Chapter 10: Crafting a Winning
Business Plan
Objectives |
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Upon completion of this chapter, you will be able to:
- Explain why every entrepreneur should create a business plan.
- Describe the elements of a solid business plan.
- Explain the benefits of preparing a plan.
- Understand the keys to making an effective business plan presentation.
- Explain the "5 Cs of Credit" and why they are important to potential lenders
and investors reading business plans.
Chapter 10: Crafting a Winning
Business Plan
Chapter Overview
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- Explain why every entrepreneur should create a business plan.
- A business plan serves two essential functions. First and most important, it
guides the company's operations by charting its future course and devising a
strategy for following it. The second function of the business plan is to
attract lenders and investors. Applying for loans or attempting to attract
investors without a solid business plan rarely attracts needed capital.
- Describe the elements of a solid business plan.
- Although a business plan should be unique and tailor-made to suit the
particular needs of a small company, it should cover these basic elements: an
executive summary, a mission statement, a company history, a business and
industry profile, a description of the company's business strategy, a profile of
its products or services, a statement explaining its marketing strategy, a
competitor analysis, owners' and officers' résumés, a plan of operation,
financial data, and the loan or investment proposal.
- Explain the benefits of preparing a plan.
- Preparing a sound business plan clearly requires time and effort, but the
benefits greatly exceed the costs. Building the plan forces a potential
entrepreneur to look at her business idea in the harsh light of reality. It also
requires the owner to assess the venture's chances of success more objectively.
A well-assembled plan helps prove to outsiders that a business idea can be
successful.
- The real value in preparing a business plan is not so much in the
plan itself as it is in the process the entrepreneur goes through to create the
plan. Although the finished product is useful, the process of building a plan
requires an entrepreneur to subject his idea to an objective, critical
evaluation. What the entrepreneur learns about his company, its target market,
its financial requirements, and other factors can be essential to making the
venture a success.
- Understand the keys to making an effective business plan
presentation.
- Lenders and investors are favorably impressed by entrepreneurs who are
informed and prepared when requesting a loan or investment.
- Tips include: Demonstrate enthusiasm about the venture, but don't be
overemotional; "hook" investors quickly with an up-front explanation of the new
venture, its opportunities, and the anticipated benefits to them; use visual
aids; hit the highlights of your venture; don't get caught up in too much detail
in early meetings with lenders and investors; avoid the use of technological
terms that will likely be above most of the audience; rehearse your presentation
before giving it; close by reinforcing the nature of the opportunity; and be
prepared for questions.
- Explain the "5 Cs of Credit" and why they are important to potential
lenders and investors reading business plans.
- Small business owners needs to be aware of the criteria bankers use in
evaluating the credit-worthiness of loan applicants – the five Cs of credit:
capital, capacity, collateral, character, and conditions.
- Capital: Lenders expect small businesses to have an equity base of
investment by the owner(s) that will help support the venture during times of
financial strain.
- Capacity: A synonym for capacity is cash flow. The bank must be convinced of
the firm's ability to meet its regular financial obligations and to repay the
bank loan, and that takes cash.
- Collateral: Collateral includes any assets the owner pledges to the bank as
security for repayment of the loan.
- Character: Before approving a loan to a small business, the banker must be
satisfied with the owner's character.
- Conditions: The conditions - interest rates, the health of the nation's
economy, industry growth rates, etc. - surrounding a loan request also affect
the owner's chance of receiving funds.
Chapter 10: The Foundations of
Entrepreneurship
Small Business
Assignments |
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Answer all of the following questions:
1. Why should you develop a business plan?
2. Describe the major components of a business plan?
3. How can you convince a potential lender and investor that a market
for your product and/or service really does exist?
4. How will you prepare to make a formal presentation for you business
plan?
5. What are the five C's of credit? How does a banker use them
when evaluating a loan request?
Chapter 10: Crafting a Winning
Business Plan
Small Business Links
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