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.
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.
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.
This section provides background information on the company and usually includes:
- Name, date and place (state) of formation;
- A general description of the business, including the product or service;
- Historical development of the business, including:
- 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.
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.
- Organizational chart;
- Key individuals (include supervisory personnel with special value to the
- Personal resumes (describing skills and experience as they relate to
activities of the business);
- Present salaries (include other compensation such as stock options,
- Planned staff additions.
- 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.
prototype -- and the relevant activities, milestones and other steps necessary
- Describe technical status of your product -- idea stage, development stage,
to bring the product into production.
patented and how much can be patented (how comprehensive and effective
- Present patent or copyright position (if applicable). Include how much is
the patents or copyrights will be). Include a list of patents, copyrights, licenses
or statements of proprietary interest in the product or product line.
that may affect the product.
- Describe new technologies that may become practical in the next five years
to develop to meet changing needs.
- Describe new products (derived from first generation products) the firm plans
other technical and legal considerations that may be relevant to the
- Describe regulatory or approval requirements and status, and discuss any
technological development of the product.
- Describe research and development efforts and future plans for research and development
- 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
- Industry outlook;
- Description of the industry. Include:
- 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.
- Names, locations, products or services sold to each;
- Description of major customers. Include:
- Percentage of annual sales volume for each customer over previous five years (if applicable);
- Duration and condition of contracts in place.
- Principal market participants and their performance;
- Description of market and its major segments. Include:
- Target market;
- Customer requirements and ways for filling those requirements;
- Buying habits of customers and impact on customers using your product or service.
- Overall marketing strategy;
- 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:
- 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.
- Physical facilities -- owned or leased, size and location, expansion capabilities, types and quantities of
- Explain how the firm will perform production or delivery of service. Describe in terms 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.
- Profit and loss or income statements by month and break-even point, and then by quarter;
- 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:
- 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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