Entrepreneurship and Small Business Management Chapter The Business Plan: Road Map to Success Ch Performance Objectives Know what a feasibility analysis is and when to create one Know what a business plan is and how to describe it Explain the various purposes for a business plan and the audience for it Understand the components of a business plan Be able to demonstrate proper development and formatting of a business plan Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 What Is a Feasibility Analysis? A study to assist in making the “go/no go” decision Used to test a business concept in three areas: Product and/or service feasibility Market and industry feasibility Financial feasibility Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Analyzing Product and/or Service Feasibility Can the product or service be produced and delivered at a profit, in an ongoing manner? Is there sufficient customer demand for the product or service? Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Analyzing Market and Industry Feasibility How attractive is the opportunity in the proposed industry? Do any strategic, defensible niches exist in the proposed market? Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Porter’s Five Forces Analysis Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Competitive Rivalry Factors Number of firms Size of firms More Attractive If… Larger or fewer than five Varied Growing rapidly Differentiation matters Industry size/trend Differentiation Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Barriers to Entry Factors Capital requirements Cost advantage Economies of scale Switching costs Brand loyalty Distribution channels Public policies More Attractive If… Entrepreneurship and Small Business Management, 1/e Low for entry Not based on firm size Minimal or absent Low cost to change suppliers Customer resistance to change is low Channels established, but open Policies not impede entry; may facilitate entry © 2012 Pearson Education, Upper Saddle River, NJ 07458 Threat of Substitutes Factors More Attractive If… Convenience Not readily available Substitute pricing Prices not significantly lower Supply of substitutes Supply is uneven or limited High cost to change suppliers Make substituting difficult or illegal Switching costs Public policies Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Supplier Power Factors More Attractive If… Brand reputation Not critical Substitutes for supplies Easy substitution Relatively low Small portion of overall costs of finished products Switching costs Impact of individual supplier on costs Entrepreneurship and Small Business Management, 1/e 10 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Business Plan Components Cover page Table of contents Executive summary Mission, vision, and culture Company description Opportunity analysis Marketing strategy and plan Entrepreneurship and Small Business Management, 1/e 15 Management and operations Financial analysis and projections Funding request Exit strategy Appendices © 2012 Pearson Education, Upper Saddle River, NJ 07458 Cover Page and Table of Contents Cover Page Name of the business Name of the principals Date Contact information Confidentiality statement Entrepreneurship and Small Business Management, 1/e Table of Contents 16 Include enough detail to easily find a section Avoid excessive detail which uses too many pages © 2012 Pearson Education, Upper Saddle River, NJ 07458 Executive Summary Should Be: Clear—identify concept and purpose Concise—one to two pages long Comprehensive—answer basic who, what, when, where, and how questions Compelling—generate enthusiasm Written last Entrepreneurship and Small Business Management, 1/e 17 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Mission, Vision, and Culture Mission—concise communication of strategy with a business definition and competitive advantage; expressed in a statement Vision—broad “picture” of what you want the organization to become Culture—beliefs, values, and behavioral norms of the organization which will form the business “environment” Entrepreneurship and Small Business Management, 1/e 18 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Company Description If company is already established… Summary of company’s founding Overview of track record: business progress and financial success If a start-up venture… Brief background story What has been done so far, and why Legal form of the business Entrepreneurship and Small Business Management, 1/e 19 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Opportunity Analysis Industry analysis—definition, size, and growth/decline of the industry Environmental analysis—how community, region, nation, world relates to the business Proof of market—evidence of opportunity in terms of dollars and units Entrepreneurship and Small Business Management, 1/e 20 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Opportunity Analysis (continued) Target market segments—groups defined by common factors such as demographics, psychographics, age, and geography Competitive analysis—comparison of the business to direct and indirect competitors Entrepreneurship and Small Business Management, 1/e 21 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Marketing Strategy and Plan Marketing mix (the Four P’s) Products/Services Pricing Promotion Place Marketing plan—statement of marketing goals and the strategies to achieve them Entrepreneurship and Small Business Management, 1/e 22 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Management and Operations Management team and employees Research and development Physical location(s) of facilities with emphasis on logistics and workforce Production processes Inventory control systems Quality assurance methods Entrepreneurship and Small Business Management, 1/e 23 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Financial Analysis and Projections Sources and uses of capital Cash flow projections Cash flow statement shows cash receipts less cash disbursements over a time period Balance sheet projections Assets = Liabilities + Owner’s Equity Entrepreneurship and Small Business Management, 1/e 24 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Financial Analysis and Projections (continued) Income statements for three years Also called profit and loss statements (P&L) Summarize income and expense activity Breakeven analysis Fixed Cost ($) ÷ Gross Profit per Unit ($) = Breakeven Units Ratio analysis Risks and assumptions Entrepreneurship and Small Business Management, 1/e 25 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Funding Request & Exit Strategy Amount of funds needed Type of financing, including terms Proposed exit scenarios, such as: Buyout plan Initial public offering (IPO) Sold when benchmarks or date reached Succession plan Implementation schedule (milestones) Entrepreneurship and Small Business Management, 1/e 26 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Appendices Management resumes Specifications/photos/diagrams of products and packaging Advertising and promotional samples Detailed financial projections Other supportive materials Entrepreneurship and Small Business Management, 1/e 27 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Business Plan Suggestions Write for your audience Show that you have “skin in the game.” Be clear and concise Use current industry data and reports Select a “voice” and stick with it Use a consistent, easy-to-read format Number and label items throughout the plan Present the plan professionally Entrepreneurship and Small Business Management, 1/e 28 © 2012 Pearson Education, Upper Saddle River, NJ 07458 Presenting the Business Plan Presentations may be formal or informal Presentation time may be limited to between and 20 minutes Prepare an “elevator pitch” (15-30 sec.) Multimedia formats work well in formal situations Business plan competitions may provide cash prizes and access to capital Entrepreneurship and Small Business Management, 1/e 29 © 2012 Pearson Education, Upper Saddle River, NJ 07458 ... market? Entrepreneurship and Small Business Management, 1/e © 2012 Pearson Education, Upper Saddle River, NJ 07458 Porter’s Five Forces Analysis Entrepreneurship and Small Business Management, ... business progress and financial success If a start-up venture… Brief background story What has been done so far, and why Legal form of the business Entrepreneurship and Small Business Management, ... analysis is and when to create one Know what a business plan is and how to describe it Explain the various purposes for a business plan and the audience for it Understand the components of a business