The Business Plan
There are a multitude of very important reasons why every business venture must establish and maintain an on-going business planning process. Perhaps the most critical motivating factor is that without one, the chance of acquiring financing from any source at any time is extremely small or non-existent.
Commercial and other sophisticated capital sources (bank, venture capitalist, angel/private investor, government sources of money) regardless of form (debt, equity, hybrids/combinations of each) will not give serious consideration to funding needs without written and convincing proof.
That proof, in whole or in part, is your business plan.
The Business Plan
Outline
These items are in the order they would appear in a finished business plan. Some sections like the cover page, table of contents, executive summary, etc., should actually be created later in the process. These sections are noted with an asterisk (*).
v Cover letter*
If you are sending the business plan to the bank in the mail, include an introductory cover letter.
v Cover sheet
o Full formal name of company (logo if you have one).
o Legal ownership status (sole proprietorship, S-corporation, LLC, etc.).
o Full street address (mailing address if different)
o Phone, fax, e-mail, web site, etc. (home phone number optional)
o Principal contact name and title.
o Date and number of the plan (copy__or __) (optional).
v Table of contents* - sections, titles, and page numbers within your package
Topic Page
o Statement of purpose 1
o Executive summary 2
o Notes to the source and application of
funds statement 3
o Source and application of funds statement 4
o Business description 5
o Unique selling point (USP) 6
o Competitive analysis 7
o Financial notes and assumptions 10
o Current pro forma income statement 11
o Current pr forma cash flow statement 12
o Projected pro forma income statement 13
o Projected pr forma cash flow statement 14
o Pro forma balance sheets 15
Contents
Descriptions
Statement of Purpose
v Brief description of the company products or services, and location. The amount of money requested and the amount that will be invested by the owners.
v How the money will be used and how it will be repaid.
v The positive effect the money will have on the business.
Statement of Purpose
Example:
The purpose of this document is
to demonstrate the revenues and expenses associated with the ownership transfer
of Loony Toons Products. T, Bugs Bunny,
wish to purchase this well established retail products store located on Main
Street, Toontown form Elmer Fudd. Mr.
Fudd has owned the business for several successful years and is selling for
health reasons. The business had gross
sales of approximately $342,000 in 1994, $295,000 in 1995, and over $400,000 in
1996. Net income provided to the owner
form the business has consistently been well over $50,000 (owners’ salary,
business net profit, and depreciation).
We have agreed on a price of $95,000 for the business. This includes all fixtures, supplies,
leasehold improvements, and inventory.
(No real estate conveys)
Inventory as of this date is approximately $50,000 at cost.
I would like to request a fixed term business loan in the amount of
$90,000 to be used for the purchase of the assets of Loony Toons Products Store
and for use as working capital. I will
inject at least $20,000 toward the project.
The projections demonstrate that the business can generate enough
income to amortize the requested finding.
This transaction qualifies for a Small Business Administration Low Doc
loan guaranty and the loan will be collateralized by all business assets and
equity I have in real estate and personal property.
Executive Summary*
This is optional. Write one if the written portion of the plan is longer than ten pages. The executive summary gives the reader a brief, usually one page, overview of the business and business plan. Do it last.
v Name
v Location and facility description.
v Introduction to owners and management team.
v Brief summary of sales and profits from last couple of years if applicable.
v Brief explanation of the product or services.
v Information on the market, target market, competition, and how you will promote and sell the product/service
v Summary of projections, loan requirements and time-frame for repayment of funds.
v Use of proceeds* (sources & application of funds).
Indicate how much money is needed, from where it is coming, and how it will be used. Many companies require multiple stages of financing. If this is the case, the actual timing of the sources and uses of funds will also appear on the cash flow projections. Gather information for everything you will need in order to open the doors. Get written quotes when possible. These quotes will be included in the appendix section.
The specific items each source will fund can be determined later. Usually a bank will want to fund fixed assets such as building, land, and equipment and you will fund as much inventory, fees, working capital, and other soft costs as you can. This table will be reworked several times before a final version is created for the financing proposal.
Business Description
v
Name, address, phone, etc.
v
Owners (duties, backgrounds, percentages,
positions, etc.)
v
Legal form of business (sole proprietorship,
partnership, corporation. LLC).
v
History and/or start date of the business.
v
Recent sales and profit figures.
v
Business location and description of the
physical facilities.
v
Classification of business (retail, wholesale,
manufacturing, service, technology, distribution, etc.).
v
Business advisors (lawyer, accountant, banker,
insurance agent, industry contacts).
Products or services
v
Clearly describe your product or service
v
Does it posses superior quality?
v
Superior customer service?
v
Uniqueness?
v
Features and benefits:
o Features
are the attributes.
o Benefits
are what sell the product/service!
v
What additional services, if any, will you
provide?
v
Explain any special training needed to sell or
use it.
v
Include all relevant regulations and laws that
may affect its sale or use.
v
Proprietary position (patents, copyrights,
etc.).
Unique Selling Point:
USP
USP is the benefit, appeal, or big promise that you hold out to potential customers that no other competitor offers. However, unless it motivates your prospective customers to take action, it is worthless.
Operations Plan
v
Logistics
o Current
floor plans and expected future space plans for production and selling.
o Task/time
charts and schedules.
o Describe
the timing and sequential steps to bring the company up to full speed. Take it month by month for the first year and
quarterly for the next couple of years.
Make sure the cost and timing of these events are reflected in the pro
forma statements.
o Completion
of prototypes.
o Significant
contracts and orders.
o When
key people are to be hired.
o Physical
expansions or moves.
o Opening
of branches.
o Trade
show or convention dates.
o Major
equipment purchases, etc.
v
Suppliers
o Names and locations of suppliers.
o Terms
and conditions of purchase.
o Contact
person.
o Trade
volume discount.
o Minimum
order requirements.
o Product
availability.
o Shipping
restrictions.
o Exclusive
rights to the product.
o Operating
regulations (federal, state, local, industry).
o Taxes
o Licenses
required.
o Zoning
o
Insurance and/or bonding requirements.
o Is
there a need for patent, copyright or trademark?
o Association
fees
Human Resources
v
Management
The quality of the management team has a significant impact on the potential success or failure of the company. Include career highlights, accomplishments, and positions held. Why are you qualified?
o Organizational structure and chart
o Job description, roles and responsibilities of employees.
o Service and employee contracts.
o Details on advisors and associates.
o Future human resources requirements.
Risks, Problems,
& Future Plans
v Discuss high-profile, success-threatening risks and possible solutions or strategies
to address them.
v Where do you want the company to be in the future (new products or services)?
Financial information
and analysis
v
For
existing businesses:
o
Income statements, balance sheets, and tax
returns from the last three years.
o Interim
financial statements (year-to-date).
Must be less than 90 days old as of the application date. To be safe, try to make them less than 30
days old when you put the package together.
o Include
accounts receivable and accounts payable aging schedules.
Make sure all the dates on the interim financial statements match.
All numbers on the supporting statements must agree with the Income Statement and Balance Sheet.
o
List of all business obligations.
v
For all
businesses:
o
Personal financial statements for all individuals
owning 20% of more of the business.
o
Pro forma statements (projections) on a monthly
basis for one year and on a quarterly basis for the next three years. Include detailed explanations for projected
numbers (assumptions). Your sales
forecasts must be supported by past history, industry averages, demographic
evidence, statistical evidence, survey results, seasonal trends, economic
indicators, and marketing events scheduled.
Be
as conservative as possible.
o Income statements.
o Cash flow statements.
Defining and Analyzing your Market
Target Market
v
Develop a description of your typical customer.
v
What customers form your market?
v
Where are they found?
v
Why will they purchase your product or service
rather than another?
v
Is there a large enough target market to support
your product/service & generate a profit?
Demographic analysis of your typical
customers
v
Age
v
Sex
v
Socio-economic background
v
Income levels
v
Psychographic analysis (life-style)
v
Buying patterns
v
Consumer habits
Market Analysis & Strategy
v
Description of total market.
v
Indicate what strategies are needed to sell to
this market (price, promotion tools, communication messages, and distribution
methods).
v
Point out any political influences or factors.
v
Describe market coverage (local, regional,
national, international).
v
Describe industry trends:
o
Past – Brief explanation of product/service
history. How long has the product been
in existence?
o
Present – What is happening now in the market
place?
o
Future – What developments do you see for the
future?
o
Is the industry in an upswing/downswing?
o
Are there any societal trends or tastes that
will influence the industry?
Market
Research
(Use charts, graphs, and tables only if they are pertinent and can make your plan better understood by the reader).
v Primary data: Marketing research that you conduct yourself.
o Telephone survey
o Mailed questionnaire
o Personal interviews
o Focus groups.
v Secondary data: Information researched by the business through other sources.
o Industry associations
o Government research reports
o Industry profiles
Competitive
Analysis
v
List four of your business’ nearest competitors.
v
How are their businesses doing?
v
How will you business be better that the
competition?
v
What are the strengths and weaknesses of your
competitors?
v
What have you learned from looking at the
competition?
v
What are you business’s operational strengths
and weaknesses?
v
What does your product/service offer over the
competition?
v
Are they locally or nationally owned an
operated?
v
What is their pricing strategy?
v
Product comparison
v
Length of years in business
o How
do they advertise?
v
How you intend to exploit the competitive
advantage?
Marketing
Strategy: Pricing
v Set objectives for the pricing strategy.
v Prices to be charged for the products or services
v Low, medium, or high-end price strategy?
v Market acceptance of you price
v Can you make a profit at your selling price?
v Will you be discounting your price on a regular basis?
v Will you give trade or volume discounts?
v Break-even level summary. A detailed analysis should be included in the financial section of your business plan.
Marketing
Strategy: Promotion
v Brochures.
v Business cards
v Direct mail
v Direct selling
v Event marketing
v Flyers
v Internet
v Networking
v Newspaper
v Penny saver
v Radio
v Television
v Trade magazines
v Word-of-mouth
v Other:__________
Cost
of Analysis of Advertising
What is your business’s annual advertising budget? Is it a fixed amount or a percentage of projected sales? An advertising budget should never be based on your bank balance. First figure out what you need to spend, then find the money.
Advertising is not merely an element of business expense, it is an investment in building your sales. The future growth of your business will be influenced by your ability to plan and execute an effective advertising program. The advertising budget helps you determine how much you have to spend and helps establish the guidelines for how you’re going to spend it.
What you’d like to invest in advertising and what you can afford are seldom the same. You don’t want to spend too much, but spending too little can be just as bad in terms of lost sales and diminished visibility. Cost must be tied to results.
A
business plan is a well-thought-out evaluation or analysis of your business
venture, covering every conceivable facet and perspective in logical, concise,
and , where possible, statistically detailed terms. It proves that what you are about to do, have
done, or may do, has substance, merit, and a demonstrable probability of
success. This is a functional document
which, when properly prepared and followed, is a key element in your management
thinking and decision-making process.
Define
your dream.
Without a plan, without a clue…
Unfortunately, most small businesses
do not have business plans, relying instead on the informed (or uninformed)
insight of the owners and managers.
Products and services, marketing, financial need and growth planning –
issues which, directly or indirectly, impact every facet of the venture –
become products of reactive thinking.
In essence, events both from within
and outside the venture rather than the business controlling itself.
As a result of constantly adapting
to current circumstances, business management devolves into intuitive
short-term response rather that a systematic, long-term, goal-oriented plan.
This reactive thinking is not
business planning. Reactive thinking
will, in most cases, ultimately result in a waste of management’s valuable
time, money, and resources. Without the
existence and knowledgeable use of a proper business plan, the odds are that
crises will become real, increasingly frequent and perhaps irreversible.
Planning Pays
The success of any business venture
depends on planning before acting. To
sum it up:
A Business Plan identifies company
resources, spells out company goals, and details the steps required to reach
those goals.
A
Marketing Plan is part of the business plan. It analyzes the company and the product,
determines who wants – or should want – that product, and sets up a strategy
for making your product and company unforgettable. Marketing plans use tools like market
research, development of image or positioning or niche, customer service
policies, public relations, promotions such as sales or coupons or special
events, advertising, and some means of tracking an evaluating results. You should have a marketing plan for each
campaign, each major product or service.
Advertising
is a tool of the marketing plan, and should be carefully mapped out and
developed to ensure that the cost involved is justified by the results.
Get you money’s worth
When deciding how to send your
advertising budget, there are two very important points to remember:
1)
The average
small business usually has limited funds available for advertising.
2)
Today’s
consumers have been inundated with so much advertising over the course of their
lives that they tend to be more critical, cynical, and less likely to notice
ads than any previous generation.
To get the most from
your advertising dollar, you need to think “outside the box”. Pay attention to the ads that you notice and
remember. Don’t be afraid to adopt an
idea that works and adapt it to your own business. If your creativity doesn’t lie in this
direction, then this is where you pay
for the services of a professional.
To be competitive on a limited advertising budget you need a very strong
and creative message placed in formats that get attention by virtue of being
unexpected.