Section The Content and Format of the Business Plan - Introduction To Business - ثاني ثانوي

Section 1 The Content and Format of the Business Plan Link to digital lesson We will now go through the contents of the business plan in more detail. 1.1 Step 1: Cover Page The cover page should contain the following information: • Company name, address, phone number, and website. ● Tagline and company logo. Name of contact person (preferably the president) with mailing address, phone number, and e-mail address. Date on which the business plan was prepared. If the plan is being given to investors, a disclaimer that the plan is being provided on a confidential basis to qualified investors only and is not to be reproduced without permission. Number of the copy (to help keep track of how many copies have been given out). 1.2 Step 2: Table of Contents The table of contents provides a sequential listing of the sections of the plan, with page numbers. This allows the reader to spot-read the plan (a common practice) rather than reading it all the way through. 1.3 Step 3: Executive Summary (Overview) The executive summary, or overview, is often thought to be the most important section of the business plan. If you do not catch the readers' attention in the executive summary, they will not continue reading. At the very outset, it must: 1. Convey a clear and concise picture of the proposed venture. 2. Create a sense of excitement regarding its prospects. This means that it must be written to achieve clarity and create interest. وزارة التعليم Ministry of Education 2024-1446 GE44.PATHWAYS.G02.ITB.SB.PP1.indb 293 www.ien.edu.sa The Content and Format of the Business Plan | 293 08/05/2024 09:15

Even though the executive summary comes at the beginning of the business plan, it provides an overview of the entire plan and should be written last. In no more than three (preferably two) pages, the executive summary should include the following subsections: A description of the opportunity Explanation of the added value of the proposed product or service An industry overview The target customer and market analysis The competitive advantage you hope to achieve in the market The economics of the opportunity The management team The amount and purpose of the money being requested (the “offering") if you are seeking financing. As Ali is in the process of starting his app, he must make the business proposal exciting and interesting to the reader. It is important for Ali to complete further research into who his potential investors might be and why they would find his business interesting. Is there short term potential or long term opportunities? What is it that makes his business stand out from all the other apps which are available? 1.4 Step 4: Company Description The company description informs the reader of the type of business being proposed, the firm's objectives, where the firm is located, and whether it will serve a local or international market. In writing this section, the entrepreneur should answer the following questions: 1. When and where is the business to be started? 2. What are the firm's objectives? 3. In what stage of development is the firm - for example, seed stage or full product line? 4. What has been achieved to date? 5. What is the firm's competitive advantage? 6. What are the basic nature and activity of the business? 7. What is its primary product or service? 8. What customers will be served? 9. What is the firm's form of organization – sole proprietorship, partnership, limited liability company, corporation, or some other form? 10. What are the current and projected economic states of the industry? 11. Does the firm intend to sell to another company or an investment group? Does it plan to be a publicly traded company, or do the owners want to transfer ownership to the next generation of the family? This will be quite a brief section for Ali as he is likely to be a sole trader to start with and the start date may be quite fluid. Ali only has a broad idea of the nature and activity of the business as it is still only an idea and has not been fully researched. 294 Project | Preparing a Business Plan Ministry of Education 2024-1446

1.5 Step 5: Industry and Competitive Analysis The primary purpose of this section is to present the opportunity and demonstrate why there is a significant market to be served. You should describe the broader industry in which you will be competing, including industry size, growth rate, fundamental trends, and major players. For industry analysis, identify the different segments of the industry, and describe in detail the niche in which you plan to participate. Provide the context of the opportunity and demonstrate that a market segment is being underserved. Competitive analysis is used to analyze the strengths and weaknesses of potential competitors. What weaknesses do competitors have that you would improve on? What strengths do they have that you could adopt? In the case of Ali, he has already completed some basic research to find out if any other apps already exist that offer similar services. He has not found any that offer the complete service he wants to provide. However, individual coffee shops have some elements he wants to provide on their own apps and websites. He should list the competitor strengths and weaknesses in a table and determine how he can provide a better service. Are the competitors' apps available in the same regions as Ali's proposed app? Can Ali provide any additional features or a different promotional strategy? Scan the QR code to see Ali's table. In Chapter 1: Exploring the World of Business and Economics, Figure 1-3 addressed types of competition that a new business might face. 1.6 Step 6: Target Customer and Market Analysis The next step is to describe your target customer in terms of demographics such as education, gender, location, age, and income. The more clearly you can identify your customer, the more likely it is that you will provide a product or service that is in demand. Finally, knowing who customer is will serve as the basis for understanding who your competitors are. You should analyze competitors in terms of product or service attributes that they offer or are failing to provide. your وزارة التعليم Ministry of Education 2024-1446 The Content and Format of the Business Plan | 295

In analyzing the market for your product or service, you must know who your customers will be and what they want. This information should come not just from market studies, but also from talking directly to customers. With this in mind, you need to determine the answers to the following questions: What is your target market? How large is the target market? What problems concern the target market? Are any of these problems greater than the one you're addressing? How does your product or service fix the problem? Who will buy your product or service? How much are they willing to pay for it? Why do they need it? Why would they buy from you? In the case of Ali, he thinks the main customers for his app are likely to be tech-savvy coffee drinkers. To target those who are familiar with using apps, Ali might initially wish to concentrate on those between the age of 15-25. Ali should establish how big the market is by carrying out research into this age group, find out what is important to them when deciding on a coffee shop and what would make them download the app. Is charging customers for the app the best way to make revenue? Will coffee shops want to pay to improve their ranking? Will customers trust the feedback shown? 1.7 Step 7: Product/Service Plan The product/service plan describes the products and/or services to be offered to the firm's customers. Now is the time to make a convincing presentation of your company's competitive advantage. Based on your earlier description of the industry and its major players, explain how your product or service fills a gap in the market or how your product or service is “better, cheaper, and/or faster" than what is currently available. In the case of a physical product, try to provide a working model or prototype. Investors will naturally show the greatest interest in products that have been developed, tested, and found to be functional. Your growth strategy for the product or service should be explained in this section, as growth is a primary determinant of a firm's value. Ali has both short term and long term ideas for his service. In the short term he plans to provide factual data such as the products and services each coffee shop offers. How will Ali be able to show that his product is better than existing apps? Can he provide any evidence that his ideas will work in practice? Has he any evidence that these are the services that customers want? What research can Ali do to justify his long term aims? Is it possible to create and test the features of the app? 296 Project | Preparing a Business Plan Ministry of Education 2024-1446

1.8 Step 8: Marketing Plan The marketing plan is the basis for describing the firm's marketing strategy. In other words, how will you entice customers to make them change to your product or service and to continue using it? Remember, you must have a compelling value proposition, as discussed earlier in the chapter. This section should include the following topics: Methods of identifying and attracting customers ● Pricing models (used to establish the best price for a product or service) Sales and advertising methods (used to promote your business) Methods of distribution (Choosing the best way to get products or services to your customers.) As Ali is intending to attract young, tech savvy coffee drinkers, he needs to decide the best way of identifying and attracting users of his app. As Ali is a sole trader, he is unlikely to have a sales or marketing team in the short term. Nor is he likely to have a large marketing budget. Are there any low cost sales and marketing techniques that Ali can utilize? What options does Ali have to generate an income? What are the popular distribution channels available for apps? 1.9 Step 9: Operations and Development Plan The operations and development plan offers information on how the product will be produced or the service provided. Here, you will explain how the operations will contribute to the firm's competitive advantage – that is, how its operations will create value for the customer. - This section discusses items such as the following: Location and facilities, including how much space the business will need and what type of equipment it will require. The choice between in-house production and outsourcing to minimize costs. The company's proposed approach to assuring quality, controlling inventory, and using subcontractors for obtaining raw materials. Ali's business won't need premises such as a factory or a large office space. Initially, being app-based, he can operate remotely. As the business grows, will he need to consider expanding into a larger space to employ additional employees? He can also outsource the more complex software development to external companies. Ali needs to research how much software development costs are likely to be. Does Ali have the correct knowledge and software to design commercial apps? وزارة التعليم Ministry of Education 2024-1446 The Content and Format of the Business Plan | 297

1.10 Step 10: Management Team Section Prospective investors look for well-managed companies. Some investors say that they would rather have an “A” management team and a “B” product or service than a “B” team and an “A” product or service. But it can also be said that the right management in the wrong market is likely headed for failure. For success, you must have a good team working in a growth market. The management team section should detail the proposed venture's organizational structure and the backgrounds of those who will fill its key positions. Ideally, a well-balanced management team one that includes financial and marketing expertise, as well as production experience and innovative talent - will already be in place. - Ali has not set up his business yet as he has recently graduated from college. He doesn't have any staff yet to help him create his app and he needs to find the right people. How will Ali find and manage new employees, and how much budget will he need to pay his new team? In Chapter 2: Business Organization, Figure 2-1 introduced a Business Organization Chart. In comparison to an established business, which may have amassed a large workforce and many departments, a new business is likely to have a simplified management structure, as illustrated in the chart below: President Finance Operations Marketing Accounts Manufacturing Sales 1.11 Step 11: Critical Risks Section The business plan is intended to tell a story of success, but there are always risks associated with starting a new venture. Thus, the plan would be incomplete if it did not determine the risks inherent in the venture. The critical risks section identifies the potential pitfalls that may be encountered by an investor. Common risks include: A lack of market acceptance (customers don't buy the product as anticipated) Competitors offering the same product/service Longer time period and higher expenses than expected to start and grow the business • Inadequate financing • Organizations and infrastructure 298 Project | Preparing a Business Plan Ministry of Education 2024-1446

Understanding critical risks is especially important for companies, where a new product or service must be significantly better than those currently available in order to overcome the inertia that many customers experience when faced with changing to a new technology. As Ali's business is developing an app, there won't be many major cash outflows. Therefore, the financial risk is likely to be low. However, are there high or low barriers of entry to app design? For example, will coffee shops want to be associated with Ali's app? How easy or difficult is it to create a new app from scratch? What happens if Ali provides incorrect or misleading data? Which laws does Ali need to be aware of? 1.12 Step 12: Financial Plan and Offering If the entrepreneur is seeking capital from investors, an offering should be included in the plan to indicate clearly how much money is needed and when. It is helpful to convey this information in a sources and uses table that indicates the type of financing being requested (debt or equity) and how the funds will be used. SAR 100,000 300,000 100,000 SAR 500,000 SAR 125,000 SOURCES: Bank debt Equity: New investors Founders Total sources Uses: Product development Personnel costs 75,000 Working capital: Cash 20,000 Accounts receivable 100,000 Inventory Machinery Total uses 80,000 100,000 SAR 500,000 For example, for a firm needing SAR 500,000, including any money borrowed and the founder's investment, the sources and uses table for the first year might appear as in the table on the left. If equity is being requested, the entrepreneur will need to decide how much ownership of the business she or he is willing to give up - not an easy task in most cases. Typically, the amount of money being raised should carry the firm for 12 to 18 months. Then, if all goes well, it will be easier and less costly to raise more money later. Ali currently has a basic idea and does not have a working prototype of his app. Ali also has no business experience, although he did complete an app development course in college. Will seeking investment at this time be appropriate? Will investors be keen to offer funding for his idea? Is funding the only resource that Ali would need from investors? What else could be provided in addition to funding? The financial plan presents financial forecasts as pro forma statements. This section of the business plan should show that the proposed business can be self-supporting and, ultimately, profitable. To do this, the entrepreneur needs to be honest with himself or herself and fully consider the company's financial outlook. Pro forma statements, which are projections of the company's financial statements, should be presented for at least three years and possibly up to five years. The forecasts ideally include balance sheets, income statements, and statements of cash flows on an annual basis for three to five years. When developing forecasts, it is imperative that you return to your business model. That is, the business model should be the foundation of your financial forecasts. Otherwise, you will have no meaningful basis for justifying your financial assumptions. وزارة التعليم The Content and Format of the Business Plan | 299 Ministry of Education 2024-1446

While every financial statement is important, the pro forma statements of cash flows deserve special attention, because a business can be profitable but fail if it does not produce positive cash flows. A well-prepared statement of cash flows identifies the sources of cash – that is, how much will be generated from operations and how much will be raised from investors. It also shows how much money will be devoted to investments in areas such as inventories, equipment, research, and development. The statements of cash flows should clearly indicate how much cash is needed from lenders and prospective investors and for what purpose. Ali needs to predict how much income his app is likely to make and how high the monthly costs will be. Has Ali researched how much app development help he will need? How much travel will Ali need to do to research the coffee shops? How much money will be required for expenses such as buying coffee and travel? How many app users does Ali need to attract to break even? 1.13 Step 13: Appendix of Supporting Documents The appendix should contain various supplementary materials and attachments to expand the reader's understanding of the plan. These supporting documents include any items referenced in the text of the business plan: Résumés of key investors and owners/managers. Photographs of products, facilities, and buildings. Professional references. • Marketing research studies. Pertinent published research. Signed contracts of sale. The fact that it appears at the end of the plan does not mean that the appendix is of secondary importance. The reader needs to understand the assumptions underlying the premises set forth in the plan. Nothing is more important to a prospective investor than the qualifications of the management team. 300 Project | Preparing a Business Plan Ministry of Education 2024-1446

Summary You should now be able to describe the preferred content and format for a business plan. The opportunity, the critical resources, the entrepreneurial team, the financing structure, and the context of an opportunity are all interdependent factors that should be given consideration when thinking about the content of a business plan. Key sections of a business plan are the (1) cover page, (2) table of contents, (3) executive summary (overview), (4) company description, (5) industry, target customer, and competitor analysis, (6) product/service plan, (7) marketing plan, (8) operations and development plan, (9) management team, (10) critical risks, (11) offering, (12) financial plan, and (13) appendix of supporting documents. Task: Test Your Knowledge Think again about Ali's business idea. Using the template from Figure P1, start to fill out a business plan for Ali. In this scenario, Ali has some experience and knowledge of how to create apps. He is a coffee drinker but is not an expert. Ali has made some good connections with fellow graduates, but he does not have connections in the business world. Which of the following questions can you answer? 1. Which segment of the population should Ali target? Justify your answer. 2. Search the internet and name a few of Ali's local and international competitors. 3. Create a logo and propose a name for Ali's App. 4. Search the history of coffee consumption in Riyadh. 5. If Ali decides to get a 50% commission on each transaction, how many transactions does need to secure to reach 1,000,000 SAR? Fill out as much of the template as you can. What does Ali still need to work on if he is to have a successful business plan? وزارة التعليم Ministry of Education 2024-1446 The Content and Format of the Business Plan | 301