Purpose of a business plan
It's a way to map out a desired short- and medium-term future.
When should a business plan be written?
- For any new operating group/division/subsidiary being formed
- For new product or project
- When buying or merging with another entity
- Annually for corporate resource allocation
What functions does a business plan serve?
- Determine future projects
- Determine how well goals have been met
- Raise money
For an ongoing business, what purposes does a business plan serve?
- It's a way of getting consensus and consistency throughout the company.
- Assist in strategic planning.
- Used to test theories of how the company should be run and calculate possible outcomes.
What are the book's "four c's of credit"?
- Cash flow
- Contribution (equity)
What are lenders looking for when reviewing loan applications?
The ability of a company to repay its debt.
What are venture capitalists looking for?
- Rates of return of 25 to 50-percent or more, compounded annually
- Investments that will become liquid within a relatively short period of time.
Why is liquidity important?
At the end of a venture capital fund's defined lifetime, the fund must be split up and returned to investors.
What kind of businesses do venture capitalists look for?
- Businesses that have an edge on the competition that cannot easily be copied.
- Proprietary characteristics often marked by patents, licenses, trademarks, or other legal protection.
What are the ___ types of investors?
- Venture capital funds
- Vendors - by giving better terms on payables
- Corporate Venture Capitalists
- Ad Hoc Venture Pools (minority enterprise investment groups)
What are the variables an entrepreneur must deal with when choosing the legal form of a business?
- Ease of bringing in new investors
What are the six types of legal organizations listed in the book?
- Sole proprietorship
- Limited Partnership
- S Corporation
Simplicity characteristics of each type of legal organization
- Sole Proprietorship: most simple, least expensive
- Partnership: relatively simple to establish & maintain
- Limited Partnership: needs a formal written agreement
- LLC: more complex; needs formal operating agreement & registration in some states
- Corporation: generally requires the most formality and maintaining
- S Corporation: same degree of formality and expense as regular corp; maintenance is more expensive due to constant need for oversite.
Liability of various types of organizations
- Sole Proprietorship: owner has unlimited personal liability
- Partnership: each has unlimited personal liability
- Limited Partnership: general partners are personally liable; limited partners are only responsible up to the extent of their investment
- LLC: Owners not generally liable
- Corporation: Stockholders not generally liable
- S Corp: shareholders
List the Financial Risks analyzed while doing due diligence
- Market risk
- Credit risk
- Liquidity risk
- Exit strategy
List the operational risks reviewed during due diligence
- Product risks
- - Raw materials
- - Design / engineering
- - Supply chair
- - Manufacturing operations
- - Compliance with legal and regulatory standards
- Distribution channels
- Information security
- Business continuity
List the business risks associated with due diligence
- Technological disruption
- Changing forms of competition
- Intellectual property
- Governance and human resource risks
- CEO succession
- Employee relations
- Compliance with laws, regulations and the company's governing documents on business conduct and ethics
List the transaction risks associated with due diligence
- Deal structure
- Tax and accounting considerations
- Comparable valuations of competitors or industry leaders
What info is included in the general company description?
- What type of business
- What customers does it want to serve
- Business objectives
- Mgmt team overview
What is in the "Products and Services" section of a business plan?
- Physical description
- Use and appeal
- Stage of development
Convey as concisely as possible the nature of the business offerings
What is in the "Marketing Plan" section of a business plan?
- Market definition and opportunity
- Competition and other influences
- Marketing Strategy
- Market Research
- Sales Forecast
- Support Material
What is the purpose of the "Major Milestones" section of the business plan?
- Plans and objectives for a venture
- It's a schedule and a set of goals against which progress can be measured
- It should focus on major events, such as financing commitments, prototype development, first market test, break-even attainment, etc.
- Should be clearly defined and easily measured