Chapter 4 Preparing the Business Plan

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  • What are the benefits of preparing a written business plan?
  • What are components of a business plan?
  • How long does it take to write a plan?
  • Why does business plans fail?
  • Why should the executive summary be written last?

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PowerPoint

Chapter Case

Analytical Tools

Sample Business Plans

Characteristics of a business Plan

Model of Competition

Chapter Review

What are the benefits of preparing a written business plan

A business plan is a written document, between 25-40 pages in length, describing where the business is going and how it will grow to achieve results. The benefits are to:

  • Attracts Investors
  • Evaluates Feasibility of Business Concept
  • Serves as an Operating Guide
  • Attracts Potential Business Partners and Key Employees
  • Attracts Potential Customers and Suppliers
  • The plan provides a basis for measuring actual performance against expected performance. The plan acts as a vehicle for communicating to others what it is that the firm is trying to accomplish.

What are components of a business plan?

Four Elements in the Executive Summary

  • Marketing Concept. Describes the business, its product, and the market it will serve. It should point out just exactly what will be sold, to whom, and why the business will hold a competitive advantage.
  • Services. Details any developments within the company that are essential to its success. Major achievements include patents, prototypes, location of a facility, any crucial contracts that need to be in place for product development, or results from any test marketing that has been conducted.
  • Current Position. Furnishes relevant information about the company, its legal form of operation, when it was formed, the principal owners, and key personnel.
  • Financial Features. Highlights the important financial points of the business including sales, profits, cash flow, and return on investment.

The summary should be no more than two to three pages and convince the reader that the business will succeed.

  • The company section: description provides an overview of how all of the elements of the company fit together without going into detail, since most of the subjects will be covered in depth elsewhere.
  • The Industry section: addresses the market size, growth patterns and trends
  • The Products and Services section of the business plan describes the characteristics and the appeal of the products or services. This can include a prototype, sample, or demonstration of how the products work. Include:
  • Physical Description. A description of physical characteristics usually includes photographs, drawings, or brochures. In the case of a service, a diagram sometimes helps to convey what is being provided by the business.
  • Use and Appeal. The entrepreneur should comment on the nature of its various uses and what constitutes its appeal. This is an opportunity to emphasize the unique features of the product or service and establish the potential of the business.
  • Stage of Development. This is a description on the level of development of the product or service the entrepreneur plans to introduce into the marketplace. This can include prototype design, quality testing stage or implementation.
  • Testimonials. Provide a list of experts or prior users who are familiar with the products or services and who will comment favorably on them. Such testimonials may be included in letter or report form in an appendix.
  • The market analysis section: describes how the business will react to market conditions and generate sales to succeed. It should explain the marketing goals as an attractive investment and describe the business as a good investment. Bear in mind that the marketing challenge is most critical to a company’s success. Therefore, potential investors give a great deal of attention to this section.
  • A marketing and sales strategy section: describes how the business will implement the marketing plan to achieve the expected sales performance. This analysis will guide the entrepreneur in establishing pricing, distribution, and promotional strategies that allow the business to become profitable within a competitive environment.
  • The operations section: is a detailed, in-depth operational plan. It will provide an opportunity to work out many potential problems on paper prior to commencement of operations. The importance will depend on the nature of the business. An e-commerce production site will probably require significant attention to operational issues. In contrast, most retail businesses and some service businesses will probably have less operational complexity
  • The management team section: describes the talents and skills should be detailed in this section. If the plan is being used to attract investors, this section must emphasize the management’s talents and indicate why they are a part of the company’s distinctive competence advantage. Remember that individuals invest in people, not ideas. Issues that should be addressed:
  • The financial section: should formulate a credible, comprehensive set of projections reflecting a company’s anticipated financial performance. If these projections are carefully prepared and convincingly supported, they become one of the most critical yardsticks by which the business’s attractiveness is measured.
  • While the overall business plan communicates a basic understanding of the nature of the business, projected financial performance directly addresses bottom-line interests. This is where the investor discovers the return on investment, performance measures, and exit plans.
  • The financial plan is the least flexible part of a business plan in terms of format. While actual numbers will vary, each plan should contain similar statements—or schedules—and each statement should be presented in a conventional manner.

How long does it take to write a plan?

  • Writing the complete business plan can take more than 200hours,depending on the entrepreneurs experience and knowledge of the business

Why do businesses plans fail?

  • Many businesses fail because the proper talent has not been assembled. This issue is addressed by describing the objective assessment of the team’s strengths and weaknesses as well as the company’s requirements for growth. It includes how employees are selected, trained, and rewarded.
  • The entrepreneur cannot locate investments for the venture. The entrepreneur should always inquire if the investor knows another interested party or under what conditions would the investor reconsider?
  • Therefore, the entrepreneur should always ask the questions: Who else may be interested? Do you have a contact name? If we do not receive funding now, can we count on you for later financing? The entrepreneur must learn to turn negative experiences into positive opportunities.

Why should the executive summary be written last?

  • An executive summary plan is a short format that contains the most important information about the business and its direction. It is usually about 2-5 pages long and is used to gauge investors’ interest and seeking strategic partners.
  • When the business plan is written it is advisable to write the executive summary last so that all key information is known and detailed in the plan. .