Introduction

The importance of developing a business plan cannot be over emphasized. More than half of all new business ventures fail within the first ten years in large part due to either poor planning or a total lack of planning. It has often been said, "The business that fails to plan, plans to fail." Consequently, developing a good business plan enhances the entrepreneurs' and small business owners' chances of success.

A good business plan should contain the following sections:

1. Executive Summary
2. Company Description
3. Marketing Strategy
4. Management and Operations
5. Financial Information
6. Supporting Materials

(Each of these topics will be elaborated upon later.)

The business plan has two main functions. The first function is to create a clea rly articulated statement. This allows the individual to (1) take an objective look at his/her business and (2) assess the proposed venture against the backdrop of the industry, the competition, and the intended market. As a result, the individual will have a road map for accomplishing his/her goals and objectives and identifying potential problems before they become threatening. In addition, the plan will serve as a benchmark against which to measure progress and develop future plans.

The second function of the plan is to provide potential investors with the information they need to evaluate the business plan and make a decision regarding financial support of the proposed venture. Typically investors such as bankers and venture capitalist review as many as 500 to 1000 plans a year, yet they may only invest in four or five. But first a plan must get their attention. Consequently, it is important to understand how potential investors react to business proposals and what they look for in evaluating them.

This lesson is designed to examine these two functions. First, it focuses on the different components of the business plan and then it addresses the issue of potential investors.

Topics

• Components of the business plan
• Concerns of potential investors

Objectives

• To understand the different components of the business plan.
• To understand what investors feel constitutes a good business plan.

Lesson Description

The purpose of this lesson is to familiarize students with the different components of the business plan. This will be followed by a discussion of what potential investors' look for when approached for financial support. Finally, some sources of information will be provided that will be useful when developing a business plan.

Upon completion of this lesson, students should be in a position to begin developing their plans taking into account the two major audiences a business plan should target: the entrepreneur/small business owner and potential investors.

Materials

• Activity 4-A: Outline of a business plan
• Visual 4-1: The Benefits of Planning
• Visual 4-2: The Two Major Functions of a Business Plan
• Visual 4-3: The Components of the Business Plan
• Visual 4-4: What Investors Look for in a Business Plan

Procedure

1. Explain to the students that this lesson is designed to prepare them to begin writing their business plans. Point out that they will learn what constitutes a good business plan and what investors look for when evaluating a business plan.

2. Ask students why they think planning is important. Make a list of their suggestions on the board and discuss the significance of each one. Visual 4-1: The Benefits of Planning provides some reasons for the importance of planning.

3. Using Visual 4-2: The Two Major Functions of a Business Plan, discuss these functions.

4. Working in teams of two, ask the students to take a piece of paper and write down what they think should be the major components of a business plan. After a few minutes, ask several students to read their lists and list their responses on the board.

5. Provide each student with a copy of Activity 4-A: The Components of the Business Plan. This is the to be used for this project. Using Visual 4-3: The Components of the Business Plan discuss each of the components of the plan. Point out that the Executive Summary is written after the entire plan is completed and will be gone into in depth in Lesson 10.

6. Working in teams of two, have students make a list of what they think an investor is looking for when they review a business plan. Ask several students to read their list and compile a master list on the board. Compare the list on the board with Visual 4-4: What Investors Look for in a Business Plan.

Closure

Reiterate the importance of the two main functions of a business plan: developing a plan for the entrepreneur and developing a plan for potential investors, (Visual 4-2: The Two Major Functions of a Business Plan).

Ask students to review the components of the business plan and discuss how the plan will be used for their project. Students should keep in mind what investors are looking for when they review business plans.

Assessment

Write a second letter to your friend in Lesson 1. This time informing him/her what local investors would be looking for in a business plan.

Extension

Invite one or more local businesspersons to class to discuss their views on planning. He/she should discuss their business plan. Or what type of planning they engage in.