The Business Plan

L B Deshmukh

Why Plan? And the SME

The SME
Not in control Little point of planning

Year 1- 2
Getting established, finding and keeping customers; developing products and services.

Year 3-4
Consolidation finding and keeping competent staff, delegating, controlling the business

Year 5Attracting investors, competing with much bigger firms in the market.

Why Plan?
Identifies areas of the business that are not completely under control. Is an important source of information for funding organisations. Framework for informing employees and others Better management decisions based on objective analysis Improvement of management information systems. Identifying key areas where the firm needs to improve expertise. Provides a basis for whether a new product would be a success.

SURE
S Is the plan SOUNDLY based? U Does the market UNDERSTAND the relationship between external market and internal resources? R Is the plan REALISTIC? E Are the previous EXPERIENCE and EXPECTATIONS of the group in line with the requirements of the plan?

Will you succeed?

Viable if the SME survives 5 years. Especially the first 3 years Survival of first five years is closely related to the amount of planning carried out. Research shows an increase in survival chances of 3% for every 1 day of planning with a plateau after 14 days. Good business plans help: a fully detailed plan is 15 times more likely to receive funding.

Starting Off!
Know yourself
Who you are. What you can do. How you can do it.

General Objectives
1. Do we want to grow? 2. Do we want to build a long term business or is our perspective short term? 3. Do we want to deal with new challenges? 4. Do we want to maintain control? 5. Do we need a lot of money? 6. Risk Appetite

Planning as Part of The Business Operation

Planning is a process than never ends for a business. It is extremely important in the early stages of any new venture when the entrepreneur will need to prepare a preliminary business plan. As the venture grow up to mature business, planning will continue Plan may be short term or long term, strategic or operational.
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What is Business Plan?

The business plan is a written document prepared by the entrepreneur that describes all the relevant internal and external elements and strategies for starting a new venture. It is a integration of functional plans such as marketing, finance, manufacturing, sales and human resources.
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Who should write the plan?

The business plan should be prepared by the entrepreneur. The entrepreneur may consult with many other sources in its preparation, such as lawyers, accountants, marketing consultants, and engineers.
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Scope and Value of the Business Plan Who Reads The Plans?
The business plan may be read by employees, investors, bankers, venture capitalists, suppliers, customers, advisors, and consultants. There are three perspectives should be considered in preparing the plan :
Perspective of the entrepreneur Marketing perspective Investors perspective

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Scope and Value

The business plan is valuable to the entrepreneur, potential investors, or even new personnel, who are trying to familiarize themselves with the venture, it goals, and objectives.
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 in helping to obtain financing.

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How do Potential Lenders and Investors Evaluate The Plan?

Four Cs of Credit:
Characters Cash flow Collateral Equity of Contribution Marketable Payback period Risk Feasibility, etc

Another

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Presenting The Plan

It is often necessary for an entrepreneur to orally present the business plan before an audience of potential investors. In this typical forum the entrepreneur would be expected to provide a short (perhaps 20-minutes or half-hour) presentation of the business plan.

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Information Needs
Before committing time and energy to preparing a business plan, the entrepreneur should do a quick feasibility study of the business concept to see whether there a any possible barriers to success. The information, obtainable from many sources should focus on marketing (segmenting, targeting, and positioning), finance (list of all possible expenditures, demand forecast, revenue), and production (location, manufacturing operations, raw materials, equipment, labor skills, space, overhead) . Internet can be a valuable resource.

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Outline of a Business Plan

Introductory Page
Name and address of business Name(s) and address(es) of principal(s) Nature of business Statement of financing needed Statement of confidentially of report

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Outline
Executive Summary Three to four pages summarizing the complete business plan
What is the business concept or model? How is this business concept or model unique? Who are the individuals starting this business? How will they make money and how much?

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Outline
Environmental and Industry Analysis

Description of Venture

Future outlook and trends Analysis of competitors Market segmentation Industry and market forecasts

Product(s) Service(s) Size of business Office equipment and personnel Background of entrepreneurs

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Outline
Production Plan
Manufacturing process (amount subcontracted) Physical plant Machinery and equipment Names of suppliers of raw materials

Operational Plan

Description of companys operations Flow of orders for goods and/or services Technology utilization

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Outline
Marketing Plan

Organizational Plan

Pricing Distribution Promotion Product forecasts Controls

Form of ownership Identification of partners or principal shareholders Authority of principals Management-team background Roles and responsibilities of members of organization

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Outline
Assessment of Risk
Evaluate weakness of business New technologies Contingency Plans

Financial Plan

Pro forma income statement Cash flow projections Pro forma balance sheet Break-even analysis Sources and applications of funds

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Outline
Appendix (contains backup material)
Letters Market research data Leases or contracts Price lists from suppliers.

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Using and Implementing The Business Plan

The business plan is designed to guide the entrepreneur through the first year of operations. Implementation of the strategy contain control point to ascertain progress and to initiate contingency plan if necessary. Business plan not end up in a drawer somewhere once the financing has been attained and the business launched.

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Measuring Plan Progress

Entrepreneur should check the profit and loss statement, cash flow projections, and information on inventory, production, quality, sales, collection of accounts receivable, and disbursements for the previous month.
Inventory control Production control Quality control Sales control Disbursements

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Updating the Plan

The most effective business plan can become out-of-date if condition change. If the change are likely to affect the business plan, the entrepreneur should determine what revisions are needed. In this manner, the entrepreneur can maintain reasonable targets and goals and keep the new venture on a course that will increase probability of success.

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Why Some Business Plans Fails?

Goals set by the entrepreneur are unreasonable. Goals are not measurable The entrepreneur has not made a total commitment to the business or to the family. The entrepreneur has no experience in the planned business. The entrepreneur has no sense of potential threats or weaknesses to the business. No customer need was established for the proposed product or service.

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Steps to a business plan

What are you planning?
Identify risks and opportunities Define your business activities.

Define the current status of the business

Develop a strategy for limiting risks and exploiting opportunities

Define external market conditions, competition and market positioning

Final plans
Refine the strategies into working plans

Define your core objectives Project costs, revenues, cash flow Develop a strategy for achieving the core objectives

key pointers
Audience: Who is it meant for? Objectives:
Expression of the planning process Request for funding A framework for approval Tool for business management

Short Term or Long Term plan

Other Elements
Size should be as short as possible. Good average 20 40 pages Annexure would include
Depends on the circumstances.

Always written by the head.

Background material regarding specialist processes. Detailed product specification Marketing brochures and leaflets Detailed financial analysis Full Biographies

Typical Business Plan Contents

Contents Small print Contact, Document control, definitions. List of contents Executive summary Basic data, mission, history Business organisation and management team. Infrastructure, products Market and competitive analysis Business Strategy Sales Financials Risks Annexures
Sales Forecast Capital outlays Employee costs Operating costs Expenditure commentary Profit and Loss Account Balance Sheet Cash Flow Etc.

Basic Document
Document Control Establish a procedure for numbering documents and their revisions Keep a record of who receives which version Make sure the contributors and the recipients have signed confidentiality agreements. Presentation Select paper and binding that is both practical and of good quality. Page Setup Consider formatting the page so that you print on A4 paper. Make the left margin wide so that the text itself is no more than 5 inches Set up headers and footers Choose a font for about three levels of headings Page Numbering Cover Contents Page basic headers Contacts Definitions Conclusions
Either 1,2,3 or 1.1, 1.2, 1.3; 2.1, 2.2, 2.3 Document control information Repetitive information Example Document number BP2005.01D released 30th July 2005

Other Pointers
Investor Approach, and size of project. Techniques for multiple business plans
Value each of them separately A master plan

Importance of the executive summary Responsibilities

Plan the plan Who is responsible for what contributions Department heads should buy into the strategy

SWOT Analysis Preliminary Analysis

Strengths and Weaknesses are Internal factors over which one has control or influence.
Opportunities and Threats are external issues that you cannot control

Area of Business
Processes Management Marketing & Sales Other skills

Places to look for Strengths and Weakness

Strengths
High Productivity Good at acquisitions Good at direct sales Excellent R&D Success overseas Branding, trade secrets Excellent Location Specialist equipment Good management information Slow time to market Poor staff management Poor market research Poor maintenance

Weakness

Experiences
Intellectual Property Premises Plant, machinery Information technology Finance

Fingers burnt somewhere Expiring patent Unwanted Lease Worn out plant Poor automation

Good cash Flow

Burden of debt

Places to look for Opportunities and Threats

Area of Business
Market Industry Industry Association Labour Market Financial Markets Exchange Rates Green (Environmental ) Lobby

Opportunities
Your market is growing rapidly Competition is fragmented Compliance with standards strengthens your product Locally available skills Low cost funds Cheaper imported raw materials Opportunity to sell, say water saving devices Economic expansion will boost demand Tax Holiday Sell specialized equipment or relief supplies

Threats
Your market is reaching maturity Competitors have strong R&D Meeting new standards increases costs. Disruptive strikes Higher borrowing costs will reduce customer spending power. Cheaper competing products Cost of anti pollution legislation

Economic Trends
Government Policies Natural Disasters

Growing unemployment will reduce demand Incentives for rival company Loss of production or data

Core Competencies (exercise)

What are you really good at? Special skills, knowledge, experience, assets Compare these Continue to keep track of any strengths, weakness, opportunities and threats that you discover

1. 2.

Maximising shareholder value Maximizing profitability (watch for managers with profit related bonuses). 3. Maximizing dividend pay-outs (there goes the working capital). 4. Maximizing market share (common in Japan). 5. Maximizing total assets. 6. Minimizing excitement and risks perhaps so that the chief executive has an easy ride during his or her final few years in charge. 7. Positioning the company as a takeover target. so that the owners can make a quick capital gain. 8. Building an empire measured by number of employees, the range of international subsidiaries or some other ego-inflating statistic. 9. Prudence financial companies often pursue stability and growth. 10. Maximizing some altruistic vision such as social welfare.

Top Ten Common Central Objectives

Vision, Mission, Philosophy (The rational of your business)

Vision Where you are going.
Not a painful exercise. One or two sentences, four paragraphs at the most. What drives you forward
Worlds most profitable airline. Largest manufacturer of toothbrushes Number 2 manufacturer of a product.
Can be a dependent vision

Mission What you are going to achieve right now.

In the next few years In the long run we are all dead Gives a clear indication to employees, business partners or customers Very clear definition
Why, where, how Customer needs and benefits People do not want shovels, they want holes in the ground

Philosophy How you will behave along the way.

Numbers for the bank

Sales Revenue Gross Profit Gross Profit as a percentage of sales Operating costs by key areas Interest Paid Net Income (Net Profit) before tax Only required if your company has a history Detailed figures need to go into the annexure Occasionally, try to rectify the figures For additional finance investors like to see
Tangible value A solid core business A reasonable financial situation

Organisational Chart

Chief Executive

Quality

R&D

Production

Customer Service

Marketing & Sales

Administration

Most business start with a similar structure

Could be by regions or business areas.

Matrix Organisation People borrowed part time or full time from their place in the main organisation to work on specific projects. Try to form a new view, new structure.

Think from the point of view of the people reviewing the business plan

Management Team
The business is organised in a way that will allow everyone to operate successfully. There is good corporate governance the board should be up to its job. The management team has the required qualities and skills The necessary supporting structure is in place. Problems Not a complete organisation, esp. in the case of a start-up. Is the organisation structured effectively? Solutions Document the current situation briefly. Return to it later, with explanations. Keep SWOT in mind Correspond the organisational structure to the management team.

Business Infrastructure
Describe your infrastructure
Premises Plant Machinery Computers Other Assets

Dot-com why did it crash? Written down book value may be different from market value and different from replacement cost. Write the positives and negatives about the assets.

Products & Services

Detailed description for a business start-up, with brand new and unknown products. Less with known products but still detail and future strategy is required. One or many products focussed vs. risky! Include a picture if possible, it helps. and not everyone is a genius!

Core Competencies
Identify the core competencies Could be from
Manufacturing Intellectual Property Supplier excusive rights Trademark or Servicemark Other areas

Be honest! Rank them

Bringing new products to market rapidly Miniaturizing electronic components Managing takeovers and acquisitions Selling to government purchasers or hospitals

Core competencies exercise

Indian Brands

15 Areas where competencies may be found.

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. R&D Capability Product Development Management of Suppliers/ Supplies Production Capacity Management Inventory Control Branding Management of Channels to market Market research / understanding Sales Techniques/ account management Information management Negotiating Corporate Acquisitions International Operations Specific areas of management expertise

Summarize
Introduction to Business Plans Basic Business Plan creation Some elements of the plan Current situation analysis Next week
Competitive Research Business Plan Finance.

Voting on Ideas Discussion on the case study. Questions/ Comments laxmikantd@gmail.com

Questions and Comments

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Thank You