How to Write a Business Plan

A written guide to starting and running your business successfully is essential. This plan will encourage loans, promote growth, and provide a map for you to follow.

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The importance of a comprehensive well thought out business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of both your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives.

Despite the critical nature of a business plan, many owners and managers 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 — they are too busy running the business. 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. For without a business plan, you will end up going from crisis to crisis, putting out fires, never looking at your operation in the long-term.

A well-prepared business plan serves several purposes:

  • It helps the owner of a new business determine the feasibility and desirability of pursuing the steps necessary to start a business.
  • It is an important sales tool for raising capital from outside investors.
  • It forms the basis of a more detailed operational plan and becomes an important management tool for monitoring the growth of the firm and charting future directions.

Following is a general approach that you can use as a foundation. However, you should tailor your plan to meet the specific circumstances of your business, emphasizing its strengths and addressing the potential problems and challenges to be faced.

Summary

The summary should concisely describe the key elements of the business plan. For the firm seeking financing, the summary should convince the lender or venture capitalist that it is worthwhile to review the plan in detail. The summary should briefly cover at least the following:

  • Name of the business;
  • Business location and floor plan description;
  • Discussion of the product, market and competition;
  • Expertise of the management team;
  • Summary of financial projections;
  • Amount of financial assistance requested (if applicable);
  • Form of and purpose for the financial assistance (if applicable);
  • Purpose for undertaking the project (if financial assistance is sought);
  • Business goals.

The Company

This section provides background information on the company and usually includes:

A general description of the business, including the product or service;
Historical development of the business, including:

  • Name, date and place (state) of formation;
  • Legal structure (proprietorship, partnership, corporation);
  • Significant changes, including dates, in ownership, structure, new products or lines, acquisitions;
  • Subsidiaries and degree of ownership, including minority interests;
  • Principals and the roles they played in the formation of the company.

The Product or Service

Describe the present or planned product or service lines, including:

  • Relative importance of each product or service including sales projections, if possible;
  • Product evaluation (use, quality, performance);
  • Comparison to competitors’ products or services and competitive advantages over other producers;
  • Demand for product or service and factors affecting demand other than price.

The Project

If financing is sought for a specific project, describe the project, the purpose for which it is undertaken, its cost and the amount, form and use of the financial assistance.

Management

Organizational chart;
Key individuals (include supervisory personnel with special value to the organization):
– Responsibilities;
Personal resumes (describing skills and experience as they relate to activities of the business);
– Present salaries (include other compensation such as stock options, bonuses);
– Planned staff additions.
Other employees:
– Number of employees at year end, total payroll expenses for each of previous five years (if applicable) broken down by wages, benefits;
– Method of compensation;
– Departmental/divisional breakdown of work force.
– Planned staff additions.

Technology

  • Describe technical status of your product — idea stage, development stage, prototype — and the relevant activities, milestones and other steps necessary to bring the product into production.
  • Present patent or copyright position (if applicable). Include how much is patented and how much can be patented (how comprehensive and effective the patents or copyrights will be). Include a list of patents, copyrights, licenses or statements of proprietary interest in the product or product line. Describe new technologies that may become practical in the next five years that may affect the product.
  • Describe new products (derived from first generation products) the firm plans to develop to meet changing needs.
  • Describe regulatory or approval requirements and status, and discuss any other technical and legal considerations that may be relevant to the technological development of the product.
  • Describe research and development efforts and future plans for research and development

Ownership

  • Names, addresses, business affiliations of principal holders of subject’s common stock and other types of equity securities (include details on holdings);
  • Degree to which principal holders are involved in management;
  • Principal non-management holders;
  • Names of board of directors, areas of expertise and role of board when business is operational;
  • Amount of stock currently authorized and issued.

Marketing Strategy/Market Analysis

Description of the industry. Include:
– Industry outlook;
– Principal markets (commercial/industrial, consumer, government, international);
– Industry size — current as well as anticipated in the next 10 years (explain sources of projections);
– Major characteristics of the industry. Effects of major social, economic, technological or regulatory trends on the industry.
Description of major customers include:
– Names, locations, products or services sold to each;
– Percentage of annual sales volume for each customer over previous five years (if applicable);
– Duration and condition of contracts in place.
Description of market and its major segments. Include:
– Principal market participants and their performance;
– Target market;
– Customer requirements and ways for filling those requirements;
– Buying habits of customers and impact on customers using your product or service.
Description of competition: companies with which your business competes and how your business compares with these companies. This section is a more detailed narrative than that contained in the description of the product or service, above.
Description of prospective customers. Include reaction to your firm and any of its products or services they have seen or tested.
Description of firm’s marketing activities. Include:
– Overall marketing strategy;
– Pricing policy;
– Method of selling, distributing and servicing the product;
– Geographic penetration, field/product support, advertising, public relations and promotions and priorities among these activities.
– Description of selling activities. Include the method for identifying prospective customers and how and in what order you will contact the relevant decision makers. Also describe your sales effort — sales channels and terms, number of salespersons, number of sales contacts, anticipated time, initial order size — and estimated sales and market share.

Production/Operating Plan

Explain how the firm will perform production or delivery of service. Describe in terms of:
– Physical facilities — owned or leased, size and location, expansion capabilities, types and quantities of equipment needed. Include a facilities plan and description of planned capital improvements (if any) and timetable for those improvements.
– Suppliers: names and locations, length of lead time required, usual terms of purchase, contacts (amounts, duration and condition) and subcontractors.
– Labor supply (current and planned; number of employees unionization, stability (seasonal or cyclical) and fringe benefits.
– Technologies/skills required to develop and manufacture the products.
– Cost breakdown for materials, labor and manufacturing overhead for each product, plus cost versus volume curves for each product or service.
– Manufacturing process.
-Describe production or operating advantages of the firm; discuss whether they are expected to continue.
-Specify standard product costs at different volume levels.
-Present a schedule of work for the next one to two years.

Financial

-Auditor: name, address;
-Legal counsel: name, address;
-Banker: name, location, contact officer;
-Controls: cost system used and budgets used;
-Describe cash requirements, now and over the next five years, and how these funds will be used;
-Amount to be raised from debt and amount from equity;
-Plans to “go public” — relate this to future value and liquidity of investments;
-Financial statements and projects for next five years:
– Profit and loss or income statements by month and break-even point, and then by quarter;
– Balance sheets as of the end of each year;
– Cash budgets and cash flow projections;
– Capital budgets for equipment and other capital acquisitions;
– Manufacturing/shipping plan.

If financing is sought, most lenders and venture capitalists will require:

  • A funding request indicating the desired financing, capitalization, use of funds and future financing;
  • Financial statements for the past three years, if applicable;
  • Current financial statements;
  • Monthly cash flow financial projection, including the proposed financing for two years;
  • Projected balance sheets, income statement and statement of changes in financial position for two years including the proposed financing.

Courtesy of the U.S. Small Business Administration.

 

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