Reflection of Chapter 3- The Business Plan

Business plans are similar to road maps; you may be able to travel without one, however the
chance of you getting lost along the way is high. Instead of creating the possibility of having to
stop and ask for directions or even having to start over, entrepreneurs often use business plans to
lend a guiding hand. This is because business plans help them to visualize the big picture, plan
ahead, make important decisions and improve the likelihood of success.

Purpose of Business Plan

A business plan serves two primary purposes for entrepreneurs. First, it helps them to run a
company with a more cohesive vision. Evaluating one’s plan for marketing, sales,
manufacturing, etc. increases the chance of attaining goals. The second purpose is to help secure
investment from financial institutions or other lenders, who will not invest unless it is adequately
demonstrated that one’s vision will lead to success. Banks want to lessen their risk of default,
and private investors want a realistic projection for the return on their capital.

Writing a Business Plan

How does one go about writing a business plan? The chapter offers two options. One is to have
the plan written and edited by the member of the entrepreneurial team who is proficient in the
written language, and who is able to fluently and coherently communicate the model of the plan.
A teenager should be able to understand the document. If a potential investor was to read the
document and find it difficult to understand because of unclear descriptions, misspelled words
and grammatical errors, then you know you have done an inadequate job of writing the business
plan. Therefore, being clear and concise is of huge importance. It also depends on who is reading
the business plan, whether the potential investor has prior knowledge of the industry or the
company, based on that it is up to you to decide whether various information should be included
or not.

The second option is to have it written by students of graduate business school. Faculties
of many courses have students write up business plans under the pretext of projects, by providing
academic credit as the incentive. You can also get the help of websites and books to get an idea
on basic business plan templates.
Contents of the Business Plan

The task of writing a business plan can be overwhelming, but it is best to approach it on a step by
step basis. The information included in a business plan differs based on the investors who may
decide to finance the business and the type of company seeking finance. The reason for seeking
finance is also important. For example, for a start-up launching a new product, including facts
emphasizing on the existence of market demand for the product, is a must. Information about the
required skills and experiences of the management team should also be included to ensure the
investors about the team’s competency at running a new business enterprise.

Executive Summary

The first section should be concise outline of the business plan. Potential investors receives
numerous business plans a day, therefore the executive summary is the one that mostly gets read
thoroughly. It must be well written and short (i.e. 2 pages maximum), and include the most
relevant information the potential investor might require. According to the chapter, along with
the main issues of the business plan, it must also include specified and verified data on return on
investment (ROI), internal rate of return (IRR), and existing and potential risks,

The Company

This section includes a sophisticated view of the business which should explain who you are,
how you operate and what your goals are. The company description should feature:

- A brief history about the nature of the business (type of industry, targeted market
area, etc.), and the demands it plans to supply
- A summary of company growth including financial and market highlights
- An overview of the company’s product and/or services, customers and suppliers
- The legal structure of the business (sole proprietorship, general and limited
partnerships, etc.)

The Industry

When writing a business plan, the industry section should include an overview of the industry
(description, size and characteristics of the industry, trends and key drivers in the industry).
Macro-economic data such as unemployment rate, inflation rate, etc.; as well as industry-specific
data must also be include to provide a better understanding about the environment in which the
company is operating.

The Market

This section is meant to exhibit one’s industry knowledge, and current conclusions based on
market research. Essentially it is data retrieved from market analysis, which can be done with
the help of consulting firms. A free of cost option is to request business schools to have their
marketing department students conduct the research. The market analysis should include:

- An outline of targeted customer segments, including size, demographics, and

location.
- Historical, current and projected marketing data of products and/or services
- An analysis on the approach that will be taken to reach specific customers, their
purchasing decisions, and the way the customers acquire the product/service.

Product and Services

In order to secure financing, potential investors must be informed about the type of product or
service the company plans to offer to customers. Details such as suppliers, product/service costs,
and expected net revenue from the sales of mentioned product/service must be included. In
general this section contains:

- A detailed description of the products/services, with focus on customer benefits.

- An explanation of the role of the products/services, and advantages it has over
competitors, in the market.
- Differentiation, positioning and pricing strategy with regards to the product/service
offered.
- Relevant copyright, patent or trade secret data.
- Information about the product/services life cycle.
Competition

Investors are more likely to finance entrepreneurs who have a clear idea of the existing
competitors – direct or indirect- in the industry. This section features:

- Identification and evaluation of key competitors and their operations.

- A detailed evaluation of competitors emphasizing their strengths and weaknesses on
factors such as pricing, quality, performance, etc.
- Data about the competitors existing and potential market share, and how the company
plans to gain market share.
- Identification of barriers to entry into the market and plans on how to mitigate the
competition.

Marketing and Sales

This section consists of a summary of one’s sales and marketing strategy, and how to implement
them with an operating plan. In simple terms, how one plans to offer their product/service in the
marketplace. It includes:

- Details about cost, pricing, promotions and distribution strategy

- Historical, current and expected sales growth

Facilities

It includes descriptive information about the company’s operations such as size, location,
condition, etc; and the estimated cost of running the facility. Information about sales per square
feet, insurance coverage, access to public transportation, and utilities must be included.

Operating Plan

This section includes an explanation of how the company will function, including the operations
cycle (from acquisition of supplies through production to delivery). It also encompasses data
about the day-to-day operations of the company; such as

- Business operations (operating hours, number of shifts, etc.)

- Production (key quality control issues, capacity, utilization, etc.)
 - Purchasing (inventory plan, product delivery, receiving and shipping, etc.)
- Labor force (no. employees, skill levels, source of labor, etc.)

Management Team

It provides an outline of the company’s organizational structure, identifying the owners,

management team and board of directors. It includes

- An organizational chart with descriptions of departments and key employees

- Profiles of your management team, including their names, positions, main responsibilities
and past experience
- List of any advisors, such as board members, accountants, and attorneys
- Compensation plan, succession plan, and investments.

Appendixes and Tables

Information such as resumes, union contracts, leases and research findings can be included in
this section, amongst others.

References

This section must include financial and character references. The aim is to provide the investors
with relevant information about the company and the entrepreneurial team.

Potential Risk

A risk assessment enables the company to identify risks, the severity of each risk, and to explore
solutions to reduce the impact of risks. Conducting a risk assessment will also provide the chance
to ensure potential investors that the benefits of the project merit the risk incurred. Potential risks
to consider include loss of major customer(s), problems with suppliers, a capital or financing
shortfall, etc.
Financial Statements and Pro Formas

This last section of the business plan should be developed after the market analysis is complete
and goals have been set for the company.

Some of the important financial statements that should be included in the plan are:

 Historical financial data including income statements, balance sheets and cash flow
statements for the past three to five years
 Realistic prospective financial information, including forecasted income statements,
balance sheets, cash flow statements and capital expenditure budgets for the next five
years
 A brief analysis of the financial data, featuring a ratio and trend analysis for all financial
statements

What to do once the business plan is created?

Once the business plan is written, the next step is to find and present it to suitable potential
investors. Conducted a research on the type of business investors choose to finance is of
relevance. Obtaining “and endorsed recommendation” from someone who has done business
dealing with your preferred investor, increases the likelihood that the business plan will be
seriously considered.