copyright 2008 prentice hall publishing 1 chapter 4 business plan buy or build a business

Copyright 2008 Prentice Hall Publishing 1Chapter 4 Business Plan

Buy or build a business

Buy or build a business

Copyright 2008 Prentice Hall Publishing

Business Plan

2


It may continue to be successful It may already have the best location Employees and suppliers are established Equipment is already installed Inventory is in place and trade credit is

established It’s turnkey New owners can “hit the ground running” New owners can use the previous owner’s

experience Financing is easier to obtain It’s a bargain! 6 - 3

Advantages of Buying an Existing Business

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The financial costs are high It’s a “loser” Previous owner may have created ill will “Inherited” employees may be unsuitable The location may have become

unsatisfactory Equipment and facilities may be obsolete

or inefficient Change and innovation can be difficult to

implement Inventory may be outdated or obsolete Accounts receivable may be worth less than

face value The business may be overpriced

6 - 4

Disadvantages of Buying an Existing Business



Study: 50 to 75% of all business sales that are initiated fall through.

The right way: Analyze your skills, abilities, and

interests. Develop a list of criteria Prepare a list of potential

candidates. Investigate and evaluate candidate

businesses and select the best one.

6 - 5

Acquiring a Business



Explore financing options Potential source: the seller

Negotiate a reasonable deal Ensure a smooth transition

Communicate with employees Be honest Listen Consider asking the seller to

serve as a consultant through the transition

6 - 6

Acquiring a Business


Copyright 2008 Prentice Hall Publishing 6 - 7

The Acquisition Process



Go into negotiations with a list of objectives ranked in order of priority.

Try to understand what the seller’s priorities are.

Work to establish a cooperative relationship based on honesty and trust. Avoid an “if you win, then I lose”

mentality Look for areas of mutual benefit

6 - 8

Negotiating the Deal



The Business Plan

A written summary of: an entrepreneur’s proposed business

venture its operational and financial details its marketing opportunities and

strategy its managers’ skills and abilities.

Best insurance against launching a business destined to fail or mismanaging a potentially successful company.


The Business Plan:Three Essential

Functions

1. Guiding the company by charting its future course and defining its strategy for following it.

2. Attracting lenders and investors who will provide needed capital.

3. Demonstrating that the entrepreneur understands the business venture and what will make it succeed.


A Plan Must Pass Three Tests

The Reality Test - proving that : a market really does exist for your product

or service. you can actually build or provide it for the

cost estimates in the plan. The Competitive Test - evaluates:

a company’s position relative to its customers.

management’s ability to create a company that will gain an edge over its rivals.

The Value Test – proving that: a venture offers investors or lenders an

attractive rate of return or a high probability of repayment.


Why Take the Time to Build a

Business Plan? Although building a plan

does not guarantee success, it does increase your chances of succeeding in business.

A plan is like a road map that serves as a guide on a journey through unfamiliar, harsh, and dangerous territory. Don’t attempt the trip without a map!


Key Elements of a Business Plan

Title Page and Table of Contents Executive Summary Mission Statement Company History Business and Industry Profile


Information Flow in Business Plan

Strategy

• Who are we and where are we going?

Market

• What is our product/service?• What is our environment?

Logistics

• How & when will we build our product/service?

• How & when will we manage our resources?

Finance

• How much will it cost?• When will we make money?

14Chapter 4 Business Plan



Title Page and Table of Contents Executive Summary Mission Statement Company History Business and Industry Profile Business Strategy Description of

Products/Services


Features versus Benefits

Feature – a descriptive fact about a product or service (“an ergonomically designed, more comfortable handle”).

Benefit – what a customer gains from the product or service feature (“fewer problems with carpal tunnel syndrome and increased productivity”).



Marketing Strategy Competitor Analysis Description of

Management Team Plan of Operation Forecasted Financial

Statements Loan or Investment

Proposal

(continued)


Guidelines for Preparing

a Business Plan Remember: No one can create your

plan for you. Potential lenders want to see

financial projections, but they are more interested in the strategies for reaching those projections.

Show how you plan to set your business apart from competitors; don’t fall into the “me too” trap.

Identify your target market and offer evidence that customers for your product or service exist.


Tips on Preparinga Business Plan

Make sure your plan has an attractive cover. (First impressions are crucial.)

Rid your plan of all spelling and grammatical errors.

Make your plan visually appealing. Include a table of contents to allow

readers to navigate your plan easily. Make it interesting.

(Continued)


Tips on Preparinga Business Plan

Your plan must prove that the business will make money (not necessarily immediately, but eventually).

Use spreadsheets to generate financial forecasts.

Always include cash flow projections.

Keep your plan “crisp” – between 25 and 50 pages long.

Tell the truth – always.

(Continued)


Business Plan Grading Criteria



Presenting the Plan

Demonstrate enthusiasm, but don’t be overemotional.

Know your audience thoroughly. “Hook” investors quickly with an up-

front explanation of the venture, its opportunities, and its benefits to them.

Hit the highlights; focus on the details later.

Keep your presentation simple – 2 or 3 major points.


Presenting the Plan

Avoid overloading your audience with technological jargon.

Use visual aids. Close by reinforcing the nature of

the opportunity. Be prepared (with details) for

potential investors’ questions. Follow up with every investor to

whom you make your presentation.

(Continued)


Group Presentations

When November 17th/20th and the schedule

TBD All groups should be available

Entrepreneur Investors.

Each team has 20 minutes and that time must include questions (whether during or after the presentation)



Grade Criteria - Presentation



Grade Criteria - Investors


Marks available

Marks gained

Questioners show a good knowledge of the venture concerns – was the venture risks identified and/or missing information about the venture

2

Questions are probing rather than superficial (ie. their purpose is to help decision making)

2

Most of the team participated in the questioning and asked questions throughout presentation, but did not interrupt presentation flow.

1

Questioners can respond effectively to answers (ie. are capable of thinking quickly to ask good follow-up questions)

2

Investment group managed the time slot well

3

TOTAL (Out of 10, Worth 20% of presentation mark) 10

copyright 2008 prentice hall publishing 1 chapter 4 business plan buy or build a business

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