Developing A Business Plan
Part Deux
Alan Barefield
Southern Rural Development Center
Mississippi State University Extension
Service
alanb@srdc.msstate.edu
(662) 325-3207
Let’s back up for a moment…
Why are we here?
 Who is our clientele?
 What types of businesses are they
wanting to start?
 Where are they at on an entrepreneurial
timeline?
 What are we willing to do for them?
 How far are we willing to go?

What Worries
Small Business Owners?
Succession
4%
Unexpected growth
6%
Financing Issues
7%
Retirement/transition
19%
Macroeconomy
25%
0
5
10
15
20
25
What do lenders & investors
consider important?

The Company – 15%

The Product or Service – 15%

The Market and Marketing Strategy – 35%

Management – 25%

Financial Summary – 10%
What do lenders & investors
consider important?

The Company (15% Weight)
– What business are you in?
– Purpose of the business
– Brief summary of the company, history,
legal organization, publicly or privately held
– Overall strategy and objectives
What do lenders & investors
consider important?

The Product or Service (15%)
– Important features and user benefits
– Relationship between the products and/or
services supplied and market needs
– Pricing strategies
– Present status – current stage of development, expected life cycle
– Proprietary position
– Products and projects planned
What do lenders & investors
consider important?

The Market and Marketing Strategy
(35% Weight)
– Who buys the product and why?
– Comprehensive market description
– Competition characteristics
– What market needs are satisfied?
– Unique characteristics
– Marketing plans and penetration
What do lenders & investors
consider important?

Management (25% Weight)
– Background and abilities of key individuals
– How can they do this job?
– What do they bring to the company?
– History of management working together
as a team
– Immediate personnel needs and costs
– Organizational structure, decision making
framework, who holds the authority?
What do lenders & investors
consider important?

Financial Summary (10% Weight)
– Funds required
– Uses of funds
– Projections of sales revenues, income, and
expenses over a three to five year period
– Security offerings planned (if any)
– Payback period estimation for investor
– Funding needs at developmental stages
The Business Plan
Many potential business people focus too
much on the numbers
 Focus on these factors:

– The People – Management Team
– The Opportunity – Marketing Plan & Research
– The Context – Overall Macroeconomic
Environment and Marketplace
– Risk and Reward – Acknowledgement of risk,
how to deal with it, financial plan
William A. Sahlman, Harvard University
The People

Who are the “people?”
– The men and women starting and running
the business
– Includes outside parties who provide key
services or resources
» Accountants
» Lawyers
» Suppliers
– Also needs to include key labor needs
Management Information
Names of Directors and Officers
 Personal Information

– Financial statements, Other income
sources, etc.
Statement of Integrity
 Experience in running this (or any other)
type of business
 Goals with regard to the business

Key Labor Needs
What jobs (tasks) need to be
performed?
 What are the labor requirements for
these jobs?

– Education, previous training, experience,
age, lifting capability

Hiring, retention, evaluation, and
dismissal policies
Operations Plan
Should be the best understood part of
the plan
 Writing this for a “lay” audience may be
extremely difficult
 Important to let your audience know that
you know what you are doing
 Include equipment, raw material, labor
and time requirements
 Expansion plans and opportunities

Financial Plan
Why Not Numbers?
Entrepreneurs are wildly optimistic
 Numbers are usually padded
 Investors know about this and discount
the numbers
 Leads to a cycle of inaccuracy
 Plan should contain some numbers that
demonstrate a business model such as
manufacturing yield

Financial Plan
But It Is Still Important
Financing Sought
 Existing Capital Structure
 Collateral
 Guarantees
 Financial Objectives
 Financial Statements

– Actual or estimated
– Pro Forma
Financial Plan

Basic financial statements
– Balance sheet, income statement, cash
flow statement, budget

Types of financing needed
– Startup versus operational
Sources of funds
 Reinvestment strategies
 Family living expenses

Risk and Reward




All sane people want to avoid risk
Entrepreneurs want to capture the reward
and give the risk to others
Need to show people, opportunity, and
context from both good and bad perspectives
Talk about the end of the business process
Unaware
to Aware
Early
Stage
Pre-launch Operating
& Launch
Start-up
Growth
Harvest
or Exit
Attributes of Success
 Decisions
line
are made on the bottom
Attributes of Success
 Decisions
are made on the bottom
line
 Gross revenue is not treated like
manna from heaven
Attributes of Success
 Decisions
are made on the bottom
line
 Gross revenue is not treated like
manna from heaven
 If a task can’t be accomplished inhouse in a cost effective manner,
outsource it
Attributes of Success
 Employ
quality, trainable
individuals: don’t become a
residual employer for otherwise
unemployable relatives
Attributes of Success
 Employ
quality, trainable
individuals: don’t become a
residual employer for otherwise
unemployable relatives
 Constantly seek out new
products and services
Attributes of Success
 Employ
quality, trainable
individuals: don’t become a
residual employer for otherwise
unemployable relatives
 Constantly seek out new
products and services
 Grow a new market or diversify
into other enterprises
Attributes of Success
 Employ
quality, trainable
individuals: don’t become a
residual employer for otherwise
unemployable relatives
 Constantly seek out new
products and services
 Grow a new market or diversify
into other enterprises
Attributes of Success
 They
are not timid about tooting
their own horn about their
products and/or services
Attributes of Success
 They
are not timid about tooting
their own horn about their
products and/or services
 Does not dwell on the challenges
of the competition; realizes that
some have it and some don’t
Entrepreneurial Study
Beginning financial position is important
 Entrepreneurs recognize that quality
products and marketing skills are
essential
 Their overall managerial ability is above
average
 Owner time requirements are worse
than milking cows

Warning Signs of Pending
Financial Difficulties
Significant increase in the level of
accounts payable
 Significant increase in the frequency
and amount of impulse purchases
 Decrease in the level of available
working capital
 Record keeping practices become less
important

Warning Signs of Pending
Financial Difficulties
Hides a large portion of financial
activities from other family members
and lenders
 Diversion of sales proceeds
 Living expenses increase rapidly and
expenditures for capital assets increase
 Works less and plays harder
 Domestic situation changes
