Today’s lecture...
How to Write a
Business Plan
(Part 1)
(For when you want to set up your own spectactularly
successful software business!)
Module Homepage:
www.comp.dit.ie/dgordon/courses/communications/index.html
http://modulecatalogue.hosting.heanet.ie/catalogue/modules/BUSN1110/
Contact me:
Colman McMahon
cajmcmahon@gmail.com
Agenda
1.
Benefits of Writing a Business Plan
2.
Do You Really Want to Own a Business?
3.
Choose the Right Business
4.
Potential Sources of Money to Start of Expand Your Business
5.
Your CV and Financial Statement
6.
Your Profit and Loss Forecast
7.
Your Cash Flow Forecast and Capital Spending Plan
8.
Write Your Marketing and Personal Plans
9.
Editing and Finalising Your Business Plan
10.
Selling Your Business Plan
Based on “How To Write a Business Plan, McKeever, Nolo Press”
1. Benefits of Writing a
Business Plan
Benefits of Writing a Business Plan

What is a Business Plan?

Why Write a Business Plan


Helps You Get Money

Helps You Decided to Proceed or Stop

Lets You Improve Your Business Concept

Improves Your Odds of Success

Helps You Keep On Track
Issues Beyond the Plan

Bookkeeping and Accounting

Taxes

Securities Laws

Your Managment Skill

Issues Specific to Your Business
1. Benefits of Writing a Business Plan
What is a Business Plan?

A written statement that describes and
analyses your business and gives
detailed projections about its future.

Included the financial aspects of starting
or expanding your business
 How
much money you will need and how you
will pay it back?
1. Benefits of Writing a Business Plan
Why Write a Business Plan?

Helps You Get Money
 Lenders
or investors will not take you
seriously without written plan
 They
want to see you have throught through
critical issues and that you really understand
your business
 It
teaches you where money comes from and
goes
 Some
landlords require business plan
1. Benefits of Writing a Business Plan
Why Write a Business Plan?

Helps You Decided to Proceed or Stop

You are the most important person you must
convince
1.
Business plan teaches you how money
flows through your business
2.
What are the strengths and weakness in
your concept
3.
What are your realistic chances of success
1. Benefits of Writing a Business Plan
Why Write a Business Plan?

Lets You Improve Your Business
Concept

Can see how changing parts of the plan
increases profits or accomplishes other goals

Try out alternative financial projections

Fine tune your forecasts

e.g. see how increasing labour costs might affect
your profits
1. Benefits of Writing a Business Plan
Why Write a Business Plan?

Improves Your Odds of Success

Business is a gamble...

Gambling with bank’s or investor’s money

Writing a business plan helps you beat the odds

Most new, small businesses don’t last very long

Most don’t have a business plan

Coincidence...?
1. Benefits of Writing a Business Plan
Why Write a Business Plan?

Helps You Keep on Track

Anticipate problems before they become disasters

Business Plan gives you a clear path toward the
future

Compare your results to your goal

Black & white of your business plan will enable you
to face facts when things aren’t working out
1. Benefits of Writing a Business Plan
Issues Beyond the Plan

Bookkeeping and Accounting

Your responsibility to create bookkeeping
and accounting systems

Balance sheet

snapshot at a moment in time listing the monetary
value of everything you own and everything you
owe to other people
1. Benefits of Writing a Business Plan
Issues Beyond the Plan

Taxes

If you make a profit you pay

If you don’t... you don’t
“Certainty? In this world nothing is certain but death and taxes.”
Benjamin Franklin
1. Benefits of Writing a Business Plan
Issues Beyond the Plan

Securities Laws

Raising money on the stock exchange

“Going IPO” – initial public offering
Google Initial Public Offering Details
IPO Date:
First Trade:
Price:
Exchange:
Value of Offering:
Initial Market Cap:
August 19, 2004
11:56 am ET at $100.01
$85.00
NASDAQ
$1.67 billion
$23.1 billion
5th Anniversary:
$580.61
1. Benefits of Writing a Business Plan
Issues Beyond the Plan

Your Management Skill

Ultimate success rests on your ability ot
implement your plans

More on this later...
1. Benefits of Writing a Business Plan
Issues Beyond the Plan

Issues Specific to Your Business

The market

Business environment

Regulation

Competitive pricing

Patents

Foreign competition

Location

etc.
2. Do You Really Want
to Own a Business
Do You Really Want To Own A Business?

Introduction

Self-evaluation Excercises

Your Strong and Weak Points

Generaland Specific Skills Your Business Needs

Your Likes and Dislikes

Specific Business Goals

How to Use the Self-Evaluation Lists

Reality Check: Banker’s Analysis

Banker’s “Ideal”

Measureing Up to the Banker’s “Ideal”

Use the Banker’s “Ideal”
2. Do You Really Want To Own A Business?
Introduction
Personal goals:

Independence


Personal Fulfillment


some entrepreneurs can get very wealthy
Power


self and peer
Money


greater flexibility and control
Respect


guinely fulfilling experience – challenging, fun, exciting, passion, curiosity, etc.
Lifestyle Change


search for freedom
motivates some people
Right Livlihood

cause-driven businesses
2. Do You Really Want To Own A Business?
Self-Evaluation Excercises

A prospective business owneer must
make two primary decisions correctly:
1.
You must honestly evaluate yourself to
decide whether you posses the skill and
personality to succeed running a small
business
2.
You must choose the right business
2. Do You Really Want To Own A Business?
Self-Evaluation Excercises

A small business is very personal

It will honestly reflect your opinions and attitudes

If you are sloppy, rude, crafty or naively trusting... your business will
mirror that

If your personal characteristic are more positive... your business will
be more positive

To succeed, you must ask people for their money every day and
convince a majority of them to give it to you

By providing goods and services you are creating relationships
with people


clients, customers, patients, members, students...
Doesn’t matter what you call them... they are all exchanging money
for the belief that you are giving them their money’s worth
2. Do You Really Want To Own A Business?
Self-Evaluation Excercises

Your strong and weak points
 List
your strengths and weaknesses
 Include
everything, even if not related to your
business

General and Specific Skills Your Business
Needs
 General
– organised, flexible, etc.
 Specific
– expert in Java, website devlopment, etc.
 Whatever
skills you don’t have, investors will be
asking how to make up defecit
2. Do You Really Want To Own A Business?
Self-Evaluation Excercises


Your Likes and Dislikes

List things you really like doing and those you don’t

Include everything, even if not related to your business

As a business owner you will spend most of your waking hours
in it.... if it doesn’t make you happy, you probably won’t be very
good at it
Specific Business Goals

Exactly what do you want your business to accomplish for you...
personally.

Money...? If so, how much?

Make the world a better place...? How?
2. Do You Really Want To Own A Business?
Self-Evaluation Excercises

The purpose of making these lists is to see if YOU have
what it takes

Spend time reading them over

Consider asking family, trusted friends, or anyone
whose judgement you respect

Can they point out any obvious inconsistencies
between your personality or skills and what you want to
accomplish?

These lists can provide background material for the
final plan
2. Do You Really Want To Own A Business?
Self-Evaluation Excercises

Excercises accomplished several things:
 You
have looked inside and asked yourself some
basic questions about who you are and what you are
realistically qualified to do.
 Now
have a bettter idea of whether you are prepared
to pay the personal price required to be a successful
small business owner
 If
so...
“Yes, I am willing to make short-term sacrifices to achieve longterm benefits and do whatever is necessary – no matter the
inconvenience – to reach my goals”
2. Do You Really Want To Own A Business?
Reality Check – Banker’s Analysis

Banker’s “Ideal” Loan Applicant

(Existing business) A cash flow sufficient to make the loan
payments

(New business) An owner who has a track record of profitability
owning and operating the same sort of business

An owner with a sound, well thought-out business plan

An owner with financial reserves and personal collateral suficient
to solve the unexpected problems and fluctuations that affect all
businesses

If you were this good you probably wouldn’t need a loan...

Very few people embody the “ideal” applicant
2. Do You Really Want To Own A Business?
Reality Check – Banker’s Analysis

Next to “ideal”...
 A person
who has worked for, or preferably managed,
a successful business in the same field
 Someone
with sound experience managing one type
of business, but now wants to start another type
(transferable skills)


May have to hire people who can augment skills
An excercise in risk management
2. Do You Really Want To Own A Business?
Reality Check – Banker’s Analysis

Use “Banker’s Ideal”
 Use
skeptical attitude as counterweight to
your optimism to achieve balanced view of
your prospects
 What
is it that makes you think you will be one
of the minority of small business people who
will succeed...?
3. Choose the Right
Business
3. Choosing the Right Business

Introduction

Be Sure You Like Your Business

Describe Your Business




Identify Your Type of Business

Problem Statement

Business Description
Taste, Trends and Technology: How Will The Future Affect Your Business

Taste

Trends

Technology

Write Future Trends Statement
Break-Even Analysis: Will Your Business Make Money?

Forecast Sales Revenue

Forecast Fixed Costs

Forecast Gross Profit for Each Sales Euro

Forecast Your Break-Even Sales Revenue
What You Have Accomplished
3. Choosing the Right Business
Introduction

Ensure that you choose the “right”
business for you - one that...
 you
know
 you
like
 you
will work hard at
 makes
economic sense
3. Choosing the Right Business
Be Sure You Like Your Business

Watch out that you are not so blinded by one
side of your business that you overlook all others
 e.g.
you love programming, but you hate customer
relations

Ensure you are not overly emotional about your
idea – do not loose perspective
 e.g.
dot.com boom, late 1990s...
3. Choosing the Right Business
Describe Your Business

Write a complete & comprehensive description of your proposed business...

Identify Your Type of Business


Retail

Wholesale

Service

Manufacturing

Project Development
Problem Statement

You have the “scratch”... What’s the “itch”?


E.g. Ironing service – clean shirts, saves time
Business Description

Write out in detail how your business will solve your customers’ problems. Take
your time.

Want to end up with realistic, well thought-out description
3. Choosing the Right Business
Describe Your Business

General business questions:

What problem do I solve for my customers?

Who is my typical (target) customer?

How will I communicate with my target customer?

What products and/or services will I provide? Are there any problems or services
my customers may expect me to provide that I don’t pan to?

Where will my business be located?

Where will I buy items I need?

What hours will I operate?

Who will work for me and how will they be paid?

Who will handle the critical tasks like selling, ordering, bookkeeping, marketing
and shipping?

How will I advertise and promote my business?

What are the competition’s strengths and weaknesses?

How am I different from the competition, as seen through the eyes of my
customers?
3. Choosing the Right Business
Describe Your Business

Specific business questions:
 Retail

How will I keep of advances in my field

Does my location have enough drive-by or walk-in
traffic to support my business or must I rely on
heavy advertising for sales

High-street or industrial park

How much inventory will I buy in comparison to my
expected sales revenue?
3. Choosing the Right Business
Describe Your Business

Specific business questions:
 Wholesale

Which product lines will I carry and which will I
order on demand?

Will I carry accounts for my customers or work on
cash only?

Are there any exclusive distributorships available
to me?, e.g. authorised software reseller

Will I have to market all the products myself or will
the manufacturers have marketing programs?
3. Choosing the Right Business
Describe Your Business

Specific business questions:
 Manufacturing

Does my manufacturing process create toxic or polluting
materials? If so, how to deal with them and the local
authorities?

Is there a pool of readily available, affordable skilled labour
where I want to locate?

Will I make products for inventory or per order?

Will I make one product only or a line of products?

If I succeed on a small scale, do I plan to sell out to a larger
company or try to compete nationally/internationally?

Is my competition from small or large firms?
3. Choosing the Right Business
Describe Your Business

Specific business questions:
 Project
Development

Am I sure of the selling price of my project?

Am I sure of my projected costs? What will happen if my
costs are higher than estimated?

Am I sure of the time factors? What will happen if it takes
longer than expected to complete and sell the project?

What portions of the work will I contract with others to
perform? Will I off-shore?

Is there a definitel buyer for my project? If not, what costs will
I incur before it is sold?
3. Choosing the Right Business
Tastes, Trends and Technology

Let’s assume you have a good description
of your business and it’s something you
like and know well...

Does the world need, and is willing to
pay for the, the product or service you
want to sell...?
3. Choosing the Right Business
Tastes, Trends and Technology

Tastes
 How
does it your business idea fit with fit with
today’s tastes?

Is your business part of a 6-month fad?

Was it more popular a few years ago and now
starting to decline?
 No
matter how good your technical,
managerial skills, etc. your business will likely
not succeed.
3. Choosing the Right Business
Tastes, Trends and Technology

Trends
 Harder
to predict than tastes
 Like
looking into a crystal ball
 You
have a good start:

Right demographic for tech innovations

Freshly minted graduates (experts)
3. Choosing the Right Business
Tastes, Trends and Technology

Technology
Large and small innovations - good for all enterprises


High risk (small “mega” success rate)

80% of new products introduced into the marketplace die a quick
death

Technology graveyards are v. full

Fickle public

Always something better right behind

Intense competition

Large-scale venture require enormous captial

Expect to loose money for years during R&D
However... there is always the possibilty of striking it rich..!
3. Choosing the Right Business
Tastes, Trends and Technology

Future Trends Statement
 Write
down your thoughts on what trends
affect your business and where they will be in
5 years
 No-one
expects a perfect prediction
 Financial
backers want to know you have
thought through how your business will fit in
the world in next 5 years
Tricky financials ahead...
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money?


How can you tell if your business will make money
before you start it?

You can’t...!

This is both scary and adventurous. If it was a sure thing...
everyone would do it!
Do a break-even forecast

Educated guesses

Can be used as a preliminary evaluation tool before doing a full
business plan
1.
Sales revenue (total sales each week/month/year)
2.
Fixed costs (overhead)
3.
Gross profit for each sale (sales minus direct costs)
4.
Breakeven sales revenue
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Sales Revenue
 Month-by-month,
for first 2 years
 Hardest
thing to do, but most important part of
business plan
be brutally honest – what you expect
your sales to be, not what you need
 Must

Too high = won’t have enough money to operate

Too low = won’t be able to handle all the business
you get
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Sales Revenue
 Retail
Sales Revenue Forecast

Find annual sales revenue per square foot/meter
of a comparable store

Multiply that figure by your estimated floor space to
derive an estimate of your annual sales revenue

Example: A similar store shows €200 of sales per
square foot. If you have 1,000 square feet of floor
space your estimated sales revenue will be
€200,000 (1,000 x €200)
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Sales Revenue
 Service
Business Sales Revenue Forecast

Determine the steps you need to go through to generate a
billable sale

Forecast how many times you can go through all those steps
every week or month

Multiply the number of billable sales by the amount you think
you can get for them

As owner/manager, allow 30-40% of you time for nonrevenue generating activities, e.g. admin, marketing, etc.

Factor in that you may not be full capacity initially

Example: You can build one website per week. You get
€10,000 per website. Total of 4 websites per month =
€40,000 per month.
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Sales Revenue
 Manufacturing
or Wholesale Business Sales
Revenue Forecast


A combination of:

reveue per floorspace (like retail)

process repetition (like service)
Example: Importing computers to sell on. Warehouse can
hold 10,000 computers. Can sell and ship 1,000 computers
per month. Computer wholesales for €500. Total sales
forecast = €5,000 per month
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Sales Revenue
 Project
Development Sales Revenue
Forecast

Project developers are not required to complete a
monthly sales revenue forecast.

However, need to know likely amount they can sell
their project for before beginning work

All revenue comes when project is sold
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Fixed Costs
 For
most small businesses, difference
between success and failure lies with
keeping costs down
 Many
start businesses in spare room, friends
back office or low-rent (dingy) premises
 Some
broke
go for flashy offices... and often go
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Fixed Costs

Draw up a list of fixed or regular monthly expenses

Determine what amount you are committed to pay each month €€€


Rent

Utilities

Salaries

Payroll taxes

Insurance

Phones (fixed & mobile)

Shipping

Bookkeeping

Include discretionary items that exist but fluctuate, e.g. Advertising

Decide how to pay youself – salary or profits
You must make at least this much to keep the business viable €€€
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Gross Profit for Each Sales
€uro
much of each €uro will be left after
subtracting the costs of the goods sold?
 How
 That
number will pay fixed costs and
determine your profit
 This
gives your a broad, quick profit forecast
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money
Forecast Gross Profit for Each Sales Euro



Forecast Gross Profit for a Start-up
1.
For each product or service that you sell, list every signle item that goes into the
product
2.
Add up cost of each item
3.
Write selling price of the item below the total cost of the item
4.
Subtract the total cost from the selling price to derive gross profit from each sale
5.
Divide the selling price into the gross profit to derive the gross profit percentage for
each product
6.
Repeat for each product you will sell (if many, group together)
7.
Write down how much sales (€) you expect for each product or product group
8.
Multiply the gross profit percentage by the total sales (€) to derive the (€) gross profit
from each product
9.
Add together the total gross profit (€) figures to derive the total gross profit (€) for
the year’s sales
10.
Divide the gross profit (€) by the annual sales revenue to derive the average gross
profit for the year’s sales
Completing this gives you an average gross profit percentage for your
business
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Your Breakeven Sales
Revenue

Now that you have fixed costs per month and average gross
profit per sale, you can estimate how much revenue you will
need to breakeven

Divide fixed costs by average gross profits expressed as a
decimal
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money
Breakeven Sales Revenue Forecast
A
Fixed costs per
month or year
B
Average
gross profit
percentage
expressed as
a decimal
C
Breakeven sales
revenue
(A divided by B)
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Your Breakeven Sales
Revenue

How to Calculate Your Profit

If you are lucky enough that your breakeven sales forecast shows
more money than you need to breakeven...

Simply multiply your projected sales revenue that is over the
breakeven point by your average gross profit percentage
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

Forecast Your Breakeven Sales
Revenue

If Your Forecast Shows a Loss

Don’t panic!

Carefully check and double-check all your numbers

In any business, only these three things can improve profits:
1.
Increase sales revenue by selling more
2.
Reduce fixed costs
3.
Increase the gross profit percentage by raising prices or
lowering your product cost
3. Choosing the Right Business
Break-even Analysis: Will Your Business Make Money

What You Have Accomplished

Chose a business you know well

Identified a need you can fill (the customer’s problem)

Described your business and how it will fill that need

Decided that you business is the right idea at the right time

Decided that you like your business

Forecasted enough profits to make writing a complete business plan
worthwhile

So far you have been answering questions for yourself

Now you need to sell your idea and you answers to potential
financial partners

Next up... How to write a document that sells your idea.