CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN

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Entrepreneurship MGT602

Lesson 21

CREATING AND STARTING THE VENTURE

LEARNING OBJECTIVES

To define what the business plan is, who prepares it, who reads it, and how it is evaluated.

To understand the scope and value of the business plan to investors, lenders, employees, suppliers,

and customers.

PLANNING AS PART OF THE BUSINESS OPERATION

Planning is a process that never ends. In the early stages, the entrepreneur should prepare a preliminary

plan. The plan will be finalized as the enterprise develops. Many different types of plans may be part of any

business operation-financial, marketing, production, and sales plans. Plans may be short term or long term,

or they may be strategic or operational. All of these plans have one purpose: to provide guidance and

structure to management in a rapidly changing market environment.

WHAT IS THE BUSINESS PLAN

A business plan is a written document prepared by the entrepreneur that describes all the relevant external

and internal elements involved in starting a new venture. It addresses both short- and long-term decision

making. The business plan is like a road map for the business' development. The Internet also provides

outlines for business planning. Entrepreneurs can also hire or offer equity to another person to provide

expertise in preparing the business plan. In developing the business plan the entrepreneur can determine

how much money will be needed from new and existing sources.

WHO SHOULD WRITE THE PLAN

The business plan should be prepared by the entrepreneur; however, he or she may consult many sources.

Lawyers, accountants, marketing consultants, and engineers are useful supplemental sources. Other

resources are the Small Business Administration, Service Core of Retired Executives, Small Business

Development Centers, universities, friends, and relatives. To help determine whether to hire a consultant,

the entrepreneur needs to make an objective assessment of his or her own skills.

SCOPE AND VALUE OF THE BUSINESS PLANCWHO READS THE PLAN

The business plan must be comprehensive enough to address the concerns of employees, investors,

bankers, venture capitalists, suppliers, and customers.

Three perspectives need to be considered:

The entrepreneur understands the new venture better than anyone. The marketing perspective considers the

venture through the eyes of the customer. The investor looks for sound financial projections. The depth of

the business plan depends on the size and scope of the proposed venture.

The business plan is valuable to the entrepreneur and investors because:

1. It helps determine the viability of the venture in a designated market.

2. It gives guidance in organizing planning activities.

3. It serves as an important tool in obtaining financing.

Potential investors are very particular about what should be included in the plan. The process of developing

a business plan also provides a self-assessment of the entrepreneur. This self-evaluation requires the

entrepreneur to think through obstacles that might prevent the venture's success. It also allows the

entrepreneur to plan ways to avoid such obstacles.

HOW DO POTENTIAL LENDERS AND INVESTORS EVALUATE THE PLAN

Because the business plan should address the needs of all the potential evaluators, software packages and

Internet samples should be used only to assist in preparation. As the entrepreneur becomes aware of who

will read the plan, changes will be necessary. Suppliers may want to see a business plan before signing a

contract to supply products or services. Customers may also want to review the plan before buying the

product. The business plan should consider the needs of these constituencies. Potential suppliers of capital

will vary in their needs and requirements in the business plan. Lenders are primarily interested in the ability

of the new venture to pay back the debt and focus on the four C's of credit:

1. The entrepreneur's credit history or character.

Entrepreneurship MGT602

2. Their ability to meet debt and interest payments (cash flow.)

3. The collateral or tangible assets being secured.

4. Equity contribution or the amount of personal equity that has been invested by the

entrepreneur.

Investors provide large sums of capital for ownership (equity) and expect to cash out within 5 to 7 years.

They will often place more emphasis on the entrepreneur's character than lenders. The venture capitalist

will play an important role in management of the business and wants the entrepreneurs to be pliable and

willing to accept this involvement. These investors will also demand high rates of return and will thus focus

on the market and financial projections. If the entrepreneur does not consider the needs of these sources,

the plan may be an internalized document without consideration of the feasibility of meeting market goals.

Most external advisors and potential investors are bound by a professional code of ethics regarding

disclosure.

PRESENTING THE PLAN

It is often necessary for an entrepreneur to orally present the business plan to investors. Typically the

entrepreneur provides a short (20-30 minutes) presentation of the business plan. The entrepreneur must

sell their business concept in a short time period. A venture capitalist or angel group may also ask the

entrepreneur to present the plan to their partners before making a final decision.

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