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Entrepreneurship

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Entrepreneurship ­ MGT602
VU
Lesson 21
CREATING AND STARTING THE VENTURE
LEARNING OBJECTIVES
1.
To define what the business plan is, who prepares it, who reads it, and how it is evaluated.
2.
To understand the scope and value of the business plan to investors, lenders, employees, suppliers,
and customers.
PLANNING AS PART OF THE BUSINESS OPERATION
Planning is a process that never ends. In the early stages, the entrepreneur should prepare a preliminary
plan. The plan will be finalized as the enterprise develops. Many different types of plans may be part of any
business operation-financial, marketing, production, and sales plans. Plans may be short term or long term,
or they may be strategic or operational. All of these plans have one purpose: to provide guidance and
structure to management in a rapidly changing market environment.
WHAT IS THE BUSINESS PLAN
A business plan is a written document prepared by the entrepreneur that describes all the relevant external
and internal elements involved in starting a new venture. It addresses both short- and long-term decision
making. The business plan is like a road map for the business' development. The Internet also provides
outlines for business planning. Entrepreneurs can also hire or offer equity to another person to provide
expertise in preparing the business plan. In developing the business plan the entrepreneur can determine
how much money will be needed from new and existing sources.
WHO SHOULD WRITE THE PLAN
The business plan should be prepared by the entrepreneur; however, he or she may consult many sources.
Lawyers, accountants, marketing consultants, and engineers are useful supplemental sources. Other
resources are the Small Business Administration, Service Core of Retired Executives, Small Business
Development Centers, universities, friends, and relatives. To help determine whether to hire a consultant,
the entrepreneur needs to make an objective assessment of his or her own skills.
SCOPE AND VALUE OF THE BUSINESS PLANCWHO READS THE PLAN
The business plan must be comprehensive enough to address the concerns of employees, investors,
bankers, venture capitalists, suppliers, and customers.
Three perspectives need to be considered:
The entrepreneur understands the new venture better than anyone. The marketing perspective considers the
venture through the eyes of the customer. The investor looks for sound financial projections. The depth of
the business plan depends on the size and scope of the proposed venture.
The business plan is valuable to the entrepreneur and investors because:
1. It helps determine the viability of the venture in a designated market.
2. It gives guidance in organizing planning activities.
3. It serves as an important tool in obtaining financing.
Potential investors are very particular about what should be included in the plan. The process of developing
a business plan also provides a self-assessment of the entrepreneur. This self-evaluation requires the
entrepreneur to think through obstacles that might prevent the venture's success. It also allows the
entrepreneur to plan ways to avoid such obstacles.
HOW DO POTENTIAL LENDERS AND INVESTORS EVALUATE THE PLAN
Because the business plan should address the needs of all the potential evaluators, software packages and
Internet samples should be used only to assist in preparation. As the entrepreneur becomes aware of who
will read the plan, changes will be necessary. Suppliers may want to see a business plan before signing a
contract to supply products or services. Customers may also want to review the plan before buying the
product. The business plan should consider the needs of these constituencies. Potential suppliers of capital
will vary in their needs and requirements in the business plan. Lenders are primarily interested in the ability
of the new venture to pay back the debt and focus on the four C's of credit:
1. The entrepreneur's credit history or character.
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Entrepreneurship ­ MGT602
VU
2. Their ability to meet debt and interest payments (cash flow.)
3. The collateral or tangible assets being secured.
4. Equity contribution or the amount of personal equity that has been invested by the
entrepreneur.
Investors provide large sums of capital for ownership (equity) and expect to cash out within 5 to 7 years.
They will often place more emphasis on the entrepreneur's character than lenders. The venture capitalist
will play an important role in management of the business and wants the entrepreneurs to be pliable and
willing to accept this involvement. These investors will also demand high rates of return and will thus focus
on the market and financial projections. If the entrepreneur does not consider the needs of these sources,
the plan may be an internalized document without consideration of the feasibility of meeting market goals.
Most external advisors and potential investors are bound by a professional code of ethics regarding
disclosure.
PRESENTING THE PLAN
It is often necessary for an entrepreneur to orally present the business plan to investors. Typically the
entrepreneur provides a short (20-30 minutes) presentation of the business plan. The entrepreneur must
sell their business concept in a short time period. A venture capitalist or angel group may also ask the
entrepreneur to present the plan to their partners before making a final decision.
48
Table of Contents:
  1. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:DEFINITION OF ENTREPRENEUR
  2. THE NATURE AND IMPORTANCE OF ENTREPRENEURSHIP:Possibility of New Venture Formation
  3. ENTREPRENEURIAL PROCESS/START UPS:GOVERNMENT AS AN INNOVATOR
  4. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND:ENTREPRENEURIAL PROCESS
  5. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…)
  6. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):CLIMATE FOR ENTREPRENEURSHIP
  7. THE ENTREPRENEURIAL AND ENTREPRENEURIAL MIND (continued…):PROBLEMS AND SUCCESSFUL EFFORTS
  8. THE INDIVIDUAL ENTREPRENEUR:ENTREPRENEURIAL BACKGROUND AND CHARACTERISTICS
  9. THE INDIVIDUAL ENTREPRENEUR (continued…):Personal Values, Work History, MOTIVATION
  10. THE INDIVIDUAL ENTREPRENEUR (continued…):ROLE MODELS AND SUPPORT SYSTEMS
  11. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES:INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES, Minority interests
  12. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):DIRECT FOREIGN INVESTMENT
  13. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):BARRIERS TO INTERNATIONAL TRADE
  14. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):ENTREPRENEURIAL PARTNERING
  15. INTERNATIONAL ENTREPRENEURIAL OPPORTUNITIES (continued…):SOURCES OF NEW IDEAS
  16. CREATIVITY AND THE BUSINESS IDEA:METHODS OF GENERATING NEW IDEAS, CREATIVE PROBLEM SOLVING
  17. CREATIVITY AND THE BUSINESS IDEA:PRODUCT PLANNING AND DEVELOPMENT PROCESS
  18. LEGAL ISSUES FOR THE ENTREPRENEUR:NEED FOR A LAWYER, PATENTS
  19. LEGAL ISSUES FOR THE ENTREPRENEUR:TRADEMARKS, LICENSING
  20. LEGAL ISSUES FOR THE ENTREPRENEURS:PRODUCT SAFETY AND LIABILITY, INSURANCE
  21. CREATING AND STARTING THE VENTURE:WHAT IS THE BUSINESS PLAN, PRESENTING THE PLAN
  22. CREATING AND STARTING THE VENTURE (Continued….):WRITING THE BUSINESS PLAN
  23. CREATING AND STARTING THE VENTURE (Continued….):
  24. CREATING AND STARTING THE VENTURE (Continued….):WHY SOME BUSINESS PLANS FAIL, MARKETING PLAN
  25. THE MARKETING PLAN:MARKET RESEARCH FOR THE NEW VENTURE
  26. THE MARKETING MIX:STEPS IN PREPARING THE MARKETING PLAN
  27. THE ORGANIZATIONAL PLAN:DEVELOPING THE MANAGEMENT TEAM, LEGAL FORMS OF BUSINESS
  28. THE ORGANIZATIONAL PLAN (Continued….)
  29. THE ORGANIZATIONAL PLAN (Continued….):THE LIMITED LIABILITY COMPANY
  30. THE FINANCIAL PLAN:OPERATING AND CAPITAL BUDGETS
  31. THE FINANCIAL PLAN (Continued….):PRO FORMA INCOME STATEMENTS, PRO FORMA CASH FLOW
  32. PRO FORMA SOURCES AND USES OF FUNDS:PERSONAL FUNDS, FAMILY AND FRIENDS
  33. PRO FORMA SOURCES AND USES OF FUNDS:COMMERCIAL BANKS
  34. BANK LENDING DECISIONS:SMALL BUSINESS ADMINISTRATION LOANS
  35. SOURCES OF CAPITAL:GOVERNMENT GRANTS
  36. SOURCES OF CAPITAL:PRIVATE PLACEMENT, BOOTSTRAP FINANCING
  37. CAPITAL SOURCES IN PAKISTAN:PROVINCIAL LEVEL INSTITUTIONS, FINANCIAL INSTITUTIONS
  38. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  39. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  40. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  41. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  42. PREPARING FOR THE NEW VENTURE LAUNCH: EARLY MANAGEMENT DECISIONS (Continued….)
  43. NEW VENTURE EXPANSION STRATEGIES AND ISSUES:JOINT VENTURES, ACQUISITIONS
  44. NEW VENTURE EXPANSION STRATEGIES AND ISSUES (Continued….):DETERMINING THE PRICE FOR AN ACQUISITION
  45. ENTREPRENEURSHIP & PAKISTAN:GENDER DEVELOPMENT STATUS WOMAN AS AN ENTREPRENEUR IN PAKISTAN