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ADMS 3920 (10)
Lecture 3

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Department
Administrative Studies
Course
ADMS 3920
Professor
Cameron Johnston
Semester
Fall

Description
Chapter 5_Developing an Effective Business Plan (Strategic) Business plan: a document that sets out the basic idea underlying a business and related start-up considerations. [A document that explains a) the basic idea(s), situation and opportunity underlying a b usiness and b) describes and quantifies what is its intended start-up and/or on-going operational game-plan]  Four basic objectives 1. Identifies the nature and the context, size & timing of the business opportunities 2. Presents the approach the entrepreneur plans to take to exploit the opportunity 3. Identifies the factors that will most likely determine whether the venture will be successful 4. Serves as a tool for raising financial capital 5. Serves as road map regarding what to do and what results expected  Formulating a (strategic) business plan is an ongoing process, not just one-time activity or the means to an end product or outcome!  Document need to be a ‘living’, regularly updated document  Entrepreneur’s documented ‘game plan’ or ‘road map’ that communicates 1. Where entrepreneur’s business is now 2. Identifies the nature, extent, timing and context of the business’s opportunity 3. Where that business is envisioned going by explaining what is the proposed approach for exploiting the envisioned opportunity 4. How it is proposed the business will get where it is wanted to go 5. Identifies the key success & risk factors 6. What will be the expected payoff for getting there 7. Serves as a tool to attract required resources, particularly capital 8. Serves as a checklist or progress monitor for resource/capital providers Two primary functions of a business plan  Provide a clearly articulated statement of goals and strategies for internal use 1. Helps define and coordinate required actions/activities of entrepreneur and management team 2. Helps tem envision success and how to achieve it 3. Helps them coordinate actions & prepare for the unexpected  Serve as a selling document to be shared with outsider users 1. Provides a credible overview / explanation of business for prospective customers, suppliers, & investors 2. Helps secure favourable credit terms from suppliers 3. Opens up approaches to lenders & other sources of financing New Venture Planning Stages Approaches Conceptualization Formal Documentation ‘Ole School’ textbook approach > Reduced Emphases due to reliance on Primary Focus: production of a ‘it’s all about game plan execution’ hypotheses strategic business plan document ‘New School’ Pragmatic* Approach > Main Emphasis due to need for Use Less –Formal / Flexible ‘it’s all about sustainable business model substantiated envisionment Approach until require external discovery’ resources *known as ‘Lean Start-Up’ 1/6 Firm's Management Insiders Internally: BP promotes coordination, Employees team work & goal accomplishment New Ventures Business Plan Customers Externally: BP helps ‘sell the opportunity’ to others by explaining the business and Suppliers its expected results Outsiders Investors Bankers of Other Lenders Common Business plan flaws (缺点) p107  Overly optimistic financial projections  No confirmation of customer demand  Lack of research  Inadequate competitive analysis and/or weak environmental assessments  Vague sales & marketing strategies  Unrealistic assumptions  Hazy timeline, vague risk assessment  Unprofessional presentation Features of plan that creates unfavourable reactions; Repel investors  Show a high infatuation with the produce or service and downplay market needs or acceptance  Financial projections at adds with accepted industry norms  Have unrealistic growth projections  Contain a need for custom or applications engineering, which make substantial growth difficult Plans that create favourable reactions; attract investors  Recognize the investor’s needs for required rates of return on investments and manage risks  Demonstrate evidence of focus on a limited number of products or services  Have a proprietary market position through patents, copyrights, and trademarks  Offer compelling competitive advantage Plans speak the investors’ language when they:  Focus on limited offering s and highlight return on investment & pay-back  Have a compelling ExecSum, concise & avoid excessive length or detail  Have an attractive overall appearance  Are well-organized with a table of contents, numbered pages and full set of financials  Are market-oriented by showing how meet customer needs; are not all about technical product details  Show convincing evidence of customer acceptance of the processed product or service  Respect risk & potential for problems 2/6 The Lender’s perspective Plans that get favourable reactions from Bankers help them assess the business in Terms of the 5Cs of Credit 1. Character: repayment intent and credit history 2. Conditions: industry risk and conditions 3. Capital: personal investment in business 4. Collateral: assets to put up to support credit 5. Capacity: strength of cash flow Lender is principally concerned with safe and full timely return of capital and regular servicing of debt (payment of interest and capital pay downs). Capital gain and income from success business lender typically look into security. Factors affecting the extent of a business plan  Cost in time and money to prepare the plan (two resources are always in limited supply)  Needs of business  Preferences of the management team  Complexity of the business  Competitive environment  Level of uncertainty Practical suggestions related to writing a business plan  Provide a table of contents and individual section tabs for easy reference  Use a word-processed -inch format and photocopy the plan to minimize costs ⁄  Package the plan in a loose-leaf binder to facilitate future revisions  To add interest and aid readers’ comprehension, use charts, graphs, diagrams, tabular summaries, maps, and other visual aids  To ensure that the business plan is treated in a confidential manner, indicate on the cover and again on the title page of the plan that all information is proprietary and confidential.  If your start-up is of a particularly sensitive nature because it is based on an advanced technology, consider whether you should divulge certain information  As you complete major sections of the plan, ask carefully chosen third parties who have themselves raised capital successfully  Retain all of your research including articles, competitor data and promotional material, traffic volume maps for retail outlets, interviews, surveys of potential clients, and supplier quotes. 3/6 The 3 Step Bu
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