Incubator Business Plan

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Executive Summary


Summarize the industry:

There are several different main companies that sell different kinds of products, from low priced ($30 - 50) manual turners, to expensive ($500) automantic turners.


Market segmentation:

Industry size, growth rate, trends:

Trends or factors that could affect the business:

Key success factors for the industry and conclusions:

Standard and key financial ratios for the industry:

Company, Concept, and Product

The Company and Concept

Define the company, where it will be based, and when it will begin operations:

Outline of the history of the company and it's founders and it's current status:

Objectives of the company:

Describe the concept of the business, how it will address user's needs:


Fully describe the product, what it is and is not:

Describe what the product does, who will use it, and why:

Describe differences between other products and this product, and what will account for market penetration:

Describe drawbacks of the product:

Describe key factors for the success of the product:

Describe where the product is in it's development:

Discuss what improvements or other products can be developed and how they can be implemented:

Entry and Growth Strategy

How will the company enter the market: Summarize how quickly the business intends to grow over the next 5 years and for growth beyond the initial product: Discuss how the company will stay competitive against others:

Market Research and Analysis

Definition of Relevant Market and Customer Overview

Provide a very specific definition of the relevant market, where the specific customers will come from, and what parameters are being used to define the relevant market:

Discuss who the customers for the product will be:

Provide general demographics for the customer base:

Market Size and Trends

Estimate market size and potential:

Note assumptions that projections are based on:

Estimate the size of the primary and selective demand gaps:

Describe the potential growth rate for 3 years for the product for each major customer group and region:

Discuss major factors affecting market growth and review previous trends in the market:

Buyer Behavior

Why buys what, where, why, when, how:

Who is the actual purchase decision maker, and does anyone else get involved in the buying decision process:

How long is the customer's buying process:

What are the key stages of the customer's buying process and what happens in each stage that might have marketing implications:

Show who and where the major purchasers are for the product in each market segment:

Indicate if this is a high medium or low involvement purchase and draw implications:

Indicate if customers are easily reached and receptive:

Describe customer's purchasing processes including factors influencing purchasing decisions and why they might change current purchasing decisions:

Discuss interviews you have had with users of the product category:

List orders or contracts already placed, list potential customers that have expressed interest and indicate why, list potential customers who have shown no interest and discuss why, explain how you will overcome negative customer reaction, and how quickly the product is believed to be accepted in the market:

List and describe the 5 potentially largest customers and what percentage of sales they will represent:

In what way are customers dissatisfied with current offerings in the market or what emerging customer groups are being ignored:

Market Segmentation and Targeting

Discuss how the defined market can be broken down into segments (groups having common identifiable characteristics, demographics, phychographics, benefits sought, information sources utilized, product usage rate, etc):

Table of segments:

Which segments represent the largest sales potential:

Which segments will be prioritized:

Competition and Competitive Advantages

Identify potential/actual direct and indirect competitors, make a realistic assessment of their strengths and weaknesses, discuss them and figure out why customers buy from them and why they might leave them:

Assess the substitute and/or alternative products and the companies that supply them:

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

Compare competing and substitute products on the basis of market share, sales, distribution methods, economies of scale, and production. Review the financial position resources, costs, and profitability of the competition and their profit trends:

Compare also important attributes such as quality, price, performance, delivery, timing, service, warranties, and pertinent features of your product with those of competitors:

Indicate any knowledge of competitor's actions or lack of action that could lead you to new or improved products and an advantageous position (for example discuss whether competitors are simply sluggish or non-responsive or asleep at the switch):

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

From what you know about your competitor's positions 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:

Estimate Market Share and Sales

Summarize what it is about your product that will make it saleable in the face of current and potential competition. Mention the fundamental value added by the product:

Discuss which customers could be major purchasers in future years and why:

Based on your assessment of the advantages of your product, the market size and trends, customer, the 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 aquire in each of the next three years. Remember to show assumptions used in your calculations:

Show how the growth of the company sales in units and market share are related to the growth of it's industry and customers and the strengths and weaknesses of competitors. Clearly state the assumptions used to estimate market share and sales:

Ongoing Market Evaluation

Explain how you will continue to evaluate your target markets so as to assess customer needs and service and to guide product improvement programs and new product programs, plan for expansion of your production facility, and guide product pricing. Explain how you make the necessary strategic changes to your plan:

The Economics of The Business

The economic and financial characteristics, including the apparent magnitude and durability of margins and profits generated, need to support the fundamental attractiveness of the opportunity. The underlying operating costs and each conversion cycle of the business, the value chain, and so forth, need to make sense in terms of the opportunity and strategies planned.

Revenue Sources and Gross and Operating Margins

Summarize the major revenue sources of the business and proportionately where you expect to make your money:

Describe the size of the gross margins (selling price less costs of goods sold) and the operating margins for each product you are selling in the market niche you plan to attach. Where you have multiple products calculate weighted average margins. Include results of you contribution analysis:

Fixed and Variable Costs

Provide a detailed summary of fixed, variable, and semi-variable costs, in dollars and as percentages of total cost as appropriate, for the product or service you offer and the volume of purchases and sales upon which these are based. For analysis purposes, classify semi-variable as either fixed or variable. Show relevant industry benchmarks for costs.

Operating Leverage and its Implications

Characterize whether your cost structure is predominantly fixed or variable and then indicate the implications. For example, if you have a high fixed cost structure, you have high operating leverage which means it takes longer to reach breakeven, but once there, much more of your revenue flows straight to the bottom line. Look at operating leverage as it relates to margins and volume to argue the viability of your business.

Breakeven Chart and Calculation

Make clear what your unit of analysis is for the purpose of calculating breakeven. Calculate breakeven and prepare a chart that shows when breakeven will be reached and any stepwise changes in breakeven that may occur. Present a chart for the break-even point in the appendix. Discuss the breakeven shown for your venture and whether it will be easy or difficult to attain breakeven, including a discussion of the size of break-even sales volume relative to projected total sales, the size of gross margins and price sensitivity, and how the break-even point might be lowered in case the venture falls short of sales projections.

Overall Economic Model

Put the pieces above together. Indicate how you will make money in terms of the combination of costs, margins, volumes, and revenue sources.

Profit Potential and Durability

Describe the magnitude and expected durability of the profit stream the business will generate (before and after taxes) and reference appropriate industry benchmarks, other competitive intelligence, or your own relevant experience. Address the issue of how solid or vulnerable the profit stream appears to be. Provide reasons why your profit stream is solid or vulnerable, such as barriers to entry you can create, your technological and market lead time, and so on.


The Marketing Plan describes how your projected sales will actually be attained. How will you make sales actually happen? A great idea is meaningless if you cannot find customers. Thus, this section builds on the Market Section, where you defined your market and outlined your targeted segments and their buyer behavior. The marketing plan needs to provide detail on 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.

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 have already placed orders, have expressed an interest, or will be targeted for either initial intensive selling efforts. Explain how you will try to position your products or services in the marketplace and in the minds of particular target audiences. How will you differentiate your product/service from your competitors? Make it clear how your marketing strategy reflects the characteristics of the priority market segments you will be targeting. Indicate whether the product(s) or service(s) will initially be introduced internationally, nationally, regionally, or locally; explain why, and indicate any plans for extending sales at a later date. From an overall standpoint, make it clear whether marketing efforts will center on personal selling, media advertising, or what (you will get into specifics below).


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. Explain how the price you set will enable you (1) to get the product or service accepted, (2) to maintain an increase in your market share in the face of competition, and (3) to 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 vial effectiveness in manufacturing and distribution, lower labor costs, lower material costs, lower overhead, or other component of cost). Discuss pricing structure, or how your prices will differ by aspect of the product or service, by customer group, and by time and form of payment (e.g., the discount structure). Discuss the use of special price offers, rebates, coupons, and so forth. This can be done under price or under sales promotion.

The Selling Cycle

In the MARKET section you described the customer’s buying process. Now, map out a selling cycle or process that reflects that buying process. How do you plan to move a customer from never having heard of you to being a loyal user? Make it vividly clear how your overall use of personal selling, advertising, and publicity will reflect a blend of tools that moves your target customer through their buying process.

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. Also include 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 build-up (a 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. How will you recruit, train and compensate the sales force? 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. Discuss any seasonal trends that underlie the cash conversion cycle in the industry and what can be done to promote sales out of season.

Advertising and Sales Promotions

Describe the media approaches the company will use to bring its product or service to the attention of prospective purchasers. How will you inform your target market about the availability of your product/service and continue to communicate the benefits you are offering to that market 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), and expected response rates and yield (as percentage) from the various media, and so on, used. Discuss how these will be built up. 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 is planned to introduce the product. Specify types of media to be employed and what kinds of sales aids will be provided to dealers, what trade shows, and so forth, are required. Present a schedule and approximate costs of promotion and advertising (direct mail, telemarketing, catalogs, etc.), and discuss how these costs will be incurred. Determine the total marketing budget required. Note any viral or buzz marketing efforts you plan to employ.


What methods will you use to get free publicity for your business? What sort of guerrilla publicity tactics will you employ? How might you create news?

Customer Service

(can be covered here or in the OPERATIONS section) 

How will customer service be defined and measured? What system will you have in place to manage customer service and ensure service levels are consistent?

Warranty or Guarantee Policies

If your company will offer a product that will require service, warranties, or training, indicate the importance of these to the customers’ purchasing decisions and discuss your method of handling service problems. Describe the type and terms of any warranties to be offered, whether company service people, agencies, dealers and distributors will handle service, or simply return to the factory. Indicate the proposed charge for service calls and whether service will be a profitable or loss operation. Compare your service, warranty, and customer training practices to those of principal competitors.


Describe the methods of distribution you will employ. Why is this best/better? Discuss the value chain and the resulting margins to be given to retailers, distributors, wholesalers, and salespeople and any special policies regarding discounts, exclusive distribution rights, and so on, given to distributors or sales representatives and compare these to those given by your competition. What distribution channel(s) will be important to your business? How will you gain access to these channels? Note any special issues that need to be resolved, or present potential vulnerabilities. Explain any methods to be employed to obtain distributor cooperation and support. If international sales are involved, note how these sales will be handled, including distribution, shipping, insurance, credit, and collections.


This is a very important section for those teams developing a non-existent product, doing research and development, having technical obstacles to overcome, or seeking patent or copyright protection. However, if your in a business where research and development is not a major issue (e.g., many consumer services), then you can leave this section out and just address and technologies you plan to employ in the OPERATIONS section. The nature and extent of any design and development work, and the time and money required before the product or service is marketable, need to be considered in detail. (Note that design and development costs are often underestimated.) Design and development might be the engineering work necessary to convert a laboratory prototype to a finished product; the design of special tooling; the work of an industrial designer to make a product more attractive and saleable; or the identification and organization of employees, equipment, and special techniques, such as the equipment, new computer software, and skills required for computerized credit checking, to implement a service business. A. Development Status and Tasks: Define the present state of development of the product or service and how much time and money will be required to fully develop, test, and introduce the product or service. If appropriate provide a drawing, or a summary of the functional specifications and photographs of the product, if available. Explain what remains to be done to make the product fully useable and ready for sale. Describe briefly the competence or expertise that your company has or will require to complete this development. List any customers or end users who are participating in the development, design, and/or testing of the product or service. Indicate results to date or when results are expected. How do you intend to ramp-up your business? Give a roadmap of how you are going to get from where you are now to where you want to be in the future. B. Difficulties and Risks: Identify any major anticipated design and development challenges and approaches to their solution. Discuss the possible effect on the cost of design and development, on the time to market introduction, and so forth, of such problems. C. Product Improvement and New Products: In addition to describing the development of the initial products, discuss any ongoing design and development work that is planned to keep product(s) or service(s) competitive and to develop new related product(s) or service(s) that can be sold to the same group of customers. Discuss customers who have participated in these efforts and their reactions, and include any evidence that you may have. D. Costs: Present and discuss the design and development budget, including costs of labor, materials, consulting fees, and so on. Discuss the impact on cash flow projections of underestimating this budget, including the impact of a 15 to 30 percent contingency. E. Proprietary Issues: Describe any patent, trademark, copyright, or intellectual property rights you own or are seeking. Describe any contractual rights or agreements that give you exclusive or proprietary rights. Discuss the impact of any unresolved issues or existing or possible actions pending, such as disputed rights of ownership, regulated to proprietary rights on timing and on any competitive edge you have assumed.


The operations section outlines how you will run your business and deliver value to your customers. Operations is defined as the processes that deliver your products/services to a customer or user and can include the production process for delivering your service to a given customer, manufacturing process if you are a manufacturer, transportation, logistics, travel, printing, consulting, and after-sales service. It also includes such factors as plant location, the type of facilities needed, space requirements, internal processes, capital equipment requirements, and labor force (both full- and part-time) requirements. For a manufacturing business, the manufacturing and operations plan needs to include policies on inventory control, purchasing, production control, and which parts of the product will be purchased and which operations will be performed by your workforce (called make-or-buy decisions).

A service business may require particular attention to location (proximity to customers is generally a must), the service delivery system, minimizing overhead, and obtaining competitive productivity from a labor force.  In all likelihood 80% of your expenses will be for operations, 80% of your employees will be involved in operations and 80% of your time will be spent worrying about operating problems You will probably have to make trade-offs with your operations ---it is impossible to have the lowest costs, highest quality, best on-time delivery and most flexibility in your industry all at the same time.  This is where you have to make trade-off decisions that fit your other plans.

A.Operating Model and Cycle: Outline the operations process for your business. Identify the inputs, operations (key steps or stages) and outputs (present a flow diagram). This is a day in the life of actually producing your product or creating and delivering your service---walk us through the mechanics of doing so. Where are you likely to have bottlenecks in your service delivery or manufacturing process and how will these be anticipated and addressed. Describe the lead/lag times that characterize the fundamental operating cycle in your business. Explain how any seasonal production loads will be handled without severe dislocation (e.g., by building to inventory using part-time help in peak periods). What quality consistency issues exist and how will quality consistency be ensured? What controls exist, for instance, to ensure every burger is cooked exactly the same? B.Geographic Location: Describe the planned geographic location of the business. Include any location analysis, site selection etc. that you have done. Discuss any advantages or disadvantages of the site location in terms of such factors as labor (including labor available, whether workers are unionized, and wage rate), closeness to customer and/or suppliers, access to transportation, state and local taxes and laws (including zoning regulations), access to utilities, and so forth. C.Facilities, Equipment and Improvements: Describe the facilities, including plant and office space, storage and land areas, special tooling, machinery, and other equipment needed to conduct business. Discuss any economies to scale. Provide a schematic diagram of the layout of your facility. Describe how and when the necessary facilities to start production will be acquired. Discuss whether equipment and space will be leased or acquired (new or used) and indicate costs and timing of such actions and how much of the proposed financing will be devoted to plant/equipment. Discuss how and when, in the next three years, office/ retail site/ plant space and equipment will be expanded to the capacities required by future sales projections and any plans to improve or add to existing space or move the facility; indicate the timing and cost of such acquisitions. D.Strategy and Plans: Describe the manufacturing processes involved in production of your product(s) – what will you do in-house and what will we purchase (i.e. make versus buy decision)? or Describe the service delivery processes involved in providing your service(s) and any aspects of the service that are outsourced or provided by others. Justify your proposed make-or-buy policy in terms of inventory financing, available labor skills, and other non-technical questions, as well as production, cost, and capability issues. Discuss who potential subcontractors and suppliers are likely to be and any information about, or any surveys that have been made of, these subcontractors and suppliers. Discuss relationships with them. Present a plan for operations that shows cost/volume information at various sales levels of operation with breakdowns of applicable material, labor, purchased components, and factory overhead, and that shows the inventory required at these various sales levels. Describe your approach to quality control, production control, inventory control, and explain what quality control and inspection procedures the company will use to minimize service problems and associated customer dissatisfaction. How will you win in the market place on cost, quality, timeliness or flexibility?


This section of the business plan includes a description of the functions that will need to be filled, a description of the key management personnel and their primary duties, an outline of the organizational structure for the venture, a description of the board of directors and key advisors, a description of the ownership position of any other investors, and so forth. You need to present indications of commitment, such as the willingness of team members to initially accept modest salaries, and of the existence of the proper balance of technical, managerial, and business skills and experience in doing what is proposed. A.Organization: Present the key management roles and responsibilities in the company. Discuss the individuals who will fill each position. If it is not possible to fill each executive role with a full-time person without adding excessive overhead, indicate how these functions will be performed (e.g., using part-time specialists or consultants to perform some functions), who will perform them, and when they will be replaced by a full-time staff member. If any key individuals will not be on board at the start, indicate when they will join the company. Discuss any current or past situations where key management people have worked together that could indicate how their skills complement each other and result in an effective management team. B.Key Management Personnel: For each key person, describe career highlights, particularly relevant know-how, skills, and track record of accomplishments that demonstrate his or her ability to perform the assigned role. Include in your description sales and profitability achievements (budget size, numbers of subordinates, new product introductions, etc.) and other prior entrepreneurial or general management results. Describe the exact duties and responsibilities of each of the key members of the management team. Complete resumes for each key management member need to be included here or as an exhibit and need to stress relevant training, experience, any concrete accomplishments, such as profit and sales improvement, labor management success, manufacturing or technical achievements, and meeting of budgets & schedules. C.Management Compensation and Ownership: State the salary to be paid, the stock ownership planned, and the amount of their equity investment (if any) of each key member of the management team. D.Other Current Investors: Describe here any other investors in your venture, the number and percentage of outstanding shares they own, when they were acquired, and at what price. E.Employment and Other Agreements, Stock Options and Bonus Plans: Describe any existing or contemplated employment or other agreements with key members. Indicate any restrictions on stock and vesting that affect ownership and disposition of stock. Summarize any incentive stock option or other stock ownership plans planned or in effect for key people and employees. F.Board of Directors: Discuss the company’s philosophy about the size and composition of the board. Identify any proposed board members and include a one or two sentence statement of the member’s background that shows what he or she can bring to the company. G.Other Shareholders, Rights, and Restrictions: Indicate any other shareholders in your company and any rights and restrictions or obligations, such as notes or guarantees, associated with these. (If they have all been accounted for above, simply note that there are no others.) H.Supporting Professional Advisors and Services: Indicate the names and affiliations of the legal, accounting, advertising, consulting, and banking advisors selected for your venture and the services each will provide.


A graphical schedule that shows the timing and interrelationship of the major events necessary to launch the venture and realize its objectives is an essential part of a business plan. The underlying cash conversion and operating cycle of the business will provide key inputs for the schedule. In addition to being a planning aid by showing deadlines critical to a venture’s success, a well-presented schedule can be extremely valuable in convincing potential investors that the management team is able to plan for venture growth in a way that recognizes obstacles and minimizes investor risk. Since the time necessary to do things tends to be underestimated in most business plans, it is important to demonstrate that you have correctly estimated these amounts in determining the schedule. Create your schedule as follows: Step 1: Prepare a month-by-month schedule that shows the timing of such activities as product development, market planning, sales programs, production, and operations, and that includes sufficient detail to show the timing of the primary tasks required to accomplish an activity. Step 2: Show on the schedule the deadlines or milestones critical to the venture’s success, such as: Incorporation of the venture. Completion of design and development. Completion of prototypes. Rental of facilities. Obtaining of sales representatives. Obtaining product display at trade shows. Hiring of key managers. Obtaining critical financing. Initiating marketing activities and in what order. Signing up of distributors and dealers. Ordering of materials in production quantities. Starting of production or operation. Receipt of first orders. Delivery on first sale. Receiving the first payment on accounts receivable. Step 3: Show on the schedule the “ramp up” of the number of management personnel, the number of production and operations personnel, and plant or equipment and their relation to the development of the business. Step 4: Discuss in a general way the activities most likely to cause a schedule slippage, what steps will be taken to correct such slippages, and the impact of schedule slippages of the venture’s operation, especially its potential viability and capital needs. Note: You want to be fairly detailed for the first six months to a year, and then just hit key developments or benchmarks for years two and three. A three-year schedule is adequate


The development of a business has risks and problems, and the business plan invariably contains some implicit assumptions about these issues. You need to include a description of the risks and the consequences of adverse outcomes relating to your industry, your company and its personnel, your product’s market appeal, and the timing and financing of your startup. Be sure to discuss assumptions concerning sales projections, customer orders, and so forth. If the venture has anything that could be considered a fatal flaw, discuss why you do not see it as a problem or how you intend to overcome it. The discovery of any unstated negative factors by potential investors can undermine the credibility of the venture and endanger its financing. Be aware that most investors will read the section describing the management team first and then this section. It is therefore recommended that you not omit this section. If you do, the reader will most likely come to one or more of the following conclusions: 1.You think he or she is incredibly naïve or stupid, or both. 2.You hope to pull the wool over his or her eyes. 3.You do not have enough objectivity to recognize and deal with assumptions and problems. Identifying and discussing the risks in your venture demonstrate your skills as a manager and increase credibility of you and your venture with a venture capital investor or a private investor. Taking the initiative on the identification and discussion of risks helps you to demonstrate to the investor that you have thought about them and can handle them. Risks then tend not to loom as large black clouds in the investor’s thinking about your venture. 1.Discuss assumptions implicit in your plan. Examples of key assumptions might include: Revenue forecasts (price, volumes, discounts, margins). Development expenses (number of people, key salaries, sub-contracts) Average cost of a unit. COGS (material, etc.). Working capital (accounts receivable, inventory, payables) Capital expenditures (major items) Ability to obtain key distribution channel. Getting a patent licenses or permit. Rate of growth in sales. Obtaining a particular site or facility that is key to the business. Hiring of key staff members with experience in a critical area. Approval of critical financing. Overcoming key obstacles in product design. 2.Identify and discuss any major problems and other risks, such as: Running out of cash before orders are secured. Competitor risks e.g. you are pre-empted in the market by a competitor Technological risks i.e. cannot make the product work Potential price-cutting by competitors. Any potential unfavorable industry-wide trends. Design or manufacturing costs in excess of estimates. Sales projections not achieved. Difficulties or long lead times encountered in the procurement of parts or raw materials. Difficulties encountered in obtaining needed bank credit. Larger-than-expected innovation and development costs. Running out of cash after orders pour in. 3.Indicate what assumptions or potential problems and risks are most critical to the success of the venture, and describe your plans for minimizing the impact of unfavorable developments in each case. What is the worst-case scenario and how will you respond? Focus on risks that are important and critical to your business, not the ordinary operating risks faced by any business.


Documents To Be Developed For This Section (Put In Appendix) i. Pro forma income statements (3-5 years) ii. Pro forma balance sheets (3-5 years) iii. Pro forma cash flow analysis (3-5 years) This section lays out exactly what you are requesting from investors; it is number-oriented. Give the investors the columns and rows that they want to see. The more you give them, the more difficult it will be for them to challenge the assumptions that you have made to produce those numbers. The financial plan is basic to the evaluation of an investment opportunity and needs to represent your best estimates of financial requirements. The purpose of the financial plan is to indicate the venture’s potential and to present a timetable for financial viability. It also can serve as an operating plan for financial management using financial benchmarks. In preparing the financial plan, you need to look creatively at your venture and consider alternative ways of launching or financing it. As part of the financial plan, financial exhibits need to be prepared. To estimate cash flow needs, use cash-based, rather than an accrual-based, accounting (i.e., use a real-time cash flow analysis of expected receipts and disbursements). This analysis needs to cover three years (or five depending on your type of business). Included also are pro forma income statements and balance sheets; and a break-even chart. On the appropriate exhibits, or in an attachment, assumptions behind such items as sales levels and growth, collections and payables periods, inventory requirements, cash balances, cost of goods, and so forth, need to be specified. 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. Usually the level of profits, particularly during the start-up years of a venture, will not be sufficient to finance operating asset needs, and since actual cash inflows do not always match the actual cash outflows on a short-term basis, a cash flow forecast that will indicate these conditions and enable 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 financing that are projected for the venture. Finally, a break-even chart showing the level of sales and production that will cover all costs, including those costs that vary with production level and those that do not, is very useful: A. Pro Forma Income Statements: Using sales forecasts and the accompanying operating costs, prepare pro forma income statements for at least the first three years. Be sure these numbers are consistent with what is being proposed in all the earlier sections of the plan (marketing, operations, management team, etc.) Fully discuss assumptions (e.g., the amount allowed for bad debts and discounts, or any assumptions made with respect to sales expenses or general and administrative costs being a fixed percentage of costs or sales) made in preparing the pro forma income statement and document them. Draw on Section X of the business plan and highlight any major risks, such as the effect of a 20% reduction in sales from those projected or the adverse impact of having to climb a learning curve on the level of productivity over time, that could prevent the venture’s sales and profit goals from being attained, plus the sensitivity of profits to these risks. B. Pro Forma Balance Sheets: Prepare pro forma balance sheets semi-annually in the first year and at the end of each of the first three years. C.Pro Forma Cash Flow Analysis: Project cash flows monthly for the first year of operation and quarterly for at least the next two years, detailing 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; and indicate how needed 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 they are based on cash, not accrual, accounting. Explain how much money you will need. For debt funding, what will you use as collateral? How will the money be used-for working capital, R&D, marketing, capital acquisitions? This dictates the level of risk of the investment. Investors generally feel that expenditures for R&D and marketing are riskier than are expenditures for capital acquisitions. Discuss assumptions, such as those made on the timing of collection of receivables, trade discounts given, terms of payments to vendors, planned salary and wage increases, anticipated increases in any operating expenses, seasonality characteristics of the business as they affect inventory requirements, inventory turnovers per year, capital equipment purchases, and so forth. Again, these are real time (i.e., cash), not accrual. Discuss cash flow sensitivity to a variety of assumptions about business factors (e.g., possible changes in such crucial assumptions as an increase in the receivable collection period or a sales level lower than that forecasted). D. Months to Breakeven and to Positive Cash Flow: Given the above strategy and assumptions, show when the venture will attain a positive cash flow. Show if and when you will run out of cash. Note where the detailed assumptions can be found. Note any significant stepwise changes in cash flow that will occur as you grow and add capacity Given your entry strategy, marketing plan, and proposed financing, how long it will take to reach a unit breakeven sales level. How many months to breakeven? Briefly describe your break-even estimates. In other words, how many units (or dollars’ worth) of the product (or how many hours of the service) must be sold to cover your costs? E. Cost Control: Describe how you will obtain information about report costs and how often, who will be responsible for the control of various cost elements, and how you will take action on budget overruns. Explain any unusual items not identified in the financial statement. F. Highlights of the Financial Statements: Highlight the important conclusions, such as what is the maximum amount of cash required is and when it will be required, the amount of debt and equity needed, how fast any debts can be repaid, etc., start up costs, etc. To help validate your financials compare critical financial ratios from your plan with those of your industry. Explain and justify significant differences.


The purpose of this section of the plan is to indicate the amount of any money that is being sought, the nature and amount of the securities offered to the investor, a brief description of the uses that will be made of the capital revised, and a summary of how the investor is expected to achieve its targeted rate of return. It is important to realize the terms for financing your company that you propose here are only the first step in the negotiation process with those interested in investing, and it is very possible that your financing will involve different kinds of securities than originally proposed. A.Desired Financing: Review the monthly real-time cash flow projections and your estimate of how much money is required over the next three years to carry out the development and/or expansion of your business as described. Determine the amount and timing of cash infusions required to prevent cash balances from going negative. Add a cash safety cushion (~25% as a good “guesstimate”) to the anticipated cash needs to protect against unexpected expenses or delayed income. Determine the type of funding that will suit your business: debt/equity or non-traditional financing. Indicate how this capital requirement will be obtained -- from whom and how much will be obtained via term loans or lines of credit. B.Offering (deal structure – pitch for money): If you have decided to seek equity capital, then you need to describe the type of security being offered (e.g., common stock, convertible debentures, debt with warrants, debt plus stock), the unit price, and the total amount of securities to be sold in this offering. If securities are not just common stock, indicate by type, interest, maturity, and conversion conditions. Show the percentage of the company that the investor in this offering will hold after it is completed or after exercise of any stock conversion or purchase rights in the case of convertible debentures or warrants i.e. what share of your company does the investor get for a specified investment. Securities sold through a private placement and that are therefore exempt from SEC registration should include the following statement in this part of the plan: “The shares being sold pursuant to this offering are restricted securities and may not be resold readily. The prospective investor should recognize that such securities might be restricted as to resale for indefinite period of time. Each purchaser will be required to execute a Non-Distribution Agreement satisfactory in form to corporate counsel”. If you are seeking a loan, then you need to indicate to the potential lender how the loan will be repaid and what the interest rate is. What is the collateral for the loan? C.Capitalization: Present in tabular form the current and proposed (post-offering) number of outstanding shares of common stock. Indicate any shares offered by key management people and show the number of shares that they will hold after completion of the proposed financing. Indicate how many shares of your company’s common stock will remain authorize debut un-issued after the offering and how many of these will be reserved for stock options for future key employees. Identify any other terms that you are willing to negotiate as part of the deal e.g. right of first refusal, seat on board, voting rights, and other rights and preferences. D.Use of Funds: Investors like to know how their money is going to be spent. Provide a brief description of how the capital raised will be used. Summarize as specifically as possible what amount will be used for such things as product design and development, capital equipment, marketing, and general working capital needs. E.Investors’ Return (Exit Strategy). What is the value of your company? How did you calculate this value? Indicate how your valuation and proposed ownership shares will result in the desired rate of return for the investors you have targeted. What will be the likely harvest or exit mechanism (IPO, outright sale, merger, MBO, operate and grow, etc.)? What is the exit strategy for the investors and founders?


As the Nuts and Bolts booklet makes clear, there is much that goes into a great business plan. Below is a checklist of things you might want to ensure appear somewhere in your plan. While this is not a comprehensive list, it covers the primary issues.

1. Define the industry and characterize it in terms of size and the life cycle and draw implications. If it has an SIC or NAICS industry code, indicate so. 2. Develop a diagram of the value-added chain and the approximate number of firms at each level, and indicate the proportion that are large firms or chains. 3. Evaluate the attractiveness of the industry in terms of Porter’s 5-factor model. 4. Identify at least three ways that companies are differentiating themselves in this industry. 5. Specify other leading trends in the industry (e.g., in costs, prices, marketing approaches, new products or services, use of technology, etc.) and identify the three most critical success factors in this industry. 6. Summarize key industry financial norms for companies in this industry. 7. Identify the principal components of the business concept. Be sure you are defining the concept in terms of customer value and customer benefits. Apply the five key criteria for a good business concept. 8. What is the need that the business exists to satisfy? How well satisfied is that need already? How high are the customer’s switching costs from whatever they are currently using or doing? 9. What is the set of forces creating the opportunity? What is the likely window of opportunity? 10. How is the market defined? What is the size of the market opportunity in dollars, units or both? Distinguish current market size from market potential and estimate the size of the primary and selective demand gaps. What is the growth rate of the market? 11. How are you segmenting the market? Are the key segments homogenous, sizeable, reachable, and responsive? Provide descriptors of the customers who make up the key segments. Which segments will you be targeting (provide a prioritization)? Who will be your early adopters? Are their segments with different price elasticities? 12. Develop a simple model of customer buying behavior for this product or service. How long is the buying process? Who is the decision-maker? Why do they buy? It is a high or low involvement purchase? How loyal are customers to existing vendors/products? 13. What are the key factors affecting sales in the market? Will there be patterns to the company’s sales. Is seasonality an issue? Is the business cyclical? Do interest rates have an impact? 14. Who are the direct competitors? Identify the strengths and weaknesses of each. How is each differentiating itself? Who are the indirect competitors? As a group, how much of a threat are they and why? 15. Be sure that you have developed a price list. Do prices adequately reflect: a) overall marketing strategy, b) costs, c) competition, d) customer demand, and e) legal issues? 16. Explain whether the company will be set up as a sole proprietorship, a partnership, an S corporation, a C corporation, or a limited liability company. 17. Describe the economics of the business. What is your average price, average cost per unit and average margin? How much of your cost structure is fixed versus variable? How much operating leverage do you have, and what are the implications of this? Calculate your contribution margin and breakeven levels in dollars and units. Make it clear where you will be making your money (for instance, in a bar, how much of profit will come from drinks versus food, in a copier business how much will come from selling machines versus selling service?) 18. Have you formulated measurable objectives? Are you certain you’ve established objectives in all the appropriate performance areas? 19. How will you ensure that the company has a strong market-orientation? 20. What will be the principal or core competencies of the company? Is strategy built around these competencies. 21. Separate from the business concept, define the company’s product mix. Assess the company’s principal offering to customers in terms of the core, tangible and augmented product. Be sure to include such product-related issues as hours, facility layout, parking, etc. 22. How will the company’s products be positioned? 23. If it is a service business, develop a diagram of the visible and non-visible aspects of the service delivery system. 24. How will operations be organized? If it is a manufacturing or assembly operation, what is the overall layout. Provide a schematic as well as a diagram of the workflow. If it’s a service business, again describe the operational layout, and then how the service will be delivered. 25. Are any product policies needed (warrantees, returns policies)? If so, what will they be. 26. What is the company’s unique selling proposition? 27. Have you developed an integrated communications mix that matches the customer’s buying process. Summarize the company’s complete mix of customer communications, including personal selling, advertising, sales promotion and publicity. Explain how they will be coordinated and managed as a mix. 28. What will the distribution channel look like? How much market coverage will this give you? What key approaches will be used to achieve cooperation among channel members? 29. How is customer service to be defined, measured and managed? What are the key components of customer service? Construct a comprehensive list of the points of customer contact involving any personnel, paperwork or facilities of the company. 30. What is the current stage of product development? Is a prototype completed? What further R&D work is needed and by when will it be completed? What’s the ongoing plan for R&D? 31. Provide a detailed cash flow statement for each of the first 3-5 years of operation. Provide pro forma income statements and balance sheets for the first three years. 32. Have you identified all of the resources (human, financial, channels, customer base, information) the company will require to start up and achieve success over the first 3 years? 33. Identify the major direct competitors and assess the strengths, weaknesses, strategy and source of differentiation relied upon by each of them. 34. How will the firm’s logistical arrangements work (inventory policies, physically getting products to customers, warehousing/storage)? What is the intended order cycle time? 35. Who will be the key members of the management team? Provide a resume of each of these individuals in an appendix. Briefly describe the role of each in the firm and how it fits their background and experience. Also, will there be a board of directors or advisors? 36. What are your staffing needs beyond the management team? What kind of people are you looking for and what is your plan for getting them? 37. Identify the major technology, legal/regulatory, economic and social developments that are likely to impact on this business in the next two years, and indicate the likely impact. 38. How much money are you asking for, from which sources, how will investors earn their return, and when? Will funding come in stages? 39. Identify the five major downside risks or things that could go wrong, and indicate your contingencies for dealing with each of them. 40. Is there internal consistency in your plan? For example, can one see the logical fit and consistency between you target market, the product/service you are selling, your marketing approach, and the budget you have put together?

Judge’s Rating Sheet

			 Name of Concept: ___________________

Business Plan Evaluation: Written Syracuse Business Plan Competition March 2004 Judge Name:____________

Please provide a rigorous evaluation of this first draft of the team’s written plan. They will have an opportunity to revise, but we will also be eliminating some teams. Could you first rate the written plan first on each of the nine content areas listed in Part I below, and then rate the overall document in Part II. Your written comments are also very much appreciated and will be shared with the team. It is critical that we give them tangible help on how to improve.

I. Coverage of Key Components (please rate each area below on a 5- point scale where 1 = poor, 5 = excellent) a.The Industry (definition, size, growth, structure, key trends, success factors) __________ b.The Business Concept and Product(s) (core concept for

capitalizing on the opportunity, products/services, benefits )         __________  

c.The Market (definition, size, market potential, target

audience, purchase decision maker & process)                               __________

d. Economics of the Business (margins, breakeven, cost

structure, how we will make our money)			        __________

e. Marketing (pricing, promotion, selling, distribution,

customer service)						        __________

f. Operations (staffing requirement, how product or

service will be produced, delivered, supported, logistics)	        __________

g. Non-financial resource requirements (people,

facilities, etc)						        __________

h.Management Team (players, roles, experience/credibility, Compensation, board of directors, key advisors) __________ i.Venture financing (money needed, from where, how

investors will receive their return, rate of return to them)	         __________  

j.Financials (projected cash flow, income statement, balance

sheet)							         __________ 	

II. Overall Document (again, please rate each area below on a 5-point

scale where 1 = poor, 5 = excellent)

a. Pragmatism/Realism __________ b. Completeness/Comprehensiveness __________ c. Internal Consistency __________ d. Writing Style __________ e. Professionalism of the Document __________

III. Overall Recommended Score (100 = outstanding---I want to invest) __________

IV. Written Comments on the Written Plan (Please provide a page---or more if possible---of detailed suggestions to the team on how they can improve the plan prior to the major cut that will determine which 15 teams go to the finals): (attach comment sheet(s))

Judge’s Rating Sheet Name of Concept___________________ Business Plan Evaluation: Oral Presentation Syracuse Business Plan Competition April 2004 Judge # ___

Please rate the presentation of the business plan first on each of the seven content areas listed in Part I below, and then rate the presentation itself in Part II. In Part III, please give the presentation an overall rating from 0 to 100. Your written comments are very much appreciated and will be shared with the team.

I. Coverage of Key Components (please rate each area below on a 5- point scale where 1 = poor, 5 = excellent)

a. The Opportunity (forces creating the opportunity, size of the

      opportunity, market need)                                                               	__________ 

k.The Business Concept (core concept for capitalizing on the

opportunity, products/services, benefits )        		        	__________  

l.The Market (definition, size, market potential, target

audience, purchase decision process)                                             	__________

m.Operations (staffing requirements, how product or

service will be produced/delivered/supported, logistics)	        	__________ 

n.Marketing (pricing, promotion, selling, distribution, how an actual sale will be accomplished) __________ o.Economics of the Business (margins, breakeven, cost

structure, how we will make our money)			         	__________ 

p.Financials (projected cash flow, income statement, balance

sheet, how much money we need, how we will get it, 
how financiers will get their return)				        	 __________ 	

II. Overall Assessment of Oral Presentation (again, please rate each area below on a 5- point scale where 1 = poor, 5 = excellent)

a. Powerpoint or other audiovisuals __________ b. Ability to capture audience attention __________ c. Completeness of the presentation __________ d. Mastery of facts and material related to venture __________ e. Professionalism of the presentation __________ f. Handling of questions __________

III. Overall Recommended Score (100 = Outstanding, I want to invest!) __________