Why Prepare a Plan?
The Business Plan is a written summary of what you hope to accomplish by being in business and how you intend to organize your resources to meet your goals. It is the road map for operating your business and measuring progress along the way.
1. The Business Plan identifies the amount of financing or outside investment required and when it is needed.
2. First impressions are important. A well-organized plan is essential for a lender or investor to assess your financing proposal and to assess you as a business manager.
3. By committing your plans to paper, your overall ability to manage the business will improve. You will be able to concentrate your efforts on the deviations from plan before conditions become critical. You will also have time to look ahead and avoid problems before they arise.
4 It encourages realism.
5 It helps you to identify your customers, your market area, your pricing strategy and the competitive conditions under which you must operate to succeed. This process often leads to the discovery of a competitive advantage or new opportunity as well as deficiencies in your plan.
6.Three or four hours spent each month updating your plan will save you time and money in the long run and may even save your business. Resolve now to make planning a part of your management style.
The format should start with an executive summary describing the highlights of the business plan. Even though your entire business is well described later on, a crisp, one or two page introduction helps to capture the immediate attention of the potential investor or lender.
· Company name (include address and phone number)
· Contact person (presenter’s name and phone number)
· Paragraph about company (nature of business and market area)
· Securities offered to investors (preferred shares, common shares, debentures, etc.)
· Business loans sought (term loan, operating line of credit) Highlights of Business Plan (your project, competitive advantage and “bottom line” in a nutshell–preferably one page maximum)
This summary page is extremely important in capturing the reader’s attention. Make sure it sells your idea so the reader will retain interest and continue reading
Table of Contents
A standard table of contents
- Section titles and page numbers (for easy reference)
- Business Concept
- The business concept identifies your market potential within your industry and outlines your action plan for the coming year. Make sure your stated business goals are compatible with your personal goals, your own management ability and family considerations.
- The heart of the Business Concept is your monthly sales forecast for the coming year. It is your statement of confidence in your marketing strategy and forms the basis for your cash flow forecast and projected income statement.
- The business concept contains an assessment of business risks and a contingency plan. I urge you to take the offensive and be your own devil’s advocate. Being honest about your business risks and how you plan to deal with them is evidence of sound management.
Description of the Industry
· Industry outlook and growth potential (industry trends, new products and developments. State your sources of information)
· Markets and customers (size of total market, new requirements and market trends)
· Competitive companies (market share, strengths and weaknesses, profitability)
· National and economic trends (population shifts, consumer trends, relevant economic indicators)
Description of Business Venture
- Product(s) or service (pictures, drawings, characteristics, quality)
- Product protection/exclusive rights (patents, copyrights, trade marks, franchise rights)
- Target market (typical customers identified by groups, present buying patterns and average purchase in dollars, wants and needs)
- Competitive advantage of your business concept (your market niche, uniqueness, estimated market share) Business location and size (location(s) relative to market, size of premises)
- Staff and equipment needed (overall requirement, capacity)
- Brief history (principals involved, development work done)
One year (specific goals, such as gross sales, profit margins, share of market, opening new store, plant or office, introducing new product, etc.) Over the longer term (return on investment, business net worth, and sale of business)
Sales strategy (commissioned sales staff, agents, sales objectives, target customers, sales tools, sales support)
- Distribution (direct to public, wholesale, retail, multiple outlets)
- Pricing (costing, mark-ups, margins, break-even)
- Promotion (media advertising, promotions, publicity-appropriate to reach target market)
- Guarantees (product guarantees, service warranties)
- Tracking methods (method for confirming who your customers are and how they heard about you)
Assumptions (one never has all the necessary information, so state all the assumptions made in developing the forecast)
- Monthly forecast for coming year (sales volume in units and dollars)
- Annual forecast for following 2-4 years (sales volume in dollars)
Note: The sales forecast is the starting point for your projected income statement and cash flow forecast
Production Plan (Manufacturing)
- Brief description of production process (don’t be too technical)
- Physical plant requirements (building, utility requirements, expansion capability, layout)
- Machinery and equipment (new or used, lease or purchase, capacity)
- Raw materials (readily available, quality, sources)
- Inventory requirements (seasonal levels, turnover rates, method of control)
- Suppliers (volume discounts, multiple sources)
- Personnel required (full-time, part-time, skill level, availability, training required)
- Cost of facilities, equipment and materials (estimates and quotations)
- Capital estimates (one time start-up or expansion capital required)
- Purchasing plans (volume discounts, multiple sources, quality, price)
- Inventory system (seasonal variation, turnover rates, method of control)
- Space requirements (floor and office space, improvement required, expansion capability)
- Staff and equipment required (personnel by skill level, fixtures, office equipment)
Legal form (proprietorship, partnership, corporation)
- Share distribution (list of principal shareholders)
- List of contracts and agreements in force (management contract, shareholder or partnership agreement, franchiser service agreement, service contract)
- Directors and officers (names and addresses and role in company)
- Background of key management personnel (brief resumes of active owners and key employees)
- Contract professionals/consultants (possible outside assistance in specialized or deficient areas)
- Organization chart (identify reporting relationships)
- Duties and responsibilities of key personnel (brief job descriptions who are responsible for what?)
Competitors’ reaction (will competitors try to squeeze you out?)
- What if . . . list of critical external factors (identify effects of strikes, recession, new technology, weather, new competition, supplier problems, shifts in consumer demand)
- What if . . . list of critical internal factors (sales off by 30%, sales double, key manager quits, workers unionize)
- Dealing with risks (contingency plan to handle the most significant risks)
- Steps to accomplish this year’s goals (flow chart by month or by quarter of specific action to be taken and by whom)
- Checkpoints for measuring results (identify significant dates, sales levels, production levels as decision points)
The financial plan outlines the level of present financing and identifies the financing sought. This section should be kept concise with supporting material supplied only when requested.
The Financial Plan contains pro-forma financial forecasts. In carrying out your action plan for the coming year, these operating forecasts are your guide to business survival and profitability
Resolve now to refer to them often and, if circumstances dictate, re-work them as necessary. Before presenting your Business
Plan to a lender or investor; review your financial statements with your accountant. This familiarity will increase your credibility and at the same time provide you with a good understanding of what the financial statements reveal about the viability of your business.
- Previous years’ balance sheets and income statements (include past 2-3 years if applicable)
This section will contain:
- Opening balance sheet (for a new business only)
- Projected income statements (detailed operating forecast for next year of operation and less detailed forecast for following two years. Use sales forecast as starting point)
- Cash flow forecast (budget of cash inflow and outflow on a monthly basis for next year of operation)
Financing and Capitalization
Term loan applied for (amount, term, when required)
- Purpose of term loan (attach detailed description of assets to be financed with cost quotations)
- Owners’ equity (your level of commitment to the program)
- Summary of term loan requirements (for a particular project or for business as a whole)
Preparing a business plan will generate a lot of thought and a lot of paper! Keep in mind, however, that the final document is a summary of your planning process. You can always refer to your working papers later on to substantiate a particular point.
Have your key employees and two or three impartial outsiders review the finished plan in detail. There may be something you overlooked or underemphasized. Also a critical review will be good preparation for your presentation to potential investors and lenders.