Chapter 7
The Business Plan:
Creating and
Starting the Venture
Hisrich
Peters
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Shepherd
Entrepreneur’s Adage #16
 “Be careful not to get drunk on your own
dreams. Starting a new venture requires
flexibility and an open mind about change.
Entrepreneurship is a process of vision and
revision.”
- Jordan
7-2
Planning as Part of the Business
Operation
 Plans provide guidance and structure in a
rapidly changing market environment.
 “Sanity Structure” that forces thinking on
critical business issues.
 Plans evolve as the entrepreneur has a
better sense of the market, the product or
services, the management team, and the
financial needs of the venture.
7-3
What is the Business Plan?
 A written document describing all relevant
internal and external elements, needs and
strategies for starting a new venture.
 An integration of functional (marketing,
operations, financial, organizational, etc.)
plans
 Generally addresses decision making for the first
three to five years of operation.
7-4
Characteristics of Good Business Plans
 Comprehensive but succint enough to
quickly give any potential investor a
complete picture and understanding of the
new venture.
 Helps the entrepreneur clarify his or her
thinking about the business.
 As detailed as possible about strategy and
specific elements of the business.
7-5
Who Should Write the Plan?
 The plan should be prepared by the
entrepreneur or entrepreneurial team in
consultation with other sources.
 Consultants
 Attornies
 Accountants
 The entrepreneur should objectively
evaluate his or her own skills before
deciding to hire a consultant.
7-6
Scope and Value of the Business
Plan—Who Reads the Plan?
 The plan’s target audience should
determine the plan’s content and focus.
 In preparing the plan it is important to
consider the:
 Entrepreneur’s /organization’s perspective.
 Marketing (suppliers’ and customers’)
perspective.
 Investor's perspective.
7-7
Scope and Value of the Business
Plan—Who Reads the Plan? (cont.)
 Depth and detail in the business plan
depend on:
Size and scope of the proposed new venture
The extent of the competition
Access to information and early ideation flow
Requirements of Funders, Customers,
Suppliers
 Time to market considerations
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 GENERAL RULE: “The more, the merrier;
unless it delays the launch unnecessarily.”
7-8
Entrepreneur’s Adage #17
 “Don’t obsess over business structure,
permits, licenses and other administrative
formalities… Obsess over your idea, its
execution and its weak points.”
- Jordan
7-9
Scope and Value of the Business
Plan—Who Reads the Plan? (cont.)
 The business plan is valuable because it:
 Helps determine the viability of the venture in a
designated market.
 Guides the entrepreneur in organizing planning
activities.
 Serves as an important tool in obtaining
financing.
 Inspires confidence amongst stakeholders.
7-10
How do Potential Lenders and
Investors Evaluate the Plan?
 Lenders are interested in the venture’s
ability to pay back the debt.
 Focus on the Four Cs of credit - Character,
Cash Flow, Collateral, and Equity
Contribution.
 Banks want an objective analysis of the
business opportunity and the risks.
 Conservatism - Banks often cringe at new
ideas and uncertain innovation.
7-11
How do Potential Lenders and
Investors Evaluate the Plan? (cont.)
 Investors, particularly venture capitalists,
have different needs:
 Place more emphasis on the entrepreneur’s
character.
 Spend much time conducting background checks
and business due diligence.
 Demand high rates of return.
 Focus on market and financial projections to
determine their projected IRR in the project.
7-12
Presenting the Plan
 The entrepreneur is expected to “sell” the business
concept – the so-called “Elevator Pitch”
 Focus on why this is a good opportunity right now.
 Provide an overview of the marketing program; sales and
profits.
 Address risks and how to overcome them.
 Issues not covered in the plan ALWAYS come up.
 Investors will raise many questions – some of them
unanswerable. DO NOT “BS” your way through them!
7-13
Using the Internet as a Resource
 The Internet can provide information for
industry analysis, competitor analysis, and
measurement of market potential.
 An entrepreneur can access:
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Popular search engines.
Competitors’ Web sites.
Social networks, blogs, and discussion groups.
Syndicated data sources (for a fee)
7-14
Writing the Business Plan
 Introductory Page
 Name and address of the company.
 Name of the entrepreneur(s), telephone
number, fax number, e-mail address, and Web
site address if available.
 Description of the company and nature of the
business.
 Statement of financing needed.
 Statement of confidentiality of report.
7-15
Writing the Business Plan
(cont.)
 Executive Summary
 About two to three pages in length summarizing the
complete business plan.
 Written AFTER all other sections have been completed.
 Environmental and Industry Analysis
 The environmental analysis assesses external
uncontrollable variables that may impact the business
plan.
 Examples: Economy, culture, technology, legal concerns, etc.
 The industry analysis involves reviewing industry trends
and competitive strategies.
 Examples: Industry demand, competition, etc.
7-16
Critical Issues for Environmental &
Industry Analysis
7-17
Entrepreneur’s Adage #19
 “If you can read about it at Barnes & Noble,
you’re probably too late.”
- Jordan
7-18
Describing the Venture
7-19
Production Plan
7-20
Writing the Business Plan
(cont.)
 Operations Plan
 All businesses (manufacturing or
nonmanufacturing) should include an operations
plan as part of the business plan.
 It goes beyond the manufacturing process.
 Describes the flow of goods and services from
production or purchase to the customer.
 Web/digital concepts need a navigation
flowchart with “Control Flow”.
7-21
Writing the Business Plan
(cont.)
 Marketing Plan
 Describes strategy related to how the
product/service will be distributed, priced, and
promoted (the “4 P’s”).
 Marketing research evidence to support any of
the marketing decision strategies as well as for
forecasting sales should be described in this
section.
 Potential investors regard a solid marketing plan
as critical to the success of the new venture.
7-22
Writing the Business Plan
(cont.)
 Organizational Plan
 Describes the form of ownership and lines of
authority and responsibility of members of the
new venture.
 For partnerships, the terms of the partnership
should be included.
 For corporations, the following should be
included:
 Shares of stock authorized, issued and any share
options.
 Names, addresses, and resumes of directors and
officers.
 Organization chart
7-23
Writing the Business Plan
(cont.)
 Assessment of Risk
 The entrepreneur should indicate:
 Potential risks to the new venture.
 Potential impact of the risks.
 Strategy to prevent or mitigate the risk.
 Major risks could result from:
 Competitor’s reactions.
 Weaknesses in marketing/ production/ management
team.
 New advances in technology and/or business models
that make yours obsolete.
 Shortfalls in funding and inaccurate financial
projections.
7-24
Writing the Business Plan
(cont.)
 Financial Plan
 Contains projections of key financial data that
determine the economic feasibility of the
concept and the necessary financial investment
commitment.
 It should contain:
 Pro-forma Income Statements for at least the first
three years.
 Pro-forma Cash Flow Statements / Budgets for
the first three years.
 Pro-forma Balance Sheets for the first three years.
 Break-Even Analyses for the first three years.
7-25
Writing the Business Plan
(cont.)
 Appendix
 Contains any backup material does not belong in
the body text of the document.
 It may include:
 Letters, agreements or quotes from customers,
distributors, or subcontractors.
 Secondary data or primary research data used to
support plan decisions.
 Leases, contracts, or other types of agreements.
 Price lists from suppliers and competitors.
 Partnership documents or corporate documents (i.e.
Articles of Incorporation, Bylaws, etc.)
7-26
Entrepreneur’s Adage #20
 “Get ready to work 7 days a week, 15-20
hours a day and over the holidays. And
then expect to work some more.”
- Jordan
7-27
Using and Implementing the
Business Plan
 The business plan is primarily designed to
guide the entrepreneur through the first
year of operations.
 The plan should contain control points to
ascertain progress and to initiate
contingency plans if necessary.
 Businesses fail due to entrepreneur’s
inability to plan effectively.
7-28
Using and Implementing the
Business Plan (cont.)
 Updating the Plan
 Entrepreneurs must be sensitive to changes in
the company, industry, and market.
 Determine what revisions are needed if changes
are likely to affect the business plan.
 This helps entrepreneurs to:
 Maintain reasonable targets and goals.
 Keep the new venture on a course to a high probability
of success.
7-29
Why Some Businesses Fail
 Goals are unreasonable.
 Loss of key team member.
 Entrepreneur has not made a total commitment to
the business.
 Lack of experience in the planned business.
 No sense of potential threats or weaknesses to the
business.
 No real customer need was established for the
proposed product or service.
 People management issues.
 People and resources are stretched too thin.
7-30
Entrepreneur’s Adage #21
 “Be careful not to let the glory of someone
else’s business sway you into opening the
same thing. You have to be passionate
about the work as well as the results.”
- Jordan
7-31