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Developing Your Business Plan
with courtesy of The Small Business Knowledge Base
(http://www.bizmove.com)
There are many reasons why a business plan should be
prepared. Each is sufficient by itself for why one must go through
the exercise of preparing the actual business plan. Regardless of
the specific reason, the underlying goal of preparing a business
plan is to insure the success of the business. Here are the main
reasons why a business plan should be prepared:
Provides you with the road map that you need in order to run your
business. It allows you to make detours, change directions, and
alter the pace that you set in starting or running the business.
To assist in financing. Whether one is starting up a small business
or is an entrepreneur, banks and financial institutions want to
see that you know where you are, where you are going, and how you
are going to get there.
The plan will tell you how much money you need, when you will need
it, and how you are going to get it. In other words, how you will
do your financing?
Helps you to clearly think through what type of business you are
starting, and allows you to consider every aspect of that business.
Raises the questions that you need to have answered in order to
succeed in your business.
Establishes a system of checks and balances for your business so
that you avoid mistakes.
Sets up bench marks to keep your business under control.
Helps you develop the competitive spirit to make you keenly prepared
and ready to operate.
Makes you think through the entire business process so that you
do not open the business blindly or lack vital information in opening
and maintaining your business.
Forces you to analyze competition.
Will give you a "go" or "no go" answer about
starting the business.
Business Plan Outline
Below is an outline for a business plan. Use this model as a guide
when developing the business plan for your business.
Elements of a Business Plan:
1. Cover sheet
2. Executive Summary
3. Table of contents
A. The Business
(1) Description of business
(2) Marketing
(3) Competition
(4) Operating procedures
(5) Personnel
(6) Financial data
B. Financial Data
(1) Loan applications
(2) Capital equipment and supply list
(3) Balance sheet
(4) Break-even analysis
(5) Pro-Forma income projections (profit & loss statements)
* Three-year summary
* Detail by month first year
* Detail by quarters, second and third years
* Assumptions upon which projections were based
(6) Pro-forma cash flow
* Follow guidelines for (5).
C. Supporting Documents
Personal financial statement (all banks have these forms)
Copy of proposed lease or purchase agreement for building space
Copy of licenses and other legal documents
Copy of resumes of all principals
Copies of letters of intent from suppliers, etc.
The Business Plan - What It Includes
What goes in a business plan? This is an excellent question to ask.
And, one that many new and potential small business owners should
ask, but oftentimes don't ask. The body of the business plan can
be divided into four distinct sections:
1) the description of the business,
2) the marketing plan,
3) the financial management plan and
4) the management plan.
Addenda to the business plan should include the executive summary,
supporting documents and financial projections.
Description of the business
In this section, provide a detailed description of your business.
An excellent question to ask yourself is: "What business am
I in?" In answering this question include your products, market
and services as well as a thorough description of what makes your
business unique. Remember, however, that as you develop your business
plan, you may have to modify or revise your initial questions.
The business description section is divided into three primary sections.
Section 1 actually describes your business, Section 2 the product
or service you will be offering and Section 3 the location of your
business, and why this location is desirable.
1. Business Description
When describing your business, generally you should explain:
Legalities - business form: proprietorship, partnership, corporation,
franchise. What licenses or permits you will need.
Business type: merchandising, manufacturing or service.
What your product or service is.
Is it a new independent business, a takeover, an expansion, a franchise?
Why your business will be profitable. What are the growth opportunities?
When your business will be open (days, hours).
What you have learned about your kind of business or franchise from
outside sources (trade suppliers, bankers, other franchise owners,
franchisor, publications).
A cover sheet goes before the description. It includes the name,
address and telephone number of the business and the names of all
principals. In the description of your business, describe the unique
aspects and how or why they will appeal to consumers. Emphasize
any special features that you feel will appeal to customers and
explain how and why these features are appealing.
The description of your business should clearly identify goals and
objectives and it should clarify why you are, or why you want to
be, in business.
2. Product/Service
Try to describe the benefits of your goods and services from your
customers' perspective. Successful business owners know or at least
have an idea of what their customers want or expect from them. This
type of anticipation can be helpful in building customer satisfaction
and loyalty. And, it certainly is a good strategy for beating the
competition or retaining your competitiveness. Describe:
What you are selling.
How your product or service will benefit the customer.
Which products/services (in your case the franchise) are in demand;
if there will be a steady flow of cash.
What is different about the product or service your franchise is
offering.
3. The Location
The location of your business can play a decisive role in its success
or failure. Your location should be built around your customers,
it should be accessible and it should provide a sense of security.
Consider these questions when addressing this section of your business
plan:
What are your location needs?
What kind of space will you need?
Why is the area desirable? the building desirable?
Is it easily accessible? Is public transportation available? Is
street lighting adequate?
Are market shifts or demographic shifts occurring?
It may be a good idea to make a checklist of questions you identify
when developing your business plan. Categorize your questions and,
as you answer each question, remove it from your list.
The Marketing Plan
Marketing plays a vital role in successful business ventures. How
well you market your business, along with a few other considerations,
will ultimately determine your degree of success or failure. The
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.
Identify your customers by their age, sex, income/educational level
and residence. At first, target only those customers who are more
likely to purchase your product or service. As your customer base
expands, you may need to consider modifying the marketing plan to
include other customers.
Develop a marketing plan by answering these questions. Potential
franchise owners will have to use the marketing strategy the franchiser
has developed; however, it should be included in your business plan
and contain answers to the questions outlined below.
Who are your customers? Define your target market (s).
Are your markets growing? steady? declining?
Is your franchise market share growing? steady? declining?
Has your franchiser segmented your markets?
Are your markets large enough to expand, depending on franchiser
restrictions?
How will you attract, hold, increase your market share? Will the
franchiser provide assistance in this area? Based on the franchiser's
strategy, how will you promote your sales?
What pricing strategy, if any, has the franchiser devised?
1. Competition
Competition is a way of life. We compete for jobs, promotions, scholarships
to institutes of higher learning, in sports -- and in almost every
aspect of your lives. Nations compete for the consumer in the global
marketplace as do individual business owners. Advances in technology
can send the profit margins of a successful business into a tailspin
causing them to plummet overnight or within a few hours. When considering
these and other factors, we can conclude that business is a highly
competitive, volatile arena. Because of this volatility and competitiveness,
it is important to know your competitors.
Questions like these can help you:
Who are your five nearest direct competitors?
Who are your indirect competitors?
How are their businesses: steady? increasing? decreasing?
What have you learned from their operations? from their advertising?
What are their strengths and weaknesses?
How does their product or service differ from yours?
Start a file on each of your competitors. Keep manila envelopes
of their advertising and promotional materials and their pricing
strategy techniques. Review these files periodically, determining
when and how often they advertise, sponsor promotions and offer
sales. Study the copy used in the advertising and promotional materials,
and their sales strategy. For example, is their copy short? descriptive?
catchy? or how much do they reduce prices for sales? Using this
technique can help you to understand your competitors better and
how they operate their businesses.
2. Pricing and Sales
Your pricing strategy is another marketing technique you can use
to improve your overall competitiveness. It may be a good idea to
get a feel for the pricing strategy your competitors are using.
That way you can determine if your prices are in line with competitors
in your market area and if they are in line with industry averages.
Some of the pricing strategies you may use, depending on the type
of business, are:
retail cost and pricing
competitive position
pricing below competition
pricing above competition
price lining
multiple pricing
service costs and pricing (for service businesses only)
service components
material costs
labor costs
overhead costs
The 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. It is a good policy to keep abreast of the changes
in the marketplace because these changes can affect your competitiveness
and profit margins.
3. Advertising and Public Relations
How you advertise and promote your business 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. Many business
owners operate under the mistaken concept that the business will
promote itself, and channel money that should be used for advertising
and promotions to other areas of the business. Advertising and promotions,
however, are the life line of a business and should be treated as
such.
Devise a plan that uses advertising and networking as a means to
promote your business. Develop short, descriptive copy (text material)
that clearly identifies your goods or services, its location and
price. Use catchy phrases to arouse the interest of your readers,
listeners or viewers. Make sure the advertisements you create are
consistent with the image you are trying to project. Remember the
more care and attention you devote to your marketing program, the
more successful your business will be.
The Management Plan
Managing a business, requires more than just the desire to be your
own boss. It demands dedication, persistence, the ability to make
decisions and the ability to manage both employees and finances.
Your management plan, along with your marketing and financial management
plans, sets the foundation for and facilitates the success of your
business.
Like plants and equipment, people are resources -- they are the
most valuable asset a business has. You will soon discover that
employees and staff will play an important role in the total operation
of your 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. Additionally, it is
imperative that you know how to manage and treat your employees.
Make them a part of the team. Keep them informed of, and get their
feedback regarding, changes. Employees oftentimes have excellent
ideas that can lead to new market areas, innovations to existing
products or services or new product lines or services which can
improve your overall competitiveness.
Your management plan should answer questions such as:
How does your background/business experience help you in this business?
What are your weaknesses and how can you compensate for them?
Who will be on the management team?
What are their strengths/weaknesses?
What are their duties?
Are these duties clearly defined?
What are your current personnel needs?
What are your plans for hiring and training personnel?
What salaries, benefits, vacations, holidays will you offer?
What benefits, if any, can you afford at this point?
The Financial Management Plan
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 successful business
venture. Each year thousands of potentially successful businesses
fail because of poor financial management. As a business owner,
you will need to identify and implement policies that will lead
to and ensure that you will meet your financial obligations.
To effectively manage your finances, plan a sound, realistic budget
by determining the actual amount of money needed to open your business
(start-up costs) and the amount needed to keep it open (operating
costs). The first step to building a sound financial plan is to
devise a start-up budget. Your start-up budget will usually include
such one-time-only costs as major equipment, utility deposits, down
payments, etc.
The start-up budget should allow for these expenses.
Start-up Budget
personnel (costs prior to opening)
legal/professional fees
occupancy
equipment
supplies
salaries/wages
income
utilities
payroll expenses
licenses/permits
insurance
advertising/promotions
accounting
An operating budget is prepared when you are actually ready to open
for business. The operating budget will reflect your priorities
in terms of how your spend your money, the expenses you will incur
and how you will meet those expenses (income). Your operating budget
also should include money to cover the first three to six months
of operation. It should allow for the following expenses.
Operating Budget
personnel
rent
loan payments
legal/accounting
supplies
salaries/wages
dues/subscriptions/fees
repairs/maintenance
insurance
advertising/promotions
depreciation
payroll expenses
taxes
miscellaneous expenses
The financial section of your business plan should include any loan
applications you've filed, a capital equipment and supply list,
balance sheet, break-even analysis, pro-forma income projections
(profit and loss statement) and pro-forma cash flow. The income
statement and cash flow projections should include a three-year
summary, detail by month for the first year, and detail by quarter
for the second and third years.
The accounting system and the inventory control system that you
will be using is generally addressed in this section of the business
plan also. Whether you develop the accounting and inventory systems
yourself, have an outside financial advisor develop the systems,
you will need to acquire a thorough understanding of each and how
it operates. Your financial advisor can assist you in developing
this section of your business plan.
The following questions should help you determine the amount of
start-up capital you will need to purchase and open your business.
How much money do you have?
How much money will you need for start-up?
How much money will you need to stay in business?
Other questions that you will need to consider are:
What type of accounting system will your use? Is it a single entry
or dual entry system?
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?
What kind of inventory control system will you use?
Your plan should include an explanation of all projections. Unless
you are thoroughly familiar with financial statements, get help
in preparing your cash flow and income statements and your balance
sheet. Your aim is not to become a financial wizard, but to understand
the financial tools well enough to gain their benefits. Your accountant
or financial advisor can help you accomplish this goal.
View A sample
business plan
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