The Business Plan

What is it? A business plan outlines the objectives of the business and summarizes the strategies and resources needed to achieve these objectives. A well-prepared business plan indicates both strengths and weakness of the business and helps the business find ways to use its strengths to overcome or eliminate the weaknesses. Your business plan is the single most important document that you will produce in the lifetime of your venture. It is the blueprint of success.

Brief Summary The summary is often called the executive summary. It appears first in the business plan to provide a quick reference for a busy loans officer, manager of a financial institution, or potential investor. The summary explains what your business is going to make, sell or do. It includes projected revenues, expenses and profits, and explains how these projections were calculated.

Background Information Your business plans should outline the history of your business – when it was started, why it was started, and who started it. This section of the plan indicates whether your business is a sole proprietorship, a partnership or a corporation.

Products and Services The business plan should provide a description of the products or services that your business will manufacture or sell. How are they unique? What patents, trade secrets, or new technologies are involved? The plan should also profile the overall industry and provide projections of how the industry is likely to grow over time.

The Structure of the Business The business plan should include a chart that shows how your business will be organized, along with brief biographies of key management personnel. It should illustrate the expertise and experience available to manage your business and ensure its success.

Market Analysis The market analysis begins by identifying the overall target market for your venture and by describing the related market segments in detail. It includes profiles of demographics, characteristics, locations of consumers, and consumer motivations. The plan outlines who your competitors are, where they are, and how successful they are (including market shares they may hold). It should also explain how your business will ensure that its products or services are better than those offered by your competitors.

Market Analysis Continued The business plan also outlines the venture’s pricing policy, including the cost price (the actual cost od manufacturing the product or providing the service), the markup (the amount that you add for profit), and the selling price (the cost price + the markup) of each product or service. The market analysis needs to describe in detail how your products and services will be distributed to customers. For example, you might sell them through retail stores or over the internet. The plan also includes and costs involved in bringing the product or service to customers. It also must include your advertising and sales promotion plans for the product or service. Advertising and promotion plans should include a creative strategy for the campaign, showing how the target consumer will be persuaded to buy your products or services. The advertising budget and schedule are included.

Resource Analysis As you read in Chapter 1, resources are the materials, people, technology and money that your business needs in order to function. The business plan includes a list of capital resources, such as buildings or machines, that your business owns. If your business owns property, the plan should include the outstanding mortgage, a current market valuation of the property, and a description of the building. It should also explain where it is and why this location was chosen. If your business is in manufacturing, for example, you should also include a list of all machinery, equipment and raw materials that you will have to buy, complete with info about who will supply the and how much they will cost.

Resource Analysis Continued Your venture can only succeed if the right people are in place to do the work. The resource analysis outlines the jobs that have to be done and who will do them. The business plan also shows the money available to the business and indicates a need for a financial plan if not enough capital is available.

Financial Strategy If your venture needs financing, this section of the business plan will be extremely important. It lists all your capital requirements, as well as sources who have already provided money for your business, such as relatives or partners. The financial section includes projected income statements and balance sheets, cash flow projections and a loan repayment plan. In order to obtain a loan, your business needs collateral. Most banks accept the following as business collateral: A/R, real estate, inventory, equipment and automobiles. The owner’s personal assets may also be considered. For a small service business that doesn’t have many valuable assets, third party guarantees (loan guarantees by someone outside the business who has collateral) and personal assets may be enough to secure the loan.

References Financial institutions, other investors, and new suppliers look for references in the business plan. The plan lists the names of financial institutions and other investors with whom you and your business have had financial dealings, along with the details of financial transactions, their terms, and payment histories. It also helps to list the names of accountants, lawyers, suppliers or other businesses with whom you and your venture have had a financial relationship.

Appendices Your business plan might include supporting documents such as resumes of key personnel, a statement of your personal net worth, and outline of the community benefits of the business, the availability of government assistance or grants, and detailed market research results. Include these documents as appendices at the end of the plan rather than in each section.