Timing And Planning A New Business – Part II

Question: How do you create a business plan?

Answer By Glenn Okun (2008) on Forbes.com: Business plans are the documented results of a venture design process. The process attempts to refine a preliminary business idea and develop a strategy so as to take advantage of current or anticipated conditions in the internal and external environment. Venture analysis represents the processes by which the founder finds facts and generates reasonable estimates, both quantitative and qualitative, that can be utilized as inputs for planning and designing the venture.

The venture design process has five functions:

–Defining the business concept and the opportunity;

–Identifying the risk profile;

–Understanding a venture’s required resource set;

–Creating transactions for securing the required resource set; and

–Assessing the incremental value provided by the acquired resource set.

The business idea represents a starting point in the venture design process. It will be revised upon completion of the first iteration of the design process. The business concept that is created by the venture design process will demonstrate the business’ viability and value.

Viability is defined as break-even on a cash flow basis, based on financial projections that are realistic in their estimation of the performance of the business and the availability of required resources. Value is defined as risk-adjusted financial return on investment.

Risks are forces at work that have the potential to impede a venture’s progress and reduce its value. Risk profile is defined as a comprehensive assessment of the array of the venture’s risks and their interrelationships. The risk profile considers all of the individual risks and their effects on each other. Upon completing the risk profile identification process, the entrepreneur should be able to assign a single risk grade or factor describing the venture’s risk profile.

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Required resources are the individual means–financial, human or strategic–that will allow the entrepreneur to advance the venture. The required resource set considers all of the individual resources and ascertains the combination of required resources that is needed. It prioritizes the resources and stages their required timing.

There may be alternative required resource sets. Various required resource sets may only be effective if they are accompanied by a change in the firm’s strategy. For example, a decision to build rather than lease a factory has significant strategic implications. This process also identifies the essential resource set, the set of resources without which the venture cannot proceed.

Transactions are deals or contractual arrangements that secure the required resource set. The deals must be considered in isolation and as a group. Entrepreneurs must pursue the best arrangements for obtaining required resources but cannot conduct their analysis of one deal in isolation from all other resource arrangements.

Founders should evaluate the effect of one proposed transaction on the collective contractual arrangements within the firm in order to understand its potential impact on the firm’s mosaic or existing structure of transactions. For example, a new employment contract with an unusually large bonus and option component relative to historical levels may lead existing employees to renegotiate, changing the firm’s cost structure.

The acquired resource set is only desirable if it creates attractive incremental value compared with the economic state of the firm without the resources in question. Incremental value is calculated net of all deal costs and required returns demanded by the suppliers of the acquired resource set.

The business plan should document the reasoning and conclusions from this process. It should describe a plan of exploitation of the opportunity and mitigation of the risks that have been identified and analyzed in the planning process. And it should persuasively articulate the investment merits of the plan.

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Business Plans is one of the most necessary tools to get your business idea into successful venture. It gives you the track and analysis of your business idea and also it can help you to get financial support when needed.

Source: Forbes

– Sakin

One Reply to “Timing And Planning A New Business – Part II”

  1. Hi Sakin, it is really good to go through the business plan article. It would really help me if you have any sample business plan or business plan template.

    It would really help me out.
    saron