Business Plan
OWNERS
Your Business Name
Address Line 1
Address Line 2
City, ST ZIP Code
Telephone
Fax
E-Mail
I. Table of Contents
I. Table of Contents
...................................................................................................
3
II. Executive
Summary...............................................................................................
4
III. General Company Description
............................................................................ 5
IV. Products and
Services............................................................................................
6
V. Marketing Plan
.......................................................................................................
7
VI. Operational Plan
..................................................................................................
16
VII. Management and
Organization.........................................................................
21
VIII. Personal Financial Statement
.............................................................................
22
IX. Startup Expenses and Capitalization ................................................................
23
X. Financial Plan
.......................................................................................................
24
XI. Appendices ...........................................................................................................
27
XII. Refining the
Plan..................................................................................................
28
II. Executive Summary
Write this section last.
We suggest that you make it two pages or fewer.
Include everything that you would cover in a five-minute
interview.
Explain the fundamentals of the proposed business: What will your
product be? Who
will your customers be? Who are the owners? What do you think the
future holds for
your business and your industry?
Make it enthusiastic, professional, complete, and concise.
If applying for a loan, state clearly how much you want, precisely
how you are going to
use it, and how the money will make your business more profitable,
thereby ensuring
repayment.
III. General Company Description
What business will you be in? What will you do?
Mission Statement: Many companies have a brief mission statement,
usually in 30
words or fewer, explaining their reason for being and their
guiding principles. If you
want to draft a mission statement, this is a good place to put it
in the plan, followed by:
Company Goals and Objectives: Goals are destinations—where you
want your business
to be. Objectives are progress markers along the way to goal
achievement. For example,
a goal might be to have a healthy, successful company that is a
leader in customer
service and that has a loyal customer following. Objectives might
be annual sales targets
and some specific measures of customer satisfaction.
Business Philosophy: What is important to you in business?
To whom will you market your products? (State it briefly here—you
will do a more
thorough explanation in the Marketing Plan section).
Describe your industry. Is it a growth industry? What changes do
you foresee in the
industry, short term and long term? How will your company be
poised to take
advantage of them?
Describe your most important company strengths and core
competencies. What factors
will make the company succeed? What do you think your major
competitive strengths
will be? What background experience, skills, and strengths do you
personally bring to
this new venture?
Legal form of ownership: Sole proprietor, Partnership,
Corporation, Limited liability
corporation (LLC)? Why have you selected this form?
IV. Products and Services
Describe in depth your products or services (technical
specifications, drawings, photos,
sales brochures, and other bulky items belong in Appendices).
What factors will give you competitive advantages or
disadvantages? Examples include
level of quality or unique or proprietary features.
What are the pricing, fee, or leasing structures of your products
or services?
V. Marketing Plan
Market research - Why?
No matter how good your product and your service, the venture
cannot succeed
without effective marketing. And this begins with careful,
systematic research. It is very
dangerous to assume that you already know about your intended
market. You need to
do market research to make sure you’re on track. Use the business
planning process as
your opportunity to uncover data and to question your marketing
efforts. Your time
will be well spent.
Market research - How?
There are two kinds of market research: primary and secondary.
Secondary research means using published information such as
industry profiles, trade
journals, newspapers, magazines, census data, and demographic
profiles. This type of
information is available in public libraries, industry associations,
chambers of
commerce, from vendors who sell to your industry, and from
government agencies.
Start with your local library. Most librarians are pleased to
guide you through their
business data collection. You will be amazed at what is there.
There are more online
sources than you could possibly use. Your chamber of commerce has
good information
on the local area. Trade associations and trade publications often
have excellent
industry-specific data.
Primary research means gathering your own data. For example, you
could do your own
traffic count at a proposed location, use the yellow pages to
identify competitors, and
do surveys or focus-group interviews to learn about consumer
preferences.
Professional market research can be very costly, but there are
many books that show
small business owners how to do effective research themselves.
In your marketing plan, be as specific as possible; give
statistics, numbers, and sources.
The marketing plan will be the basis, later on, of the
all-important sales projection.
Economics
Facts about your industry:
• What is the total size
of your market?
• What percent share of
the market will you have? (This is important only if you
think you will be a major factor in the market.)
• Current demand in
target market.
• Trends in target
market—growth trends, trends in consumer preferences, and
trends in product development.
• Growth potential and
opportunity for a business of your size.
• What barriers to entry
do you face in entering this market with your new
company? Some typical barriers are:
o High capital costs
o High production costs
o High marketing costs
o Consumer acceptance
and brand recognition
o Training and skills
o Unique technology and
patents
o Unions
o Shipping costs
o Tariff barriers and
quotas
• And of course, how
will you overcome the barriers?
• How could the
following affect your company?
o Change in technology
o Change in government
regulations
o Change in the economy
o Change in your
industry
Product
In the Products and Services
section, you described
your products and services as you see
them. Now describe them from your customers’ point of view.
Features and Benefits
List all of your major products or services.
For each product or service:
• Describe the most
important features. What is special about it?
• Describe the benefits.
That is, what will the product do for the customer?
Note the difference between features and benefits, and think about
them. For example,
a house that gives shelter and lasts a long time is made with
certain materials and to a
certain design; those are its features. Its benefits include pride
of ownership, financial
security, providing for the family, and inclusion in a
neighborhood. You build features
into your product so that you can sell the benefits.
What after-sale services will you give? Some examples are
delivery, warranty, service
contracts, support, follow-up, and refund policy.
Customers
Identify your targeted customers, their characteristics, and their
geographic locations,
otherwise known as their demographics.
The description will be completely different depending on whether
you plan to sell to
other businesses or directly to consumers. If you sell a consumer
product, but sell it
through a channel of distributors, wholesalers, and retailers, you
must carefully analyze
both the end consumer and the middleman businesses to which you
sell.
You may have more than one customer group. Identify the most
important groups.
Then, for each customer group, construct what is called a
demographic profile:
• Age
• Gender
• Location
Page 10 of 31
• Income level
• Social class and
occupation
• Education
• Other (specific to
your industry)
• Other (specific to
your industry)
For business customers, the demographic factors might be:
• Industry (or portion
of an industry)
• Location
• Size of firm
• Quality, technology,
and price preferences
• Other (specific to
your industry)
• Other (specific to
your industry)
Competition
What products and companies will compete with you?
List your major competitors:
(Names and addresses)
Will they compete with you across the board, or just for certain
products, certain
customers, or in certain locations?
Will you have important indirect competitors? (For example, video
rental stores
compete with theaters, although they are different types of
businesses.)
How will your products or services compare with the competition?
Use the Competitive Analysis table below to compare your company
with your two
most important competitors. In the first column are key
competitive factors. Since these
vary from one industry to another, you may want to customize the
list of factors.
In the column labeled Me, state how you
honestly think you will stack up in customers'
minds. Then check whether you think this factor will be a strength
or a weakness for
you. Sometimes it is hard to analyze our own weaknesses. Try to be
very honest here.
Better yet, get some disinterested strangers to assess you. This
can be a real eye-opener.
And remember that you cannot be all things to all people. In fact,
trying to be causes
many business failures because efforts become scattered and
diluted. You want an
honest assessment of your firm's strong and weak points.
Now analyze each major competitor. In a few words, state how you
think they compare.
In the final column, estimate the importance of each competitive
factor to the customer.
1 = critical; 5 = not very important.
Table 1: Competitive Analysis
Factor Me Strength Weakness Competitor A
Competitor B Importance to
Customer
Products
Price
Quality
Selection
Service
Reliability
Stability
Expertise
Company
Reputation
Location
Appearance
Factor Me Strength Weakness Competitor A
Competitor B Importance to
Customer
Sales Method
Credit Policies
Advertising
Image
Now, write a short paragraph stating your competitive advantages
and disadvantages.
Niche
Now that you have systematically analyzed your industry, your
product, your
customers, and the competition, you should have a clear picture of
where your
company fits into the world.
In one short paragraph, define your niche, your unique corner of
the market.
Strategy
Now outline a marketing strategy that is consistent with your
niche.
Promotion
How will you get the word out to customers?
Advertising: What media, why, and how often? Why this mix and not
some other?
Have you identified low-cost methods to get the most out of your
promotional budget?
Will you use methods other than paid advertising, such as trade
shows, catalogs, dealer
incentives, word of mouth (how will you stimulate it?), and
network of friends or
professionals?
What image do you want to project? How do you want customers to
see you?
In addition to advertising, what plans do you have for graphic
image support? This
includes things like logo design, cards and letterhead, brochures,
signage, and interior
design (if customers come to your place of business).
Should you have a system to identify repeat customers and then
systematically contact
them?
Promotional Budget
How much will you spend on the items listed above?
Before startup? (These numbers will go into your startup budget.)
Ongoing? (These numbers will go into your operating plan budget.)
Pricing
Explain your method or methods of setting prices. For most small
businesses, having
the lowest price is not a good policy. It robs you of needed
profit margin; customers
may not care as much about price as you think; and large
competitors can under price
you anyway. Usually you will do better to have average prices and
compete on quality
and service.
Does your pricing strategy fit with what was revealed in your
competitive analysis?
Compare your prices with those of the competition. Are they
higher, lower, the same?
Why?
How important is price as a competitive factor? Do your intended
customers really
make their purchase decisions mostly on price?
What will be your customer service and credit policies?
Proposed Location
Probably you do not have a precise location picked out yet. This
is the time to think
about what you want and need in a location. Many startups run
successfully from home
for a while.
You will describe your physical needs later, in the Operational Plan section. Here,
analyze your location criteria as they will affect your customers.
Is your location important to your customers? If yes, how?
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out of the way?
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for you to be near
them (like car dealers or
fast food restaurants) or distant (like convenience food stores)?
Distribution Channels
How do you sell your products or services?
Retail
Direct (mail order, Web, catalog)
Wholesale
Your own sales force
Agents
Independent representatives
Bid on contracts
Sales Forecast
Now that you have described your products, services, customers,
markets, and
marketing plans in detail, it’s time to attach some numbers to
your plan. Use a sales
forecast spreadsheet to prepare a month-by-month projection. The forecast should be
based on your historical sales, the marketing strategies that you
have just described,
your market research, and industry data, if available.
You may want to do two forecasts: 1) a "best guess",
which is what you really expect,
and 2) a "worst case" low estimate that you are
confident you can reach no matter what
happens.
Remember to keep notes on your research and your assumptions as
you build this sales
forecast and all subsequent spreadsheets in the plan. This is
critical if you are going to
present it to funding sources.
VI. Operational Plan
Explain the daily operation of the business, its location,
equipment, people, processes,
and surrounding environment.
Production
How and where are your products or services produced?
Explain your methods of:
• Production techniques
and costs
• Quality control
• Customer service
• Inventory control
• Product development
Location
What qualities do you need in a location? Describe the type of
location you’ll have.
Physical requirements:
• Amount of space
• Type of building
• Zoning
• Power and other
utilities
Access:
Is it important that your location be convenient to transportation
or to suppliers?
Do you need easy walk-in access?
What are your requirements for parking and proximity to freeway,
airports, railroads,
and shipping centers?
Include a drawing or layout of your proposed facility if it is
important, as it might be for
a manufacturer.
Construction? Most new companies should not sink capital into
construction, but if you
are planning to build, costs and specifications will be a big part
of your plan.
Cost: Estimate your occupation expenses, including rent, but also
including
maintenance, utilities, insurance, and initial remodeling costs to
make the space suit
your needs. These numbers will become part of your financial plan.
What will be your business hours?
Legal Environment
Describe the following:
• Licensing and bonding
requirements
• Permits
• Health, workplace, or
environmental regulations
• Special regulations
covering your industry or profession
• Zoning or building
code requirements
• Insurance coverage
• Trademarks,
copyrights, or patents (pending, existing, or purchased)
Personnel
• Number of employees
• Type of labor
(skilled, unskilled, and professional)
• Where and how will you
find the right employees?
• Quality of existing
staff
• Pay structure
• Training methods and
requirements
• Who does which tasks?
• Do you have schedules
and written procedures prepared?
• Have you drafted job
descriptions for employees? If not, take time to write some.
They really help internal communications with employees.
• For certain functions,
will you use contract workers in addition to employees?
Inventory
• What kind of inventory
will you keep: raw materials, supplies, finished goods?
• Average value in stock
(i.e., what is your inventory investment)?
• Rate of turnover and
how this compares to the industry averages?
• Seasonal buildups?
• Lead-time for
ordering?
Suppliers
Identify key suppliers:
• Names and addresses
• Type and amount of
inventory furnished
• Credit and delivery
policies
• History and reliability
Should you have more than one supplier for critical items (as a
backup)?
Do you expect shortages or short-term delivery problems?
Are supply costs steady or fluctuating? If fluctuating, how would
you deal with
changing costs?
Credit Policies
• Do you plan to sell on
credit?
• Do you really need to
sell on credit? Is it customary in your industry and
expected by your clientele?
• If yes, what policies
will you have about who gets credit and how much?
• How will you check the
creditworthiness of new applicants?
• What terms will you
offer your customers; that is, how much credit and when is
payment due?
• Will you offer prompt
payment discounts? (Hint: Do this only if it is usual and
customary in your industry.)
• Do you know what it
will cost you to extend credit? Have you built the costs into
your prices?
Managing Your Accounts Receivable
If you do extend credit, you should do an aging at least monthly
to track how much of
your money is tied up in credit given to customers and to alert
you to slow payment
problems.
A receivables aging looks like the following table:
Total Current 30 Days 60 Days 90 Days Over
90 Days
Accounts
Receivable Aging
You will need a policy for dealing with slow-paying customers:
• When do you make a
phone call?
• When do you send a
letter?
• When do you get your
attorney to threaten?
Managing Your Accounts Payable
You should also age your accounts payable, what you owe to your
suppliers. This helps
you plan whom to pay and when. Paying too early depletes your
cash, but paying late
can cost you valuable discounts and can damage your credit. (Hint:
If you know you
will be late making a payment, call the creditor before the due
date.)
Do your proposed vendors offer prompt payment discounts?
A payables aging looks like the following table.
Total Current 30 Days 60 Days 90 Days Over
90 Days
Accounts Payable Aging
VII. Management and Organization
Who will manage the business on a day-to-day basis? What
experience does that person
bring to the business? What special or distinctive competencies?
Is there a plan for
continuation of the business if this person is lost or
incapacitated?
If you’ll have more than 10 employees, create an organizational
chart showing the
management hierarchy and who is responsible for key functions.
Include position descriptions for key employees. If you are
seeking loans or investors,
include resumes of owners and key employees.
Professional and Advisory Support
List the following:
• Board of directors
• Management advisory
board
• Attorney
• Accountant
• Insurance agent
• Banker
• Consultant or
consultants
• Mentors and key
advisors
VIII. Personal Financial Statement
Include personal financial
statements for each owner and
major stockholder, showing
assets and liabilities held outside the business and personal net
worth. Owners will
often have to draw on personal assets to finance the business, and
these statements will
show what is available. Bankers and investors usually want this
information as well.
IX. Startup Expenses and Capitalization
You will have many startup expenses before you even begin operating your business.
It’s important to estimate these expenses accurately and then to
plan where you will get
sufficient capital. This is a research project, and the more
thorough your research
efforts, the less chance that you will leave out important
expenses or underestimate
them.
Even with the best of research, however, opening a new business
has a way of costing
more than you anticipate. There are two ways to make allowances
for surprise
expenses. The first is to add a little “padding” to each item in
the budget. The problem
with that approach, however, is that it destroys the accuracy of
your carefully wrought
plan. The second approach is to add a separate line item, called
contingencies, to
account for the unforeseeable. This is the approach we recommend.
Talk to others who have started similar businesses to get a good
idea of how much to
allow for contingencies. If you cannot get good information, we
recommend a rule of
thumb that contingencies should equal at least 20 percent of the
total of all other startup
expenses.
Explain your research and how you arrived at your forecasts of
expenses. Give sources,
amounts, and terms of proposed loans. Also explain in detail how
much will be
contributed by each investor and what percent ownership each will
have.
X. Financial Plan
The financial plan consists of a 12-month profit and loss
projection, a four-year profit
and loss projection (optional), a cash-flow projection, a
projected balance sheet, and a
break-even calculation. Together they constitute a reasonable
estimate of your
company's financial future. More important, the process of
thinking through the
financial plan will improve your insight into the inner financial
workings of your
company.
12-Month Profit and Loss Projection
Many business owners think of the 12-month profit and loss projection as the
centerpiece of their plan. This is where you put it all together
in numbers and get an
idea of what it will take to make a profit and be successful.
Your sales projections will come from a sales forecast in which
you forecast sales, cost of
goods sold, expenses, and profit month-by-month for one year.
Profit projections should be accompanied by a narrative explaining
the major
assumptions used to estimate company income and expenses.
Research Notes: Keep careful notes on your research and
assumptions, so that you can
explain them later if necessary, and also so that you can go back
to your sources when
it’s time to revise your plan.
Four-Year Profit Projection (Optional)
The 12-month projection is the heart of your financial plan. The Four-Year Profit
projection is for those who want
to carry their forecasts beyond the first year.
Of course, keep notes of your key assumptions, especially about
things that you expect
will change dramatically after the first year.
Projected Cash Flow
If the profit projection is the heart of your business plan, cash
flow is the blood.
Businesses fail because they cannot pay their bills. Every part of
your business plan is
important, but none of it means a thing if you run out of cash.
The point of this worksheet is to plan how much you need before
startup, for
preliminary expenses, operating expenses, and reserves. You should
keep updating it
and using it afterward. It will enable you to foresee shortages in
time to do something
bout them—perhaps cut expenses, or perhaps negotiate a loan. But
foremost, you
shouldn’t be taken by surprise.
There is no great trick to preparing it: The cash-flow projection is just a forward look
at
your checking account. For each item, determine when you actually expect to receive cash
(for sales) or when you will actually have to write a check (for expense items).
You should track essential operating data, which is not
necessarily part of cash flow but
allows you to track items that have a heavy impact on cash flow,
such as sales and
inventory purchases.
You should also track cash outlays prior to opening in a
pre-startup column. You
should have already researched those for your startup expenses
plan.
Your cash flow will show you whether your working capital is
adequate. Clearly, if
your projected cash balance ever goes negative, you will need more
start-up capital.
This plan will also predict just when and how much you will need
to borrow.
Explain your major assumptions, especially those that make the
cash flow differ from
the Profit and Loss
Projection. For example, if you
make a sale in month one, when do
you actually collect the cash? When you buy inventory or
materials, do you pay in
advance, upon delivery, or much later? How will this affect cash
flow?
Are some expenses payable in advance? When?
Are there irregular expenses, such as quarterly tax payments,
maintenance and repairs,
or seasonal inventory buildup, that should be budgeted?
Loan payments, equipment purchases, and owner's draws usually do
not show on
profit and loss statements but definitely do take cash out. Be
sure to include them.
And of course, depreciation does not appear in the cash flow at
all because you never
write a check for it.
Opening Day Balance Sheet
A balance sheet is one of the fundamental financial reports that
any business needs for
reporting and financial management. A balance sheet shows what
items of value are
held by the company (assets), and what its debts are
(liabilities). When liabilities are
subtracted from assets, the remainder is owners’ equity.
Use a startup expenses and capitalization spreadsheet as a guide
to preparing a balance
sheet as of opening day. Then detail how you calculated the
account balances on your
opening day balance sheet.
Optional: Some people want to add a projected balance sheet showing the estimated
financial position of the company at the end of the first year.
This is especially useful
when selling your proposal to investors.
Break-Even Analysis
A break-even analysis predicts the sales
volume, at a given price, required to recover
total costs. In other words, it’s the sales level that is the
dividing line between operating
at a loss and operating at a profit.
Expressed as a formula, break-even is:
Break-Even Sales = Fixed Costs
1- Variable Costs
(Where fixed costs are expressed in dollars, but variable costs
are expressed as a percent
of total sales.)
Include all assumptions upon which your break-even calculation is
based.
XI. Appendices
Include details and studies used in your business plan; for
example:
• Brochures and
advertising materials
• Industry studies
• Blueprints and plans
• Maps and photos of
location
• Magazine or other
articles
• Detailed lists of
equipment owned or to be purchased
• Copies of leases and
contracts
• Letters of support
from future customers
• Any other materials
needed to support the assumptions in this plan
• Market research
studies
• List of assets
available as collateral for a loan
