Solved: B205B Exploring Innovation and Entrepreneurship

One vehicle for acquiring an understanding of the entrepreneurial process is through the preparation of a start-up business plan. The focus of this TMA is to select a business idea and create a part of a business plan. Writing a business plan requires you to ask tough questions about the nature of the business.

• What are the benefits of your product or service?
• What is the target market and how will you penetrate it?
• What are the financial implications of the plan?

The Written Plan: In this TMA you will be preparing a part of a business plan containing the components explained below. The body of the written partial business plan should be no more than 6 pages. (a detailed guideline is provided at the end of your TMA).

1. Cover Page
2. Table of contents
3. Description of the Company, product / Service
4. Market research and analysis
5. Marketing Plan
6. Financial Plan

This TMA consists of 20% of your total course grade. It is a team project. Each team will consist of 4-5 students.

• The initial task of your team is to select and propose a business idea to the instructor for approval.
• Students should arrange with their tutors in order to verify that no other team had selected the same idea for the project.

• Each team will work on the TMA paper as they would normally do with other courses, but this time in groups. This is a good opportunity for students to learn a set of skills that are very important in the professional business world, such as team work, time management, planning, communicating with others, etc.
• Each team is required to select a team leader. The TMA paper should be uploaded to the LMS by the team leader only. This is a very important requirement in order to avoid Turnitin similarities.
• The names of all the team members should be written on the pt3 form, including the name of the team leader. All team members will receive the same mark on the TMA essay paper. Students are required to use the pt3 form provided on the LMS for this specific TMA.
• Students are expected to make sure the written TMA meets the following criteria:
  • Plagiarism: It’s imperative that team members write the TMA using their own words. Plagiarism will be penalized depending on its severity and according to AOU plagiarism policy.
  • Format: team members are expected to write using the business plan format provided in the guide below. Failing to use a proper format could result in the deduction of up to 5 marks from the total TMA paper mark.
  • Word count: TMAs are expected to be within the specified paper count. Not adhering to specified page count could result in the deduction of up to 5 marks of the total TMA paper mark.
  • Referencing: team members are expected to reference their work and list their references at the end. Proper referencing of sites is recommended. Failing to do so could result in the deduction of up to 5 marks of the total TMA paper mark.
  • Resources: team members are expected to use E sources to support their answers. A minimum of 3 sources is required. Failing to do so could result in the deduction of up to 5 marks of the total TMA paper mark.

BUSINESS PLAN GUIDE- B205B (you are not obliged to do all the details in the guide just use it to help you in your TMA)

The Business Plan Guide shows how to present information succinctly and in a format acceptable to investors. Although it is useful to keep in mind who your audience is and that information not clearly presented will most likely not be used, it also is important not to be concerned just with format. The Business Plan Guide indicates specific issues and shows you what needs to be included in a business plan and why.

As you proceed through the Business Plan Guide, remember that statements need to be supported with data whenever possible. Note also that it is sometimes easier to present data in graphic, visual form. Include the source of all data, the methods and / or assumptions used, and the credentials of people doing research.

Remember that the Business Plan Guide is just that—a guide. It is intended to be applicable to a wide range of product and service businesses. Common sense should rule in applying the guide to your specific venture.

I. Cover

The cover page includes the name of the company, its address, its telephone number, the date, and the securities offered. Usually the name, address, telephone number, and the date are centered at the top of the page and the securities offered are listed at the bottom.

Also suggested on the cover page at the bottom is the following text:

This business plan has been submitted on a confidential basis solely for the benefit of selected, highly qualified investors in connection with the private placement of the above securities and is not for use by any other persons. Neither may it be reproduced, stored, or copied in any form. By accepting delivery of this plan, the recipient agrees to return this copy to the corporation at the address listed above if the recipient does not undertake to subscribe to the offering. Do not copy, fax, reproduce, or distribute without permission.

II. Table of Contents

Included in the table of contents is a list of the sections, subsections, and any appendixes, and the pages on which they can be found.

III. The Company and Its Product(s) or Service(s)

A major area of consideration is the company, its concept for its product(s) and service(s). Information needs to include a description of the concept, a description of your company, and a description of the product(s) or service(s) you will offer, the proprietary position of these product(s) or service(s), their potential advantages, and entry and growth strategy for the product(s) or service(s).

A. The company and the concept.

Describe generally the concept of the business, what business your company is in or intends to enter, what product(s) or service(s) it will offer, and who are or will be its principal customers.

B. The product(s) or service(s).

Describe in some detail each product or service to be sold.

Discuss the application of the product or service and describe the primary end use as well as any significant secondary applications. Articulate how you will solve a problem, relieve pain, or provide a benefit or needed service. Emphasize any unique features of the product or service and how these will create or add significant value; also, highlight any differences between what is currently on the market and what you will offer that will account for your market penetration.

Include a description of any possible drawbacks (including problems with obsolescence) of the product or service.

Provide a summary of the functional specifications and photographs, if available, of the product.

Discuss any head start you might have that would enable you to achieve a favored or entrenched position in the industry. Describe any features of the product or service that give it an “unfair” advantage over the competition. (Emphasize opportunities and explain how you will take advantage of them.)

IV. Market research and analysis

Information in this section needs to support the assertion that the venture can capture a substantial market in a growing industry and stand up to competition. Because of the importance of market analysis and the critical dependence of other parts of the plan on this information, you are advised to prepare this section of the business plan before any other. Take enough time to do this section very well and to check alternative sources of market data.

This section of the business plan is one of the most difficult to prepare, yet it is one of the most important. Other sections of the business plan depend on the market research and analysis presented here. For example, the predicted sales levels directly influence such factors as the size of the manufacturing operation, the marketing plan, and the amount of debt and equity capital you will require. Most entrepreneurs seem to have great difficulty preparing and presenting market research and analyses that show that their ventures’ sales estimates are sound and attainable.

A. Customers.

Discuss who the customers for the product(s) or service(s) are or will be. Note that potential customers need to be classified by relatively homogeneous groups having common, identifiable characteristics (e.g., by major market segment). For example, an automotive part might be sold to manufacturers and to parts distributors supplying the replacement market, so the discussion needs to reflect two market segments.

Show who and where the major purchasers for the product(s) or service(s) are in each market segment. Include national regions and foreign countries, as appropriate.

Indicate whether customers are easily reached and receptive, how customers buy (wholesale, through manufacturers’ representatives, etc.), where in their organizations buying decisions are made, and how long decisions take.

Describe customers’ purchasing processes, including the bases on which they make purchase decisions (e.g., price, quality, timing, delivery, training, service, personal contacts, or political pressures) and why they might change current purchasing decisions.

List any orders, contracts, or letters of commitment that you have in hand. These are the most powerful data you can provide. List also any potential customers who have expressed an interest in the product(s) or service(s) and indicate why. Also list any potential customers who have shown no interest in the proposed product or service, and explain why they are not interested and explain what you will do to overcome negative customer reaction.

Indicate how fast you believe your product or service will be accepted in the market. If you have an existing business, list your principal current customers and discuss the trends in your sales to them.

B. Market size and trends.

Show for 3 years the size of the current total market and the share you will have, by market segment, and / or region, and / or country, for the product or service you will offer, in units, dollars, and potential profitability.

Describe also the potential annual growth for at least 3 years of the total market for your product(s) or service(s) for each major customer group, region, or country, as appropriate.

Discuss the major factors affecting market growth (e.g., industry trends, socioeconomic trends, government policy, environmental impacts, and population shifts) and review previous trends in the market. Any differences between past and projected annual growth rates need to be explained.

C. Competition and competitive edges.

Make a realistic assessment of the strengths and weaknesses of competitors. Assess the substitute and / or alternative products and services and list the companies that supply them, both domestic and foreign, as appropriate.

Compare competing and substitute products or services on the basis of market share, quality, price, performance, delivery, timing, service, warranties, and other pertinent features.

Compare the fundamental value that is added or created by your product or service, in terms of economic benefits to the customer and to your competitors.

Discuss the current advantages and disadvantages of these products and services and say why they are not meeting customer needs.

Indicate any knowledge of competitors’ actions that could lead you to new or improved products and an advantageous position. For example, discuss whether competitors are simply sluggish or nonresponsive or are asleep at the switch.

Identify the strengths and weaknesses of the competing companies and determine and discuss each competitor’s market share, sales, distribution methods, and production capabilities.

Review the financial position, resources, costs, and profitability of the competition and their profit trends. Note that you can utilize Robert Morris Associates data for comparison.

Indicate who are the service, pricing, performance, cost, and quality leaders. Discuss why any companies have entered or dropped out of the market in recent years.

Discuss the three or four key competitors and why customers buy from them, and determine and discuss why customers leave them.

From what you know about the competitors’ operations, explain why you think they are vulnerable and you can capture a share of their business. Discuss what makes you think it will be easy or difficult to compete with them.

Discuss, in particular, your competitive advantages gained through such “unfair” advantage as patents.

D. Estimated market share and sales.

Summarize what it is about your product(s) or service(s) that will make it salable in the face of current and potential competition. Mention, especially, the fundamental value added or created by the product(s) or service(s).

Identify any major customers (including international customers) who are willing to make, or who have already made, purchase commitments.

Indicate the extent of those commitments, and why they were made. Discuss which customers could be major purchasers in future years and why.

Based on your assessment of the advantages of your product or service, the market size and trends, customers, competition and their products, and the trends of sales in prior years, estimate the share of the market and the sales in units and dollars that you will acquire in each of the next 3 years. Remember to show assumptions used.

Show how the growth of the company sales in units and its estimated market share are related to the growth of the industry, the customers, and the strengths and weaknesses of competitors. Remember, the assumptions used to estimate market share and sales need to be clearly stated.

If yours is an existing business, also indicate the total market, your market share, and sales for 2 prior years.

V. Marketing Plan

The marketing plan describes how the sales projections will be attained. The marketing plan needs to detail the overall marketing strategy that will exploit the opportunity and your competitive advantages. Include a discussion of sales and service policies; pricing, distribution, promotion, and advertising strategies; and sales projections.

The marketing plan needs to describe what is to be done, how it will be done, when it will be done, and who will do it.

A. Overall marketing strategy.

Describe the specific marketing philosophy and strategy of the company, given the value chain and channels of distribution in the market niche(s) you are pursuing. Include, for example, a discussion of the kinds of customer groups that you already have orders from or that will be targeted for initial intensive selling effort and those targeted for later selling efforts; how specific potential customers in these groups will be identified and how they will be contacted; what features of the product or service, such as service, quality, price, delivery, warranty, or training, will be emphasized to generate sales; if any innovative or unusual marketing concepts will enhance customer acceptance, such as leasing where only sales were previously attempted; and so forth.

Indicate whether the product(s) or service(s) will initially be introduced internationally, nationally, or regionally; explain why; and if appropriate, indicate any plans for extending sales later.

Discuss any seasonal trends that underlie the cash conversion cycle in the industry and what can be done to promote sales out of season.

Describe any plans to obtain government contracts as a means of supporting product development costs and overhead.

B. Pricing.

Discuss pricing strategy, including the prices to be charged for your product and service, and compare your pricing policy with those of your major competitors, including a brief discussion of payback (in months) to the customer.

Discuss the gross profit margin between manufacturing and ultimate sales costs, and indicate whether this margin is large enough to allow for distribution and sales, warranty, training, service, amortization of development and equipment costs, price competition, and so forth, and still allow a profit.

Explain how the price you set will enable you to

(1) get the product or service accepted,

(2) maintain and increase your market share in the face of competition, and (3) produce profits.

Justify your pricing strategy and differences between your prices and those for competitive or substitute products or services in terms of economic payback to the customer and value added through newness, quality, warranty, timing, performance, service, cost savings, efficiency, and the like.

If your product is to be priced lower than those of the competition, explain how you will do this and maintain profitability (e.g., through greater value added via effectiveness in manufacturing and distribution, lower labor costs, lower material costs, lower overhead, or other cost component).

Discuss your pricing policy, including a discussion of the relationship of price, market share, and profits.

C. Sales tactics.

Describe the methods (e.g., own sales force, sales representatives, ready-made manufacturers’ sales organizations, direct mail, or distributors) that will be used to make sales and distribute the product or service and both the initial plans and longer-range plans for a sales force. Include a discussion of any special requirements (e.g., refrigeration).

Describe how distributors or sales representatives, if they are used, will be selected, when they will start to represent you, the areas they will cover and the head count of dealers and representatives by month, and the expected sales to be made by each.

If a direct sales force is to be used, indicate how it will be structured and at what rate (a head count) it will be built up; indicate if it is to replace a dealer or representative organization and, if so, when and how.

If direct mail, magazine, newspaper, or other media, telemarketing, or catalog sales are to be used, indicate the specific channels or vehicles, costs (per 1,000), expected response rates, and so on. Discuss how these will be built up.

Show the sales expected per salesperson per year and what commission, incentive, and / or salary they are slated to receive, and compare these figures to the average for your industry.

Present a selling schedule and a sales budget that includes all marketing promotion and service costs.

E. Advertising and promotion.

Describe the approaches the company will use to bring its product or service to the attention of prospective purchasers.

For original equipment manufacturers and for manufacturers of industrial products, indicate the plans for trade show participation, trade magazine advertisements, direct mailings, the preparation of product sheets and promotional literature, and use of advertising agencies.

For consumer products, indicate what kind of advertising and promotional campaign will introduce the product, including sales aids to dealers, trade shows, and so forth.

Present a schedule and approximate costs of promotion and advertising (direct mail, telemarketing, catalogs, etc.), and discuss how these costs will be incurred.

F. Distribution.

Describe the methods and channels of distribution you will employ. Discuss the availability and capacity of these channels. Indicate the sensitivity of shipping cost as a percentage of the selling price.

Note any special issues or problems that need to be resolved or present potential vulnerabilities.

If international sales are involved, note how these sales will be handled, including distribution, shipping, insurance, credit, and collections.

VI. That financial Plan

As part of the financial plan, financial exhibits need to be prepared. To estimate cash flow needs, use cash based, rather than accrual-based, accounting (i.e., use a real-time cash flow analysis of expected receipts and disbursements).

This analysis needs to cover 3 years, including current- and prior-year income statements and balance sheets, if applicable; profit and loss forecasts for 3 years; pro forma income statements and balance sheets.

On the appropriate exhibits, or in an attachment, specify assumptions behind such items as sales levels and growth, collections and payables periods, inventory requirements, cash balances, and cost of goods.

Your analysis of the operating and cash conversion cycle in the business will enable you to identify these critical assumptions.

Pro forma income statements are the plan-for-profit part of financial management and can indicate the potential financial feasibility of a new venture. Because usually the level of profits, particularly during the startup years of a venture, will not be sufficient to finance operating asset needs, and because actual cash inflows do not always match the actual cash outflows on a short-term basis, a cash flow forecast indicating these conditions and enabling management to plan cash needs is recommended.

Further, pro forma balance sheets are used to detail the assets required to support the projected level of operations and, through liabilities, to show how these assets are to be financed.

The projected balance sheets can indicate if debt-to equity ratios, working capital, current ratios, inventory turnover, and the like are within the acceptable limits required to justify future financings that are projected for the venture.

A. Actual income statements and balance sheets.

For an existing business, prepare income statements and balance sheets for the current year and for the prior 2 years.

B. Pro forma income statements.

Using sales forecasts and the accompanying production or operations costs, prepare pro forma income statements for at least the first 3 years.

C. Pro forma balance sheets.

Prepare pro forma balance sheets semiannually in the first year and at the end of each of the first 3 years of operation.

D. Pro forma cash flow analysis.

Project cash flows monthly for the first year of operation and quarterly for at least the next 2 years. Detail the amount and timing of expected cash inflows and outflows. Determine the need for and timing of additional financing and indicate peak requirements for working capital.

Indicate how necessary additional financing is to be obtained, such as through equity financing, bank loans, or short-term lines of credit from banks, on what terms, and how it is to be repaid. Remember that these numbers are based on cash, not accrual, accounting.