This Business Planning
Guide has been assembled to assist existing and potential businesses
in :
- Understanding the role of the business plan.
- Reasons for developing a business plan.
- Identifying sources where you can get help in developing a business plan.
- Identifying the type of information to include in the business plan.
- And, assist in preparing an outline for a business plan.
TABLE OF CONTENTS
| Business Plan Outline |
| What is a Business Plan ? |
| The Marketing Plan |
| The Management Plan |
| The Financial Management Plan |
| What Banks Look For in Loans |
BUSINESS
PLAN OUTLINE
Below is an outline for a business plan. Use this model as a guide
when
developing the business plan for your franchise or business.
Elements of a Business Plan
1. Cover sheet
2. Statement of purpose
3. Table of contents
I. The Business
A. Description of business
B. Marketing
C. Competition
D. Operating procedures
E. Personnel
F. Business insurance
G. Financial data
II. Financial Data
A. Loan applications
B. Capital equipment and supply list
C. Balance sheet
D. Break-even analysis
E. 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
F. Pro-forma cash flow
- Follow guidelines for letter E.
III. Supporting Documents
- Tax returns of principals for last three years
- Personal financial statement (all banks have these forms)
- Copy of proposed lease of 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.
WHAT
IS A BUSINESS PLAN ?
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
An 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:
1. Legalities - business form: proprietorship, partnership,
corporation, franchise. What licenses or permits you will need.
2. Business type: merchandising, manufacturing or service.
3. What your product or service is.
4. Is it a new independent business, a takeover, an expansion, a
franchise?
5. Why your business will be profitable. What are the growth
opportunities?
How will franchising impact on growth opportunities?
6. When your business will be open (days, hours). Are certain
operating hours required by the franchiser or franchise company?
7. What you have learned about your kind of business or franchise
from outside sources (trade suppliers, bankers, other franchise
owners, franchiser, 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:
1. What you are selling.
2. How your product or service will benefit the customer.
3. Which products/services are in demand; if there will be a steady flow of cash.
4. 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:
1. What are your location needs?
2. What kind of space will you need?
3. Why is the area desirable? the building desirable?
4. Is it easily accessible? Is public transportation available? Is
street lighting adequate?
5. 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.
For assistance in
preparing these components of the Business Plan,
try the following web links:
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 for your business by answering these
questions.
1. Who are your customers? Define your target market(s).
2. Are your markets growing? steady? declining?
3. Is your market share growing? steady? declining?
4. Has your business segmented your markets?
5. Are your markets large enough to expand?
6. How will you attract, hold, increase your market share?
7. What pricing strategy, if any, has been 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:
1. Who are your five nearest direct competitors?
2. Who are your indirect competitors?
3. How are their businesses: steady? increasing? decreasing?
4. What have you learned from their operations? from their
advertising?
5. What are their strengths and weaknesses?
6. 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. 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 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. Since the franchiser will provide advertising and promotional
materials as part of the franchise package, you may need approval
to use
any materials that you and your staff develop.
Make sure the advertisements
you create are consistent with the image.
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?
- Will this assistance be ongoing?
- 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 operating procedures, manuals and materials devised by the
your business
should be included in this section of the business plan. Study
these
documents carefully when writing your business plan, and be sure
to
incorporate this material.
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 franchise
(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
- licenses/permits
- equipment
- insurance
- supplies
- advertising/promotions
- salaries/wages - accounting
- income
- utilities
- payroll expenses
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
- insurance
- rent
- depreciation
- loan payments
- advertising/promotions
- legal/accounting
- miscellaneous expenses
- supplies
- payroll expenses
- salaries/wages
- utilities
- dues/subscriptions/fees
- taxes
- repairs/maintenance
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.
If this is the case, he or she should have a system already intact
and you
will be required to adopt this system. Whether you develop the
accounting
and inventory systems yourself, have an outside financial advisor
develop the
systems or the franchiser provides these 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 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 to purchase the business?
- 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? Will the business set your sales and profit goals? Or, will
he or she expect you to reach and retain a certain sales level
and profit margin?
- 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.
What Banks Look For"Remember, the guy who writes the bank's advertisements is not the same guy who approves your loan." Anonymous
Whether you are applying to a bank for a line of home equity credit, a line of credit for business working capital, a commercial short-term loan, an equipment loan, real estate financing, or some other type of commercial or consumer loan, many of the same basic lending principles apply. The most fundamental characteristics a prospective lender will want to examine are:
The first three of these criteria are largely objective data (although interpretation of the numbers can be subjective). The fourth item, the borrower's character, allows the lender to make a more subjective assessment of the business's market appeal and the business savvy of its operators. In assessing whether to finance a small business, lenders are often willing to consider individual factors that represent strengths or weaknesses for a loan.
How Banks Judge Your ApplicationTraditionally, banks focused more upon collateral than any other factor in making loans; however bankers now claim that lending competition has forced them to focus more on a business's ability to repay the debt as it comes due, rather than the collateral securing the loan. For short-term debt, the cash flow statement and projected income and balance sheets will be most relevant. The institution will want to know what the funds are being used for and whether the business's earnings will be sufficient to repay the loan. Banks do not want to enforce their rights to foreclosure or repossess collateral, and such actions merely highlight a poor lending decision. Nevertheless, banks still place considerable emphasis upon collateral, especially when the projected cash flow of the debtor is as fragile as it often seems to be in a small business. The lender will dictate the repayment terms of your loan, but your explanation of the source of the funds for repayment and how you will manage your overall debt will be crucial to the lender.
Some lenders rely heavily upon certain financial ratios, such as debt-to-equity, quick ratio, current ratio, etc., in assessing the creditworthiness of a prospective borrower. With many small businesses, however, these ratios may misrepresent the overall value of the enterprise. The most important assets of a small business are often the experience of the owners, the potential value of prospective customers, and other non-balance sheet items. In addition, because of tax or strategic business purposes, some entrepreneurs may choose not to list assets on personal statements or they may list important assets on the financial statements of different businesses that they own. In these situations, the financial ratios of the borrowing company may be understated.
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For more information on the credit process and banking, visit "The Credit Process"