When venture capitalists are asked what they consider most carefully when deciding whether or not to fund a new venture, they consistently respond: “We are most concerned with the quality of the management team and the quality of the business plan.”
The business plan is an important component of a business start-up. It forces the business owner and his/her management team to reflect seriously on the goals of their venture and the steps necessary to launch and maintain it successfully. The very act of constructing a business plan offers an important learning experience to the business owner, because it requires him/her to take a comprehensive view of all aspects of the new venture: organizational, financial, marketing/sales, legal, operational, and IT.
Outside investors find the business plan to be important because it offers them a revealing picture of how the new venture will be organized and what it will achieve. Of equal importance, the business plan enables them to determine how effective the owner and his/her management team will be in launching and maintaining the venture. If the business plan is poorly written, inconsistent, and unrealistic, then the investors will not fund the venture, because they know that it will likely fail. If you cannot write a compelling business plan, then it is unlikely that you will be able to establish a viable business. On the other hand, a well-crafted, compelling, and realistic business clan suggests that the owner and his/her management team know what they are doing.
This assignment has you put together a short business plan. In constructing it, follow the outline provided later in this guide. As you organize and write it, keep reminding yourself that the point of the document is to force you to think through the most significant issues needed to launch and maintain the business successfully, and to convince investors to provide you with funds because you have a good money-making idea and know what you are doing.
Selecting a business venture
Write a business plan for one of the two following ventures:
• Option A. Expanding a one-store operation to a two-store operation
Assume you currently run a small retailing business in the lobby of a large office building. Your store occupies 1000 square feet of space. You spend fifty hours a week at the store and hire two employees, each of whom spends thirty hours a week at the store. Your annual revenues are between $150,000 – $300,000 a year. The products you sell are a mixed bag of items. Basically, you stock up with items that occupants of the office building will want, including snacks, pre-wrapped sandwiches, bottled/canned beverages, greeting cards, newspapers, paperback books, and small gift items that the building’s tenants might find attractive.
A new office building will open two blocks away from the building you now occupy. You would like to expand your business to that building. In fact, you begin to dream that you can establish a chain of such stores in large buildings downtown. You have even cooked up a name for the potential chain, “Buster’s” (named after your pet Labrador retriever).
At this point, you are not sure how you want to fund the expansion. You need to put together a business plan to develop a sense of the financial requirements of the new operation. You may decide to fund it using your savings and by taking out a second mortgage on your house. Three other options are to borrow money from the bank, borrow money from friends and family, or to have friends/family assume an equity role in your business as investors. In any event, your business case would be used to borrow the money or to attract investors.
Write a business plan that describes this proposed venture.
• Option B. Establishing Nerd Patrol ,a computer services company
John Robbins, Mary Singh, and Nabil Quresh are best friends in college. John and Mary are computer science majors, while Nabil receives his degree in business administration. After graduating, each goes his/her separate way. John and Mary work as systems engineers in large technology companies, while Nabil joins the sales staff of a software engineering services company. Both John and Mary become fully certified on Microsoft and Oracle software products.
Five years after graduating, the three friends get together and toy with the idea of setting up a company to provide individuals and small businesses with a full range of computer and networking services including hardware and software upgrades, hardware repairs, debugging software problems, dealing with network problems, . They would model their business after the established franchise, Geek Squad. They would call their service Nerd Patrol.
In putting together their business plan, they have a wide range of options they can pursue. For example, they can start cautiously, with John being the only full-time employee at the outset, then having Mary and Nabil join the venture later (low start-up costs). Or else they can try launch Nerd Patrol as a full-fledged operation (high start-up costs). Identify a strategy that they can pursue, then develop a business plan that describes their proposed venture.
Outline of the Business Plan Document
In the world of real business, business plans can take on a variety of shapes and sizes. They may range in length from a few pages to hundreds of pages, depending on the nature of the venture. They can be filled with detailed financial and marketing data, or simply a brief sketch of financial and marketing requirements – depending on how much data are available. They can be highly structured or casual. There is no one best way to structure a business plan.
In this assignment, you should keep the business plan short: 12 pages of text, typed single-spaced, using 12-point font. Charts and tables are extra. You should also employ the following outline, which captures the chief elements of typical business plans:
1) Introduction and brief description of the venture
a) Introduction (e.g., “This business plan describes a proposed venture to expand Buster’s from a one-store to two-store operation.”)
b) Description of the business (“Buster’s is a small store located in the lobby of a large office building …”)
c) Business aspirations (e.g., “Ultimately, we hope to expand Buster’s so that it becomes a chain of 10-15 stores situated in downtown office buildings.”)
2) Organization of the business and key players (e.g., “Marsha Jones is owner and principal manager of Buster’s. The current store employs two people, each of whom works at the store 30 hours a week … The proposed store will be managed by Ms. Jones …”)
a) Owner(s) – role(s) and qualifications
b) Company legal structure (e.g., sole proprietorship, partnership, LLP, S-Corporation, C-corporation)
c) Management team – roles and qualifications
d) Employees – roles and qualifications
e) Contractors/vendors (as appropriate) – roles and qualifications
a) Anticipated operating costs of the new business (e.g., What are the anticipated expenses of operating the business in a typical month?)
b) Anticipated investment requirements to launch the new venture (e.g., furnishing facilities, inventory purchases, meeting payroll during the first six months of operation)
c) Anticipated revenue
d) Pro-forma cash flow projection for the first year of operation
REVENUES Month 1 Month 2 Month 3 Month 4 Etc.
Rev source A
Rev source B
e) Payback point (taken from the pro forma cash flow statement)
f) Anticipated return on investment from the perspective of three years into the venture
a) Summary of a marketing/sales strategy
b) Marketing/sales requirements for the business
i) Price of goods/services
a) Location of the business
b) How the business will be operated (e.g., hours of operation, procedures to produce goods/services, special operations issues)
6) Legal and sundry issues
a) Legal and related issues that need to be addressed (e.g., Liability, intellectual property, structuring the business, commercial law issues, etc.)
b) How legal issues will be handled (e.g., in-house attorney, use of outside legal services)
7) Major challenges
a) A realistic assessment of the challenges facing the new venture