Following the financial plan is the production or outsourcing plan, which indicates how the offering will be developed and produced. Some service ventures will not have this part in their business plan as they are not producing or outsourcing anything. Each individual cost needs to be specified so that an understanding is provided of the actual costs involved in the final offering and how much this can be reduced through economies of scale. All suppliers or outsourcing firms should be described in detail.
Chart 2.2 Channel Members and the Price
Table 2.3
Following the production (outsourcing) plan is a short section—the operational plan. This describes in detail how the company will operate, including the flow of goods and orders. An important aspect discussed here is the exit strategy by which investors will get their equity and a return on equity, hopefully in a 5- to 7-year period of time from the initial investment. There are basically three ways to provide this exit and return desired: (1) retained earnings of the venture, (2) selling to another financial institution or firm, or (3) going public and being a publicly traded company. The most likely exit avenue is selling to another firm and, if this is mentioned, then three to four likely exit firms in the industry area need to be identified and discussed. Section 2 concludes with a brief summary that completes this section of the business plan.
Section 3: Support (Backup) Material
Section 3 contains all the backup material to support areas in Section 2. This includes secondary support data, any research data, contracts or leases, the patent document, and most notably the résumés of the entrepreneur and members of the management team. Nothing new should be introduced in this section.
Financial Information
The financial information contained in the financial plan consists primarily of the 11 financial statements indicated in Table 2.3. All but one of these are actual statements of any operating company. While having the same content, the difference in these statements is that they are forecasted—pro forma—statements that at the end of the time period will become actual statements. The one new statement is the first one—the sources and uses of funds statement—which describes how much money is needed (uses) and where it will come from (sources). The uses part often includes money for renovations, inventory, working capital, and/or reserve for contingencies. Each use statement will include working capital—the money needed until the venture positively cash flows, the point in time when the revenues from operations exceed the cost of operations. Sources of money will always include the entrepreneur and usually friends and family. The other sources of finance include banks, private investors, venture capitalists, and/or grants, which are described in Chapter 9.
Business Plan Development and Update
The business plan is a very important document both for providing direction for the new venture and for raising financial resources. It is important that it be well written and edited. The best way for an entrepreneur to proceed is to develop and write everything in draft format and then go back and rewrite. Keep in mind during this process the audience for your plan and arrange the material in a way, such as the one suggested in this chapter, that makes items flow smoothly from start to finish. Clear and concise writing is needed, and all numbers need to be consistent. If possible, have a friend or colleague critique the final business plan. If needed, you can always pay a professional writer at the end to make sure the plan flows smoothly.
A question frequently asked is how long (how many pages) a business plan should be. While that depends on the nature of the product or service, whether the business contains a technology plan and/or a production (outsourcing) plan, and the extent of Section 3 (exhibits and appendices), most business plans are around 30 to 50 pages. Remember, you have 12 pages of financial statements and several pages of résumés. Most important, you want all the necessary material covered in a clear, concise manner.
Summary
Every new venture needs a business plan to set the direction for the firm and obtain financial resources. The essential elements of a business plan are contained in three sections, with the main elements being in Section 2. The most important document in the plan is the executive summary, as most potential investors do not read beyond it.
Each business plan needs to be well written and organized and address as many anticipated questions as possible. It needs to flow smoothly and consistently without errors so that the reader has a clear understanding about the details and future success of the new venture. Time will tell whether TerraPower meets its plan of having a prototype ready for demonstration in 2022.
Descriptions of Images and Figures
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Example executive summary with formatting explained in parentheses.
TIDAL POINT (title)
Phoenix, Arizona
www.tidalpoint.com
Contact: _______
Stage: Pre-launch
Industry Software Product NAICS Code: 511210
Software Consulting NAICS Code: 541512
Mission Statement (bold header)
To empower our customers by providing them with better control of their IT systems through efficient, rational, and cost-effective delivery of IT products and services. And do so by becoming our clients' most trusted advisor and partner by sharing knowledge and best practices.
Problem Being Solved (bold header)
Nature of Problem: When it comes to replacement of their legacy IT systems, insurance companies struggle with cost and effort overruns, which makes the cost of transformation and cost of ownership significantly higher.
Market Segment: There are approximately 300 mid-sized to large insurance companies that need to replace their legacy IT systems. The segment growth rate is estimated to be 7% CAGR, and the total IT budget by year 2015 for COTS product and services is estimated to be USD $17.5 billion.
Importance: There is an unmet need for insurance software product providers who can combine the follow-up services required for product integration and implementation into insurance companies' operational landscape. We will offer a suite of services to the companies along with consultants and experts who can enable a smooth transition for insurance companies.
The Solution (bold header)
We will provide a customized off-the-shelf product along with the services required to integrate this product into an insurance company's operational landscape. The product will be Tidal Point Policy Administration system; this system can cover all major business lines and provide an end-to-end processing capability which includes distribution, new business development, underwriting, claims, and reinsurance. The services provided will include data migration, implementation, business analysis, process consulting, and IT strategy consulting.
USP
Provide an integrated suite of services to the clients without having them organize different activities related to legacy system transformation.