Today’s lecture...
How to Write a
Business Plan
(Part 2)
(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
Student Enterprise Competition
The €12k Bolton Trust DIT Student
Enterprise 2010 Competition
The main objective of the competition is to foster a
spirit of entrepreneurship among DIT students and
to encourage and support a rigorous business
planning approach to entrepreneurial activities.
www.dit.ie/researchandenterprise/studententerprisecompetition/
Key Dates 2009/2010
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”
4. Potential Sources of
Money to Start Your
Business
4. Potential Sources of Money

Introduction

Types of Funding



Loans

Equity Investments

Loans and Equity Investments Compared
Common Money Sources to Start or Expand a Business

Money from Your Personal Savings

Friends, Relatives and Business Acquaintances

Creative Cost-Cutting

Equity in Other Assets

Supporters

Banks

Venture Capitalists
Secondary Sources of Financing for Start-Ups

Government grants

Advertising Your Project and Selling Stock

If No One Will Finance Your Business, Try Again
4. Potential Sources of Money
Introduction

This section helps your writing process because it gives
you an idea of what lenders and investors want to see in
a finished plan.

Your ability to understand your financiers’ motives can
mean the difference between getting financing or coming
up empty-handed

You must create a sound business plan and present it,
and yourself, in a way that appeals to lenders’ and
investors’ needs for security and profit

(If you have already got financial backing you can skip
this part.)
4. Potential Sources of Money
Types of Funding

Loans

Someone gives you money in exchange for your promise to pay
it back

Could be a bank, friend, family member, etc.

Lender will almost always chage interest, which compensates th
lender for the risk that you won’t pay back the loan

Usually lender will have you sign papers spelling out the loan
agreement

Simple concept...

However many people put great energy into arranging to borrow
money, but think little about the hard work required to pay it
back.
4. Potential Sources of Money
Types fo Funding

Loans

Someone gives you money in exchange for your promise to pay it back

could be a bank, friend, family member, etc.

Lender will almost always chage interest, which compensates th lender
for the risk that you won’t pay back the loan

Usually lender will have you sign papers spelling out the loan
agreement

Simple concept...

However many people put great energy into arranging to borrow money,
but think little about the hard work required to pay it back.

Many different types of loans available, e.g. Fully amortised, balloon,
secured, unsecured, etc.
4. Potential Sources of Money
Types of Funding

Equity Investments

An equity investor buys a portion of your business and becomes
part owner

Equity investor shares in your profits when you succeed

Your business plan should include a forecast of when and how
you will repay the investment

Generally, the riskier the investment, the higher the returns
sought by the investor

Legal forms of owning equity investments:

general partnerships

limited partnerships

corporations
4. Potential Sources of Money
Types of Funding

Loans and Equity Investments Compared



Loan advantages

Lender has no profit participation or management say

Interest payments are often a deductible business expense

Loans from close friends/family can have flexible repayment terms
Loan disadvantages

May have to make repayments when your need for cash is greatest

May have to assign security interest in your property

Under most circumstances, you can be personally sued for unpaid balance of the loan
Equity investment advantages

You can be flexible about repayment requirments

Investor-partners often offer valuable advice and assistance

If you business loses money or goes bust, you probably won’t have to repay your investors


s our business plan should include a forecast of when and how you will repay the investment
Equity investment disadvantages

Equity investors require a larger share of the profits

Your shareholders and partners have a legal right to be informed about significant business events

They can sue you if they feel their rights are compromised

Loans are better for business if th ecash flow allows for realistic repayment schedules

Equity investments are often the best way to finance start-up ventures becasue of flexible repayment
schedules
4. Potential Sources of Money
Ways to Raise Money

Common Money Sources to Start a
Business
1.
Money from Your Personal Savings
2.
Friends, Relatives and Business Acquaintances
3.
Creative Cost-Cutting
4.
Equity in Other Assets
5.
Supporters
6.
Banks
7.
Venture Capitalists
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Money from Your Personal Savings

Most common form of financing

Quintessential capitalist approach

Won’t have to worry about loan repayments

You enhance your borrowing capacity for the
future
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Friends, Relatives and Business
Acquaintences

Big contrast with banks or strangers is:
1.
availablity of money
2.
the interest rate or return

Could be in the form of a gift, a loan, or equity investment

Loan-gift hybrid: no interest, pay it back when you can

Whoever gives the loan and whatever the conditions, highly
advisable to write everything down... You don’t want to fall
out with your family or friends!
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Creative Cost-Cutting

Not really a funding source but one of most
effective ways to finance a small business = make
do with less


e.g. work from home, share expensive equipment, etc.
Cost-cutting won’t work in every situation, but the
principle should be remembered – only borrow or
raise outside capital if you absolutley can’t do
without it
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Equity in Other Assets

Raise money by selling existing assets or by
pledging your equity in them as collateral
(equity is the difference between the market value
or property you won and what you owe against it)
E.g. borrowing against the value of your car
minus anything you still owe on it
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Supporters

Somewhere between family and institutions...

People how really want you to succeed or are
passionate about your business

Almost becomes like a co-op, investors are
stakeholders

May get better terms than with commercial
lenders
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Supporters

Somewhere between family and institutions...

People how really want you to succeed or are
passionate about your business

Almost becomes like a co-op, investors are
stakeholders

May get better terms than with commercial
lenders
4. Potential Sources of Money
Ways to Raise Money

Common Money Sources to Start a Business

Banks

As far as small businesses & start-ups go, banks
are usually very cautious

Banks always want to see written business plans
when submitting a load application

Banks don’t make equity investments – they
always want their (depositors’) money back
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Venture Capitalists

Anyone who invests equity in a business in the
hope of future profits

Usually refers to a group of businesses that look
for hot companies in which they can make large
profits

In the US, typically won’t consider any company
investment smaller than $500,000

Prefer companies in emerging technology fields

computers, genetic engineering, biotech, green
technologies, and medical technologies
4. Potential Sources of Money
Ways to Raise Money - Common Sources

Secondary Sources of Financing

Government grants

Semi-state Organisations

Local County Enterprise Boards

Local Authority Schemes

Enterprise Ireland

University Incubator Programmes
4. Potential Sources of Money
Ways to Raise Money

If No-One Will Finance Your Business, Try Again

Don’t give up!

Go back to people who seemed initially interested but
ultimately turned you down – find out why

If you get same answer from several people this gives you
something to work on

Also, peoples’ circumstances might have changed (might have
more funds now)

Visit lots of banks – you will know the questions they will ask
and improve your pitch

Tip: try a long-shot bank first, and the most like one last
5. Your CV and
Financial Statement
5. Your CV And Financial Statement
Introduction
Draft two important documents:
1.
a special business accomplishment CV
2.
a financial statement
5. Your CV And Financial Statement
Draft Your Business Accomplishment CV

Investors want to be certain you have the
education, experience and desire

CV shows potential backers you can achieve
objectives

Not the traditional “job seekers” CV

A statement of everything you have
accomplished that has direct bearing on your
business objectives
5. Your CV And Financial Statement
Draft Your Business Accomplishment CV

People will not part with €€€ unless they
get a positive feeling from you
 trust

Be prepared for full disclosure
 be

& likability
honest in your CV (though not in extreme)
Do not lie or try cover up serious negatives
5. Your CV And Financial Statement
Draft Your Business Accomplishment CV

How to:
 Make
list of every job and experience with positive
accomplishment
 List

the business areas you worked in
Sales, management, logistics, IT, etc.
 List
the specific things you accomplished
 This
list is the raw material for your proposal
 Don’t
be humble – if it was good, list it
5. Your CV And Financial Statement
Draft Your Business Accomplishment CV

Write short statment for each item on the
list relating it to your ability to run new
business

Emphasis knowledge of how your potential
business works

Highlight your knowledge of and respect
for financial realities
5. Your CV And Financial Statement
Draft Your Business Accomplishment CV

Write first draft of CV

Between 1-3 pages long depending on
your experience

If going into business with others, included
their CVs as well
5. Your CV And Financial Statement
Draft Your Personal Financial Statement

For a loan or investers

Statement showing your personal assets,
liabilities, income and expenses

Tells you backers how you handle money

Similar to a credit/loan application
5. Your CV And Financial Statement
Draft Your Personal Financial Statement
1.
Determine your assets

Cash and cash equivalents

Marketable securities (stock, shares, etc.)

Cash Value of Life Insurance

Accounts and Notes Receivable (private loans given out)

Trust Deeds & Mortgages

Real Estate

Personal Property (valuable items, e.g. cars, motorbikes,
musical instruments, electronic equipment, etc.)

Other assets (pension, copyrights, patents, trademarks, etc.)
5. Your CV And Financial Statement
Draft Your Personal Financial Statement
1.
Determine your Liabilities

Credit Cards

Unecured Loans

Loans Secured by Real Estate

Loans Secured by Peronsal Property (equipment,
vehicles, business inventory)

Loans against Life Insurance Policies

Other Liabilities (college loans, debts to bookies,
child support, taxman, etc.)
5. Your CV And Financial Statement
Draft Your Personal Financial Statement

Net worth =

subtract total liabilities from total assets
5. Your CV And Financial Statement
Draft Your Personal Financial Statement
1.
Determine Your Annual Income

Gross Salary and Wages (employer, contract, nixers)

Income From Receivables and Loan Repayments

Rental Property Income (property, truck, piano)

Dividends and Interest

Income From Business or Profession (if you already own a
business)

Other Income

TOTAL ANNUAL INCOME
5. Your CV And Financial Statement
Draft Your Personal Financial Statement
1.
Determine Your Annual Living Expenses

Mortgage Payments or Rent

Income Tax

Other Loan Payments (credit cards, etc.)

Insurance Premiums

Living Expenses (food, clothing, transportation, etc.)

Other Expenses (holidays, club memberships, child support)

TOTAL ANNUAL EXPENSES
5. Your CV And Financial Statement
Draft Your Personal Financial Statement

With all the above information...
 Total Assets

 Total
Liabilities
 Total
Income
 Total
Expenses
...complete Personal Financial Statment
5. Your CV And Financial Statement
Draft Your Personal Financial Statement

Verification of Accuracy
 Be
prepared to furnish documenation and proof

tax returns

credit report

bankruptcies

property deeds

car titles
 Crime
to knowingly make false financial statements...
6. Your Profit and Loss
Forecast
6. Your Profit and Loss Forecast
Introduction

Forecast how much money you will
need.
Remember, in this whole plan you are trying to figure out:
1.
How much money you need?
2.
What you will spend it on?
3.
How you will pay it back?
6. Your Profit and Loss Forecast
What is a Profit and Loss Forecast?

A projection of how much you will sell and much
profit you will make

Business profits result from three figures:
1.
Sales revenue

2.
Cost of sales

3.
gross sales/sales income
variable/incremental/direct cost
Fixed expenses

overhead/operating/fixed/discretionary costs
6. Your Profit and Loss Forecast
Complete Your Profit and Loss Forecast

Gross Profit


Sales revenue - Cost of Sales
Fixed Expenses (Total)
Wages/Salaries
Accounting/Bookkeeping
Payroll
Interest
Taxes
Rent/Lease
Depreciation
Marketing
Other
and Advertising
Insurance

expenses, e.g lawyers fees, car repairs,
office supplies, postage, phone, etc.
Profit/(Loss)

Gross Profit – Total Fixed Costs
7. Your Cash Flow
Forecast and Capital
Spending Plan
7. Your Cash Flow Forecast and Capital Spending Plan
Introduction

Cash flow = the life blood of a business

Short-term cash flow is vital when starting off a
business

Must have positive cash flow to be able to pay
your bills

Cash Flow Forecast shows potential backers
that you understand and can manage day-to-day
finances

Refining your guesses about how much money
you will need
7. Your Cash Flow Forecast and Capital Spending Plan
Introduction

Money needed to start a business:
1.
Capital investment

2.
Initial working capital


Cash reserves you need to keep your business afloat before you
begin to show profits every month
Cash flow from monthly sales is rarely enough to cover monthly
expenses for first few months after new business opens


Cash you need to spend before you begin
Need to have extra cash set aside
Rapid growth can also be a problem

Cash not coming in fast enough from sales to cover additional
investment needed
7. Your Cash Flow Forecast and Capital Spending Plan
Prepare Your Capital Spending Plan

All the things you need to buy before your
business brings in €1...
Equipment
Harddrives
Furniture
Cabeling
PCs
Printers
Servers
Stationary
Monitors
Etc.
= Total capital required to open
7. Your Cash Flow Forecast and Capital Spending Plan
Prepare Your Cash Flow Forecast
Cash Flow Forecast = how much money you’ll need to
survive the first lean months
Profit/(Loss) figure
- Credit Sales
+ Collection of Credit Sales
- Payments for Credit Purchases
+ Credit Purchases
- Principal Payments
+ Depreciation
- Extra Purchases
Monthly Net Cash
Year Total
8 Write Your Marketing
and Personnel Plans
8 Write Your Marketing and Personnel Plans
Overview

Who is your competition and how are you different?

Who are your potential customers and how can you
contact them?

Exactly what steps will you take to reach your sales
projections?

How can you hire the right people for your business?

How can you make sure that your employees work
effectively?
8 Write Your Marketing and Personnel Plans
Previously...

Problem statement

What problem are you going to solve for your customers?

Business Description

Taste, Trends and Technology: How Will the Future
Affect Your Business?

Sales Revenue Forecast

Finish your plan by spelling out how you will achive your sales
forecast
8 Write Your Marketing and Personnel Plans
Marketing Plan


Competition Analysis

Think like one of your customers

Identify 3 most likely ways you customers might solve their needs in addition to
your business – this is you top competition
Differentiate your business From The Competition




Services, products, pricing
Describe Your Target Customer

It’s personal – you’re selling to one person at a time

Invent a fictional customer
Decide how to reach customers

Networking, trade journals, trade shows, newspapers, viral campaign, emails

Best of all is... word of mouth
Create a marketing budget

How much? Depends...
8 Write Your Marketing and Personnel Plans
Personnel Plan


The smaller the business, the greater the impact of
employees

Administrative overhead

Managerial issues
Analyse Your Business Personality


“Our employees should be...”
Write Your Staffing Schedule

How many staff will you need?

Write Job Descriptions

Write Your Personnel Plan
9. Editing and
Finalising Your
Business Plan
9 Editing and Finalising Your
Business Plan

Lenders, investors, banks see a lot of
business plan

Presentation is vital to get your’s noticed
9 Editing and Finalising Your Business Plan
Plan Summary

Write summary last

Introduces and emphasises the high points of your plan

Statement of total amount of money you seek

In short

Who you are

What you want to do

How much money you need

How much money you expect to make
9 Editing and Finalising Your Business Plan
Final Components

Section introductions

Personal goal statement

Title Page and Table of Contents

Final editing & formatting

Page numbers

Visuals - charts, graphs, etc.

Printing and binding

Consider having plan professionally reviewed (biz consultant,
accountant, etc.)
9 Editing and Finalising Your Business Plan
Quick Plan
A.
Title Page
B.
Plan Summary
C.
Table of Contents
D.
Problem Statement
E.
Business Description
F.
Business Accomplishments
G.
Sales Revenue Forecast
H.
Profit and Loss Forecast
I.
Capital Spending Plan
J.
Cash Flow Forecast
K.
Appendices: Supporting Documents
9 Editing and Finalising Your Business Plan
Full Plan
A.
Title Page
B.
Plan Summary
C.
Table of Contents
D.
Problem Statement
E.
Business Description
F.
Business Accomplishments
G.
Marketing Plan
H.
Sales Revenue Forecast
I.
Profit and Loss Forecast
J.
Capital Spending Plan
K.
Cash Flow Forecast
L.
Future Trends
M.
Risks Facing Your Business
N.
Personnel Plan
O.
Specific Business Goals
P.
Personal Financial Statement
Q.
Personal Background
R.
Appendices: Supporting Documents
10. Selling Your
Business Plan
10 Selling Your Business Plan
How to Ask for the Money You Need

Write a telephone pitch


Arrange face to face appointments


“Thank you for listening to my business plan. Will you invest/lend me the money I
need to get started?”
Leave a copy of your plan


Be professional and natural – let your enthusiasm show
Ask for the money!


Better to meet before asking for money
Meet You Backers


Helps you keep on track
Try never to send copies of your plan before meeting
Follow up

Phone in 7-10 days – remember to ask for the money you need
10 Selling Your Business Plan
How To Approach Different Backers


Friends and Relatives

Be sure they can afford it and that you can pay it back

Never ask in social context

Make your presentation just as professional, if a bit less formal

Give the person a graceful “out” – it doesn’t mean they don’t love you!
Business Acquaintances


Supporters



People who really care about having your business succeed, e.g. small town business
Banks

Your other bank business – mention your other custom

Security – tell banker how she will get her money back... with interest. Emphasise collateral.

Be reaalistic – don’t over do the enthusiasm

Be persistant – there are lots of bank, make sure you know why you were rejected. Address nagative
comments.
Equity Investors (Venture Capitalist)


Network
More risk – more return
Governement Agencies

Hardest thing can be finding out which scheme can help you
10 Selling Your Business Plan
What to Do When Someone Says “Yes”

If your proposal is good, it will be funded sooner or later

Possible that a lender will offer you less or at a higher
rate... then what?

Do not answer on the spot!

Take proposal home

Make sure you understand exactly what the terms are

If it is not good enough – go back and try to negotiate

Better to say “no” than accept a bad deal
10 Selling Your Business Plan
Plan In Advance For Legal Details

If a financial institution
 They

will have all necessary forms and paperwork
If a friend, family member or acqaintance
 It’s
up to you how to write the terms
 Remember...
 May
write the terms!
be better for all concerned to have a solicitor
draw up a short agreement
Today’s lecture...
How to Write a
Business Plan
(The End)
(For when you want to set up your own spectactularly
successful software business!)