THE BUSINESS PLAN

CREATING & STARTING THE VENTURE

Class Room Instructor: Sharad Kamra, Visiting Faculty , Entrepreneurship, IIPM-Jaipur

Source : Arya Kumar, BITS, Pilani

THE BASIC DEFINITION

A written document describing all relevant internal and external elements and strategies for starting a new venture. Should address both short-term & longterm decision making for the first few years.

WHO READS THE PLAN ?

Venture Capitalists Employees Investors Bankers Suppliers Customers Advisors Consultants

Three Important Perspectives to be Considered while preparing the plan

1) Perspective of the Entrepreneur 2) Marketing Perspective (Customer point of view) 3) Perspective of the Investor (Sound financial projections needed)

Evaluation of the Plan Investors Perspective

Ability of the new venture to give the expected returns within a specific period of time. Objective analysis of the Business Opportunity Potential Risks involved in the Venture 1) Character

2) Cash Flow
3) Collateral 4) Equity Contribution

INFORMATION NEEDS
The NEED for Information exists in every part of the Business-Plan. Firstly define the goals and objectives of your Venture. Then the Goals will define the Needs. Frame the processes to fulfill the Needs. Then identify the appropriate sources for information regarding these processes.

Market Information
Firstly Define the Market (e.g. For men or women? For rural or urban ?) Assess the Market Potential Project subsequent Market goals for the new venture. Trade Associations Government Reports Publishes Studies Economic Surveys Available Market Survey Reports Industry Trend Reports Expert Reviews INTERNET

Operations Information Needs

Location Manufacturing Operations Raw Materials Equipment Labor Skills Space Overhead

Financial Information Needs

1. Expected Sales & Expense figures for at least 1st three years 2. Cash flow figures for the 1st three years 3. Current Balance sheet figures & pro forma balance sheets for 1st three years

INTERNET as a TOOL
U have to master the Art of GOOGLing !!!

WRITING THE BUSINESS PLAN

Introduction Executive Summary Industry Analysis Description of Venture Operational Plan Marketing Plan Organizational Plan Risk Analysis Financials Exit Strategy

Introduction
Name & Address of the Company Name (s) of the Entrepreneur (s) [telephone numbers, e-mail address, etc] A paragraph describing the Company & nature of the Business Financial Statement [VCs generally prefer structuring this by themselves] Statement of CONFIDENTIALITY

INDUSTRY ANALYSIS
Future Outlook & Trends on National & International level
Economic Technological Legal Political

Total Industry sales in the past 5 yrs Anticipated growth in the Industry Factors influencing the Industry

INDUSTRY ANALYSIS
Competition Analysis
How many new firms have entered this industry in the past 3 yrs ?
New products that have been recently introduced in this industry Nearest Competitors How will your Business Operation be better than the existing ones ?

Strengths & Weaknesses of each Competitor

INDUSTRY ANALYSIS
Market Segmentation Who is my Customer ?? Trends in the Specific Market area Profile of the Target Customer

Industry Forecasts
Extrapolating historical data Analyzing factors influencing the Industry & their affects

Description of Venture
Mission of the new Venture Reasons for getting into this Business Prospects of Succeeding in the Business & Reasons Amount of Development work Completed to Date Describe your Product(s)/Service(s) [Patent , Copyright or Trademark Status]

Description of Venture
Size of Business A step by step description regarding the scale at which the Business will be started and scaled up or down further along the timeline. Infrastructure Office equipment & Personnel, Location , Site , Building etc. Background of Entrepreneurs A detailed description of the Attributes , Skill sets and Past Experiences of the Entrepreneurs.

Operational Plan /(Production Plan)

Manufacturing Process
Contractors or Subcontractors Reasons for selecting them Costs of Subcontracted Manufacturing [Include copies of written contracts or Quotations Layout of Production Process [step by step] Machinery & Infrastructure required Cost analysis & Sources of Machinery & Infrastructure Raw material required Details of Raw Material Suppliers Alternatives during Emergencies [on supply or demand sides] Future Capital Requirements (for further scaling etc.)

Operational Plan
For a Service or Retail Operation
Details of Suppliers [Include copies of Contracts or Quotations] How will the Inventory Control System operate A Blue Print of the Entire Operational Plan from SUPPLIERCOMPANYEND USER Technology Deployed in the Operations Storage Needs Chronologically the steps involved in a Business Transaction

Marketing Plan
Describes market conditions & strategy related to how products & services will be Distributed, Priced & Promoted. Critical Marketing Strategy decisions & sales forecasts should be supported with appropriate Market Research evidences. Potential Investors regard the Marketing Plan as critical to the Success of the Venture as it gives them a clear picture of the Goals of the Venture & the Strategies to be implemented to achieve them.

Organizational Plan
Helps Investor understand who controls the organization and how other member will interact in performing their management functions
Form of Ownership Identification of Partners & Principal Shareholders Authority of Principals Management-Team Background Roles & responsibilities of members of the organization A legible & well defined Organizational Chart

Risk Analysis
Firstly indicate the potential risks to the new venture Analyze the probable consequences if these risks become reality

Develop a Contingency Plan that will be employed to Avoid or Minimize the Risks.

Risk Analysis
TYPES OF RISKS INVOLVED : Economic / Financial Legal Operational Marketing Growth Competitor

(BREAK EVEN ANALYSIS)

EXECUTIVE SUMMARY
Its the 1st Eye catcher for your B-Plan Its synopsis of the key points of the entire business plan & should inform as well as Excite the reader.

After reading the Executive Summary if the VC or the Investor is eager to know more, the executive summary has done its job

EXECUTIVE SUMMARY
COMPONENTS !!!
The Concept & Opportunity Product or Service description The Market The Management Team Financial Requirements Risks Involved Exit Strategy

EXECUTIVE SUMMARY
. Lacking a specific focus . Trying to be all inclusive . No unique opportunity . Failing to outline the terms of the investment sought . Failing to generate enthusiasm in the reader . Make general and unsubstantiated claims . Using wordy and unorganized language

COMMON MISTAKES !!

EXIT STRATEGY
.Its not about shutting down your business but exiting your business systematically. .Includes a strategy for investors to cash out. .Assures investors of his interests being taken care of. .Projects you as a long term planner.

APPENDIX
Contain back up Material Supporting Letter Market Research data Leases or Contracts Price Quotations from Suppliers etc. Agreement Letters

Why some B-Plans FAIL ??

Goals set are unreasonable Goals arent measurable The entrepreneur hasnt made a total commitment to the Business Lack of Experience in the planned Business Lacking sense of Potential threats or weaknesses to the business No customer need was established for the proposed product or service