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Entrepreneurship Chapter 4

Terms in this set (35)

business plan
a document describing a business that's used to test the feasibility of a business idea, to raise capital, and to serve as a road map for future operations
it's meant to demonstrate persuasively that enough products or services can be sold at a profit for your firm to become a viable business.
3 primary purposes to writing a business plan
1) to help you determine the feasibility of your business idea
2) to attract capital for starting up the business
3) to provide direction for your business after it is in operation
general guidelines for writing a business plan
1) consider your audience - you need to show the benefit of your business to your reader
2) keep it brief - your business plan should be long enough to cover all the major issues facing the business, yet not look like a copy of War and Peace
Including financial projections and appendices, it should be less than 40 pages long.
3) create a professional image - the overall appearance of your business plan should be professional and attractive, but not extravagant.
executive summary
a condensed abstract of a business plan used to spark the readers interest in the business and to highlight crucial information
it should include the following components:
1) company information - what product or service you provide, your competitive advantage, when the company was formed, your company objectives, and the background of you and your management team
2) market opportunity - the expected size and growth rate of your market, your expected market share, and any relevant industry trends.
3) financial data - financial forecasts for the first three years of operations, equity investment desired, and long-term loans that will be needed
environmental analysis
shows identified trends and changes that are happening at the national and international levels that may influence the future of your small business.
you should introduce environmental categories such as economic, competitive, legal, political, cultural, and technological arenas that affect and are affect by your business.
industry analysis
comes after the environmental analysis, it describes the industry within which your business operates. Describe industry demand--pertinent data will likely be readily available from industry trade publications or other published sources.
what are Porter's five forces?
1) threat of new entrants
2) bargaining power of customers
3) threat of substitutes
4) bargaining power of suppliers
5) rivalry among existing competitors
products or services section
in this section, you can go into detail describing your product or service; how's your product or service different from what's currently on the market? Are there any other uses that could increase current sales?
describe any patents or trademarks that you hold, as these give you a proprietary position that can be defended.
describe your competitive advantage. what sets your product or service apart as better than the competition's?
marketing research and evaluation
you must present evidence that a market exists for your business. a section on marketing research and evaluation, presenting the facts you have gathered on the size and nature of your markets, will tell investors if a large enough market exists and if you can be competitive in that market.
target markets and market segmentation
you must identify your target markets and then concentrate your marketing efforts on these key areas. to segment your markets, you can use a demographic characteristic (for example, 18- to 25-year-old females), a psychographic variable (similar lifestyles, usage rate of product, or degree of loyalty)
market trends
markets and consumer tastes change, so you'll need to explain how you will assess your customers' needs over time. specify how you'll continue to evaluate consumer needs so you can identify market trends and, based on that information, improve your market lines and aid new product development.
competition
among three or four primary competitors, identify the price leader, the quality leader, and the service leader. realistically discuss the strengths and weaknesses of each. compare your products or services with those of competitors on the basis of price, product performance, and other attributes
identify the strenths and weaknesses of your business and the opportunities and threats that exist outside your business.
market share
because you have identified the size of your market and your competitors, you can estimate the market share you intend to gain--that is, the percentage of total industry sales. market share can be effectively shown and explain with the use of a pie chart
marketing plan
your marketing plan shows how you intend to achieve your sales forecast.you can start by explaining your overall marketing strategy, identifying your potential markets, and explaining what you have decided is the best way to reach them
pricing as part of marketing plan
your pricing policy is one of the most important decisions you'll have to make. the price must be "right to penetrate the market, to maintain your market position, and especially to make profits.
you should discuss the relationship between your price, your market share, and your profits
promotion as part of marketing plan
how will you attract the attention of and communicate with your potential customers? (trade shows, trade magazines, promotional brochures, direct mail, etc.)
place as part of marketing plan
describe how you intend to sell and distribute products. will you use your own sales force or independent sales representatives or distributors? if you hire your own sales force, describe how it will be structured, the sales expected per person per year, and the pay structure.
service policies as part of marketing plan
if you sell a product that may require service such as cameras, copy machines, or bicycles, describe your service and warranty policies.
These policies can be important in the customer's decision making process. How will you handle customer service issues? Describe the terms and types of warranties offered.
Next section: manufacturing and operations plan
this section will stress elements related to your business's production. it will outline your needs in terms of facilities, location, space requirements, capital equipment, labor force, inventory control, and purchasing.
stress the areas most relevant to your type of business.
If you're starting a manufacturing business, outline the production processes and your control systems for inventory, purchasing, and production.
The business plan for a service business should focus on your location, overhead, and labor force productivity.
geographic location
describe your planned geographic location and its advantages and its suppliers, types of transportation available, tax rates, utility costs, and zoning.
Proximity to customers is especially important to a service business, whereas access to transportation will be of greater concern to a manufacturing business
facilities
what kind of facilities does your business need? discuss your requirements for floor space (including offices, sales room, manufacturing plant space, and storage areas), parking, loading areas, and special equipment. Will you rent, lease, or purchase these facilities? How long will they remain adequate: one year? three years? is expansion possible?
make-or-buy policy
in a manufacturing process, you must decide what you will produce and what you will purchase as components to be assembled into the finished product. This is known as the make-or-buy decision.
many factors go into this decision; you should justify the advantages of your policy. describe potential subcontractors and suppliers.
control systems
what is your approach to controlling quality, inventory, and production? how will you measure your progress toward the goals you have set for your business?
labor force
at the location you have selected, is there a sufficient quality of adequately skilled people in the local labor force to meet your needs? what kinds of training will you need to provide? can you afford to offer this training and still remain competitive?
Management team
show how your team is balanced in terms of technical skills, business skills, and experience.
state how your key managers will be compensated. your chances of obtaining financing are very slim unless the managers are willing to accept substantially less than their market value for salary while the business is getting started.
Timeline
create a timeline outlining the interrelationships and timing of the major events planned for your venture.
In addition to helping you calculate your business needs and minimize risk, the timeline is an indicator to investors that you have thoroughly researched potential problems and are aware of deadlines.
Critical risks and assumptions
identification and discussion of any potential major trends, problems, or risks that you think you may encounter will show the reader that you are in touch with reality.
possible contingencies that should be anticipated include the following scenarios:
1) unreliable sales forecasts
2) competitor's ability to underprice or to make your product obsolete.
3) unfavorable industry-wide trends
4) appropriately trained workers not as available as predicted
5) erratic supply of products or raw materials
6) buncha other stuff you didn't see coming
Benefits to the community
describe potential benefits to the community that the formation of your business could provide:
Economic development - number of jobs created (total and skilled), purchase of supplies from local businesses, and the multiplier effect (which shows the number of hands that new dollars brought into the community pass through before exiting)
Community development - providing needed goods or services, improving physical assets or the appearance of the community, and contributing to a community's standard of living
human development - providing new technical skills or other training, creating opportunities for career advancement, developing management or leadership skills, offering attractive wages, and providing other types of individual growth.
Exit strategy
every business will benefit by devoting some attention to a succession plan.
before you begin your business is a good time to consider how you intend to get yourself (and your money) out of it.
Financial Plan
your financial plan is where you demonstrate that all the information from previous sections of your business plan, such as marketing, operations, sales, and strategies, can come together to for m a viable, profitable business.
your financial plan should include they following statements
sources and uses of capital (initial and projected)
cash flow projections for three years
balance sheets for three years
profit-and-loss statements for three years
break-even analysis
sources and uses of funds
a financial document used by start-up businesses that shows where capital comes from and what it will be sued for.
cash flow statement
a financial document that shows the amount of money a business has on hand at the beginning of a time period, receipts coming into the business, and money going out of the business during the same period
balance sheet
a financial document that shows the assets, liabilities, and owner's equity for a business
profit-and-loss statement
a financial document that shows sales revenues, expenses, and net profit loss.
break-even point
the point at which sales and costs are equal and a business is neither making nor losing money
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