Entrepreneurship Chapter 7 - The Business Plan - Creating and Starting the Venture

Textbook Reference: Entrepreneurship, 8th edition by R.H. Hisrich, M.P. Peters and D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010. Chapter 7: The Business Plan Creating and Starting the Venture What is the Business Plan? ▪ A written document describing all relevant internal and external elements and strategies for starting the new venture. ▪ Addresses the integration and coordination of effective business objectives and strategies. ▪ The business is the road map the entrepreneur needs to travel through the maze of issues. ▪ You can use software packages but you will need to personalize it to your particular situation. A cookie cutter approach will have a very negative result. Who Should Write the Plan? ▪ It should be prepared by the entrepreneur. ▪ You should consult with lawyers, accountants, bankers, marketing consultants, etc. ▪ Services can be found with SCORE & SBDC. ▪ Please check the table in the book under this chapter to see more of skill assessment. Value of the Plan ▪ The entrepreneur will clearly articulate what the venture is all about. ▪ Entrepreneurs must try to view the business from the perspective of the consumer. ▪ It helps determine the viability of the venture in a designated market. ▪ It provides guidance to the entrepreneur in organizing his or her planning activities. ▪ It serves as an important tool to obtain financing. ▪ It will provide a self-assessment of the entrepreneur. ▪ It provides ways to avoid obstacles. How do Potential Lenders Evaluate the Plan? ▪ As you become aware of who will read your plan, you will need to make ▪ appropriate changes. ▪ Suppliers may want to see the business plan. ▪ Suppliers of capital will want to see the business plan. ▪ Lenders are primarily interested in the ability of the new venture to pay back the ▪ debt including interest and fees within the designated time. ▪ Banks want facts with objective analysis of the opportunity and all the potential ▪ risks inherent in the venture. ▪ It is important that the entrepreneur develop a strong personal relationship with ▪ the loan officer of the bank. ▪ This relationship will enhance your ability to keep focused on the business plan ▪ objectives. Your regular contact will lead to discussions about objectives. ▪ Lenders focus on the four Cs of credit; 1. Character (Personal) 2. Cash Flow. (Ability to meet debt and interest payments) 3. Collateral. 4. Equity Contribution. (Personal funds put into venture=equity) ▪ This means that lenders want the entrepreneur to have a solid credit history.

Operations Information Needs ▪ Location accessibility to customers and suppliers. ▪ Manufacturing Operations include needed machines and what will be subcontracted. ▪ Raw materials require solid performing suppliers. ▪ Equipment with coast should be listed. ▪ Labor skills should list number of employees as well as skill sets. ▪ Space needed to perform operations. ▪ Overhead are each item needed to support manufacturing or other operations. Financial Information Needs ▪ Prepare a budget of expenditures and sales for the first year. ▪ Forecast the revenue from market data identifying benchmarks in the industry. ▪ Operational expenses can be found through classified advertisements. ▪ Trade Associations publish data that can supplement financial statements. Writing the Business Plan – Please check the book. A table that guides you on how to write the business plan could be found. Measuring Plan Progress ▪ Inventory control can ensure maximum service to the customer. ▪ Production control compares the cost figures with the business plan. ▪ Quality control makes sure the product works performs satisfactorily. ▪ Sales control provides cash forecasting for the new venture. Effective collections for accounts receivable should be developed to limit bad debts. ▪ Disbursements controls the amount of money paid out. ▪ Web Site Control should make sure that it can handle the volume of sales and that it is meeting the company objectives. Why Some Business Plans Fail 1. Goals are unreasonable. 2. Goals are not measurable. 3. The entrepreneur has not made a total commitment to the new venture. 4. The entrepreneur has no sense of potential threats or weaknesses to the business. 5. The entrepreneur’s family must be supportive. 6. A lack of experience or preparation.