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DEVELOPING

EFFECTIVE BUSINESS

PLAN

Lecture 4/1

Subject Code: BE 447

ENTREPRENEURSHIPDEPT - ARCHITECTURE

ARDHI UNIVERSITY

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Index

Business Plan Overview

Definition of Business Plan

Importance of a Business Plan

Elements and Descriptions of a Business Plan

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One venture capitalist once said,One venture capitalist once said,

The risks in entrepreneurship are you,The risks in entrepreneurship are you,your team and any fundamentalyour team and any fundamental

flaws in your venture idea.flaws in your venture idea.

You must make a reasonableYou must make a reasonable

first evaluation of these risks whenfirst evaluation of these risks whenyou are planning and developingyou are planning and developing

business plan for yourbusiness plan for your

new venturenew venture

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Business Plan Overview

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IntroductionIntroduction

Planning is essential to the success of anyPlanning is essential to the success of anyundertaking, planning entails the formulationundertaking, planning entails the formulation

of goals, objectives and directions for theof goals, objectives and directions for the

future of a venture.future of a venture.

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Critical factors in planning areCritical factors in planning are

Realistic Goals

Realistic Goals

These must be specific, measurable, and setThese must be specific, measurable, and set

within time parameters.within time parameters.

CommitmentCommitment

All involvedAll involved family, partners, employees,family, partners, employees,and team members, must support theand team members, must support the

venture.venture.

MilestonesMilestones

Sub goals must be set for continual andSub goals must be set for continual andtimely evaluation of progress.timely evaluation of progress.

FlexibilityFlexibility

Obstacles must be anticipated and alternativeObstacles must be anticipated and alternative

strategies must be formulated.strategies must be formulated.

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What Business Plan will do for youWhat Business Plan will do for you

There are several things that the businessThere are several things that the businessplan will accomplish for you. These are;plan will accomplish for you. These are;

1.1. It will act as a road map.It will act as a road map.

2. It will assist you with management tool.2. It will assist you with management tool.

3. It will help you in briefing new employees3. It will help you in briefing new employees

and other personnel.and other personnel.

4. It will help you to obtain financing.4. It will help you to obtain financing.

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Definition of a Business

Plan

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A business planA business plan

Business plan is the written document thatBusiness plan is the written document thatprovides details of the proposed venture. Itprovides details of the proposed venture. It

must illustrate:must illustrate: --

Current status,Current status,Expected needs, andExpected needs, and

Projected results of the new business.Projected results of the new business.

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Every aspect of the venture needs to beEvery aspect of the venture needs to be

describeddescribed the project, marketing, researchthe project, marketing, research

and development, manufacturing,and development, manufacturing,management, critical risks, financing, andmanagement, critical risks, financing, and

milestones or timetable.milestones or timetable.

A description of all of these facts of theA description of all of these facts of theproposed venture is necessary toproposed venture is necessary to

demonstrate a clear picture of what thatdemonstrate a clear picture of what that

venture is, where it is projected to go, andventure is, where it is projected to go, and

how the entrepreneur proposes it will gethow the entrepreneur proposes it will get

there. Business plan is the entrepreneursthere. Business plan is the entrepreneurs

roadmap for a successful enterprise.roadmap for a successful enterprise.

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In some professional areas theIn some professional areas the

business plan is referred to as a venture plan,business plan is referred to as a venture plan,

or a loan proposal, or investment prospectus.or a loan proposal, or investment prospectus.Whatever the name, business plan is theWhatever the name, business plan is the

minimum document that is required by anyminimum document that is required by any

financial course.financial course.

Emphasis of the business plan shouldEmphasis of the business plan should

always be the financial implementation ofalways be the financial implementation of

the venture.the venture.

NOTENOTE: it is not just writing of an effective plan: it is not just writing of an effective plan

that is important, but also translation of thethat is important, but also translation of the

plan into a successful enterprise.plan into a successful enterprise.

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Importance of a Business

Plan

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Importance of Business PlanImportance of Business Plan

The entire businessThe entire business planning processplanning processforces the entrepreneur to analyze allforces the entrepreneur to analyze all

aspect of the venture and prepare anaspect of the venture and prepare an

effective strategy to deal witheffective strategy to deal with

uncertainties that may arise.uncertainties that may arise.

Thus a business plan may help anThus a business plan may help an

entrepreneur to avoid a project that isentrepreneur to avoid a project that is

doomed to failure.doomed to failure.

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There are benefits derived fromThere are benefits derived from

business plan forbusiness plan for bothboth, the entrepreneur and, the entrepreneur and

financial sources that read and evaluatefinancial sources that read and evaluateventure.venture.

Benefits that entrepreneurs gain;Benefits that entrepreneurs gain;

1.Time, effort, research and discipline needed1.Time, effort, research and discipline needed

to put together a formal business planto put together a formal business planforces the entrepreneur to view the ventureforces the entrepreneur to view the venture

critically and objectively.critically and objectively.

2. Competitive, economic, and financial2. Competitive, economic, and financialanalyses included in the business plananalyses included in the business plan

subject entrepreneur to close scrutiny ofsubject entrepreneur to close scrutiny of

his/her assumptions about the success ofhis/her assumptions about the success of

the venture.the venture.

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3. Since all aspects of the business venture3. Since all aspects of the business venture

must be addressed in the plan,must be addressed in the plan,

entrepreneur develops and examinesentrepreneur develops and examinesoperating strategies and expected results fitoperating strategies and expected results fit

outside evaluators.outside evaluators.

4. Business plan quantifies goals and4. Business plan quantifies goals and

objectives, providing measurableobjectives, providing measurable

benchmarks fit comparing forecasts withbenchmarks fit comparing forecasts with

actual results.actual results.

5. A complete business plan provides5. A complete business plan providesentrepreneur with a communication tool forentrepreneur with a communication tool for

outside financial sources as well as anoutside financial sources as well as an

operational tool for guiding the ventureoperational tool for guiding the venture

toward success.toward success.

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Benefits that financial sources gainBenefits that financial sources gain

The financial sources that read business planThe financial sources that read business planderive the following benefits from it:derive the following benefits from it: --

1.1. Business plan provides to financial sourcesBusiness plan provides to financial sources

details of the market potential and plans fordetails of the market potential and plans forsecuring a share of the market.securing a share of the market.

2. Through prospective financial statements,2. Through prospective financial statements,

business plan illustrates ventures ability tobusiness plan illustrates ventures ability toservice debt or provide an adequate returnservice debt or provide an adequate return

on equity.on equity.

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3. Plan identifies critical risks and crucial3. Plan identifies critical risks and crucial

events with discussion of contingency plansevents with discussion of contingency plans

that provides opportunity for venturesthat provides opportunity for venturessuccess.success.

4. Providing comprehensive overview of entire4. Providing comprehensive overview of entire

operation, business plan gives necessaryoperation, business plan gives necessary

information for a thorough business andinformation for a thorough business andfinancial evaluation.financial evaluation.

5. Financial source with no prior knowledge of5. Financial source with no prior knowledge of

the entrepreneur or the venture, businessthe entrepreneur or the venture, businessplan provides a useful guide to assessingplan provides a useful guide to assessing

the individual entrepreneurs planning andthe individual entrepreneurs planning and

managerial ability.managerial ability.

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Elements and Descriptions

of a Business Plan

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A detailed business plan has 10 sections. IdealA detailed business plan has 10 sections. Ideal

plan is 40pg, and can range from 40plan is 40pg, and can range from 40--100pg.100pg.

Elements of a Business Plan are:Elements of a Business Plan are: --1. Executive summary1. Executive summary

2. Background & description ofBusiness2. Background & description ofBusiness

3. Marketing segment3. Marketing segment

4. Research, design & development4. Research, design & development

segmentsegment

5. Manufacturing segment5. Manufacturing segment

6. Management segment6. Management segment

7. Critical Risk Segment7. Critical Risk Segment

8. Financial segment8. Financial segment

9. Milestone schedule segment9. Milestone schedule segment

10. Appendix/Bibliography segment.10. Appendix/Bibliography segment.

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1.1. The Executive SummaryThe Executive Summary

The Executive Summary is an overall view ofT

he Executive Summary is an overall view ofyour business and its potential, including:your business and its potential, including:

What you want to do,What you want to do,

How much money you need,How much money you need, How much money the business will make,How much money the business will make,

Return on investment (ROI),Return on investment (ROI),

How and when the investor will get hisHow and when the investor will get his

investment return.investment return.

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2. Background and Description of2. Background and Description of

BusinessBusiness

In this paragraph you should indicate:In this paragraph you should indicate: Name of the venture should be identified,Name of the venture should be identified,

The industry backgroundThe industry background

New venture should be thoroughlyNew venture should be thoroughly

described along with its proposed potential.described along with its proposed potential. Advantages the new venture possessesAdvantages the new venture possesses

over the competition should be discussedover the competition should be discussed

at length. This discussion may include:at length. This discussion may include:

Patents,Patents, Trade marks,Trade marks,

CopyrightsCopyrights

Special technological/market advantages.Special technological/market advantages.

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3.3. Marketing SegmentMarketing Segment

In the marketing segment of the report theIn the marketing segment of the report theentrepreneur must convince the investorsentrepreneur must convince the investors

that there is a market, that salesthat there is a market, that sales

projections can be achieved, investors thatprojections can be achieved, investors that

there is a market, that sales projectionsthere is a market, that sales projectionscan be achieved, and that the competitioncan be achieved, and that the competition

can be beaten.can be beaten.

This part of the plan is often one of the mostThis part of the plan is often one of the most

difficult to prepare. It is also one of thedifficult to prepare. It is also one of the

most critical because almost all themost critical because almost all the

subsequent sections of the plan depend onsubsequent sections of the plan depend on

the sales estimated developed here.the sales estimated developed here.

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4. Research, Design and Development4. Research, Design and Development

SegmentSegment

The extent of any research, design, andThe extent of any research, design, and

development in regard to cost time anddevelopment in regard to cost time and

special testing should be covered in thisspecial testing should be covered in this

segment. Investors need to know thesegment. Investors need to know thestatus of the project, in terms of thestatus of the project, in terms of the

prototypes, lab tests, and schedulingprototypes, lab tests, and scheduling

delays.delays.

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5.5. The Manufacturing SegmentThe Manufacturing Segment

This segment should always begin byT

his segment should always begin bydescribing the location of the new venture.describing the location of the new venture.

The chosen site should be appropriate inThe chosen site should be appropriate in

terms of:terms of:

Labor availability,Labor availability, Wage rate,Wage rate,

Proximity to suppliers and customers andProximity to suppliers and customers and

Community support.Community support.

In addition, local taxes, and zoningIn addition, local taxes, and zoning

requirements should be sorted out, and therequirements should be sorted out, and the

support of area banks for new venturessupport of area banks for new ventures

should be touched upon.should be touched upon.

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6.6. The Management SegmentThe Management Segment

This segment identifies key personnel, theirThis segment identifies key personnel, their

position and responsibilities, and the careerposition and responsibilities, and the careerexperiences that qualifies them for thoseexperiences that qualifies them for those

particular roles. Entrepreneurs role in theparticular roles. Entrepreneurs role in the

venture should be clearly outlined.venture should be clearly outlined.

In summary, there should be sufficientIn summary, there should be sufficient

discussion so that investors can understanddiscussion so that investors can understand

each of following critical factors:each of following critical factors:

Organizational structure,Organizational structure, Management team and critical personnel,Management team and critical personnel,

Experience and technical capabilities of personnel,Experience and technical capabilities of personnel,

Ownership structure and compensationOwnership structure and compensation

agreements,agreements,

Board of Directors, outside consultant, advisersBoard of Directors, outside consultant, advisers

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7.7.Critical Risk SegmentCritical Risk Segment

In this segment, potential risks such as theIn this segment, potential risks such as thefollowing should be identified:following should be identified:

Effects of unfavorable trends in theEffects of unfavorable trends in the

industry,industry, Design or manufacturing costs that haveDesign or manufacturing costs that have

gone over estimates,gone over estimates,

Difficulties on long lead times encounteredDifficulties on long lead times encountered

in purchasing parts of materials,in purchasing parts of materials, New competition that was not planned for.New competition that was not planned for.

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8.8. The Financial SegmentThe Financial Segment

The financial segment of a business planThe financial segment of a business planmust demonstrate the potential viability ofmust demonstrate the potential viability of

the undertaking. In this part of the plan,the undertaking. In this part of the plan,

three basic financial statements must bethree basic financial statements must be

prepared for and presented namely:prepared for and presented namely:

The pro forma balance sheet,The pro forma balance sheet,

The income statement,The income statement,

The cash flow statements.The cash flow statements.

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9.9. The Milestone Schedule SegmentThe Milestone Schedule Segment

The Milestone Schedule Segment providesThe Milestone Schedule Segment providesinvestors with a timetable for the variousinvestors with a timetable for the various

activities to be accomplished.activities to be accomplished.

It is important to demonstrate that realisticIt is important to demonstrate that realistictime frames have been planned and thattime frames have been planned and that

the interrelationship of events within thesethe interrelationship of events within these

time boundaries is understood.time boundaries is understood.

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10.10.Appendix and/or Bibliography SegmentAppendix and/or Bibliography Segment

The final segment is not mandatory, but isT

he final segment is not mandatory, but isallows for additional documentation that isallows for additional documentation that is

not appropriate in the main parts of thenot appropriate in the main parts of the

plan.plan. E.g.E.g. Diagrams, blueprints, financialsDiagrams, blueprints, financials

data, vitae of the management teamdata, vitae of the management teammembers, any bibliographical informationmembers, any bibliographical information

that supports the other segments of thethat supports the other segments of the

plan.plan.

It is up to the entrepreneur to decided, which ifIt is up to the entrepreneur to decided, which if

any, item to put into this segment.any, item to put into this segment.

However, the materials should be limited toHowever, the materials should be limited to

relevant and supporting information.relevant and supporting information.

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Thank YouEnd of Lecture 4 BLOK 1

Yes I have to produceYes I have to produce

my ownmy ownbusiness planbusiness plan