BRING IN THE MONEY: Creating a Winning Business Plan


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BRING IN THE MONEY Creating a Winning Business
Plan
Presented by William L. Dougan Department of Man
agement
UW-Whitewater
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AGENDA

• What Is a Business Plan
• Do I Need A Business Plan
• Business Plan 101

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What Is a Business Plan
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A Business Plan Is

• A written document
• A story about the future
• A product of an ongoing discovery process
• A sales tool
• Capital Providers
• Partners
• Employees
• Suppliers
• Customers
• A working model of a business
• A basis for operating a business
• A basis (sometimes) for valuation of a business
• NOT a commercialization plan

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What Does a Business Plan Do

• Tells your business story
• Includes a marketing plan
• Outlines financial needs
• Identifies potential obstacles
• Establishes milestones
• Serves as a COMMUNICATION TOOL!

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Three BIG Questions

• Is there really an opportunity to serve an
  important customer need or want
  
• Value Proposition
• Do the numbers work out favorably
• Business Model
• Does the opportunity really match your personal
  goals and values and will you have the abilities
  and resources required to exploit the opportunity

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Do I Need a Business Plan
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Reasons to write a business plan

• Evidence of your ability to plan
• To sell yourself on your business
• Map and compass for the future
• Operating and financing plans
• To obtain bank financing
• To obtain investment funds
• Communicate more clearly
• To arrange a strategic alliance
• To obtain a large contract
• To attract key employees
• To complete mergers and acquisitions
• To motivate and focus your management team
• Make more money

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Downside of Writing a Plan

• Time
• Effort
• Twenty Weeks
• About 200 hours of your time and that of your
  helpers

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Reasons Often Given to Avoid Writing a Plan

• I dont need one.
• I have one in my head.
• I dont know how to begin.
• I dont have enough time.
• Im not a numbers person.
• Lots of famous entrepreneurs didnt write one.
• I make more than enough money and am beautiful
  rich and immortal.

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What can happen without a plan

• Inefficient control over costs and quality of
  output
  
• Poor inventory/stock control
• Underpricing of goods sold
• Failure to promote and maintain a favorable
  public image
  
• Poor relations with suppliers
• Inability of management to reach decisions and
  act on them
  
• Failure to keep pace with management system
  (record keeping payments etc.)
  
• Failure to minimize tax obligations
• Poor and lax credit control
• Lack of key personnel
• Failure to anticipate market trends
• Insufficient working capital
• Loss of control through creditors demands
• Competition disregarded due to complacency.
• Inability to cope adequately with competition

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Options for Writing a Business Plan

• Get someone to write one for you.
• Buy a plan
• Write your own plan

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Counseling and Assistance

• Small Business Development Centers
• Service Corps of Retired Executives
• Business Information Centers
• Economic Development Groups
• Professional Assistance (consultant)

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Business Plan 101
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Capital Providers

• Principals
• Sweat Skin in the Game
• Triple Fs Capital and Relationship
• Banks
• Liquidity /Collateral/Character
• In order to get a loan you have to prove you
  dont need one
  
• Angels
• Capital Protection
• Protection from Dilution
• Time Horizon
• Venture Capitalists
• Deal Size for Efficiency
• Protection
• Time Horizon

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What investors and bankers like

• 1. A clear definition of the business (mission)
• What problem/need does it meet
• 2. Evidence of marketing capability
• How will the business add significant value for
  the benefit of the consumer
  
• 3. Evidence of management capability.
• Is the opportunity a good fit with the founders
• 4. An attractive financial arrangement.
• Is there a robust market / margin / money-making
  potential
  
• Is there provision for harvest/liquidity in
  reasonable time and in reasonable circumstances

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What they dont like

• Obsession with product
• The Better Mousetrap Fallacy
• Unrealistic financial projections
• Inability to come to terms with the details
• Failure to deal with potential critical risks
• A prepackaged plan or fill in the blanks

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Short Plan Outline

• Executive Summary
• Description of the Business
• The Industry - Competition
• Marketing Plans
• Operations Plans/Milestones
• Management Team
• Financial Information
• Mechanics of the Deal
• Supporting Documents

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Executive Summary

• 1-3 Pages
• BRIEF Overview of Plan
• Gives sense of the business and its potential
• Must answer the questions
• Whats in it for Me and how secure will my
  investment be
  
• Offering or deal
• High Visibility No Errors

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The Company

• Overall vision
• Size Location Funds to Date
• Mission
• Business Strategy/Objectives

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The Product/Service

• Your Product/Service
• Offering for Customers
• Competitive Advantage(s)

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The Market Opportunity

• The Problem
• Customer Needs
• Definable
• Meaningful
• Sizable
• Reachable
• Your Solution

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The Competitive Realities

• Existing Market Alternatives
• Likely Competitor Reactions
• Marketing Strategy
• Price Promotion Distribution
• Market Facts

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What Makes a Good Market

• Good product or service
• Meeting a perceived need
• Enough potential buyers
• Advantageous timing
• Brand name awareness
• Differentiation
• Strong Margins
• Durable
• Persuasive communication

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Marketing Research Resources

• www.census.gov
• Provides a wealth on the demographic
  characteristics of individuals and organizations.
  Can be used to produce population-based analyses
  to support market size estimates.
• http//www.census.gov/mcd/asmhome.html
• Annual Survey of Manufacturers. Contains
  information on industry segments.
  
• http//www.census.gov/mcd/asm-as2.html
• Annual Value of Product Shipments.
• http//www.census.gov/epcd/cbp/view/cbpview.html
• County Business Patterns. Contains information
  on Business Activity in Geographic Units.
  
• www.claritasexpress.com
• You Are Where You Live Provides information
  regarding the demographic and psychographic
  characteristics of residents in a particular
  geographic area. Useful for determining site
  location and marketing strategies.
• www.infobel.com/teldir
• Can be used to produce lists of companies by
  industry sector and geographic area.
  
• http//www.galenet.com/servlet/AUfinalAuthtrue
  
  
• Associations Unlimited. Contains access to
  specialized associations that may be contacted
  for market analyses.
  
• http//rdsweb2.rdsinc.com/texis/rds/suite2Session
  43f262a3aTBLisCachednipCnt1
  
• Table Base. A Google-like search engine for
  tables. You cant tell what youre going to
  get.
  
• http//www.sec.gov/edgar/searchedgar/webusers.htm
  
• EDGAR Search for filings of companies. Can be
  used to look for the 10K forms for existing firms
  in an industry. These 10K forms often contain
  industry analyses.
• http//edgarscan.pwcglobal.com/servlets/edgarscan
  

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Management Team

• Key management personnel
• What makes you and your management team the right
  people to make this business fly
  
• Board of directors/advisors
• Professional advisors services
• Management compensation ownership
• Investors restrictions
• Employment agreements/stock options

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Financials

• Dynamic not Static
• Balance Sheet
• Income Statement
• Break Even/Profit Analysis
• Cash Flow Analysis
• Startup Capital/Resource Needs

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Financial Issues

• Revenue and Major Expenses
• Current Financing Available
• Additional Funds Required

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Financial Projections

• Income Statement (3-5 yrs. Annual 2-3 yrs.
  monthly)
  
• Balance Sheet (3-5 yrs. Annual 2-3 yrs.
  monthly)
  
• Cash Flow Schedule (3-5 yrs. Annual 2-3 yrs.
  monthly)
  
• Breakeven analysis

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Financial Plan Tips

• Statements should reflect cyclicality
  seasonality and growth.
  
• Actual financial statements can be a great
  advantage
  
• Highlights/summaries are helpful
• Work with a financial professional but get
  knowledge and not just numbers
  
• Understand how the financial statements provide
  operating information.
  
• If you develop only one financial statement use
  a MONTHLY CASH FLOW BUDGET.
  
• Bankers like facts and hate surprises.
• Consider controllable versus uncontrollable
  expenses
  
• Consider fixed versus variable expenses
• Consider materiality (trucks and not paper clips)

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Budget Planning

• Revenue Model - Sales forecast
• Gross profit forecast
• Operating expense forecast
• Capital budget
• Financing plan
• Cash flow plan
• Balance sheet forecast (pro forma)

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Revenue Model

• Product Worst Case Most Likely Best
  Case
  
• 1.
• 2.
• 3.____________________________________
• Total
• Linear Decomposition by Month by Source
• Ramp up effects
• Demand patterns
• Seasonality
• Cyclicality

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Sources of Information

• Past history BEST
• Industry averages (Robert Morris Associates -RMA
  Troys Almanac)
  
• Trade associations Operating Statistics
• Real estate websites Land/facilities
• Department of Commerce - Licenses/Fees/Taxes
• www.salary.com Wage and Salary Data
• Utilities Utility costs
• Suppliers Component costs
• Thomas Register component costs

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Often Neglected Expenditures

• Living Expenses for Entrepreneur
• FICA benefits
• Postage Phone etc.
• Advertising/Promotion
• Travel and Entertainment
• Debt service
• Office expense
• Miscellaneous
• Taxes
• Rent Utilities
• Legal Accounting
• Insurance

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Cash FlowPlanning Process

• Forecast cash receipts
• Forecast inventory disbursements
• Forecast operating expense disbursements
• Forecast capital expenditures
• Forecast financing (debt and equity) cash flows
• Monitor performancebudget vs actual
• Manage exceptions

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Forecasting Cash Receipts

• Credit vs cash sales
• Timing of collection of credit sales
• Capital budgetsales of fixed assets
• Financing proceeds debt and equity

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Forecasting Operating Expense Disbursements

• Consider time of expense vs disbursement
• Consider non-cash expenses (depreciation)
• Consider beginning of period accounts payable and
  accrued expenses

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Critical Risks Contingencies

• Not just what can go right but also what can go
  wrong
  
• Full Disclosure with a contingency plan or
  request for help is better than hiding problems
  
• Good capital providers will help

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Proposed Company Offering

• Desired financing
• Use of funds
• Return to investor(s)
• Timing of Funds Flows
• Ties to Milestones
• Exit Scenario

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START PLANNING!