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Developing a Business Plan

Developing a Business Plan. BIT Final Year Project. Learning Outcomes. Understand the objectives of the business planning process for a start up venture. Gain an insight into how to write such a business plan.

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Developing a Business Plan

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  1. Developing a Business Plan BIT Final Year Project

  2. Learning Outcomes • Understand the objectives of the business planning process for a start up venture. • Gain an insight into how to write such a business plan. • Understand what the various audiences who will see the plan will be looking for.

  3. Presentation Structure • Business plan overview • Content of a Business Plan

  4. Why prepare a Business Plan? • The primary objective of many business plans is to set out a convincing case to secure financing, either internal or external, for the start-up or expansion of a business venture. • However, just as importantly, business plan is a ‘living document’ that should be updated on a regular basis.

  5. Useful Websites • www.investni.com - Student EnterpriseAwards - Kauffman Fellowships • www.nibusinessinfo.co.uk • www.nisp.co.uk

  6. Audience Internal Audience • Self • Management team • Board of Directors • Employees

  7. Audience External audience (potential funders). • Banks • Government agencies • Business Angels • Venture Capitalists • Corporate Partners

  8. Bank • Banks provide loan capital. • Overdraft, short term, payable on demand. • Business Loan, fixed term. • SFLGS, reduces risk to bank • Key issues: Security, interest & capital repayment therefore not suitable for hi-tech start-up ventures, little security and no early cashflow.

  9. Government Agencies • Invest NI, provides grant support. • Business Development • Revenue, Marketing, Management Salary, Preference Shares. • R&D • COMPETE, SMART • Key issues: Additionality, Admissibility, percentage contribution, export focus.

  10. Business Angels • Business Angels provide risk capital seeking a return over 5-10 years. • High net worth individual • Probably ‘exited’ from previous venture • Brings skills, expertise and cash. • Key issues: <£100k, ‘hands-on’ role, capital growth.

  11. Venture Capital • Investment fund of risk capital, which will seek a return in circa 5 years. • Local funds: Crescent Capital, Enterprise Equity, Viridian Growth Fund (Clarendon). • May bring sectoral expertise, contacts and experience of similar ventures. • Relatively high investment threshold, high fixed costs. • Key issue: >£400k, capital growth, Board seat, focus.

  12. Other Funders • Seed Capital Funders: QUBIS Ltd & University Challenge Fund (NI). Basically a VC investing £10k to £100k.

  13. Return on Investment • Investors, whether business angels, venture capitalists, banks will all be looking for a return on their investment. • The size of that return and the cost of their money is governed by the risk of the project.

  14. Key Elements within a Business Plan • Executive Summary • Background • Corporate Objectives • Product/Technology • Manufacture • Market • Marketing/Sales • Management Team/Structure • Finance/Funding

  15. Corporate Objectives This section should set out objectives for 3/5 years: • Financial projections - sales - profits - return on investment • Markets - geographic - market segments • Customers • Products • Management and organisation

  16. Product/Technology This section should answer the following questions: • What are you going to make/will there be a product range? • How much will the product cost to produce? • What are the product features/how does it work? • What are the product applications? • What is the R&D plan and cost? • How long/much will it take to get the product to market? • What is novel about your product/IP? • What associated services are being offered?

  17. Product Vs Service • A product based business model is scalable; a service based business model is not. • To increase sales in a service business you have to add bodies. • To increase sales in a product business you don’t. • Ideally service based businesses should be profitable from day 1. • Services can be useful in reducing risk during the product development phase.

  18. Technology -ve • Unproven technology, this will require a lot of product development, i.e. time and money before there is a product which can be sold. • Frequent problem with hi-tech start-up proposals which can often be ‘technology’ and not ‘market’ led.

  19. Technology +ve • Early stage sales, especially ‘good quality’ early stage sales, i.e. blue chip customers who appreciate the technology/product. • Provides an endorsement of technology,especially if the product has been sold to a ‘knowledgeable’ customer.

  20. Manufacture This section should answer the following questions: • In-house or sub-contract manufacture? • What is the production process? • What are the plant and equipment requirements? • What is the capital spend and timetable? • What are the production inputs – premises, labour, suppliers, raw materials? • What are the production and quality control procedures?

  21. Manufacture Checklist • How will you make the product and what inputs are required? • What plant and machinery is required and what are the costs? • What management and labour skills are required? • What management/quality controls are in place?

  22. Market This section should answer the following questions: • What is your target market? • What size is the market and is it growing? • What market segments will you target? • What is the market structure and how does the market operate? • Who are your customers, where, how many, how big, purchasing power? • What are your customers’ requirements and how do your customers buy? • Who are your competitors, where, market share, strengths/weaknesses?

  23. Market Research Sources • Libraries – Invest NI, Belfast Central Library, Queen’s, UU • Internet • Published reports • Customers/potential customers • Competitors – annual reports, promotional material, product manuals • Magazines/newspapers • Trade Associations • Companies Registry

  24. Market -ve • #1 turn off • Gaining a small % of a BIG number • Plan to achieve 1% of the UK/EU/US etc market within one/two/three years will result in sales of £10m

  25. Market +ve • Clear knowledge of the existing marketplace and a ‘channel to market’. • Knowledge of the existing competitors, i.e. who they are and their strengths and weaknesses. • Awareness of the potential end user/customer needs, i.e. what they want and how the existing products/services fall short.

  26. Route to Market Checklist • What is the geographic scope of the market: world, Europe, local? • What is the market value in terms of units and value? • How fast is the market growing and where are the opportunities? • Which market segments will you concentrate on & why? • What is your target market share?

  27. Route to Market Checklist • If there is no existing market or if the market is being developed, what is the expected take up rate? • How will your company’s entry affect the market? • What is the market structure? • What are the key customer requirements? • How will you meet these?

  28. Route to Market Checklist • Who are your major competitors? • What are their strengths and weaknesses? • What is their pricing, profitability etc? • How will they react to your entry? • What are your competitive advantages?

  29. Bottled Water – the UK market • 2001 – 1.6 billion litres; £900 million • 12% growth on 2000; £1.1 billion forecast for 2003 • 10-12% growth to 2006 => 2.6 billion litres • Average consumption/person/year – UK 26 litres; French 139 litres; Italians 183 litres; Euro average 93 litres • 40+ producers Top five producers = 52% of market • Customers – supermarkets (50% of total); independent grocery outlets; petrol station forecourts; CTN’s; sandwich bars; kiosks; department stores; variety stores;on-trade (pubs, restaurants, hotels); off licences • End customer needs – healthier lifestyles; convenience; working lunches; hot(!!) summers • Own label; branded; packaging and labelling • Planned; impulse • Spring; mineral; flavoured Still 82%; sparkling 18% • End market segments – young professionals, especially females; children; sports people; housewives; office workers; diners; drivers

  30. Marketing/Sales This section should answer the following questions: • What are your target market segments? • What are your competitive advantages? • How will you sell to your customers? • What promotional activities will you undertake ? • What prices will you charge/discounting? • How will you transport your products? • What customer service will you offer? • Will you brand your products? • What packaging and labelling will be used?

  31. Marketing -ve • Waiting for the telephone to ring. • Developing the ‘perfect’ product. • Note: only sales generate income; everything else is a cost.

  32. Marketing +ve • Knowing your customers and markets. • Being proactive, persistent and professional. • Note: customers will only buy from suppliers they believe will have a long term market presence.

  33. Marketing Checklist • Who are your customers and what are their needs? • What are your competitive advantages? • How will you sell and support that sales effort through promotional activities and customer service? • What pricing and distribution strategies will you use?

  34. Management Team/Structure This section should answer the following questions: • Who will execute the plan and deliver the projected returns? • How will the various individuals fit together/what roles will they play? • What are their strengths? • What are their weaknesses and how will they be addressed? • What is the balance of company ownership? • What is the organisational structure? • What are the management control systems?

  35. An ‘A’ Quality Team • Investors will invest in an ‘A’ quality team and a ‘B’ quality product, but not the other way around. • An investment decision is based on many things but one of the main elements is the combination of individuals who make up the team

  36. Management -ve • ‘All conquering hero’. • Not prepared to acknowledge areas of weakness. • Note: hi-tech start-up businesses have a certain level of business naivety.

  37. Management +ve • ‘Previous’. • Substantial previous business experience, possibly specific experience. • Ability to bring together a strong team and address areas of potential weakness.

  38. Management Team Checklist • Who are the key team members? • What are their skills and experience? • What are their roles and responsibilities? • What are the gaps in the team? • How are you going to plug those gaps?

  39. Finance • Cash flow • Balance Sheet • Profit & Loss Account Note: Financial forecasts within start–up venture business plans are heavily discounted.

  40. Cashflow

  41. Balance Sheet

  42. Profit & Loss Account

  43. Project Costs/Source of Funds

  44. Finance -ve • ‘Hockey stick’ projected sales growth.

  45. Finance +ve • Cash investment from promoters. • Cash investment from other ‘knowledgeable’ investor.

  46. Raising Funding • 3Fs, Friends, Family & Fools • Self, from your own resources • Revenue generated • Grants • J/V or Commercial Partner • Business Angels • Venture Capital

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