Lecture Chap 7 Hisrich The Business Pan

Chapter 7
The Business Plan: Creating and

Starting the Venture
(Hisrich 8th Ed)
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Planning as Part of the Business
Operation
 Plans provide guidance and structure in a
rapidly changing market environment.
 Plans get finalized as the entrepreneur has
a better sense of the market, the product
or services, the management team, and the
financial needs of the venture.
 They help meet short-term or long-term
business goals.
What is the Business Plan?
 A written document describing all relevant

internal and external elements, and strategies
for starting a new venture.
 It is an integration of functional plans such as
marketing, finance, manufacturing and human
resources.
 It addresses short-term and long-term decision
making for the first three years of operation.
What is the Business Plan?
 The business plan answers questions such as:

 Where am I now?
 Where am I going?
 How will I get there?
Who Should Write the Plan?
 The plan should be prepared by the entrepreneur
in consultation with other sources.
 Lawyers, accountants, marketing consultants and
engineers are useful in the preparation of the
plan.
 The internet also provides a wealth of information
as well as actual sample templates.
 The entrepreneur should make an objective
assessment (table 7.1) of his or her own skills
before deciding to hire a consultant.
Who Should Write the Plan?
Table 7.1 Skills Assessment
Skills Excellent Good Fair Poor
Accounting/Taxis
Planning
Forecasting
Marketing Research
Sales
People Management
Product Design
Legal Issues
Organizing
Scope and Value of the Business
Plan—Who Reads the Plan?
 Who is expected to read the plan can often affect its
actual content and focus.
 The business plan may be read by employees,
investors, bankers, venture capitalists, suppliers,
customers, advisors and consultants.
 However, in preparing the plan it is important to
consider the following three perspectives:
 Entrepreneur’s perspective.
 Articulating what venture is all about.
 Marketing perspective.
 Viewing the business through the eye of the customer
 Investor's perspective.
 Viewing the business through the eye of the investor
Plan—Who Reads the Plan? (cont.)
 Depth and detail in the business plan
depend on:
 Size and scope of the proposed new venture.
 Size of the market.
 Competition.
 Potential growth.
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.
 This process provides a self-assessment by
the entrepreneur.
How do Potential Lenders and
Investors Evaluate the Plan?
 The business plan must reflect:
 The strengths of management and personnel.
 The product/service.
 Available resources.
 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.
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.
 Demand high rates of return.
 Focus on market and financial projections.
Presenting the Plan
 Often colleges and universities or locally

sponsored business meetings offer an
opportunity for entrepreneurs to present
their business plan.
 The entrepreneur is expected to “sell” the
business concept.
 Focus on why this is a good opportunity.
 Provide an overview of the marketing program;
sales and profits.
 Address risks and how to overcome them.
Presenting the Plan
 Audience includes potential investors who

may raise questions.
 There is always the opportunity for the
business plans presented to attract the
attention of a venture capitalist or private
investor.
Information Needs
 Before creating a business plan, the

entrepreneur must undertake a feasibility
study.
 Information for a feasibility study should
focus on marketing, finance, and production.
 Feasible, well-defined goals and objectives
need to be established.
 Based on this, strategy decisions can be
established.
 Take furniture example
Market Information
 An initial piece of information needed by an

entrepreneur.
 For example, following queries may be raised
in order to define the market:
 Is the product most likely to be purchased by men
or women?
 People of high income or low income?
 Rural or urban dwellers?
 Highly educated or less educated people?
 A well defined target market will make it
easier to project market size and goals.
Figure 7.1 - An Upside-Down Pyramid
Approach to Gathering Market
Information
Information Needs (cont.)
 Operations Information Needs

 Location.
 Manufacturing operations.
 Raw materials.
 Equipment.
 Labor skills.
 Space.
 Overhead.
 Most of the information should be incorporated
directly into the business plan.
Financial Information Needs
 The entrepreneur has to prepare a budget

of all possible expenditures and revenue
sources, including sales and any external
available funds.
 The budget includes capital expenditures,
direct operating expenses, and cash
expenditures.
 Industry benchmarks can be used in
preparing the final pro forma statements in
the financial plan.
Writing The Business Plan
 Business plan can take hundreds of hours to

prepare depending upon the experience and
knowledge of an entrepreneur as well as the
purpose it is intended to serve.
 It should be comprehensive enough to give
any potential investor a complete picture
and understanding of the new venture.
 It should also help the entrepreneur to clarify
his or her thinking about the business.
Table 7.5 - Critical Issues for
Environmental and Industry Analysis
Table 7.6 - Describing the Venture
Table 7.7 - Production Plan
Table 7.8 – Organizational Structure

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Chapter 7

The Business Plan: Creating and

 A written document describing all relevant

 The business plan answers questions such as:

 Often colleges and universities or locally

 Audience includes potential investors who

 Before creating a business plan, the

 An initial piece of information needed by an

 Operations Information Needs

 The entrepreneur has to prepare a budget

 Business plan can take hundreds of hours to

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