How To
Prepare a Business Plan - Small Buisness Management Tips
Developing a Business Plan
There are many reasons why a business plan should be prepared. Each is
sufficient by itself for why one must go through the exercise of preparing
the actual business plan. Regardless of the specific reason, the
underlying goal of preparing a business plan is to insure the success of
the business. Here are the main reasons why a business plan should be
prepared:
- Provides you with the road map that you need in order to run your
business. It allows you to make detours, change directions, and alter
the pace that you set in starting or running the business.
- To assist in financing. Whether one is starting up a small business
or is an entrepreneur, banks and financial institutions want to see that
you know where you are, where you are going, and how you are going to
get there.
- The plan will tell you how much money you need, when you will need
it, and how you are going to get it. In other words, how you will do
your financing?
- Helps you to clearly think through what type of business you are
starting, and allows you to consider every aspect of that business.
- Raises the questions that you need to have answered in order to
succeed in your business.
- Establishes a system of checks and balances for your business so
that you avoid mistakes.
- Sets up bench marks to keep your business under control.
- Helps you develop the competitive spirit to make you keenly prepared
and ready to operate.
- Makes you think through the entire business process so that you do
not open the business blindly or lack vital information in opening and
maintaining your business.
- Forces you to analyze competition.
- Will give you a "go" or "no go" answer about starting the business.
Business Plan Outline
Below is an outline for a business plan. Use this model as a guide when
developing the business plan for your business.
Elements of a Business Plan:
1. Cover sheet
2. Executive Summary
3. Table of contents
A. The Business
(1) Description of business
(2) Marketing
(3) Competition
(4) Operating procedures
(5) Personnel
(6) Financial data
B. Financial Data
(1) Loan applications
(2) Capital equipment and supply list
(3) Balance sheet
(4) Break-even analysis
(5) 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
(6) Pro-forma cash flow
* Follow guidelines for (5).
C. Supporting Documents
- Personal financial statement (all banks have these forms)
- 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.
The Business Plan - What It Includes
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 plan.
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:
- Legalities - business form: proprietorship, partnership,
corporation, franchise. What licenses or permits you will need.
- Business type: merchandising, manufacturing or service.
- What your product or service is.
- Is it a new independent business, a takeover, an expansion, a
franchise?
- Why your business will be profitable. What are the growth
opportunities?
- When your business will be open (days, hours).
- What you have learned about your kind of business or franchise from
outside sources (trade suppliers, bankers, other franchise owners,
franchisor, 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:
- What you are selling.
- How your product or service will benefit the customer.
- Which products/services (in your case the franchise) are in demand;
if there will be a steady flow of cash.
- 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:
- What are your location needs?
- What kind of space will you need?
- Why is the area desirable? the building desirable?
- Is it easily accessible? Is public transportation available? Is
street lighting adequate?
- 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.
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 by answering these questions. Potential
franchise owners will have to use the marketing strategy the franchisor
has developed; however, it should be included in your business plan and
contain answers to the questions outlined below.
- Who are your customers? Define your target market(s).
- Are your markets growing? steady? declining?
- Is your franchise market share growing? steady? declining?
- Has your franchisor segmented your markets?
- Are your markets large enough to expand, depending on franchisor
restrictions?
- How will you attract, hold, increase your market share? Will the
franchisor provide assistance in this area? Based on the franchisor's
strategy, how will you promote your sales?
- What pricing strategy, if any, has the franchisor 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:
- Who are your five nearest direct competitors?
- Who are your indirect competitors?
- How are their businesses: steady? increasing? decreasing?
- What have you learned from their operations? from their advertising?
- What are their strengths and weaknesses?
- 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. It may be a good idea to 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 you may use, depending on the type of
business, 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. Make sure the advertisements you create are consistent with the
image you are trying to project. 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?
- 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 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 business
(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
- equipment
- supplies
- salaries/wages
- income
- utilities
- payroll expenses
- licenses/permits
- insurance
- advertising/promotions
- accounting
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
- rent
- loan payments
- legal/accounting
- supplies
- salaries/wages
- dues/subscriptions/fees
- repairs/maintenance
- insurance
- advertising/promotions
- depreciation
- payroll expenses
- taxes
- miscellaneous expenses
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.
Whether you develop the accounting and inventory systems yourself, have an
outside financial advisor develop the 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 questions 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 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?
- 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.
Food For Thought
Your thoughts become your reality. All
behavior comes from the thoughts that preceded it. Every
accomplishment great and small begins with a thought, a vision.
When you control your own thoughts, and focus them on a specific set
of goals, then you have taken full control of your life. You are no
longer a victim of circumstance, the moment you begin to visualize
your own future.
No one can control your thoughts except you. No one can influence your
thoughts unless you let them. Choose carefully the people who would
affect your thinking. Surround yourself with positive, responsible,
intelligent, open-minded thinking.
The person you are on the inside determines the person you become on
the outside. Your mind, your body, and the whole world that surrounds
you, are crying out for direction, waiting to be shaped and guided by
your thoughts. Waiting to leverage your thoughts into manifestation.
Think about the person you want to become, because you become the
person you think about.
Do you feel like you don't deserve success? Are you afraid that you
might fail? Are you afraid you might succeed? Do you worry what other
people would think if you were to enthusiastically follow your dream?
Do it anyway!
Wouldn't it be more comfortable to sit home in front of the TV? What
makes you think you could possibly make it? It's never been done
before. We've tried that and it didn't work. The odds are against you.
Do it anyway!
For everything that has ever been achieved, there were plenty of
reasons not to do it. Plenty of excuses for those who were unwilling
to attempt it. Plenty of risk, discomfort, sacrifice and hard work
involved.
Achievers know that excuses are worthless. That risk is a part of
life. That with enough commitment, a well-developed plan, and hard
work -- anything is possible. Achievers take action while others
debate the merits and perfect their excuses.
When you have a dream, follow it. When you see an opportunity, act on
it. You DO deserve it, you CAN do it, it WILL take effort and
sacrifice. You'll make mistakes and you'll learn from them. You'll
have successes and you'll build on them. Take action toward your dream
and you'll never have cause for regret.
Your behavior is strongly influenced by the things you say, think and
feel. Your words, thoughts and feelings affect each other, and also
affect your actions.
If you're like most people, the easiest of these to control is what
you say. And by changing the way you express things, you can actually
improve your performance and effectiveness. Studies have found that
optimistic people perform at a higher level than pessimists. Optimists
look at a situation and see benefits, opportunities and learning
experiences. Pessimists look at the same situation and see only the
risks.
The fact is that most people talk, in everyday life, in negative
terms. It's so common that few people even realize they're doing it.
"How's it going?" someone asks. "Not bad," is the reply. "What are you
doing?" "Not much."
For a change, try this: "How's it going?" "Great!" "What are you
doing?" "I'm enjoying life." Notice how much better that feels. It
seems silly and insignificant, yet make it a habit and it will quickly
change your outlook. Try saying "I'm enjoying life" five times. How do
you feel?
Or look at how we commonly persuade: "Why don't we go to the ball game
tonight?" Stated in the negative, this literally makes you start
thinking of reasons why NOT to go to the ball game. Listen to how much
better this sounds: "Let's go to the ball game tonight."
A few other examples:
"If you decide to do business with us, your order won't be delayed."
"When you decide to do business with us, we'll ship immediately."
In this case, "If" presumes that they might NOT do business. "When"
presumes that they will.
"I understand what you're saying, but we won't let you down."
"I understand what you're saying, and we can handle that."
Look at the enormous difference in confidence and credibility, just by
changing a few words.
Language is powerful. Practice making it a positive force in your
life.
-- Ralph Marston
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