Business Plans contain key elements that function to define the endeavors
of a business enterprise. The preparation of a business plan must be completed
by the entrepreneur. Guidelines for the preparation of a business plan,
whether start-up
or existing business, are provided in this document. A "Do it yourself"
attitude and application of these guidelines will produce an adequate business
plan to start
a business and seek venture capital, seek outside funding for turnaround
situations, or secure expansion investments.
Business plans are the difference between a business that succeeds and
one that does not. While the entrepreneur must develop her own plan, it
is essential to have the plan reviewed by professionals, and modified accordingly.
It may also be advisable to employ a professional proposal writer, accountants,
lawyers, and other key individuals in its preparation. If the entrepreneur
is going to need financing, partners, or government approval of some kind,
then the need for a professional business plan writer becomes vital. Often
the difference between the well accepted and funded business, and the ones
which fail, is in the presentation of the ideas and the packaging of the
proposal.
General Guidelines
Business plans should use simple direct language. It is advisable to place
all paragraph "topic sentences" at the beginning of each paragraph. All
major headings should be clear and followed by "topic paragraphs" which
highlight the key points of the section. This enables the reader, who may
be pressed for time, to scan the plan and determine whether more complete
attention should be devoted to it. Also, the plan should be properly written
in regards to grammar, spelling, structure, and punctuation. Having proofreaders
and reviewers comment on drafts of the document can save the writer time
and effort in the long run.
While all business plans contain key elements, the content and organization
varies from industry to industry, and also may differ based on the goal
of the plan. Information will be repeated in different sections and explained
to different degrees within sections. The right amount of detail should
be included in each section. All business plans should however address
the following major areas and contain the following sections:
The cover page, executive summary, and table of contents will determine
what kind of first impression one makes on readers. In many cases, the
introductory elements, especially the executive summary, will influence
whether readers read the rest of the plan at all. A poorly prepared or
unattractive document may not even get a second look! Investors and venture
capitalists may be presented with several proposals per day. They can not,
and do not, read them all. Getting your document looked at is a key step
in the hunt for investment and support.
The Cover
The cover of the document is often the "First Impression" of a business
for any interested parties or investors. The purpose of a cover is to tell
the reader what the document is about. Your cover should say the words
"Business Plan," and should include:
1) Name and business name
2) Company logo
3) Address
4) Telephone number
5) Fax number
6) E-mail address
7) Other contact information
The cover should be attractive and professional looking. Fonts used
should be easily read, and color contrasts should be pleasant to the eye.
Executive Summary
The executive summary is what most readers will read first. Lenders in
particular read executive summaries before looking at the rest of a plan
to determine whether or not they want to learn more about a business. An
executive summary may also be used singularly to attract potential curiosity
in your company and can be "followed up" with a complete plan if investors
are interested. The executive summary is the first part of your plan, but
it should be written last. It is an abstract of the pertinent essentials
of your business plan. The wording should be chosen very carefully. The
executive summary should be short, attention getting, and understandable.
Table of Contents
All pages of your business plan should be correctly numbered and the table
of contents should include page numbers. Be sure to list headings for the
major sections as well as for important subsections. Thumb tabs for the
documents headings are a nice feature and indicate a professional document.
II. Business Description
The business description is the "Business Vision", and includes: who the
company is, what it will offer, what market needs it will address, and
why the idea will work. A business without vision is a business that will
not know what it is doing! The description should include:
1) An overview of the industry the business will be in.
2) A description of the company.
4) The company's positioning.
3) Descriptions of the company's products or services.
5) The company's pricing strategy.
The Industry Overview
Begin the business description with a brief overview of the field the company
will be competing in. This is not a discussion of your competition. One
is providing an overview of the industry where it and other companies like
it will vie. Describe trends in the industry, some history and projections.
Do not rely on "best guesses," but use actual industry data from trade
associations, government reports and trade journals to support the descriptions.
Do not just report the positive side of the industry, include the negative
too! For example a discussion of an Internet Services business may include
problems anticipated with the number of telephone lines available, or other
infrastructure problems with the phone companies involved. Show that all
conceivable aspects have been considered.
The Company Description
Begin with your mission statement - a one or two sentence description of
the purpose of the business and to whom the product or service is targeted.
It is vital that an entrepreneur know what business they are in. Not being
clear in the mission statement indicates that one is not clear about the
purpose of one's company. It can also indicate that a business is not prepared
for the market. When the railroads failed to recognize that they where
in the transportation industry, and not the "train" business, they lost
out to trucking and airlines for market share. A business person should
pay very close attention to this statement, as all else hinges on it. If
during the building of the rest of the plan one discovers that the plan
is not correlating to the mission statement, then the mission statement
or the plan must be modified.
Describe the business. Give a brief history and include information
like whether it is a corporation, a retail, or service business. Be complete
as to ownership status, location of operations and other pertinent information.
When discussing the company's principals, one doesn't need to
provide a complete resume. The resumes are included in another section.
You can however point out interesting qualities of the principals. For
example, if one of the owners of a research firm has been recognized for
discoveries in his field and it relates to the business, then one may include
a statement like "Biochemist John Blow, who discovered the X factor in
1994, will head up the research team."
The company's Products or Services
Describe each of the products or services. Go into as much detail as necessary
for the reader to get an understanding for what the enterprise will be.
Make it interesting. It is important to point out how your particular enterprise
is different from other similar businesses. Just saying "It is better"
is not enough. You must tell how it is better. Every business claims to
be "high quality, better service." While a business must have quality and
good service, it is no real selling point, since the consumer is bombarded
with that claim at every turn. One can not bore a reader into buying their
proposal! One must convince them about their product or service. If it
can not be done here, it wont be done in the market place when the business
starts.
Positioning
Position is your place in the marketplace. How the customers and your competitors
perceive your company's product or service refers to its position. This
is based on your customers and competition, not your product or enterprise
alone. It is the relationship to customers and competition that is emphasized.
A business does not have to be the leader or potential leader to be profitable,
it does however need to know where it stands or will stand in the industry.
This understanding of positioning will aid in the promoting of the company.
Avis car rental did quit well with "We're number two, We try harder."
Pricing
Describe what the charge for the product or service is, and how one calculated
the price. Once the pricing and rationale are explained, discuss where
this pricing strategy places the company in the spectrum of the other providers
of this product or service. Also, explain how the price will affect getting
the product or service accepted. Tell also how price will affect the companies
market share. It is not necessary to assume that lower pricing increases
market share. Sometimes higher prices, as with prestige items, may have
the effect of increasing the product's market share. Remember that lower
prices require higher volume to achieve the same sales totals. A slightly
higher price may not effect the total number of sales but may greatly influence
gross profits.
III. The Market
This section is designed to provide enough facts to convince an investor,
or potential partner that the business has enough customers to garner sales
despite the competition. It is one of the most important parts of the plan,
taking into account current market size and trends, and may require extensive
professional level research. Having accurate and factual information about
the market and presenting it in a cohesive and understandable way shows
that the entrepreneur understands her business endeavor.
It is important to be specific when describing the customers who will call
for the product or service. This description defines the characteristics
of the people the endeavor wants to sell to. An existing business should
list their current key customers and any sales trends or patterns. A new
business should look at the demographics of the potential customers.
Market Size/Trends
This section defines the total market size as well as the slice of the
market the business will target. Use numbers as well as trend information
to describe the current market and its potential. Growth, declines, and
new markets opening up are key types information. Recognizing the significance
of the statistics and explaining them may require a professional's assistance.
Competition
Present a short discussion of each of the businesses' primary competitors.
If available, include annual sales and market share statistics. Each assessment
should include the degree to which these companies meet their customers'
needs. Explain how one can capture a share of their business.
Estimated Sales
This should include sales in units and dollars for the next three years,
with the first year broken down by quarters or even months if appropriate
to the endeavor. These numbers will also be used in other financial documents
presented later in the plan. Justify the projections. Use "best case,"
"worst case," and "most likely" scenarios. Explain what would influence
the different scenarios and how those influences effect sales.
IV. Development and Production
In this section describe the current state of the company's product or
service and the plan for completing the development. This is also where
one familiarizes the reader with how their product is created or services
sold. New processes must be contrasted to the old ways, with emphasis on
effectiveness and efficiency.
1) Development Status
2) Production Process
3) Cost of Development
4) Labor Requirements
5) Expenses and Capital Requirements
Development Status
Describe the current status of the company's product or service and what
remains to be done to make it ready to be marketed. Include a schedule
detailing when this work will be completed. Also, detail the contingencies
which must be met before the next phase is commenced.
Production Process
An investor will only provide money for a business he or she understands,
so explain the stages of production from the inception of the idea to when
it can be sold. With a service company, describe the process of delivering
the service. Manufacturing processes and delivery methods also need to
be detailed for those enterprises involved in making products.
Also discuss physical location for the production of your product
or service. Justify this decision as well, by talking about savings in
rent or lease, convenience to suppliers, labor, materials, or other factors
important to your business. An investor wants to know that a business does
not intend to sell "Ice to Eskimos," simply because the ice is cheaper
to make in the Arctic regions!
Cost of Production and Development
Present and explain a design and development budget. This budget should
include the cost of the design of a prototype as well as the expense to
take it into production. Testing and evaluation expenses should also be
included. Be sure to include labor, materials, consulting fees, and the
cost of professionals such as patent attorneys. While the cost of production
section may be more readily apparent to product companies, this section
is important for all businesses. Service businesses have expenses such
as consulting services, training for principals, and preparation of documentation
materials, among many other things.
Labor Requirements
The management team is outlined in the management section. This section
provide details of other labor one will need to start up and run the business.
Address how many people are required and what skills they need to possess.
Be sure to cover the important issues such as labor pool, recruitment,
training, cost of labor, and future labor pool. Training and evaluation
of employees, and having enough support personnel to accomplish the mission
of the business must be planned for. While having all the other elements
of a business are necessary, not having the employees to perform duties
of the company can be the death of a company. Any cooperative agreements
with colleges, training schools, and state departments of labor should
be included in the plan. For example, a treatment center for emotionally
disturbed children, located some distance from centers of education, would
have a difficult time recruiting professional employees. This may drive
salary requirements for recruitment out of range.
Expenses and Capital Requirements
One must also create at least three financial forms that will build a foundation
for the Financial section of your plan: operating expenses, capital requirements,
and cost of goods. Generate spreadsheets for the year in which one establishes
the business as well as projections for two years or more after.
Operating Expenses
By creating a financial form called Operating Expenses, you pull together
the expenses incurred in running your business. The attention of a business
consultant and an accountant is most needed in these preparations. All
expenses, the obvious as well as the hidden, must be considered. An experienced
consultant can ask the questions that a new entrepreneur would not think
of.
Capital Requirements
This form details the amount of money you will need to procure the equipment
and resources used to start up and continue operations of the enterprise.
Capital Requirements also includes the depreciation details of all purchased
equipment. To determine your capital requirements, think about anything
in your business that will require money to procure.
Cost of Goods
For a manufacturing company, the cost of goods is the cost incurred in
the manufacturing of the product. For a retail or wholesale business, the
cost of goods (sometimes called the cost of sales) is the purchase of inventory.
To generate a Cost of Goods table, you need to know the total number of
units you will sell for a period as well as what other inventory may be
on hand, and at what stage of production these units exist. For a manufacturing
company, the cost of goods table will include materials, labor, and overhead
related specifically to product manufacturing. Cost of waste and byproduct
disposal must also be included. For example a company which makes picture
frames would be mistaken to calculate the costs of the product based on
it containing only 9/10ths of a board foot, if it requires 1 and ½
board feet trimmed down to obtain it.
V. Sales and Marketing
This section of a business plan describes both the strategy and tactics
one will use to get customers to buy their products or services. The three
components of the sales and marketing section include:
1) Sales and Marketing Strategy
2) Method of Sales
3) Advertising and Promotion
Sales and Marketing Strategy
Think of this statement as an action plan for how a business will get customers
to buy their products. It will support the tactics described later on in
this section. How will the customers be targeted for the company's products
and services?
Method of Sales
Describe available distribution channels and how one will use them. In
this section the writer demonstrate her ability and knowledge to get the
company's products into the hands of the targeted customers. It also details
transaction methods, such as terms for financing the sale, credit card
acceptance, check handling, cash transactions, and method of product or
service delivery.
Advertising and Promotion
This section should include a description of all advertising vehicles the
enterprise plans to use. This includes flyers, newspapers, magazines, radio
& TV, Yellow Pages, Internet, etc. It should also include the public
relations program, sales/promotional materials (such as brochures and product
sheets), package design, trade show efforts, videos, and any other methods.
VI. Management
A good management team can take even a mediocre idea and make it work.
In fact, strong entrepreneurial teams have been known to move from business
idea to business, repeatedly creating and running thriving companies. These
same teams can even turn around a struggling company. When looking for
capital to turn around a company, special attention should be paid to this
area. Often the people make the difference!
1) Description
2) Ownership
3) Board of Directors/Board of Advisors
4) Support Services
Management Description
Use this section to describe company management including the responsibilities
and expertise of each person. Many lenders and venture capitalists base
their investment decisions on the strength of the company's principals.
Include special skills and abilities, as well as complementary aspects
of the team's relationship.
For positions that have yet to be filled, detailed job descriptions,
and who needs to be hired to achieve success must be described. Describe
the talents these persons need to possess and how the addition of that
person will help the company meet its objectives. Methods of recruitment
and hiring should also be detailed.
Ownership
A short section on who owns and controls the company will help readers
derive a better understanding of who will be making decisions. Potential
lenders, many of whom will require a significant stake in the company in
exchange for funds, will also be interested in what portion of the company's
equity is available.
Board of Directors/Board of Advisors
A strong board of directors or board of advisors is an asset to a business.
If the board members have industry connections, good reputations, or potential
to raise capital for your business, be sure to include these facts. A good
board of advisors can also open doors for "networking" that would otherwise
not be available. Attention to these details may be the difference between
obtaining financial and other resources needed.
Support Services
Strong support services, including consultants, attorneys, accountants,
advertising agencies, as well as industry-specific services also help to
indicate other's faith in the business. This also shows the ability to
attract needed talent to the company.
VII. Financial Documents
This is the section in which one makes the case in words, and backs up
what one says with financial statements and forms that document the viability
of the business and its soundness as an investment. If one is writing a
plan for investors, be sure to include the following sections:
1) Risks
2) Cash Flow Statement
3) Balance Sheet
4) Income Statement
5) Funding Request and Return
Risks
No business is without risks. The ability to identify and discuss them
demonstrates skills as a manager and increases a planners credibility with
potential investors. Be realistic, not admitting risks is the surest way
to failure. Knowing your risks helps one have ready-made solutions.
Cash Flow Statement
A cash flow statement shows readers of the business plan how much money
will be needed, when it will be needed, and where the money will come from.
In general terms, the cash flow statement looks at cash and sources of
revenue minus expenses and capital requirements to derive a net cash flow
figure. This is done with respect to a given time frame. Initial cash flow
statements should reflect the time frames of operation, whether weekly,
monthly, or quarterly. The time frame selected most often correspond to
a natural period of the businesses cycle.
Balance Sheet
Unlike other financial statements a balance sheet is created only once
a year to calculate the net worth of a business. If your business plan
is for a start-up
business, you will need to include a personal balance sheet summarizing
your personal assets and liabilities. A new business almost always requires
the strength of personal financial commitments. Proving that the entrepreneur
can keep commitments is important. If the business exists already, include
several of the past years balance sheets. Analyze the results of the balance
sheet briefly and include this analysis in the business plan. As with all
financial documents, have the balance sheet prepared or at least reviewed
by a reputable accountant. Decisions about assets and whether they should
be classified as owner debt equity or capital investment will greatly influence
the perceived strength of the balance sheet.
Income Statement
The income statement is where a planner makes a case for the business potential
to generate cash. This document is where the writer records revenue, expenses,
capital, and cost of goods. The outcome of the combination of these elements
demonstrates how much money a business made or will make, or lost or will
lose, during the year. An income statement and a cash flow statement differ
in that an income statement does not include details of when revenue was
collected or expenses paid. Accrual accounting and cash basis accounting
methods will influence the "bottom line" shown. While the legal implications
for these methods are most pertinent to the IRS, an astute investor will
detect any "slight of hand" that may be used to show the figures in the
best light. For this reason a business planner should employ the skills
of a CPA who is also a business oriented consultant.
An income statement projected for a business plan should be broken
out by month the first year. The second year can be broken down quarterly,
and annually for each year after. Analyze the results of the income statement
briefly and include this analysis in the business plan. If the business
already exists, include income statements for up to five previous years.
As with all financial documents, having the income statement prepared or
at least reviewed by a reputable accountant is money well spent. Any exceptional
data should be explained.
Funding Request and Return
State the amount of funding and the type (debt or partner equity) of investment
sought. It is important to provide a breakdown of how the money will be
applied. Discuss what effect the capital will have on the business potential
to grow and profit, when the money is needed, and what investment has already
been made in the company.
A common mistake in a business plan is to be unclear in this section,
which turns potential investors away. If the company founders have invested
in the company, include this in your plan. Most investors are encouraged
by founders putting their own money on the line. Many will ask why a company's
principals are not also investors.
Finally, create an exit plan that describes how investors will
get their money out of your company. One common investor worry is that
even if a business is profitable, it may be difficult for them to get a
good price for their equity. A cash-out option in five years or assurance
that the company will become a strong candidate for a purchase or an Initial
Public Offering are what many venture capitalists and lenders will insist
upon. A business owner also may want to be sure that she can "buy back"
any equity put up to insure that an investment will be made.
VIII. The Appendix
The Appendix is where related documents and support materials are included.
For example if The companies goods or services are featured in a magazine
article or trade journal, a copy of the article may be provided. Any reports
or other information that would make the Business Plan more complete should
also be included here.
Conclusion
A complete and thorough business plan must have attention to detail and
cover all the major areas of concern. Business plans most often require
the aid of professional writers, lawyers, consultants and accountants.
A properly planned business is the first step to a successful business.
Proper presentation may make the difference between a well funded program
and the one looking for money.
About The Author
Wayne R. Parker
is a business and marketing consultant. He holds a BS in clinical psychology
and a MA in counseling. Parker has participated as team facilitator on many
research and development projects.