1701412884194100 Preparing Effective Business Plans A n E ntrepreneurial A pproach S econd E dition Bruce R. Oklahoma State University Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo Editor in Chief: Stephanie Wall Acquisitions Editor: Daniel Tylman Program Management Team Lead: Ashley Santora Program Manager: Claudia Fernandes Director of Marketing: Maggie Moylan Marketing Manager: Erin Gardner Project Management Team Lead: Judy Leale Project Manager: Nicole Suddeth Procurement Specialist: Michelle Klein Cover Designer: Karen Salzback Cover Photo: Angelo Cavalli/Digital Vision/Getty Images Digital Production Project Manager: Lisa Rinaldi Full-Service Project Management: Prabhu Chinnasamy at Integra Software Services Composition: Integra Software Services Printer/Binder: Courier Cover Printer: Courier Text Font: 10/12, Times Ten LT Std Credits and acknowledgments borrowed from other sources and reproduced, with permission, in this textbook appear on the appropriate page within text. Copyright © 2015, 2009 by Pearson Education, Inc., One Lake Street, Upper Saddle River, New Jersey 07458. All rights reserved.
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Library of Congress Cataloging-in-Publication Data on File 10 9 8 7 6 5 4 3 2 1 ISBN 10: 0-13-350697-5 ISBN 13: 978-0-13-350697-6 Dedication To my wife Jan, my best friend This page intentionally left blank Brief Contents Part I Starting the Process 1 Chapter 1 Why Plan? 1 Part II What to Do Before the Business Plan is Written 21 Chapter 2 Developing and Screening Business Ideas 21 Chapter 3 Feasibility Analysis 53 Part III Preparing a Business Plan 83 Chapter 4 Introductory Material, Executive Summary, and Description of the Business 83 Chapter 5 Industry Analysis 103 Chapter 6 Market Analysis 125 Chapter 7 Marketing Plan 149 Chapter 8 Management Team and Company Structure 171 Chapter 9 Operations Plan and Product (or Service) Design and Development Plan 191 Chapter 10 Financial Projections 215 Part IV Presenting the Business Plan 241 Chapter 11 Presenting the Plan with Confidence 241 Name Index 263 Subject Index 264 ■ v ■ Contents Preface xiii About the Author xvii Part I Starting the Process 1 Chapter 1 Why Plan 1 Introduction 1 Reasons for Writing a Business Plan 2 Who Reads the Business Plan and What Are They Looking For? 6 Guidelines for Writing a Business Plan 8 Types of Businesses 13 The Plan for the Book 14 Chapter Summary 17 Review Questions 18 Application Questions 19 Endnotes 20 Part II hat to Do Before the Business Plan W Is Written 21 Chapter 2 Developing and Screening Business Ideas 21 Introduction 21 Three Most Common Sources of New Business Ideas 22 Changing Environmental Trends 23 Technological Advances 26 Political Action and Regulatory Changes 27 Unsolved Problems 28 Gaps in the Marketplace 29 Techniques for Generating Ideas 33 Brainstorming 33 Focus Groups 34 Library and Internet Research 35 First Screen 36 Part 1: Strength of the Business Idea 37 ■ vii ■ ■ viii Contents Part 2: Industry-Related Issues 38 Part 3: Market- and Customer-Related Issues 38 Part 4: Founder- (or Founders-) Related Issues 40 Part 5: Financial Issues 40 Chapter Summary 42 Review Questions 42 Application Questions 43 Endnotes 43 Appendix 2.1 First Screen 45 Appendix 2.2 Internet Resource Table 49 Chapter 3 Feasibility Analysis 53 Introduction 53 Template for Completing a Feasibility Analysis 54 Product/Service Feasibility Analysis 56 Industry/Target Market Feasibility Analysis 61 Organizational Feasibility Analysis 65 Financial Feasibility Analysis 66 Chapter Summary 69 Review Questions 69 Application Questions 70 Endnotes 71 Appendix 3.1 Full Feasibility Analysis 72 Part III Preparing a Business Plan 83 Chapter 4 I ntroductory Material, Executive Summary, and Description of the Business 83 Introduction 83 Cover Page and Table of Contents 84 Cover Page 84 Table of Contents 85 Executive Summary 85 Format 85 Content 90 Company Description 91 Company History 91 Mission Statement 94 Products and Services 96 Current Status 97 Legal Status and Ownership 97 Selecting the Name for a Business 98 Primary Consideration in Naming a Business 98 Legal Issues 99 Contents ix ■ Chapter Summary 100 Review Questions 101 Application Questions 101 Endnotes 102 Chapter 5 Industry Analysis 103 Introduction 103 Industry Definition 105 Industry Size, Growth Rate, and Sales Projections 106 Industry Size 107 Industry Growth Rate 107 Industry Sales Projections 109 Industry Characteristics 111 Industry Structure 111 Nature of Participants 115 Ratios 116 Key Success Factors 116 Industry Trends 117 Environmental Trends 117 Business Trends 119 Long-Term Prospects 119 How the Industry Analysis Affects and Is Affected by Other Sections of the Plan 120 Chapter Summary 121 Review Questions 122 Application Questions 122 Endnotes 123 Chapter 6 Market Analysis 125 Introduction 125 Market Segmentation and Target Market Selection 126 Market Segmentation 129 Selecting a Target Market 131 Target Market Size and Trends 131 Buyer Behavior 135 Competitor Analysis 136 Identification of Direct, Indirect, and Future Competitors 138 Competitive Analysis Grid 139 Estimate of Annual Sales and Market Share 142 Chapter Summary 145 ■ x Contents Review Questions 146 Application Questions 146 Endnotes 147 Chapter 7 Marketing Plan 149 Introduction 149 Overall Marketing Strategy 152 Positioning Strategy 153 Points of Differentiation 153 Pricing Strategy 154 Cost-Based Pricing versus Value-Based Pricing 155 Other Pricing-Related Issues 156 Sales Process and Promotions Mix 159 Sales Process 160 Promotions Mix 160 Distribution and Sales 165 Distribution and Sales Alternatives 165 Sales Strategy and Related Issues 166 Chapter Summary 167 Review Questions 168 Application Questions 168 Endnotes 169 Chapter 8 Management Team and Company Structure 171 Introduction 171 Management Team 174 Management Team Personnel 177 Management Team Ownership and Compensation 178 Common Mistakes to Avoid 179 Board of Directors 179 Provide Guidance 180 Lend Legitimacy 182 Board of Advisors 183 Other Professionals 185 Company Structure 186 Chapter Summary 188 Review Questions 189 Application Questions 189 Endnotes 190 Contents xi ■ Chapter 9 perations Plan and Product (or Service) O Development Plan 191 Introduction 191 Operations Plan 192 Operations Model and Procedure 195 Business Location 198 Facilities and Equipment 200 Operations Strategy and Plans 202 Product (or Service) Development Plan 203 Development Status and Tasks 203 Challenges and Risks 208 Costs 209 Intellectual Property 209 Chapter Summary 211 Review Questions 212 Application Questions 213 Endnotes 214 Chapter 10 Financial Projections 215 Introduction 215 Source and Use of Funds Statement 216 Assumptions Sheet 218 Pro Forma Financial Statements 219 Pro Forma Income Statement 220 Pro Forma Balance Sheet 225 Pro Forma Cash Flow 228 Ratio Analysis 237 Chapter Summary 238 Review Questions 239 Application Questions 239 Endnotes 240 Part IV Presenting the Business Plan 241 Chapter 11 Presenting the Plan with Confidence 241 Introduction 241 Preparing for and Delivering an Effective Business Plan Presentation 242 Preparing for the Presentation 242 Delivering an Effective Presentation 244 ■ xii Contents Preparing the Content of an Effective Business Plan Presentation 245 Sample Business Plan Presentation 246 Chapter Summary 259 Review Questions 260 Application Questions 261 Endnotes 261 Name Index 263 Subject Index 264 Preface T h e S u r g e i n I n t e r e s t i n E n t r e p r e n e u r s h ip on College Campuses and Beyond There is tremendous interest in entrepreneurship on college campuses and around the world. In academia, some 2,000 colleges and universities in the United States, about two-thirds of the total, now offer a course in entrepreneurship. As a result, a growing number of students are forgoing traditional careers and starting their own business.
Ordinary citizens are equally interested in starting entrepreneurial careers. According to the 2012 Global Entrepreneurship Monitor, in the United States a total of 13 percent of the adult population (ages 18–64) either is starting a business or has started a business in the past 3 ½ years. There are regions of the world where the percentage is even higher. For example, in Latin America and the Caribbean 17 percent of the adult population, on average, either is starting a business or has started a business in the past 3½ years.
N e w T o T h is E d i t i o n • Fresh material that explains the business startup process, from the original inception of a business idea to a fully fleshed-out business plan • New or updated Business Plan Insight boxed features • Revised and updated business plan for Prime Adult Fitness, the fictitious fitness center for people 50 years and older, that is completed step-by-step throughout the course of the book • New and updated Application Questions at the end of each chapter • New and updated examples, embedded in each chapter, that illustrate the issues that business plan writers grapple with • An updated Internet Resource Table (Appendix 2.2), which provides stu- dents access to online resources to assist them in completing a First Screen analysis and a complete business plan ■ xiii ■ ■ xiv Preface T h e I m p o r t a n c e o f B u si n e ss P l a n s An important tool that helps people who intend to start a new business is a busi- ness plan. A business plan is a written document that carefully explains every aspect of a new venture. Although many entrepreneurs and small business peo- ple do not write a business plan before they start their business, it’s highly recom- mended. For most businesses, a business plan serves two functions.
Inside the firm, the plan helps a company develop a “blueprint” to follow in executing its strategies and plan. Outside the firm, it introduces potential investors and other stakeholders to the business opportunity the firm is pursuing and how it plans to pursue it. Ob j e c t iv e s o f t h e B o o k The objectives of this book are twofold. The first objective is to help students and others learn how to write a business plan.
This book provides step-by-step instructions for writing a plan. Second, the book immerses its reader in the pro- cess of thinking through the issues that are important in starting a business. This objective may be the most compelling advantage of the book. A full business plan is written, chapter-by-chapter, as an example through the course of the book.
The issues that are considered in writing this plan provide a template for others to use as they consider their own business ventures and write their own business plan. O r g a n i z at i o n o f t h e B o o k The book is organized into four distinct parts: Part Topic Chapters in the Book 1 Starting the Process 1 2 What to Do Before the Business Plan Is Written 2–3 3 Preparing a Business Plan 4–10 4 Presenting the Business Plan 11 Dis t i n g u is h i n g F e at u r e s A number of distinguishing features set this book apart from other business plan books that are available.