RSM Writing A Business Plan

Writing a
Business
Plan
Prof. R.S.Mathur
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 January
Saturday, the negotiation
22, 2011 presentation.
Prof. R.S.Mathur 2
 Business existed long
before computers,
spreadsheets, and detailed
projections,
 So did business plans

Saturday, January 22, 2011 Prof. R.S.Mathur 3
Its been both ways now and ever…

 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

Traditional vs.
Entrepreneurial Career
Paths High School
High School
University
University Practical Experience
Management Training
Big Company
Well Managed, High Growth Firm
Startup Venture
Another Startup?
Retire
Venture Capital or Angel Investor
Saturday, January 22, 2011 Prof. R.S.Mathur Never really retire 5

Target
Audience for
Business Plans
• VCs / Angel investors
• Bankers
• Financial Institutions
• Potential senior employees
• Attorneys and accountants
• Leasing companies
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.
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

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…

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…
Major Benefits of
a Good BP
cont…
 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….

Major Benefits of
a Good BP
cont…
 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….

Major Benefits of
a Good BP
cont…
 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…

Major Benefits of
a Good BP
cont…
 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.
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:
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.

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.

Product or Service
 Describe what you're selling.
 Focus on customer benefits.

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

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.

Strategy and
Implementation
 Define the business precisely in
terms of:
1. Customer group,
2. Customer function and
3. Alternative technology
 Management responsibilities and
 Budget.
Business Definition
Customer Group
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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.
Marketing Plan
 Focus on how and why prospective
customers will buy from you, and pay you
money.
 Focus on milestones (more than calendar
dates)

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.

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.

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.

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
Possible Financing Options
Entrepreneur’s
Financial
personal
institutions
resources
Financing
Unusual
Angel investors Options resources
Venture Business
capitalists development Public offering
programme
Evaluating Financing Options
Personal Personal Potential
Control Risk Reward
Personal Resources H H H
Financial Institutions
(Debt Financing) L-M L L–M
Venture Capitalists
(Equity-Debt Financing) L–M L L –M
Angel Investors
(Equity Financing) L–M L L–M
Public Offerings
Equity Financing) L L L–H
Business Development
Program L–M L L–M
Unusual Sources L–H L L- H
L – Low M – Medium H - High

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.

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.

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…

What is a financer
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…

What is a financer
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

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

Preparatory Work
• Information collection
• Validation of the
assumptions
• Analysis and planning
• Articulation of your basic
value proposition

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
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
Target Audience for the
Business Plan
 VCs / Angel investors

 Potential senior employees
 Bankers
 Attorneys and accountants
 Leasing companies
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
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
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
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
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
VC Firm’s Annual
Throughput
 10,000 qualified business

plans
 1000 meetings
 400 company visits
 25 new investments
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)

For in a BP ?
 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)

For in a BP ?
 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)

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

Business Plan Sections
1. Executive summary
2. Introduction / Company overview
3. Concept / Proposition / Product description
4. Market opportunity
5. Competition survey
6. Development plan and milestones
7. Marketing plan
8. Team
9. Financials
10. Offer
11. Appendix
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)
Business Concept / Value
Proposition
 Description of the product / service

 Intellectual property protection
 Unique selling points – differentiators
 Unfair advantage over competitors ?

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)

Competition Survey
 Existing competitors
 Substitute products
 Potential competitors
 SWOT analysis

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

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
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
Financials
 Pro forma (Projected) (3 year)

and/or existing financial
statements
 Balance sheet
 Profit and loss statement
 Cash flow statement
 Break even analysis
Offer
 Valuation
 Basis for valuation (P/E, Revenue
multiples)
 Percent of the company for
investment
 Exit routes for the investors
 Capitalization structure
Appendixes
 Endorsement from reference customers
 Letter of Intents from potential customers
 Product block diagrams
 Detailed resumes of the promoters
 Quotations from suppliers
 Survey reports-

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
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
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
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
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

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Writing a

of a business plan based on research and survey.

candidate would finally develop a business plan that can

survey and field work to develop a viable business plan

invitees from financial institutions.

 So did business plans

Saturday, January 22, 2011 Prof. R.S.Mathur 4

University Practical Experience

Saturday, January 22, 2011 Prof. R.S.Mathur Never really retire 5

Saturday, January 22, 2011 Prof. R.S.Mathur 8

Saturday, January 22, 2011 Prof. R.S.Mathur 9

Saturday, January 22, 2011 Prof. R.S.Mathur 11

Saturday, January 22, 2011 Prof. R.S.Mathur 12

Saturday, January 22, 2011 Prof. R.S.Mathur 13

 It summarizes the key elements of the

entire business plan.

Saturday, January 22, 2011 Prof. R.S.Mathur 16

Saturday, January 22, 2011 Prof. R.S.Mathur 17

Saturday, January 22, 2011 Prof. R.S.Mathur 18

Saturday, January 22, 2011 Prof. R.S.Mathur 19

Saturday, January 22, 2011 Prof. R.S.Mathur 20

Saturday, January 22, 2011 Prof. R.S.Mathur 22

Saturday, January 22, 2011 Prof. R.S.Mathur 24

Saturday, January 22, 2011 Prof. R.S.Mathur 25

Saturday, January 22, 2011 Prof. R.S.Mathur 26

Saturday, January 22, 2011 Prof. R.S.Mathur 27

L – Low M – Medium H - High

Saturday, January 22, 2011 Prof. R.S.Mathur 31

Saturday, January 22, 2011 Prof. R.S.Mathur 32

Saturday, January 22, 2011 Prof. R.S.Mathur 33

Saturday, January 22, 2011 Prof. R.S.Mathur 34

Saturday, January 22, 2011 Prof. R.S.Mathur 35

Saturday, January 22, 2011 Prof. R.S.Mathur 36

Saturday, January 22, 2011 Prof. R.S.Mathur 38

 Business plan basics: What? For

 BP is a proper document and not a bunch of

 It documents agreed program of expectations,

 It describes why, how, and when the firm will

 VCs / Angel investors

 Idea / Concept: USD 10K

 Angels would expect higher rate of

 10,000 qualified business

 400 company visits

 Basic value proposition

Saturday, January 22, 2011 Prof. R.S.Mathur 48

Saturday, January 22, 2011 Prof. R.S.Mathur 49

Saturday, January 22, 2011 Prof. R.S.Mathur 50

 BP is a document about 30-35

Saturday, January 22, 2011 Prof. R.S.Mathur 51

 Description of the product / service

Saturday, January 22, 2011 Prof. R.S.Mathur 54

Saturday, January 22, 2011 Prof. R.S.Mathur 55

Saturday, January 22, 2011 Prof. R.S.Mathur 56

 Prototype : How will it look

Saturday, January 22, 2011 Prof. R.S.Mathur 57

 Strategy – selling direct or through

 Team structure – CEO, CFO, CIO, CTO

 Pro forma (Projected) (3 year)

Saturday, January 22, 2011 Prof. R.S.Mathur 62

 Use a simple conversational writing

 Look for spelling mistakes

 Business plan preparation is a serious