Writing Business Plans/plan
hi,what is a good business plan, thanks
Question: hi,what is a good business plan, thanks
1. Why Write a Business Plan?
The preparation of a written business plan is not the end-result of the planning process. The realization of that plan is the ultimate goal. However, the writing of the plan is an important intermediate stage - fail to plan can mean plan to fail. For an established business it demonstrates that careful consideration has been given to the business's development, and for a startup it shows that the entrepreneur has done his or her homework.
Purpose of the Business Plan
A formal business plan is just as important for an established business, irrespective of its size, as it is for a startup. It serves four critical functions as follows:
Helps management or an entrepreneur to clarify, focus and research their business's or project's development and prospects.
Provides a considered and logical framework within which a business can develop and pursue business strategies over the next three to five years.
Serves as a basis for discussion with third parties such as shareholders, agencies, banks, investors etc.
Offers a benchmark against which actual performance can be measured and reviewed.
Just as no two businesses are alike, so also with business plans. As some issues in a plan will be more relevant to some businesses than to others, it is important to tailor a plan's contents to suit individual circumstances. Nonetheless, most plans follow a well-tried and tested structure and general advice on preparing a plan is universally applicable.
A business plan should be a realistic view of the expectations and long-term objectives for an established business or new venture. It provides the framework within which it must operate and, ultimately, succeed or fail. For management or entrepreneurs seeking external support, the plan is the most important sales document that they are ever likely to produce as it could be the key to raising finance etc. Preparation of a comprehensive plan will not guarantee success in raising funds or mobilizing support, but lack of a sound plan will, almost certainly, ensure failure.
Importance of the Business Planning Process
Preparing a satisfactory business plan is a painful but essential exercise. The planning process forces managers or entrepreneurs to understand more clearly what they want to achieve, and how and when they can do it. Even if no external support is needed, a business plan can play a vital role in helping to avoid mistakes or recognize hidden opportunities. It is much easier to fold a sheet of paper than a business.
For many, many entrepreneurs and planners, the process of planning (thinking, discussing, researching and analyzing) is just as, or even more, useful than the final plan. So, even if you don't need a formal plan, think carefully about going through the planning process. It could be enormously beneficial to your business.
Anticipate many weeks of hard work and several drafts of the emerging plan to get the job right. A clearly written and attractively packaged business plan will make it easier to interest possible supporters, investors etc. A well-prepared business plan will demonstrate that the managers or entrepreneurs know the business and that they have thought through its development in terms of products, management, finances, and most importantly, markets and competition.
2. Start with a Business Strategy
A short strategic plan (2-3 pages) can provide a very useful foundation on which to base a much more detailed and comprehensive business plan. If you don't have a sensible strategic plan, how can you realistically write a sensible business plan? Use a short strategic plan as the foundation for a more comprehensive business plan.
As the prelude to developing a strategic plan, it is desirable to clearly identify the current status, objectives and strategies of an existing business or the latest thinking in respect of a new venture. Correctly defined, these can be used as the basis for a critical examination to probe existing or perceived strengths, weaknesses, threats and opportunities. This then leads to strategy development covering the following issues which are discussed in more detail immediately below:
The first step is to develop a realistic Vision for the business. This should be presented as a pen picture of the business in three or more years time in terms of its likely physical appearance, size, activities etc. Answer the question: "if someone from Mars visited the business, what would they see or sense?"
The nature of a business is often expressed in terms of its Mission which indicates the purposes of the business, for example, "to design, develop, manufacture and market specific product lines for sale on the basis of certain features to meet the identified needs of specified customer groups via certain distribution channels in particular geographic areas". A statement along these lines indicates what the business is about and is infinitely clearer than saying, for instance, "we're in electronics" or worse still, "we are in business to make money" (assuming that the business is not a mint !). Also, some people confuse mission statements with value statements (see below) - the former should be very hard-nosed while the latter can deal with 'softer' issues surrounding the business.
The third key element is to explicitly state the business's Objectives in terms of the results it needs/wants to achieve in the medium/long term. Aside from presumably indicating a necessity to achieve regular profits (expressed as return on shareholders' funds), objectives should relate to the expectations and requirements of all the major stakeholders, including employees, and should reflect the underlying reasons for running the business.
The next element is to address the Values governing the operation of the business and its conduct or relationships with society, customers, employees etc.
Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may be achieved. They can cover the business as a whole including such matters as diversification, organic growth, or acquisition plans, or they can relate to primary matters in key functional areas, for example:
o The company's internal cash flow will fund all future growth.
o New products will progressively replace existing ones over the next 3 years.
o All assembly work will be contracted out to lower the company's break-even point.
Next are Goals. These are specific interim or ultimate time-based measurements to be achieved by implementing strategies in pursuit of the company's objectives, for example, to achieve sales of $3m in three years time.
The final elements are the Programs which set out the implementation plans for the key strategies.
It goes without saying that the mission, objectives, values, strategies and goals must be inter-linked and consistent with each other. This is much easier said than done because many businesses which are set up with the clear objective of making their owners wealthy often lack strategies, realistic goals or concise missions.
This section deals with preparatory issues, structure & content, and length & time scale for the preparation of a detailed plan.
Preparatory Business Planning Issues
Before any detailed work commences on writing a comprehensive business plan, you should:
Clearly define the target audience
Determine its requirements in relation to the contents and levels of detail
Map out the plan's structure (contents page)
Decide on the likely length of the plan
Identify all the main issues to be addressed.
Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences. Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed.
3. Before Writing the Business Plan
To get started, use the outline below to prepare the basis for your plan. Bear in mind that if a credible and acceptable outline plan cannot be compiled then it is highly improbable that a more comprehensive plan can be prepared
Structure & Content of a Business Plan
A typical business plan comprises the following main elements:
1. Brief Introduction setting out the background and structure of the plan.
2. Summary of a few pages which highlights the main issues and proposals.
3. Main Body containing chapters broken into numbered sections and subsections.
4. Appendices containing tables, detailed information, exhibits, etc. referred to in the text.
The outline presented below in conjunction with the comprehensive Business Plan Guide could serve as the basis for a detailed business plan.
Length & Time-scale for Business Planning
Whilst the sheer length of a business plan may bear no relation to the underlying prospects of a business, it is likely that a well-developed plan would be at least twenty pages long plus appendices.
The elapsed time needed to produce a detailed plan might be between twenty and one hundred days. This would be determined not only by the complexity and scale of the venture, but also by the scale and maturity of the business and relevant experience and skills of the management team. Whilst the task of writing the plan itself may only take a relatively short time, be sure to allocate enough time to the research, preparatory work and the underlying thinking and discussion.
4. Planning the Business Plan
Develop an Outline Business Plan
Start by defining an outline (i.e. a table of contents) of your plan. This will allow you to to concentrate on the essentials of planning the business rather than becoming too absorbed in the detailed drafting of your plan. It will allow you to see the wood from the trees.
Having devised the basic outline for your business plan, the next task is to expand this to include subheadings and appendix titles). This extended structure should be critically reviewed to ensure that all the salient elements of the plan are included and that it has a logical flow. This approach should also ensure that the plan has an appropriate levels of detail and is correctly targeted at its audience - investors, directors/shareholders, financial institutions etc. For example, a structure which is mainly devoted to detailed technical descriptions of products would be completely unsuited to a plan being used to raise bank finance.
Prepare a Business Planning Work Program
Once the plan's structure has been defined, it can be used as a checklist and basis for a work program and timetable to complete the plan. This work program will often entail extensive research and thought prior to the commencement of writing. For example, formal market research may be needed before sales volumes and prices can be determined. Another example: professional advice may be required to assess capital expenditures in relation to the acquisition of premises and so on.
Some additional tips and suggestions:
Be absolutely clear about the primary purpose and audience of the plan from the outset. If the plan has to serve multiple purposes, consider producing tailored versions (or tailored summaries).
Allow enough time to produce revised drafts of the plan - three/five drafts would not be unusual.
Write the Introduction, Summary and Conclusion of the plan only after the plan's main parts have been finalized.
At an early stage, make some high-level sales and financial projections (covering 1-3 years) to explore the general direction and size of the business, likely viability and or the Quik-Plan facility within Exl-Plan, our range of financial planners for use with Excel.
If the elapsed time needed to prepare the plan and commence its execution is lengthy, set the start date for financial projection close to the commencement of execution. For example, if you begin preparing a plan in January and hope to raise startup finance by October, the start date for projections might be set to September. Any expenses incurred before this date could be rolled up into the opening balance sheet for the projections.
Seek external assistance sooner rather than later. This may take the form of software tools, consultancy assistance in the form of specific assignments, or mentoring and counseling on an as required basis.
If planning a significant business, ensure that a management team has been identified (and possibly in place) before the plan is finalized.
Identify and cultivate possible key recipients of the plan during the plan's preparation. This will ensure that when the plan is finally presented, these contacts will have some prior knowledge of its contents and the promoters and, where appropriate, the views of contacts may have been taken into account during the preparation process.
Start compiling the plan at the sections devoted to market research/analysis and sales forecasts/plans, or with details of the proposed product/service offerings. Leave the detailed financial projections aside until all details in relation to sales, costs, expenses, operations, capital investment and possible sources/types of finance have been resolved
5. Outline the Business Plan
The next section presents an outline structure for a business plan..
Avoid going into too much detail within the plan's body by placing detailed or supplementary material in accompanying appendices. Bear in mind that most investors, bankers etc. dislike having to read overlong business plans just as much as entrepreneurs and managers dislike writing the plans in the first instance!
Work on the assumption that whoever reads your plan will be completely unfamiliar with your business or project and will be seeking answers to relatively basic questions and key issues, for example, what will the business do, will it make money etc.
6. Business Plan Outline
Use the outline below as the "road map" for your plan and then write up each section concisely but comprehensively. Only address matters of real substance and major significance within the main sections of the plan.
1. Introduction (1)
Introduce the plan. Explain who wrote it, when and for what purpose. Give contact details.
2. Summary (1-3)
Write last. Present the highlights of the plan.
3. Mission, Strategies etc. (1-2)
What are the central purposes and activities of the planned business? What are its SWOTs? What are its major objectives, key strategies and prime goals ?
4. Present Status (1-5)
Summarize achievements and performance (financial, sales, technical etc.) to date. Introduce the stakeholders in the business.
5. Product/Service Offerings (1-3)
Keep descriptions short and confine them to broad groups. Explain briefly what makes them special..
6. Profiles of Target Markets (3-6)
Size, segments, trends, competition and user/customer profiles.
7. Marketing Strategies, Sales Plans & Projections (3-6)
How will the business market its products/services and sell to customers? What sales will be achieved in its main markets? How will it deal with competitors ? Indicate costs.
8. Technology and R&D (0-2)
If relevant, explain progress, plans, resources and highlight any technological advances.
9. Operational/Manufacturing Plans (2-5)
Cover distribution & service activities and/or manufacturing. Highlight major elements only. Indicate organization, resources, costings etc.
10. Management & Administration (2-3)
Introduce the proposed management team, structure etc. Indicate administrative arrangements and specify overhead costs.
11. Financial Projections (4-8)
Use simple tables to present key financial projections e.g. summary P&L, cashflows, balance sheets and key ratios. Place the detailed analyses in appendices.
12. Funding Requirements & Proposals (0-2)
If applicable, summarize funding requirements, possible sources, likely terms, and, for investors, the projected return on their investment. Be realistic!!
13. Implementation (1-3)
Explain the major decision points, time scale and actions required by management and others to progress the plan.
14. Conclusion (1)
Indicate why the business will succeed and why it should be supported.
Use appendices at the very back of the plan to present important background data and detailed plans. This will avoid disrupting the flow of the plan or cluttering it with excessive detail.
7. Writing the Business Plan
The following suggestions may be of assistance when drafting the plan:
1. Build the detailed business plan on a carefully considered outline (table of contents) - see the business plan outline above.
2. The most important and difficult sections to prepare relate to marketing and sales as these can make or break not only the business plan but also the business itself !
3. Support market and sales projections by market research. Ensure that there is a direct relationship between market analysis, sales forecasts and financial projections. Assess competitors' positions and possible responses realistically.
4. Be realistic about sales expectations, profit margins and funding requirements. Ensure that financial ratios are in line with industry norms. Do not underestimate the cost and time required for product development, market entry, securing external support or raising finance. Consider the possibility of the halve-double rule - halve the sales projections and double the cost and time required.
5. Restrict the level of detail on product specifications and technical issues.
6. The financial projections are likely to be straightforward but decide on a sensible level of detail as regards the time horizon etc. Consider using a personal computer and a financial modeling package for the projections.
7. If looking for external equity, be realistic about the value of the business, risks involved and possible returns, and be sure to indicate possible exit mechanisms. Put yourself in the shoes of an investor and remember the golden rule - he who has the gold makes all the rules.
8. The management section of the plan is of crucial - experience, balance, ability and commitment. If a new venture is involved, then management is likely to be its only real asset. Consider formation of a management team or strengthening management as part of the plan. Remember the five ingredients of a successful business are management, management, management, market and product (in that order, and not in the reverse order as some inventors and entrepreneurs might like to think).
9. Be positive but realistic about the business's prospects and explicitly recognize and respond honestly to shortcomings and risks.
10. When writing the plan:
o avoid unnecessary jargon
o economize on words
o use short crisp sentences and bullet points
o check spellings
o concentrate on relevant and significant issues
o break the text into numbered paragraphs, sections etc.
o relegate detail to appendices
o provide a contents page and number pages
o write the summary last.
11. Get a qualified outsider to review your plan in draft form and be prepared to adjust the plan in the light of comments secured and experiences gained.
12. External help and guidance in preparing a business plan can be extremely valuable. If outside help is used, make sure that the resultant plan remains your own and not that of your advisers.
13. If presenting the plan to outsiders, attach appendices and number pages. Add a contents page and bind it within attractive covers.
Business Plan for an Established Business
This business plan consists of a narrative and several financial spreadsheets. The narrative template is the body of the business plan. It contains more than 150 questions divided into several sections. Work through the sections in any order you like, except
for the Executive Summary, which should be done last. Skip any questions that do not
apply to your business. When you are finished writing your first draft, you will have a collection of small essays on the various topics of the business plan. Then you will want to edit them into a flowing narrative.
The real value of doing a business plan is not having the finished product in hand; rather, the value lies in the process of research and thinking about your business in a systematic way. The act of planning helps you to think things through thoroughly, to study and research when you are not sure of the facts, and to look at your ideas critically. It takes time, but avoids costly, perhaps disastrous, mistakes later.
The business plan narrative is a generic model suitable for all types of businesses. However, you should modify it to suit your particular circumstances. Before you begin, review the section titled Refining the Plan, found at the end of the business plan. It suggests emphasizing certain areas, depending upon your type of business (manufacturing, retail, service, etc.). It also has tips for fine‐tuning your plan to make an effective presentation to investors or bankers. If this is why you are writing your plan, pay particular attention to your writing style. You will be judged by the quality and appearance of your work as well as your ideas.
It typically takes several weeks to complete a good plan. Most of that time is spent in research and rethinking your ideas and assumptions. But then, that is the value of the process. So make time to do the job properly. Those who do never regret the effort. And finally, be sure to keep detailed notes on your sources of information and on the assumptions underlying your financial data.
Business name: Your Business Name
Address: Address Line 1
Address Line 2
City, ST ZIP Code
Telephone: (555) 555‐0100
Fax: (555) 555‐0101
Table of Contents
Table of Contents ............................................................................................................. 3
Executive Summary ......................................................................................................... 4
General Company Description ...................................................................................... 5
Products and Services...................................................................................................... 6
Marketing Plan ................................................................................................................. 7
Operational Plan ............................................................................................................ 15
Management and Organization ................................................................................... 20
Personal Financial Statement ....................................................................................... 21
Financial History and Analysis.................................................................................... 22
Financial Plan ................................................................................................................. 23
Appendices ..................................................................................................................... 25
Refining the Plan ............................................................................................................ 26
Write this section last!
We suggest that you make it two pages or less.
Include everything that you would cover in a five‐minute interview.
Explain the fundamentals of the business: What is your product, who are your customers, who are the owners, and what do you think the future holds for your business and your industry?
Make it enthusiastic, professional, complete, and concise.
If you are applying for a loan, state clearly how much you want, precisely how you are going to use it, and how the money will make your business more profitable, thereby ensuring repayment.
General Company Description
Mission statement: Many companies have a brief mission statement, usually 30 words or fewer, explaining their reason for being and their guiding principles. If you have a mission statement, this is a good place to put it in the plan, followed by company goals and objectives and business philosophy.
What business are you in? What do you do?
What is your target market? (Explain briefly here, because you will do a more thorough explanation in the Marketing Plan section.)
Describe your industry. Is it a growth industry? What changes do you foresee in your industry, and how is your company poised to take advantage of them?
Now give a detailed description of the business:
Form of ownership: Sole proprietor, partnership, corporation, or limited liability corporation (LLC)?
Company history: Years in business, previous owners, successes, failures, lessons learned, reputation in community, sales and profit history, number of employees, and events that affected success. Discuss significant past problems and how you solved and survived them.
Most important strengths and core competencies: What factors will make the company succeed? What are your major competitive strengths? What strengths do you personally bring to the business?
Significant challenges the company faces now and in the near future: If you are asking for funding, go on to explain how the new capital will help you meet these challenges.
Long term: What are your plans for the future of the business? Growth? If so, at what rate and how will you achieve it?
Are you developing strategies for continued growth, increased production, diversification, or eventual sale of the business? What are your time frames for these?
Products and Services
Describe in depth your products and services. (Technical specifications, drawings, photos, sales brochures, and other bulky items belong in the Appendices.)
What factors give you competitive advantages or disadvantages? For example, the level of quality, or unique or proprietary features.
What is the pricing, fee, or leasing structure of your products and services?
Notes on Preparation:
Market research: Why?
You spend so much time on marketing‐related matters customers, competitors, pricing, promotion, and advertising that it is natural to assume that you have little to learn. However, every small business can benefit from doing market research to make sure it is on track. Use the business planning process as your opportunity to uncover data and to question your marketing efforts. It will be time well spent.
Market research: How?
There are two kinds of market research: primary and secondary.
Secondary research means using published information such as industry profiles, trade journals, newspapers, magazines, census data, and demographic profiles. This type of information is available from public libraries, industry associations, chambers of commerce, vendors who sell to your industry, and government agencies.
Start with your local library. Most librarians are pleased to guide you through their business data collection. You will be amazed at what is there. There are more online sources than you could possibly use. Your chamber of commerce has good information on the local area. Trade associations and trade publications often have excellent industry‐specific data.
Primary market research means gathering your own data. For example, you could do your own traffic count at a proposed location, use the yellow pages to identify competitors, and do surveys or focus group interviews to learn about consumer preferences. Professional market research can be very costly, but there are many books that show small business owners how to do effective research.
In your marketing plan, be as specific as possible; give statistics, numbers, and sources. The marketing plan will be the basis, later on, of the all‐important sales projection.
The Marketing Plan:
Facts about your industry
Total size of your market
Percentage share of the market you have. (This is important only if you are a major factor in the market.)
Current demand in target market
Trends in target market growth trends, trends in consumer preferences, and trends in product development
Growth potential and opportunity for a business of your size
What barriers to entry keep potential new competitors from flooding into your market?
High capital costs
High production costs
High marketing costs
Consumer acceptance/brand recognition
How could the following affect your company?
Change in technology
Change in your industry
In the Products and Services section, you described your products and services as you see them. Now describe them from your customers point of view.
Features and Benefits
List all your major products or services.
For each product or service, describe the most important features. That is, what does the product do? What is special about it?
Now, for each product or service, describe its benefits. That is, what does the product do for the customer?
Note the differences between features and benefits, and think about them. For example, a house gives shelter and lasts a long time; those are its features. Its benefits include pride of ownership, financial security, providing for the family, and inclusion in a neighborhood. You build features into your product so you can sell the benefits.
What after‐sale services are supplied? For example: delivery, warranty, service contracts, support, follow‐up, or refund policy.
Identify your customers, their characteristics, and their geographic locations; that is, demographics.
The description will be completely different depending on whether you sell to other businesses or directly to consumers. If you sell a consumer product, but sell it through a channel of distributors, wholesalers, and retailers, you must carefully analyze both the end user and the intermediary businesses to which you sell.
You may have more than one customer group. Identify the most important groups. Then, for each consumer group, construct a demographic profile:
For business customers, the demographic factors might be:
Industry (or portion of an industry)
Size of firm
What products and companies compete with you? List your major competitors, including their names and addresses.
Do they compete with you across the board, just for certain products, certain customers, or in certain locations?
Use the following table to compare your company with your three most important competitors.
In the first column are key competitive factors. Because these vary with each market, you may want to customize the list of factors.
In the cell labeled ʺMe,ʺ state honestly how you think you stack up in customersʹ minds. Then decide whether you think this factor is a strength or a weakness for you. If you find it hard to analyze yourself this way, enlist some disinterested party to assess you. This can be a real eye‐opener.
Now analyze each major competitor. In a few words, state how you think they stack up.
In the last column, estimate how important each competitive factor is to the customer. 1
= critical; 5 = not very important.
Table 1: Competitive Analysis
Competitor C Importance
After you finish the competitive matrix, write a short paragraph stating your
competitive advantages and disadvantages.
Now that you have systematically analyzed your industry, your product, your customers, and the competition, you should have a clear picture of where your company fits into the world.
In one short paragraph, define your niche, your unique corner of the market.
Now outline a marketing strategy that is consistent with your niche.
Promotion: How do you get the word out to customers?
Advertising: What media do you use, why, and how often? Has your advertising been effective? How can you tell?
Do you use other methods, such as trade shows, catalogs, dealer incentives, word of mouth, and network of friends or professionals?
If you have identifiable repeat customers, do you have a systematic contact plan? Why this mix and not some other?
How much will you spend on the items listed above?
Should you consider spending less on some promotional activities and more on others?
What is your pricing strategy? For most small businesses, having the lowest prices is not a good strategy. Usually you will do better to have average prices and compete on quality and service. Does your pricing strategy fit with what was revealed in your competitive analysis?
Compare your prices with those of your competition. Are they higher, lower, the same? Why?
How important is price as a competitive factor?
What are your payment and customer credit policies?
You will describe your physical location in the Operational Plan section of your business plan. Here in the Marketing Plan section, analyze your location as it affects your customers.
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out of the way?
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for you to be near them (like car dealers or fast‐food restaurants) or distant (like convenience food stores)?
How do you sell your products or services?
Direct (mail order, World Wide Web, catalog)
Your own sales force
Has your marketing strategy proven effective?
Do you need to make any changes or additions to current strategies?
Now that you have described your products, services, customers, markets, and marketing plans in detail, it is time to attach some numbers to your plan. Use a forecast spreadsheet to prepare a month‐by‐month projection. Base the forecast on your
historical sales, the marketing strategies that you have just described, your market research, and industry data, if available.
You may want to do two forecasts: 1) a ʺbest guess,ʺ which is what you really expect, and 2) a ʺworst caseʺ low estimate that you are confident you can reach no matter what happens.
Remember to keep notes on your research and your assumptions as you build this sales forecast and all subsequent spreadsheets in the plan. Relate the forecast to your sales history, explaining the major differences between past and projected sales. This is critical if you are going to present it to funding sources.
Explain the daily operation of the business, its location, equipment, people, processes, and surrounding environment.
How and where do you produce your products or services? Explain your methods of:
Production techniques and costs
Describe the locations of production, sales, storage areas, and buildings. Do you lease or own your premises?
Describe access to your buildings (walk in, parking, freeway, airport, railroad, and shipping).
What are your business hours?
If you are trying to get an expansion loan, include a drawing or layout of your proposed facility.
Describe the following:
Licensing and bonding requirements
Health, workplace, or environmental regulations
Special regulations covering your industry or profession
Zoning or building code requirements
Trademarks, copyrights, or patents (pending, existing, or purchased)
Number of employees
Type of labor (skilled, unskilled, professional)
Where do you find new employees?
Quality of existing staff
Training methods and requirements
New hiring in the coming year?
Who does which tasks?
Are schedules and procedures in place?
Do you have written job descriptions for employees? If not, take time to write some. Written job descriptions really help internal communications with employees.
Do you use contract workers as well as employees?
What kind of inventory do you keep: raw materials, supplies, finished goods?
Average value in stock; that is, what is your inventory investment?
Rate of turnover and how it compares with industry averages?
Lead time for ordering?
Note the following information about your suppliers:
Their names and addresses.
Type and amount of inventory furnished. Credit and delivery policies.
History and reliability.
Do you expect shortages or short‐term delivery problems?
Are supply costs steady or fluctuating? If fluctuating, how do you deal with changing costs?
Should you be searching out new sources of supply, or are you satisfied with present suppliers?
Do you sell on credit? If so, do you really need to? Is it customary in your industry and expected by your clientele?
Do you carefully monitor your payables (what you owe to vendors) to take advantage of discounts and to keep your credit rating good?
You need to carefully manage both the credit you extend and the credit you receive.
Managing Your Accounts Receivable
If you do extend credit, what are your policies about who gets credit and how much? How do you check the creditworthiness of new applicants?
What terms will you offer your customers; that is, how much credit and when is payment due?
Do you offer prompt payment discounts? (It is best to do this only if it is usual and customary in your industry.)
Do you know what it costs you to extend credit? This includes both the cost of capital tied up in receivables and the cost of bad debts.
Have you built the costs into your prices?
You should do an aging at least monthly to track how much of your money is tied up in credit given to customers and to alert you to slow payment problems. A receivables aging looks like the following table.
Table 2: Accounts Receivable Aging
Total Current 30 Days 60 Days 90 Days Over 90 Days
Collecting from delinquent customers is no fun. You need a set policy and you need to
When do you make a phone call? When do you send a letter?
When do you get your attorney to threaten?
Managing Your Accounts Payable
You should also age your accounts payable (what you owe to your suppliers). Use this format.
Table 3: Accounts Payable Aging
Total Current 30 Days 60 Days 90 Days Over 90 Days
This helps you plan whom to pay and when. Paying too early depletes your cash, but
paying late can cost you valuable discounts and damage your credit. (Hint: If you know you will be late making a payment, call the creditor before the due date. It tends to relax them.)
Are prompt payment discounts offered by your proposed vendors? Do you always take them?
Management and Organization
Who manages the business on a day‐to‐day basis?
What experience does that person bring to the business? What special or distinctive competencies?
Is there a plan for continuation of the business if this person is lost or incapacitated? If you have more than 10 employees, prepare an organizational chart showing the
management hierarchy and who is responsible for key functions. Include position
descriptions for key employees.
Professional and Advisory Support
List the following:
Board of directors and management advisory board
Mentors and key advisors
Personal Financial Statement
Owners often have to draw on personal assets to finance the business. This statement will show you what is available. Bankers and investors usually want this information as well. They will ask owners to cosign or personally guarantee any business loans.
Document your assumptions, notes, definitions, and any special financial situation. Include details of notes, securities, contracts, etc. on the bottom of a personal financial spreadsheet. Include one such spreadsheet for each principal.
Financial History and Analysis
A solid analysis of the past must precede any serious attempt to forecast the future. A financial history and ratios spreadsheet will allow you to put a great deal of financial information from other statements on a single page for ease of comprehension and analysis. You may also enter industry average ratios for comparison.
In the Appendices, put year‐end balance sheets, operating statements, and business income tax returns for the past three years, plus your most current balance sheet and operating statement.
This table gives in‐depth information that the financial statements themselves do not usually provide. Include a debt schedule in the following format for each note payable on your most recent balance sheet.
Table 4: Debt Schedule
balance Rate of
The financial plan consists of a 12‐month profit and loss projection, a four‐year profit and loss projection (optional), a cash‐flow projection, a projected balance sheet, and a breakeven calculation.
Together, these spreadsheets constitute a reasonable estimate of your companyʹs financial future. More important, however, the process of thinking through the financial plan will improve your insight into the inner financial workings of your company.
12-Month Profit and Loss Projection
Explain the major assumptions used to estimate company income and expenses. Your sales projection should come from an annual sales forecast. Pay special attention to areas where historical performance varies markedly from your projections.
Three-Year Profit and Loss Projection (Optional)
The 12‐month projection is the heart of your financial plan. However, this worksheet is for those who want to carry their forecasts beyond the first year. It is expected of those seeking venture capital. Bankers pay more attention to the 12‐month projection.
Of course, keep notes of your key assumptions, especially about things you expect to change dramatically over the years.
Projected Cash Flow
The cash‐flow projection is just a forward look at your checking account.
For each item, determine when you actually expect to receive cash (for sales) or when you will actually have to write a check (for expense items).
Your cash flow will show you whether your working capital is adequate. Clearly if your cash on hand goes negative, you will need more. It will also show when and how much you need to borrow.
Explain your major assumptions, especially those that make the cash flow differ from a profit and loss statement, such as:
If you make a sale in month 1, when do you actually collect the cash?
When you buy inventory or materials, do you pay in advance, upon delivery, or much later?
How will this affect cash flow?
Are some expenses payable in advance?
Are there irregular expenses, equipment purchase, or inventory buildup that should be budgeted?
And of course, depreciation does not appear at all because you never write a check for it.
Projected Balance Sheet
This is an estimate of what the balance sheet will look like at the end of the 12‐month period covered in your projections.
In the business plan section related to your projected balance sheet, state the assumptions that you used for all major changes between your last historical balance sheet and the projection.
A breakeven analysis determines the sales volume, at a given price, that is required to recover total costs.
Expressed as a formula, breakeven is as follows.
Breakeven sales =
1‐ Variable costs
(Where fixed costs are expressed in dollars, but variable costs are expressed as a percentage of total sales.)
Include details and studies used in your business plan; for example:
Brochures and advertising materials
Blueprints and plans
Maps and photos of location
Magazine or other articles
Detailed lists of equipment owned or to be purchased
Copies of leases and contracts
Letters of support from future customers
Any other materials needed to support the assumptions in this plan
Market research studies
Refining the Plan
The generic business plan presented above should be modified to suit your specific type of business and the audience for which the plan is written.
For Raising Capital
Bankers want assurance of orderly repayment. If you intend to use this plan to present to lenders, include:
Amount of loan.
How you will use the funds.
What will this accomplish (how will it make the business stronger)?
Requested repayment terms (number of years to repay). You will probably not have much negotiating room on interest rate, but you may be able to negotiate a longer repayment term, which will help cash flow.
Collateral offered, and a list of all existing liens against the collateral.
Investors have a different perspective from bankers. They are looking for dramatic growth, and they expect to share in the rewards. Include the following in the plan that you present to potential investors:
Funds needed short term
Funds needed in two to five years
How the company will use the funds, and what this will accomplish for growth
Estimated return on investment
Exit strategy for investors (buyback, sale, or IPO) Percentage of ownership that you will give up to investors Milestones or conditions that you will accept
Financial reporting that you will provide
Involvement of investors on the board or in management
Refine Your Plan for the Type of Business
Present production levels
Present levels of direct production costs and indirect (overhead) costs
Gross profit margin, overall and for each product line
Possible production efficiency increases
Production‐capacity limits of existing physical plant
Production capacity of expanded plant (if expansion is planned)
Production‐capacity limits of existing equipment
Production capacity of new equipment (if new equipment is planned)
Prices per product line
Purchasing and inventory management procedures
Anticipated modifications or improvements to existing products
New products under development or anticipated
Service businesses sell intangible products. They are usually more flexible than other types of business, but they also have higher labor costs and generally very little in fixed assets.
Methods used to set prices
System of production management
Quality control procedures
Standard or accepted industry quality standards
How do you measure labor productivity?
What percentage of total available hours do you bill to customers?
Breakeven billable hours
Percentage of work subcontracted to other firms
Profit on subcontracting?
Credit, payment, and collections policies and procedures
Strategy for keeping client base
Strategy for attracting new clients
Economic outlook for the industry
Does your company have information systems in place to manage rapidly changing prices, costs, and markets?
Is your company on the cutting edge with its products and services?
What is the status of R&D? And what is required to bring the product or service to market and to keep the company competitive?
How does the company:
Protect intellectual property?
Avoid technological obsolescence?
Supply necessary capital?
Retain key personnel?
If your company is not yet profitable or perhaps does not yet even have sales, you must do longer‐term financial forecasts to show when profit take‐off will occur. And your assumptions must be well documented and well argued.
Pricing: Explain mark‐up policies. Prices should be profitable, competitive, and in accord with the company image.
Selection and price should be consistent with company image.
Calculate your annual inventory turnover rate. Compare this to the industry average for your type of store.
Customer service policies: These should be competitive and in accord with the company image.
Location: Does it give the exposure you need? Is it convenient for customers? Is it consistent with company image?
Promotion: What methods do you use and what do they cost? Do they project a consistent company image?
Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor the cost into prices?
WHAT IS BUSINESS PLAN.
It is a specific set of activities to determine what business,
and how we should compete.
Sustainable profitable business
Sustainable competitive advantage.
Developing a competitive / profitable strategy in the
Core competency development
An integrated business strategic decisions which include
-research / development
INITIAL HOMEWORK BEFORE DEVELOPING THE FINAL BUSINESS PLAN.
1.BUSINESS MISSION what is your mission for your business venture?
2.BUSINESS PRODUCT I SERVICE
what are your products/service [describe]
how will you deliver it [with staff or on your own]
what will be the PRICE structure
what will be your fixed overheads [ electricity/ water/ etc]
what will be your variable overheads [ stationery etc
what will be the quality of your product / service
will there be unique offers, which no one else offers
WHAT is happening in your industry
is it growing or is there demand or is it stagnant?
how fast it is growing?
what kind of products / services are being offered?
what prices are being charged
what is the quality of the service
what is the capacity I is it in excess of the demand. etc
who are the potential competitors
what is the degree of competition
what is the basis of competition ~price/ quality /facilities etc
how easy is it to enter the competition
what are the barriers for entry
how do they market their product / service detail please etc etc
WHO are your potential customers
what is the purchasing behavior of the customers (good service /quality/speedy etc]
what factors affect the buying behavior of the customers
what are the preferences of the target market
is there a seasonal trend [season / lean periods/ high demand period etc]
what isthe demographic trends [gender/ age/ profession/ etc]
what products/ services are in demand in the market
6.GOVERNMENT BUSINESS REGULATIONS
-What regulations affect this business --creditation /location/ qualifications etc
what opportunities do you see for your business
please define quantitatively and qualitatively
what are your targets
what is your sales objectives[ forecast for 3 years at least]
sales forecast by units/dollars [for three years]
what factors are likely to affect your sales objectives
sales minus cost of sales= gross contribution[ rough estimate]
in your terms, how do you plan to achieve these objectives
what strategy would you adopt
9.BUSINESS MARKETING WHAT will be your marketing objectives
what will be your marketing strategy
what will be your promotion plans
what media are available etc etc
10.BUSINESS SALES DEVELOPMENT
will you have a sales team or you plan to handle yourself
will you telemarketing
will you use online marketing
will you use direct marketing
what customer service support you plan to offer etc etc
how do you plan to run it
what will your operational policies etc
what is the planned organization over three years
-what will be the structure
how many/ type of staff will be employed over 3 years salary guidelines
what functions /who will perform it etc etc
13. FINANCE REQUIREMENTS
funds required in total
THESE QUESTIONS ARE MEANT TO FACILITATE YOUR THINKING ON THE SUBJECT OF YOUR PRODUCTS / BUSINESS.
The answers to the above questions will help you to develop
The business PLAN.
The business plan includes the following paragraphs,
This is an outline of a complete business plan:
Key success factors
The overall market
Changes in the market
Target market and customers
Customer buying decisions
Nature of competition
Changes in the industry
Threats and risks
Key competitive capabilities
Key competitive weaknesses
Positioning of products/services
Competitive evaluation of products/services
Marketing and sales
Human resources plan
Supply chain planning
Creating the financials of the business plan
Assumptions and Comments
Starting Balance Sheet
Profit and Loss Projection
Cash Flow Projection
Balance Sheet Projection
Ratio's and Analysis