How to write a business plan

1. Business Plan Writing
Hj Arriffin Mansor
012-2786282
04/14/12 arriffin 1

2. 7 steps in business planning
04/14/12 arriffin 2

3. 7 steps in business planning
04/14/12 arriffin 3

4. The Purpose of business plans
Pre-venture Counseling Loan Packaging
Business Planning Market Research
New Product
Financial Analysis
Commercialization
Franchise Evaluation Strategic Planning
International Trade Human Resource Mgmt
04/14/12 arriffin 4

5. Ingredients for business Success
competent PERSON
POTENTIAL BUSINESS OPPORTUNITY
BUSINESS PLAN
SUFFICIENT CAPITAL
All the above
04/14/12 arriffin 5

6. THE BUSINESS PLAN
THE BUSINESS PLAN IS A WRITTEN
DOCUMENT WHICH DESCRIBES YOUR
BUSINESS IN TERMS OF . . .
04/14/12 arriffin 6

7. THE BUSINESS PLAN
WHO YOU ARE
WHAT YOU DO
WHERE YOU ARE HEADED
HOW AND WHEN YOU EXPECT TO GET
THERE
WHY YOU WILL BE SUCCESSFUL
04/14/12 arriffin 7

8. WHY YOU NEED A
BUSINESS PLAN
04/14/12 arriffin 8

9. A Business Plan is:
Your First
Marketing
and Sales
Tool
04/14/12 arriffin 9

10. Typical Business Plan Outline
(First Time Entrepreneurs)
I. Overview (Summary)
II. The Opportunity
III. The Solution
IV. The Business Model
V. Operations
VI. Financials
VII. Required Capital, Equity Structure and Rate
of Return
VIII.Management Team
04/14/12 arriffin 10

11. TO ENCOURAGE YOU TO BE SPECIFIC
TO EVALUATE THE FEASIBLITY OF
YOUR IDEAS
TO PROVIDE PLANNING, OPERATING,
AND POLICY GUIDES
TO IMPROVE DECISION-MAKING,
EFFICIENCY, AND CONTROL
04/14/12 arriffin 11

12. TO IMPROVE YOUR CHANCES OF
SUCCESS
TO PERSUADE POTENTIAL LENDERS AND
INVESTORS YOU WILL SUCCEED
NOTE: DO NOT WRITE A BUSINESS PLAN
JUST TO OBTAIN FINANCING, WRITE IT
FOR YOUR BENEFIT.
04/14/12 arriffin 12

13. COMPONENTS OF A
BUSINESS PLAN
NARRATIVE
FINANCIAL DATA
SUPPORTING DOCUMENTS
04/14/12 arriffin 13

14. STATEMENT OF PURPOSE
WHO IS ASKING FOR THE MONEY?
WHAT IS THE BUSINESS STRUCTURE?
HOW MUCH MONEY?
WHAT IS THE MONEY NEEDED FOR?
HOW WILL THE FUNDS BENEFIT THE
BUSINESS?
WHY DOES THE LOAN MAKE SENSE?
HOW WILL THE FUNDS BE REPAID?
04/14/12 arriffin 14

15. DESCRIPTION OF BUSINESS
BUSINESS FORM?
-PROPIETORSHIP
-PARTNERSHIP
-CORPORATION
TYPE OF BUSINESS?
-MERCHANDISING
-MANUFACTURING
-SERVICE
04/14/12 arriffin 15

16. DESCRIPTION OF BUSINESS
(cont.)
WHAT IS THE PRODUCT AND/OR
SERVICE?
IS IT A NEW BUSINESS, TAKEOVER, OR
EXPANSION?
WHY WILL THE BUSINESS BE
PROFITABLE?
04/14/12 arriffin 16

17. DESCRIPTION OF BUSINESS
(cont.)
WHEN WILL YOUR BUSINESS OPEN?
IS IT A SEASONAL BUSINESS?
WHAT HAVE YOU LEARNED ABOUT
YOUR BUSINESS FROM OUTSIDE
SOURCES?
04/14/12 arriffin 17

18. PRODUCT/SERVICE
WHAT ARE YOU SELLING?
WHAT BENEFITS ARE YOUR
CUSTOMERS BUYING?
WHICH PRODUCTS ARE RISING STARS,
STEADY CASH COWS, IN DECLINE
(INVESTMENT EGOS)?
WHAT IS DIFFERENT ABOUT YOUR
GOODS AND SERVICES?
04/14/12 arriffin 18

19. MARKET
WHO BUYS FROM YOU? DEFINE YOUR
TARGET MARKETS.
ARE YOUR MARKETS GROWING,
STEADY, OR DECLINING?
IS YOUR MARKET SHARE GROWING,
STEADY, OR DECLINING?
04/14/12 arriffin 19

20. MARKET (cont.)
HAVE YOU SEGMENTED YOUR MARKETS?
HOW?
ARE YOUR MARKETS LARGE ENOUGH
FOR EXPANSION?
HOW WILL YOU ATTRACT, HOLD, AND
INCREASE YOUR MARKET SHARE?
04/14/12 arriffin 20

21. MARKET (cont.)
ARE YOU PLANNING TO ENTER OR
LEAVE ANY MARKETS?
HOW DO YOU PRICE YOUR
PRODUCTS?
04/14/12 arriffin 21

22. COMPETITION
WHO ARE YOUR DIRECT COMPETITORS?
WHO ARE YOUR NEAREST INDIRECT
COMPETITORS?
HOW ARE THEIR BUSINESSES SIMILAR
TO AND DIFFERENT FROM YOURS?
WHAT HAVE YOU LEARNED FROM THEIR
OPERATIONS, ADVERTISING?
04/14/12 arriffin 22

23. LOCATION OF BUSINESS
WHERE ARE YOU (OR SHOULD YOU BE)
LOCATED?
WHY IS IT A DESIRABLE AREA OR
BUILDING?
WHAT KIND OF SPACE DO YOU NEED?
ARE ANY DEMOGRAPHICS OR OTHER
MARKET SHIFTS GOING ON?
04/14/12 arriffin 23

24. MANAGEMENT
HOW DOES YOUR BUSINESS
EXPERIENCE HELP YOU IN THIS
BUSINESS?
WHAT RELATED WORK EXPERIENCE
DO YOU HAVE?
WHO IS ON THE MANAGEMENT TEAM?
04/14/12 arriffin 24

25. MANAGEMENT (cont.)
WHAT ARE THEIR STRENGTHS AND
WEAKNESSES?
WHAT ARE THEIR DUTIES?
ARE THESE DUTIES CLEARLY
DEFINED? HOW?
WHAT ADDITIONAL RESOURCES ARE
AVAILABLE TO YOUR BUSINESS?
04/14/12 arriffin 25

26. PERSONNEL
WHAT ARE YOUR CURRENT
PERSONNEL NEEDS?
WHAT SKILLS WILL YOUR EMPLOYEES
NEED? IN FIVE YEARS?
WHAT ARE YOUR PLANS FOR HIRING
AND TRAINING PERSONNEL?
04/14/12 arriffin 26

27. APPLICATION/EXPECTED EFFECT
OF THE LOAN (INVENSTMENT)
HOW WILL THE LOAN (INVESTMENT)
MAKE YOUR BUSINESS MORE
PROFITABLE?
WILL YOU BUY OR LEASE
(EQUIPMENT, PLACE OF BUSINESS)?
DO YOU NEED THIS MONEY?
04/14/12 arriffin 27

28. FINANCIAL DATA
SOURCES ANDAPPLICATIONS OF FUNDING
ASSUMPTIONS
WAGE/REVENUE SCHEDULE
BALANCE SHEET
THREE YEAR INCOME STATEMENT
THREE YEAR CASH FLOW STATEMENT
04/14/12 arriffin 28

29. Goal for Session
Quick Introduction to Business Plan
Financial Analysis
 Help you understand what is important
Not a class in accounting!
04/14/12 arriffin 29

30. What should it be ?
What is the Purpose of Business Plan
Financials?
Passing the “Taste Test”
Executive Summary Financials
Detailed (Appendix) Financials
04/14/12 arriffin 30

31. Business Plan
Financials
04/14/12 arriffin 31

32. What is the Purpose of
Your Business Plan
Financials?
04/14/12 arriffin 32

33. Business Plan Financials
Phase I
Helps you:
 test various potential business models
 isolate critical assumptions
 determine whether this is a viable business
opportunity
 determine how much money you’ll need
04/14/12 arriffin 33

34. Business Plan Financials
Phase II
Helps potential investors:
 test the viability of your business model
 evaluate your critical assumptions
 Are they credible?
 Do you understand your business?
 evaluate you as someone who understands how
business works from a financial perspective
 determine whether the investment is potentially
attractive
 evaluate your true financial needs
04/14/12 arriffin 34

35. “The Taste Test”
04/14/12 arriffin 35

36. Job 1: Pass the “Taste Test”
Tom Canfield of Equity Catalysts:
“Can you taste $25-$50 million in
revenues?”
Is the revenue scenario credible or will you have
to achieve miracles to hit your forecast numbers?
04/14/12 arriffin 36

37. So, how do
you convince
someone that
your revenue
scenarios are
credible?
04/14/12 arriffin 37

38. Tips for Credibility
Show your
assumptions and be
able to back them
up with FACTS
based on market
research and/or
some compelling
rationale
04/14/12 arriffin 38

39. Showing a Potential Market
Enterprize, Inc.
Market share required to achieve Revenue Goals
Gizmo Unit Sales Price $ 2,500 25% of competitor price; greater value
Market Opportunity in Units 150000 According to Gartner Group;
Market Opportunity in Revenue to Enterprize $ 375 $ million
Yr Yr Yr Yr Yr
1 2 3 4 5
Enterprise, Inc. Yearly Objectives ($ millions) $ 3.50 $ 7.00 $ 14.00 $ 28.00 $ 56.00
Growth Rate 100% 100% 100% 100%
Required Unit Sales 1400 2800 5600 11200 22400
Required Market Share to Achieve Objective 0.93% 1.87% 3.73% 7.47% 14.93%
Note: Enterprise will achieve this required market share because of:
1) Partnership with xyz will yield . . .
2) ajsadfjkdfsajkl adfjkldsfkl, etc.
04/14/12 arriffin 39

40. Mistakes to Avoid
Assumptions you can’t justify
 Too high a market share
Too much detail
Too little detail
Not enough growth
Too much profit (in later years)
04/14/12 arriffin 40

41. Summary Financials
04/14/12 arriffin 41

42. Summary Financials
Pro-forma Income Statement
Pro-forma Return to Investors
04/14/12 arriffin 42

43. Income
Statement
04/14/12 arriffin 43

44. What is an Income
Statement?
Shows financial results of a company over a
given period of time
Includes:
 Revenues
 Cost of Sales (costs directly attributable to the
products/services sold)
 Other Operating Expenses
 Marketing, Sales
 Research and Development
 General and Administrative
 Earnings before TaxOperating Income
 Tax
 Earnings after Tax
04/14/12 arriffin 44

45. Sample Income Statement
Simple Income Statement
Enterprize, Inc.
Jan-Dec, 1999
Revenues $60,000
Cost of Goods Sold $30,000
Gross Margin $30,000
Research & Development $35,000
Sales and Marketing $40,000
General and Administrative $10,000
Total Operating Expenses $85,000
Operating Profit -$55,000
Tax 35% 0
Profit After Tax -$55,000
04/14/12 arriffin 45

46. Income Statement Questions
What is Revenue?
 How would a magazine account for a
subscription?
 How would a software company account
for a software license?
What is Cost of Goods sold?
What are some of the components of
operating expenses?
What is operating profit?
04/14/12 arriffin 46

47. Pro-forma Income Statement
Summary Table showing 3-5 years of
 Revenues
 Cost of Sales
 Other Operating Expenses
 Operating Income
Plus: Brief text on how can you support
these financials
 The key assumptions
04/14/12 arriffin 47

48. Pro-forma Income Statement
Income Statement (MM)
Years 1 2 3 4 5
Revenues $13.1 $54.3 $143.3 $230.2 $321.2
Cost of Goods $15.6 $28.8 $54.1 $82.4 $112.1
Sold
Other Operating $23.8 $32.1 $64.5 $100.4 $140.3
Expenses
Operating Income -$26.3 -$6.6 $24.8 $47.4 $68.8
Operating Margin -201.2 -12.2 17.3% 20.6% 21.4%
% %
04/14/12 arriffin 48

49. Required Capital, Equity
Structure and Rate of Return
How much cash will you need?
What is the value of the company?
How much will the management team
contribute, if any?
What is the rate of return on capital for
the investors?
04/14/12 arriffin 49

50. Rate of Return Assumptions
Assumptions for ROI Calculation
Investment by Partner $ 25.0 million
Valuation of the company after the investment $ 100.0 million
Equity from Investment 25%
Equity from Strategic Relationship 5%
Total percent of equity 30%
Year 5 Operating Profit $ 69 million
Assumed multiple of operating profit at sale 7
Assumed value of the company after 5 years $ 483 million
Return to Partners $ 145 million
Assumed dividends during 5 years 0
04/14/12 arriffin 50

51. Rate of Return Calculation
Yr Yr Yr Yr Yr
1 2 3 4 5
Initial Investment $ (25) $ - $ - $ - $ -
Dividends $ - $ - $ - $ - $ -
Return from Sale $ 145
Net Cash Flows $ (25) $ - $ - $ - $ 145
Internal Rate of Return 55%
Net Present Value at 35% $13.82
04/14/12 arriffin 51

52. Detailed Financials
(“Appendix”)
04/14/12 arriffin 52

53. Exhibits for Detailed Financials
Typically: 5 years on an annual basis and
month-to-month for the first year
Components:
 Assumptions and Outcomes Page
 Income Statement
 Detailed Revenue
 Detailed Expenses
 Headcount
 Return on Investment
 Balance Sheet
 Cash Flow
04/14/12 arriffin 53

54. Assumptions and Outcomes
Shows key assumptions and the
outcomes in terms of profits, etc.
Helps show the reasonableness of your
analysis
Tells the story in summary form, in case
someone only looks at this page
04/14/12 arriffin 54

55. Income
Statement
and
Related
Exhibits
04/14/12 arriffin 55

56. Income Statement
Revenues
 Summarizes components of revenue
Expenses
 Cost of goods sold
 Other major components of operating expenses
 Sales, marketing, general and administrative
 Research and Development, etc.
Earnings before income and tax (or operating
income)
Tax
Profit after tax
04/14/12 arriffin 56

57. Detailed Revenue
Shows revenue over time divided into
key components:
 Product areas
 Geographies
 Any components that make sense
Documents assumptions and their
effects
04/14/12 arriffin 57

58. Detailed Expenses
Summarizes key expense categories in
major detail
Documents assumptions not
summarized elsewhere
04/14/12 arriffin 58

59. Payroll and Headcount
Who are you going to hire
When will they start?
How much will they earn?
Cost of benefits, etc.
04/14/12 arriffin 59

60. Return on Investment
Expected investment
Expected share of ownership
Change in share of ownership due to
other investments
Returns on the investment, including
dividends and some “terminal value”
Discount cash flows to show Internal
Rate of Return and Net Present Value
04/14/12 arriffin 60

61. Balance
Sheet
04/14/12 arriffin 61

62. What is a Balance Sheet?
A snapshot of a company’s financial
position at a moment in time
Left hand side = Assets
Right hand side = Liabilities and
Equities
Assets must equal liabilities plus
equities (hence it is a “balance” sheet)
04/14/12 arriffin 62

63. Balance Sheet
Simple Balance Sheet
Enterprize, Inc.
6-Jan-00
Liabilities &
Assets Equity
Cash $ 25,000 Accounts Payable $ 5,000
Accounts Receivable $ 10,000 Prepaid royalties $ 25,000
Inventory $ 15,000 Current portion of notes payable $ -
Total Current Assets $ 50,000 Total Current Liabilities $ 30,000
Property, Plant & Equipment $ 25,000 Long term debt $ -
Total Liabilities $ 30,000
Paid-in Capital $ 100,000
Retained Earnings (cumulative deficit) $ (55,000)
Total Assets $ 75,000 Total Liabilities and Equities $ 75,000
04/14/12 arriffin 63

64. What is an Asset?
Assets are valuable resources
owned by an entity and
include:
 Cash
 Things that are likely to become
cash soon (inventories, accounts
receivable)
 Valuable things that help the
business produce revenues over a
longer period (property, plant, and
equipment, etc.)
04/14/12 arriffin 64

65. What is a Liability?
Liabilities are the claims
of creditors and include:
 Accounts payable
 Notes payable this
year
 Longer term
obligations, such as
long term debt
04/14/12 arriffin 65

66. What is an Equity?
Equities reflect the “claims” of
investors and include:
Paid in capital
“Retained Earnings” or the sum total of profits
after tax that haven’t been paid out through
dividends
Note: You can’t cash in equities—they represent
a claim on the business not an asset.
04/14/12 arriffin 66

67. Cash Flow
Statement
04/14/12 arriffin 67

68. Cash Flow Statement
Records the Flow of Cash during a given
period
Cash inflows include:
 Profits
 Sale of assets
 Reduction in:
 Accounts Receivables
 Other assets
Cash outflows include:
 Losses
 Purchase of assets
 Increase in:
 Accounts Receivables
 Other assets
04/14/12 arriffin 68

69. Cash Flow Statement
Simple Cash Flow Statement
Enterprize, Inc.
Jan-Dec, 1999
Sources of Cash Uses of Cash
Cash from Operations: Increase in accounts receivable $ 10,000
Increase in Inventory $ 15,000
Net Income (loss) $ (55,000) Purchase of property, plant $ 30,000
Depreciation $ 5,000 & equipment
Net cash from operations $ (50,000)
Other Sources of Cash:
Sale of Stock $ 90,000
Increase in accounts payable $ 5,000
Increase in prepaid royalties $ 25,000
Total Sources of Cash $ 70,000 Total Uses of Cash $ 55,000
Increase (decrease) in cash $ 15,000
04/14/12 arriffin 69

70. Business Plan Financial
Projection Workshop
Handout
Example Statements and
Recommended Readings
04/14/12 arriffin 70

71. Q and A
04/14/12 arriffin 71

72. Thanks and
ABM Consult
04/14/12 arriffin 72