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CHAPTER 6: WIRTING A BUSINESS PLAN, CHAPTER 8: ASSESSING A NEW VENTURE'…
CHAPTER 6: WIRTING A BUSINESS PLAN
Purpose
Describe what a new business intends to accomplish and how it intends to accomplish it.
Dual-Use Document
Most new ventures, the business plan is a dual-purpose document that is used both inside and outside the firm.
Who Reads the Business Plan-and What Are They Looking for?
A Firm's employees
Helps employees in syn and move forward in a consistent and purposeful manner
Investors and other external skateholders
Make the case that hte firm is a good use of an investor's funds or the attention of others.
GUIDELINES FOR WRITING A BUSINESS PLAN
Structure of the Business Plan
follow a conventional sturcture
investors want plan that can easily find critical information
Software Packages
menu-driven
avoid boilerplate plan
Sense of Excitement
Porject a sense of anticipation and excitement about the possibilities that surround a new venture
Content of the Business Plan
clear and concise information all the important aspect
Recognizing the Elements of the Plan May Changes
New insights invariably emerge when an entrepreneur or a team of entrepreneurs immerse themselves in writing the plan and start getting feedback from others.
TYPE OF BUSINESS PLANS
Summary Business Plan
10-15 pages
Early stages of development that want to "test the waters" to see if investors are interested in their idea
Full Business Plan
25-35 pages
At point where they need funding or financing: serves as "blueprint" for the company's operations
Operational Business Plan
40-100 pages
primarly for internal audience
tool for creating a blueprint of a new venture's operations and providing guidance to operational managers
OUTLINE BUSINESS PLAN
Executive Summary
short overview of the entire business plan
provide a busy reader with everything that needs to be known about the new venture's distinctive nature
Industry Analysis
Describing the industry the business will enter in terms of its size, growth rate and sales projections
Include:
Industry structure.
Nature of participants.
Key success factors.
Industry trends.
Long-term prospects.
Company Description
General description of the company
Include:
Company description.
Company history.
Mission statement.
Products and services.
Current status.
Legal status and ownership.
Key partnerships (if any).
Market Analysis
Breaks industry into segments and zeroes in on the specific segment (or target market) to which the firm will try to appeal
Include:
Market segmentation and target market selection.
Buyer behavior.
Competitor analysis.
Estimate of the firm’s annual sales and market share.
The Economics of the Business
Addresses basic logic of how profits are earned in the business and hot many units of a business's profits must be sold for the business to "break even" and then start earning a profit
Include:
Revenue drivers and profit margins.
Fixed and variable costs.
Operating leverage and its implications.
Start-up costs.
Break-even chart and calculations.
Marketing Plan
How business will market and sell its product and service
Include:
Overall marketing strategy.
Product, price, promotions, and distribution.
Sales process (or cycle).
Sales tactics.
Product (or Service) Design and Development Plan
Include:
Development status and tasks.
Challenges and risks.
Projected development costs.
Proprietary issues (patents, trademarks, copyrights, licenses, brand names).
Operations Plan
Outlines how business will be run and how product or service will be produced
describe it in terms of "back stage" (unseen to the customer) and "front stage" (seen by the customer) activities
Include:
General approach to operations.
Business location.
Facilities and equipment.
Management Team and Company Structure
typically consists of the founder or founders and a handful of key management personnel
Include:
Management team.
Board of directors (if you have one).
Board of advisors (if you have one).
Company structure.
Overall Schedule
shows major events required to launch the business
format of milestones critical to the business's success
Include:
Incorporating the venture.
Completion of prototypes.
Rental of facilities.
Obtaining critical financing.
Starting production.
Obtaining the first sale.
Final Projections
Final section presents a firm's pro forma (or projected) financial projections.
Include:
Sources and uses of funds statement.
Assumptions sheet.
Pro forma income statements.
Pro forma balance sheets.
Pro forma cash flows.
Ratio analysis.
CHAPTER 8: ASSESSING A NEW VENTURE'S FINANCIAL STRENGTH AND VIABILITY
FINANCIAL MANAGEMENT
Two things: raising money and managing a company's finance in a way that achieves the highest rate of return
FINANCIAL OBJECTIVE OF A FIRM
Profitability
A company's ability to make a profit
A firm must become profitable to remain viable and provide a return to its owners.
Liquidity
A company's ability to meet its short-term obligations
Even a firm is profitable, it is often challenge to keep enough money in the bank to meet its routine obligations in a timely manner.
Efficiency
How productively a firm utilizes its assets relative to its revenue and its profits.
Stability
Is the strength and vigor of the firm's overall financial posture.
For a firm to be stable, it must not only earn a profit and remain liquid but also keep its debt in check.
THE PROCESS OF FINANCIAL MANAGEMENT
Importance of Financial Statements
To assess whether its financial objectives are being met, firms rely heavily on analysis of financial statements.
Forecasts
Are an estimate of a firm's future income and expenses, based on performance, its current circumstances and its future plans.
New ventures typically base their forecasts on an estimate of sales and then on industry averages or the experiences of similar start-ups regarding the cost of goods sold and other expenses.
Budgets
Are itemized forecasts of a company’s income, expenses, and capital needs and are also an important tool for financial planning and control.
Financial Ratios
Depict relationships between items on a firm’s financial statements.
helps a firm determine whether it is meeting its financial objectives and how it stacks up against industry peers.
FINANCIAL STATEMENTS
Historical Financial Statements
Reflect past performance and are usually prepared on a quarterly and annual basis.
Pro Forma Financial Statements
Are projections for future periods based on forecasts and are typically completed for two to three years in the future.
FORECASTS
Predictions of a firm's future sales, expenses, income and capital expenditures
Provide the basis for its pro forma financial statements
helps a firm create accurate budgets, build financial plans, and manage its finances in a proactive rather than a reactive manner
SALES FORECAST
a projection of a firm’s sales for a specified period (such as a year).
A sales forecast for a new firm is based on a good-faith estimate of sales and on industry averages or the experiences of similar start-ups.
A sales forecast for an existing firm is based on (1) its record of past sales, (2) its current production capacity and product demand, and (3) any factors that will affect its future production capacity and product demand.
FORECAST OF COSTS OF SALES AND OTHER ITMES
use the percent-of-sales method, which is a method for expressing each expense item as a percentage of sales.
PRO FORMA FINANCIAL STATEMENTS
similar to its historical financial statements except that they look forward rather than track the past.
Pro Forma Income Statement
Shows the projected financial results of the operations of a firm over a specific period.
Pro Forma Balance Sheet
Shows a projected snapshot of a company’s assets, liabilities, and owner’s equity at a specific point in time.
Pro Forma Statement of Cash flows
Shows the projected flow of cash into and out of a company for a specific period.
CHAPTER 7: PREPARING THE PROPER ETHICAL AND LEGAL FOUNDATION
ESTABLISHING A STRONG ETHICAL CULTURE
Lead by Example
Establish a Code of Conduct
Formal statement of an organization's values on certain ethical and social issues
Implement an Ethics Training Program
Help employees deal with ethical dilemmas and improve their overall ethical conduct
Ethical dilemma- doing something that is beneficial to oneself or the organization, but may be unethical.
CHOOSING AN ATTORNEY FOR A FIRM
Select an Attorney Early
Critically important that the attorney be familiar with start-up issues
Intellectual Property
essential to use an attorney who specializes in this field
HOW TO SELECT AN ATTORNEY
Contact the local bar association and ask for a list of attorneys who specialize in start-ups in your area.
Interview several attorneys.
Select an attorney who is familiar with the start-up process.
Select an attorney who can assist you in raising money for your new venture.
Make sure your attorney has a track record of completing his or her work on time.
Talk about fees.
Select an attorney that you think understands your business.
Learn as much about the process of starting a business yourself as possible.
DRAFTING A FOUNDER'S AGREEMENT
Written document that deals with issues
Nature of the prospective business.
Identity and proposed titles of the founders.
Legal form of business ownership.
Apportionment of stock (or division of ownership).
Consideration paid for stock or ownership share of each of the founders.
Identification of any intellectual property signed over to the business.
Description of how the founders will be compensated and how the profits in the business will be divided.
Provisions for resolving disputes.
Buyback clause.
AVOIDING LEGAL DISPUTES
Most legal disputes are the result of misunderstandings, sloppiness, or a simple lack of knowledge of the law.
Steps avoid legal disputes:
Meet all contractual obligations.
Avoid undercapitalization.
Get everything in writing.
Set standards.
OBTAINING BUSINESS LICENSES AND PERMITS
Business Licenses and Permits
Depending on the nature of the business, the business may need local, state, and/or federal licenses and permits to operate.
Federal Licenses and Permits
Examples of businesses that require federal licenses and/or permits to operate include businesses that sell (or provide):
Alcohol, Firearms, Animal Transport Across State Lines, Commercial Fisheries, Preparation of Meat Products, and Radio and Television Broadcasting.
State Licenses and Permits
Business Registration Requirements. Some states require all new businesses to register with the state.
Sales Tax Permits. Most states and communities require businesses that sell goods, and in some cases services, to collect sales tax and submit the tax to the proper state authorities.
Professional and Occupational Licenses and Permits. In all states, there are laws that require people in certain professions to pass a state exam and maintain a professional license to conduct business. Examples includes barbers, nurses, tattoo artists, and real estate agents.
Local Licenses and Permits
The first is to operate a certain type of business. -Example: include child care, barber shops and salons, automotive repair, and hotels and motels.
The second category is permits for engaging in certain types of activities. Examples include building permit (required if you are building or remodeling), health permit (normally required if you are involved in preparing food), and signage permit (may be required to erect a sign).
Additional Requirements
If you plan to use a fictitious name for your business, in most cases you’ll need to obtain a fictitious business name permit (also called dba or doing business as).
A fictitious name permit allows a business to operate under a fictitious name, like Gold Coast Sea Food or Red Rock Bakery.
All businesses, other than sole proprietorships that do not have employees, are required to obtain a Federal Employee Identification Number (also called an EIN).
The easiest way to obtain an EIN is to go to www.irs.com and click on Apply for an EIN online.
CHAPTER 11: UNIQUE MARKETING ISSUES
PROCESS OF SELECTING A TARGET MARKET AND POSITIONING STRATEGY
Segmenting the Market
What groups of customers in my market are similiar enough that the same product or service will appeal to all of them?
Involves studying a firm’s industry and determining the different target markets in that industry.
including
Geography (city, state, country).
Demographic variables (age, gender, family size).
Psychographic variables (personality, lifestyle, values).
Behavioral variables (benefits sought, brand loyalty).
Product type (varies by product).
Target Market
Which specific group of customers have I decided to target?
Crafting a Unique Positioning Strategy
What position will my firm occupy in the minds of my customers that will differerentiate it from all of my competitors?
A “position” is the part of a market that the firm is claiming as its own.
A firm establishes a unique position in its customers’ minds by drawing attention to two or three of the product’s attributes.
Tagline
BRANDING
A brand is the set of attributes—positive or negative—that people associate with a company