Creating a Business Plan
WHY You Need a Business Plan
You've got a great idea for an unbeatable product or service! You think you have the tenacity and creativity to be an entrepreneur! You're eager to give small business ownership a go! Before taking the plunge, however, it is crucial that you give shape and focus to your dreams. This involves putting together a blue-print, otherwise known as a business plan.
In the long run, formulating an effective business plan will boost the likelihood that you can turn your long-held dream into a long-term success. For now, as you prepare to launch your business, constructing a business plan will:
- provide the means to organize your thinking;
- help you to establish realistic short-term and long-term goals;
- serve as a valuable management tool by setting realistic milestones necessary to meet those goals;
- permit you to share your vision with others, including top-talent you may be trying to bring on board; and,
- compile the information that will be necessary to attract potential partners or arrange sources of funding.
WHEN You Should Develop a Business Plan
You should begin creating a business plan as soon as you decide you have a viable idea for a new business. It will help you to focus the many creative thoughts that are no doubt crowding your mind. And, it will prevent you from wasting time struggling with strategies that aren't going to prove productive to growing a business.
WHAT Your Business Plan Should Include
When properly structured, your business plan will serve as a helpful communication tool to attract investment, funding, employees and strategic business partners. Your focus should be to provide an enticing, cohesive message that illustrates how you intend to "get the job done." Your plan should be sharp, focused and comprehensive, without being mind-numbing in length. Keep it to 30 pages or so; maybe 40 pages total with appendices for financial projections, management resumes, etc. If your business plan reads like a doctoral thesis, it is a sure bet that you are not communicating effectively. Good business writing is clear, concise and easy to read.
Business plans have two basic parts: a description of the business and financial data. Within those parts are elements that provide additional form and focus to your strategies. Each step will compel you to ask hard questions and spell out your business ideas and ideals.
- Cover Sheet. Include the full legal name of your business, address, phone and fax numbers, Web site URL, and the name, phone number and e-mail address of the person to contact at your business. Your attorney can advise you whether to include a statement instructing readers to keep the contents confidential or ask recipients to sign a nondisclosure statement.
- Table of Contents. List the various sections of the plan in a logical fashion, with corresponding page numbers.
Executive Summary or Statement of Purpose. Think of this as your mini business plan and limit the summary to two or three pages. Its purpose is to present a convincing argument as to why your products and business will succeed. Use this section to entice the reader with a business concept, vision and milestones for success that have been carefully crafted.
Your goal is to encapsulate, in a nutshell, why a potential investor should fund your business concept, while touching briefly on all of the major elements of the plan (description of product or service; purpose for starting the business; current competitive situation; marketing strategies and other key success factors; expertise of management; and financial situation and needs).
You may want to create the executive summary after you have fleshed out the other sections of your business plan. That way, you can select the right "snapshots" from the completed plan.
Description of your Business
- The Company. Describe the type of business, its legal structure, ownership and principals, board of directors/advisors (if applicable), its location and related advantages, your product or service, marketing strategy and future goals and the actions that will be needed to achieve those goals.
- The Customers. This section should define your customer base and make clear that you understand their needs and desires. Include information on the characteristics of your potential customers; the size, scope and location of the market for your product/service; why customers will want to purchase from your business; how your business's image will influence customer buying decisions; whether your customer base is expected to grow; and, how you intend to generate and maintain customer satisfaction.
- The Product. This section should provide information pertinent to the product or service your business will be selling. Discuss why your product or service is desirable (what need does it fill?); how long it will last or be effective; how long it will take your business to make and deliver its product or service; how your product will be distributed, delivered or serviced; the price and cost of your product/service; and, whether there will be follow-up services or products.
- Competition and Business Strategy. Here is where you will talk about other companies in the same line of business, your business's relevant strengths or weaknesses and your strategy for success. Provide an industry overview, as well as specific information on the nature of the competition, key competitors' competitive capabilities and weaknesses and competitive products/services. Discuss existing opportunities within your industry, as well as any trends that will be beneficial to or detrimental to your business.
- Marketing and Sales. This section should discuss how you intend to reach and attract potential customers. Include information on your overall marketing strategy; explain your business's pricing strategy; detail your methods of selling and your planned advertising, public relations and promotions/incentive activities and budgets.
- Operations. Explain how the business will be organized and managed on a daily basis; outline hiring and personnel procedures; discuss business insurance and lease or rent agreements; account for equipment necessary to produce your products or services; and, discuss how any changing demographics or trends might affect the business location.
- Company Personnel and Management. Use this section to demonstrate that you have assembled a winning team. Include an organizational chart and list key individuals and their respective responsibilities, background/experience and present salaries. Provide details of your human resources plan, including relevant labor supply information, planned compensation and benefit packages and the number of anticipated employees and payroll expenses at year-end.
- Financial Data. Here is where you "walk the walk" to back up the talk you delivered in the previous section. Use this section to demonstrate that you have evaluated the risks associated with your venture. Include financial statements and forms that document the vitality of your business and its soundness as an investment, and have a reputable accountant review them prior to finalizing the data. Among the items to include in this section are:
- Start-up budget. Include major items, like inventory and personnel costs, as well as smaller items such as utilities, rent deposits, etc.
- Monthly operating budget that covers the first year in business.
- Capital budgets for equipment.
- Funding requests and return. State the amount of funding and the type (debt or equity) of investment you are seeking and the terms. Provide a breakdown of how the money will be applied; what affect that capital will have on the business' potential to grow; when the money is needed; and any existing investments in the company. Include details that show how investors will make their money back, while also acknowledging the potential downside of investing in your business.
- Balance sheet. If your business is a start-up, include a personal balance sheet summarizing your personal assets and liabilities.
- Break-even analysis. Discuss at what point of sales in any given time period you will recover your expenses. At what point will your business show a profit?
- Profit and loss statements. Include a three year-summary that gives profit/loss details by month for the first year and by quarters for the second and third years. Provide assumptions upon which the projections are based. Provide a brief analysis of the statements.
- Cash flow projections. This will show how much money you will need and when, and will indicate where the money will come from. Give three-year projections, based on three different growth potentials (expected growth, better-than-expected and less-than-expected).
- Name and address of legal counsel.
- Name of person who will maintain your accounting records and description of your accounting and inventory system.
- Banker's name, location and contact officer.
- Loan applications.
- Concluding Statement. Here's the opportunity to express your commitment to the success of the business. Summarize your business goals and objectives. Identify the "what if" risks your business faces, include an analysis of those risks and detail the alternative approaches you can take to manage those risks. You want to demonstrate that you have the skills as a manager to confront and handle problems that may arise.
- Supporting Documents. Include personnel resumes; tax returns of principals and personal financial statements; credit reports; personal, financial and customer references; proposed lease or purchase agreements for building space; marketing materials; copies of licenses and other legal documents; industry data; copies of letters of intent from suppliers; and, a schedule showing deadlines for filings, registrations, employee hires, orders, deliveries and any other events described in the plan.
WHO Else Should Be Involved?
Don't consider this a one-man or one-woman job. Every entrepreneur can benefit from the counsel and experience of others. Seek second and third opinions, throughout the drafting process, from family members and trusted business mentors, peers or consultants. Different points of view can be valuable, particularly in pointing out potential weaknesses that might have escaped your attention or consideration. Once you have a completed plan, you should ask you attorney and accountant to review the plan and offer their input.
HOW to Present your Business Plan
Once your plan is finalizing, you will move to the presentation phase. Keep it simple. There's no need to overwhelm readers with distracting graphics and illustrations!
The cover sheet should be the same for your business plan as for your executive summary. Center the information in the middle of the cover page and use a large font. Include a copy of your company logo, if you desire.
The text of your business plan should be neatly typed in an easy-to-read business-like font, 11 or 12 point size. Separate sections with page breaks. Take special care with tables and charts, which should be easy to read and interpret. Separate charts from text and highlight tables. Spell-check carefully and ask another person to help you proofread the plan. Double-check your financial facts and figures; is your research accurate and up-to-date?
Encase the plan in a clear plastic cover and have it spiral-bound with a dark-colored vinyl sheet on the back.
In addition to distributing printed copies of the plan, you will need to be prepared to make personal presentations. You and other members of your entrepreneurial team should be able to articulate and discuss the plan intelligently and enthusiastically with interested parties.
USING Your Business Plan
Once your business plan is complete, it will be your main tool for attracting potential investors and securing sources of funding. You can also use it as a sales tool when trying to convince top talent and key personnel to join your business.
As your business begins operation, the plan becomes a useful management and planning tool. Consider it to be your blueprint. As the owner of a small business, you will confront daily distractions, unending lists of tasks and constant demands on your time. Keeping your business plan "front and center" will permit you to consult your goal list every day, and make sure you are doing what you need to do to fulfill your plan for success. Use it to establish timelines and milestones, to gauge your progress and to determine whether your projections are proving to be accurate. Share the plan with employees to foster unity and improve their understanding of where the business is headed.
Finally, remember that the planning does not stop with the plan! If roadblocks or obstacles occur, you will need to turn to your plan to establish alternative methods for reaching your goals. A good business plan will allow room for you to accommodate unexpected changes or events. The plan should be considered a "living document." You may well have to modify or abandon specific steps within the business plan depending on circumstances beyond your control. Stay flexible and adaptive!
For More Information on Business Plans
SCORE "Counselors to America's Small Business" is a nonprofit association dedicated to entrepreneur education and the formation, growth and success of small business nationwide. Its Web site (www.score.org) offers a template gallery. Business owners can download business plan templates and work with a SCORE business counselor to plug in the numbers.
The U.S. Small Business Administration was created specifically to assist and counsel small businesses. Its Web site (www.sba.gov) offers business plan basics, including information on how to write a plan, what elements to include and an outline of a typical business plan to serve as a guide.
Bplans.com (www.bplans.com) is owned and operated by Palo Alto Software, Inc. as a free resource to help entrepreneurs plan better businesses. The site contains a large collection of free sample business plans and other helpful articles, interactive tools and resources for planning your business. Bplans.com has won several awards as a valuable "plain talk" resource.
Inc.com (www.inc.com/home/index.html) provides articles on starting a business and developing a business plan.