CRITICAL THINKING EXERCISE 5-4



critical thinking exercise 5-4

Writing a Business Plan

One of Mike McNeely’s favorite pastimes as a teenager was taking his old car apart and putting it back together again. After graduation, Mike started working as a mechanic for his Uncle Larry’s auto repair shop. Many of the customers have specifically asked for Mike to work on their cars because they know that he knows what he’s doing and that he’s honest.

It’s been ten years since Mike started his job. Now he is considering opening his own auto repair shop. He saved up some money and he thinks his rich Uncle Buck will lend him the rest. He has started writing a business plan and so far has:

(1) A description and appraisal of the market area;

(2) An analysis of the competition;

(3) A list of potential suppliers;

(4) A list of purchasing and pricing procedures;

(5) A list of personnel needed and their job descriptions.

1. What important items are missing from Mike’s plans?

2. What steps can Mike take to insure success if he starts his own business?

NOTES ON critical thinking exercise 5-4

1. WHAT IMPORTANT ITEMS ARE MISSING FROM MIKE’S PLANS?

The business plan should start with a brief overview stating the goals and objectives of the firm. How big does Mike want his business to get? How many employees? In what location(s)? Using what kind of financing?

It is nice to think that a “rich uncle” will provide financing, but even rich uncles need to know how much money will be needed, how it will be spent, and what risks are involved. Uncle Buck may also have some interest in how the money is going to be paid back. Mike needs a cash-flow analysis just to get some short-term money from a bank. He simply cannot be casual about funding and succeeding in a small business.

If Mike intends to have others on his managerial team, he should describe them and their backgrounds and identifying who will be responsible for what. In addition, he should mention any outside experts, such as accountants and lawyers, he may use.

A more complete marketing program will show potential investors, including Uncle Buck, how Mike intends to promote the business. Many mistakes are made at this stage, such as not doing promotions early enough and then sitting around waiting for customers. A sales forecast is needed to show whether the goals of the firm are being met right from the start.

In short, a business plan cannot be some casual thrown-together proposal. It takes time and effort. But the time is well spent because the business can then get off on the right foot.

2. What steps can Mike take to insure success if he starts his own business?

No one can be sure of success with a small business. That is why so many of them fail within five years. The best way to protect against failure is to have a very complete business plan at the start, to hire the best advice possible, and to set up methods along the way to monitor whether the business is getting off-track. One of the most critical concerns is financing. But marketing and personnel are important as well, especially in this era when there are serious shortages in the labor market.

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