Chapter 4
Writing a Business
Plan
Associated Prof. A.D. Parajuli
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©2010 Pearson Education 4-1
Chapter Objectives
1 of 2
1. Explain the purpose of a business plan.
2. Discuss the two primary reasons for writing a
business plan.
3. Describe who reads a business plan and what
they’re looking for.
4. Explain the difference between a summary business
plan, a full business plan, and an operational
business plan.
5. Explain why the executive summary may be the
most important section of a business plan.
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©2010 Pearson Education 6-2
Chapter Objectives
2 of 2
6. Describe a milestone and how milestones are used
in business plans.
7. Explain why its important to include separate
sections on a firm’s industry and its target market in
a business plan.
8. Explain why the “Management Team and Company
Structure” section of a business plan is particularly
important.
9. Describe the purposes of a “sources and uses of
funds” statement and an “assumptions sheet.”
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©2010 Pearson Education 4-3
Chapter Objectives
3 of 3
10. Detail the parts of an oral presentation of a business
plan.
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©2010 Pearson Education 3-4
What Is a Business Plan?
• Business Plan
– A business plan is a written narrative, typically 25 to 35
pages long, that describes what a new business plans to
accomplish.
– A business plan is a written description of business's
future.
– A business plan is set of documentsA business plan is set
of documents prepared by a firm's managementA business
plan is set of documents prepared by a
firm's management to summarize its operational
and financial objectives and financial objectives for the
near future (usually one to three years) and to show
how they will be achieved.
Business plan is Dual-Use Document
– For
©2010 most
Pearson new ventures,
Education
Copyrightthe business plan is a
© A.D.Parajuli
4-5
dual-purpose document used both inside and outside
What Is a Business Plan?
• Business plan is a written document that describes in
detail how a new business is going to achieve its goals.
A business plan will lay out a written plan from a
marketing, financial and operational viewpoint.
Sometimes a business plan is prepared for an
established business that is moving in a new direction.
• The plan includes the overall budget, current and
projected financing, a market analysis and its marketing
strategy approach.
• In a business plan, a business owner projects revenues
and expenses for a certain period of time and describes
operational activity and costs related to the business.
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©2010 Pearson Education 4-6
Reasons for writing business plan
• A well written business plan will help you clarify how
you will achieve business success and give others
confidence in your business.
• A business plan is a document that describes your
business, the market it operates in, its objectives and
the strategies you have in place to achieve these
objectives.
• A written business plan:
• forces you to think realistically, objectively and
unemotionally about your business
• leads to questioning of past and future assumptions
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©2010 Pearson Education 4-7
Reasons for writing business plan
• makes it easier to communicate for inside party and out
side party planning objectives and strategies to bankers,
partners, employees, financial backers and so on
• helps to ensure that all aspects of the plan are clear and
integrated
• serves as a reference point when determining the effects
of alternative courses of action on business operations
• allows you to identify any areas where you may need
external assistance
• allows you to plan the growth of your business and
associated capital requirements.
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©2010 Pearson Education 4-8
Benefits of Business Plan
• 1. A plan gives a strategic path for
management to follow.
• 2. Easily convinced to financer in on the
action. By reading the details of your business
plan your financier will have a real insight into
your situation if he or she is to lend you money.
• 3. A plan can help a manager and think about
competitive situations and promotional
opportunities.
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©2010 Pearson Education 4-9
Benefits of Business Plan
4. A plan is a communication tool when you need to
convince others of your ability and requirements.
5. Activities are staying on strategy. Use a business
plan to summarize the main points of your strategy and
as a reminder of what it both includes and rules out.
6. Business objectives will be clear. Use your plan to
define and manage specific measurable objectives like
web visitors, sales, margins or new product launches.
Define success in objective terms.
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©2010 Pearson Education 4-10
Benefits of Business Plan
• 7. Better guesses/estimate. Use your plan to refine
your educated guesses about things like potential
market, sales, costs of sales, sales drivers, lead
processing and business processes.
• 8. Establish work Priorities: There are also priorities
for other factors of your business like growth,
management and financial health. Use your plan to set a
foundation for these, then to revise as the business
evolves.
• 9. Understand interdependencies. Use a plan to keep
track of what needs to happen and in what order.
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©2010 Pearson Education 4-11
Benefits of Business Plan
• 10. Activities keep on track. Use a business plan to keep track of
dates and deadlines in one place.
• 11. Better at delegating authority and responsibility. The
business plan is an ideal place to clarify who is responsible for what.
Every important task should have one person in charge.
• 12. Results will be achieve easy. The plan is a great format for
getting things in writing and following up on the difference between
expectations and results with course corrections.
• 13. Manage cash flow. No business can afford to mismanage cash.
• 14. Course corrections will keep in business from flopping/fall
down. Having a business plan gives you a way to be proactive -- not
reactive -- about business. it sets expectations and establishes
assumptions so you can manage the future with course corrections.
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©2010 Pearson Education 4-12
Why Reads the Business Plan—And What
Are They Looking For?
There are two primary audience for a firm’s business plan
Audience What They are Looking For
A Firm’s A clearly written business plan helps the
Employees employees of a firm operate in systematic and
move forward in a consistent and purposeful
manner.
Investors and A firm’s business plan must make the case that the
other external firm is a good use of an investor’s funds or the
stakeholders attention of others.
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©2010 Pearson Education 4-13
Guidelines for Writing a Business Plan
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• Structure of the Business Plan
– To make the best impression a business plan should follow
a conventional structure, such as the outline for the
business plan shown in this chapter.
– Although some entrepreneurs want to demonstrate
creativity, departing from the basic structure of the
conventional business plan is usually a mistake.
– Typically, investors are busy people and want a plan where
they can easily find critical information.
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Guidelines for Writing a Business Plan
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• Structure of the Business Plan (continued)
– Software Packages
• There are many software packages available that employ an
interactive, menu-driven approach to assist in the writing of a
business plan.
• Some of these programs are very helpful. However, entrepreneurs
should avoid a boilerplate plan that looks as though it came from a
“canned” source.
– Sense of Excitement
• Along with facts and figures, a business plan needs to project a
sense of anticipation and excitement about the possibilities that
surround a new venture.
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©2010 Pearson Education 4-15
Guidelines for Writing a Business Plan
3 of 5
• Content of the Business Plan
– The business plan should give clear and concise
information on all the important aspects of the proposed
venture.
– It must be long enough to provide sufficient information
yet short enough to maintain reader interest.
– For most plans, 25 to 35 pages is sufficient.
• Types of Business Plans
– There are three types of business plans, which are shown
on the next slide.
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Guidelines for Writing a Business Plan
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Types of Business Plans
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Guidelines for Writing a Business Plan
5 of 5
• Recognizing the Elements of the Plan May Change
– It’s important to recognize that the plan will usually change
while written.
– New insights invariably emerge when an entrepreneur or a
team of entrepreneurs immerse themselves in writing the
plan and start getting feedback from others.
– Commitment made for business plan
– Analyzing Strength and Weakness
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©2010 Pearson Education 4-18
Outline of Business Plan
• Outline of Business Plan
– A suggested outline of a business plan is shown on the next
several slides.
– Most business plans do not include all the elements
introduced in the sample plan; we include them here for the
purpose of completeness.
– Each entrepreneur must decided which elements to include
in his or her plan.
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©2010 Pearson Education 4-19
Section 1: Executive Summary
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• Executive Summary
– The executive summary is a short overview of the entire
business plan
– It provides a busy reader with everything that needs to be
known about the new venture’s distinctive nature.
– An executive summary shouldn’t exceed two single-space
pages.
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©2010 Pearson Education 4-20
Section 1: Executive Summary
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Key Insights
• In many instances an investor will
ask for a copy of a firm’s executive
Executive Summary summary and will ask for a copy of
the entire plan only if the executive
summary is sufficiently convincing.
• The executive summary, then, is
arguably the most important
section of a business plan.
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©2010 Pearson Education 4-21
Section 2: Company Description
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• Company Description
– The main body of the business plan beings with a general
description of the company.
– Items to include in this section:
• Company description.
• Company history.
• Mission statement.
• Products and services.
• Current status.
• Legal status and ownership.
• Key partnerships (if any).
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©2010 Pearson Education 4-22
Section 2: Company Description
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Key Insights
• While at first glance this section
may seem less important than the
Company Description others, it is extremely important.
• It demonstrates to your reader that
you know how to translate an idea
into a business.
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©2010 Pearson Education 4-23
Section 3: Industry Analysis
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• Industry Analysis
– This section should being by describing the industry the
business will enter in terms of its size, growth rate, and
sales projections.
– Items to include in this section:
• Industry size, growth rate, and sales projections.
• Industry structure.
• Nature of participants.
• Key success factors.
• Industry trends.
• Long-term prospects.
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©2010 Pearson Education 4-24
Section 3: Industry Analysis
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Key Insights
• Industry analysis is a tool that
facilitates a company's understanding
Industry Analysis of its position relative to other
companies that produce similar
products or services. Understanding
the forces at work in the
overall industry is an important
component of effective strategic
planning.
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©2010 Pearson Education 4-25
Section 4: Market Analysis
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• Market Analysis
– The market analysis breaks the industry into segments and
zeros in on the specific segment (or target market) to which
the firm will try to appeal.
– Items to include in this section:
• Market segmentation and target market selection.
• Buyer behavior.
• Competitor analysis.
• Market Size
• Growth rate of the market
• Market trends
• Market profitability
• Key success factors
• Distribution channels
• Industry cost structure
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©2010 Pearson Education 4-26
Section 4: Market Analysis
2 of 2
Key Insights
• Most startups do not service their
entire industry. Instead, they focus
Market Analysis on servicing a specific (target)
market within the industry.
• It’s important to include a section in
the market analysis that deals with
the behavior of the consumers in the
market. The more a startup knows
about the consumers in its target
market, the more it can tailor its
products or service appropriately.
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©2010 Pearson Education 4-27
Section 4: Marketing Plan
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• Marketing Plan
• A marketing plan is a comprehensive document or blueprint
that outlines a company's advertising and marketing efforts
for the coming year. It describes business activities involved in
accomplishing specific marketing objectives within a set time
frame. Marketing Plan is description of the marketing mix that
a business will use to achieve their marketing goals
– The marketing plan focuses on how the business will
market and sell its product or service.
– Items to include in this section:
• Overall marketing strategy.
• Product, price, promotions, and distribution.
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©2010 Pearson Education 4-28
Section 4: Marketing Plan
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Key Insights
• The best way to describe a startup’s
marketing plan is to start by
Marketing Plan articulating its marketing strategy,
positioning, and points of
differentiation, and then talk about
how these overall aspects of the
plan will be supported by price,
promotional mix, and distribution
strategy. 4p
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©2010 Pearson Education 4-29
Section 5: Management Team and
Organization Structure
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• Management Team and Organization Structure
• An Organization structure defines how activities such as task
allocation, coordination and supervision are directed toward
the achievement of organizational aims.
– The management team of a new venture typically consists
of the founder or founders and a handful of key
management personnel.
– Items to include in this section:
• Management team.
• Board of directors.
• Board of advisers.
• Company structure.
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©2010 Pearson Education 4-30
Section 5: Management Team and Company
Structure
2 of 2
Key Insights
• This is a critical section of a
business plan.
Management Team and • Many investors and others who
read the business plan look first at
Company Structure
the executive summary and then go
directly to the management team
section to assess the strength of the
people starting the firm.
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©2010 Pearson Education 4-31
Section 6: Operations Plan
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• Operations Plan
– Outlines how your business will be run and how your
product or service will be produced.
– A useful way to illustrate how your business will be run is
to describe it in terms of “back stage” (unseen to the
customer) and “front stage” (seen by the customer)
activities.
– Items to include in this section:
• General approach to operations.
• Business location.
• Facilities and equipment.
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©2010 Pearson Education 4-32
Section 6: Operations Plan
2 of 2
Key Insights
• Your have to strike a careful balance
between adequately describing this
Operations Plan topic and providing too much
detail.
• As a result, it is best to keep this
section short and crisp.
-Operational plan Low-level management A unit
within a single area of the business (e.g. a department
within a division) Specific plans for low level and
day-to-day activities and processes that will support
and enable the tactical plan Extremely detailed (who,
what, where and when)
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©2010 Pearson Education 4-33
Section 7: Product (or Service) Design and
Development Plan
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• Product (or Service) Design and Development Plan
• The purpose of the design and development plan section is to provide investors with a
description of the product's design, chart its development within the context of production,
marketing, and the company itself, and create a development budget that will enable the
company to reach its goals.
• There are generally three areas you'll cover in the development plan section:
• . Product development
• . Market development
• . Organizational development
– If you’re developing a completely new product or service,
you need to include a section that focuses on the status of
your development efforts.
– Items to include in this section: Development status and tasks,
Challenges and risks, and Intellectual property.
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©2010 Pearson Education 4-34
Section 7: Product (or Service) Design and
Development Plan
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Key Insights
• Many seemingly promising startups
never get off the ground because
Product (or Service) their product development efforts
Design and Development stall or turn out to be more difficult
than expected.
Plan • Its important to convince the reader
of your plan that this won’t happen
to you.
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©2010 Pearson Education 4-35
Section 8: Financial Projections
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• Financial Projections
– The final section of a business plan presents a firm’s pro
forma (or projected) financial projections.
– Items to include in this section:
• Sources and uses of funds statement.
• Assumptions sheet.
• Pro forma income statements.
• Pro forma balance sheets.
• Pro forma cash flows.
• Ratio analysis.
• BEP
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©2010 Pearson Education 4-36
Section 8: Financial Projections
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Key Insights
• Having completed the earlier
sections of the plan, its easy to see
Financial Projections why the financial projections come
last.
• They take the plans you’ve
developed and express them in
financial terms.
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©2010 Pearson Education 4-37
Presenting the Business Plan to Investors
1 of 3
• The Oral Presentation
– The first rule in making an oral presentation is to follow
directions. If you’re told you have 15 minutes, don’t talk
for more than the allotted time.
– The presentation should be smooth and well-rehearsed.
– The slides should be sharp and not cluttered.
• Questions and Feedback to Expect from Investors
– The smart entrepreneur has a good idea of the questions
that will be asked, and will be prepared for those queries.
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©2010 Pearson Education 4-38
Presenting the Business Plan to Investors
2 of 3
Twelve PowerPoint Slides to Include in an Investor Presentation
1. Title Slide 7. Marketing and sales
2. Problem 8. Management team
3. Solution 9. Financial projections
4. Opportunity and target market 10. Current status
5. Technology 11. Financing sought
6. Competition 12. Summary
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©2010 Pearson Education 4-39
Presenting the Business Plan to Investors
3 of 3
• It’s also important to
look sharp when
presenting a business
plan.
• This new venture team
is going over its
PowerPoint slides one
last time before an
investor presentation.
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©2010 Pearson Education 4-40
