Considerations and Format for Creating a Business Plan University of Texas at Dallas Robert Robb

There are a number of models to follow with respect to structuring a business plan for a new venture. The business plan template outlined in this teaching note is not the only way of creating a business plan. There is no single magic format by which a business plan should be prepared with respect to order, content or detail that will satisfy all concerns. The intent of the business plan format presented herein is to provide a rational order of components and comprehensive content that enables a thorough (but not exhaustive) description and analysis of the business under consideration (by all parties, including the entrepreneur involved with the business and potential investors). The first step associated with creating a business plan is to understand its purposes. Why write a business plan? The overarching reason for writing a business plan is to provide the entrepreneurs themselves and current or future stakeholders a definitive understanding of your business or concept with respect to answering the following basic questions; 1) What exactly is the business and why is now a good time to launch it? 2) What significant opportunity is being presented or what big problem is being solved (i.e., how big is it really?), 3) How unique and superior is your solution?, 4) Who cares? (who are the customers and why would they buy your solution over your competition?), 5) What resources are required to achieve your objectives and can you acquired them?, 6) Who will run the business (are they qualified)?, 7) How much will it cost to launch the company, reach initial milestones and break-even?, 8) Where will the money come from to launch and sustain the company through the valley of death?, 9)What are the financial rewards to you and investors and when will they be realized, and, 10) What are the risks and how will they be mitigated? The purposes of the business plan are to:

1.

2. 3. 4. 5.

Gauge feasibility and attractiveness of the concept under consideration by the entrepreneur. This means that the very first business plan created by the entrepreneur is a preliminary plan intended to provide a reality (or sanity) check or feasibility assessment of all concepts and factors that relate to or affect the potential start-up, including issues related to technology, products, markets, funding, economics (ROI), product or service superiority, sustainable advantage, risks, etc.. This preliminary feasibility plan should be created with an open mind to enable a rational answer to the question, Is this concept feasible and should this company be launched?. Feasibility planning may not only help spot problems or realities that may need to be mitigated before launch but may prevent an ill-advised or ill-fated launch. Provide a comprehensive operating guide for management to follow with respect to goals, strategies and tactics. The internal or operational plan may be somewhat different than the external plan intended to attract partners or funding. Attract funding (debt or equity). Should the feasibility assessment result in a positive outcome and a decision to move forward with the business, the preliminary plan may be expanded to comprehensively present information required for funding the enterprise. Attract Partners, Management, Suppliers, and/or Distributors. Provide Legal documentation for raising capital (remember full disclosure of risks, and all material issues is the lawIt is a criminal and civil offense to either misrepresent or omit material facts that would effect the decision of the investor or lending institution.)

Where to start: Personal Assessment, Opportunity Evaluation, One-page summary Assuming that the entrepreneur has passed the personal assessment test regarding traits, motivations, risks and realities associated with entrepreneurship, and has identified a business idea to consider as the
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foundation for a start-up, there are some steps to consider taking before jumping into creating a comprehensive business plan. Before embarking on writing a full business plan, a feasibility analysis should be undertaken to assess the viability and attractiveness of the opportunity being considered. The components of an opportunity evaluation and feasibility analysis may be divided into THREE segments; 1) a Preliminary Decision Tree for a quick analysis, 2) a One Page Concept Summary to test the concept with third parties, and 3) a feasibility analysis (for commercial viability) that is focused primarily on market assessment (including potential customer feedback), product or service superiority and cost and revenue projections/analysis. Though there are other parameters that could be used for opportunity evaluation, the criteria listed below provides a reasonable assessment of a business opportunity. THE RESULTS OF THE FEASIBILITY ANAYLSIS (INCLUDING THE DECISION TREE SUMMARY BELOW), IF SUFFICIENTLY FAVORABLE, ARE USED TO COMPLETE PERTINENT COMPONENTS OF THE BUSINESS PLAN. See Preliminary Decision Tree on Next Page

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Is the Business Opportunity Real & Substantial (Can I clearly define the problem, pain, or unmet need? Is need extensive, significant, obvious)?

THE PRELIMINARY EVALUATION DECISION TREE: NO

Yes
Is my Solution Unique, Compelling, Disruptive (Can I clearly define Unique Products and/or Services & significant competitive advantages)?

NO

Yes
Is the Customer (target Market) clearly identified (Who Cares?)?

NO

Yes
Is the target market sufficiently large and attractive to support my business and attract investment capital (e.g., >$50M?)?

NO

Yes
Is my product/service at a stage that will attract funding? (e.g., proof of concept, working prototype, product.)

NO

Yes
Are Market Conditions conducive to starting this business (trends, competition, strengths, weaknesses, threats, timing)? (e.g., Are there few competitors and low barriers to entry?, Is now the right time to launch?)

Reconsider Launch or Timing of Launch

NO

Yes
Can I assemble the Required Resources readily and in a timely way (from personnel to facilities)?

NO

Yes
Do I have the Capacity, Experience, & Knowledge for Successful Execution (Am I capable of launching and operating the company and filling management gaps)?

NO

Yes
How much capital will I need and do I have reasonable access to funding sourcesis it fundable? (sufficient for launch, e.g., equipment, facilities, etc., and expenditures for 1st year of operations)

NO

Yes
Are projected Financial Rewards Substantial, Realistic and Timely (better than other opportunities)? (Can this opportunity provide 25% to 50% annual ROI to investors in 3 to 5 years?)

NO

Yes
Is the Exit strategy attractive, realistic and timely for all concerns? (are you willing to sell the business to achieve cashout/exit?)

NO

Yes NO
Are the risks fully understood, reasonable and manageable? (Have risks been removed or mitigated? Will risks be acceptable Robert Robb 2008 to investors/lenders?) 3

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Yes Create a CONCEPT SUMMARY to Get Feedback from third parties (Sanity Check) THE ONE-PAGE CONCEPT SUMMARY AND SANITY CHECK The One-Page Concept Summary is intended to clarify the concept succinctly for the entrepreneur and those from whom the entrepreneur will seek opinion to test the business concept. This opinion gathering is not only a sanity check, but perhaps, will enhance the viability of the concept by, 1) permitting helpful feedback from those not intimately involved with the potential business, and 2) potentially gaining interested partners or investors. The summary may be viewed as a mini-executive summary and should include the following: A description of the business concept, product(s) and/or service(s) The opportunity (unmet need) and intended target market (trends, size, growth) The benefits and competitive advantages of the product/service (why the product/service is superior) Overview of Market strategy, how product/service will be advantageously positioned relative to other offerings (e.g., pricing, service, special benefits/offerings) A description of how the product or service will be sold and distributed Information about the founders or special people associated with the firm If the decision tree analysis and third party feedback regarding the concept are satisfactory, along with other key assessment questions the entrepreneur may ask, then the creation of a full business plan should be considered using a format similar to the Business Plan Outline below. THE BUSINESS PLAN What are the philosophical and structural foundations of a superlative business plan? If the business plan being created is for the purpose of attracting capital, it should be bold, compelling, accurate, and most importantly supported with factual, accurate data. When bold claims are made (e.g., regarding market size, revenue potential, market need, etc.), the support or validation of such claims should be given factually (no arm-waving, generalities or I believe opinions). The plan should in no way contain hype, appear overly promotional or exhibit hubris (or navet). The plan should not be done with a slick cover or expensively/professionally printed (glitz is not recommended). It should be professional, straightforward, complete, concise (15 to 30 pages plus an appendix for detailed attachments), attractively formatted for ease of reading and structured for logical flow and understanding. Avoid trying to achieve the impression of quality through sheer weight and thickness. A short, succinct, yet complete plan garners much favor among investors and lenders (much of the detailed support for the plan should be made available in the Appendices sectionjust in case someone wants to read the detail). An outline format with a few bullets for points of emphasis is usually the most attractive and easily read form for a business plan (-- from an investors perspective, lengthy prose will lose attention quickly). What are the essential components of a superlative, comprehensive business plan? The plan should answer several essential questions whether being viewed from the entrepreneurs perspective to validate feasibility or from an investors perspective for funding purposes. Many of the Key Questions noted below are among the questions that loom large in the minds of investors or bankers. The feasibility analysis, including the decision tree above, serves as a framework for the additional detail necessary to complete a comprehensive business plan described below. The components of a comprehensive business plan include: Introductory Page Table of Contents Executive Summary Description of the Business, (Overview of the Company and the Opportunity or Problem) Products/Services (detailed description of the solution)

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Market Analysis Marketing Plan Product Design & Development Operations Management Financial Projections Funding The Offering Risks, Contingencies Appendices

Introductory or Title Page Contact Information o Name of the company, Address, Company contact data (phone, Fax, & email), Document Control o Number each document disseminated to demonstrate control and that it is a limited investment opportunity Confidentiality Notice and Securities Law Notice. o For example [the following is an example of Notice but this inclusion of this paragraph herein is for discussion purposes only and not intended as legal advice or as exact language to be used for the students particular business plan (please consult an attorney for such legal advice)]: This Business Plan is confidential and proprietary and has been prepared by [Stellar Corporation], a [Delawar]e Corporation. It is being delivered, under confidentiality, to a limited number of parties who may be interested in investing in Stellar Corporation. The sole purpose of this Business Plan is to assist the recipient in deciding whether to proceed with a further investigation of Stellar Corporation. This Plan may not be circulated, reproduced, Faxed or disclosed to any person or entity in whole or part without the written permission of Stellar Corporation. No representations or guarantees are made or implied. All plans and projections stated in this plan are approximate and estimated and subject to change." Table of Contents The table of contents lists the major headings and subheadings in the plan and provides an overview Executive Summary

The most important component for both the entrepreneur and investor. Should be Short, Succinct and compelling, especially for the investor who reads a multitude of plans (1 to 2 pages in length) Initial Summary can be written first (Though completed fully after plan is written)(sometimes recommended by some to be written last) o Use the initial summary to be the outline for creating the business plan. o As more information is added to the business plan, the Executive Summary can be refined o Use the content of the Executive Summary to create an elevator pitch both written and verbal (a brief presentation given to an investor, for example, who has but a few moments to listen or read) The key elements of the summary include: o The first paragraph: The most important element of the summary (and therefore the plan) This is a compelling opening that outlines the overall Business Concept, provides a Brief overview of the Products/Services offered and the Market need, Problem, or Pain they are resolving (what solution is being offered and is it unique in solving the problem)

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o o

For example, X Company is an emerging enterprise that is(delivering, or introducing) the first[unique product/service] that effectively provides [solution to a serious problem]. The foregoing statements should be straightforward and not promotional. Company Description (Vision/Mission/Strategy) Brief Description of the Technology, Products or Services Customer Value Proposition: Uniqueness, Differentiation, Competitive advantages (clear, tangible and significant value for the customer) Barriers to entry that your product/service presents to competitors e.g., Proprietary position (e.g., Patents) and sustainability of the advantage in market. Validation (patents, customer response, partner support, sales growth, orders, etc.) Target Market(s) Target Customers (segment, size of customer segment) Industry Conditions and Trends (e.g., size, growth, timing, why now?) Competition (overview of weaknesses, vulnerabilities) Team

Relevant background, knowledge, domain experience, business expertise or special capabilities that will help make the business successful Overview of Previous successes (for investors/lenders comfort) Economics Business model (how will business make money) Projections (summarize Sales, Costs, Income, ROI) Exit Strategy Funding (how much money is being raised and for what purposes) Need not present stock price or proposed deal if not accompanying an official offering memorandum (though it may be included depending on the circumstances)

Section I: The Company and the Opportunity Some information in this section is a reiteration of the Executive Summary but the business plan stands alone as though there is no executive summary (there may be some apparent redundancy). Generally, this is an overview section that can be considered to be an expansion of the first paragraph of the executive summary. Describe what the company does early in the presentation (do not describe the unmet need before you indicate what the business does) The components of this relatively brief section may include: The Company o Purpose (mission)/Vision/Concept. Provide a succinct and compelling overview (brief introduction) of what the business is or does, (.e.g., Enterprise, Inc. has developed and introduced the first full function [product] to enable [customers in need] to [accomplish something meaningful]. (Do not begin the plan by giving a long introduction of the market problema typical mistake). The mission or purpose can be defined broadly or narrowly depending on the nature of the product or service and the intended scope of current and future strategy (is the companys mission to produce computer math games or is it broader, e.g., to create educational software?). You may even include what you want the business to become (e.g., Our vision is to become The leading supplier of)? o Generally describe your product or service in compelling terms if possible and why it is unique, superior, innovative or more advantageous to customers than current offerings in the marketplace. Describe how it will improve the market or provide a significantly better solution to existing problems. How will it change the way things are done currently? Overview of The Opportunity, The Problem, and/or The Unmet Need o Briefly summarize the compelling opportunity (including the unmet need or the problem being solved) that prompted the creation of this business.

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Key Question: Is there a clearly defined, significant and prevalent unmet need and is that need long-lived or will it pass quickly? Describe why now is the right time to launch this business concept (e.g., compelling market trends, competitive forces, small window of opportunity)? Give a brief overview of market conditions, trends, size (market segment), growth, competition (weaknesses, strengths, vulnerabilities), apparent niches available, new markets Describe the primary target customer whose need is being met

Brief History (optional). Provide summary information regarding what spawned the concept, and when the company was founded or incorporated. Milestones Achieved, Risks removed, Product or Service Validation. Summarize progress to date including proof of principle, current product development, milestones achieved, such as recruitment of managers with relevant experience, funds raised, regulatory approvals obtained, patents issued, manufacturing & distribution relationships established, customer acceptance, current customer base established, partnerships established and other achievements) o Possibly include the reason for funds requested, if raising capital (e.g., the company has reached a point that requires expansion capital to meet significant demand for our products) Business Strategy, Overview of the Business Model o Describe generally how this business will make money.

Section II. The Problem In this section, the problem or market need that is being addressed is defined and described in greater detail. The size and prevalence of the problem (e.g., how many experience the problem, how frequently and how painful is the problem. The more definitive market and industry discussion and analysis comes later in the Market section. Section III. Products, Technology and/or Services (including Features, Benefits and Advantages) This section details the nature of the product or service and why it is special or unique. Key Question answered by this section: What makes this product/service/technology significantly unique, special or competitively advantageous? (faster, higher quality, lower priced, more convenient, better styling/ergonomics, safer, super service, more compatible, better distribution partners, easy access, or better in other ways?) Describe in detail the Products, Technology, and/or Services of your solution including any drawings or graphical representations. o List the Features, Benefits and Advantages of your products/services (know the difference between features and benefits and make certain the reader understands benefits and advantages of Note: Features listed may be weak or EMPTY commentary unless accompanied by relevant corresponding benefits (e.g., Solid titanium framing (the feature) provides the safest [product type] on the market (the benefit) because it is the only product that prevents collapse under the heaviest of loads (the advantage). Also describe any marketing or distribution advantages, etc. If there are detailed technical or scientific information or data, move such details to appendice Key Question: Is the Value Proposition compelling to customers?

o Describe why advantages or core differentiators are sustainable and expected to compel
customers to choose your product or service over competitive offerings, i.e., provide best solution to the market need (and validate as much as possible, e.g., through customer response or testimonials or partner relationships)(a competitive matrix and analysis will be presented in the analysis under the Market (Section III) to complete the value proposition). The following are possible parameters to establish the value proposition to the customer:
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o
o o

Product (performance, quality, features, selection, convenience, safety) Price (Fair, consistent, reasonable) Access (Convenience, easily found) Service (ordering, delivery, return, support) Experience (ambience, fun, intimacy, trust, community, friendliness, community, etc.) Summarize barriers to entry controlled by the company such as Intellectual property or associated with products or concepts (patents, copyrights, trade secrets). (detail in appendix) Key Questions: Is the intellectual property solid and broad vs. weak and narrow? Are the barriers that give you advantage large and sustainable? Describe any licenses that may be needed and their significance. List improvements, derivative or follow-on products/services Describe the current, primary applications of the technology (are there products)? Describe current stage of product development. Key Question: Is the product at a stage that would attract capital? (beyond concept, working prototype, manufacturing prototype, beta feedback?) What is the current status of Development? What milestones have been achieved? What milestones need to be achieved and when? Describe how possible limitations, technical problems or other potential weaknesses regarding this product or service may be mitigated?

Section IV. The Market (Market and Industry Analysis) In this important section will be summarized all market research information, data and analyses. This section is important to potential investors, lenders and partners because it is the foundation that substantiates the size and nature of the opportunity and the factors that will effect the launch, operations and potential of the business. Many of the other sections of the plan will depend on the information contained in this Market section, such as the Marketing Plan, Financial Projections, Budgets, Economics, Manufacturing and Operations plans, and the overall value and attractiveness of the deal. The elements of this section include the following: The Customer This section describes the target primary and secondary customers (market segments) of your product or service and their needs. Identifying and profiling the customer and analyzing the ultimate transaction contemplated between that customer and your business will provide strong insights into assessing the opportunity and creating the ultimate business plan. Key Questions: Who are the target customers and will they buy your product or service? How do you validate the claim or belief that a customer will buy from your company? This section includes: The nature and profile of the primary customer (the individual and market segment being targeted) Common characteristics, demographics (age, education, location, income, gender, etc.) and Product/Service benefit variables (quality, price, convenience, etc.) You may have more than one primary customer if selling through retailers (your product may need to meet both retailers needs and the needs of end-users, for example) Any crossover or shared market segments, e.g., dieters and customers that are part of the health food industries may buy similar products Describe buying patterns, purchasing processes and foundations for purchasing decisions Describe what product or service aspects appear to be of importance to the customer, e.g, price, quality, customer service, delivery, etc.
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Describe the channels through which product must be purchased (Are you selling directly or through distributors or retailers?) Discuss information relating to the degree of customer loyalty to current brands in the market if appropriate and reiterate why a customer would be expected to buy your product or service as opposed to other solutions, e.g., Better product at same price, same product at lower price, meets needs better, etc.? What are the alternatives for my product or service (e.g., substitutes or do nothing)? Describe what potential customers (and possibly distributors, retailers, suppliers) say about your contemplated product, service or concept Substantiate commentary as much as possible with letters of intent, customer quotes, testimonials, and customer orders. Describe why there is interest (very important) in your product or service Describe any existing business, sales, partnering relationships or contractual commitments or any other source that would help to validate customer acceptance (Remember, you are trying to validate the acceptance of your product or service in the market) Market Size, Trends, Opportunities This section is essential and requires a true understanding of the market or industry by thoroughly researching the issues that relate to the subject product/service/technology. This section is of major importance to both the feasibility analysis and the business plan. A great deal of analysis of markets should be conducted before undertaking the creation of a full business plan and launching a business. The ultimate or final plan if created must be defensible and this section will provide much of the data that will support need for the product or service you may offer. Any claims made about the need for your product or service should be supported with as much hard data as possible that is researched and collected from relevant trade associations, available market information (including other market studies), market surveys (including interviews with potential customers, distributors, suppliers and retailers). Market research information is usually available through library resources and the internet. Based on the information gathered, the following questions may be answered: Key Questions: What are the market trends that may affect my business? Is the need for my product/service emerging, diminishing, continuing? Is the need readily recognizable (essential need, vs. want)is this a market pull or product push circumstance (remember, pioneers can end up with arrows in their chest)? What are the pressures to move toward or away from my product/service? Is the market changing rapidly and how will it affect my product/service? (is my advantage sustainable?) Are there numerous new and improved market entries (low barriers to entry in the market)? How big is the actual market segment being served by my product or service (large enough to interest investors?) How many customers within the segment are projected to buy my product or service? Why is now the right time to launch this business concept (compelling market trends?, demographic shifts, competitive weakness?, small window of opportunity?, the only real solution?)? This Section of the Plan should include: Commentary and analysis of Target Market The size and growth trends in the target market segment (graphically show the projected market growth for 5-10 years) Market trends, recognized needs, demographic shifts, government regulation, global factors, socioeconomic trends, etc. that may effect your business.

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Information regarding product or service deficits or weaknesses in the market (thus creating an opportunity (need or want) and opening the door for your product or service)(SWOT analysis) Summary of what observers, analysts, competitors, distributors, retailers, etc. say about the market and its trends.

Competition and Competitive Advantages This section describes your positioning in the market as compared to competitors.

o What are the competitive advantages of the company and are they sustainable (e.g.,
improvements, derivatives, follow-on products or services, etc.)Who are the primary competitors? (market share, pricing, strengths, weaknesses) o Who are the current and future competitors that serve or will serve customer needs? o How well do competitors currently serve customers needs (strengths, weaknesses)? o What will be competitors response to my market entry? (especially if my primary advantage is based on price? I would probably lose a price war) This section includes the following: Present a detailed analysis of current and expected competitors in the market and how they compare with your offerings, describing: Products/services (Price, Quality, Service, Performance, Brand) Weaknesses, strengths, vulnerabilities, similarities, differences Company size, market position/share, sales revenue, growth trend Target customers (niches) Failed or weak market entries and reasons for withdrawal.

Create a competitive matrix or table, if appropriate, to show a comparison of features, benefits and weaknesses among competitors and your product or service (if lengthy, summarize the matrix in plan and place the detailed matrix in Appendices). If applicable, describe how your product or service superiority is expected to to overcome any established brand name and substantial resources of large competitors?

Sales Projections & Estimated Market Share (and timing) Graph and describe the projected growth of your product or service over the next several years (and its projected market share) and its market sharethis may require segmentation according to customer groups (this estimate will be based on all that you know about the market trends, industry growth, competition, quality of competitive products/services, competitive advantages of your product or service, and possibly customer feedback about your product/service. Use the bottom up approach for establishing realistic Sales Projections instead of using the proverbial and misused small percent of a huge market approach. Rule of thumb: Calculate future sales using detailed assumptions, make your estimates as conservative as possible and then divide in half that sales projection. List all assumptions used for estimating market share for next 3 years Summarize sales projections in a succinct chart or graph (make certain this data is well correlated with pro forma Income Statement and other financials).

Section V. Marketing Plan and Business This section describes the Business Model, and Marketing Plan including strategy and tactics necessary to achieve the projected level of sales described above. Key Questions: Is Pricing Strategy realistic (will it permit rapid, substantial sales plus substantial and sustainable profitability)? (How much will the product cost to make? ) Are suppliers readily available and willing to deal? How will I access (find and sell to) customers?
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How will I deliver product/service to the customer (location of the business and distribution)? Are there reasonably priced distribution channels available (to accommodate desired profitability) or is there a novel way to distribute products/services? What is necessary to provide support to the customer after purchase? (can this company realistically accomplish the taskcustomer service is sometimes overlooked and can contribute to the demise of a company I mismanaged and underfunded) What are the risks? What can go wrong?

This Section can include the following elements: Business Model o Describe in greater detail the companys business and revenue models o Describe how you sell your product or service How will you access customers? Describe how the company will generate revenue for its product or service General Marketing Strategy o Describe market entry approach and the rationale for it. o Describe marketing approach to be used with respect to 1) target customers (retail consumer vs. Business to Business), 2) positioning in the market (e.g., in a market segment or unattended niche), 3) Approach and position within the value chain, and 4) Methods of distribution o Methods of identifying, accessing and attracting target customers (e.g., given the customer profile and buying patterns, customers will be attracted through promoting and emphasizing the benefits of your product or service that will be most important to them. (describe approach) o Note how the company will sustain its competitive advantage o Describe follow-on products or services and timing Pricing Strategy o Estimating the price of products and the rationale for choosing the price What is the cost of making your product or delivering your service? The price will enable acceptance in the market, while accommodating sufficient margins for distribution and retail channels. A higher price as compared to competitors pricing may be justified by describing the quality or other value conveyed to the customer. A lower price may be justified by lower manufacturing costs or other factors involving manufacturing, overhead, materials, labor, etc. o Comparative pricing of competitors (what are the normative ranges) o Benefits of your pricing to the customer (improved efficiency or productivity, ROI) o Profit Margins, Distributor pricing and margins (describe how the pricing will permit appropriate margins for distributors and retailers (as appropriate). The value chain will be accommodated. Sales and Distribution Strategy(and tactics) o Methods for selling product or service (internet, catalogue/direct mail, contract sales force, manufacturers representatives, company sales force) and the rationale for your approach Select distribution channel, e.g., agent, wholesaler, retailer or any combination that makes sense Describe selection criteria or qualifications of wholesalers, retailers, or reps If direct sales force will be used, describe how rapidly this group will grow Describe overall budgeted cost per sales person and what level of sales is necessary per sales person to achieve break even and high sales levels. Future methods of sales

o
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 o o o

Your company may transition to a direct sales force Describe how and when the transition from distributors would take place (if it would) Methods for managing international sales if appropriate Future considerations (e.g., transition to other markets)

Profit margin discussion that permits sales approach (e.g., ample profit for the various distributors and retailers) A summary of Costs associated with particular sales approach taken (e.g., costs to hire and support a direct sales representative as opposed to a rent-a-sales person)) Any discussions with or commitment from existing sales organizations, retailers or distributors

Service and Support o Methods and approaches to be used to support the customer after the sale if needed (this is an important and oft times overlooked area --Without adequate planning for customer support, products and companies can fail) o If this is an internal operations plan, it is important to include such things as the approaches and policies associated with returns, warranties, service calls (charges), and comparisons to competitors approaches (e.g., currently accepted approaches). (If it is not an internal plan this section may not be needed. Advertising and Promotion (how will the company access customers?) o Planned Advertising (overview) Trade shows, Journal advertising, direct mailings, PR firms, Ad agencies, Newspaper, catalogues, newsletters, Literature Website Creation (and affiliates approach) o Planned Promotion (overview) Press releases, video documentaries (for special TV programming), TV/Radio interviews, free service/seminars, etc. Overall marketing budget o Abbreviated projected budget for marketing, sales and service costs.

Section VI. Design and Development Plan This section will provide the detail of current status of the product or service and what is necessary (and when) to bring the product or service to market. The Plan includes:

Current development status (bench prototype, working prototype, beta test unit, fully designed product with manufacturing prototype o Describe achievements to date, obstacles overcome o Specific expertise that enable current development status including contract relationships o Partners, distributors, or customers that have been involved in testing and design of product or service (and their response to it) o Any remedies for current obstacles o The elements of design that remain uncompleted A Summary of timeline and Projected costs for labor, materials, contractors, etc.

Section VII. Resources/Manufacturing/Operations Key Questions: What are the non-financial resources required for a successful launch and outcome (human capital, facilities, plant, design, development, manufacturing, sales, distribution, advertising, finance, information technology, professional services)?
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Does the management team have the ability and experience to acquire the necessary resources in a reasonable amount of time?

The Resources and Operations issues include the following. Facilities o Location and the rationale for it o Description of facilities (Overview) Current and future needs Improvements required Advantages and Disadvantages (for and Operations Plan or Appendix) Rent, incentives, utilities, amenities Air Handling Water and Power requirements Transportation issues Lab, Warehouse, Office facilities Proximity to airport if appropriate Labor-related issues Tax and zoning issues Expansion plans Equipment o Special equipment necessary o Current and future needs (3 years) o Timing of need o Leased or purchased o New or used Manufacturing o Description of manufacturing strategy, process and production plan Initial costs (and volume discounts) at various sales levels for material, labor, components, manufacturing overhead o Contract manufacturing or in-house capability --description If contract manufacturing, justify (based on skilled labor costs, costs of inventory, capability and availability of labor, etc.) List possible manufactures or current relationships, and the rational for using them Materials needed Describe materials/parts required (overview) Describe suppliers and rationale for using (sole source, many sources?) and any special relationships that exist. Regulatory Issues and Plan o Legal requirements to launch enterprise, get product or service approved, and to manufacture and ship product or perform service (if products are or will be regulated seriously by FDA or other agency, this plan should be outlined here and detailed in the appendices) o Relevant local, state, federal requirements for your product or service Licenses, inspections, permits (health, zoning, manufacturing, environmental, transportation), and other necessary filings. Summary of Costs to Manufacture (locate in appendix if presented) Expansion plan and costs o

Section VIII. Management and Organizational Structure Key Questions: Do I have the necessary technical and business experience, knowledge & capacity to execute the start-up, funding, development, marketing, operations, and
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manufacturing plans? (Is this the right fit with my teams or my experience/skills for stellar execution?) What are the management gaps and is the opportunity, current team and product/service strong enough to attract the required to fill them? Will the team and I be able to attract investors?

The elements for this section includes: Company Managers BRIEF summary in the body of the plan of relevant experience (small and/or large company experience), Skills, Achievements (e.g, sales, managerial, new product introductions, other successes), of current team (complementary skill-sets) o Include short resumes in Appendix if desired o List titles and responsibilities o List Gaps in Team and when and how gaps will be filled and any commitments from key managers who have agreed to join the company, e.g., upon funding. Board Members (relevant backgrounds) Advisory Board Members (strategic advisory board, scientific/technical advisory board, other.) Key Consultants or Professional Advisors (Legal firm, Accounting firm) If this is an internal operational plan, describe job description section and compensation for managers and for various staff positions(An outline of job descriptions is sufficient for most investors but this is placed in the appendix as detail) Organizational Chart o current and planned organization with general timing for additional management o

Section IX. Timeline of Events & Milestones This section summarizes the timing of key events and milestones necessary for the companys successful launch and operations during the early growth period, (year one 1 and 2). The timeline of events and primary milestones is important to investors to enable them to see when additional value will be created. Accuracy and conservatism is important when estimating event timelines because over estimation of milestone achievement will be viewed by investors as nave or foolish. The monthly timeline may be in Gantt Chart format and may be broken down into general areas such as Facilities, Manufacturing (contractors, materials, suppliers), Sales, Distribution, , etc. (Staffing ramp-up, including management additions, should be shown on a spreadsheet). Also, an abbreviated linear timeline should be used to show the comparative key milestones as they relate to funding needed to achieve the milestone (See sample business plan provided). The timeline Gantt chart contains items that can include the following (the list is but a small portion of items necessary but represents some of the key eventsthese are not necessarily in order of priority): o o o o o o o o o o o o o Timeline Chart Date of incorporation (arrange for legal counsel corporate, patent, accounting) Arranging Prototyping and Design professionals Completing design of product Completing development (early prototypes to manufacturing prototype) Arranging for Suppliers (and ordering materials, parts for production) Contracting with Outsourced Manufacturing Starting production Contracting with Sales and Distribution organizations (or retailers) Start Production First Sale Delivery of first products sold Dates of additional revenue milestones Break Even

Section X. Financials (current and pro forma)

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The financial plan should outline for investors or lenders the current financial status of the enterprise and its future, projected financial needs and performance. This section should be succinct and thorough but not excessively done to the point of suffering from spreadsheet-itis as viewed by some investors. The management of the company should use this section of the plan for internal planning purposes (as well as for investors or lenders) regarding operations, cash flow management and future funding needs. Conservative well-conceived estimations regarding predicted sales, cash needs and timelines are critical to the health, funding and success of the enterprise going forward. This section should include, 1) the current financial status of the company, including a summary current financials, 2) pro forma budget that includes start-up expenses and capital expenditures until company becomes self-sustaining, 3) the projected expenditures/costs for at least 3 years, 4) the estimated sales revenue and projected margins, 5) future financial status at various points in time, 6) assumptions on which projections are made, and 7) a break-even analysis. The body of the plan should contain summaries (and succinct tables) of the current condition and projected future financial performance of the company with back-up spreadsheets provided in the financial section of the Appendix. Keep in mind that these are projections and as such are readily recognized by investors and lenders as guesses at best and therefore are subject to much deviation from plan. They will be viewed for what they are best guesses that are inaccurate. Projections beyond year one are highly inaccurate and projections beyond year 3 are unnecessary. For a detailed explanation of each subsection below, please refer to the comprehensive Teaching Note on Financial Analysis and Projections provided for this course of instruction that details the approach and philosophy behind creating integrated financial statements for a venture. Key Questions: What is the overall start-up budget to open the doors and sustain business until the company is self-sustaining: Capital Assets for Start-up: facilities, equipment, furniture, other Operating expenses for the start-up period to sustaining positive cash flow (personnel, administration, manufacturing, travel, etc.) What are the costs required to achieve a fundable milestone (value building or risk reducing milestone)? What are the Capital Requirements for incremental increases in sales revenue? Working capital needed to accommodate inventory, accounts receivable, etc., Operating and other expenses (sales, service, admin., distribution, customer support, etc.) How profitable will this business be? Do the economics make sense to all concerns, i.e., founders, investors? (Financial Rewards (ROI), Break-even, etc.)? e.g., Is this more attractive for me than other opportunities including getting a job? Is the ROI (amount and timing) attractive to investors (25% to 50% rate of return)? Are my assumptions and projections for income and expenditures realistic or wishes? (a prevalent syndrome is to over-estimate timing and volume of sales revenue and under-estimate costs to achieve break-even.) How will we provide an exit (cash-out) for investors? This Financial section includes the following subsections: o Current Actual Financials Income Statement, Cash Flow and Balance Sheets Capital Requirements Summary: Start-up Budget and Sustaining Budget.

o A detailed budget of total expenses and outlays for capital assets in order to open the doors
of your new venture and sustain the enterprise for the 1st year of operations. (overview placed in the plan with details (spreadsheets) as an appendices) Staffing needs detailed by month for first year and quarterly for 3 years (full time, part-time, contract personnel) Salaries, Benefits (avg. 25% of salary), recruitment, training, relo., etc.

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o o o

Capital Expenditures (Equipment (mfg, Office, IT), facilities, improvements, furniture, fixtures, vehicles, etc.) Other Operating/Administrative Expenses (supplies, fees, rent, advertising, travel, subscriptions, utilities, telecommunications, professional fees, security, maintenance, mail, etc.) Working capital requirements (to cover Inventory, Accounts receivable, etc.) Additional Operating expenses and Working Capital for each incremental sales increase Manufacturing, Inventory, Customer Service, Distribution, Administration, etc. Pro forma Financial Statements Parameter Table (Assumptions) Includes all assumptions upon which projections are based, e.g., sales projections, unit selling price, unit costs, variable costs, fixed costs, profit margins, receivable parameters, payable parameters, debt service, operations costs, etc. (see separate Integrated Financials teaching note) Use the bottom-up approach for estimating revenues by looking at the sales transaction, actual sales process and sales cycle (how many calls will required per period to get a certain number of sales per period?, How long will it take to actually get a sale?, and How many sales people will be involved now and in the ramp up period?) [Never use the top down approach, e.g., there is a $5B market and if we get but 1% per year Pro forma Income Statement Start with revenue projections (support with assumptions) It is recommended that this statement be created to estimate projections for the next 3 years with the first year being presented in monthly increments and the subsequent 2 years in quarterly increments (present this information on two spreadsheets if possible) Create a summary table of this information for the body of the plan with general categories of expenses and sources of revenue. Pro forma Balance Sheets (annual for 3 years) Pro forma Cash Flow Analysis Most important projection to understand for managing future cash prudently Even if the companys income statement projects that the business will have higher revenues than expenses (achieve profitability)the income statement will not inform adequately as to whether the company will have sufficient cash flow on a monthly basis to pay for operating expenses and needed inventory to meet market demand (a large demand for a product can be troublesome without adequate planning to enable the manufacture of demand-level inventory). A cashflow projection shows how much money you'll need on a monthly basis so that you can accommodate those future needs (such as a credit line or other arrangements that would cover periodic shortfalls). Break-even Analysis (with Chart).

o o

Use income and expense estimates to determine the point at which your companys income will meet its costs. Include the assumptions on which break even was established.

Section XI. Funding and The Offering This section outlines the amount of capital the company is seeking, for what purposes the proceeds will be used and the current equity capitalization (capital structure) of the company (stock issued and to whom, and how much capital has been invested and by whom)--a cap table. Key Questions: What are the likely initial sources of capital for the business (e.g., revenue, personal funds, debt, equity, grants)?
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What mix of debt and equity makes the most sense? Is the opportunity (Market & ROI) large and compelling enough to attract investors? Is the company & product development at a stage that would attract capital? Can founders sustain themselves until capital is raised or at the point of positive cash flow (e.g., 6-12 months)? What is the valuation of the company? How much equity is being offered to investors? Is it reasonable or will it kill the deal at the outset? What is the fundraising plan? (when, who, how, where, etc)

If any securities of the company are to be offered investors, the company management should consult with legal counsel regarding requirements necessary for compliance with federal and state securities laws. The following is a list of possible items to include in this financing section. Amount of Funding Needed Total Amount of capital sought, the general purpose of the funding and how far the funding will take the company For example, The Company is seeking $1M for its first year of operations for the purposes of completing the production prototype of [product], early production runs and its initial introduction to the market. o A summary of projected outside funding needs over the next 3 years and for what purposes, e.g., As noted in the financial statements, the company will require an additional $2M in years 2 and 3 to expand sales and market penetration into ________ markets. o Expected funding from other sources (debt, equity, grants, tax incentives, other) o Likely sources of Cash (grants, equity investors, lenders, partners, tax subsidies) Use of Funding Proceeds A summary table of the expenditures for which the debt or equity capital will be used during the period of expenditure (e.,g., salaries, design, development, equipment, supplies, facilities, operations, manufacturing, marketing/advertising, etc). Equity Capitalization Table (Cap table) Create a table that outlines all current equity ownership of the company Shareholders by name with number of shares owned by each, individual percentage ownership and amounts invested by each shareholder (include any stock options contemplated). Second Cap Table--If this is an equity offering and it specifies a proposed deal structure, create a second, post-money, Cap Table using the same format but includes the new shareholders. The post-money capitalization is the equity ownership of the company after the offered stock has been issued to new investors (this table can also be represented in pie chart form). Include any stock options that are reserved for management and/or other personnel contemplated. The Deal If appropriate (and it usually is not), describe the amount of equity that is being offered to investors for their investment, e.g., 300,000 shares of common stock or 33 1/3 % of the companys issued and outstanding shares (based on a post money capitalization) is being offered for a $1M investment. Present a second capitalization table of the company to outline anticipated stock ownership after financing occurs. However, at times, it is appropriate to not include this section until discussion of the opportunity has occurred. It will be important for you to understand the current thinking of investors before you scare them away with numbers you believe are appropriate. The deal is better left to discussion in many cases so that compromise can take placeif desired.

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Projected Investor Return If the plan includes an offer to investors with respect to a definitive value for the company and its offered stock price, a summary should be included to show projected future value of the company and potential return (ROI and IRR) on investors investment (with caveats) Harvest Strategy (Exit) for investors (IPO and dividends are unlikely) (e.g., Sale, Merger)

Section XII. Critical Risks and Contingencies Risk Factors This section discusses the important risk factors that may negatively impact the business. Including this section is important because it conveys to the investor or lender that the management has a grasp of reality and is not nave, foolish or dishonest (because they did not disclose the obstacles and problems associated with various aspects of the business). A discussion under certain items (obstacles) to indicate possible (realistic) solutions or contingency plans with respect to such problems may be appropriate to assuage concerns about the issue.

Key Questions: What are the potential risks that threaten the success of the venture? Are there significant risks (with respect to regulatory, manufacturing, distribution, operations, management, market, marketing issues)? What risks have been removed (e.g., regulatory approvals, development milestones, manufacturing, Distribution, customer acceptance, other achievements, etc.) How can risks be mitigated? What are the contingency plans for each risk? What are the critical factors necessary for success? (what things must go right?) The risk factors can be broken down into categories, that include the following: o Management Lack of management experience in certain areas Inability to recruit certain managers to fill gaps Technical or Product Development Problems e.g., delayed product introduction, or excessive development costs Finance Inability to complete the fundraising for the full amount needed Not enough capital to reach profitability (inability to secure loans, credit lines, investment in a timely way) Higher costs than expected Lower margins than expected (need to lower sales price) Sales objectives and timelines not achieved Market or Marketing Factors Unfavorable, Unforeseen Market Trends Competitive response to your product introduction (e.g., lower price) Distribution or Supplier difficulties Operations Manufacturing risks, Potential outsourcing problems Labor shortage Transportation risks (including cost increases) Regulatory issues (from FDA to EPA) Intellectual Property Issues Regulatory Other

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Contingencies Plans to mitigate or overcome potential problems

Section XIII. Appendices

Separately Bound Volume Resumes of Principals Sample product literature Cover sheet of patent filings Product Literature Trade Press/Business Press Testimonials Letters Technical Information Confidentiality Technical discussion References Other pertinent material Detailed Financials

NOTICE: ANY INFORMATION CONTAINED IN THIS TEACHING NOTE IS NOT INTENDED TO BE LEGAL OR ACCOUNTING ADVICE. IT IS STRONGLY RECOMMENDED THAT THE ENTREPRENEUR SEEK GUIDANCE ON ACCOUNTING AND LEGAL MATTERS FROM THEIR LEGAL COUNSEL AND ACCOUNTING PROFESSIONAL SHOULD THE LAUNCH OF A NEW BUSINESS BE UNDERTAKEN.

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