Working plan– Presentation plan– Electronic plan

7

Finding the right plan for you (2)

• Mini-plan– 1 to 10 pages– At least cursory attention to such key matters

• Business concept, financing needs, marketing plan and financial statement

– Quickly test business concept and measure the interest of others

– It's not intended to substitute for a full-length plan

• Working plan– Used to operate your business– Internal using

8

Finding the right plan for you (3)

• Presentation plan– Suitable for showing to bankers, investors and

others outside the company– Use standard business vocabulary– Omitting the informal jargon and slang– Reader will not be familiar with your operation– Competitive threats and risks– High-quality printer with color– Make to be booklet, durable and easy to read– Included graphics

9

Finding the right plan for you (4)

• Electronic plan– more business information that once was

transferred between parties only on paper is now sent electronically

– An electronic plan can be handy for presentations to a group using a computer-driven overhead projector, for example, or for satisfying the demands of a discriminating investor who wants to be able to search deeply into the underpinnings of complex spreadsheets

10

How will you use your plan

• Do you intend to use your plan to help you raise money?– Clearly focused vision of how your company is

going to make money

• Do you intend to use your plan to attract talented employees?– Stock options and other aspects of compensation

• Do you expect showing your plan to suppliers to demonstrate that you're a worthy customer?– Convince a supplier of some precious commodity to

favor you over your rivals

11

Elements of a Business Plan

• 7 major sections of a business plan1. Executive Summary2. Business Description3. Market Strategies4. Competitive Analysis5. Design and Development Plan6. Operations and Management Plan7. Financial Components

12

Executive Summary

• Tell readers what you want• Keep short and businesslike

1. Business concept2. Financial features3. Financial requirement 4. Current business position5. Major achievements

13

Business Description

• Short description of the industry• Provide information on all the various markets within

industry, including new products or developments• Investor will want to know how dependable your

information is and will not risk money on assumptions

1. Concentrate on its structure• State whether business is new or already established

2. Legal form should be showed again• Sole, partnership or corporation

3. Describe the products/services4. Competitive Edge5. How will you profit?• If for financial purposes, how to expand your business and make

more profitable

14

Market Strategies

• Define your market• Projecting Market share• Positioning your business• Pricing• Distribution• Promotion Plan• Sales Potential

15

Competitive Analysis (1)

• Identify and analyze the competition• A statement of the business strategy and how it

relates to the competition• Purpose– To determine the strengths and weaknesses of the

competitors within your markets– Your distinct advantage– The barriers to prevent competition – Weaknesses can be exploited with the product

development cycle

• Identify the current and potential competition– To look at the market from the customer's viewpoint– To group competitors according to their various

competitive strategies

16

Competitive Analysis (2)

• From “Developing Business Strategies”, David A. Aaker – Suggests concentrating your efforts in 4 areas:

• The reasons behind successful as well as unsuccessful firms

• Prime customer motivators• Major component cost• Industry mobility barriers

• Competitive advantage• Create a Competitive Strength table

– Product, Distribution, Pricing, Promotion and Advertising

17

Design and Development Plan

• Purpose– Provide investors with a description of the

product’s design– Chart its development with the context of

production, marketing and the company itself– Create a development budget

1. Product development2. Market development3. Organizational development4. Assessment of risks

18

Operations and Management Plan

• Purpose–Describe how the business functions on a

continuing basis• The logistics of the organization – Different responsibilities of the management team– The tasks assigned to each division

• Financial Table– The operation expense table– The capital requirements table– The cost of goods table

19

Financial Components (1)

1. Income Statement2. Cash Flow Statement3. Balance Sheet

• Income statement– A simple and straightforward report – Business’s card-generating ability– Draws information from the various financial models– Monthly basis in 1st year, quarterly in 2nd and annually for

each year thereafter– Income; Cost of goods; Gross Profit Margin; Operating

expenses; Total expenses; Net profit; Depreciation; New Profit before interest; Interest; Net Profit before tax; Taxes; Profit after taxes

20

Income Statement1. Income. Includes all the income generated by the business and its sources.2. Cost of goods. Includes all the costs related to the sale of products in inventory.3. Gross profit margin. The difference between revenue and cost of goods. Gross profit

margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue.

4. Operating expenses. Includes all overhead and labor expenses associated with the operations of the business.

5. Total expenses. The sum of all overhead and labor expenses required to operate the business.

6. Net profit. The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities.

7. Depreciation. Reflects the decrease in value of capital assets used to generate income. Also used as the basis for a tax deduction and an indicator of the flow of money into new capital.

8. Net profit before interest. The difference between net profit and depreciation.9. Interest. Includes all interest derived from debts, both short-term and long-term.

Interest is determined by the amount of investment within the company.10. Net profit before taxes. The difference between net profit before interest and

interest.11. Taxes. Includes all taxes on the business.12. Profit after taxes. The difference between net profit before taxes and the taxes

accrued. Profit after taxes is the bottom line for any company.

21

Financial Components (2)

• Cash Flow Statement– Showing how much cash will be needed, when

it is going to be required and from where it will come

– Shows a schedule of the money coming into business and expenses need to be paid

22

Cash Flow Statement

1. Cash sales. Income derived from sales paid for by cash.2. Receivables. Income derived from the collection of receivables.3. Other income. Income derived from investments, interest on loans that have been extended, and

the liquidation of any assets.4. Total income. The sum of total cash, cash sales, receivables, and other income.5. Material/merchandise. The raw material used in the manufacture of a product (for manufacturing

operations only), the cash outlay for merchandise inventory (for merchandisers such as wholesalers and retailers), or the supplies used in the performance of a service.

6. Production labor. The labor required to manufacture a product (for manufacturing operations only) or to perform a service.

7. Overhead. All fixed and variable expenses required for the production of the product and the operations of the business.

8. Marketing/sales. All salaries, commissions, and other direct costs associated with the marketing and sales departments.

9. R&D. All the labor expenses required to support the research and development operations of the business.

10. G&A. All the labor expenses required to support the administrative functions of the business.11. Taxes. All taxes, except payroll, paid to the appropriate government institutions.12. Capital. The capital required to obtain any equipment elements that are needed for the generation

of income.13. Loan payment. The total of all payments made to reduce any long-term debts.14. Total expenses. The sum of material, direct labor, overhead expenses, marketing, sales, G&A,

taxes, capital and loan payments.15. Cash flow. The difference between total income and total expenses. This amount is carried over to

the next period as beginning cash.16. Cumulative cash flow. The difference between current cash flow and cash flow from the previous

period.

23

Financial Components (3)

• Balance Sheet– Generated solely on an annual basis for the

business plan and is more or less a summary of all the preceding financial information• Assets

– Cash; Accounts receivable; Inventory; Total current assets

• Liabilities• Shareholder’s Equity

24

Steps to a Great Business Plan

• 8 steps to produce a plan1. Review two sample plans furnished.2. Focus and refine your concept based on the data you have

compiled.3. Gather all the data you can on the feasibility and the

specifics of your business concept.4. Outline the specifics of your business. Using a “what,

where, why, how” approach might be useful.5. Include your experience, education and personal

information.6. Fill in the templates at the end of each session with clear

language and realistic projections.7. Print off the business plan templates into an MS Word

document.8. You may wish to enhance your presentation with bar charts,

pie charts and graphics.

25

What to avoid in your Business Plan

• Place some reasonable limits on long-term, future projections

• Avoid optimism• Avoid language or explanations that are

difficult to understand• Don't depend entirely on the uniqueness

of your business or even a patented invention

26

Does your plan include the following factors?

• A Sound Business Concept• Understanding of Your Market• A Healthy, Growing and Stable Industry• Capable Management• Able Financial Control• Financial Management Skills• A Consistent Business Focus• A Mind set to Anticipate Change• Include Plans for Conducting Business

Online

27

Top 10 Do’s and Don’tsTHE TOP TEN DO'S THE TOP TEN DON'TS

Prepare a complete business plan for any business you are considering

Be optimistic in estimating future sales

Use the business plan templates supplied Be optimistic in estimating future costs

Your business plan as you proceed through the course

Disregard or discount weaknesses in your plan

Research (use search engines) to find business plans that are available on the Internet

Stress long-term projections. Better to focus on projections for your first year.

Package your business plan in an attractive kit as a selling tool

Depend entirely on the uniqueness of your business or the success of an invention

Submit your business plan to experts in your intended business for their advice

Project yourself as someone you're not. Be brutally realistic.

Spell out your strategies on how you intend to handle adversities

Be everything to everybody. Highly focused specialists usually do best.

Spell out the strengths and weaknesses of your management team

Proceed without adequate financial and accounting know-how

Include a monthly one-year cash flow projection Base your business plan on a wonderful concept

Freely and frequently modify your business plans to account for changing conditions

Pursue a business not substantiated by your business plan analysis

28

The End

Thank you !