Developing a Business Plan
A Business Plan allows you to objectively, critically, and unemotionally assess the viability of a new business idea.
What role does a business plan play?
• Is there a market for selling? How much are you likely to trade?
• Management – Is the management team capable?
• Financial – Is the company profitable?
It gives you an operating plan to help you operate your firm and increases your chances of success.
• Recognize opportunities and avoid errors
• Create production, administrative, and marketing strategies.
• Develop budgets and projections to demonstrate financial outcomes.
It explains your concept to others, acts as a “selling tool,” and serves as the foundation for your financing application.
• Estimate the amount and type of finance required; • Predict profitability and investor return on investment
• Forecast cash flow, demonstrate liquidity, and demonstrate ability to repay debt
Who will make use of the plan? If you do not intend to utilise the plan to seek funds, it will be internal and may be less formal. Presentation quality and detailed financial analysis are critical when presenting it to outsiders as a financing proposition.
Basic business plan principles
Writing a Business Plan will most likely require a significant amount of time. It is not uncommon for a new business that requires extensive research to take up to 100 hours or more.
A typical plan will be divided into three pieces.
Component one is a textual section that describes the business’s management and marketing aspects.
Financial predictions are included in Section Two. Section three has further information.
A brief (3-5 page) Executive Summary is frequently included at the start of more comprehensive business plans.
• Section One should be comprehensive, but brief and to-the-point. Make use of headlines, infographics, and “bullets” to increase readability. This part is typically 10 to 20 pages long.
• Section Two quantifies the results of your business strategies and plans. Your financial estimates should be supported by facts and research rather than “wild assumptions.” Prepare to justify your figures.
• Section Three offers information to supplement the preceding two sections. The contents of this section will vary depending on your sort of business.
Owners should play an active role in the planning process. Hiring someone or outsourcing it to someone who is not a vital member of the organisation will result in a subpar plan.
A lack of (or a poor) plan is a major cause of business failure. A strong Business Plan can increase your chances of success.
What not to do when creating and submitting a business plan
These mistakes in business plan creation and presentation will weaken the plan’s credibility and reduce your chances of receiving funding:
• Submitting a “rough copy” (complete with coffee stains and errors) communicates to the reader that management does not value the planning process.
• Outdated previous financial data or unreasonable industry comparisons will cast doubt on the entrepreneur’s ability to prepare.
• Unsubstantiated assumptions might jeopardise a company plan; the owner must be prepared to explain the “why” of each element in the plan.
• Using too much “blue sky” – failing to address potential dangers – can lead the reader to believe that the notion is unrealistic.
• A failure to comprehend financial data. Even if the estimates are prepared by someone else, the owner must be able to explain them.
• There is a lack of distinct, detailed strategies. A strategy that consists solely of vague statements of strategy (“We will deliver world-class service at the lowest possible price.”) will be dismissed as fluff.
This is especially true if the business plan is being developed for a lender:
• There is no indication that the owner has anything to lose. The lender anticipates that the entrepreneur will have some equity invested in the business.
• A refusal to personally guarantee any loans. Why should the bank stand behind a company if the owner is unwilling to do so?
• Begin the strategy with implausible borrowing amounts or conditions. Do your research and come up with a feasible structure.
• Too much emphasis on collateral. Even with a cash-secured loan, the banker considers predicted profits for loan payback. The source of repayment should be stressed as cash flow.
Outline of a basic business plan
Cover Sheet: Name of the company, address, phone number, and principals
Executive Summary or Mission Statement
Section I: Table of Contents
Section One: The Company
A. Business Description B. Products/Services C. Market Analysis D. Marketing Plan
G. Management and Operations E. Location F. Competition
Personnel H.
I. Loan or Investment Application and Effect
Section Two: Financial Information
A. Financial Statements Projected
Income and cash flow statements
Financial Statements
Projected Financial Statement Assumptions
B. Profitability Analysis
C. Funding Sources and Applications
Section Three: Supplementary Materials Financial statements from the past, tax returns, resumes, reference letters, personal financial statements, facility diagrams, letters of intent, purchase orders, contracts, and so on.
Concerning your company
The pages that follow go over each section (A through I) of the preceding Business Plan Outline in great detail. Please disregard any queries that do not pertain to your company.
A. Business Description Part A gives an overview of crucial information that is explored in further detail on the following pages. In this section, strive for clarity and simplicity. Too much detail here obstructs the key ideas. The Elevator Experiment – Can you describe your core business concept in the time it takes to walk from the foyer to the 5th floor?
Fundamental Questions:
1) What is the general nature of this business?
2) What is the current state of the company? Start-up, expansion, or acquisition?
3) What is the business structure? Is your business a sole proprietorship, a partnership, a corporation, or a limited liability company?
4) What exactly are your products?
5) Who are (or will be) your clients?
Additional Start-Up Questions:
1) What makes you think you’ll be successful in this business?
2) What is your background in this industry?
3) What makes this company exceptional or unique?
4) Why will your company succeed?
Additional Questions Regarding the Purchase of an Existing Business:
1) When and by whom was the company established?
2) What is the owner’s motivation for selling?
3) How was the purchasing price arrived at?
4) What are the present financial trends and conditions?
5) How will your management increase the company’s profitability?
B. Goods and Services
Describe your product offering in this section. This will include information about the product’s features as well as a description of any unique technology or processes. But don’t stop there, and don’t get too caught up in technology. You must also describe the product’s merits and why people should buy it.
Most firms’ products/services are not completely unique. If yours is, take advantage of it while you can and prepare for the upcoming competitive clashes.
If your products/services are not unique, you must find a means to position them in your customer’s mind and differentiate them from the competitors. The process of developing your image with prospects or consumers is known as positioning. (Examples include the highest quality, the lowest price, a larger selection, the best customer service, faster delivery, and so on.)
Fundamental Questions:
1) What products or services do you (will you) sell?
2) What are the characteristics and benefits of your product?
3) What market position do you have (or want to have)?
4) What sets your products/services apart from the competition?
5) What distinguishes and makes your items desirable?
6) What motivates (will motivate) clients to buy from you?
C. Market Research
Market analysis is essential for new and established firms as the foundation for marketing plans and to help validate sales forecasts. Existing firms will heavily rely on past performance as a predictor of future performance. Start-ups face a higher hurdle because they will rely on market research conducted through libraries, trade groups, government statistics, surveys, competition monitoring, and so on. In all circumstances, ensure that your market study is important to determining the viability of the firm and the accuracy of the sales projection.
Existing Business Questions:
1) Who are your present clients? (List the most important customers or categories.)
2) What do they purchase from you?
3) Why do people purchase from you? (Quality, price, reputation, and so on?)
Fundamental Questions:
1) Who are the buyers of your items or the type of things you sell? (Geographic, Demographic, and Psychographic Information)
2) What is the market’s size? Is it expanding?
3) What is (will be) your contribution? What will happen to your share over time?
4) What is the forecast for the industry?
5) Are there any user segments that are underserved by competition?
6) Are there any opportunities in any of these underserved segments?
D. Marketing Strategy
You include the highlights or your detailed marketing plan in this area. The following are the fundamental components of a marketing plan:
What exactly are you selling? (What services do you offer, and what is your position or image?)
Who wants what you’re selling? (Determine Target Markets)
How will you reach out to your target markets and persuade them to buy?
(Construct Product, Pricing, and Promotional Strategies)
Product Marketing Strategies
1) What packaging will be used for the products?
2) How extensive will your product line be?
3) What new goods are you planning to launch?
4) What position or image would you attempt to develop or strengthen?
Pricing Methodologies
1) What pricing tactics will you employ? (For instance, Premium, Every Day Low Price, Frequent Sale Prices, Match Competitor Price, and so on.)
2) How will you compare to your competitors, and how will they react?
3) What makes customers willing to pay your price?
4) What are your credit policies going to be?
5) Is there anything about your company that protects it from price competition?
6) Are you able to add value and compete on factors other than price?
Promotional Techniques
1) Who are your target audiences?
2) How are you going to contact your target markets? (How will you use media?)
3) How will you persuade them to purchase? (What message would you emphasise?)
4) What is the estimated cost and timeline for implementing the marketing plan?
E. Placement
Locations with higher customer traffic are normally more expensive to buy or rent, but they require less advertising to attract customers. This is especially true for retail establishments where traffic volume and accessibility are crucial.
Fundamental Questions:
1) What is the company’s address?
2) Is it privately owned or leased? What are the lease terms?
3) Are improvements or adjustments required, and how much will they cost?
4) Provide a description of the property and its surroundings.
5) What makes this a good location for your company?
Less location detail is required for Mail Order, Telemarketing, Manufacturing, Consulting, and other businesses when the consumer does not make a purchase while physically present at the business address. Change the location section to suit your needs. A suitable location may be close to suppliers, transit hubs, or a complementing firm that will also attract your Target Market in some circumstances.
F. Competitiveness
“Who are your competitors?” will be one of the first questions a banker or investor will ask.
Business is inherently competitive, and few businesses are entirely new. Be cautious if there are no competitors; there may be no demand for your products.
Extend your understanding of competition. If you want to open the first roller skating rink in town, you will have competition from movie theatres, malls, bowling alleys, and so on.
Fundamental Questions:
1) Who are (will be) your most significant competitors? Make a list.
2) How will your operation be superior (or inferior) to your competitors?
3) How are your competitors faring? How much money do they make?
4) (If a start-up) How will your competitors react to your market entry?
G. Administration and Operations
Because management issues are the major cause of business failures, discussing management qualifications and structure is critical. Principals’ resumes should be included in the supporting data. List these crucial people and their qualifications if your company will have few employees and will rely primarily on outside expertise. Personal financial statements for all principals should be included in the supporting data section if you are seeking finance.
Fundamental Questions:
1) What is the management team’s business management experience?
2) What are the business’s functional areas?
3) Who will be in charge of each functional area?
4) To whom does one report?
5) What will the pay be?
6) What management resources are accessible outside of the company?
7) How will your goods/services be manufactured? (Explain manufacturing techniques, proprietary technologies, and important supplier connections.)
Personnel H.
Many businesses’ success is dependent on their ability to attract, develop, and retain quality people. The emphasis in your plan will be determined by the number and type of personnel necessary.
1) What are the current personnel requirements? What about in the future?
2) What talents do they need to have? What kind of training will you provide?
3) Do you have access to the people you require?
4) What is their monetary compensation? What kind of perks will be provided?
I. Loan or Investment Application and Effect
This part is critical whether you are looking for a loan, an outside investment (equity), or to invest your own money. Section Two, Financial Data, may be required before finishing this section.
Fundamental Questions:
1) What is the entire amount of money needed?
2) What will be done with the loan or investment?
3) How will the loan or investment increase the company’s profitability?
4) When is the loan due to be repaid?
5) If you are looking for equity (selling a portion of your company to an investor): – How much of your firm are you willing to give up?
– What is the potential rate of return for the investor? (Note: If you intend to offer your company plan to private investors, seek legal advice to ensure you are in compliance with securities laws.)
Financial Information
A. Financial Statements Projected
The primary goals of financial projections are as follows:
• Determine the business’s earnings potential based on realistic assumptions.
• Determine the amount of capital required by the company and how it will be spent. Demonstrate that the company can earn enough cash to operate and repay loans.
Before tackling the financial section, it is usually beneficial, although not always necessary, to complete at least a rough copy of Section One (the written section). You will design and describe your company strategies in the written component. You will assess the financial impact of those tactics in the financial part by creating predicted Income Statements, Balance Sheets, and Cash Flow Statements.
It is normally advised that these anticipated statements be issued monthly for at least the first twelve months, or until the business becomes profitable and steady. Beyond the monthly information, activity may be provided in summary form (such as quarterly or annually). Most business plans have a two to four-year forecast term.
Gather the suggested information on the following pages before you begin producing forecasted financial statements. Personal computers are excellent tools for financial forecasts, and people with a strong experience in accounting and personal computer spreadsheets may wish to develop their own financial forecast model. (There are also some specialised software tools with basic templates to assist you with your financial projection.)
The correctness of your assumptions determines the quality of your projection. (Waste in – Waste out.) Existing businesses will base their forecasts mainly on prior financial results. Start-ups face more difficulties. They must conduct significant investigation to demonstrate the accuracy of their figures. Industry data from public sources and trade groups, personal interactions with potential customers and business people, competition observation and analysis, and so on are examples of sources.
If you need help, gather the information on the following pages and contact the Small Business Development Center. The SBDC will analyse your research findings and assist you in developing your prediction.
Financial Projections Steps
Use the “Fixed Asset/Start-up Expense List” for items 1 and 2.
1) Estimate the first year’s fixed asset requirements. Included in this category are land, buildings, leasehold improvements, equipment, and vehicles.
2) Compute any startup or one-time costs. Include any startup costs, such as legal fees, licences, and first marketing costs.
Use the “Unit Selling Price and Cost Analysis” page for item 3.
3) Defining each “unit” of your product or service, as well as estimating the selling price and direct cost per unit. Estimate Cost of Sales and Gross Profit as a percentage of the selling price in the appropriate spaces on the form.
Use the “Projected Income Statement” for items 4 through 6.
4) Forecast revenues by month for at least a year. (The unit sales price multiplied by the number of units.) Consider how elements such as startup, marketing, and seasonality effect sales.
5) Calculate the monthly cost of sales and gross profit based on the sales percentages determined in #3 above. If you have many product lines, use a weighted average.
6) For at least a year, estimate and itemise fixed expenses every month. Include expenses like as rent, insurance, utilities, salaries, marketing, legal/accounting, and so on. Determine all categories that pertain to your firm, but exclude expenses that are included in “cost of goods (services) sold.”
Items 7 through 10 require research and a brief narrative.
7) Describe how much inventory (if any) is needed to meet the sales projection.
If possible, give the number of days sales or turnover.
8) Outline your policies for credit, sales, and collections. Estimate the number of days after the transaction before the average customer pays if you want to sell on credit.
9) Explain how quickly you must pay your merchants for any things you intend to purchase.
10) Estimate your income tax requirements.
– Existing businesses will require the most recent Balance Sheet.