Chapter 6- Notes (Book and Packet) Flashcards Preview

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Flashcards in Chapter 6- Notes (Book and Packet) Deck (46):
1

A document that sets out the basic idea underlying a business and related startup considerations.

Business Plan

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  • Identifies the nature and context of the business opportunity.
  • Presents the entrepreneur's approach to exploting the opportunity.
  • Identifies factors affecting the venture's success.
  • Serves as the entrepreneur's tool for raising capital.

The Purpose of a Business Plan

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  • To provide a clearly articulated statement of goals and strategies for internal use.
  • To serve as a selling document to be shared with outsiders.

Primary Function- The Need for a Business Plan

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Imposes discipline on the entrepreneur and management team.

To Provide a Clearly Articulated Statement of Goals and Strategies for Internal Use

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  • Provides a credible overview for prospective customers, suppliers, and investors.
  • Helps secure favorable credit terms for suppliers.
  • Opens approaches to lenders and other sources of financing

To Serve as a Selling Document to be Shared with Outsiders

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  • Cost in time and money to prepare the plan
  • Management style and ability
  • Preferences of the management team
  • Complexity of the business
  • Competitive environment
  • Level of uncertainty

Factors Affecting the Extent of a Business Plan

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  • Mini-Plan
  • Comprehensive Plan

Types of Business Plans

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A short form of a business plan that presents only the most important issues and projections.

Mini-Plan (Summary Plan)

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A full business plan that provides an in-depth analysis of the critical factors that will determine a firm's success or failure, along with all the underlying assumptions.

Comprehensive Plan

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  • The context and basic format of the plan
    • Factual support for the concept in the form of strong supporting evidence.
  • The effectiveness of the written presentation
    • Clear writing that effectively communicates

Issues Critical in Preparing a Business Plan

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  • The opportunity
  • Critical resources
  • The entrepreneurial team
  • The financing structure
  • The context (or external factors)

Factors that Help Determine the Context of a Business Plan for a Startup (Key Factors for Success)

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Section Heading

  • Cover (title) page
  • Table of Contents
  • Executive Summary
  • Industry, target customer, and competitor analysis
  • Company description
  • Product/service plan
  • Marketing plan
  • Critical risks
  • Offering
  • Financial plan
  • Appendix of supporting documents

Abbreviated Business Plan Outline

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  • Cover Page
  • Table of contents
  • Executive summary/Synopsis/Narrative
  • Industry description
  • Target customers
  • Competitor analysis
  • Company description
  • Product/service plan
  • Marketing plan
  • Operations and development plan
  • Management team
  • Critical risks
  • Offering
  • Financial plan
  • Appendix of supporting documents

The Content of a Business Plan

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  • Company name, address, phone number, fax number, and website.
  • Tagline and company logo
  • Name and contact information of contact person
  • Date on which the business plan was prepared
  • Confidentiality disclaimer
  • Number of the copy

Cover Page

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Provides a sequential listing fo the sections of the plan, with page numbers.

Table of Contents

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  • Description of the opportunity
  • Explanation of the business concept
  • Industry overview
  • Target market
  • Competitive advantage to be achieved in the market
  • Economics of the opportunity
  • Management team description
  • Amount and purpose of the money being requested (the "offering") if seeking financing.

Executive Summary/Synopsis/Narrative

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  • Broader industry in which the firm will compete
    • Industry size, growth rate, trends, and competitors
  • Different segments of the industry
  • Niche in which the firm plans to participate

Industry Description

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Demographics and phychological variables- vales, attitudes, and fears.

Target Customers

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Product or service attributes that are or are not provided by competitors.

Competitor Analysis

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  • When and where was this business started?
  • What is the history of the company?
  • What are the firm's objectives?
  • What changes in structure and/or ownership?
  • In what stage of development is the firm?
  • What has been achieved to date?
  • What is the firm's distinctive competence?
  • What are the nature and activity of the business?
  • What is the primary product or service?
  • What customers will be served?
  • What is the firm's form of organization?
  • What are the projected economic states of the industry?
  • How is the ownership of the firm to be structured?

Company Description

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Describes the product and/or service to be provided and explains its merits.

Product/Service Plan

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Describes the user benefits of the product or service and the type of market that exists.

Marketing Plan

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How product will be produced or service provided.

Operations and Development Plan

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Describes the firm's organizational structure and the backgrounds and qualifications of key personnel.

Management Team

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Identifies the potential risks that may be encountered by an investor.

Critical Risks

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Indicates to an investor how much money is needed and when, and how the money will be used.

Offering

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Projects the company's financial position based on well-substantiated assumptions and explains how the figures have been determined.

  • Pro-forma statements project a firm's financial condition for up to 5 years.

Financial Plan

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Supplementary materials and attachments to expand the reader's understanding of the plan:

  • Resumes of key investors and owners/managers
  • Professional references
  • Photographs of products, facilities, and buildings.
  • Marketing research studies.
  • Pertinent published research
  • Signed contracts of sale

Appendix of Supporting Documents

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  • Insist on confidentiality
  • Use good grammar
  • Limit the presentation to a reasonable length
  • Go for an attractive, professional appearance
  • Provide solid evidence for any claims
  • Describe the product in lay terms
  • Emphasize the qualifications of the management team
  • Analyze the market throughly
  • Include financial statements that are neither overly detailed nor incomplete.
  • Don't hide weaknesses- identify potential fatal flaws.

Making an Effective Written Presentation

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  • Understanding the investor's perspective
  • The investor's short attention span

Presenting a Business Plan to Investors

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  • Entrepreneurs are optimists; investors are skeptics.
  • Investors seek to maximize return through cash flow while minimizing exposure to risk.
  • Bad information and poor preparation cause investors to lose interest quickly.

Understanding the Investor's Perspective

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A business plan must be an effective marketing document that quickly captures investor interest.

The Investor's Short Attention Span

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  • Are market-oriented in meeting identifiable customer needs; are not product-oriented.
  • Show evidence of target customer acceptance of the proposed product or service.
  • Present credible and not overly optimistic financial projections.
  • Are not a formal prospectus or offering memorandum.

Plans that Speak the Investor's Language

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  • Computer-aided business planning
  • Professional assistance

Resources for Business Plan Preparation

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  • Word-processors

  • Spreadsheets

  • Specialized business plan software packages

Computer-Aided Business Planning

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  • Accountants
  • Marketing specialists
  • Attorneys
  • Investment banker
  • Financial intermediary
  • Small business development centers (SBDC)
  • Incubator organizations
  • Regional and local economic development offices
  • Service Corps of Retired Executives (SCORE)
  • FastTrac Entrepreneural Training Program

Professional Assistance

37

  • Good business plans don't ensure success.
  • Writing a business plan is an ongoing process and only secondarily the means to an outcome.

Keeping the Right Perspective

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Effective implementation is what succeeds.

Good Business Plans Don't Ensure Success

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  • The process is just as important as- if not more so than- the finished product.
  • The plan represents what it has been anticipated; a good entrepreneur adapts the plan to fit the unexpected.

Writing a business plan is an ongoing process and only secondarily the means to an outcome.

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  • Failing to provide solid data.
  • Failing to describe the product in lay terms
  • Failing to thoroughly analyze the market
  • Including financial statements that are overly detailed or incomplete.
  • Hiding weaknesses
  • overlooking the fatal flaw
  • Using bad grammar
  • Making the overall plan too long

Mistakes to Avoid in Preparing a Business Plan

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  • A logical statement of a problem and its solution.
  • A significant amount of cold, hard evidence.
  • Candor about the risks, gaps, and assumptions that might be proved wrong.

John Mullins- Three Key Elements that Should be in Every Business Plan

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This happens if the business does not align with your personal goals.

You are not Likely to Succeed, and you Certainly will not Enjoy the Journey

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If well done, is a tool to be used by company insiders for direction and it aid in the development of relationships with outsiders who could help the company achieve its goals.

A Business Plan

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Consists of the internal users of the plan:

  • The entrepreneur
  • The firm's management
  • It's employees

The First Group

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  • Provides a framework that helps the entrepreneur and the management team focus on important issues and activities for the new venture.
  • Helps the entrepreneur communicate his or her activities for the new venture.
  • Helps the entrepreneur communicate his or her vision to current and prospective employees of the firm.
  • Helpful with outsiders

The Business Plan

46

The entrepreneur must convince outsiders- potential customers, suppliers, lenders, and investors- to become linked with the firm.

To Make a Business Successful