Teaching All Aspects of Building a Business Plan

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As with teaching any content matter it is appropriate to start off by defining the concept area you’re discussing.

A business plan is considered a guide for your business that outlines goals and details how you achieve those goals. The business plan also features specific data such as any company members, financial data and plans of operation and marketing.

The clip presents a brief overview of important aspects of the business plan and what questions to consider while you’re building your business plan.

Now that students have a general overview of what they should be considering it is a great idea to show the following YouTube clip that details the top 10 business plan questions that need answering to best present your plan:

Once these YouTube clips have been presented and students are starting to think about what is involved with building a business plan and how they would answer those questions and present the needed information it is time to present the parts of a business plan.

Executive Summary:
An executive summary is often suggested to be the last thing to write as far as your business plan is concerned, but in the “order” of your plan it will always show up first. Included in the executive summary is: a brief discussion of your company, mission statement, product/services being offered, competitive advantages, brief financial forecast, management team, current advisers and financial requirements.

It is necessary to discuss each part of the executive summary. A brief discussion of your company is likely to include when you started, how you started, why you started and what you’ve done. It is generally easier to write this aspect of your executive summary if you’ve been in existence longer than a start-up company. A mission statement is the company’s purpose. These can be any where from a sentence to a few paragraphs, but often you want to keep your mission statement short, so that it is possible to memorize. This differs from a vision statement, as a vision statement is a similar in length presentation of what your company intends to accomplish in the future, which can be long or short term. It is necessary to indicate, briefly, what your company is presenting – either a product or service. You touch on this briefly, as you will go more in depth later on. Competitive advantages are also briefly touched on as it is necessary to discuss them at length later in your business plan. The best way to find these advantages is through extensive research of your niche and creating a SWOT analysis of strengths, weaknesses, opportunities and threats. You should present a brief financial forecast, as your full financials will be included later on. This should generally be limited to figures on how the investor will make back their investment. You should make sure to provide some detail on any other management team members and advisers. Discuss these individuals competencies that in conjunction with you put the company in a great position to succeed. Often investors will make decisions based on who is involved with a company so it is important to showcase why these people’s human capital will work for the investment.

Finally, most importantly is the financial requirements. Usually individuals completing a business plan are seeking either an investment or a loan. Put forth information on what you need financially and what you’re willing to offer in return for this investment. Bear in mind this aspect will be completely different dependent on seeking a loan from a bank or seeking an investment from an entrepreneur. Banks will often expect you to put up collateral regarding your loan. For example, if you purchased a property with the sole purpose of running your business out of it and seek a loan from the bank, it is entirely likely you will be required to use your property as collateral on the loan. This is to put the risk all on you, as the bank takes the collateral in default of the loan. Entrepreneurs expect a stake in your company and often expect a large stake in your company. The reason entrepreneurs do this is so that not only do they make back their initial investment when your company succeeds, but then they make more money, as they are a partner.

At this point students may be looking at you like their heads are going to exploded, so take a moment to decompress and showcase an example of a business plan for them to digest. One such example is provided within TimeMAPS. Then present them with a guide on what information shall result in getting there.

Continue to detail each specific aspect of the business plan until all features are completed. When dealing with the marketing section of your business plan be sure to discuss market research. Within a strong business plan should be a discussion on why your company is better than other companies based on the 5 P’s of MarketingPorter’s Five Forces and SWOT analysisThe 5 P’s of Marketing are Product, Price, Place, People and Promotion. You won’t make money unless your product/service is good, your price is acceptable to the consumers, your providing the product/service in an area that needs it, you know your demographic and you know how to advertise the product/service to the correct audience.

Porter’s Five Forces are: bargaining power of suppliers, threat of substitutes, bargaining power of buyers, threat of new entrants and industry rivalry. Bargaining power of suppliers only impacts your business if you rely on others to provide you with materials to create your product or provide your service. An example of high bargaining power of suppliers would be if you needed a commodity in limited supply to produce your product, as a supplier could charge whatever since you need the commodity that is very limited. The same is said if a company holds a monopoly of an industry. The best way to avoid high bargaining power of suppliers is to not have any and produce/provide in-house. Threat of substitutes is in regard to any other possibilities on the market. For example, most people will drink Coke if Pepsi is not available. A way around threat of substitutes is often by gaining a high market share, price gauging or other avenues that will make your company the “name” industry in your niche. Bargaining power of buyers will ultimately set your price point. Bargaining power of buyers it a lot higher when the niche area is often crowded. For example, within web design the bargaining power of buyers is very high, as there are many opportunities available to them. This is why it is important to be creative in differentiating from the competition by making sure you do something different than everyone else. Threat of new entrants ties into the niche you’re involved with. For example, it is a lot harder to start up a soft drink company to compete with Gatorade than it is to start a web design company. Therefore the soft drink company has a low threat of entry and the web design company has a high threat of entrants. Finally there is industry rivalry, such as Coke vs. Pepsi. When a company holds market share industry rivalry becomes less important, but generally start-up companies will not be in this vein. So in this area research all companies within a 100 mile radius that are offering similar services, explain why your company is different, but detail how your company could grab some of their market share.

SWOT analysis is a discussion of strengths, weaknesses, opportunities and threats. When discussing strengths be sure to explain why they are strengths and how they will remain strengths. When discussing weaknesses be sure to detail how these weaknesses shall be improved upon. When discussing opportunities detail how your company will use these potential opportunities to make money. Finally, when discussing threats present detailed information on how your company will prevent these threats from severely damaging your company, both its image and its financials.

Finally, there is the competitive analysis table that all MS Word sample business plans will feature. These are a lot easier to fill out as a known company when you’re able to survey clients both past and present. The table essentially pools together the information presented in the previously mentioned criterion.

The other most important aspect of the business plan is your financial plan which needs to include assumptions (detail what these are and why you believe them), key business metrics, break-even analysis, 12 month profit and loss projection, three to five year profit projection, projected cash flow and projected balance sheet. You generally want to have a one year projection and a five year projection. It is also important to include a “functional” projection which is considered the most likely scenario and an “optimal” projection which is considered the best case scenario.

The following YouTube clip presents important definitions of terms associated with financial planning:

Below are YouTube clips that further detail aspects of the financial plan:

Profit and Loss Projection:

Cash Flow:

Financial Projections:

When discussing building a business plan it is a necessity to discuss how human capital is more important than financial capital. What that means is that the work ethic and competencies of the individual starting the business is often more important than the finances backing them. But there are some instances where finding capital is necessary, which will be touched on later. The following YouTube clip features Dallas Mavericks owner Mark Cuban’s opinion on taking out loans for entrepreneurial ventures:

With that said it is important to consider avoiding mistakes, as detailed below:

Finally, the following YouTube clip details how to present a business plan using a pitch deck, as in today’s world no one has time to view all the printed pages involved in a business plan and a presentation is the preferred way to go:

If there is time available within your classroom it is a great idea to see how the student business plans would hold up in the real world. You can reach out to your local SCORE group which has a wide variety of retired business people who provide free help with business plans. Then once a member of SCORE has had an opportunity to speak with and help students with their business plans bring in a small business loan specialist from a local bank. Setup an informal presentation that allows the bank representative to say yes or no on a potential loan and why.

Be sure to leave students with advice from those in the know. Below is the advice I received from an entrepreneur regarding business plans:
It’s my experience that banks have tightened up, as have Angels, VC and PE firms due to more stringent lending parameters. Everyone is looking deeper and checking things twice to make sure they have a viable opportunity. Locating money, without a business plan to demonstrate the unique, novel business opportunity (what is it?), defensible position in the market (why your business?), size of the opportunity (how big is the market?), target market (who are you selling to?) and your revenue model (how do you make money?) it will be difficult if not impossible for you to get someone to part with money. Do the work, it’s hard, but it’s the only way. Do some searches for business plan samples on Google, stay away from canned presentations or formats. Pick a few, get the core down and then make it stand out. Remember, financials are critical, make sure you know your numbers.

GREAT RESOURCES:
docstocTV YouTube channel
SCORE

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