ENTREPRENEURSHIP
THE BUSINESS PLAN:
CREATING AND STARTING THE VENTURE
WEEK 8
Asst. Prof. Zeynep Merve ÜNAL
Chapter 8
THE BUSINESS PLAN:
CREATING AND STARTING THE VENTURE
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LEARNING OBJECTIVES
• To define what the business plan is, who prepares it, who reads it, and how it is
evaluated.
• To understand the scope and value of the business plan to investors, lenders,
employees, suppliers, and customers.
• To identify information needs and sources for each critical section of the business
plan.
• To enhance awareness of the value of the Internet as an information resource and
marketing tool.
• To present examples and a step‐by‐step explanation of the business plan.
• To present helpful questions for the entrepreneur at each stage of the planning
process.
• To understand how to monitor the business plan.
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WHAT IS THE BUSINESS PLAN?
• The business plan is a written document prepared by the
entrepreneur that describes all the relevant external and internal
elements involved in starting a new venture. It is often an
integration of functional plans such as marketing, finance,
manufacturing, and human resources.
• The business plan—or, as it is sometimes referred to, the game
plan or road map—answers the questions, Where am I now?
Where am I going? and How will I get there? Potential investors,
suppliers, and even customers will request or require a business
plan.
3
WHO SHOULD WRITE THE PLAN?
• The business plan should be prepared by the entrepreneur;
however, he or she may consult with many other sources in its
preparation. Lawyers, accountants, marketing consultants, and
engineers are useful in the preparation of the plan.
• In many instances, entrepreneurs will actually hire or offer equity
(partnership) to another person who might provide the
appropriate expertise in preparing the business plan as well as
become an important member of the management team.
4
Illustration of a rating to determine what skills
are lacking and by how much
• For ex., a sales engineer designed a new machine that allows a user to send a 10‐
second personalized message in a greeting card. The greeting card had particular
appeal in foreign countries.
• Entrepreneur, in assessing his skills, rated himself as excellent in product design
and sales, good in organizing, and only fair or poor in the remaining skills. To
supplement the defined weaknesses, the entrepreneur found a partner who could
contribute those skills that were lacking or weak. Through such an assessment, the
entrepreneur can identify what skills are needed and where to obtain them.
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SCOPE AND VALUE OF THE BUSINESS PLAN— WHO READS THE PLAN?
• The business plan may be read by employees, investors, bankers,
venture capitalists, sup ‐ pliers, customers, advisors, and
consultants. Who is expected to read the plan can often affect its
actual content and focus. Since each of these groups reads the
plan for different purposes, the entrepreneur must be prepared
to address all their issues and concerns. In some ways, the
business plan must try to satisfy the needs of everyone, whereas
in the ac‐ tual marketplace the entrepreneur’s product will be
trying to meet the needs of selected groups of customers.
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3 perspectives that should be considered in
preparing the plan
• First is the perspective of the entrepreneur, who understands better than
anyone else the creativity and technology involved in the new venture. The
entrepreneur must be able to clearly articulate what the venture is all
about.
• Second is the marketing perspective. Too often, an entrepreneur will
consider only the product or technology and not whether someone would
buy it. Entrepreneurs must try to view their business through the eyes of
their customer.
• Third, the e trepreneur should try to view his or her business through the
eyes of the investor. Sound financial projections are required; if the
entrepreneur does not have the skills to prepare this information, then
outside sources can be of assistance.
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• The business plan is valuable to the entrepreneur, potential
investors, or even new personnel, who are trying to familiarize
themselves with the venture, its goals, and objectives. The
business plan is important to these people because:
• 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?
• It is conceivable that the entrepreneur will prepare a first draft of the
business plan from his or her own personal viewpoint without
consideration of the constituencies that will ulti‐ mately read and
evaluate the plan’s feasibility. As the entrepreneur becomes aware of
who will read the plan, appropriate changes will be necessary.
• For example, one constituency may be suppliers, who may want to
see a business plan before signing a contract to produce either
components or finished products or even to supply large quantities of
materials on consign‐ ment. Customers may also want to review the
plan before buying a product that may require significant long‐term
commitment, such as a high‐tech telecommunications system. In both
cases, the business plan should consider the needs of these
constituencies, who may pay more attention to the experience of the
entrepreneur(s) and his or her projection of the marketplace.
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PRESENTING THE PLAN
• The entrepreneur is expected to “sell” his or her business
concept in this designated period of time. This implies that the
entrepreneur must decide what to say and how to present the
information. Typically, the entrepreneur will focus on why this is
a good opportunity, pro‐ viding an overview of the marketing
program (how the opportunity will convert to reality) and the
results of this effort (sales and profits). Concluding remarks
might reflect the rec‐ ognized risks and how the entrepreneur
plans to address them.
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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 are any possible barriers to success. The information, obtainable
from many sources, should focus on mar‐ keting, finance, and production.
• Goals and objectives that are too general or that are not feasible make the
business plan difficult to control and implement. For example, an entrepreneur
starting a sporting goods store that specialized in offbeat sports (e.g.,
rollerblading, skateboarding, and snowboarding) developed a business plan
that called for six stores to be opened by year two of the start‐up. A friend and
business confidant read the plan and immediately asked the entrepreneur to
explain how and where these stores would be located. Not having a clear
under‐ standing of the answers to these questions suggested to the
entrepreneur that his business objectives needed to be much more reasonable
and that they needed to be clarified in the marketing and strategy segments of
the plan.
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Market Information
• One of the initial pieces of information needed by the entrepreneur is
the market potential for the product or service. To ascertain the size
of the market, it is first necessary for the entrepreneur to define the
market. For example, is the product most likely to be purchased by
men or women? People of high income or low income? Rural or urban
dwellers? Highly educated or less educated people? A well‐defined
target market will make it easier to project market size and
subsequent market goals for the new venture.
• To build a strong marketing plan with reasonable and measurable
market goals and objectives, the entrepreneur will need to gather
information on the industry and market. Most entrepreneurs have
difficulty with this stage and do not often know where to begin.
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An Upside‐Down Pyramid Approach to Gathering Market Information
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Operations Information Needs
• The relevance of a feasibility study of the manufacturing operations depends on
the nature of the business. Most of the information needed can be obtained
through direct contact with the appropriate source. The entrepreneur may need
information on the following:
• Location The company’s location and its accessibility to customers, suppliers,
and distributors need to be determined.
• Manufacturing operationsBasic machine and assembly operations need to be
identified, as well as whether any of these operations would be subcontracted and
to whom.
• Raw materials The raw materials needed and suppliers’ names, addresses, and
costs should be determined.
• Equipment The equipment needed should be listed, with its cost and whether it
will be purchased or leased.
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• Labor skillsEach unique skill needed, the number of personnel
required for each skill, pay rate, and an assessment of where and
how these skills will be obtained should be determined.
• Space The total amount of space needed should be
determined, including whether the space will be owned or
leased.
• Overhead Each item needed to support manufacturing—such
as tools, supplies, utilities, and salaries—should be determined.
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FINANCIAL INFORMATION NEEDS
• Before preparing the financial section of the business plan, the
entrepreneur will need to prepare a budget that includes a list of
all possible expenditures in the first year and a list of all revenue
sources, including sales and any external available funds.
• Thus, the budget includes capital expenditures, direct operating
expenses, and cash expenditures for nonexpense items.
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WRITING THE BUSINESS PLAN
outline of a business plan
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Sample Introductory Page
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Environmental Analysis
• It is important to put the new venture in a proper context by first conducting an
environ‐ mental analysis to identify trends and changes occurring on a national and
international level that may impact the new venture.
• Examples of these environmental factors are:
• Economy The entrepreneur should consider trends in the GNP, unemployment
by geographic area, disposable income, and so on.
• CultureAn evaluation of cultural changes may consider shifts in the population
by demographics, for example, the impact of the baby boomers or the growing
elderly population.
• TechnologyAdvances in technology are difficult to predict. However, the
entrepreneur should consider potential technological developments determined
from resources committed by major industries
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Industry Analysis
• Once an assessment of the environment is complete, the entrepreneur should
conduct an industry analysis that will focus on specific industry trends. Some
examples of these factors are:
• Industry demandDemand as it relates to the industry is often available from
published sources. Knowledge of whether the market is growing or declining, the
number of new competitors, and possible changes in consumer needs are all
important issues in trying to ascertain the potential business that might be
achieved by the new venture.
• Competition Most entrepreneurs generally face potential threats from larger
corporations. The entrepreneur must be prepared for these threats and should be
aware of who the competitors are and what their strengths and weaknesses are so
that an effective marketing plan can be implemented.
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Production Plan
• If the new venture is a manufacturing operation, a production plan is
necessary. This plan should describe the complete manufacturing process. If
some or all of the manufacturing process is to be subcontracted, the plan
should describe the subcontractor(s), including location, reasons for
selection, costs, and any contracts that have been completed. If the
manufacturing is to be carried out in whole or in part by the entrepreneur,
he or she will need to describe the physical plant layout; the machinery and
equipment needed to perform the manufacturing operations; raw materials
and suppliers’ names, addresses, and terms; costs of manufacturing; and
any future capital equipment needs.
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Operations Plan
• All businesses—manufacturing or nonmanufacturing—should
include an operations plan as part of the business plan. This
section goes beyond the manufacturing process (when the new
venture involves manufacturing) and describes the flow of goods
and services from production to the customer. It might include
inventory or storage of manufactured products, shipping,
inventory control procedures, and customer support services.
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Marketing Plan
• The marketing plan is an important part of the business plan
since it describes how the product(s) or service(s) will be
distributed, priced, and promoted. Marketing research evidence
to support any of the critical marketing decision strat‐ egies as
well as for forecasting sales should be described in this section.
• The entrepreneur should make every effort to prepare as
comprehensive and detailed a plan as possible so that investors
can be clear as to what the goals of the venture are and what
strategies are to be implemented to effectively achieve these
goals.
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Organizational Plan
• The organizational plan is the part of the business plan that
describes the venture’s form of ownership—that is,
proprietorship, partnership, or corporation. If the venture is a
partner‐ ship, the terms of the partnership should be included. If
the venture is a corporation, it is important to detail the shares
of stock authorized and share options, as well as the names,
addresses, and resumes of the directors and officers of the
corporation. It is also helpful to provide an organization chart
indicating the line of authority and the responsibilities of the
members of the organization.
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Assessment of Risk
• Every new venture will be faced with some potential hazards,
given its particular industry and competitive environment. It is
important that the entrepreneur make an assessment of risk in
the following manner. First, the entrepreneur should indicate the
potential risks to the new venture. Next should be a discussion of
what might happen if these risks become reality. Finally, the
entrepreneur should discuss the strategy that will be employed
to prevent, mini‐ mize, or respond to the risks should they occur.
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Financial Plan
• Like the marketing, production, and organization plans, the financial plan is an
important part of the business plan. It determines the potential investment
commitment needed for the new venture and indicates whether the business plan
is economically feasible.
• Generally, three financial areas are discussed in this section of the business plan.
First, the entrepreneur should summarize the forecasted sales and the appropriate
expenses for at least the first three years, with the first year’s projections provided
monthly.
• The second major area of financial information needed is cash flow figures for at
least three years, although sometimes investors may want to see five‐year
projections.
• The last financial item needed in this section of the business plan is the projected
bal‐ ance sheet. This shows the financial condition of the business at a specific
time. It summa‐ rizes the assets of a business, its liabilities.
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Appendix
• The appendix of the business plan generally contains any backup
material that is not necessary in the text of the document.
• Reference to any of the documents in the appendix should be
made in the plan itself.
• Letters from customers, distributors, or subcontractors are
examples of information that should be included in the
appendix.
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USING AND IMPLEMENTING THE BUSINESS PLAN
• There has been a tendency among many entrepreneurs to avoid
planning. The reason often given is that planning is dull or boring and
is something used only by large compa‐ nies. This may be an excuse;
perhaps the real truth is that some entrepreneurs are afraid to plan.
• Planning is an important part of any business operation. Without
good planning, the entrepreneur is likely to pay an enormous price.
All one has to do is consider the planning done by suppliers,
customers, competitors, and banks to realize that it is important for
the entrepreneur. It is also important to realize that without good
planning the employees will not understand the company’s goals and
how they are expected to perform in their jobs.
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Measuring Plan Progress
• During the introductory phases of the start‐up, the entrepreneur
should determine the points at which decisions should be made
as to whether the goals or objectives are on schedule. Typically,
the business plan projections will be made on a 12‐month
schedule.
• The entrepreneur should check the profit and loss statement;
cash flow projections; and infor‐ mation on inventory,
production, quality, sales, collection of accounts receivable, and
dis‐ bursements for the previous month.
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Updating the Plan
• The most effective business plan can become out‐of‐date if
conditions change. Environmental factors such as the economy,
customers, new technology, or competition—and internal factors
such as the loss or addition of key employees—can all change
the direction of the business plan.
• Thus, it is important to be sensitive to changes in the company,
industry, and market. If these changes 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 its probability of success.
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WHY SOME BUSINESS PLANS FAIL
• Generally, a poorly prepared business plan can be blamed on one or
more of the following factors:
• Goals set by the entrepreneur are unreasonable.
• Objectives 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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WHY SOME BUSINESS PLANS FAIL
• Generally, a lack of experience will result in failure unless the
entrepreneur can either attain the necessary knowledge or team up
with someone who already has it. For example, an entrepreneur
trying to start a new restaurant without any experience or knowledge
of the restaurant business would be in a disastrous situation.
• The entrepreneur should also document customer needs before
preparing the plan. Customer needs can be identified from direct
experience, letters from customers, or marketing research. A clear
understanding of these needs and how the entrepreneur’s business
will effectively meet them is vital to the success of the new venture.
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