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A business plan is a necessity.
If you want to succeed in business but cannot be bothered to put together a business plan; then you will fail.
Despite the critical importance of a business plan, many people drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. But just as a builder won’t begin construction without a blueprint, eager business owners shouldn’t rush into new ventures without a business plan.
Before you begin writing your business plan, consider four core questions:
What service or product does your business provide and what needs does it fill?
Who are the potential customers for your product or service and why will they purchase it from you?
How will you reach your potential customers?
Where will you get the financial resources to start your business?
Business Plan Basics
A business plan precisely defines your business, identifies your goals, and serves as your firm’s resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.
Writing the Plan
What goes into your business plan? The body can be divided into four distinct sections:
Description of the business
Addenda should include an executive summary, supporting documents, and financial projections.
Although there is no single formula for developing a business plan, some elements are common to all business plans. They are summarized in the following outline:
Elements of a Business Plan
Statement of purpose
Table of contents
Description of business
Capital equipment and supply list
Pro-forma income projections (profit & loss statements)
Detail by month, first year
Detail by quarters, second and third years
Assumptions upon which projections were based
Pro-forma cash flow
Tax returns of principals for last three years Personal financial statement (all banks have these forms)
For franchised businesses, a copy of franchise contract and all supporting documents provided by the franchisor
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.
One of the best ways to learn about writing a business plan is to study the plans of established businesses in your industry.
Using Your Business Plan
A business plan is a tool with three basic purposes: communication, management, and planning.
As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.
As a management tool, the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.
As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.
A business plan is a recognized management tool used by successful and / or prospective businesses of all sizes to document business objectives and to propose how these objectives will be attained within a specific period of time. It is a written document which describes who you are, what you plan to achieve, where your business will be located, when you expect to get under way, and how you will overcome the risks involved and provide the returns anticipated.
Why Do You Need a Business Plan?
A business plan will provide information of your proposed venture to lenders, investors, and suppliers to demonstrate how you plan to use their money, and to establish a basis for credibility of your project.
When Should a Business Plan Be Prepared?
The sooner, the better. You will find that your final copy of your business plan may differ from the original draft, as you will be updating, revising and refining it as you go. It is important that you examine all the relevant factors now. You won’t appreciate any surprises after your business has opened its doors.
Who Should Prepare a Business Plan?
The business plan should be prepared by those persons who will be implementing it.
Outside assistance from consultants, accountants, bookkeepers, and experienced business people can definitely help, but you must draft the initial plan. After all, you are the one that is going to run the business once it is open.
Think through each element of your business plan thoroughly so you have a good understanding of the overall picture and all of the details.
Present your plan to others for constructive criticism and advice, and try to profit from their experience. Modify your plan if necessary.
What’s in this for Me?
If you have never drawn up a business plan before, you may be curious as to what the benefits are for you. First and most important, your plan gives you a guide to follow. Second, it gives your lending agency insight into your business opportunity therefore, positively affects your loan application. Finally, your plan will help you develop as a manager, giving you practice in thinking about competitive conditions, promotional opportunities, sources of finance, etc. Your goal is to put the plan into action.
Executive Summary / Business Description
if this is a new business venture, expansion of an existing business or the purchase of an existing business;
the type of business activity in which you are engaged (manufacturing, wholesale, retail, food processing, service, high technology, etc.);
your product or service and its uniqueness;
the market to be served;
your advantage over the competition;
the main objectives of your organization;
your management background;
the project time frames involved.
(This should be no more than a one page summary of your business plan.)
In addition, briefly describe what form of business structure you have chosen:
partnership (enclose agreement);
corporation (enclose shareholders agreement).
date the business was registered/incorporated;
the business name and address;
the business phone number;
the principal(s) name(s) and telephone number(s);
the percentage of business or number of shares held by each (in partnership or corporation).
Project Costs and Project Funding
Identify the costs to get into the proposed business venture and the sources of the project funding.
Project Cost Summary
Land and Buildings
Leasehold Improvements (renovations)
Other Assets (goodwill, franchise, etc.)
Vehicles (if used in the business)
Inventory (opening cost)
Other Start Up Expenses as per Cash Flow (accounting, taxes and licenses, insurance, rent, supplies, etc.)
Total Project Cost
– contributed assets
Land and Building Mortgage
Line of Credit (L/C)
Total Project Funding
Describe the products to be produced or the services/good to be provided.
What makes your product/service unique, or, how is your business different from others in the industry?
What are the features/advantages that will entice customers to buy from you (i.e.., convenience, service, performance)?
Will you offer any product or service guarantees/warranties?
Provide information on any patents, trade secrets, or other technical advantages over the competition.
Identify the total market for your product or service.
To whom are you targeting your product or service?
Identify your competition detailing the strengths and weaknesses and your advantages relative to them.
How will your competition react to you entering the market?
What are your past sales (if applicable) and future projections?
What price (manufacture, wholesale, retail, etc.) do you intend to charge for you product/service and how does it compare to the competition?
What are your selling terms (cash or credit)?
Identify your facility requirements as to the size, location, and type of premises. Include drawings of the proposed building layout. Attach the most recent real estate appraisal, offers to purchase or lease agreement, supplier quotations, etc.
Indicate why you have selected this location.
Provide details relating to special requirements as to water, power, compressed air, ventilation, heat, air conditioning, drainage, disposal, Department of Health requirements, etc. Attach approvals from Public Health, Liquor Licensing, City zoning, etc.
Provide a detailed listing (including legal descriptions) of the land and buildings, leasehold improvements, equipment and furniture, vehicles, inventory and other assets. The listing should include the proposed purchase price of each asset.
Provide a general description of the day to day operations of the business (include hours of business, days open, seasonality of business, suppliers and their credit terms).
Provide product/manufactured cost estimates (if applicable).
What is the proposed organization chart of the company (who does what)? Include a brief job description for each position. Provide brief management biographies of the key personnel (include their ages and backgrounds in this type of business). State the compensation package (salary, bonus, profit sharing, etc.) for each member of management.
List employees (not owner or manager) using the following headings:
position: full-time, part-time, seasonal; and
method of payment: hourly, monthly, commission, etc.
Provide a job description for each position, identifying the responsibilities and duties involved. Include what skill level is needed.
If job training is required, identify the duration and the cost of the training.
Free Business Plan
Free Business Plan
Provide a projected (pro-forma) Three Year Cash Flow, Balance Sheet and Profit and Loss Statement.
It is common for a financial institution to request that the principal(s) submit, with a loan application, a statement of personal net worth. This form is usually provided by the financial institution. If applicable, historical financial statements on the business venture may also be requested. Other supplementary and supporting documents for your business plan should be included in an appendix.
Thinking of owning and managing your own business? It’s a good idea – provided you know what it takes and have what it takes.
Starting a business is risky at best; but your chances of making it go will be better if you understand the problems you’ll meet and work out as many of them as you can before you start.
What more could you want?
Great businesses do not happen by accident.
They are planned that way.