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Business Planning

Why do I need a business plan?

Entrepreneurs generally are described as risk takers who take chances based on a gut feeling. However, when you are investing money or asking another to invest money it requires careful planning and preparation. A business plan organizes all the necessary elements required to start a business and continue a successful business in a simplistic format. It is also the tool you will present to lenders to convince them to take a risk on your business and provide you with financing. Therefore, it must be extremely thorough and thought provoking.

Remember, aside from the general business plan objectives, every business plan is unique. Your plan should include all the relevant information, but be customized for your business. Finally, focus on the content and not the number of pages.

Once complete, the business plan should identify the expectations you have for your new or existing business. If you plan to utilize the plan to obtain financing, the completed plan should "tell the story" of your business to a potential lender. The plan should serve as a stand-alone document in that all business issues are addressed without requiring additional verbal explanation. Review your plan regularly and make appropriate changes when your plans and strategies change.

Below is an outline of the sections and pertinent information that should be included in a business plan. Remember to contact your local Small Business Development Center for assistance in developing and completing a business plan.

Writing a Business Plan:

The following is a suggested business plan outline.

The business plan describes an entrepreneur’s idea or a company’s past and current operations and then demonstrates how the request for an investment or loan will enhance the company goals and reward the investor. However, the most important function of the business plan is to communicate your goals and guide your company.

1. Table of Contents with Page Numbers

2. Executive Summary (1 – 2 pages)

  • Highlights major points of a business plan, including management team, market size, marketing strategy, strategic alliances, potential profits, dollar amount requested and proposed terms for repayment
  • This section should be the LAST section written

3. Summary of the Business or General Company Description

  • Explain the business
  • Mission statement, company goals & objectives, business philosophy
  • Describe industry, overview of product(s) or service(s) offered, market and competition and management experience
  • Company strengths and core competencies
  • Legal form of ownership

4. Products or Services Offered

  • Explain products and/or services in depth, pricing, fee structure, if applicable

5. Marketing Plan

(A) Market Analysis

  • Target Market: Identify customer’s, provide demographic information explaining their characteristics
  • Industry Overview: Detailed analysis of market size, growth, major trends, etc.
  • Competition: Detailed analysis of top 3 – 5 competitors (review of competitor’s strengths and weaknesses)

(B) Marketing Strategy

  • Explain in detail how your company will capture market share and your marketing/advertising public relations plan

6. Operational Plan

  • Explain the daily operations of the business: location, equipment, legal environment, personnel, processes, etc.

7. Management and Organizational Plan

  • Describe in detail your team’s experience, strengths, job functions, and plans to fill gaps in management team

8. Financial Data – 3 Year Financial Projections

  • Cash flow, assumptions, income statement, balance sheet spreadsheets, break even analysis, sources and applications of funds.

9. Appendix, with supporting documents, contracts, letters of intent, research, etc.

Management & Organization

Who has management responsibilities? Include the resumes of key managers as supporting documents. Include position descriptions for all key employees. List important advisors, such as attorney, accountant, banker, insurance agent, and advisory board or board of directors. Include estimated financial costs and necessary services provided.

Operational Plan

Production/Service
Discuss methods of production or service delivery, product or service development, quality control, inventory control.

Credit Policies
What is your credit policy? Do/will you sell on credit? What are the terms? Explain how you perform a credit check. What are your collection policies?

Personnel
How many employees are required? What skills are necessary? Define the pay and personnel policies. Are there any position descriptions and/or training programs?

Equipment, Technology, & Inventory
How much inventory is needed? What is its value? Why is that amount of inventory appropriate for your business and location? List your major suppliers and discuss any terms they extend to your business. What equipment and technology is necessary to operate the business?

Legal
Research and understand all legal issues. (Licensing, bonding, permits, insurance, zoning, government regulations, patents, trademarks, copyrights, etc.)

Exit Strategy
Describe exit strategies should the firm perform lower than expectations (personal or business). Will inventory be liquidated? Will you close the business or sell?

Financial Plan & Projections

The financial plan provides the numbers that correspond to your written plan. Historical and/or projected figures should be included. In addition, you should always include a narrative explaining the assumptions you used to arrive at the dollar value of sales, expenses, etc. You must demonstrate that your numbers are reasonable. Detailed financial information is critical to the business planning process.

Start-up Expenses and Capital
Carefully calculate and categorize all start-up expenses including inventory, rent, etc. For example, what amount will be needed for renovations and equipment? Remember to include any cash you may need to operate and pay bills until the business begins generating cash. Provide a detailed list of equipment, furniture, and/or fixtures to be purchased. Include actual price quotes for larger items.

Financial History
If yours is an existing firm, include the income statements, balance sheets and/or tax returns for the past three years.

Profit and Loss Projection (Income Statement)
Include a monthly profit and loss projection for at least 12 months of business operation. Be sure to provide a written explanation of assumptions used to develop your projections.

Cash Flow Projection
Include a monthly cash flow projection for at least 12 months of business operation. The cash flow projection differs from the profit and loss statement. Cash flow statements illustrate how much and when cash flows in and out of your business. Be sure to provide a written explanation of assumptions used to develop your projections.

Projected Balance Sheet
Your plan should include a projected balance sheet showing assets (things owned), liabilities (debts) and owner’s equity. If yours is a start-up business, the balance sheet should show your financial position on opening day.

Supporting Documents

  • Personal résumés for owners and management
  • Letters of reference
  • Personal financial statements from all principals
  • Contracts and/or letters of intent from suppliers and customers
  • Copies of leases, licenses, permits, or any other legal documents
  • Any document referred to within the plan but not included in body

Contact (link to find your sbdc page) your local Small Business Development Center for additional tips and templates for preparing an effective business plan. Your SBDC Consultant will provide assistance preparing and reviewing the business plan prior to meeting with lending institutions.