Business Plan Development Guide

Lee A. Swanson

d
 Business Plan Development Guide
Lee A. Swanson

ISBN: 978-0-88880-618-5

Saskatoon, Saskatchewan
Copyright:2017 by Lee A. Swanson.

CC BY-SA Lee A. Swanson

Business Plan Development Guide by Lee A. Swanson is licensed under a Creative Commons Attribution-ShareAlike
4.0 International License, except where otherwise noted.
 Contents

Business Plan Development Guide ........................................................................................................................ i

Acknowledgements ............................................................................................................................................... ii
Introduction ......................................................................................................................................................... iii

Main Body .................................................................................................................................................................. 4

Chapter 1 – Developing a Business Plan .............................................................................................................. 5
Chapter 2 – Essential Initial Research ............................................................................................................... 16
Chapter 3 – Business Models ............................................................................................................................. 25
Chapter 4 – Initial Business Plan Draft .............................................................................................................. 31
Chapter 5 – Making the Business Plan Realistic ................................................................................................ 50
Chapter 6 – Making the Plan Appeal to Stakeholders and Desirable to the Entrepreneur ............................... 56
Chapter 7 – Finishing the Business Plan ............................................................................................................ 65
Chapter 8 – Business Plan Pitches ..................................................................................................................... 69
References .......................................................................................................................................................... 71
Appendix A – Business Plan Development Checklist and Project Planner ......................................................... 72
Appendix B – Fashion Importers Inc. Business Plan .......................................................................................... 78
Business Plan Excel Template .......................................................................................................................... 137
 Business Plan Development Guide

Lee A. Swanson

8th Edition

Publishing Date 2017

 Acknowledgements

I am thankful for the feedback provided by my MBA and undergraduate students as they used previous versions of
this book. Its current form reflects their suggestions and advice.

Thanks also to Grant Wilson for his help in converting this book from its print form into this open access format.
 Introduction

This textbook and its accompanying spreadsheet templates were designed with and for students wanting a practical
and easy-to-follow guide for developing a business plan. It follows a unique format that both explains what to do and
demonstrates how to do it.
Main Body
 Chapter 1 – Developing a Business Plan

Learning Objectives

After completing this chapter, you will be able to:

Describe the purposes for business planning.

Describe common business planning principles.
Explain common business plan development guidelines and tools.
List and explain the elements of the business plan development process
Explain the purposes of each of the elements of the business plan development process
Explain how applying the business plan development process can aid in developing a business plan
that will meet entrepreneurs’ goals

Overview

This chapter describes the purposes for business planning, business planning principles, the general concepts and
tools related to business planning, and the process for developing a business plan.

Purposes for Developing Business Plans

Business plans are developed for both internal and external purposes. Internally, entrepreneurs develop business
plans to help put the pieces of their business together. The most common external purpose for a business plan is to
raise capital.

Internal Purposes

The business plan is the road map for the development of the business, it:
Defines the vision for the company
Establishes the company’s strategy
Describes how the strategy will be implemented
Provides a framework for analysis of key issues
Provides a plan for the development of the business
Is a measurement and control tool
Helps the entrepreneur to be realistic and to put theories to the test

External Purposes

The business plan is often the main method of describing a company to external audiences such as potential
sources for financing and key personnel being recruited
It should assist outside parties to understand the current status of the company, its opportunities, and its
needs for resources such as capital and personnel
It provides the most complete source of information for valuation of the business

Business Plan Development Principles

Hindle and Mainprize (2006) suggested that business plan writers must strive to (1) effectively communicate their
expectations about the nature of an uncertain future, and (2) to project credibility. The liabilities of newness make
communicating the expected future of new ventures much more difficult than for existing businesses. Consequently,
business plan writers should adhere to five specific communication principles.

The first communication principle indicates that business plans must be written to meet the expectations of targeted
readers in terms of what they need to know to support the proposed business. Business plans should also lay out the
milestones that investors or other targeted readers need to know. The remaining communication principles suggest
that business plan writers clearly outline the opportunity, the context within the proposed venture will operate
(internal and external environment), and the business model (Hindle & Mainprize, 2006).

There are also five business plan credibility principles that writers should consider. Business plan writers should build
and establish their credibility by highlighting important and relevant information about the venture team. Writers
need to elaborate on the plans they outline in their document so that targeted readers have the information they
need to assess the plan’s credibility. The scenario integration principle suggests that, to build and establish
credibility, a business plan must show that the entrepreneur has made realistic assumptions and has effectively
anticipated what the future holds for their proposed venture. Business plan writers need to provide comprehensive
and realistic financial links between all relevant components of the plan. Finally, to establish credibility, a business
plan must outline the deal, or the value that targeted readers should expect to derive from their involvement with
the venture (Hindle & Mainprize, 2006).

General Guidelines for Developing Business Plans

Many businesses must have a business plan to achieve their goals. The following are some basic guidelines for
business plan development.

A standard format is applied to help the reader understand that the entrepreneur has thought everything
through, and that the returns justify the risk
Bind the document so readers can easily go through it without it falling apart

As you write your Business Plan

1. If appropriate, include nice, catchy, professional graphics on your title page to make it appealing to targeted
readers; but don’t go overboard.

2. Bind your document so readers can easily go through it without it falling apart. You might use a three-ring binder,
coil binding, or a similar method. Make sure the binding method you use does not obscure the information next to
where it is bound.

3. Make certain all of your pages are ordered and numbered correctly.

4. The usual business plan convention is to number all major and subsections within your plan using a format as
follows

1. First main heading

1.1First subheading under the first main heading

1.1.1. First sub-subheading under the first subheading

2. Second main heading

2.1 First subheading under the second main heading

Use the styles and references features in Word to automatically number and format your section titles and to
generate your table of contents. Be sure that the last thing you do before printing your document is update your
automatic numbering and automatically generated tables. If you fail to do this your numbering may be incorrect.

5. Prior to submitting your plan, be 100% certain each of the following requirements are met.

Everything must be completely integrated. The written part must say exactly the same thing as the financial
 part.
All financial statements must be completely linked and valid. Make sure all of your balance sheets balance.
Everything must be correct. There should be NO spelling, grammar, sentence structure, referencing, or
calculation errors.
Ensure your document is well organized and formatted. The layout you choose should make the document
easy to read and comprehend. All of your diagrams, charts, statements, and other additions should be easy to
find and be located in the parts of the plan best suited to them.
In some cases it can strengthen your business plan to show some information in both text and table or figure
formats. You should avoid unnecessary repetition, however, as it is usually unnecessary – and even damaging
– to state the same thing more than once.
Include all the necessary information to enable readers to understand everything in your document.
Be clear what terms you use in your plan. For example, the following statement in a business plan would leave
a reader completely confused.
“There is a shortage of 100,000 units with competitors currently producing 25,000. We can help fill this
huge gap in demand with our capacity to produce 5,000 units.”
This statement might mean there is a total shortage of 100,000 units, but competitors are filling this
gap by producing 25,000 per year; in which case there will only be a shortage for four years. However,
it could mean something completely different. It might mean there is an annual shortage of 100,000
units with only 25,000 being produced each year, in which case the total shortage is very high and is
growing each year.
You must always provide the complete perspective by indicating the appropriate time frame, currency, size, or
other measurement.
Be certain that if you use a percentage figure, you indicate to what it refers – otherwise the number is
meaningless to a reader.
If your plan includes an international element, indicate in which currency, or currencies the costs, revenues,
prices, or other values are quoted. This can be solved by indicating up-front in the document in which
currency all values will be quoted. Another option is to indicate each time which currency is being used, and
sometimes you might want to indicate the value in more than one currency. Of course, you will need to assess
the exchange rate risk to which you will be exposed and describe this in your document.

6. Ensure credibility is both established and maintained (Hindle & Mainprize, 2006).

If a statement is included that presents something as a fact when this fact is not generally known, always
indicate the source. Unsupported statements damage credibility.
Be sure to be specific. A business plan is simply not of value if it uses vague references to high demand,
carefully set prices, and other weak phrasing. It must show hard numbers (properly referenced, of course),
actual prices, and real data acquired through proper research. This is the only way to ensure your plan is
considered credible.
Your strategies must be integrated. For example, your pricing strategy must complement and mesh perfectly
with your product/service strategy, distribution strategy, and promotions strategy. For example, you probably
shouldn’t promote your product as a premium product if you plan to charge lower than market prices for it.

7. Before finalizing your business plan, re-read each section to evaluate whether it will appeal to your targeted
readers.

Useful Resources for Business Planning

Canada Business Network
http://www.canadabusiness.ca/eng/
Innovation, Science and Economic Development Canada: Financial Performance Data
http://www.ic.gc.ca/eic/site/pp-pp.nsf/eng/Home
BizPal site for accessing licensing and other needs
http://www.bizpal.ca/
Canada Revenue Agency site for CRA asset classifications
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/dprcbl-eng.html
 Canadian Company Capabilities database to use to find suppliers and buyers
http://www.ic.gc.ca/eic/site/ccc-rec.nsf/eng/home
For finding possible Canadian Government contracts:
http://www.merx.com/
The Conference Board of Canada
http://www.conferenceboard.ca/
Bank of Canada
http://www.bankofcanada.ca/
Bank Sites
http://www.td.com/
http://www.rbc.com/
http://www.scotiabank.com/
http://www.bmo.com/
http://www.cibc.com/
Business Loan Calculator
http://www.rbcroyalbank.com/cgi-bin/business/loan_calc/loans.cgi
Use the business area within our library site
http://library.usask.ca/
Read existing business plans
Come to my office to browse through past plans
http://www.edwards.usask.ca/faculty/marv%20painter/businessplans/
Other possibilities include business plan software and business plan templates (both widely available online
and also at some banks), but be cautious because these are often designed for people without business
backgrounds and are sometimes too basic for what you need.

Business Plan Development Tools

The Ratchet Effect

A ratchet is a tool that most of us are familiar with. It is useful because it helps its user accomplish something with
each effort expended while guarding against losing past advancements.

Use the ratchet effect to help you develop an excellent business plan.

The ratchet effect means that with each word, sentence, paragraph, heading, chart, figure, and table you include in
your final business plan, the ratchet should move ahead a notch because you achieve two important things.

First, only needed and relevant information is included.

Second, your additions build credibility in a relevant way.

Apply the ratchet effect by making sure that each and every sentence and paragraph conveys needed and relevant
information that adds to your credibility and that of your plan. Use the following principles:

Rarely – and only if it truly needs to be said again – repeat something that has already been said in your plan.
Avoid using killer phrases, like “there is no competition for our product” or “our product will sell itself, so we
will not need to advertise it”. Any savvy reader of your plan will understand that these kinds of statements are
naive and demonstrate a lack of understanding about how the market and other real-life factors actually work.
Avoid contradicting yourself. Make sure that what is said in the written part of your plan completely synchs
with what is said in the other written parts of your plan and in the financial sections of your plan. Likewise,
make certain that what you include in the financial parts of your plan is completely in synch with what is said
 the written part.

The Strength Meter

Use the ratchet effect to continually increase the reading on an imaginary strength meter that you use to envision
how – when you continually go back and revise parts of our plan – your revisions to your evolving business plan
continually strengthen it.

The Magic Formula

Apply the following magic formula throughout your write your plan.

(a)Consideration X affects my business because …

(b)… consideration X is subject to this trend into the future …

(c)… which means that we have decided to do this … (or) will implement this strategy … in response to how the
expected trends for consideration X will affect my business

Here is an example of how you can use the magic formula to develop part of the pricing strategy in the marketing
plan part of your business plan.

We expect that our expenses to run our business will rise with the rate of inflation, which means that we must plan
to increase the prices on our products to establish and maintain our profitability. The Bank of Canada (201x) has
projected that the general inflation rate in <the city in which my business will operate> will be 3.0% in 201x, 3.5% in
201y, and 4.0% in 201z. In our projected financial statements, therefore, we have inflated both our expenses and our
prices by those rates in those years.

Framing

Pay special attention to framing when you develop your business plan. When you frame the stories you tell in your
plan correctly the ratchet effect will happen and the strength meter will rise. One example of effective framing is
when you, as the writer of the plan and the entrepreneur, clearly indicate how your education, expertise, relevant
experiences, and network of contacts will more than make up for any lack of direct experience you have in running
this particular kind of business. An example of ineffective framing is when you indicate that you lack experience with
this type of business, or when you fail to specify how and why your levels of experience will affect the development
of the business.

Context
You must provide the right context when you provide descriptions of situations, strategies, and other components of
your plan. Business plan readers should never be left to guess as to why you indicate in a business plan that you will
do something.

Barrier Breaking

In business planning there are always barriers. Often times when an an issue arises, we get hung up on solving it
immediately. Barrier breaking is the notion of “planting a flag” and moving on when an issue has the potential to
sideline the project for a length of time. In many cases when we look back on issues, they have solved themselves. If
not, we will return to these issues at a later time when we are hopefully more informed and have insight into
solutions.

a) Never get hung up on something that doesn’t need immediate problem solving

b) “Plant a flag” and move on

c) Re-address the issue at a later time if it is not already solved

Process for Developing Business Plans

The business plan development process described next has been extensively tested with entrepreneurship students
and has proven to provide the guidance entrepreneurs need to develop a business plan appropriate for their needs;
a high power business plan.

There are six stages involved with developing a high power business plan. These stages can be compared to a
process for hosting a dinner for a few friends. A host hoping to make a good impression with their anticipated guests
might – Essential Initial Research stage – analyze the situation at multiple levels to collect data on new alternatives
for healthy ingredients, what ingredients have the best prices and are most readily available at certain times of year,
the new trends in party appetizers, what food allergies the expected guests might have, possible party themes to
consider, and so on.

The Business Model stage is where the host might construct a menu of items to include with the meal along with a
list of decorations to order, music to play, and costume themes to suggest to the guests. The mix of these kinds of
elements chosen by the host will play a role in the success of the party.

The Initial Business Plan Draft stage is where the host rolls up his or her sleeves and begins to assemble make some
of the food items, put up some of the decorations, send invitations, and generally get everything started for the
party.

During the Initial Business PlanDraft stage the host will begin to realize that some plans are not feasible and that
changes are needed. The required changes might be substantial, like the need to postpone the entire party and
ultimately start over in a few months, and others might be less drastic, like the need to change the menu when an
invited guest indicates that they can’t eat food containing gluten. Making the Business Plan Realistic stage is where
these changes are incorporated into the plan to make it realistic and feasible.

Making A Plan Desirable to Stakeholders and the Entrepreneur stage involves further changes to the party plan to
make it more appealing to both the invited guests and to make it a fun experience for the host. For example, the
host might learn that some of the single guests would like to bring dates and others might need to be able to bring
their children to be able to attend. The host might be able to accommodate those desires or needs in ways that will
also make the party more fun for them – maybe by accepting some guests’ offers to bring food or games, or maybe
even a babysitter to entertain and look after the children.

The final stage – Finishing the Business Plan – involves the host putting all of the final touches in place for the party
in preparation for the arrival of the guests.
 Figure 1 – Business Plan Development Process (Illustration by Lee A. Swanson)

Essential Initial Research

A business plan writer should analyze the environment in which they anticipate operating at each of the levels of
analysis: Societal, Industry, Market, and Firm (see pages 21 to 30). This stage of planning is called the Essential
Initial Research, and it is a necessary first step to better understand the trends that will affect their business and the
decisions they must make to lay the groundwork for, and to improve their potential for success.

In some cases much of the Essential Initial Research should be included in the developing business plan as its own
separate section to help build the case for readers that there is a market need for the business being considered and
that it stands a good chance of being successful.

In other cases, a business plan will be stronger when the components of the Essential Initial Research are distributed
throughout the business plan as a way to provide support for the plans and strategies outlined in the business plan.
For example, a part of the Industry or Market part of the Essential Initial Research might outline the pricing strategies
used by identified competitors and might be best placed in the Pricing Strategy part of the business plan to support
the decision made to employ a particular pricing strategy.

Business Model

Inherent in any business plan is a description of the Business Model chosen by the entrepreneur as the one that they
feel will best ensure success. Based upon their Essential Initial Research of the setting in which they anticipate
starting their business (their analysis from stage one) an entrepreneur should determine how each element of their
business model – including their revenue streams, cost structure, customer segments, value propositions, key
activities, key partners and so on – might fit together to improve the potential success of their business venture (see
Chapter 3 – Business Models).

For some types of ventures, at this stage an entrepreneur might launch a lean startup (see page 37) and grow their
business by continually pivoting, or constantly adjusting their business model in response to the real-time signals
they get from the markets’ reactions to their business operations. In many cases, however, an entrepreneur will
require a business plan. In those cases their initial Business Model will provide the basis for that plan.

Of course, throughout this and all of the stages in this process, the entrepreneur should seek to continually gather
information and adjust the plans in response to the new knowledge they gather. As shown in Figure 1 by its
enclosure in the Progressive Research box, the business plan developer might need conduct further research before
finishing the Business Model and moving on to the Initial Business Plan Draft.

Initial Business Plan Draft

The Business Plan Draft is about taking the knowledge and ideas developed during the first two stages and
organizing them into a business plan format. An approach preferred by many is to create a full draft of the business
plan with all of the sections, including the front part with the business description, vision, mission, values, value
proposition statement, preliminary set of goals, and possibly even a table of contents and lists of tables and figures
all set up using the software features enabling their automatic generation. It is also useful for most to write all of the
operations, human resources, marketing, and financial plans as part of the first draft so that all of these parts can be
appropriately and necessarily integrated. The business plan will tell the story of a planned business startup in two
ways by using primarily words along with some charts and graphs in the operations, human resources, and
marketing plans and in the second way through the financial plan. Both ways must tell the same story.

The feedback loop shown in Figure 1 demonstrates that the business developer may need to review the Business
Model. Additionally, as shown by its enclosure in the Progressive Research box, the business plan developer might
need conduct further research before finishing the Initial Business Plan Draft and moving on to the Making Business
Plan Realistic stage.

Making Business Plan Realistic

The first draft of a business plan will almost never be realistic. This is because as the entrepreneur writes the plan, it
will necessarily change as new information is gathered. Another factor that usually renders the first draft unrealistic
is the difficulty in making certain that the written part – in the front part of the plan along with the operations, human
resources, and marketing plans – tells the exact same story as does the financial part as represented in the financial
plan. This stage of work involves making the necessary adjustments to the plan to make it as realistic as possible.

Making Business Plan Realistic has two possible feedback loops, one going back to the Initial Business Plan Draft in
case the initial business plan needs to be significantly changed before it is possible to adjust it so that it is realistic.
The second feedback loop circles back to the Business Model stage in case the business developer need to rethink
the business model. As shown in Figure 1 by its enclosure in the Progressive Research box, the business plan
developer might need conduct further research before finishing the Making Business Plan Realistic and moving on to
the Making Plan Appeal to Stakeholders stage.

Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur

A business plan can be realistic without also appealing to potential investors and other external stakeholders, like
employees, suppliers, and needed business partners. It might also be realistic (and possibly appealing to
stakeholders) without also being desirable to the entrepreneur. During this stage the entrepreneur will keep the
business plan realistic as they adjust plans to appeal to potential investors and others, and to themselves as the
business owner.

If, for example, investors will be required to finance the business start, some adjustments might need to be relatively
extensive to appeal to potential investor needs for an exit strategy from your business, to accommodate the rate of
return they expect from their investments, and to convince them that the entrepreneur can accomplish all that is
promised in the plan. In this case, and in others, the entrepreneur will also need to get what they want out of the
business to make it worthwhile for them to start and run it. So, this stage of adjustments to the developing business
plan might be fairly extensive, and they must be informed by a superior knowledge of what targeted investors need
from a business proposal before they will invest. They also need to be informed by a clear set of goals that will make
the venture worthwhile for the entrepreneur to pursue.

The caution with this stage is to balance the need to make realistic plans with the desire to meet the entrepreneur’s
goals while avoiding becoming discouraged enough to drop the idea of pursuing the business idea. If an
entrepreneur is convinced that the proposed venture will satisfy a valid market need, there is often a way to
assemble the financing required to start and operate the business while also meeting the entrepreneur’s most
important goals. To do so, however, might require significant changes to the business model.

One of the feedback loops shown in Figure 1 indicates that the business plan writer might need to adjust the draft
business plan while ensuring that it is still realistic before it can be made appealing to the targeted stakeholders and
desirable to the entrepreneur. The second feedback loop indicates that it might be necessary to go all the way back
to the Business Model stage to establish the framework and plans needed to develop a realistic, appealing, and
desirable business plan. Additionally, this stage’s enclosure in the Progressive Research box suggests that the
business plan developer might need conduct further research.

Finishing the Business Plan

The final stage involves putting all of the important finishing touches on the business plan so that it will present well
to potential investors or others for whom it is written. This involves making sure that the math and links between the
written and financial parts are accurate. It involves ensuring that all the needed corrections are made to the spelling,
grammar, and formatting. The final set of goals should be written to appeal to the target readers and to reflect what
the business plan says. An executive summary should be written and included as a final step.

Chapter Summary

This chapter described the internal and external purposes for business planning. It also explained how business plans
must effectively communicate while establishing and building credibility for both the entrepreneur and the venture.
The general guidelines for business planning were covered as were some important business planning tools. The
chapter concluded with descriptions of the stages of the business development process for effective business
planning.
 Chapter 2 – Essential Initial Research

Learning Objectives

After completing this chapter, you will be able to:

Apply analytical skills to assess how the nature of entrepreneurial environment can influence
entrepreneurial outcomes.
Apply the right tools to do impactful analyses at each of the societal, industry, market, and firm levels
to evaluate entrepreneurial and other business opportunities.

Overview

This chapter introduces the distinct levels of analyses that must be considered while stressing the importance of
applying the appropriate tools to conduct the analyses at each level.
 Figure 2 – Essential Initial Research (Illustration by Lee A. Swanson)

Support Information

It is important to conduct Essential Initial Research. All information and items in the plan should be backed with facts
from valid primary or secondary sources. Alternatively, some entrepreneurs can make valid claims based on
experience and expertise. As such, their background and experiences should be delineated in order to provide
support for claims made in the business plan.

Evidence-based claims makes the business plan stronger.

Levels of Analyses

When evaluating entrepreneurial opportunities – sometimes called idea screening – an effective process involves
assessing the various venture ideas being considered by applying different levels and types of analyses.
Entrepreneurs starting ventures and running existing businesses should also regularly analyse their operating
environments at the societal, industry, market, and firm-levels. The right tools, though, must be applied at each level
of analysis (see Figure 3). It is critical to complete an Essential Initial Research at all four levels (societal, industry,
market, and firm). The initial scan should be high-level, designed to assist in making key decisions (i.e. determining if
there is a viable market opportunity for the venture). Secondary scans should be continuously conducted in order to
support each part of the business plan (i.e. operations, marketing, finance). However, information should only be
included if it is research-based, relevant, and adds value to the business plan. The results from such research (i.e.
the Bank of Canada indicates that interest rates will be increasing in the next two years) should support business
strategies within the plan (i.e. debt financing may be less favourable than equity financing). Often times, obtaining
support data (i.e. construction quotes) is not immediate so plant a flag and move forward. Valid useful resources
may include information from Statistics Canada, Bank of Canada, IBIS World Report, etc.

Finding support data is not always immediate, plant a flag and return to the subject at a later time.

Societal Level

At a societal-level it is important to understand each of the political, economic, social, technological, environmental,
and legal (PESTEL) factors – and, more specifically, the trends affecting those factors – that will have an impact on a
venture based on a particular idea. Some venture ideas might be screened-out and others might be worth pursuing
at a particular time because of the trends occurring with those PESTEL factors. Avoid the use of technical jargon that
may distract readers (i.e. rivalry among firms) and use simpler language (i.e. competitive environment).

Industry Level

Apply Porter’s (1985) Five Forces Model, or a similar tool designed to assess industry level factors. This analysis will
focus more specifically on the sector of the economy in which you intend to operate. Again, the right analysis tool
must be used for the assessment to be effective. Again, avoid technical jargon (i.e. threat of new entrants) and use
simpler wording (i.e. difficulty of entering the market) or flip to an analysis of the threat (i.e. strategies to establish
and maintain market share).

Market Level

At the market-level, you need to use a tool to generate information about the part of the industry in which your
business will compete. This tool might be in the form of a set of questions designed to uncover information that you
need to know to help develop plans to improve the success of your proposed venture.
Firm Level

At a firm-level both the internal organizational trends and the external market profile trends should both be
analyzed. There are several tools for conducting an internal organizational analysis, and you should normally apply
several of them.

Analyzing the Trends at Each Level

Figure 3 – Different Levels of Analysis (Illustration by Lee A. Swanson)

Analyze Societal Level Trends

Use an appropriate tool like the PESTEL model to assess both the current situation and the likely changes as
 they may affect you.
Political factors (federal & provincial & municipal government policy, nature of political decisions,
potential political changes, infrastructure plans, etc.)
Economic factors (interest rates, inflation rates, exchange rates, tax rates, GDP growth, health of the
economy, etc.)
Social factors (population characteristics like age distribution and education levels, changes in demand
for types of products and services, etc.)
Technological factors (new processes, new products, infrastructure, etc.)
Environmental factors (effects of climate / weather, water availability, smog and pollution issues, etc.)
Legal factors (labour laws, minimum wage rates, liability issues, etc.)
Assess the impact these trends have upon the venture:
Do the trends uncover opportunities and threats?
Can opportunities be capitalized on?
Can problems be mitigated?
Can the venture be sustained?

Analyze Industry Level Trends

Use an appropriate tool like the Five Forces Model (Porter, 1985) to analyze the industry in which you expect
to operate.
Horizontal relationships: Threat of substitutes, Rivalry among existing competitors, Threat of new
entrants
Vertical Relationships: Bargaining power of buyers, Bargaining power of suppliers

Analyze Market Level Trends

Use an appropriate method like a market profile analysis to assess the position within the industry in which
you expect to operate.
Determine the answers to questions like the following:
How attractive is the market?
In what way are competitors expected to respond if you enter the market?
What is the current size of the market and how large is it expected to be?
What are the current and projected growth rates?
At what stage of the development cycle is the market?
What level of profits can be expected in the market?
What proportion of the market can be captured? What will be the cost to capture this proportion
and what is the cost to capture the proportion required for business sustainability?

Prior to a new business start-up, the customers the new business wishes to attract either already purchase the
product or service from a competitor to the new business – or they do not yet purchase the product or service at all.
A new venture’s customers, therefore, must come from one of two sources. They must a) be attracted away from
existing (direct) competitors or b) be convinced to make different choices about where they spend their money so
they purchase the new venture’s product or service instead of spending their money in other ways (with indirect
competitors). This means an entrepreneur must decide from which source they will attract their customers, and how
they will do so. They must understand the competitive environment.

According to Porter (1996), strategy is about doing different things than competitors or doing similar things but in
different ways. In order to develop an effective strategy an entrepreneur must understand the competition.

To understanding the competitive environment, entrepreneurs must do the following:

determine who their current direct and indirect competitors are and who the future competitors will be,
understand the similarities and differences in quality, price, competitive advantages, and other factors their
proposed business and the existing competitors,
establish whether they can offer different products or services – or the same products or services in different
ways – to attract enough customers to meet their goals, and
 anticipate how the competitors will react in response to the new venture’s entry into the market.

Analyze Firm-level Trends (organizational analysis)

There are several tools available for firm-level analysis, and usually several of them should be applied because they
serve different purposes.

Use an appropriate tool like a SWOT analysis / TOWS Matrix to formulate and evaluate potential strategies to
leverage organizational strengths, overcome/minimize weaknesses, take advantage of opportunities, and
overcome/minimize threats. You will also need to do a financial analysis and take into account the founder fit
and the competencies a venture should possess.
SWOT analysis – identify organizational strengths and weaknesses and external opportunities and
threats
TOWS matrix – develop strategies to:
leverage strengths to take advantage of opportunities
leverage strengths to overcome threats
mitigate weaknesses by taking advantage of opportunities
mitigate weaknesses while minimizing the potential threats or the potential outcomes from
threats

For analyzing a firm’s strategy, apply a VRIO Framework analysis.

While conceptualizing the resource based view (RBV) of the firm, Barney (1997) and Barney and Hesterly
(2006) identified the following four considerations regarding resources and their ability to help a firm gain a
competitive advantage. Together, the following four questions make up the VRIO Framework, which can be
used as an analysis tool to assess a firm’s capacity and to determine what competencies a venture should
have. Determine whether competences are: valuable, rare, inimitable, and exploitable.
Value: Is a particular resource (financial, physical, technological, organizational, human, reputational,
innovative) valuable to a firm because it helps it take advantage of opportunities or eliminate threats?
Rarity: Is a particular resource rare in that it is controlled by or available to relatively few others?
Imitability: Is a particular resource difficult to imitate so that those who have it can retain cost
advantages over those who might try to obtain or duplicate it?
Organization: Are the resources available to a firm useful to it because it is organized and ready to
exploit them?

Assess the financial attractiveness of the venture

Analysis of similar firms in industry

Comparative ratio and financial analysis see (Vesper pp. 145-148) can help determine industry norm
returns, turnover ratios, working capital, operating efficiency, and other measures of firm success
Projected market share
Analyze the key industry players’ relative market share, and make judgments about how the proposed
venture would fare within the industry
Use information from market profile analysis and key industry player analysis
Margin analysis
Involves projecting expected margins from venture
Useful information might come from financial analysis, market profile analysis, and NAICS (North
American Industry Classification System) codes (six digit codes used to identify an industry – first five
digits are standardized in Canada, the United States, and Mexico – is gradually replacing the four digit
SIC [Standard Industrial Classification] codes)
Break-even analysis
Involves using information from margin analysis to determine break even volume and break even sales
in dollars
Is there sufficient volume to sustain the venture?
Pro-forma analysis
 Forecasting income and assets required to generate profits
Sensitivity analysis
What will be the likely impact if some assumed variable values change?
Return on investment (ROI) projections
Projecting the ROI from undertaking the venture
What is the opportunity cost of undertaking the venture?
Founder fit is an important consideration for entrepreneurs screening venture opportunities. While there are
plenty of examples of entrepreneurs successfully starting all types of businesses, “technical capability can be
an important if not all-important factor in pursuing ventures success” (Vesper, 1996, p. 149). Factors such as
the experience, training, credentials, reputation, and social capital an entrepreneur has can play an important
role in their success or failure in starting a new venture. Even when an entrepreneur can recruit expert help
through business partners or employees, it might be important that he or she also possess technical skills
required in that particular kind of business.
A common and useful way to help screen venture options is to seek input from experts, peers, mentors,
business associates, and perhaps other stakeholders like potential customers and direct family members.

Completing a TOWS matrix develops strategies from the SWOT analysis and strengthens your
business plan.

Reference your technical skills, as this is a major factor in a venture’s success.

Lean Startup

Ries (2011) defines a lean start-up as “a human institution designed to create a new product or service under
conditions of extreme uncertainty” (p. 27), and the lean startup approach involves releasing a minimal viable
product to customers with the expectation that this early prototype will change and evolve frequently and quickly in
response to customer feedback. This is meant to be a relatively easy and inexpensive way to develop a product or
service by relying on customer feedback to guide the pivots in new directions that will ultimately – and relatively
quickly – lead to a product or service that will have the appeal required for business success. It is only then that the
actual business can truly emerge. As such, entrepreneurs that apply the lean start-up approach – because their
business idea allows for it – actually forgo developing a business plan, at least until they might need one later to get
financing, in favour of building their business by introducing a minimum viable product to help “entrepreneurs start
the process of learning as quickly as possible” (Ries, 2011, p. 93). This is followed by ever improving versions of their
products or services. However, all entrepreneurs must directly consult with their potential target purchasers and end
users to assess if and how the market might respond to their proposed venture. The Essential Initial Research and
Progressive Research should include purposeful and meaningful interactions with the entrepreneur and target
purchasers and end users.

Ries’s (2011) five lean startup principles start with the idea that entrepreneurs are everywhere and that anyone
working in an environment where they seek to create new products or services “under conditions of extreme
uncertainty” (27) can use the lean startup approach. Second, a startup is more than the product or service, it is an
institution that must be managed in a new way that promotes growth through innovation. Third, startups are about
learning “how to build a sustainable business” (pp. 8-9) by validating product or service design through frequent
prototyping that allows entrepreneurs to test the concepts. Forth, startups must follow this process, or feedback
loop: create products and services; then measure how the market reacts to them; and learn from that to determine
whether to pivot or to persevere with an outcome the market accepts. Finally, Ries (2011) suggested that
entrepreneurial outcomes and innovation initiatives need to be measured through innovative accounting.
 Figure 4 – Business Model and Lean Start-Up Books (Picture by Lee A. Swanson)

Chapter Summary

By applying the right tools to analyze the operating environment at each of the societal, industry, market, and firm-
levels, entrepreneurs screen venture ideas, plan new venture development, and potentially detect factors that might
affect their business operations. It also explained the lean startup concept. See Figure 4 for other resources on
business models and the lean startup.
 Chapter 3 – Business Models

Learning Objectives

After completing this chapter, you will be able to:

Describe what a business model is.

Analyse existing and proposed businesses to determine what business models they are applying and what
business models they plan to apply.
Develop and analyze alternative business models for new entrepreneurial ventures.

Overview

In this chapter the concept of the business model is introduced. One concept of the business model in particular, the
Business Model Canvas, is explored as a way to conceptualize and categorize elements of a business model.
 Figure 5 – Business Model (Illustration by Lee A. Swanson)

What are Business Models?

Magretta (2002) described business models as “stories that explain how enterprises work” (p. 87) and Osterwalder,
Pigneur, and Clark (2010) claimed that they reveal “the rationale of how an organization creates, delivers, and
captures value” (p. 14). Chatterjee (2013) said that “A business is about selling what you make for a profit. A
business model is a configuration (activity systems) of what the business does (activities) and what it invests in
(resources) based on the logic that drives the profits for a specific business” (p. 97).

Osterwalder et al. (2010) said that a start-up is something quite different than an ongoing venture. A start-up should
not be viewed as a smaller version of a company because it requires very different skills to start-up a company than
it does to operate one. A start-up that is still a start-up after some time – maybe after a couple of years for some
kinds of start-ups – is actually a failed enterprise since it hasn’t converted into an ongoing venture. Entrepreneurs
that develop a business model for their ventures that deliver value to the targeted customers and to the
entrepreneur and the venture stand a better chance of converting their start-up into an ongoing venture.

The Business Model Canvas

The business model canvas is made up of nine parts that, together, end up describing the business model (see
Figure 6).

Figure 6 – Business Model Canvas from http://www.businessmodelgeneration.com (Designed by: Strategyzer AG, strategyzer.com, Creative
Commons Attribution-Share Alike 3.0 Unported License)

The following elements of the Business Model Canvas were taken, with permission, from
http://www.businessmodelgeneration.com.
Key partners
Who are our key partners?
Who are our key suppliers?
Which key resources are we acquiring from partners?
Which key activities do partners perform?
Motivations for partnerships: optimization and economy; reduction of risk and uncertainty; acquisition
of particular resources and activities.
Key activities
What key activities do our value propositions require?
Our distribution channels?
Customer relationships?
Revenue streams?
Categories: production; problem solving; platform/network.
Key resources
What key resources do our value propositions require?
Our distribution channels?
Customer relationships?
Revenue streams?
Types of resources: physical; intellectual (brand patents, copyrights, data); human; financial
Value propositions
What value do we deliver to the customer?
Which one of our customer’s problems are we helping to solve?
What bundles of products and services are we offering to each customer segment?
Which customer needs are we satisfying?
Characteristics: newness; performance; customization; “getting the job done”; design; brand/status;
price; cost reduction; risk reduction; accessibility; convenience/usability.
Customer relationships
What type of relationship does each of our customer segments expect us to establish and maintain with
them?
Which ones have we established?
How are they integrated with the rest of our business model?
How costly are they?
Examples: personal assistance; dedicated personal assistance; self-service; automated services;
communities; co-creation.
Customer segments
For whom are we creating value?
Who are our most important customers?
Mass market; niche market; segmented; diversified; multi-sided platform.
Channels
Through which channels do our customer segments want to be reached?
How are we reaching them now?
How are our channels integrated?
Which ones work best?
Which ones are most cost-efficient?
How are we integrating them with customer routines?
Channel phases: (1) awareness (How do we raise awareness about our company’s products and
services?); (2) evaluation (How do we help customers evaluate our organization’s value proposition?);
(3) purchase (How do we allow customers to purchase specific products and services?); (4) delivery
(How do we deliver a value proposition to customers?); (5) after sales (How do we provide post-
purchase customer support?).
Revenue streams
For what value are our customers really willing to pay?
For what do they currently pay?
 How are they currently paying?
How would they prefer to pay?
How much does each revenue stream contribute to overall revenues?
Types: asset sale; usage fee; subscription fees; lending/renting/leasing; licensing; brokerage fees;
advertising.
Fixed pricing: list price; product feature dependent; customer segment dependent; volume dependent.
Dynamic pricing: negotiation (bargaining); yield management; real-time-market.
Cost structure
What are the most important costs inherent in our business model?
Which key resources are most expensive?
Which key activities are most expensive?
Is your business more: cost driven (leanest cost structure, low price value proposition, maximum
automation, extensive outsourcing); value driven (focused on value creation, premium value
proposition).
Sample characteristics: fixed costs (salaries, rents, utilities); variable costs; economies of scale;
economies of scope.

The idea is to keep adding descriptions, or plans to the nine components to create the initial business model and
then to actually do the start-up activities and replace the initial assumptions in each of the nine parts with newer and
better information or plans, and to let the business model evolve. This model is partly based on the idea that the
owner should be the one interacting with potential customers so he or she fully understands what these potential
customers want These interactions should not only be done by hired sales people, at least until the business model
has evolved into one that works, and this evolution can only happen when the venture owner is completely engaged
with the potential customers and the other business operations (Osterwalder et al., 2010).

A business plan shouldn’t be created until the above has been done because you need to know what your business
model is before you can really create a business plan (Osterwalder et al., 2010). This seems to imply that the
Business Model Canvas is best suited to technology-based and other types of companies that can be basically
started and operated in some way that can later be converted into an ongoing venture. By starting operations and
making adjustments as you go along, you are actually doing a form of market research that can be compiled into a
full business plan when one is needed.

According to Osterwalder, et al. (2010) the things we typically teach people in business school are geared to helping
people survive in larger, ongoing businesses. What is taught – including organizational structures, reporting lines,
managing sales teams, advertising, and similar topics – is not designed to help students understand how a start-up
works and how to deal with the volatile nature of new ventures. The Business Model Canvas idea is meant to help us
understand start-ups.

The Business Model Canvas tool is intended to be applied when business operations can be started on a small scale
and adjustments can continually be made until the evolving business model ends up working in real life. This is in
contrast to the more traditional approach of pre-planning everything and then going through the set-up and start-up
processes and ending up with a business venture that opens for business one day without having proven at all that
the business model it is founded upon will even work. These traditional start-ups sometimes flounder along as the
owners find that their plans are not quite working out and they try to make adjustments on the fly. It can be difficult
to make adjustments at this time because the processes are already set up. For example, sales teams might be in
the field trying to make sales and blaming the product developers for the difficulty they are having, and the product
developers might be blaming the sales teams for not being able to sell the product properly. The real issue might be
that the company simply isn’t meeting customers’ needs and they don’t have any good mechanism for detecting and
understanding and fixing this problem.

Chapter Summary

This chapter described business models and used the example of the Business Model Canvas as a tool that
entrepreneurs can use to develop and define their own business models.
 Chapter 4 – Initial Business Plan Draft

Learning Objectives

After completing this chapter, you will be able to:

Develop a comprehensive business plan draft.

Overview

This chapter describes an approach to writing your draft business plan. It also outlines the elements of a
comprehensive business plan so that they can be used as a template for starting your business plan.
 Figure 7 – Initial Business Plan Draft (Illustration by Lee A. Swanson)

Effective Business Plans

Effective business plans:

Provide statements that are backed by evidence or data

Include context and references with every table, figure, or illustration
Include tables and financial information that is relevant, clear, concise, and exclude unnecessary material
Present timelines for distinct purposes
Exclude generic sections but have clear and customized to the particular business or its environment

Evidence-based claims strengthen your business plan.

Providing context for tables and figures is critical.

Writing the Draft Business Plan

Although there are various ways to approach the task of writing a draft business plan, one effective approach is to do
the following:

Use the following sections of this chapter to prepare an outline for your business plan. You should do the
headings feature in Word so that you can later automatically generate a table of contents.
This will provide you with a template into which to insert the information needed for your plan.
Insert the relevant parts of the written work produced during Essential Initial Research into your new business
plan template. You can do this in one of two ways.
First, you can copy and paste the results of your essential initial research into the sections of your business
plan template where you believe that they can be used to support or justify the strategies and other decisions
you will later describe in those sections. Of course, you can later move those parts of your environmental scan
as needed as you develop your plan. In general, this strategy results in a stronger business plan.
Second, you can insert the results from your societal-level and industry-level analyses in an Operating
Environment section as listed in the outline below. As described below, the market-level analysis will probably
always fit best within the Marketing Plan and the firm-level analysis might fit across all of the plans within the
business plan.
Completing this step will give you the satisfaction of seeing some of your work so far taking shape in
the form of a business plan.
Also, inserting the results from your environmental scan into the relevant sections of your plan should
later provide you with the stimulus and support you will need to develop solid, realistic, evidence-based
strategies and decisions for those sections.
Incorporate your business model into your new business plan template. As there is no section in a business
plan in which you specifically describe your business model, you will need to incorporate your business model
elements into appropriate sections of your plan.
Fill in as much relevant information as you can under as many of the headings on your business plan template
as possible.
You will normally include both (1) information that you got from particular sources and (2) information
that has not come from any source, but that is based on an assumption you made (and that you might
intend to replace later with more accurate information from valid sources). Follow the following
practices:
Every time that you insert something into your business plan template that you got from a source, clearly
indicate from where you got that information. For example, if you list the office equipment and furniture that
you need along with their exact costs as taken from suppliers’ catalogue, clearly indicate from which
 catalogues you got the information. Similarly, if you spoke to an industry expert who recommended that you
manufacture your product in a particular way, if you can (if you got the person’s permission to do so) clearly
indicate who you spoke to and what their credentials are.
When you do this, you help establish your credibility as a business plan writer, and your business plan’s
credibility. It also might save you time later when you discover that you need to add a similar item
along with its cost to your list.
Note: Do not reinvent the wheel by “inventing” your own method to reference your sources, and do not
use multiple methods. Use one (and only one) proper and well established referencing method, like
APA. This will improve the degree of professionalism of your plan.
Every time that you insert something into your plan that did not come from a source, a best practice is to
highlight that part of your plan, possibly by using a distinct font color. The objective will be to ultimately
replace all of those assumptions with source-backed information. When you do so, change the font to its
regular color so you can quickly and easily see what still needs to be sourced.
Note that if you are an expert source on something – maybe you are a construction expert that
business plan readers will trust to do estimates on building costs – you should establish your credentials
and clearly indicate when some of the information in your plan is based on your own expert knowledge.
When you flag your assumptions in this way, you can quickly and easily see what information needs to
be replaced with sourced information before you finalize your business plan.
Use the appropriate schedule in the spreadsheet templates to record estimated sales revenue for each month.
You must base these sales projections on well-reasoned criteria and set them up in your spreadsheets using
formulas so that if you need to change a criterion later, you can change a number in one cell or a limited
number of cells rather than have to change all of them.
Projecting realistic sales can be difficult, but setting up a method for doing so early gives business plan
writers a significant start toward completing their business plan. A well-developed sales model that
takes advantages of the powers of electronic spreadsheets gives business plan writers the opportunity
to relatively quickly easily make necessary changes to their assumptions and overall estimates when
needed.
Use the spreadsheet templates by filling in all of the numbers you have in the various schedules. As you are
doing in the written part of your plan, use a distinct font to flag numbers that are based on assumptions. When
you have actual numbers, be certain that it is clear to a reader what source you used to get those numbers.
When you use the schedules provided on the spreadsheet templates, and any others that you add, you
will be well on your way to developing the financial component of your business plan.

Providing references strengthens the credibility of claims and makes the business plan stronger.

If you don’t have a source to a claim, plant a flag and move forward, returning later to insert the
source.

General Business Plan Format

Letter of Transmittal

A letter of transmittal is similar to the cover letter of a resume. The letter of transmittal should be tailored to the
reader, clearly identifying the customized ask of the potential investor or lender. It should be short and succinct,
delineating the ask (i.e. funding, specialized recruiting, purchase product or service, obtain advice, etc.) within a few
paragraphs. It should not summarize the business plan, as that is the job of the executive summary.

Title Page

Include nice, catchy, professional, appropriate graphics to make it appealing for targeted readers
Executive Summary

Can be longer than normal executive summaries … up to 3 pages

Write after remainder of plan is complete
Include information relevant to targeted readers as this is the place where they are most likely to form their
first impressions of the business idea and decide whether they wish to read the rest of the plan

Table of Contents

List of Tables

Be certain that each and every table, figure, and appendix included in the plan is referenced within the text of the
plan so the relevance of each of these elements is clear.

List of Figures

Introduction

Indicate the purpose for the plan

Make appealing to targeted readers

Business Idea

May include description of history behind the idea and the evolution of the business concept if relevant

Value Proposition

Explain how your business idea solves a problem for your expected customers or otherwise should make them
want to purchase your product or service instead of a competitor’s

Vision

Generally outlines what the owner intends for the venture to be

A good one will inspire all members of the organization
It should help stakeholders aspire to achieve greater things through the venture because of the general
direction provided through the vision statement
After articulating a good vision, the business plan writer should consider what achieving the vision looks like.
Many business plan writers write their vision and leave it at that. The problem with this approach is that they
often then do not take the necessary steps to illustrate how the strategies they outline in their plan will move
them toward achieving their vision. If they make this mistake, their strategies might indicate that they are
fulfilling their current mission, but are not taking steps to move beyond that.
Vision statements should be clear with context throughout the business plan. For example, if the goal is to be
the premier business operating in that industry in Saskatchewan, does that mean you have one location and
are considered the best at what you do it even though you only have a small corner of the market, or does it
mean that you have many locations across the province and enjoy a large market share.

Vision statements should be clear with context throughout the business plan.

Mission

Should be very brief – a few sentences or a short paragraph

Indicates what your organization does and why it exists – may describe the business strategy and philosophy

Values

These are reflected in five to ten short statements indicating the important values that will guide everything
 the business will do
They outline the personal commitments members of the organization must make, and what they should
consider to be important
They define how people behave and interact with each other
The proposed venture’s stated values should be reflected in all of the decisions outlined in the business plan,
from hiring to promotions to location choices
They should help the reader understand the type of culture and operating environment this business intends
to develop

Major Goals

Describe the major organizational goals

Ensure each goal is:
Specific, Measurable, Action oriented, Realistic, and Timely [SMART]
Realistic, Understandable, Measureable, Believable, and Achievable [RUMBA]
Be certain all goals perfectly align with everything in plan
You should write, or re-write this section as the second last thing you do before finalizing your business plan
by doing the final proof-read, polishing it up, and printing it (writing the executive Summary will be the final
thing you should write).

Having goals that are SMART and RUMBA strengthens the business plan.

Operating Environment

Trend Analysis

Include an analysis of how the current and expected trends in the political, economic, social, technological,
environmental, and legal (PESTEL) factors will impact the development of this business
Consider whether this is the right place for this analysis
It may be better positioned in, for example, the Financial Plan section to provide context to the analysis of the
critical success factors, or in the Marketing plan to help the reader understand the basis for the sales
projections

Providing strategies to capitalize on trends is a winning formula.

Industry Analysis

Include an analysis of the industry in which this business will operate

A common approach is to apply the Five Forces Model (Porter, 1985)
Consider whether this is the right place for this analysis
It may be better placed in, for example, the Marketing Plan to enhance the competitor analysis, or in the
Financial plan to provide context to the industry standard ratios in the Investment Analysis section

Of course, your trend analysis will also include a market-level analysis (using a set of questions, like those listed in
Chapter 2) and a firm-level analysis (using tools like a SWOT analysis / TOWS matrix, various forms of financial
analyses, a founder fit analysis, and so on), but those analyses are usually best placed in other sections of your plan
to support the strategies and decisions you present there. The market-level analysis will inevitably fit in the
Marketing Plan section, but the firm-level analysis might be spread across some or all of the Operating Plan, Human
Resources Plan, Marketing Plan, and Financial Plan sections.
Operations Plan

Key questions answered by operating plans:

What are your facility plans?
Where will your facility be located?
Expressed as a set physical location
Expressed as a set of requirements and characteristics
How large will your facility be and why must it be this size?
How much will it cost to buy or lease your facility?
What utility, parking, and other costs must you pay for this facility?
What expansion plans must be factored into the facility requirements?
What transportation and storage issues must be addressed by facility decisions?
What zoning and other legal issues must you deal with?
What will be the layout for your facility and how will this best accommodate customer and
employee requirements?
What constraints are you operating under that will restrict your capacity to produce and sell your
product?
Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
What is the work flow plan for your operation?
What work will your company do and what work will you outsource?

Operations Timeline

When will you make the preparations, such as registering the business name and purchasing equipment, to
start the venture?
When will you begin operations and make your first sales?
When will other milestone events occur such as moving operations to a larger facility, offering a new product
line, hiring new key employees, and beginning to sell products internationally?
Sometimes it is useful to include a graphical timeline showing when these milestone events have occurred
and are expected to occur

Completing the operation plans further adds to the overall business plan.

Business Structure and other Set-up Elements

Somewhere in your business plan you must indicate what legal structure your venture will take. Your financial
statements, risk management strategy, and other elements of your plan are affected by the type of legal
structure you choose for your business. For example, all partnerships should have a clear agreement outlining
the duties, expectations, and compensation of all partners as well as the process of dissolution. Please Note:
Spreadsheet templates are formatted for corporations and will need to be formatted for other forms of
businesses.
Sole Proprietorship
Partnership
Limited Partnership
Corporation
Cooperative
As part of your business set-up, you need to determine what kinds of control systems you should have in
place, establish necessary relationships with suppliers and prior to your start-up, and generally deal with a list
of issues like the following. Many of your decisions related to the following should be described somewhere in
your business plan:
Choose name
Check zoning, equipment prices, suppliers, etc.
Choose location
 Arrange lease terms, leasehold improvements, signage, pay deposits, etc.
Get business license, permits, etc.
Set up banking arrangements
Set up legal and accounting systems (or professionals)
Order equipment, locks and keys, furniture, etc.
Recruit employees, set up payroll system, benefit programs, etc.
Train employees
Test the products/services that will be offered
Test the systems for supply, sales, delivery, and other functions
Decide on graphics, logos, promotional methods, etc.
Order business cards, letter head, etc.
Clearly communicate suppliers, why they are preferred, and set up necessary agreements
Buy inventory, insurance, etc.
Revise business plan
…. And many more things … including, when possible, attracting purchased orders in advance of start-
up through personal selling (by the owner, a paid sales force, independent representatives, or by selling
through brokers wholesalers, catalog houses, retailers), a promotional campaign, or through other
means

Start-up

What is required to start-up your business including the purchases and activities that must occur before you
make your first sale?
When identifying capital requirements for start-up a distinction should be made between fixed capital
requirements and working capital requirements

Fixed Capital Requirements

What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its
business?
This section may include a start-up budget showing the machinery, equipment, furnishings, renovations, and
other capital expenditures required prior to operations commencing
If relevant you might include information showing the financing required … fixed capital is usually
financed using longer-term loans

Working Capital Requirements

What money is needed to operate the business (separately from the money needed to purchase fixed assets)
including the money needed to purchase inventory and pay initial expenses?
This section may include a start-up budget showing the cash required to purchase starting inventories, recruit
employees, conduct market research, acquire licenses, hire lawyers, and other operating expenditures
required prior to starting operations
If relevant you might include information showing the financing required … working capital is usually
financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans

Risk Management Strategies

Include descriptions of the organization’s risk exposure

Enterprise – liability exposure for things like when someone accuses your employees or products you
sell of injuring them.
Financial – securing loans when needed and otherwise having the right amount of money when you
need it
Operational – securing needed inventories, recruiting needed employees in tight labour markets,
customers you counted on not purchasing product as you had anticipated, theft, arson, natural
disasters like fires and floods, etc.
 Always include descriptions of the planned strategies for managing each of the risks identified. Identify
potential risk exposures, their consequences, risk potential, and mitigation strategies (Figure 8).
Avoid – choose to avoid doing something, outsource, etc.
Reduce – through training, assuming specific operational strategies, etc.
Transfer – insure against, outsource, etc.
Assume – self insure, accept, etc.

Figure 8 – Risk Management Strategies (Illustration by Lee A. Swanson)

Completing a risk management plan further adds to the overall business plan.

Operating Processes

What operating processes will you apply?

Depending upon the type of business for which you are creating your plan you will need to describe different
things:
Retail and wholesale operations
How will you ensure your cash is managed effectively?
How will you schedule your employees?
How will you manage your inventories?
If you will have a workforce, how will you manage them?
etc.
Service operation
How will you bill out your employee time?
How will you schedule work on your contracts?
etc.
Manufacturing operation
How you will manufacture your product (process flow, job shop, etc.?)
How will you maintain quality?
How will you institute and manage effective financial monitoring and control systems that
provide needed information in a timely manner?
How will you manage expansion?
etc.

Facilities

May include planned layouts for facilities

Organizational Structure

May include information on Advisory Boards or Board of Directors from which the company will seek advice or
guidance or direction
May include an organizational chart
Can be a nice lead-in to the Human Resources Plan

Human Resources Plan

Key questions answered by human resources plans:

How do you describe your desired corporate culture?
 What are the key positions within your organization?
How many employees will you have?
What characteristics define your desired employees?
What is your recruitment strategy? What processes will you apply to hire the employees you require?
What is your leadership strategy and why have you chosen this approach?
What performance appraisal and employee development methods will you use?
What is your organizational structure and why is this the best way for your company to be organized?
How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each
employee?
What are your payroll costs, including benefits?
What work will be outsourced and what work will be completed in-house?
Have you shown and described an organizational chart?

Recruitment and Retention Strategies

Include how many employees are required at what times

Estimate time required to recruit needed employees
Estimate all recruitment costs including:
Employment advertisements
Contracts with employment agency or search firms
Travel and accommodations for potential employees to come for interviews
Travel and accommodations for interviewers
Facility, food, lost time, and other interviewing costs
Relocation allowances for those hired including flights, moving companies, housing allowances, spousal
employment assistance, etc.

You might include a schedule here showing the costs of initial recruitment that then flows into your start-up expense
schedules

Leadership and Management Strategies

What is your leadership philosophy?

Why is it the most appropriate leadership approach for this venture?

Training

What training is required because of existing rules and regulations?

How will you ensure your employees are as capable as required?
In which of the following areas will you provide training for your employees?
Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
Initial workplace orientation
Management
Financial systems
Sales
Contracts
Product features
Other

Performance Appraisals

How will you manage your performance appraisal systems?

Health and Safety

There may be legal requirements that should be noted in this section (and also legal requirements for other
issues that may be included in other parts of the plan)
 Consider pursuing accreditation such as ISO 9000, if so, evaluate the costs, benefits, and time frame
Employees may require WHMIS training or other training including machinery handling

Compensation

Always completely justify your planned employee compensation methods and amounts
Always include all components of the compensation (CPP, EI, holiday pay, etc.)
How will you ensure both internal and external equity in your pay systems
Describe any incentive-based pay or profit sharing systems planned
You might include a schedule here that shows the financial implications of your compensation strategy and
supports the cash flow and income statements shown later

Key Personnel

May include brief biographies of the key organizational people

Completing the human resources plan further adds to the overall business plan.

Marketing Plan

What primary and secondary research have you done?

You must show evidence of having done proper research, both primary and secondary. If you make a
statement of fact, you must back it up with properly referenced supporting evidence. If you indicate a
claim is based on your own assumptions, you must back this up with a description as to how you came
to the conclusion.
Somewhere in your plan have you done an effective analysis of the economic environment relevant to your
business?
It is a given that you must provide some assessment of the economic situation as it relates to your
business. For example, you might conclude that the current economic crisis will reduce the potential to
export your product and it may make it more difficult to acquire credit with which to operate your
business. Of course, conclusions such as these should be matched with your assessment as to how your
business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it
will take advantage of any opportunities your assessment uncovers.
Somewhere in your plan have you done an effective assessment of the industry within which your venture will
operate?
You must provide an assessment of the industry coupled with descriptions of how your venture will
prosper in those circumstances. A common approach used to assess the industry is to apply Porter’s
(1985) five forces model.
If you apply the five forces model be certain to do so in the way in which it was meant to be used to
avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This
model is meant to be used to consider the entire industry – not a subcomponent of it (and it usually
cannot be used to analyze a single organization).
Your competitor analysis might fit within your assessment of the industry, or it might be best as a
section within your marketing plan. Usually a fairly detailed description of your competitors is required,
including an analysis of their strengths and weaknesses. In some cases your business may have direct
and indirect competitors to consider. Be certain to maintain credibility by demonstrating that you fully
understand the competitive environment.
Assessments of the economic conditions and the state of the industry appear incomplete without
accompanying appraisals outlining the strategies the organization can/should employ to take
advantage of these economic and industry situations. So, depending upon how you have organized
your work, it is usually important to couple your appraisal of the economic and industry conditions with
accompanying strategies for your venture. This shows the reader that you not only understand the
operating environment, but that you have figured out how best to operate your business within that
 situation.
Have you done an effective analysis of your venture (see Organizational Analysis section below)?

Completing the marketing plan further adds to the overall business plan.

Primary and secondary data further add to the strength of the business plan.

Providing marketing strategies to capitalize on market information is a winning formula.

Market Analysis

The market analysis section usually contains customer profiles, constructed through primary and secondary
research, for each market targeted. It also contains detailed information on the major product benefits you will
deliver to the markets targeted.
describe the methodology used and the relevant results from the primary market research done
if there was little primary research completed, justify why it is acceptable to have done little of this kind of
research and/or indicate what will be done and by when
include a complete description of the secondary research conducted and the conclusions reached
Who are your customers going to be?
Be sure to define your target market in terms of identifiable entities sharing common characteristics.
For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however,
useful to define your target market as Canadian university students between the ages of 18 and 25 …
or as information technology managers at Canadian universities … or as student leaders at Canadian
universities. Your targeted customer should generally be able to make or significantly influence the
buying decision.
You must usually define your target market prior to describing your marketing mix, including your
proposed product line. Sometimes the product descriptions in business plans seem to be at odds with
the described target market characteristics. Ensure your defined target market aligns completely with
your marketing mix (including product/service description, distribution channels, promotional methods,
and pricing). For example, if the target market is defined as Canadian university students between the
ages of 18 and 25, the product component of the marketing mix should clearly be something that
appeals to this target market.
Carefully choose how you will target potential customers. Should you target them based on their
demographic characteristics, psychographic characteristics, or geographic location?
Do you understand how your targeted customers make their buying decisions?
You will need to access research to answer this question. Based on what you discover, you will need to
figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to
how your targeted customers make their buying decisions.

Competition

The competition section usually fully describes the nature of your competitors. This information might fit
instead under the market analysis section.
Describe all your direct competitors
Describe all your indirect competitors
If you can, include a competitor positioning map to show where your product will be positioned relative to
competitors’ products? Insure that the x-axis and y-axis are meaningful. Often times competitor maps include
quality and price as axes. Unless you can clearly articulate the distinction between high quality and low
quality, it may be more valuable to have more meaningful axes or describe your value proposition relative to
your competitors in the absence of a positioning map.
 Figure 9 – Competitor Positioning Map (Illustration by Lee A. Swanson)

What is your competitive advantage? What distinguishes your business from that of your competitors in a way
that will ensure your sales forecasts will be met? What is your venture’s value proposition?
You must clearly communicate the answers to these questions in your business plan in order to attract
the needed support for your business. One caution is that it may sound appealing to claim you will
provide a superior service to the existing competitors, but the only meaningful judge of your success in
this regard will be customers. Although it is possible some of your competitors might be complacent in
their current way of doing things, it is very unlikely that all your competitors provide an inferior service
to that which you will be able to provide.

Demonstrating a competitive advantage makes the business plan stronger.

A competitor positioning map provides context as to where your venture fits in the competitive
landscape.

Marketing Strategy

The marketing strategy section is very important as this covers all aspects of the marketing mix including the
promotional decisions you have made, product decisions, distribution decisions related to how you will deliver
your product to the markets targeted, and pricing decisions.
How do you plan to influence your targeted customers to buy from you (what is the optimum marketing mix,
and why is this one better than the alternatives)?
Organizational Analysis

This section might be positioned as a lead-in to your marketing strategy or it might be positioned elsewhere
depending upon how your business plan is best structured.
A common approach to analyzing an organization is to apply a SWOT analysis, but ALWAYS ensure this
analysis results in more than a simple list of internal strengths and weaknesses and external opportunities and
threats. A SWOT analysis should always prove to the reader that there are organizational strategies in place to
address each of the weaknesses and threats identified and to leverage each of the strengths and
opportunities identified.
An effective way to ensure an effective outcome to your SWOT analysis is to apply a TOWS Matrix approach to
develop strategies to take advantage of the identified strengths and opportunities while mitigating the
weaknesses and threats. A TOWS Matrix is a tool to help with this. It evaluates each of the identified threats
along with each of the weaknesses and then each of the strengths. It does the same with each of the
identified opportunities. In this way strategies are developed by considering pairs of factors
The TOWS Matrix is a framework with which to help you organize your thoughts into strategies. Most often you
would not label a section of your business plan as a TOWS Matrix. This would not normally add value for the
reader. Instead, you should describe the resultant strategies – perhaps while indicating how they were derived
from your assessment of the strengths, weaknesses, opportunities, and threats. For example, you could
indicate that certain strategies were developed by considering how internal strengths could be employed
toward mitigating external threats faced by the business.

Product Strategy

What is your product/service? Why will this particular product/service appeal to your targeted customers
better than the alternatives?
If your product or service is standardized, you will need to compete on the basis of something else – like a
more appealing price, having a superior location, better branding, or improved service. If you can differentiate
your product or service you might be able to compete on the basis of better quality, more features, appealing
style, or something else. When describing your product, you should demonstrate that you understand this.

Pricing Strategy

What are your pricing strategies? What makes these strategies better than the alternatives?
If you intend to accept payment by credit card (which is probably a necessity for most companies), you should
be aware of the fee you are charged as a percentage of the value of each transaction. If you don’t account for
this you risk overstating your actual revenues by perhaps one percent or more.
What are your sales forecasts? Why are these realistic?
Sales forecasts must be done on at least a monthly basis if you are using a projected cash flow statement.
These must be accompanied by explanations designed to establish their credibility for readers of your
business plan. Remember that many readers will initially assume your planned time frames are too long, your
revenues are overstated, and you have underestimated your expenses. Well crafted explanations for all of
these numbers will help establish credibility.

Distribution Strategy

What are your distribution strategies? What makes these strategies better than the alternatives?
If you plan to use e-commerce, you should include all the costs associated with maintaining a website and
accepting payments over the Internet.

Promotions Strategy

As a new entrant into the market, must you attract your customers away from your competitors they currently
buy from or will you be creating new customers for your product or service (i.e. not attracting customers away
from your competitors)?
If you are attracting customers away from competitors, how will these rivals respond to the threat you
pose to them?
 If you intend to create new customers, how will you convince them to reallocate their dollars toward
your product or service (and away from other things they want to purchase)?
Anticipate the responses competitors will have to your entrance into the market, especially if your success
depends upon these businesses losing customers to you. If your entry into the market will not be a threat to
direct competitors, it is likely you must convince potential customers to spend their money with you rather
than on what they had previously earmarked those dollars toward. In your business plan you must
demonstrate an awareness of these issues.
In what ways will you communicate with your targeted customers? When will you communicate with them?
What specific messages do you plan to convey to them? How much will this promotions plan cost?
You should consider mapping out your promotional expenditures according to method used and time frame.
Consider listing the promotional methods in rows on a spreadsheet with the columns representing weeks or
months over probably about 18 months from the time of your first promotional expenditure. This can end up
being a schedule that feeds the costs into your projected cash flow statement and from there into your
projected income statements.
If you phone or visit newspapers, radio stations, or television stations seeking advertising costs, you must go
only after you have figured out details like on which days you would like to advertise, at what times on those
days, whether you want your print advertisements in color, and what size of print advertisements you want.
Carefully consider which promotional methods you will use. While using a medium like television may initially
sound appealing, it is very expensive unless your ad runs during the non-prime times. If you think this type of
medium might work for you, do a serious cost-benefit analysis to be sure.
Some promotional plans are developed around newspaper ads, promotional pamphlets, printing business
cards, and other more obvious mediums of promotion. Be certain to, include the costs of advertising in
telephone directories, sponsoring a little league soccer team, producing personalized pens and other
promotional client give-always, donating items to charity auctions, printing and mailing client Christmas cards,
and doing the many things businesses find they do on-the-fly. Many businesses find it to be useful to join the
local chamber of commerce and relevant trade organizations with which to network. Some find that setting a
booth up at a trade fair helps launch their business.
If you are concerned you might have missed some of these promotional expenses, or if you want to have a
buffer in place in case you feel some of these opportunities are worthwhile when they arise, you should add
some discretionary money to your promotional budget. A problem some companies get into is planning out
their promotions in advance only to reallocate some of their newspaper advertisement money, for example,
toward some of these other surprise purposes resulting in less newspaper advertising than had been intended.

Financial Plan

In addition to financial statements, your financial plan should include:

Various funding options and exit strategies for potential investors

Business valuation (be cautious not to over value your business)
Break-even analysis

Business Valuation

There are a multitude of sophisticated business valuation methodologies. A rule of thumb for business valuations is a
multiple of its earnings. For example, if the chosen multiple is five and the business’ earnings before taxes are $55M,
the business’ valuation would be approximately $275M.

Break-Even Analysis

Break-Even Point = FC/(P-VC)

FC = Fixed Costs
P = Unit Price
VC = Variable Cost

Example: If the business’ total fixed costs are $1,000,000.00, it costs $5.00 to produce the widget, and the business
sells the widget for $7.00, the break-even point is 500,000 widgets.

It is nearly certain you will need to make monthly cash flow projections from business inception to possibly 3
years out. Your projections will show the months in which the activities shown on your fixed capital and
working capital schedules will occur. This is nearly the only way to clearly estimate your working capital needs
and, specifically, important things like the times when you will need to draw on or can pay down your
operating loans and the months when you will need to take out longer-term loans with which to purchase your
fixed assets. Without a tool like this you will be severely handicapped when talking with bankers about your
expected needs. They will want to know how large of a line of credit you will need and when you anticipate
needing to borrow longer-term money. It is only through doing cash flow projections will you be able to answer
these questions. This information is also needed to determine things like the changes to your required loan
payments and when you can take owner draws or pay dividends.
Your projected cash flows are also used to develop your projected income statements and balance sheets.

Overview

Proforma Cash Flow Statements

Proforma Income Statements

Proforma Balance Sheets

Investment Analysis

Projected Financial Ratios and Industry Standard Ratios

Critical Success Factors (Sensitivity Analysis)

References

Appendices

List of Items a Business May Need to Purchase

Setup

Business license
Registration for name, etc.
Domain name registration
Initial product inventory
Signage
All the little things like curtains/blinds, decorations, microwave for staff room, etc.
All the things need to run the business from day #1 (like cutlery, plates, cooking pots, table settings etc. for
restaurants … like towels, soap, etc. for gyms … like equipment and so on for manufacturing and service
places)
Set up and testing of new facilities – new factories and offices do not operate at peak efficiency for some time
after startup because it takes time for the new systems to kick into high gear
Professional services needed
Lawyer fees to make sure agreements are solid
Graphic designer or design company needed to develop visuals
Accounting firm needed to set up initial systems
Insurance – maybe not a direct cost to this one to account for

Office

Accounting system software

Computer, printer, other things needed like scanner
Office furniture
 Initial office supplies – paper, pens, etc.
Telephones
Internet / wifi
Microwave and coffee maker and similar supplies for staff room or coffee room
Bank fees – business banking is normally not free – might also need to have business cheques

Customer Interaction

Cash register
Loyalty cards / system

Production/Operations

Safety equipment (fire extinguishers, AED)

First aid
Security systems
Equipment maintenance
Janitorial – and cleaning supplies
Bathroom supplies – toilet paper, soap, towels
Membership costs for various associations, including Chamber of Commerce, any professional associations for
the relevant industry, etc.
Subscriptions for things like important trade publications, etc.
Shelving and storage systems
Even when not full restaurant, but operations like coffee shops – still require equipment like dishwasher

Training

Safety – prior to start-up and ongoing and for new employees

Hiring

Ads, travel expenses – flights, hotels, taxi rides, meal allowances, etc. – to recruit people through interviews,
meeting meals, set up with real estate agents, etc.

Promotions

Website development (complex for e-commerce  some capability for email exchanges, leaving comments,
etc. ? simple for static information delivery)
Costs for setting up and managing social media (can take a lot of an employee’s time)
Grand opening costs

Property

If buy then include property taxes and all utilities in cash flows and income statement and include building
maintenance and maybe build up a reserve fund to pay for things like future roof repairs and needed
renovations and upgrades
If rent/lease, then include rental/least cost and whatever utilities are not included in rental/lease payment

Renovations

Construction
Plumbing
Electrical
Utility hookups
Inspections
Shelving
Interior signage
 Fencing, parking lot, exterior lighting, other exterior things

Risk Management

Insurance (lots of types – need to choose the types needed)

Training costs
Things like snow removal, deicing sidewalks, etc.

Chapter Summary

This chapter described the basic elements of a comprehensive business plan.

 Chapter 5 – Making the Business Plan Realistic

Learning Objectives

After completing this chapter, you will be able to:

Develop the second draft of the business plan by applying revision methods to improve the realism of the
first draft.

Overview

A first draft of a business plan will inevitably be unrealistic for a host of reasons. It is likely to include contradictions
between sections of the written part. The financial and written parts will most likely not align, even though they must
tell the same story, but in different terms. The sales projections might be unrealistic. The cash flow projections will
probably be far from accurate. In general, work will be required to convert the first draft of the business plan into a
realistic second draft.
 Figure 10 – Making the Business Plan Realistic (Illustration by Lee A. Swanson)

How to Make the Plan Realistic

Replace Assumptions with Factual and Expert Information

A first step is to replace the assumptions you included in your business plan and flagged with the distinct colored
font (review the Writing the Draft Business Plan section starting on page 39) with information you got from a valid
source. Of course, you establish your credibility as the writer and your business plan’s credibility, always include the
references to the sources you used.

Review and Revise Sales Projections

In concert with the next section on adjusting strategies to improve the realism of projected financial statements,
business plan writers should review and revise their sales projections after they critically assess their realism.

When reviewing, and possibly revising sales projections, business plan writers should consider both the sales
projection model they used and the assumptions they fed into the model to generate the monthly sales figures.
Additionally, it is important to compare the resulting projected sales with industry norms and any available
comparative data with similar companies.

Adjust Strategies to Make Projected Financial Statements Realistic

If you used the financial spreadsheet templates as they are meant to be used, you will not have typed a single
number into your projected cash flow statements, your projected income statement, and your projected balance
sheet. You should have entered all of your numbers into a set of schedules that, in turn, automatically transfer the
relevant numbers to the projected statements through formulas.

The cash flow statement estimates all of the money flowing in and out of the venture in each month. The cash
inflows include cash collected from cash sales during the month and accounts receivable collections resulting from
sales made in previous months. They also include proceeds from any assets you sell, loan proceeds, and other cash
investments made into your business.

The cash outflows occur whenever something is purchased, an expense is paid (including loan payments and taxes),
and cash is invested somewhere such that it is no longer available to be used to pay current obligations.

The cash available at the end of each month is the previous month’s cash balance plus all cash inflows minus all cash
outflows (the exception might be the first month when the initial investments – and, possibly, initial sales – are made,
and possibly some expenses are incurred or purchases made). When you complete your first business plan draft, you
will inevitably have unrealistic cash balances at the end of some, if not all months.

You can never have a negative cash balance at the end of a month. If you are projecting negative balances, your
planned venture cannot survive unless you do things like implement strategies to increase projected sales, seek new
investments in your business, and reduce planned operating expense.

Likewise, it is a signal of possible poor cash management strategies or overly optimistic sales forecasting if the
ending cash balance in any month is too high. Another consideration if your month ending cash balances are high is
whether you have applied realistic assumptions. After all, it is very rare to stumble upon a business opportunity that
generates high amounts of excess cash. If such an opportunity existed, other entrepreneurs would have or will be
poised to enter the market and reduce the appeal of the perceived opportunity.

To eliminate negative cash balances and to manage cash so you don’t have end-of-month cash balances that are
negative or are too high, do the following.

Determine what range of end of month cash balances is realistic for your type of business. For example, you
might decide that, for your type of business, your month end cash balances should always be between $8,000
and $12,000.
Work forwards from the first month that the ending balance falls out of that range. To do that, decide how to
best manage your cash. You have several options, including the following (but be certain to make all of your
 changes in the schedules rather than on the projected statements in your financial spreadsheet templates).
If you are short of cash, you might be able to increase cash inflows. For example, you could implement
strategies (and, of course, include these in the written part of your plan) to increased projected sales at
close to current planned prices, maintain projected sales levels while increasing prices, attract new
investors to inject some cash in the business, use cash reserves to increase available cash, or to sell an
asset that is no longer needed. Of course, you must be aware of the possible consequences from taking
those actions. For example, increasing prices will lead to lower sales, and if the amount of the price
increase is more than counterbalanced by the drop in sales, you might actually reduce the amount of
cash you generate.
One of the ways just listed for increasing cash inflows when a new venture is short of money is to
attract new investors to inject cash into the business. For this stage of business plan development, it is
often best to focus on making the business plan realistic without worrying too much about where to
secure the investments you need to start your business beyond the funding you are reasonably certain
that you can get through personal money and from friends, family, and other ready sources (see the
section on Starting Capital on page 76). Use this stage of development to help you determine the
amount of money that you will need to secure from other sources, but adjust your plans and strategies
to ensure that the amount of additional financing that you will need is realistic. It is in the next stage of
business development that you will more seriously consider from what sources you can get the
financing that you determined that you needed while in this stage of development.
If you are short of cash, you might be able to decrease cash outflows by implementing cost reduction
strategies or reducing or deferring purchases. Again, all of these actions have consequences you must
be aware of. For example, if you reduce your advertising expenses, you might suffer a large enough
decline in sales to worsen your cash short-fall situation.
If your projections show high cash balances in some projected high-sales months, some of that cash
can be transferred to a cash reserve, used to pay down loans, used to purchase needed assets or to
acquire resources to benefit the business, used to prepay expenses, and paid to investors as dividends.
If projections show cash balances that are higher than is realistic, you should review your sales
projections and your projected expenses and make any necessary adjustments to make them more
realistic.

If your projected financial spreadsheet templates are set up effectively, your schedules should feed your numbers
into your projected cash flow statement. From there, your projected cash flow statements should automatically
populate your projected income statement and balance sheet.

Test the Realism of Projected Statements Using Financial Analysis Methods

The first steps to improving overall realism is to make your projected cash flow statement more realistic by (1)
replacing as many assumed numbers in your schedules as possible with actual numbers; (2) by improving the
realism of your planned strategies and sales and other projections, and (3) by adjusting your strategies and plans
such that all month-end cash balances are within a target range. After that, you need to apply financial analysis
methods, like ratio analysis, on the numbers in all of your financial statements to assess the realism of your numbers
against industry standards and similar companies for which financial statements are available. That analysis should
lead to further strategy adjustments to further improve the realism of the planned financial positions for your venture
during its first five years of business.

Synchronize the Written and Financial Parts of the Plan

Finally, you will need to rewrite parts of your operations, human resources, and marketing plans – and possibly the
written introduction to your financial plan – to reflect all of the changes you made and to ensure that the written part
of your business plan tells exactly the same story as does the financial part.

Chapter Summary

This chapter addressed the issue of making the first draft of the business plan realistic. It suggests a process that
includes replacing as many of your assumptions as possible with factual and expert information, all from valid
sources and properly referenced to build and maintain your credibility and that of your plan. After that, review and
revise the original sales projections to make them more realistic as informed by industry data and available numbers
from companies similar to what you want your venture to be. Revise your strategies until all of the monthly closing
balances in your cash flow statement fall within a realistic, reasonable, and predetermined target range. Perform
financial analysis techniques to test the realism of your projected financial situation. Finally, rewrite your business
plan so that the written and financial sections tell exactly the same story – one using words and the other using
numbers.
 Chapter 6 – Making the Plan Appeal to Stakeholders and Desirable to the
Entrepreneur

Learning Objectives

After completing this chapter, you will be able to:

Develop the third draft of the business plan by applying revision methods to further improve the realism of
the second draft while also making it desirable to the entrepreneur and appealing to targeted investors.
Describe the funding sources for start-ups.

Overview

This chapter deals with making adjustments to the second business plan draft to retain, and hopefully improve its
realism, while also making it desirable to the entrepreneur and appealing to targeted investors. In some cases a
business plan should also be made to appeal to other targeted stakeholders, like highly skilled employees who are
needed, but who might not be easy to recruit unless they are offered a minority ownership position or unless they
the reassurance from a well-written business plan a startup hoping to employ them has a realistic and desirable plan
for moving forward.

Securing needed financing is one of the most important functions related to starting a business. This chapter
describes some of the sources of financing available to startups.
 Figure 11 – Making the Plan Appeal to Stakeholders and Desirable to the Entrepreneur (Illustration by Lee A. Swanson)

How to Make the Plan Appealing and Desirable

The second draft of your business plan should include realistic financial projections based on the plans outlined in the
plan. As part of that exercise, you should have projected how much money you will require to start your business and
to operate it over its first five years.

This stage of development focuses on the following tasks.

Determine what your medium and longer term goals are for your business as they relate to what you want to
get out of it. As you read through the following questions, consider that the answers you provide should guide
the financing decisions you make now.
Do you want to start your business and rapidly grow its value so you can profit by selling it within a
short period of time to an investor?
Do you plan to operate your business for the rest of your working life? If so, how long will that be, and
what will you do with your business when you want to retire? Will you want to sell it to an investor for
as high a price as you can when you retire? Will you want to pass control, and possibly ownership, to
family members? Do you want to retain ownership and hire people to manage it for you after you
retire? Might you want to offer ownership interests in your business to your employees over time so
that they will be majority shareholders and will take control of its operations by the time you retire?
What other plans do you have for your business when you retire?
Do you want to, or will you need to offer ownership interests in your business in order to attract
partners or other stakeholders whose help you will need to make it thrive?
What other decisions should you make now to help guide the financing and other choices you face?
Entrepreneurs must make the decisions required to make their ventures desirable to them. This
includes choosing the right kinds of financing options.
Based on your goals for your business and on the amount of financing you require, identify the most desired
sources of financing for your venture. You must consider how much control of your business you are willing to
give up (and when you are willing to give it up), whether you expect to have adequate cash flow to be able to
handle set obligations like loan payments, what financing sources will enable the growth and value
accumulation you desire, and a host of other factors you need to consider to determine what financing
methods will be best for you.
An ideal business plan (1) is realistic in that it can be carried out, (2) clearly lays out plans that make
the projected business outcomes desirable to the entrepreneur, and (3) is crafted in such a way that it
is appealing to targeted investors so that they will provide the amount of money that is needed at the
times it is needed.
Incorporate the needed elements in your business plan to attract your targeted investors and make them
want to invest in your company.
It is not enough to simply identify what kinds of financing are most desirable to an entrepreneur. That
entrepreneur’s planned business must be structured in a way that entices targeted investors to actually
invest in the business at the times the investments are needed. If a business plan writer is seeking a
loan, they must include the loan payments in the cash flow statement, but they might also need to
identify what assets they have to pledge as security for the loan. If instead they are hoping to attract an
angel investor, they should do some research to identify potential investors who have invested in their
kind of business. They should then acknowledge in their business plan the need for an exit strategy for
angel investors and project how that exit strategy can materialize.
Identify and analyze your venture’s critical success factors by completing what-if analyses on your financial
spreadsheets. Perform what-if analyses by making copies of your financial spreadsheets and changing some
key numbers, perhaps like sales increase projections, to determine what happens if your projections are off. In
cases where your venture is particularly vulnerable to the potential effects of changes to critical success
factors, make needed changes to your goals, strategies, and plans in your business plan to reduce your
vulnerability to changes to the critical success factors. Or, adjust your goals, strategies, and plans to prepare
for any changes that might occur to the critical success factors.
 As you do the above, simultaneously adjust your goals, strategies, and plans in the written and financial
projection parts of your plan until (1) you are satisfied you are prepared to deal with issues that will affect
your critical success factors, and (2) your projected cash flow statements, income statements, and balance
sheets are realistic, consistent with healthy industry norms, and meet realistic expectations and aspirations
for a healthy business.
Consider including three sets of projected financial statements in your business plan to reflect the following
scenarios: most likely, optimistic, and pessimistic.

Providing context is essential in making the business plan appeal to various stakeholders.

Financing a Startup

Starting Capital

Entrepreneurs almost always require starting capital to move their ideas forward to the point where they can start
their ventures. Determining the amount of money that is actually needed is tricky because that requirement can
change as plans evolve. Other challenges include actually securing the amount desired and getting it when it is
needed. If an entrepreneur is unable to secure the required amount or cannot get the funding when needed, they
must develop new plans.

Once a venture begins to make cash sales or it starts to receive the money earned through credit sales, it can use
those resources to fund some of its activities. Until then, it must get the money it needs through other sources.

Bootstrap financing is when entrepreneurs use their ingenuity to make their existing resources, including money and
time, stretch as far as possible – usually out of necessity until they can transform their venture into one that outside
investors will find appealing enough to invest in.

Personal Money

Entrepreneurs will almost always have to invest their own personal money into their start-up before others will give
them any financial help. Sometimes entrepreneurs form businesses as partnerships or as multi-owner corporations
with other individual entrepreneurs who also contribute their own personal funds to the venture.

Love Money

Love money refers to money provided by friends and family who want to support an entrepreneur, often when they
have no other ready source of funding after using as much of their own personal money as possible to support their
start-up.

Grants and Start-up Prize Money

In some cases grants that do not need to be repaid might be provided by government or other agencies in support of
new venture start-ups. Sometimes entrepreneurs can enter business planning or similar competitions in which they
might win money and other benefits, like free office or retail space, or free legal or accounting services for a set
period of time.

Debt Financing

From an entrepreneur’s perspective, the cost of debt financing is the interest that they pay for the use of the money
that they borrow. From an investor’s perspective, their reward, or return on debt financing is the interest that they
gain in addition to the return of the money that they lent to an entrepreneur or other borrower.

To provide some protection for the investor (lender) to enable them to accept an interest rate that is also acceptable
for the entrepreneur (borrower), the borrower must often pledge collateral so that if they do not pay back the loan
along with interest as arranged, the lender has a way to get all or some of the money they are owed. If a borrower
defaults on a loan, the lender can become the owner of the property pledged as collateral. A key objective for an
entrepreneur seeking debt financing is to provide sufficient collateral to get the loan, but to not pledge so much that
they put essential property at risk.

When entrepreneurs borrow money they must paid it back subject to the terms of the loan. The loan terms include
the specific interest rate that will be charged and the time period within which the loan needs to be repaid. There are
several other terms or features of the loan that can be negotiated between lender and borrowers. One such feature
is whether the loan can be converted to equity at a particular point in time and according to certain criteria and
subject to specific terms.

Sometimes debt financing can be in the form of trade credit, where a supplier provides product to a business but
does not require payment for a specific length of time, or perhaps even until the business has sold the product to a
customer. Another form of debt financing is customer advances. This might involve a customer paying in advance for
a product or service so that the businesses has those funds available to use to pay its suppliers.

Advantages of Debt Financing

One advantage of debt financing is that the entrepreneur does not sacrifice ownership when they take out a loan,
and therefore lose some control of their venture.

Another advantage of debt financing is the certainty of the payments the borrower needs to make during the term of
the loan. If the borrower takes out a loan for $20,000 over a 5-year term at a fixed interest rate of 6.2% with a
monthly payment schedule designed to pay off the entire loan by the end of its 5-year term, they know that each
month they must pay $389 and that over the 5-years they will have paid back the entire $20,000 loan amount plus a
total of $3,340 in interest. With this certainty, the business can accurately budget its payback amount for this loan
over the 5-years.

Yet another advantage of debt financing is that it allows companies to trade on equity. Trading on equity is a method
to enhance the rate of return on common shareholders’ equity by using debt to financing asset purchases, or to take
other measures that are expected to cost less than the earnings generated by the action taken. For example, if a
company borrows $20,000 at 6.2% interest and uses that money to purchase a machine it will use to increase its
return on equity by 20%, then it is trading on equity. In this case the company is financially better off than it would
be if it did not take out the loan. Of course, the inherent risk involved with this strategy is lowered when income
streams are relatively stable.

Disadvantages of Debt Financing

A disadvantage of borrowing money is the need to report to those from whom you borrowed the money. This might
be particularly true when lenders, often bankers, have interests or are subject to incentives that might not fully align
with those of the borrower. For example, a lender will want assurances that they will get all of the money back that
they lent, plus all of the interest owed to them during the term of the loan. A start-up entrepreneur, however, might
struggle to generate the cash flow necessary to pay back all of the money owed according to the terms of the
agreement.

Another disadvantage of borrowing is that the business’s ownership of the property it pledged as collateral for the
loan is placed at risk. It is also important to note that for many new ventures, a loan is only possible to acquire if the
owner provides their personal guarantee that the money will be paid back as determined in the loan agreement, thus
putting personal property at risk.

The biggest disadvantage to debt financing for start-up entrepreneurs is that there are a limited number of lenders
who are interested and able to provide loans to businesses during their early stages.

Equity financing

From an entrepreneur’s perspective, the cost of equity financing is the loss of some control over their venture as
they must now share ownership of the business. From an investor’s perspective, their reward in exchange for
purchasing an ownership interest in the business is the potential to share in the anticipated future success of the
business by possibly receiving dividends (a portion of the profit that is distributed to owners) and by possibly being
able to sell their ownership interest to another investor (or back to the entrepreneur) for more than the amount they
purchased that ownership interest for originally.
The protection for the investor, who might be a shareholder if the ownership interest is represented in the form of
shares in the business, is in the influence they can exert in the company’s decision making processes. This influence
is normally proportionate to their share of the ownership in the overall business. Equity investors normally seek to
earn a competitive return on their investment that is in line with the level of risk they assume by investing in the
business. The riskier the investment, the higher the return the investor expects.

The following are some potential sources of equity financing for start-up entrepreneurs.

Equity Crowd Funding

Equity crowd funding is a relatedly new way for entrepreneurs to raise capital. This involves using online methods to
promote equity interests in ventures to potential investors.

Angel Investors

Angel investors are wealthy individuals who on their own, or often along with other angel investors in a network – like
the Saskatchewan Capital Network – invest in new ventures in exchange for an ownership interest in the business.
Sometimes angels invest in companies in exchange for convertible debt, an investment that starts off as a loan,
usually in the form of a bond, that they can exercise an option to convert to an equity interest in the company at a
particular point in time for a pre-determined number of shares. Angel investors are generally less restricted in what
kinds of investments they will consider than are venture capitalists, who are using other people’s pooled money. Like
venture capitalists, however, they normally undertake a rigorous due diligence process to determine whether to
invest in the opportunities they are considering.

Venture Capital

Venture capital is raised when investors pool their money. The venture capital fund is then used to very carefully
invest in existing, but usually young companies that are expected to experience high growth. The venture capital
company does not expect to invest for long and it expects to generate a large return, for example, it might expect to
invest in an opportunity for a period of up to five years and then get out of the investment with five times the money
it originally invested. Of course, only some investment opportunities will generate the returns hoped for and others
will return far less than expected.

Venture capitalists might exert some ownership control by influencing some business decisions in cases where they
believe that by doing so they can protect their investment or cause the investment to produce greater returns, but
they generally prefer to invest in companies that are going to be well run and will not require them to be involved in
decisions. Venture capitalists might also provide some assistance, such as business advice, to the companies in
which they invest.

A venture round refers to a phase of financing that institutional investors like venture capitalists provide to
entrepreneurs. The first phase (sometimes following a seed round in which entrepreneurs themselves provide the
start-up capital and then an angel round where angel investors invest in the company) is called Series A. Subsequent
venture rounds are called Series B, Series C, and so on.

In general, because venture capitalists normally invest money contributed by investors and have an obligation to
assume a limited amount of risk, they usually do not invest in start-up companies.

Due Diligence

Investors follow due diligence processes to assess the risk and potential return associated with the investments they
are considering. As such, entrepreneurs should maintain a due diligence file or binder that they can quickly draw
upon when a desirable potential investor expresses an interest in their venture.

A due diligence file or binder will include copies of many of the legal papers and other important documents that a
venture has accumulated and that tell the story of the enterprise. These documents will include those related to
incorporation, securities it has issued or is in the process of issuing, loans, important contracts, intellectual property
documents, tax information, financial statements, and other important documentation.
Advantages of Equity Financing

One important benefit to equity financing is that it does not normally give rise to a requirement for a regular payback
from cash flow. Unlike with debt financing, equity investments do not usually give rise to a regular encumbrance that
can increase the difficulty a young company might have in meeting its regular monthly expenses.

Second, when a firm uses equity financing it does not need to pledge collateral, which means that the company’s
assets are not placed at risk in the same way as they are when used for collateral.

A potential advantage with equity financing is that, depending upon the form of financing and who the investors are,
a firm might gain valued advisors. In addition, investors who exercise their ownership rights to have a say in the
operations of the company, or who otherwise provide advice and mentorship to entrepreneurs starting ventures are
usually highly motivated to help the company succeed. Investors expect to benefit only when the companies they
invest in succeed, meaning that their financing incentives are aligned with those of the entrepreneur and other
owners.

Disadvantages of Equity Financing

Equity financing is often more difficult to raise than is debt financing. Second, when they share ownership in
exchange for investment into their business, entrepreneurs give up a portion of the value that they create. If things
do not go as planned, entrepreneurs can lose control of their companies to their investors.

Potential Sources of Start-up Financing

Personal sources (savings and other income) contributed by the business founders
Extended personal sources (family, friends, employees, partners)
Strategic Partners, including potential customers or potential suppliers who want to have access to a business
like the one proposed (and therefore might fund part of its development). For example, a building owner
(supplier) might help a business develop that it considers to be a desirable tenant. Another example is when a
complementary business, like a hotel, might invest in a start-up, like a spa located next door, that might
attract more business.
Business Development Bank of Canada (BDC) and other institutions that specialize in supporting
entrepreneurs
BDC calls itself “Canada’s business development bank and the only financial institution dedicated
exclusively to entrepreneurs” (Business Development Bank of Canada, 2016b, Who we are, para. 1).
Among the services provided by BDC is start-up financing for new ventures. They provide funding for
the following:
Working capital to supplement an existing line of credit
Fixed assets
Fund marketing and start-up fees
A franchise purchase
Consulting services

(Business Development Bank of Canada, 2016a, Start-up financing, para. 4)

Angel investors
Customers (possibly)
They might place orders for services or products and pay for them up-front, thereby providing financing
for the new business
They might want your business to succeed so it can support their business. For example, a general
contractor (future customer) might help a new plumber get started if there is a shortage of plumbers
affecting the building industry in the contractor’s community
Venture Capitalists (possibly)
These organizations acquire pools of money to invest, so they differ from angel investors in that those
making the decisions are not investing their own money – this means they usually consider investment
options that have shown some success already (which isn’t usually the case in the start-up phase)
Asset-Based Lenders (possibly)
 Lend money secured by the assets of the borrower, like plant and equipment
Sometimes this can be done quite creatively. One example is when they might accept assets that will
turn into money – like accounts receivable and inventories – as security to back up a loan.
Small Business Investment Companies
U.S. term – developed to bridge the gap between when small businesses need money and the time
later on when venture capitalists might provide financing to small businesses
SBICs are privately owned companies in the United States that are licensed by the Small Business
Administration (U.S. Government) to supply equity capital, longterm loans, and management assistance
to qualifying small businesses
Canadian equivalent = Community Futures Corporations
Equipment Leasing Companies
Suppliers through Trade Credit (possibly)
Supplier provides product now without demanding immediate payment
This supplier will provide the product to the retailer on terms so the retailer does not need to pay the
supplier for perhaps 30 or 60 or 90 days
This provides the retailer with the possibility of selling the product and collecting the money from the
customer before the retailer needs to pay supplier for it the product
Factoring (possibly)
When a business sells its accounts receivable (its invoices) to a third party (called a factor) at a
discount in exchange for immediate money
Differs from bank loan in 3 ways
The factor is interested in the value of the receivables … a bank is interested in the firm’s credit
worthiness
Factoring is not a loan … it is the purchase of a financial asset (the receivables)
A bank loan involves two parties (lender and borrower) … factoring involves three (the business,
the factor, and those who owe the money)

Chapter Summary

After developing a first draft of a business plan, an entrepreneur will inevitably need to make some major
adjustments to the business model and to the plans they developed to make it realistic. After that, the entrepreneur
needs to shift their attention to maintaining and potentially further improving the realism of the plan while focusing
on making it desirable to the entrepreneur and appealing to targeted investors. Part of this exercise is deciding upon
the best type of financing that is available to the entrepreneur (if any) to ensure that they can meet their longer term
goals for their business. This chapter described some of the sources of financing available to startups.
 Chapter 7 – Finishing the Business Plan

Learning Objectives

After completing this chapter, you will be able to:

Develop the final draft of the business plan.

Overview

The previous stages of business plan development focused on (1) helping the business plan writer get started on the
plan, (2) developing a reasonably complete and comprehensive first draft of the plan by focusing on developing the
initial story without obsessing about its realism, (3) converting that into a second draft by adding realism to the plan,
and (4) developing a third draft while preserving the realism and making needed changes designed to make the plan
appealing to the entrepreneur and desirable to targeted investors. This stage is where the business plan writer puts
the finishing touches on the plan to prepare it for use.
 Figure 12 – Finishing the Business Plan (Illustration by Lee A. Swanson)

First Things Last

Finalize Major Goals

As contradictory as it might sound, it is only after the business plan is almost finished that the Major Goals section
near the start of the plan should be completed. Replace the preliminary goals you have in that section with a limited
set of goals, perhaps five to ten, which perfectly describe the outcomes you projected in certain sections of your
plan. Write goals that will further improve the appeal of your plan for targeted investors and other important
potential readers.

Your major goals should be substantive and relevant. They should also be written using a format designed to
maximize their impact for targeted readers. The RUMBA formula (realistic, understandable, measurable, believable,
and achievable) provides a useful guideline for developing major goals. The following is an example of a relevant
major goal that follows that formula.

We will secure a $56,050 short-term loan in September, 2020 to finance inventory purchases needed to
satisfy our projected increase in Christmas sales that year.

Write your Executive Summary

The last part of your business plan that you should write is the Executive Summary. Unlike most other types of
documents, the executive summary at the start of a business plan can be up to about three pages in length.

As the executive summary might be the first section that targeted readers go through, it is very important that it be
written to appeal to them. It should provide those readers with information that will encourage them to seriously
consider taking the desired action, like investing in the venture. If they are not interested by the contents of the
executive summary, it is unlikely that they will read any of the other parts of the plan, and they won’t act – usually
by investing in the business – as the business plan writer hopes they will.

Polish it Up!

Thoroughly proofread the completed business plan and fix all errors before submitting it to anyone. It is usually best
practice to have other people proofread your work as they will catch errors that you will miss.

Never underestimate the negative consequences that can occur from distributing poor quality work.

Write a Letter of Transmittal

A letter of transmittal is to a business plan what a cover letter is to a resume. A letter of transmittal should briefly
introduce the business plan accompanying it to the intended recipient.

Chapter Summary

After all of the hard work involved with developing a high power business plan, it must be finished properly to have
the intended impact with its targeted readers. Before distributing it to targeted investors and other recipients, a
limited number of major goals should be included in the Major Goals section near the start of the plan. Those goals
should be carefully crafted to appeal to intended readers. The final writing task is to develop an executive summary
that will entice targeted readers to examine the rest of the plan in detail for the purpose of deciding whether to
potentially take the action – usually to invest in the venture – desired by the business plan writer. After that, the plan
should be thoroughly proofread and revised to ensure that all errors are eliminated before the plan is used. After
writing a letter of transmittal to customize for all intended recipients and to introduce the plan, it can be put to use.
 Chapter 8 – Business Plan Pitches

Learning Objectives

After completing this chapter, you will be able to:

Deliver an effective business plan pitch.

Overview

Writing a good business plan will only get an entrepreneur so far. To achieve their goals, they must be prepared to
effectively pitch their plan to targeted investors and other potential stakeholders. These are sometimes called
elevator pitches, because an entrepreneur should be prepared to effectively deliver one in the length of time it takes
to ride up a few floors in an elevator with a potential investor. The goal of a pitch is not to fully describe a business
idea, but to be able to convince a potential investor in five minutes or less that they should meet with the
entrepreneur further to learn more about the idea because they might want to invest in it.

The Business Plan Pitch

Your business plan pitch must be focused on what your targeted audience and business plan readers need to know.
Usually your pitch will be designed to capture a potential investor’s interest so that he or she will want to talk to you
about investing in your venture. If that is the case, your pitch should follow a process similar that that described
next.

Avoid getting into the trap of telling the potential investors too much about how your business works. Instead, spend
your time telling them what they need to know to become interested enough to possibly invest in your venture. That
means allocating your time almost equally on each of the following elements of your pitch script.

Describe the market problem that your venture solves.

The problem you solve should be for an identifiable group of people or organizations who recognize that
they have a problem and are willing to spend their money for a solution to the problem.
Describe how your venture solves the problem.
Your solution to the problem should be better than the alternative solutions offered by your competitors
or by those who suffer from the problem. It should also be a solution that cannot or will not be readily
copied by existing or new competitors.
Explain how and why you and your venture are capable of solving the problem while also generating a profit.
Your chances of being considered capable of delivering what you promise are enhanced if you have a
strong team, relevant experience, or access to scarce or unique resources or networks.
Explain why you need the financing and anything else you want from the potential investors, like their
expertise or access to their networks.
Your opportunities to get the financing you need improve when you can show that the money will
increase your capacity to achieve what you promise.
Describe why the investors should invest in your venture.
Potential investors want to know how and when they will get their investment back and how much of a
return they will earn on their money. You should be able provide them with an estimate of how much
your venture is worth and will be worth in the future while telling them what that means for them.
 Solving a market problem is a winning formula.

Demonstrating how the business solves a problem and makes money makes for a strong pitch.

Providing context for individual investors and stakeholders is critical for their buy-in.

Chapter Summary

This chapter outlined a simple five step business plan pitch format. When entrepreneurs have a chance to engage
with targeted investors, they usually have a limited amount of time to convince those investors to consider their
investment opportunity. The purpose of the business plan pitch is to capture the attention and interest of targeted
investors within a very short time. A successful pitch should result in an invitation by the investor for the
entrepreneur to provide more information about the business because they might want to invest in it.
 References

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Barney, J. B., & Hesterly, W. S. (2006). Strategic management and competitive advantage: Concepts and cases.
Upper Saddle River, NJ: Pearson/Prentice Hall.

Business Development Bank of Canada. (2016a). Start-up financing. Retrieved from

https://www.bdc.ca/en/about/who-we-are/pages/default.aspx

Business Development Bank of Canada. (2016b). Who we are. Retrieved from

https://www.bdc.ca/en/about/who-we-are/pages/default.aspx

Chatterjee, S. (2013). Simple rules for designing business models. California Management Review, 55(2), 97-124.

Hindle, K., & Mainprize, B. (2006). A systematic approach to writing and rating entrepreneurial business plans. The
Journal of Private Equity, 9(3), 7-23.

Magretta, J. (2002). Why business models matter. Harvard Business Review, (May 2002), 86-92.

Osterwalder, A., Pigneur, Y., & Clark, T. (2010). Business model generation: A handbook for visionaries, game
changers, and challengers. Hoboken, NJ: Wiley.

Porter, M. E. (1985). Competitive advantage: Creating and sustaining superior performance. New York: Free Press.

Porter, M. E. (1996). What is strategy? Harvard Business Review, 74(6), 61-78.

Ries, E. (2011). The lean startup: How today’s entrepreneurs use continuous innovation to create radically successful
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Vesper, K. H. (1996). New venture experience (revised ed.). Seattle, WA: Vector Books.
 Appendix A – Business Plan Development Checklist and Project Planner

Essential Initial Research

Societal Level

□ Apply a PESTEL analysis to learn about the overall factors that might affect your business concept

Industry Level

□ Apply a Porter’s (1985) Five Forces Model analysis to examine the particular industry in which you intend to
operate

Market Level

□ Apply a market-level analysis by answering a set of questions about the particular market within your
chosen industry in which your business will reside

Firm Level

□ Apply a SWOT analysis / TOWS Matrix to formulate and evaluate potential strategies
□ Apply a VRIO framework analysis to analyze a firm’s strategy
□ Analyse founder fit with venture idea
□ Financial attractiveness: compare estimates for proposed venture to what is known about similar firms in
the particular industry and market in which the venture will operate
□ Financial attractiveness: analyse the firm’s projected margins (if possible)
□ Financial attractiveness: do a break-even analysis (if possible)
□ Financial attractiveness: do a pro-forma analysis (if possible – requires pro-forma financial statements)
□ Financial attractiveness: do a sensitivity analysis (if possible)
□ Financial attractiveness: do return on investment (ROI) projections (if possible)
□ Financial attractiveness: determine the projected operating capacity of the venture and at how much of that
capacity the firm will operate at certain time intervals until it reaches full capacity (if possible)
□ Financial attractiveness: if possible and relevant, estimate the share of the market that the venture might
capture and when it might reach various levels of market share. Note that the previous checklist item
(projected operating capacity) is often a more relevant concern than market share.

The Business Model

□ Use the Business Model Canvas or a similar tool to describe and analyse the proposed venture’s business
model

Initial Business Plan Draft

Create Your Template

□ Prepare a template by using the business plan outline to create headings Word from which to later
automatically generate a table of contents

Insert Work from Essential Initial Research and The Business Model into The Business Plan Draft

You must decide between two separate ways to include the results from your societal, industry, market, and firm-
level analyses in your business plan. The best choice is usually to disburse the relevant parts of those analyses
throughout the entire plan to support the decisions and strategies outlined in the plan. An alternative choice is to
include the results from all or some of the relevant parts of those analyses as their own sections in the business plan.
The reason why the first option tends to strengthen the business plan more than the second is because it explicitly
ties your analyses to the decisions influenced by those analyses.

□ Integrate the relevant and important results from your societal, industry, market, and firm-level analyses
into your plan, either as distinct sections of the plan or embedded into the other sections to support the
decisions and strategies outlined in the plan
□ Ensure that all analyses are fully and properly referenced in the business plan to establish and ensure your
credibility as an entrepreneur, your plan’s credibility and to meet ethical requirements to cite the sources for
the information used

During the second stage of business plan development, you developed your business model. As there is no separate
section in a business plan in which to specifically describe a business model, you need to incorporate your business
model elements into the plan wherever they fit best. It will usually be fairly self-evident where the business model
elements fit into a business plan. The important thing is to ensure that all of the elements of your business model are
reflected in your business plan.

□ Include each element of your business model in the appropriate parts of your business plan

Fill in All of the Sections of the Business Plan Draft

Draft Introduction

□ Write a brief description of your business concept

□ Write a brief description of the purpose for your business idea
□ Write a brief history and description of the evolution of the business concept
□ Write a vision
□ Write a mission
□ Write a values statements
□ Write a first draft set of goals
□ Avoid harming your plan’s credibility by failing to indicate the sources for all of the information you include
in your introduction. Whenever you make an assumption that you should later replace with a factual or
expertly-based statement or number, flag the assumption by using a distinct colour font.

Draft Operations Plan

□ Write an operations plan

□ Ensure that all numbers included in the operations plan are a) sourced so a reader knows from where it
came, or b) explained so they know how it was calculated, or c) flagged as being an estimate that will be
replaced with a true number with a source
□ Avoid harming your plan’s credibility by failing to indicate the sources for all of the information you include
in your operations plan. Whenever you make an assumption that you should later replace with a factual or
expertly-based statement or number, flag the assumption by using a distinct colour font.

Draft Human Resources Plan

□ Write a human resources plan

□ Ensure that you show how you will earn a living while starting the business
□ Ensure that all numbers included in the human resources plan are a) sourced, or b) explained, or c) flagged
as being an estimate that will be replaced with a true number with a source
□ Avoid harming your plan’s credibility by failing to indicate the sources for all of the information you include
in your human resources plan. Whenever you make an assumption that you should later replace with a factual
or expertly-based statement or number, flag the assumption by using a distinct colour font.

Draft Marketing Plan

 □ Write a marketing plan
□ Ensure that all numbers included in the marketing plan are a) sourced, or b) explained, or c) flagged as
being an estimate that will be replaced with a true number with a source.
□ Avoid harming your plan’s credibility by failing to indicate the sources for all of the information you include
in your marketing plan. Whenever you make an assumption that you should later replace with a factual or
expertly-based statement or number, flag the assumption by using a distinct colour font.

Draft Financial Plan

□ Plan how you will back up every number through one or both of the following:
□ Explanations in the body of your plan, maybe along with your schedules, or
□ Notes included with your financial statements
□ Only insert a number for a particular item once (and flag this cell somehow – maybe by using a color to
highlight it so you know which numbers are input directly and which appear by formula)
□ Whenever a number is required more than once, ensure it is transfers forward by formula only
□ Prepare all of the following schedules that you will need to feed numbers into your projected cash flow
statements:
□ Sales schedule, if you will sell more than one product
□ Project schedule, if you will manage projects
□ Cash from sales schedule, cash from receivables schedule, and accounts receivable schedule, if you will
have accounts receivable
□ Cash purchase schedule, credit purchase schedule, and accounts payable schedule, if you will have
accounts payable
□ Credit card collections schedule, if you will need to calculate your costs for accepting credit card payments
from customers (you can normally consider credit card payments as cash payments in your cash flow
statement)
□ Inventory schedules, if you will have ending inventories
□ Start-up cost schedule, if you will have start-up costs
□ Capital cost allowance schedule or depreciation schedule, if you will purchase and sell capital equipment on
which you will need to calculate depreciation
□ Payroll schedule, if you will have payroll expenses
□ Operating loan schedule, if you will need an operating loan
□ Term loan schedule, if you will need a term loan, especially if you may make extra payments toward it
before the term expires
□ Promotions schedule, if you expect to use several promotional methods
□ Prepayment schedule, if you expect to prepay insurance and similar expenses
□ Other schedules that are needed
□ Prepare projected cash flow statements
□ Input the numbers from your schedules by formula into the projected cash flow statements. You might also
discover the need to develop a schedule after you have first tried inputting the numbers directly into the
projected cash flow statements.
□ Very few numbers in your projected financial statements should be input directly – and each directly
inputted number should be flagged using cell shading or another means so it is easier to fix any errors in the
statements.
□ Ensure that the written part and the financial part tell exactly the same story using the exact same
numbers and sources.
□ Note that that you will almost certainly have to estimate some numbers while preparing the projected cash
flows. Immediately upon estimating the numbers, go to the written part of your plan and include them there.
□ Prepare your projected income statements by formula only
□ Calculate your taxes owing and feed these back into your projected cash flow statement.
□ Calculate your retained earnings.
□ Prepare your projected balance sheets by formula only
□ Correct your statements until your balance sheet balances
□ Avoid harming your plan’s credibility by failing to indicate the sources for all of the information you include
 in your financial plan. Whenever you make an assumption that you should later replace with a factual or
expertly-based statement or number, flag the assumption by using a distinct colour font.

Making the Business Plan Realistic

At to this stage, your projected financial statements in your draft business plan are almost guaranteed to be
unrealistic and undesirable. Your projected cash balances and profit levels will be unrealistic, either too high or too
low. The original amounts you had planned to invest in your business or to acquire through investors will probably be
inadequate. In general, your draft plan will have many weak areas and many holes to fill, but it should provide you
with a great foundation upon which to build a realistic and desirable business plan.

The purpose of Making the Business Plan Realistic is to make your business realistic. You do this by adjusting your
proposed business model and your plans and strategies as presented in both the written part of your plan and in the
financial part.

□ Replace as many of the assumptions (those items flagged with a distinct coloured font) as possible with
factual and expert information and numbers while always indicating the sources for the new information and
numbers.
□ Review and revise the sales projections to make them more realistic by comparing the projections to
industry norms and available comparative data with similar companies. Review and revise as necessary both
the sales projections model used and the assumptions fed into the model to generate the monthly sales
figures.
□ Decide what the appropriate range of end-of-month cash balances is for your type of business.
□ It is not possible to have a negative cash balance at the end of a month. Eliminate any negative end of
month cash balances by taking steps to turn each of these into positive numbers, that fall within your target
range, by adjusting one or more of the following:
□ Planned loan amounts (operating and/or term loan amounts)
□ Planned owner investment amounts (or draws from built up investment accounts)
□ Planned amounts in schedules (increase prices, increase sales amounts, decrease expenses)
□ It is also inappropriate to have an excessive cash balance at the end of a month because this would indicate
poor cash management practices. Eliminate any excessive end of month cash balances by taking steps to
reduce each of these numbers, so they fall within your target range, by doing one or more of the following:
□ Use the excess money to generate more profits (expand your business, purchase an asset you need, etc.)
□ Use the excess money to pay down operating loans (and possibly term loans)
□ Invest the excess money in financial investments
□ Distribute some of the cash as dividends or owner draws
□ Adjust planned amounts in schedules (decrease prices, decrease sales amounts, increase expenses)
□ Simultaneously adjust your goals, strategies, and plans in the written and financial projection parts of your
plan for the purpose of making your projected financial statements realistic:
□ Analyze your projected financial statements and develop plans to correct the elements that are unrealistic
and undesirable. For example, if your planned start-up financing is too high to be realistic, you might choose
to down-scale some elements for start-up. For example, on the expense side, you might plan to start with a
smaller facility, fewer employees, less inventory, and different advertising methods. On the revenue side, you
might project lower sales because of your smaller facility, fewer employees, and so on. You might also plan to
finance some of your expansion through retained earnings rather than by taking out a large initial loan or by
giving up a higher amount of ownership to an investor.
□ Continually adjust the written and financial sections of your draft plan to reflect your new goals, strategies,
and plans. This will be an iterative process since everything is connected and each change will have a ripple
effect throughout your plan.
□ Adjust the amounts in your schedules to reflect your planned changes (increase prices, increase sales
amounts, decrease expenses)
□ Use a series of ratio analyses as you incorporate your new goals, strategies, and plans.
□ Continually compare your ratios to industry average ratios.
□ Continually compare your ratios to what is expected and desirable for a business like yours.
□ Continually adjust the written and the financial parts of your plan until your ratios are desirable and realistic
 relative to industry standards.

Making the Business Plan Appeal to Stakeholders and Desirable to the Entrepreneur

You should now have a second full draft of your business plan. It should be much more realistic than your first draft,
but is it unlikely to be desirable to you as an owner and appealing to your potential investors. The purpose of this
stage is to retain, and possibly improve the realism of your plan while making it desirable and appealing.

□ Determine what your medium and longer term goals are for your business as they relate to what you want
to get out of it. Based on your goals and on the amount of financing you require, identify the most desired
sources of financing for your venture and incorporate those into your plan to indicate how you will meet your
financing needs.
□ As you fulfill the following requirements, be certain to incorporate all of the needed elements in your
business plan to attract your targeted investors and make them want to invest in your company.
□ As you identify and analyze your critical success factors by completing what-if analyses on your financial
spreadsheets, continue to simultaneously adjust your goals, strategies, and plans in the written and financial
projection parts of your plan until (1) you are satisfied you are prepared to deal with issues that will affect
your critical success factors, and (2) your projected cash flow statements, income statements, and balance
sheets are realistic, consistent with healthy industry norms, and meet realistic expectations and aspirations
for a healthy business.
□ Use a copy of your spreadsheets and change some key numbers to see what happens. For example, you
might discover that you are particularly vulnerable if your sales end up being less than you had expected
(and/or challenged if sales end up being higher than expected). Sales levels, then, is one critical success
factor.
□ Determine what the impact would be on your business if the critical success factors are impacted in a way
you had not planned on. For example, when you examine sales as a critical success factor, you might discover
that if sales are 3% less than you had planned (maybe because of an economic downturn or the emergence of
a new competitor), your entire profits evaporate. It might also be true that you will run into cash flow or
capacity problems if your sales end up being higher than you are planning for.
□ Decide whether you need to make adjustments to your goals, strategies, and plans in your business plan to
reduce your vulnerability to changes to the critical success factors, or whether you can instead adjust your
goals, strategies, and plans to prepare for any changes that might occur to the critical success factors. For
example, you might decide to change the pricing, distribution, and promotions strategies in your business
plan so that if you would still break even if your sales levels were 8% less than expected. Alternatively, instead
of changing your marketing strategy in your plan, you could describe sales levels as a critical success factor
and include a description of how and at what point you will implement another strategy if sales levels are not
as expected, and describe what your strategy is.
□ Decide how to present your analysis of your critical success factors.
□ If appropriate for your business, you can include three sets of projected financial statements in your
business plan: most likely, optimistic, and pessimistic.

Finishing the Business Plan

□ Revise your goal section to make sure the goals are included that will best meet your purposes and will
resonate with your target readers. Note that your goals will have changed dramatically between when you
first wrote them and how they should look once the plan is completed. Although not required, it can be
effective to follow each goal with a note about where in the plan your strategies are located for achieving that
goal.
□ Write your executive summary.
□ Complete a proof read for the purpose of ensuring the written and financial parts of the plan are completely
consistent
□ Complete a proof read for the purpose of ensuring there are no spelling, grammar, formatting, calculation,
or other errors in your plan. If required, have a skilled proof reader complete this task for you or with you.
□ Write a letter of transmittal to later customize for the targeted readers to whom you will give your plan.
 Prepare to Pitch and Present your Business Plan
□ Prepare and practice your pitch. Be clear on why you are pitching your plan and customize it to meet those
goals.
□ Prepare a presentation using a tool like PowerPoint to use if you are asked to more formally present your
plan.
□ Make sure to always have business cards with you to give to those who express an interest in your business
and who you want to connect with later.
 Appendix B – Fashion Importers Inc. Business Plan

The following pages show a sample business plan, but its contents are more of a description about what is contained
in each section that actual business plan data.
 Business Plan Excel Template

Click the following link to access the Business Plan Excel Template. If it doesn’t open, please try another browser.

Business Plan Development Guide Spreadsheet Templates v7 April 2017