Writing the Business Plan

1. Writing the Business Plan Jeffrey A. Carr Clinical Professor of Marketing and Entrepreneurship Executive Director, Berkley Center

2. Agenda • Evaluation Criteria • Business Plan Overview • Business Plan Sections • Avoiding Pitfalls Berkley Center for Entrepreneurial Studies

3. Evaluation Criteria • Poor (1) Fair (2) Adequate (3) Good (4) Excellent (5) • Executive Summary (10%) Clear, exciting, and effective as a stand-alone overview of the plan. • Company Overview (10%) Presents a vision, history, business mission, current status, competitive strategy, goals, and objectives for the business. • Products or Services (10%) Describes the key features and benefits, current stage of development, proprietary position, and competitive advantages of the product or service. • Market Analysis (10%) Presents the growth trends and key driving forces of the industry; identifies the key characteristics and needs of the target market(s); assesses the competitive environment; details sales/promotion plan; demonstrates market acceptance for the product or service. Berkley Center for Entrepreneurial Studies

4. Evaluation Criteria • Management Team (10%) Backgrounds and roles of key individuals; history and ability to work as an effective team; personnel needs; organizational structure. • Operating Strategies (10%) Addresses the marketing, production, R&D, personnel, administrative, and financial strategies for the proposed firm. • Critical Risks (10%) Realistically identifies the major internal and external critical risks that could threaten the business and presents viable contingency plans to address these issues. Berkley Center for Entrepreneurial Studies

5. Evaluation Criteria • Financial Statements (15%) Presents a realistic assessment of income statement and cash flow • Projected 5-year period • Cash flows are consistent with operating and marketing strategies outlined in the body of the plan • Cash flow information detailed for first 2 years, quarterly/annually for years 3-5. • Realistic assessment of the working capital and fixed asset requirements of the business • Projected capital structure of the business—long term debt and equity positions • Balance sheet information is projected annually for 5 years. Berkley Center for Entrepreneurial Studies

6. Evaluation Criteria • Funds Required/Used (15%) Clear and concise presentation of amount, timing, type and use of funds required • Articulates the proposal/terms to investors • What entrepreneur is seeking from investors • How much equity will be given up in return for investment capital • Realistic assessment of ROI potential • Deal structure and possible exit scenarios. Berkley Center for Entrepreneurial Studies

7. Agenda • Evaluation Criteria • Business Plan Overview • Business Plan Sections • Avoiding Pitfalls Berkley Center for Entrepreneurial Studies

8. Ten Questions • Is the business an opportunity with real potential or just an idea? • Does the product or service add significant value to the customer? • Is the industry in which the product or service will compete growing, stable, or declining? • Does the firm have a well-defined target market? • Does the firm have an exciting and sensible business model? Will the firm be able to defend its position? Berkley Center for Entrepreneurial Studies

9. Ten Questions • How will the firm’s competitors react to its entrance into its markets? • Is the management team experienced, skilled, and up to the task of launching the new firm? • Is the firm organized in an appropriate manner? • Are the financial projections realistic. Do they project a bright future for the firm? What rate of return can investors expect? • What are the critical risks surrounding the business, and does the management team have contingency plans in place if risks become actual problems? Adapted from Entrepreneurship: Successfully Launching New Ventures by Barringer & Ireland (2006) Berkley Center for Entrepreneurial Studies

10. The Well-Written Business Plan • Orderly • Succinct • Persuasive • Draws readers in, keeps their interest, and convinces them of the potential for this opportunity • Based on reasonable assumptions • Answers the important questions – Articulates how your team will address the 3-5 key drivers of your business Berkley Center for Entrepreneurial Studies

11. Additional Tips • Prioritize the points you are making into three categories: • Need to know – without this the plan makes no sense • Good to know – directly supports and gives context to your essential points • Nice to know – to Appendix? Berkley Center for Entrepreneurial Studies

12. Agenda • Evaluation Criteria • Business Plan Overview • Business Plan Sections • Avoiding Pitfalls Berkley Center for Entrepreneurial Studies

13. Executive Summary • Arguably the most important section of the business plan • Highlights from each section of the BP • Do not cut and paste! • Should be written and re-written during the planning process Berkley Center for Entrepreneurial Studies

14. New Venture Idea • What existing need or want does the concept fill? What is the problem you solve? • Describe the service/product. How will it change the way people live or work? • Who is your customer? What are your market segments? • What is the unique selling benefit? (e.g. why will they buy?) Berkley Center for Entrepreneurial Studies

15. Financial Model • Sources of revenue and funding—required investment • Financial returns • What are your cash needs for operations? Cash flow statement—start-up and growth • Financial projections—5 year income statement with revenue, cost of goods sold, expenses and projected margins. • How do you plan to scale the business? Berkley Center for Entrepreneurial Studies

16. Market Analysis • Size of potential market • Target segments • Current competition and possible new entrants • What are the critical success factors/risks and how will you manage them? • What is your competitive advantage? • How will you “go to market?” What is the marketing plan—branding & 4Ps Berkley Center for Entrepreneurial Studies

17. Operations Plan • How does the business work? • Product development • Logistics • Human resources • Physical facilities • Operating and sales cycle • Articulate milestones for new venture. What is your current status? Berkley Center for Entrepreneurial Studies

18. Management • What are the team’s qualifications for executing the plan successfully? • Who are the necessary key hires? Berkley Center for Entrepreneurial Studies

19. Critical Success/Risk Factors • “If anything can go wrong, it will.” • Evaluate weaknesses of business • Management Risks • Marketing Risks • Operating Risks • Financial Risks • Contingency plans Berkley Center for Entrepreneurial Studies

20. Critical Risk Examples • Price cutting by competitors • Sales projections not achieved, thus reducing cash flows • Design, manufacturing, or shipping costs that exceed estimates • Product development or production schedules that are not met • Problems stemming from top management’s lack of experience • Difficulties in raising additional financing • Industry trends make the product/service less desirable or marketable • Political, economic, social, or technological trends or developments (e.g., new government legislation, recession, new technologies) Berkley Center for Entrepreneurial Studies

21. Social Ventures – 4 Key Issues • Social Impact • Does the venture make a significant social impact? • Social Innovation • Is the venture using a new approach to addressing the social/environmental issue? • Sustainability • Is the venture financially viable? Is the venture positioned to fulfill its mission over the long term? • Measurement • How does the venture measure its social impact and evaluate success? • Are the measurement tools appropriate for this type of venture? Berkley Center for Entrepreneurial Studies

22. Agenda • Evaluation Criteria • Business Plan Overview • Business Plan Sections • Avoiding Pitfalls Berkley Center for Entrepreneurial Studies

23. Why Business Plans Fail • The plan is poorly prepared and has an unprofessional look • The executive summary is unclear and/or not concise • The business is “so unique that there are no competitors.” • No clear answer is provided to the question: “Why would anyone ever want to buy one?” • The entrepreneur has never spoken to a potential customer. Berkley Center for Entrepreneurial Studies

24. Why Business Plans Fail • It’s not clear where the product is in terms of development—does it exist? Can it be readily manufactured? • Describes technical products or manufacturing processes using jargon in a way that only an expert can understand • Financial projections are largely an exercise in wishful thinking Berkley Center for Entrepreneurial Studies

25. Why Business Plans Fail • The financials are heavy on irrelevant details but have flaws in the most important assumptions or overly high compensation for the founder. • There is no discussion of either how a loan will be repaid or how an investor will get his cash out with a satisfactory return. • It gives no clear statement of the qualifications of the management team • The entrepreneur has not been completely honest in the document. Berkley Center for Entrepreneurial Studies

26. Questions • GOOD LUCK!! Berkley Center for Entrepreneurial Studies