IFTF Conference - How to Develop an Effective Business Plan
Demystifies business plan writing for entrepreneurs and start-ups.
<ul><li> 1. How to Develop an EffectiveBusiness Plan</li></ul><p> 2. Why a Business Plan?The preparation of a business plan is asystematic approach to timely identifystrengths and weaknesses of a businessopportunity and to pinpoint (further)opportunities and risks to allow formaximum identification of risk mitigationOften emphasized reasons of entrepreneurs to write a business plan: Clarifying the direction of the company both internally as well as externally Put the company down to paper Requirement to acquire capital, bank-financing Identifying what the company can and wants to achieve with the specific businessopportunity 3. Goals to make a business plan can be internalas well as external INTERNALEXTERNAL - To provide clarity on the - Potential investors goals and prioritization of - Bank-financing credit team a business opportunity to - SuppliersPLAN all personnel involved- Customers - Steakholders - Subsidy providers - To change attitudes of- PR (Public Relations) certain key figures within- Effective way to introduce the business the company opportunity to potential partners andPROCESScandidates for key roles/jobs This presentation will mainly take the internal, planning perspective 4. Business Plan 10 Key Components 1.Executive Summary 2.General Company Description 3.Products and Services 4.Marketing Plan 5.Operational Plan 6.Management and Organization 7.Financial Plan 8.Capitalization 9.Further opportunities, threats and the mitigation of risks 10. Appendices 5. 1. Executive Summary: PointersThe Executive Summary aims to explain the fundamentals of theproposed business Write this section last Make it two pages or fewer. Include everything that you would cover in a five-minute interview Make it enthusiastic, professional, complete, and concise If applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment. Include key numbers in the executive summary to summarize the opportunity as tangible as possible 6. 2. Company and Industry Description1. What business will you enter / expand?2. Where do you plan to make money? What will you do?3. How can profits be raised quickly?4. How to build long term value?5. Is it a good industry to be in?6. What do / would customers think?7. How strong are your competitive positions?8. What about the competitors?Describe your companys core strengths and competencies,key success factors. Quantify objectives and goals 7. 2. Clarify competitive strength of the proposition Is it a growth industry? What changes do youforesee in the near andlong-term future? How can the companytake advantage ofanticipated changes inthe industry? Porters five forces model 8. 3. Products and ServicesDescribe in depth your products or services in terms of what it is that you will offer to(each) of the (different) target customer(s).Explain what needs of the target customer are fullfilled by the product / services.Describe the benefits of the product / services. What is special about it?What factors will give you competitive advantages or disadvantages?Include level of quality, unique or proprietary features.Explain (potential) substitutes of the products and services.Technical specifications, drawings, photos, sales brochures, and other bulky items belong in Appendices 9. 4. Marketing PlanDescribe the market that you will act in.After you have described your targeted product / market combinations, its important toput the marketing plan into its perspective: What is the total size of your market? What percent share of the market do you target? Detail the current demand in the target market. Trends in target marketgrowth trends, trends in consumer preferences, and trendsin product development. Growth potential and opportunity for a business of your size. What barriers to entry do you face in entering this market with your new company? And of course, how will you overcome the barriers?Also detail the target customers here in terms of their characteristics,geographic locations, other demographic factors etc. 10. 4. Marketing Plan: 5 PsIn light of your niche, the unique corner of the market that you intend to occupy; define the differentcomponents of your marketing strategy in addition to the product / services you plan to offer: Pricing Strategy- What prices do you plan to set?- How does it compare in the market?- Differentiation of pricing for different customers- Fee structure, commissions, e.g. leasing structure of your products and services. Proposed Location and Distribution Channel Strategy- If your locations are a key component of your market strategy, explain/define the profile of the(sought) locations.- Direct / indirect sales (internet, agents, own stores, other stores)- How to approach the customer Promotion Strategy- Explain how you plan to launch and further support the product / services into the market.- Promotional budget Packaging and quality control 11. 4. Marketing Plan: Research to support your marketing strategy Market research Why?You need to do market research to make sure youre on track. Use the business planningprocess as your opportunity to uncover data and to question your marketing efforts. Market research How?There are two kinds of market research: primary and secondary. Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. Primary research means gathering your own data. In most of the markets represented relatively little quantitative research is beingconducted to support business. Governments and banks are usually the most complete. 12. 4. Marketing Plan: Sales forecast The forecast should be based on your historical sales, the marketing strategies that you have just described, your market research, and industry data, where available. You will want to prepare at least two forecasts:1) a "best guess", which is what youreally expect,2) a "worst case" low estimate that youare confident you can reach no matter what happens. The sales forecast encompasses a period of at least three yearswith a high degree of detail for the first year, while addressingthe different targeted product / market combinations. 13. 4. Marketing Plan: Analyse your competitionWhat products and companies will compete with you? List your major competitors. FactorMe Strength Weakness Competitor A Competitor B Importance to Customer C Products o Price m Quality p e Selection t Service i t Reliability i Stability v Expertise e Company A Reputation n Location a Appearance l y Sales Method s Credit Policies i s Advertising ImageAdd any further factors where appropriate 14. 5. Operational PlanExplain the daily operation of the business, its location, equipment, people,processes, and surrounding environment. Production: How and where are your products or services produced? Suppliers Sales or Distribution / Location: What qualities do you need in a location? Describe the type of location(s) youll have. Inventory Legal Requirements- Licenses permits- Trademarks Number of employees as Full Time Equivalent Credit Policies- Managing Your Accounts Receivable- Managing Your Accounts Payable What is your foreign currency exposure? 15. 5. Operational / Delivery PrinciplesDelivery principles define where you will put emphasis and focus for each of the keyprocesses in your company. They tie into your overall and into you marketingstrategy; for example: Product Delivery; Supply Chain this maybe only make, only buy or both, describe conditions for potential change over time e.g. Leveraging your other business(es) Sales and distribution process through wholesalers, partners, agents, stores, internet. Explain why and how and the conditions how to divide up the business Discount policy, which discounts in which situations the use of internet, social media In delivery principles the entrepreneur (s) can demonstrate their well-understanding of the market, the business they want to enter in 16. Proposed Organization of the BusinessOpportunity Provide the organogram at key-milestone moments inthe development of the company and include anoverview of the amount and development of functions /key roles over time. Describe the hiring process if this is a key point to yourbusiness propositionThink through the profile and training / education needs. Use industry retention rates in personnel intensebusiness propositions. Key roles Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Total New hires 17. 6. Management and Organization: The Entrepreneur(s)Who will manage the business on a day-to-day basis? What experience do thatkey-person(s) bring to the business? What special or distinctive competencies? Isthere a plan for continuation of the business if this person is lost or incapacitated? List the following professional and advisory support: * Board of directors * Management advisory board * Attorney * Accountant * Insurance agent * Banker * Consultant or consultants * Mentors and key advisors 18. 7. Financial Plan: 12 month P&L IND. % YEARL% Oca.08 B/A Feb-08 % Mar-08 % Apr-08 % May-08 % Jun-08 % Jul-08 % Aug-08 % Sep-08 % Oct-08 % Nov-08 % Dec-08 % Y % Revenue (Sales) Category 1------------ 0 - Category 2------------ 0 - Category 3------------ 0 - Category 4------------ 0 - Category 5------------ 0 - Category 6------------ 0 - Category 7------------ 0 - Total Revenue (Sales) 0 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,0 0 0,0 Cost of Sales Category 1------------ 0 - Category 2------------ 0 - Category 3------------ 0 - Category 4------------ 0 -The financial plan Category 5------------ 0 - Category 6------------ 0 - Category 7------------ 0 - Total Cost of Sales 0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 - 0 - is at the heart ofGross Profit Expenses 0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 - 0 -the viability of the Salary expenses ------------ 0 - Payroll expenses------------ 0 - Outside services------------ 0 - Supplies (office andbusiness operating)------------ 0 - Repairs and maintenance ------------ 0 - Advertising ------------ 0 -opportunityCar, delivery and travel Accounting and legal Rent Telephone - - - ----- - - - ----- - - - ----- - - - ----- - - - ----- - - - -----0000---- Utilities ------------ 0 - Insurance ------------ 0 - Taxes (real estate, etc.) ------------ 0 - Interest------------ 0 - Depreciation------------ 0 - Other expenses (specify)------------ 0 - Other expenses (specify)------------ 0 - Other expenses (specify)------------ 0 - Misc. (unspecified)----------- 0 - Total Expenses0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 - 0 - Net Profit0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 -0 - 0 - 19. 7. P & L, Cash Flow, Balance Sheet! Three-Year Profit ProjectionThe 12-month projection is the heart of your financial plan. External investors demand alonger time horizon and it provides for good business and planning practise to project at theleast 3 years. Projected Cash FlowIf the profit projection is the heart of your business plan, cash flow is the blood. Businessesfail because they cannot pay their bills. Suppliers may demand extra guarantees that lockup capital, customers may demand certain privileges at startup and the like. Opening Day Balance Sheet and Following Annual Balance SheetsA balance sheet shows what items of value are held by the company (assets), and what itsdebts are (liabilities). The balance sheet development process forces to check the internalconsistency and integrity of the projections and by ways of ratio comparison identifiespotential opportunities and threats. 20. 7. Financial Plan: Break Even Analysis for Start up BusinessA break-even analysis predicts the sales volume, at a given price, required torecover total costs. Expressed as a formula, break-even is: Sales = Fixed + Variable CostUnder different sales forecasts the anticipated time to break even (Paybackperiod) will differ. It is important to ensure acceptable levels; this is anotherviability check. 21. 8. Capitalization of your business proposition In case of a startup business, you will have many expenses before you even begin operating your business. Its important to estimate these expenses accurately and then to plan where you will get sufficient capital. This is a research project, and the more thorough your research efforts, the less chance that you will leave out important expenses or underestimate them. Explain your research and how you arrived at your forecasts of expenses. Give sources, amounts, and terms of proposed loans. Also explain in detail how much will be contributed by each investor and what percent ownership each will have. Provide a start up cash-injection overview, over time and run scenarios if sufficient capital is key to the start up of the business. 22. 8. Capitalization: Personal Financial StatementOwners will often have to draw on personalassets to finance the business. Thesestatements will show what is available.Bankers and investors usually want thisinformation as well. 23. 9. Sensitivity AnalysisPlay around with your financial excels to understand which differences have thelargest impact. Then go back to the earlier chapters in your plan to address thesepotential opportunities and threats.- Check on different sales outcomes (lower realized price, less customers, smallerbasketsize per customer).- Possible actions of other players- Changes in enviroment (legal, technology, ..)Create a negative scenario set of financials and check capitalization and returnon capital versus your opportunity cost.Put your money in the bank or in this business opportunity? 24. 10. AppendicesInclude details and studies used in your business plan; for example: Brochures and advertising materials Industry studies Blueprints and plans Maps and photos of location Magazine or other articles Detailed lists of equipment owned or to be purchased Copies of leases and contracts Letters of support from future customers Any other materials needed to support the assumptions in this plan Market research studies List of assets available as collateral for a loan 25. 11. Refining The Plan: Manufacturing business Planned production levels Anticipated levels of direct production costs and indirect (overhead) costs-how dothese compare to industry averages (if available)? Prices per product line Gross profit margin, overall and for each product line Production/capacity limits of planned physical plant Production/capacity limits of equipment Purchasing and inventory management procedures New products under development or anticipated to come online after startup 26. 11. Refining The Plan: Service business Service businesses sell intangible products. They are usually more flexible thanother types of businesses, but they also have higher labor costs and generally verylittle in fixed assets. What are the key competitive factors in this industry? Your prices Methods used to set prices System of production management...</p>