TM5 Small Business Management

Longenecker/Petty/Palich/Hoy
TM 5
Small Business
Management
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
THE BUSINESS
PLAN: VISUALIZING
THE DREAM
LEARNING
GOALS:
• Explain the purpose and objectives of business plans.

• Give the rationale for writing (or not writing) a
business plan when starting a new venture.
• Explain the concept and process for developing a
firm’s business model.
• Describe the preferred content and format for a
business plan.
LEARNING GOALS (CONT.):
Offer practical advice on writing a business

plan.
Explain how to pitch to investors.
Identify available sources of assistance in
preparing a business plan.
Maintain the proper perspective when writing a
business plan.
AN OVERVIEW OF THE
BUSINESS PLAN
• Business Plan
 Outlines the basic concept underlying a business-what
problem will be solved-and describes how the business
will execute its plan to solve the problem.
• Key Elements of a Business Plan
 A logical statement of a problem and its solution
 A significant amount of cold, hard evidence
 Candor about the risks, gaps, and assumptions that might
be proved wrong.
6.1 Users of Business Plans
WILL WRITING A PLAN

MAKE A DIFFERENCE?
• Primary Functions
 Cost in time and money to prepare the plan
 Management style and ability
 Preferences of the management team
 Complexity of the business
 Competitive environment
 Level of uncertainty
THE BALANCE BETWEEN

PLANNING AND
EXECUTING
• Factors affecting the extent of a plan:
 To provide a clearly articulated statement of goals and
strategies for internal use
 Imposes discipline on the entrepreneur and management team
 To serve as a selling document to be shared with
outsiders
 Provides a credible overview for prospective customers,
suppliers, and investors
 Helps secure favorable credit terms from suppliers
 Opens approaches to lenders and other sources
TYPES OF BUSINESS PLANS
• The Short Plan
 An abbreviated form of a traditional business plan
that presents only the most important issues and
projections.
• The Comprehensive Plan
 A complete plan that provides an in-depth analysis
of the critical factors that will determine a firm’s
success or failure, along with all the underlying
assumptions.
6.2 Basic Business Model Framework
DEVELOPING A BUSINESS
MODEL
• Key Elements in a Business Model
 Revenue Model
 Cost Structures
 Required Resources to grow the business
 Business Model Risk
MODEL (CONT.)
• Revenue Model
 Volume or unit-based
 Subscription/membership-based
 Advertising-based
 Licensing based
• Revenue Streams
 Single
 Multiple
MODEL (CONT.)
• Revenue Streams
 Single
 Revenue comes from a single product/service
 Multiple
 Revenue comes from multiple products/services
 Interdependent
 Revenue comes from selling one or more products to generate revenue from
other products
 Loss Leader
 Revenue streams are sold at a loss
DEVELOPING A BUSINESS MODEL

(CONT.)
1. Who are your most likely customers?
2. How are they different from the general population?
3. What events will trigger the need or desire for your type of product or service?
4. When will these events occur? Can they be predicted?
5. How will customers make decisions on whether or not to buy your product or
service?

(CONT.)
6. What will be the key decision factors?
7. How will your product or service compare to that of the competition on these
key factors?
8. Will these differences be meaningful to the customer?
9. Are these differences known to the customer?
10. How can your product or service be exposed to your most likely potential
customers?

(CONT.)
• Cost Structures
 Fixed: costs that do not vary at all with volume
 Variable: expenses that vary directly and
proportionately with changes in volume
 Semi-variable: expenses that include both
variable and fixed costs
PREPARING A BUSINESS PLAN

• Issues critical in preparing a business plan:
 The content and basic format of the plan
 Factual support for the concept in the form of
strong supporting evidence
 The effectiveness of the written
presentation
 Clear writing that effectively communicates
PREPARING A BUSINESS PLAN
(CONT.)
• Factors that help determine the content of
a business plan for a startup:
 The opportunity
 Critical resources
 The entrepreneurial team
 The financing structure
 The context (or external factors)
6.3 A Business Plan Identifies the Key Factors for Success
6.4 Abbreviated Business Plan Outline
6.5 Table of Contents for BlueAvocado Business Plan
THE CONTENT OF A BUSINESS
PLAN
• Executive Summary (Overview/Narrative)
 Description of the opportunity
 Explanation of the business concept
 Industry overview
 Target market
 Competitive advantage to be achieved
 Economics of the opportunity
 Management team description
 Amount and purpose of the money
6.6 BlueAvocado Overview
6–23
PLAN (CONT.)
• Industry Description
 Broader industry in which the firm will
compete
 Industry size, growth rate, trends, and
competitors
 Different segments of the industry
 Niche in which the firm plans to
participate
PLAN (CONT.)
• Target Customers
 Demographics and psychological variables-
values, attitudes, and fears
• Competitor Analysis
 Product or service attributes that are or are
not provided by competitors
PLAN (CONT.)
• Product/Service Plan
 Describes the product and/or service to be
provided and explain its merits
• Marketing Plan
 Describes the user benefits of the product or
service and the type of market that exists
• Operations and Development Plan
 How product will be produced or service
provided
PLAN (CONT.)
• Management Team
 Describes the firm’s organizational structure
and the backgrounds and qualifications of key
personnel
• Critical Risks
 Identifies the potential risks that may be
encountered by an investor
• Exit Strategy
 Lists the possible options for equity investors to recover their principal investment
and any returns through cashing out of their investment.
PLAN (CONT.)
• Exit Strategy
 Lists the possible options for equity investors
to recover their principal investment and any
returns through cashing out of their investment.
• Financial Plan
 Projects the company’s financial position based
on well-substantiated assumptions and explains
how the figures have been determined
PLAN (CONT.)
 Pro forma statements
 Projections of a company’s financial
statements for up to five years, including
balance sheets, income statements, and
statements of cash flows, as well as cash
budgets.
PLAN (CONT.)
• Appendix of Supporting Documents
 Supplementary materials and attachments to
expand the reader’s understanding of the
plan:
 Résumés of key investors and owners/managers
 Professional references
 Photographs of products, facilities, and buildings
 Marketing research studies
 Pertinent published research
 Signed contracts of sale
ADVICE FOR WRITING A
BUSINESS PLAN
Analyze the market
thoroughly
Pay attention Provide solid

to details evidence for claims
Maintain Think like

confidentiality an investor
Don’t hide weaknesses—

identify potential fatal flaws
ADVICE FOR WRITING A
BUSINESS PLAN
• Analyze the Market Thoroughly
• What is the target market?
• How large is the target market?
• What problems concern the target market?
• Are any of these problems greater than the one you’re addressing?
• How does your product or service fix the problem?
• Who will buy your product or service?
• How much are they willing to pay for it?
• Why do they need it?
• Why would they buy from you?
• Who are your competitors?
• What are their strengths and weaknesses?
6–32
WHAT NOT TO DO
• Mistakes to avoid in preparing a business plan:

 Failing to provide solid data.
 Failing to describe the product in lay terms.
 Failing to thoroughly analyze the market.
 Including financial statements that are overly detailed or
incomplete.
 Hiding weaknesses.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
6–33
WHAT NOT TO DO (CONT.)
• Mistakes to avoid in preparing a business plan: (cont.)

 Overlooking the fatal flaw.
 Using bad grammar.
 Making the overall plan too long.
6–34
PITCHING TO INVESTORS
1. Identify the problem to be solved.

2. Introduce your solution to the problem.
3. Discuss your beginning traction for sales.
4. Identify the target market.
5. Explain the costs of acquiring customers in your
target market.
6. Communicate the value proposition relative to
competitors.
6–35
(CONT.)
7. Describe the basics of the revenue model.
8. Provide financial projections, along with the
assumptions.
9. Sell the team.
10. Identify your funding needs, and explain the use of
the funds.
11. Describe possible exit strategies-how the investors
may be able to cash out.
6–36
(CONT.)
12. End on a high note-remind investors why your

product/service/team is so great.
6–37
RESOURCES FOR BUSINESS
PLAN PREPARATION
• Computer-Aided Business Planning
• Professional Assistance
 Get referrals.
 Look for a fit.
 Check references.
 Get it in writing.
6–38
Key Terms
business model marketing plan
business model risk offering
business plan operations and development
comprehensive plan plan
cost structures pitch
critical risks product/service plan
executive summary resource requirements
exit strategy
revenue model
financial plan
short plan
management team

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Longenecker/Petty/Palich/Hoy

• Explain the purpose and objectives of business plans.

LEARNING GOALS (CONT.):

Offer practical advice on writing a business

WILL WRITING A PLAN

THE BALANCE BETWEEN

DEVELOPING A BUSINESS MODEL

DEVELOPING A BUSINESS MODEL

DEVELOPING A BUSINESS MODEL

PREPARING A BUSINESS PLAN

Pay attention Provide solid

Maintain Think like

Don’t hide weaknesses—

• Mistakes to avoid in preparing a business plan:

• Mistakes to avoid in preparing a business plan: (cont.)

1. Identify the problem to be solved.

12. End on a high note-remind investors why your

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