Management Information Systems, 13TH ED.
MANAGING THE DIGITAL FIRM
Kenneth C. Laudon ● Jane P. Laudon
continued
Learning Track 2: Build an E-commerce Business Plan
fiere are lots of different ways to lay out a business plan. fie sample outline below is just one of
many outlines. After the outline, we’ll esh out each of the elements listed to give you an idea of
what is entailed in creating an effective business plan.
Elements of a Business Plan: Outline
2. Executive summary
3. Table of contents
I. fie Business
A. Description of business, customer value proposition and competitive advantages, if
any
B. Market Opportunity
C. Competition
E. Management Team
II. Financial Data/Revenue Model
A. Balance sheet
B. Breakeven analysis
C. Pro-forma income projections (profit & loss statements)
i. firee–year summary
ii. Detail by month, first year
D. Pro-forma cash ow
i. Follow guidelines for letter C.
III. Supporting Documents/Appendices: tax returns; personal financial statements of princi-
pals; copies of relevant legal documents, etc.
Chapter 10: E-Commerce: Digital Markets, Digital Goods
Chapter 10 Learning Track 2 2
Cover Sheet, Executive Summary and Table of Contents
fie first page of the usiness plan is a cover sheet that includes the name, address and telephone
number of the business and the names of all principals. fie cover sheet can be also be combined
with the executive summary, with the information that would appear on the cover sheet being
place instead at the top of the executive summary.
fie second page of the business plan is a one–page executive summary that summarizes each of
the main elements of the business plan. In straightforward prose you should answer the following
questions:
◆ What sort of company is it?
◆ What’s the product/service, and what’s special about it?
◆ Who are the managers?
◆ How much money do you need? In what stages? What will you use it for?
I. The Business
A. DESCRIPTION OF THE BUSINESS
In this section, provide a detailed description of the business. Include your products, market and
services as well as a thorough description of what makes your business unique. fie description
of the business should have two main sections: the first section describes the business, while the
second section describes the product or service you will be offering.
fie description of the business should clearly identify the business’s goals and objectives (its
“mission”). When describing the business, generally you should also explain:
2. Business type: merchandizing, manufacturing or service.
4. Why the business will be profitable. What are the growth opportunities?
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Include a description of what makes the business unique and how or why its unique aspects will
appeal to consumers. Emphasize any special features that you feel will appeal to customers and
explain how and why these features are appealing.
Next give a detailed description of the product/service. Try to describe the benefits of goods or
services from your customers’ perspective. More specifically, describe:
1. What you are selling.
3. What is different about the product or service your business is offering.
B. MARKET OPPORTUNITY
In this section of the business, you demonstrate to potential investors that you have done your
“homework” and know the industry you are seeking to enter. An analysis of the market oppor–
C. THE COMPETITION
It is important to know your competitors. Questions like these can help you:
1. Who are your five nearest direct competitors?
2. Who are your indirect competitors?
3. How are their businesses: steady? increasing? decreasing?
4. What have you learned from their operations? from their advertising?
5. What are their strengths and weaknesses?
6. How does their product or service differ from yours?
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continued
D. MARKETING
Marketing plays a vital role in successful business ventures. How well you market you business,
along with a few other considerations, will ultimately determine your degree of success or failure.
fie key element of a successful marketing plan is to know your customers–their likes, dislikes,
expectations. By identifying these factors, you can develop a marketing strategy that will allow you
to arouse and fulfill their needs.
Develop a marketing plan for your business by answering these questions. Your marketing plan
should be included in your business plan and contain answers to the questions outlined below.
1. Who are your customers? Define your target market(s).
2. Are your markets growing? steady? declining?
3. Is your market share growing? steady? declining?
4. Are your markets large enough to expand?
5. How will you attract, hold, increase your market share?
6. What pricing strategy have you devised?
How you advertise and promote your goods and services may make or break your business. Having
a good product or service and not advertising and promoting it is like not having a business at all.
Chapter 10 Learning Track 2 5
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fie key to success is to have a well-planned strategy, to establish your policies and to constantly
monitor prices and operating costs to ensure profits.
Appendix 1 includes a questionnaire that can be used to help you create a marketing plan.
E. MANAGEMENT TEAM
Managing a business requires dedication, persistence, the ability to make decisions and the ability
to manage both employees and finances. Employees and staff play an important role in the total
operation of a business. Consequently, it’s imperative that you know what skills you possess and
those you lack since you will have to hire personnel to supply the skills that you lack. fie manage-
ment section of the business plan should answer questions such as:
◆ How does your background/business experience help you in this business?
II. Financial Data/Revenue Model
Sound financial management is one of the best ways for your business to remain profitable and
solvent. How well you manage the finances of your business is the cornerstone of every success-
ful business venture. Each year thousands of potentially successful businesses fail because of poor
financial management.
To effectively manage your company’s finances, plan a sound, realistic budget by determining the
actual amount of money needed to open the business (start-up costs) and the amount needed to
keep it open (operating costs). fie first step to building a sound financial plan is to devise a start–
up budget. fie start-up budget will usually include such one-time-only costs as major equipment,
utility deposits, down payments, etc.
An operating budget is prepared when you are actually ready to open for business. fie operat–
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Other questions that you will need to consider are:
◆ What will your sales goals and profit goals for the coming year be?
◆ What financial projections will you need to include in your business plan?
Your plan should include an explanation of all projections. Unless you are thoroughly familiar with
financial statements, get help in preparing your cash ow and income statements and your balance
Chapter 10 Learning Track 2 7
Appendix 1: The Marketing Plan
I. MARKET ANALYSIS
A. Target Market–Who are the customers?
1. We will be selling primarily to (check all that apply):
Total Percent of Business
a. Private sector ______ ______
b. Wholesalers ______ ______
c. Retailers ______ ______
d. Government ______ ______
e. Other ______ ______
2. We will be targeting customers by:
a. Product line/services.
We will target specific lines: ________________
b. Geographic area? Which areas? ________________
c. Sales? We will target sales of ________________
d. Industry? Our target industry is: ________________
e. Other? ________________
3. How much will our selected market spend on our type of product or service this coming year?
$________________
B. Competition
1. Who are our competitors?
2. How competitive is the market?
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continued
3. List below your strengths and weaknesses compared to your competition (consider such areas
as location, size of resources, reputation, services, personnel, etc.):
Strengths Weaknesses
1._______________________ 1._______________________
3._______________________ 3._______________________
4._______________________ 4._______________________
C. Environment
1. The following are some important economic factors that will affect our product or service (such
as trade area growth, industry health, economic trends, taxes, rising energy prices, etc.):
________________________________________________
________________________________________________
________________________________________________
2. The following are some important legal factors that will affect our market:
________________________________________________
________________________________________________
________________________________________________
3. The following are some important government factors:
________________________________________________
________________________________________________
________________________________________________
4. The following are other environmental factors that will affect our market, but over which we
have no control:
________________________________________________
________________________________________________
________________________________________________
II. PRODUCT OR SERVICE ANALYSIS
A. Description
1. Describe here what the product/service is and what it does:
________________________________________________
________________________________________________
________________________________________________
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B. Comparison
1. What advantages does our product/service have over those of the competition (consider such
things as unique features, patents, expertise, special training, etc.)?
__________________________________________________
__________________________________________________
__________________________________________________
2. What disadvantages does it have?
__________________________________________________
__________________________________________________
__________________________________________________
C. Some Considerations
1. Where will you get your materials and supplies?
__________________________________________________
2. List other considerations:
__________________________________________________
__________________________________________________
III. MARKETING STRATEGIES–MARKET MIX
A. Image
1. First, what kind of image do we want to have (such as cheap but good, or exclusiveness, or
customer-oriented or highest quality, or convenience, or speed, or…)?
__________________________________________________
B. Features
1. List the features we will emphasize:
a. __________________________________________
b. __________________________________________
c. __________________________________________
C. Pricing
1. We will be using the following pricing strategy:
a. Markup on cost ____ What % markup? _____
b. Suggested price ____
c. Competitive ____
d. Below competition ____
e. Premium price ____
f. Other ____
2. Are our prices in line with our image?
YES___ NO___
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3. Do our prices cover costs and leave a margin of profit?
YES___ NO___
D. Customer Services
1. List the customer services we provide:
a. ____________________________________________
b. ____________________________________________
c. ____________________________________________
2. These are our sales/credit terms:
a. ____________________________________________
b. ____________________________________________
c. ____________________________________________
3. The competition offers the following services:
a. ____________________________________________
b. ____________________________________________
c. ____________________________________________
E. Advertising/Promotion
1. These are the things we wish to say about the business:
____________________________________________________
____________________________________________________
____________________________________________________
2. We will use the following advertising/promotion sources:
1. Internet ________
2. Television/Radio ________
3. Direct mail ________
4. Personal contacts ________
6. Newspaper ________
8. Yellow Pages ________
10. Other ________
3. The following are the reasons why we consider the media we have chosen to be the most ef-
fective:
__________________________________________________
__________________________________________________
__________________________________________________
Chapter 10 Learning Track 2 11
Appendix 2: Financial Data
INCOME PROJECTION STATEMENT
fie income projections (profit and loss) statement is valuable as both a planning tool and a key
management tool to help control business operations. It enables the owner/manager to develop a
preview of the amount of income generated each month and for the business year, based on reason–
able predictions of monthly levels of sales, costs and expenses.
Industry Percentage In the industry percentage column, enter the percentages of total sales
(revenues) that are standard for your industry, which are derived by dividing
fiese percentages can be obtained from various sources, such as trade associations, accountants
or banks. Industry figures serve as a useful benchmark against which to compare cost and expense
estimates that you develop for your firm. Compare the figures in the industry percentage column
to those in the annual percentage column.
◆ Total Net Sales (Revenues): Determine the total number of units of products or services you
realistically expect to sell each month at the prices you expect to get. Use this step to create the
projections to review your pricing practices.
◆ Gross Profit: Subtract the total cost of sales from the total net sales to obtain gross profit.
◆ Gross Profit Margin: fie gross profit is expressed as a percentage of total sales (revenues). It
is calculated by dividing gross profits by total net sales.
◆ Controllable (also known as Variable) Expenses: Include salary expenses, payroll expenses,
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◆ Annual Total: For each of the sales and expense items in your income projection statement,
add all the monthly figures across the table and put the result in the annual total column.
BALANCE SHEET
Figures used to compile the balance sheet are taken from the previous and current balance sheet
as well as the current income statement. fie income statement is usually attached to the balance
sheet. fie following text covers the essential elements of the balance sheet.
At the top of the page, fill in the legal name of the business, the type of statement and the day,
month and year.
◆ Assets: List anything of value that is owned or legally due the business. Total assets include
all net values. fiese are the amounts derived when you subtract depreciation and amortization
from the original costs of acquiring the assets.
◆ Current Assets: Include cash and resources that can be converted into cash within 12 months
◆ Long-term Investments: Also called long-term assets, these are holdings the business intends
to keep for at least a year and that typically yield interest or dividends. Included are stocks,
bonds and savings accounts earmarked for special purposes.
◆ Fixed Assets: Also called plant and equipment. Includes all resources a business owns or
acquires for use in operations and not intended for resale. Fixed assets may be leased. Includes
Chapter 10 Learning Track 2 13
continued
credit extended to the business); taxes payable (amounts estimated by an accountant to have
been incurred during the accounting period); and payroll accrual (salaries and wages currently
owed).
◆ Long-term Liabilities: Include note, contract or mortgage payments due over a period
exceeding 12 months or one cycle of operation.
CASH FLOW PROJECTION
A cash ow projection helps the entrepreneur understand the cash needs of the business. It should
be prepared for each month for at least an entire year period.
2. To this amount is added expected (2) cash receipts, which includes
a. all cash sales
5. Cash paid out typically includes the following:
a. Purchases (merchandise)–Merchandise for resale or for use in product (paid for
in current month).
b. Gross wages (including withdrawals)
c. Payroll expenses (taxes, etc.)
d. Outside services
e. Supplies (oce and operating)
Chapter 10 Learning Track 2 14
p. Other expenses
q. Miscellaneous
r. Subtotal-–fiis subtotal indicates cash out for operating costs
6. Total cash paid out (add 5a through 5w)
7. Cash position (end on month) (4 minus 6)-–Enter this amount in (1) Cash on hand following
month.
Essential Operating Data (non-cash fiow information) fiis is basic information necessary
for proper planning and for proper cash ow projection. Also with this data, the cash ow can be
evolved and shown in the above form.
A. Sales volume (dollars) fiis is a very important figure and should be estimated carefully,
B. Accounts receivable (end of month) Previous unpaid credit sales plus current month’s credit
sales, less amounts received current month (deduct “C” below).
C. Bad debt (end on month) Bad debts should be subtracted from (B) in the month anticipated.
D. Inventory on hand (end on month) Last month’s inventory plus merchandise received and/or
manufactured current month minus amount sold current month.