Business Planning and Financing
What is a Business Plan?
A Business Plan is a written document that details a proposed venture: it describes the current status, expected needs, and projected results of a new business. It covers the project’s research and development, manufacturing, management, marketing, critical risks, financing, and milestones or timetable. It demonstrates a road map of where the venture is aimed to reach and how the entrepreneur proposes the route it will reach.
Sections of a Business Plan:
Sec 1: Executive Summary:
A summary or brief statement of a longer report or proposal about the project for the reader to be acquainted with without reading the full details.
Sec 2: Business Description:
This is the key element of a full business plan (how to make a profit), and it ranges between a few paragraphs to several pages.
Sec 3 & 4: Marketing:
Outlines the steps of marketing the project and channels being used to market and how to distinguish yourself from other competitors.
Sec 5: Operations:
Outlining the administrative side of the business, how to operate and from where, equipment, overhead expenses, suppliers, etc.
Sec 6: Management:
Acknowledging the people or staff that will be managing the business and the hierarchy.
Sec 7: Critical Risks:
Identifying the problems and risks that must be dealt with during the development and growth of the business.
Sec 8: Harvest Strategy:
Reducing or eliminating investment in a particular product, brand, or line.
Sec 9: Milestone Schedule:
Special events that require special attention. Adds significant value to project scheduling.
Sec 10: Appendix/Bibliography:
Holds documentation from receipts, bank statements to contracts, and inventories.
Family Business:
Advantages:
- Long term orientation (Focus on the future of the family’s business)
- Greater independence of action (Freedom of decision making)
- Family culture as a source of pride (Keeps the business stronger)
- Less bureaucracy (faster decision making)
- Financial Benefits (Strong financial backbone)
- Knowing the business (closer to the business and how it works)
Disadvantages:
- Less access to capital markets which could affect growth.
- Confusing Organization (Some processes are confusing)
- Nepotism (favoring relatives that might not be qualified for the job)
- Spoiled Kid Syndrome (Behaviors that can be self-centered and immature which is not good for the business.)
- Financial Strain
- Succession Dramas
Social Media Marketing
It is the use of social networks, online communities, and other collaborative media tools for marketing purposes, by creating value with an event (video, tweet, blog entry) which attracts attention and becomes viral. It enables customers to promote a message themselves with multiple online socials. Its emphasis on audience engagement adds content, and the organization has control over large parts of the content, creating trust-building, but can’t fully control content shared by users. It builds relationships with clients via ongoing interactive conversations between the firm and the customer.
Factors Affecting Pricing Decisions
There are factors that affect pricing decisions. The degree of competitive pressure should be taken into consideration, depending on the availability of supply, seasonal or cyclical changes in demand, and distribution costs, choosing what best fits. Be aware of the life cycle of the product which affects the pricing depending on if it was long-lasting or not. The customer services provided require costs and should be factored into pricing. The cost of promotion and marketing the product. Consideration of the buying power in the market and prevailing economic conditions. Psychological factors: the level of quality of the product is connected to the price according to customers, making sure printed prices are available to encourage customers to buy as they shy away if they are not available. It’s expected by customers that they buy luxury products on even price ranges, while common products are based on odd prices to encourage them to purchase. The more benefits a product has, the less price resistant it becomes.
Debt Financing
Debt financing is a secured financing of a new venture that involves a payback of the funds plus a fee (interest for the use of the money).
Advantages:
- No relinquishment of ownership is required.
- More borrowing allows potentially greater return on equity.
- Low-interest rates reduce the opportunity cost of borrowing.
Disadvantages:
- Regular monthly interest payments are required.
- Continual cash flow problems can be intensified because of payback responsibility.
- Heavy use of debt can inhibit growth and development.
Venture Capital Screening Criteria:
1. Venture Capital Firm Requirements:
- Must fit within the lending guidelines of the venture firm’s storage and size of investment.
- Must be within a geographic area.
- Proposal by someone known to the venture capitalist.
- Industry invested in by the venture firm.
2. Nature of Proposed Business:
- Projected growth should be relatively large within five years of investment.
3. Economic Environment of Proposed Industry:
- Must be capable of long-term growth and profitability.
- Should be favorable to new entrants.
4. Proposed Business Strategy:
- Selection of Distribution Channels must be feasible.
- The product must demonstrate a defendable competitive position.
5. Financial Information on the Proposed Business:
- Financial projections should be realistic.
6. Entrepreneur Characteristics:
- Must have relevant experience.
- Should have a balanced management team in place.
- Willing to work with venture partners.
- The entrepreneur has successfully started a previous business.
7. Proposal Characteristics:
- Full information.
- Reasonable length.
- Be easy to scan.
- Professionally presented.
- Balanced presentation.
- Graphics and large print to emphasize key points.