[by Glen Greene – freelance writer]
WHAT TO EXPECT
For any business to be successful, it must be started and operated with a clear understanding of its customers, its internal strengths, its competitive environment, and a vision of how it will evolve to compete in the future. A business also needs money to start, to operate, and to grow. By expending the effort to develop a comprehensive business plan, you will have a powerful tool. Your business plan is the roadmap for your company. It clearly states where you are, how you got there, and how you plan to proceed.
This module steps you through the process of developing a comprehensive business plan. Although businesses may vary with regard to the products or services they offer, there are specific elements that a potential investor will look for in any business plan. Therefore, every well thought-out business plan includes a description of products and services, a competitive analysis, a marketing plan, a management and operational plan, and a set of financial forecasts. This module examines these plan elements and explains how you can pull them together into a professional package that can be used as a guideline for your own management purposes as well as a sales tool to attract new capital.
TABLE OF CONTENTS
I. What You Should Know Before Getting Started.
A. Why Write A Business Plan?
B. Tips For Creating A Good Business Plan
C. Who Should Write Your Business Plan?
D. What Lenders Look For
II. Process For Developing Your Business Plan
1. Begin The Plan With A Summary
2. Describe Your Company
3. Analyze Your Market And Determine Your Strategy
4. Describe Your Product/Service And How They Are Produced
5. Describe Your Management Organization
6. Describe Your Operations
7. Develop Your Financial Forecast
8. Determine Your Proposed Financing
9. Outline Your Plan(s) For The Future
10. Other Considerations
III. Training Module Checklist
IV. Resources
I. What You Should Know Before Getting Started.
A. Why Write A Business Plan?
A business plan is a very versatile tool. It offers you a wide variety of benefits that can lead to a more successful business. A few of the better reasons for developing a comprehensive business plan are as follows:
- To clearly define your company’s long term goals.
- To determine if you really have a viable business idea before investing your time and money.
- To spot potential problems before they happen.
- To gain a better understanding of your target market and competitive environment.
- To foster consistency and focus when you deal with your customers, employees, suppliers, and investors.
- To determine your staffing, equipment, and supply needs.
- To attract new capital.
B. Tips For Creating A Good Business Plan
The first rule in any type of business communication is to put yourself in the reader’s shoes. As you write your business plan, try to be objective and ask yourself if you’re being clear. The following guidelines should also be followed:
1. Be Concise.
Don’t burden the reader with fifty pages of text when thirty will do. Keep your sentences short and to the point. Most business plans are between twenty and forty pages long. While this may seem like a lot of writing, if you cover all the areas listed in the Table of Contents, the pages will fill up fast.
2. Be Realistic.
One of the surest ways to lose credibility with a potential investor is to present a five year forecast that is completely unrealistic. When you determine your projections for future sales growth, keep them conservative (relative to your industry). If you present a “best case” scenario, you should state that in the plan. At the very least, you should always be prepared to defend your numbers.
3. Be Organized.
A Table of Contents is critical. It allows the reader to quickly skip from section to section to find the information that is most important to them (e.g., cash flow projections).
4. Be Professional.
Your plan document should be free of spelling and grammatical errors. It should be typed or laser-printed on quality paper. If you have charts or graphs, they should be accurate and easy to read. In short, your business plan should reflect the high quality of your business.
C. Who Should Write Your Business Plan?
The answer is you. Although it is a time consuming project that takes you away from the day-to-day operations of your business, you should not hire an outside consultant to write your plan for you. The reason is simple; a professional investor wants to know that you, the manager of the company, have the knowledge and foresight to lead your venture into the future. It’s also extremely beneficial for you to go through the thinking process of developing the business plan. It forces you to come to terms with issues that you might otherwise gloss over. If you need help, you can look for sample plans in your local library or buy software that leads you through the planning process.
D. What Lenders Look For
If you are developing your business plan for the purpose of obtaining a loan or equity capital, you should keep the “Five Cs of Credit” in mind as you write. These correspond to the areas that a loan officer will evaluate in making a credit decision.
1. Character.
The degree to which a borrower feels a moral obligation to pay. The lender will check your personal credit history and your management track record.
2. Capacity.
A subjective evaluation of your ability to repay the loan. The lender will look at your cash flow projections and your production methods.
3. Capital.
The amount of capital in the business before the loan. The lending institution wants to know that you have a financial commitment to the business and that you have the resources to weather any downturns in the business cycle.
4. Collateral.
An asset that can be sold to pay the loan if the borrower is unable to start or continues making payments.
5. Conditions.
The lender will evaluate the overall economic climate and your specific industry to determine if there are any external factors that might affect your ability to repay the loan.
II. Process For Developing Your Business Plan
The following ten steps will guide you through the detail of developing your business plan.
1. Begin The Plan With A Summary.
The summary offers a synopsis of the business plan in two or three pages. It appears at the beginning of the plan, but it should be written last, after you have worked out all the kinks. The summary should tell the reader who you are, what you are planning to do, and why you will be successful.
2. Describe Your Company.
This section provides a brief history of your company and lists your goals and objectives. If your company is a start-up, you should state that. If it is an existing business, include the date of inception and the legal structure (e.g., sole proprietorship) of the firm.
3. Analyze Your Market And Determine Your Strategy.
This section identifies your target market and the competitive environment. It also explains how you plan to manipulate the marketing mix (product, price, promotion, and distribution) to achieve your goals.
A. Target Market.
Who are your customers? How large is the market? Is it growing? How will you reach them? What are their needs? These are the questions you must answer in this section. You can obtain market information from your local library, industry associations, and government publications.
B. Competitive Environment.
Who are your competitors? What are their strengths and weaknesses? How do you compare with them? What is your competitive advantage? Be honest with yourself in this section. If you underestimate your competition, you are only hurting yourself.
C. Marketing Strategy.
How will you position your product or service? What distribution channels will you use (e.g., direct mail, retail)? What is your pricing strategy (e.g., skim, penetration)? How will you promote your product (e.g., advertising, personal selling)? Your strategy should be consistent with your goals and your target market.
4. Describe Your Product/Service And How They Are Produced.
This section contains a detailed description of your product or service. You should highlight any unique features or benefits. If you are manufacturing a product, you should describe your production process, your facility, and your equipment needs. If you are a service firm, describe how your service is delivered.
5. Describe Your Management Organization.
This section identifies the key members of your management team and describes their responsibilities. It should also include an organization chart and resumes for each key manager. Investors consider the quality of management to be the single most important factor in the success of a business.
6. Describe Your Operations.
This section explains how you will run the day-to-day operations of your business. It should cover such areas as location, personnel, inventory control, and record keeping.
7. Develop Your Financial Forecast.
This section translates your plan into dollars and cents. It should include the following statements for a three to five year period:
A. Income Statement.
Shows your revenues, expenses, and net income (or loss).
B. Balance Sheet.
Shows your assets, liabilities, and equity.
C. Cash Flow Statement.
Shows your cash receipts and cash disbursements. This is critical for determining your cash needs.
8. Determine Your Proposed Financing.
If you are seeking outside financing, this section should specify the amount you need, how you will use the funds, and how you will repay the loan (or what the investor’s return will be).
9. Outline Your Plan(s) For The Future.
Where do you see your company in five years? In ten years? Do you plan to expand geographically? Introduce new products? Go public? This section lets the reader know that you are thinking ahead.
10. Other Considerations.
You may want to include a section on potential risks and pitfalls or a timeline for key milestones (e.g., product launch, breakeven).
III. Training Module Checklist
Summary
___ Business Description
___ Goals and Objectives
___ Keys to Success
Market Analysis
___ Target Market
___ Competitive Environment
___ Marketing Strategy
Product/Service
___ Description
___ Features and Benefits
___ Production/Service Delivery
Management
___ Key Team Members
___ Responsibilities
___ Organization Chart
___ Resumes
Operations
___ Location
___ Personnel
___ Inventory
___ Record Keeping
Financials
___ Income Statement
___ Balance Sheet
___ Cash Flow Statement
Financing
___ Amount Needed
___ Use of Funds
___ Repayment/ROI
IV. Resources
Books
1. Bangs, David H. Jr. The Business Planning Guide. Upstart Publishing Company. 1992.
2. McKeever, Mike. How to Write a Business Plan. Nolo Press. 1992.
3. Rich, Stanley R. and David E. Gumpert. Business Plans That Win $$$. Harper & Row. 1985.
4. Siegel, Eric S., Loren A. Schultz, Brian R. Ford, and David C. Carney. The Ernst & Young Business Plan Guide. John Wiley & Sons. 1993.
Software
1. BizPlanBuilder. Jian Tools for Sales (415) 941-9191.
2. Business Plan Pro. Palo Alto Software (800) 229-7526.
3. Plan Write. Business Resource Software (800) 423-1228.
Associations
1. American Management Association. (212) 586-8100.
2. Service Corps of Retired Executives (SCORE). (800) 634-0245.
3. Small Business Administration (SBA). (800) 827-5722.