A business plan is an operational, marketing, and financial design for your business. When soundly based on your own thorough research and planning, it helps you foresee the problems you may encounter, develop solutions and work toward realistic and achievable goals. Your plan projects what you expect to do and what results you expect to achieve over the first three years of operation.
The plan should show how much your business will cost to start, how much it will cost to operate, at what point it will begin to show a profit, how much profit it will make and if it will be able to maintain a positive cash flow. The projections in your plan will be based on careful analysis of what you are going to do, what your competitors are doing, and how you expect to perform in your market.
Your business plan should project your business income and expenses monthly for the first year, and quarterly for the second and third years. Note that you need monthly financial, marketing, and operating projections for the first year and yearly projections from then on. You should revise and develop your business plan based on your experiences and on changes you make in your operations.
Planning with projections takes time, but it has many benefits. Business plan development teaches you about sound management practices and trains you to make decisions about your business.
Using your plan you can constantly monitor how well you are doing and fine tune your operations.
Business planning enables and forces you to thoroughly examine the potential results of your decisions, step by step and makes it possible for you to make informed decisions. The business plan is your guide to success.
The number one reason businesses succeed is sound business planning. A business plan is an effective tool to help you start and run a successful business. If your business idea is going to require a loan from an outside source, your written business plan can make the difference between loan approval or disapproval. A well-researched and organized plan, presented by a knowledgeable manager, has a much better chance of getting approval; and the well-informed manager has a far better chance of success.
There are three basic phases to developing a business plan:
During the research phase you should develop a fact book with the most current information you can find relating to the business you are interested in starting. The writing phase is the most difficult and daunting aspect of developing a business plan. However, there are many different publications that have guides that assist entrepreneurs in the writing process. There also are computer programs with templates for business plans. The implementing/evaluating phase is ongoing. You should refer back to your business plan frequently, incorporating new information and revising according to your actual business experience.
There are at least eight sections in a business plan. (Note: if your business is manufacturing, additional information detailing production issues is required.) Each section provides information necessary for financing and managing the business. The sections are listed below:
Finally: Read, revise and use:
The business plan is the written expression of your business idea; and as such, it helps you think through your idea in a logical way. A primary reason for developing a business plan is that the process enables you to determine the feasibility and desirability of your business idea.
The process of writing down everything involved in bringing the idea to reality requires sorting through varied aspects of the business logically. It will help you identify strengths and weaknesses in your idea and will force you to take an objective look at all the ramifications and potential results. The writing process also helps you identify potential problems and other aspects of your idea that need to be reconsidered.
The completed business plan communicates your ideas to others, directs your activities and provides the basis for your financing proposal. The completed plan also provides the information needed by others to evaluate your business idea. Thus, it is an important tool for getting loans or raising capital from outside investors. It is your guide to success.
Some entrepreneurs choose to pay for a professionally prepared business plan. Experience shows that a professionally prepared business plan will only help you if you understand it thoroughly. You should be highly involved in the planning process from the beginning. Involve business professionals such as bankers, attorneys, accountants, insurance agents and business consultants whenever their advice is needed. If you do the work yourself, you will have a better understanding of what it takes to make your business successful.
It is common knowledge that good management is the key to a successful business. Through developing a business plan, you learn the details of good management and how to put them into practice.
To grow and prosper, you must make timely, sound decisions on a wide array of business issues. With today’s information overload, it can be difficult to locate the precise information you need to make these decisions.
To develop a business plan you need access to relevant information on markets, competition, business trends, management practices and basic government regulations. In fact, you need information that addresses all eight business plan sections listed above.
During the research phase you will develop a fact book with all the information you are able to collect about your chosen business. Break your research down to one section at a time. As you become more experienced with doing the research, you will recognize overlapping information that you will be able to use in more than one section.
The entire project is dependent on the availability of information. Greater information availability makes it easier now than ever before to access information on any topic. The problem today is identifying useful information.
One of the most frequently overlooked business resources is the public library. Library reference professionals are trained to help you organize your search and gather the necessary information for your business.
Chambers of Commerce develop community profiles that provide an abundance of information about a community's population, business information and trends and quality of life issues. Promoting economic development is one of the most important components of the Chamber of Commerce's mission. Your local Chamber of Commerce may have a small business committee that meets regularly to address the needs of the local small business community. Chambers of Commerce employ professionals who can give you vital information. They also can direct you to experts in the community to help you.
Professional and trade associations are also excellent sources of information. These associations typically gather and analyze marketing and financial information for their members. Many associations employ researchers who will gather, analyze and provide individualized assistance, but there usually is a fee. Association publications present the most useful business information in easily accessed formats, such as newsletters, magazines, journals, directories and computerized databases. For-profit business journals and newsletters also are a good source. Public libraries frequently purchase these publications for their business reference collection.
Counselors at Missouri Small Business & Technology Development Centers (MO SBTDC) are also ready sources of current and accurate business information. There are also seminars to help businesses owners or managers who want to learn about writing a business plan.
For the computer literate, the Internet is a vast repository of business information. Again, the difficulty is ascertaining the accuracy and usefulness of the information you retrieve.
Because business plans deal with every aspect of business, an excellent approach to identifying the types of business information you need is to look at sample business plans. Entrepreneur, Inc. (800-421-2300) publishes startup manuals for hundreds of different businesses. These are excellent information sources for entrepreneurs. Moreover, all of the previously identified business information resources will have business plan outlines and samples available.
The result of your research will be your fact book, a collection of relevant and timely information that you will have at your fingertips.
The following segment will give you more details on the eight sections of the business plan. During the research phase, you gather as much current information as you can. This step may include using primary research and/or secondary data. During the writing phase you commit the information and ideas you have to paper. You may wish to use a loose-leaf binder or a computer disk.
Your business plan will need a cover sheet with the name of the business, the names of the principals, the address and phone number, as well as a fax number and an e-mail address if you have them. The plan also needs a table of contents. You may wish to include an executive summary between the cover sheet and the table of contents.
The description of the business is comprised of the type of business, the status, the legal form and other pertinent information. The type of business refers to retail, wholesale, service or manufacturing. The status of your business will be exploring, startup, existing, expansion, or purchase. The legal form of your business will be sole proprietorship, partnership, limited partnership, limited liability company, corporation, S-corporation, or limited liability corporation. (See the last section; Forms of Business Organization, Licenses and Taxes.) You should consult an accountant, attorney and/or business consultant before settling on a legal form.
Other information in the description might be your view on why your business is going to be profitable, the date when your business will open, or opened and your business hours. Some entrepreneurs develop a mission statement, describing the main purpose for and goals of the business.
The section on your market will typically take a significant portion of your research time and resources. You need to identify who your market is, including age, gender, education, race or ethnicity, economic status and location. This will require researching secondary sources on the demographics of your business service area. It may require checking on traffic patterns. You may wish to do primary research by polling individuals in your service area to determine whether or not your product or service is needed and/or desired.
This section should include an estimated size of the market and what percentage you can capture. You also should describe how you plan to price your product to be profitable and competitive. Determine if the market is growing or declining and project what it will do in the future. You also need to determine how you are going to satisfy your market. Finally, you should develop a marketing strategy and plan for the first three years of operation. Additional information appears in the next section, Marketing.
If your target market is large enough for your new business, or your planned expansion, you need to determine who your competition is and how strong they are. By researching your competition you will learn a great deal about managing your business. You need to know whether or not your competition is a threat to your plans.
At a minimum you should identify the top five competitors in your market. After they are identified, you can determine their similarities and dissimilarities to the business you are planning. It is important to identify techniques for making your operation better than theirs, more efficient, effective and productive. You need to determine their strengths and weaknesses, whether or not their businesses are doing well, if their business is increasing, decreasing, or remaining steady. It is crucial that you understand all the dynamics in the market, especially those concerning the competition.
Different businesses need different types of locations. Be sure your location meets your business’s needs. Low cost is only one consideration in selecting a location and other factors are more important. Describe your business’s precise location, including the street address and the area of town. Determine how well situated your location is for attracting customers, whether or not you need to be near your customers and if so, whether or not the location you have chosen is readily accessible. Your location also should be well situated for receiving inventory or supplies shipments.
Another consideration is whether you should rent or buy. If you lease, the business plan should state the terms of the lease. If you already own, or buy, you should state date of ownership, length of ownership, value of the real estate and whether or not you have a co-owner. The value of the real estate also will be in your financials under assets. The debt will go under liabilities.
You should think about whether or not your facilities need renovation. If they do, project an expected cost. If you lease, the renovations may be done by the owner. All details of this arrangement need to be in the lease and your business plan. If you are making the renovations, get quotes in writing from contractors. These quotes go into this section of the business plan. Copies go in your supporting documents and the amounts go in your financials under projected expenses. Another consideration in choosing a location is city and/or county zoning. The area you select must be zoned for the type of business you intend to start. Note the other types of businesses in the area and whether or not the mix is changing or expected to change.
This section provides the opportunity to assess your personal capacity to operate the business. In this section you will describe your business background and any education or training you have had which is relevant to your managerial ability. This includes both formal and informal training.
You should have an idea of why you are going to be successful and articulate it on paper in this section of the business plan. You may have special abilities, interests, or reasons for going into business. You may have related work, management or direct operational experience in this business that should be written in your business plan.
The management section also has a breakdown of who will have the major operating responsibilities in purchasing, sales, promotion, production, recordkeeping, payroll, budgeting and other areas specific to your business. This is referred to as "who does what." In some small businesses the owner will do everything, but should still have a breakdown of the different tasks required. If you have employees, it is extremely important to the success of your business to have a clear delineation of duties among yourself and your employees.
When developing this section of the business plan, you must consider whether or not you are physically up to running this business successfully. You should also consider your personality and your personal financial condition. Many startup businesses take three to five years to become profitable. You will have to be able to pay your personal living expenses until then. You have to project what your salary will be in years one, two and three at a minimum. Finally, you will have to prepare a personal financial statement if you are seeking financing. Many lenders require you to have 30 percent or more cash equity in order to receive a loan.
The management section includes a brief discussion of "who does what." Some of the work related to your business may be done by contract labor and/or paid professionals. For example, you may decide to hire an accountant to keep your books and prepare your tax returns. How many employees you need, the skills they need to have, their salary and wage schedules, the number of full-time versus part-time workers and the matter of fringe benefits and overtime all have to be considered and written into the personnel section of the business plan.
Financial statements demonstrate how the business will generate profits and cash to grow and sustain the business. The minimum pro forma financials you will need are balance sheets, income statements and cash flow statements for three years. If you need a loan, a completed loan application is a good item to have in the financial section of your business plan. (Also, see the sample business plan outline below.)
Earlier in the book, you learned that you would need an accountant, an attorney, an insurance representative, a business consultant and a banker to serve as a formal or informal advisory committee/board. Their names, addresses, phone numbers, etc. should be included in the written business plan.
At the end of the business plan you should append a number of supporting documents. These include but are not limited to:
This list is not exhaustive. You might include newspaper clippings on the business, the industry, or the principals. Forms for the personal financial statements are available at all banks. The tax returns should go back at least three years.
The business plan is a living document. It only has value if it is used to guide your business. Revisiting your business plan periodically with your advisory team will help keep it current and relevant to your operation.
There are many variations on business plan formats, this guide provides one of the most common. Computer programs are available that format and provide portions of the narrative for your business plan. These packages are not a substitute for your own research and careful thought on all aspects of the plan.
NOTE: This material is designed to provide accurate and authoritative information in regard to the subject matter covered. It is provided with the understanding that the authors are not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. Completion of this material does not ensure success in business.
Acknowledgments: The publishers would like to thank the following persons who provided information and guidance in the development of this publication:
Nick Arends, Chris Bouchard, Carol Bozworth, Dan Cernusca, Rebecca Cook, Barbara Cunningham, John Elsoffer, Lil Ferrell, Sharon Gulick, Rebecca How, Chuck Kuehl, Marilyn Lake, Betty Lorton, Terry Maynard, Edie Pigg, Carole Price, Jackie Rasmussen, Frank Seibert, Cassy Venters, Tim Wathen, Ken Wright, and Steve Wyatt.
The publishers also would like to thank the following organizations that provided information and guidance on the development of this publication: University of Missouri Extension, Columbia Small Business Development Center, Missouri Small Business Development Centers, Missouri Department of Economic Development
Authored by: The Missouri Enterprise Development Focus Teams March 1998
Source: From the book, Entrepreneurship: Changing the Odds
Copyright ©: Curators of the University of Missouri, March 1998, for the Missouri Enterprise Development Focus Team, University of Missouri Extension, and first version writers: Tim Wathen and John Elsoffer; final version writer/editor: Marilyn Hope Lake; legal chapter writer: Kenneth J. Wright; marketing chapter co-writer: Dan Cernusca and final editor: J. Frank Seibert.