Lack of planning can cause serious business problems or outright business failure. Poor management and planning are estimated to account for over 90% of business failures. The most common mistakes made are: poor initial planning; not understanding market position; not knowing costs; not properly pricing; not planning cash flow in advance; not monitoring financial position at all times; not controlling costs; and, not planning and managing growth. A good business plan can help the business owner avoid all of these costly pitfalls.
Here is a basic business plan outline followed by descriptive detail which is included to aid in the writing of the plan. This detailed guide will assist you in preparing one of the most important business documents for your business, large or small.
I. EXECUTIVE SUMMARY
A. Vision and Business Goals
B. Product/Services Offered
C. Markets/Customers Served
D. Distribution of Products/Services
II. THE BUSINESS DESCRIPTION
A. Name and one line description of what the business does.
B. Date Founded, By Whom
C. Form and Ownership
D.
E. Key Officers, Management
III. THE MARKETING PLAN
A. Products/Services DifferentiationB. Industry Profile
C. Competitive Analysis
D. Market Demographics/Size
E. Target Market/Customer Profile
F. Marketing Strategy/Market Share
IV. OPERATING
A. Personnel
B. Production/Service Methods
C. Quality Control
D. Facilities
E. Suppliers
F. Recordkeeping Policies and Procedures
G. Billing and Collection Policies and Procedures
V. THE FINANCIAL PLAN
A. Financial Statements B. Pro-Forma Financial Statements
C. Pricing Strategy, Gross Profit Margin
D. Break-even Analysis
E. Projected Cash Flow Spreadsheet
F. Forecasting Assumptions
G. Risk Analysis and Alternative Plans of ActionVI. REQUEST FOR FINANCING
A. Amount, Purpose of Request, Collateral
B. Sources and Uses of Funds
C. Repayment Plan
D. Debt Repayment Contingency Plan
I. EXECUTIVE SUMMARY
This may be the most important part of the business plan because it is the first – and sometimes only — section that is read by the intended audience. The Executive Summary should capture the attention of readers, so that they want to read the rest of the plan. The information included in the executive summary should focus on the business’ competitive advantage and what makes the business viable.
We recommend that you write the Executive Summary last, after you have completed all the other business plan sections. For this section, write in paragraph form without headings The headings are included to illustrate what should be included in this section, but do not include the headings in the actual Executive Summary.
A. Vision and Business Goals
What is the
long-term vision of the business, and what are the goals for getting there
during the period covered by this business plan? What are the one year, three year and five
year goals for the business? State quantified goals for these time periods,
such as annual revenue ($), annual profit ($), or annual percent increase (%)
in these categories.
B. Products/Services Offered
Describe the
product/service in enough detail so that it is readily understandable and confirms
the viability of the business. How will it be differentiated from the
competition’s offerings?
C. Markets/Customers Served
Who buys the product/services,
and what market segments does the business serve? How large is the total
market? What is the business’ current
market share? What will the market share increase to as the company grows and
its sales goals are reached?
D. Distribution of Products/Services
How does the
product/service reach the customer? Is the method of distribution unique? Is this the business’ competitive
advantage? (Do not include this
information in the executive summary unless the method of distribution confers
some unique advantage upon the business.)
II. THE BUSINESS DESCRIPTION
A. Name and
Address of Business, Type of Business
Use the exact
legal name of the business and the physical address and general location of the
business. Is the business primarily engaged in wholesale or retail trade,
service, manufacturing, agriculture/forestry/fishing, construction or transportation?
B. Date Founded, By WhomC. Form and Ownership
What is the legal form of the
business? List all owners and their
percent ownership.
D.
The mission statement is
practical and philosophical. A good mission statement can provide direction for
the company in the future. The mission statement can include: the purpose for
which the company exists; what the company does; the company's goals; quality;
its role in the community; ethical practices; profitability; customers;
shareholders; the environment.
Business goals should be quantified
and summarized for one, three and five years.
E. Key Officers, Management
Who will put the business plan
into action? List all key employees and
include one to five paragraphs on their qualifications. Also list key advisors, including your
accountant and lawyer if you have these, and any other business advisors (It is
a strength to show the use of advisors.) The reader will need to be persuaded
that the people running the company have the qualifications to get the job done
and done well. Include resumes and job descriptions of all key employees for the
business in the Attachments.
III. THE MARKETING
The marketing
plan is the critical link between the product/service and customers.
Oftentimes, the marketing plan is the hardest section of the business plan to write.
This section contains the extensive research required before the
financial projections can be completed.
The information in the financial plan (the fifth section of the business
plan) is based on data that is gathered as part of the marketing planning
process. One critical part of the
marketing plan is a clear-cut delineation of the business’ target markets. Much
hinges on the plan’s reader being convinced that there will be a large enough
market for the product/service. The overall goal of the marketing section is to
demonstrate that your product or service meets an important customer need and
provides a solid benefit to customers in a well-defined market niche.
A. Products/Services Differentiation
First, describe your product or
service plainly and clearly. If you have
several products or services, be sure to describe the full line of
offerings. Then describe the specific
benefits these products and services deliver to customers. Finally, tell what is different about your
products and services when compared others on the market. Successful businesses provide something that
is unique. Some of the ways that products/services are differentiated can include:
higher quality; better customer service; quicker responsiveness;
safer/healthier; more attractive; more convenient; lower cost.
B. Industry Profile
What industry are you part of
(for instance, retail clothing, or custom metal fabrication, or forestry
management). What is the current phase in the life cycle of
the industry (starting, emerging, growing, mature, or declining)? What is the
competitive profile in your industry – do you have one or two, several, or many
competitor firms in the industry? What
is the size of this industry? An
indicator of size is the dollar ($) volume of sales, number of households
reached, number of firms in the industry within your market reach. This information can be found through trade
associations and other sources on the Intern et. What
are the growth trends and product/service outlook for this industry? Is the
industry characterized by high or low margins, is it capital intensive, or is a
large inventory required? Is your business trying to meet an existing need in
the marketplace or are your offering a new solution to an existing problem?
C. Competitive AnalysisList all the companies that directly compete with you for customers, or, if there are many, list the main competitors. Also list indirect competition – companies that offer an alternative to your product or service. How many competitors are there in the marketplace and what are their competitive characteristics? Attach a competitive matrix to summarize the competitive analysis.
Competitive Matrix for Mr. B’s (a
hypothetical Italian restaurant)
|
|
Olive Garden
|
Carrabba’s
|
Macaroni Grill
|
Mr. B’s
|
|
Service |
2
|
2
|
5
|
3
|
|
Quality |
2
|
3
|
5
|
3
|
|
Flavor |
2
|
4
|
5
|
3
|
|
Menu |
3
|
2
|
5
|
3
|
|
Quickness |
4
|
3
|
1
|
5
|
|
Atmosphere |
2
|
2
|
4
|
3
|
Once you have laid out the
picture of your business’s competition, describe how your business will gain a
competitive advantage over other similar businesses within your market. What market segment niche will your business pursue
to gain customers now served by competing firms?
The relationship of supply and
demand will affect the entire marketing plan. High demand coupled with low supply usually
indicates fewer competitors, which translates to lower marketing costs for your
business. However, other new entrants
will also be drawn to the marketplace and their emergence will change the
market and affect the profitability of the product/service. On the other hand,
low demand and high supply indicates market saturation – many competing firms
already active in the market. That
translates to higher marketing costs for your business. In
this situation, market share must be gained by taking away customers from
competitors, and there will be a competitive reaction which must be addressed
in the marketing plan.
E. Target Market Demographics/Customer Profile
Describe the members of your
target market in detail. These are the
customers who are most likely to benefit from the business and thus purchase
the product/service. If you sell to individuals, describe the age, gender,
income level, and place of residence of your customers. Add other features called psycho-demographics
to capture special interests, hobbies, or pursuits that make these people your customers. If you sell to other businesses, describe
their size, industry, location, and any other company characteristics that cause
you to target these customers.
Although many people or
businesses are possible customers,
the target market zeroes in on your most
probable customers. The “80/20 Rule”
is that 80% of a company's revenues are generated by 20% of its customers. This is the customer that you are describing
in this section.
D. Market Size
How large is
your market? If you sell to individuals,
research the number of people meeting your demographic profile in the defined
geography in which you operate. If you
sell to businesses, research the number of businesses that use your product/service
within the defined market geography.
It is important
to research and communicate a good estimate of the number of potential
customers in your defined market territory.
Demographic information is available from the US Census at http://www.census.gov/.This information
includes the number of persons in age ranges, income levels, education levels, in
households, residences, etc.
What are the growth
trends and potential for this market number? Are there any areas within your
defined territory that have a large concentration of people meeting your target
profile?
F. Marketing Strategy/Market
Share
What are the specific plans and
action steps to be taken to capture customers and market share during the
planning period? The market strategies
are usually described under the four sections listed below. Each strategy should clearly connect the
product features with the target market members that you described
earlier.
§ Pricing—Describe whether you are high, medium
or low-priced in comparison to your competition, and why. The pricing strategy should directly
correlate to the demographics of the target market that you laid out earlier.
§ Distribution – How will your product reach the
customer? Will you sell it direct, or
will you sell on a wholesale basis to retailers? Will you use the Intern et
or a physical location, or both?
§ Promotion – What are all the ways that you will
promote your product, including advertising, printed materials, sales calls,
publicity, Yellow Pages and word of mouth?
A strong business plan will include a calendar detailing the promotion
steps taken each month of the year.
§ Packaging – This applies primarily to products,
but can be adapted to services as well.
Describe the labels, boxes, bags and collateral information that is
included as part of the product presentation to the customer. Is your packaging professionally designed to
appeal to the demographics you cited in your target market?
This section of
the business plan describes how the business will function internally to
produce, deliver, monitor its products/services, and keep track of the results
from doing business. Without operating and control systems fully thought out
and presented in the plan, the reader will question whether the business can
actually realize the goals detailed in the business plan.
A. Personnel
How many
employees does the company have, and how many will be added over the planning
period? Include an organization chart if
your company is larger. What types of
functions will they perform? What are the skills required to fulfill job
responsibilities? What will their hours be (part-time, shift, etc.)? What pay
scale and benefits will be offered by the company?
B. Production/Service Methods
How is the product/service actually produced? Describe the production process from start to finish, including packaging. It may be helpful to illustrate the process by depicting a day in the life of the company from opening to closing. How is service performed? Do the clients come to an office, or is the service performed at the customer's site? What hours is the business open?
C. Quality Control
How will consistent quality of product and service delivery be assured? What specific quality control measures will be implemented?
Describe the physical facilities
in which the business will be located. Is it owned or leased? What are the
terms (price and length) of the lease? What is the size (square feet) of the
building and the age? Is there enough space to accommodate growth? Can the
facilities be upgraded or will the business have to move if it grows during the
planning period? Are the mechanicals (electric, plumbing, sewer,
telecommunications) up to code and adequate for intended usage? Is there
adequate parking and street access? Describe the equipment used in production,
including age and repair of equipment.
E. Suppliers
What materials
are used to produce the product/service, and who are the suppliers? Is there
more than one source of supply? Are these suppliers reputable and reliable? Do
they supply the best quality at the most competitive prices?
F. Billing and Collection Policies and Procedures
What are the terms of payment for your product or service (cash, credit card, payment 30 days from invoice, etc…)? Explain why this plan was chosen. How is credit worthiness determined? Describe billing procedures. Are accounts receivable monitored? How often? When is a receivable considered delinquent? Outline the steps followed from the time an account becomes delinquent until the delinquency is resolved. Are formal collection policies in place? Describe the collection procedures. Who is responsible for billing receivables and for collections?
Business owners
are responsible for maintaining a universally accepted method of recordkeeping.
The system should be simple to use, accurate, timely, and consistent. It provides
business management information for the owner but must also be designed for
understanding by others with an interest in the business — business
consultants, lenders or government entities, for example.
What
recordkeeping tools or systems are in place? Identify the types of records
kept. Who is responsible for recordkeeping? What is this person's background or
experience with recordkeeping? Does the business use professional recordkeeping
outside services? If so, from whom and what aspects of business recordkeeping
do they perform? Describe daily, weekly or monthly recordkeeping routines.
Identify financial reports used to measure and monitor the business condition.
How often are these reports prepared?
The financial
section is the numerical expression of the marketing and operations sections of
the business plan. The financial projections indicate if the business idea is
attractive enough to secure investments and financing. The thoroughness of the
financial plan will indicate to the reader that the business will be well
managed. According to the SBA, "businesses do not fail for the lack of
money as much as for the lack of money management." Entrepreneurs need
sound records and financial management to keep track of assets and liabilities.
And, they must always know the company's current and future cash positions.
The cash flow projections and
analysis are the most important section of the business plan. The need for cash
flow planning comes from the time discrepancy that usually exists between the
expenditure of funds for inventory, payroll, rent, debt payments and other
overhead and the actual receipt of cash from sales. Profits are great,
but cash pays the bills. Cash flow planning is simple in concept, but involves
considerable effort to develop. Time is the critical ingredient in cash flow
planning. The company may have considerable money coming in the future, but it
could become insolvent if cash is paid out in the present. At any time, a
negative cash balance must be covered either with equity or debt.
A. Financial Statements
1. Existing Businesses
Existing business need to
include a summary of the past three years of Balance Sheets and Income
Statements with the business plan. In this section also discuss any relevant
trends and year to year changes in: assets, debt and equity; revenues, cost of
goods sold (COGS), overhead and net income. Reviewers of the plan will analyze
these statements and use them as a basis for evaluating the cash flow
projections, break-even analysis, pricing and margins. If there are large
unexplained differences between the past and the future, the accuracy of the projections
will be questioned which could result in the loan request being denied or the
loan amount reduced.
Also include a current Balance
Sheet and Income Statement for the most recent period in addition to the
historical statements.
2. Start-up Businesses
Since a start-up
business does not have historical financial statements, industry standard
financials can be used as a baseline. Industry
standard information is available from Risk Management Associates (RMA) in
their Knowledge Center at http://www.rmahq.org/RMA/RMAUniversity/KnowledgeandTrainingCenter/KnowledgeCenter/Resources/Industry/
B. Pro-Forma Financial Statements
Pro-forma
financial statements are the projected financial statements that show the
financial results if the business is operated as outlined in the business plan
Marketing and Operations sections. For an existing business, the pro-forma
statements should include an income statement and balance sheet that show where
the business will be financially after the proposed changes are implemented.
For a new
business, all financial statements are pro-forma. The Sources and Uses Chart (see below) can be
used as the beginning balance sheet for the business. Income statements can be
generated using the projected cash flow.
C. Pricing Strategy, Gross Profit Margin
Pricing is the single most
important factor affecting profits. Pricing a product/service includes
consideration of the following assumptions: the customer is central to the
business; the business operates in a competitive marketplace; pricing is a reflection
of the business's position in the marketplace; it is a criterion by which
consumers evaluate the product/service; and, pricing must be adequate to return
a profit to company owners and investors. Pricing is not done in a vacuum;
price is what a customer is willing to pay, not necessarily what the business
would like to charge. The prices of other products/services limit pricing
freedom. To set prices, (1) determine floor and ceiling prices, (2) evaluate
price sensitivities of customers, (3) select a strategy and (4) set the price. It
is also important to identify your Gross Profit or Gross Profit Margin in order
to calculate the Break Even sales for the business as discussed below. (Please see our cash flow template in Excel
which calculates the GPM and GPM % automatically.)
D. Break-even Analysis
How many units must be sold to cover all costs? A break-even analysis pinpoints how changing prices, increasing or decreasing expenses will affect profitability and unit sales. A break-even analysis tests the feasibility of achieving the level of unit sales necessary to pay for all costs. Break-even in units is calculated:
§ Break-even units = total fixed costs/(unit
sales price - unit cost of goods sold)
§ Break-even dollars = break-even units x selling
price
§ Break-even sales revenue = total fixed
costs/gross profit margin percentage.
E. Projected Cash Flow Spreadsheet
Prepare monthly cash flow
projections for the next two fiscal years using the cash flow template. The cash flow projection is a critical tool for
a new and growing business. It indicates how much cash is needed, and when it
is needed so that investing and borrowing needs can be arranged in advance. It
is important to understand and arrange for cash infusions in advance because
financing and equity may not be available on short notice.
F. Forecasting Assumptions
No reader can understand the projections
without an explanation of the forecasting assumptions behind the numbers. The
assumptions need to be written out on a line by line basis, explaining any
seasonal variations. If the assumptions are credible and supported by the
research in the marketing plan, the projections are likely to be accepted by
lenders and investors.
G. Risk Analysis and Alternative Plans of Action
What steps will be taken if some
or all of the assumptions in the plan change? There are always differences
between a plan and what actually happens in the business, and the business
needs to be flexible and quickly adapt to changes in the marketplace. By
carefully and thorough planning, big surprises can be avoided, but
uncontrollable external factors (oil shortages, drought) are always present.
How will the company respond if sales drop? What if product costs go up? What
if a new competitor unexpectedly enters the market? Consumer preferences shift:
how can the product/service be adapted to meet new/changing needs?
V. REQUEST FOR
FINANCING
A. Amount, Purpose of Request, Collateral
How much money does the business need to borrow? What is the purpose of the borrowing? What are the business and owners offering for collateral to secure the loan and the estimated value of the collateral? This figure should tie to the financial projections provided.
Fill in the Sources and Uses chart to show prospective borrowers the scope of the total project that you are taking on. Detail all the sources of funds that will be used to complete the project.
|
SOURCE AND USE CHART
|
||||
|
Uses of Funds
|
Sources of Funds
|
|||
|
|
Project Costs
|
Financing
|
Equity
|
Total
|
|
Working Capital
|
$
|
$
|
$
|
$
|
|
Inventory
|
|
|
|
|
|
Machinery/Equipment
|
|
|
|
|
|
Furniture/Fixtures
|
|
|
|
|
|
Real Estate
Land
Existing
Improvements
Construction
|
|
|
|
|
|
Business Purchase
|
|
|
|
|
|
Debt Refinance
|
|
|
|
|
|
Other
|
|
|
|
|
|
TOTAL
|
$
|
$
|
$
|
$
|
How long will it take the
business to repay the debt? What are the requested repayment terms? The
projected cash flow spreadsheets should show these payments and also
demonstrate that the business is generating enough cash to repay monthly
principal and interest according to the debt amortization schedule.
D. Debt Repayment Contingency PlanIf there is a cash shortfall, where will cash come from to repay debt?
VI. BUSINESS
Below is a list
of possible attachments to support the business plan. These attachments must be
included if applicable to the business.
·
Resumes
·
Organization
Chart and job descriptions
·
Personal
and business references
·
Business
licenses, permits
·
Insurance
information
·
Samples of
marketing materials - business cards, brochures, statements, ads, flyers, price
lists, etc.
·
Schematic
of floor plan, signage and/or picture of business location
·
Product
endorsements
·
Letter of
Intent to Purchase
·
Leases
·
Contracts
·
Proof of
fulfilling legal requirements for your type of business--for example, insurance
and authority for transportation businesses; medical license for health care
provider.
