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What’s New?

Students: Let’s make WHAT’S NEW an exciting part of the class. Plan to bring an article or current event in regards to the chapter being covered that week. How does this article relate to topic? Write a brief paragraph and attach a copy of the article.

Student Name: __________________Section#____ Date_________ What’s New #________

Subject_________________________ Source of Material______________________

Small Business Management, 18e
Longenecker/Petty/Palich/Hoy
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Business Plan: Visualizing the Dream
Chapter 6
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Learning Goals:
Explain the purpose and objectives of business plans.
Give the rationale for writing (or not writing) a business plan when starting a new venture.
Explain the concept and process for developing a firm’s business model.
Describe the preferred content and format for a business plan.

Learning Goals (cont.):
Offer practical advice on writing a business plan.
Explain how to pitch to investors.
Identify available sources of assistance in preparing a business plan.
Maintain the proper perspective when writing a business plan.

An Overview of the Business Plan
Business Plan
Outlines the basic concept underlying a business-what problem will be solved-and describes how the business will execute its plan to solve the problem.
Key Elements of a Business Plan
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.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Users of Business Plans
6.1
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Will Writing a Plan Make a Difference?
Primary Functions
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
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Balance Between Planning and Executing
Factors affecting the extent of a plan:
To provide a clearly articulated statement of goals and strategies for internal use
Imposes discipline on the entrepreneur and management team
To serve as a selling document to be shared with outsiders
Provides a credible overview for prospective customers, suppliers, and investors
Helps secure favorable credit terms from suppliers
Opens approaches to lenders and other sources
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Types of Business Plans
The Short Plan
An abbreviated form of a traditional business plan that presents only the most important issues and projections.
The Comprehensive Plan
A complete 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.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Basic Business Model Framework
6.2
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Developing a Business Model
Key Elements in a Business Model
Revenue Model
Cost Structures
Required Resources to grow the business
Business Model Risk
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Developing a Business Model (cont.)
Revenue Model
Volume or unit-based
Subscription/membership-based
Advertising-based
Licensing based
Revenue Streams
Single
Multiple
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Developing a Business Model (cont.)
Revenue Streams
Single
Revenue comes from a single product/service
Multiple
Revenue comes from multiple products/services
Interdependent
Revenue comes from selling one or more products to generate revenue from other products
Loss Leader
Revenue streams are sold at a loss
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Developing a Business Model (cont.)
Who are your most likely customers?
How are they different from the general population?
What events will trigger the need or desire for your type of product or service?
When will these events occur? Can they be predicted?
How will customers make decisions on whether or not to buy your product or service?
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Developing a Business Model (cont.)
What will be the key decision factors?
How will your product or service compare to that of the competition on these key factors?
Will these differences be meaningful to the customer?
Are these differences known to the customer?
How can your product or service be exposed to your most likely potential customers?
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Developing a Business Model (cont.)
Cost Structures
Fixed: costs that do not vary at all with volume
Variable: expenses that vary directly and proportionately with changes in volume
Semi-variable: expenses that include both variable and fixed costs
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Preparing a Business Plan
Issues critical in preparing a business plan:
The content 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
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Preparing a Business Plan (cont.)
Factors that help determine the content of a business plan for a startup:
The opportunity
Critical resources
The entrepreneurial team
The financing structure
The context (or external factors)
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
A Business Plan Identifies the Key Factors for Success
6.3
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Abbreviated Business Plan Outline
6.4
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Table of Contents for BlueAvocado Business Plan
6.5
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The Content of a Business Plan
Executive Summary (Overview/Narrative)
Description of the opportunity
Explanation of the business concept
Industry overview
Target market
Competitive advantage to be achieved
Economics of the opportunity
Management team description
Amount and purpose of the money
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
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6–*
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BlueAvocado Overview
6.6
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The Content of a Business Plan (cont.)
Industry Description
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
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Content of a Business Plan (cont.)
Target Customers
Demographics and psychological variables-values, attitudes, and fears
Competitor Analysis
Product or service attributes that are or are not provided by competitors
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Content of a Business Plan (cont.)
Product/Service Plan
Describes the product and/or service to be provided and explain its merits
Marketing Plan
Describes the user benefits of the product or service and the type of market that exists
Operations and Development Plan
How product will be produced or service provided
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Content of a Business Plan (cont.)
Management Team
Describes the firm’s organizational structure and the backgrounds and qualifications of key personnel
Critical Risks
Identifies the potential risks that may be encountered by an investor
Exit Strategy
Lists the possible options for equity investors to recover their principal investment and any returns through cashing out of their investment.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Content of a Business Plan (cont.)
Exit Strategy
Lists the possible options for equity investors to recover their principal investment and any returns through cashing out of their investment.
Financial Plan
Projects the company’s financial position based on well-substantiated assumptions and explains how the figures have been determined
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Content of a Business Plan (cont.)
Pro forma statements
Projections of a company’s financial statements for up to five years, including balance sheets, income statements, and statements of cash flows, as well as cash budgets.
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

The Content of a Business Plan (cont.)
Appendix of Supporting Documents
Supplementary materials and attachments to expand the reader’s understanding of the plan:
Résumés of key investors and owners/managers
Professional references
Photographs of products, facilities, and buildings
Marketing research studies
Pertinent published research
Signed contracts of sale
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Advice for Writing a Business Plan
Analyze the market thoroughly
Provide solid
evidence for claims
Think like
an investor
Don’t hide weaknesses—
identify potential fatal flaws
Maintain
confidentiality
Pay attention
to details
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Advice for Writing a Business Plan
Analyze the Market Thoroughly
What is the target market?
How large is the target market?
What problems concern the target market?
Are any of these problems greater than the one you’re addressing?
How does your product or service fix the problem?
Who will buy your product or service?
How much are they willing to pay for it?
Why do they need it?
Why would they buy from you?
Who are your competitors?
What are their strengths and weaknesses?
6–*
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What Not to Do
Mistakes to avoid in preparing a business plan:
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.
6–*
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

What Not to Do (cont.)
Mistakes to avoid in preparing a business plan: (cont.)
Overlooking the fatal flaw.
Using bad grammar.
Making the overall plan too long.
6–*
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Pitching to Investors
Identify the problem to be solved.
Introduce your solution to the problem.
Discuss your beginning traction for sales.
Identify the target market.
Explain the costs of acquiring customers in your target market.
Communicate the value proposition relative to competitors.
6–*
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Pitching to Investors (cont.)
Describe the basics of the revenue model.
Provide financial projections, along with the assumptions.
Sell the team.
Identify your funding needs, and explain the use of the funds.
Describe possible exit strategies-how the investors may be able to cash out.
6–*
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Pitching to Investors (cont.)
End on a high note-remind investors why your product/service/team is so great.
6–*
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Resources for Business Plan Preparation
Computer-Aided Business Planning
Professional Assistance
Get referrals.
Look for a fit.
Check references.
Get it in writing.
6–*
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© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Key Terms

business model
business model risk
business plan
comprehensive plan
cost structures
critical risks
executive summary
exit strategy
financial plan
management team
marketing plan
offering
operations and development plan
pitch
product/service plan
resource requirements
revenue model
short plan
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
© 2017 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.