Business Plan Development Guide for Entrepreneurs

1. Growing Your Business North Carolina A&T State University International Trade Center

2. Purpose of this Presentation • This outline has been prepared to help an entrepreneur assemble the facts that are essential for a good business planning

3. Business Plan Development • There are two primary purposes for developing a business plan: • To be a “road map” in setting up and managing your business. • It provides a document for attracting equity or debt financing.

4. Components of a Business Plan • Cover Page • Table of Content • Executive Summary • Business Description • Business Analysis • Market Research & Analysis • Management Team • Financial Plan • Appendix

5. 1. Executive Summary • This section is intended to give readers a brief but dynamic synopsis of the key elements of the plan. • For example, it must tell the reader why you believe that your business venture will be successful and must also be able to convince the reader to study the rest of the plan. • The following information should be included in the Executive Summary: • Company name, address, and telephone number • Brief background description of your business

6. Executive Summary Cont’d • Brief description of your target market • Brief description of your strategy to ensure the success of the business • The principal owners and key persons • The proportion of ownership, managerial and technical experience • Brief analysis of financial needs of the business, specifying amount of debt financing required

7. 2. Business Description • This section is to assist you in describing your business venture in a detailed but concise manner. It involves the following: • The Industry • Brief description of the background of the industry • Current status and the outlook for the future of the industry • Discuss new products and developments, new markets and customers, and any other trends that could affect the business

8. Business Description Cont’d • The Company and Its Vision • Describe your company’s business area and mission statement • Ownership and legal form of the company • Business goals and objectives • The Products or Services • Describe in detail the product offered by your company and prospective customers. • Describe the use and benefit of your product to your customers • Emphasize any unique feature of your product and state your expected market share • Indicate any advantage that will enable you compete favorably in the industry.

9. 3. Business Analysis • This section is to guide you through the process of analyzing your business as compared to the competition. • This requires an internal and external analysis to determine the strengths, weaknesses, opportunities, and threats – SWOT Analysis • Strengths and weakness are identified within the farm/company, while opportunities and threats are identified in the environment outside the farm or company

10. Business Analysis Cont’d • Strengths and weaknesses is the quality and quantity of resources within control of the owner • What are the abilities and limitations of the operator/manager? • What skills and abilities do the employees have or do not have? • How modern and efficient is the technology? • How large is the resource base? • What is the cash position of the farm?

11. Business Analysis Cont’d • Opportunities and threats are uncertainties that are beyond the control of the owner. • New market opportunities are created by demographic changes, changing consumer lifestyles, population growth in selected regions and technological breakthroughs. • Market forces may cause prices to plunge, either in the long run or short-run, changing government policies and regulation of labor are external threats that can cut profits or make business more difficult.

12. Business Analysis Cont’d • Market Positioning and Image describes how your business will capture a place in the market to compete effectively. • Business Strategy shows how you can add value to gain a competitive edge in the market place, and distinguishes the business from the competition. • This section should also show how the business goals and objectives stated will be realized.

13. 4. Market Research & Analysis • The purpose of this section is to present enough facts to determine if your product has a substantial market in the industry and can operate profitably in a competitive market. • Information required for the market research and analysis will include: • Geographic-”Where are the majority of your potential customers located?” i.e. region, area, country etc.

14. Market Research & AnalysisCont’d • Demographic-”What are the characteristics of the potential customers?” i.e.; age, income, gender, marital status, sex, race ethnicity, occupation, etc. • Psychographic-”What makes customers buy the kind of product/services you are offering?” and “What are they looking for?” i.e. price, quality, location, convenience life style, attitudes, interest.

15. Market Research & AnalysisCont’d • Define your target market • Size of the primary target market • Current and projected market share and sales • Who are your competitors and your competitive advantage • How are you going to be unique: Pricing, quality, packaging, customer service

16. Market Research & AnalysisCont’d • Advertising and promotion to attract customers • Trends and potential changes which may impact the market • Industry trends • Economic trends • Government Policy • Population shifts

17. 5. Management Team • The management team is the key for turning a good idea into a successful business. Financiers and investors look for management team with a balance of technical, managerial, and business skills. • Discuss legal form of ownership • Who are the managers and key personnel • What are their business background and management experience

18. Management Team Cont’d • Describe the organizational structure • No of employees of the company • Do they meet the business needs? • What are the expected personnel needs? • Do employees have required education, skills and experience? • Future management plan

19. 6. Financial Plan • Developing financial projections is important in the writing of a business plan. Projections must be as realistic as possible. This section must include: • The total amount of funding required. • List application of funds (Equipment, renovation, inventory, working capital, etc.) • Sources of funds (owners’ investment, term loans, etc.)

20. Financial Plan Cont’d • Repayment of loan schedule • Provide financial statements for the last 3 years • Break-even analysis • Projected cash flow • Pro-forma income statement and balance sheet

21. Breakeven Analysis • Breakeven Analysis determines at which sales volume your business will need to sell to start making money: • Breakeven = Fixed Costs/(Revenue/unit-Variable costs/unit) • Fixed cost is when the cost remains the same even with variations of output (Rent, insurance, etc) • Variable cost vary directly in proportion to the number of units produced (labor, materials, etc) • Example: If fixed costs = $30,000/year and, Variable Cost = $5/unit Selling price= $9.00/unit Then No. of units to break even = $30,000/(9.00-5) = 7,500 units /year

22. Pro Forma Cash Flow Statement • A cash flow statement identifies monthly inflows and outflows of cash. It reveals whether a business will have enough money to meet its needs on a monthly basis. • Opening Cash Balance • Cash Receipts cash actually received from selling goods and services • Disbursements payments made each month for expenses • Net Receipts minus Disbursements (Net Cash Flow)

23. Pro Forma Cash Flow Statement • The pro forma income statement is a record of earnings or losses for a given period under present given conditions. Income Statement is also referred to as a profit and loss statement or operating statement (MDA 2005). • The importance for a projected income statement is to show investors how profitable the business is.

24. Pro Forma Cash Flow Statement • The income statement consist of: • Revenue:- are proceeds from the sale of goods and services • Cost of Goods Sold:- cost of producing a good or providing a service • Gross Profits:- (Revenue minus Cost of Goods) • Expenses:-(salaries, rent, utilities, insurance, vehicle, etc)

25. Pro Forma Cash Flow Statement • Net Income Before:- (Taxes Gross Profit minus Expenses) • Less: Income taxes:- (Tax rate multiplied by Net Income Before Taxes) • Net Income:- (Net Income Before Taxes Less Income Taxes)

26. Pro Forma Balance Sheet • The balance sheet is the list of assets, liabilities, and owners' investment in the business as of a specific date. The “pro forma balance sheet” shows how things will be under given conditions. • The Balance sheet is divided into two sections: • Assets • Liabilities and Owners’ Equity (i.e. who supplied the assets) both sections must equal

27. 7. Appendix • The Appendix should include supporting documents such as : • Resumes of key managers • Product Catalogues • Letters of reference • Details of market study • Licenses, permits, or patents • Legal documents • Copies of leases

28. Things to Remember !!! • Keep it simple and focused • Make it easy to read • Use Charts and graphs to explain difficult concepts • Be objective • Acknowledge your weakness and strength • Review and revise the document regularly • Do not use out-dated financial statements