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ENTREPRENEURS GUIDE TO BUSINESS SUCCESS

(Writing Your Business Plan)

SBDC/SCORE

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Why have a business plan?

A life spent in making mistakes is not only more honorable butmore useful than a life spent doing nothing.

George Bernard Shaw . The Doctors Dilemma, The Technical

Problem,

A business plan takes considerable time to research and to write. Is it worth it? Most

financial sources require a business plan before they will consider investing in your

business. This includes banks, venture capitalists, angel investors, and sometimes your own

family. A property owner may require a business plan before he will consider leasing his

property to you. Potential employees may want to see the plan before coming to work for

your company. Significant suppliers often will ask for your plan, and with a good plan you

may be able to get better credit terms than without one.

But the most important reason for a plan is to give yourself a guide to your future. A well

written plan provides a road map to your business growth, allows you to measure progress

toward your goals, lets you know if the business climate is changing (and hence whether

you need to change your plans, too).

This guide will assist you in preparing a sound business plan, one that will tell your story in

your own words, and be complete enough to tell the readers what they need and want to

know.

Can I use computer based business plan preparation software?

We dont generally advise you to use business plan software. Writing the plan in your own

words lets your passion for the business show through. Software plans will be recognized

for what they are by the reader.

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Introduction

The Business Plan is an essential step for the potential entrepreneur to turn an idea for a

product or service into a profitable business venture. Whether starting a business or wishing to

expand an existing business, an effective Business Plan will be the "road map" to success. A

well-organized Business Plan will provide a systematic way to research, analyze, evaluate and

project the company's future. Smart entrepreneurs work out the details of the business first,

before investing time and money into any venture.

A good Business Plan will define strategies for organization, marketing, operations and

finances. In many ways, the Business Plan is the personification of the business and should

represent the best the business can produce. It should be concise, easily understood and written

in the third person. Instead of "I" or "we", use "Mr. Smith" or "the owners" or "the principals" to

give the writing an objective appearance and a professional sound. The Business Plan should

convey a professional image of the entrepreneur and the company. Ask several people to

review and critique the plan to make sure that it communicates well. It will usually be no more

than 20 to 40 pages in length, typed, double spaced with appendices. For ease in developing,

using, and updating the plan, take the time to get the plan into the computer or word processor.

It is a good idea to make a backup of the plan as well.

There are many different books, software, and outlines suggesting that there is only one way to

write a Business Plan; use the one that best fits your venture. Many people look for a sample of

a plan. There are no two plans alike just as there are no two businesses alike nor two people

alike. Put the plan together in a format that makes sense for the business. The format used in

this guideline is one example of an acceptable Business Plan format. A three-ring binder also

can be used for the Business Plan.

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The use of repetition is one aspect of writing a Business Plan that confuses many people.

There are several areas of the Business Plan that will be repeated in more than one section.

Repetition is typical of a Business Plan and occurs because often only one section is reviewed

at a time. Repetition ensures that the relevant information appears in all key areas of the

Business Plan, so that the reader stays focused on the information.

There are many uses for a good Business Plan. It is most commonly used to obtain a business

loan. Many banks and the Small Business Administration require a Business Plan for loan

application. A guideline to help obtain small business loans can be found in section 10.

Landlords often ask for a company's Business Plan. Entrepreneurs have used theirBusiness

Plans to help convince a zoning department and the business neighbors to allow for a variance

in their business. It can also be used to obtain capital injections from friends and family. Most

importantly, it is used to plan and prepare the business for its future.

Successful Entrepreneurs will budget time to review the plan at least quarterly. Reviewing

monthly is even better. Pull out the plan, review sales and expenses, review the organization

and its operations and analyze the marketing strategies. It will be easy to update the Business

Plan, the budget and all marketing strategies to adjust for the knowledge gained from

experience.

A well written Business Plan often gives an entrepreneur the edge in running a successful

business. The process, although it takes time, gives an entrepreneur the tools to analyze and

evaluate the potential success of any business venture before an investment is made.

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DESCRIPTION OF THE BUSINESS

The reasonable man adapts himself to the world; theunreasonable one persists in trying to adapt the world to

himself. Therefore, all progress depends on theunreasonable man.

George Bernard Shaw: Man and Superman, Maxims forRevolutionists: Reason

The Description of the Business section of the Business Plan explains what type of company

the business will be and gives its history if it already exists. This section allows the entrepreneur

to present a picture or a vision of what the owners want the business to become. The plan

should be able to cite appealing aspects of the business and other factors that suggest probable

success. To finish writing this section, the smart entrepreneur will need to visit the area

business library or refer to trade journals for their industry to add information on the current

trends in the industry.

This section of the plan provides answers to the following questions:

1. What type of business is it? What does it do? Who owns it? What industry is it in?

What is the concept of the business or the entrepreneurial vision of the startup business?

2. Write a Mission Statement for the business that states why the business exists.

3. Is this business in operation? If so, provide a history of the business. If not, when

does it plan to begin operation? If purchasing an existing business, why is it for sale?

4. Why are the owners interested in this particular business? What background

experience do the principals have that will lead the business to success?

5. Where is the business located? Describe the physical space in terms of size, layout,

parking, appearance, image, ambiance, etc.

6. What are the primary products and services being offered? How did the idea for the

product or business originate? What has been done to develop the idea? How and from which

suppliers will goods and services be obtained?

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7. Who are the customers? Describe them in general. What are their needs and how

will the company meet them? How will the customer obtain the products and services?

8. What is unique about the business? What will set it apart from its competitors? What

are it's competitive advantages? Why is the company uniquely qualified to provide them?

9. How will the business be run and by whom? How will the business be structured

(sole proprietor, partnership, limited liability, corporation, etc.)? What experiences do the owners

and managers have that will help the business be successful?

10. Discuss the industry in general and how the industry is doing at this particular point

in time. What changes have occurred in the industry over the last five years? Is this industry

seasonal? Include information on how the industry is projected to perform in the future. What

factors, economic, government regulations, new technology, etc. will affect this industry in the

future?

11. What regulatory agencies will the entrepreneur have to deal with to receive approval

to engage in business? What are their requirements?

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MANAGEMENT PLAN

A man is known by the company he organizes.

Ambrose Bierce The Devils Dictionary, Saw

The Management Plan section of the Business Plan explains how the business will be run, who

will make decisions and who will be responsible for which duties. The success of any project is

directly related to the credibility and competence of the management team. Because

competency is difficult to find, a company needs to demonstrate competency and credibility in a

persuasive way to produce comfort in potential investors. Before writing this section, analyze the

strengths and weaknesses within the management team. There is no known cure for

incompetence -- but there are two very direct cures for inexperience or unbalanced experience:

get the necessary experience yourself or choose a partner or employee who has the requisite

experience.

This section should include the personal history and related work experience of the principals,

duties and responsibilities, salaries, organizational chart and resources available to the business.

If relevant, it should include a list of the Board of Directors. List all principals owning 20% or

more of the stock. If, after analysis, there are weaknesses in the team, write profiles or job

descriptions for potential employees who could fill these needs in the near future. Discuss the

plans which will train the employees and the techniques which will make them feel valued and

respected. Most businesses will need a loyal and committed employee base to enable the

owners to fulfill the entrepreneurial dream.

Surround yourself with the best people you can find,delegate authority, and dont interfere.

Ronald Reagan Fortune (New York, Sept. 1986). Quotedin: Reagans Reign of Error, Mission Impossible

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In the Management Plan, the following topics should be addressed:

1. What will be the legal form of the business? Will it be a Sole Proprietorship,

Partnership, Limited Liability Company, or a Corporation? Name the owners and the percentage

of ownership.

2. What is the business background of the owner(s) and the background of the key

employees on the business? What is the owner(s) management experience? What is the

owner(s) educational background, both formal and informal? What experience does the owner(s)

have in this type of business? Why are the principals interested in this particular business?

Include updated resumes for all owners and key employees in the Appendices.

3. What related work experience do the principals have? What are their key strengths?

Are they strong in operations, management, marketing, sales, public relations, finances or human

relations?

4. What are the duties and responsibilities of the principals? Who makes the decisions?

Who reports to whom? Define major operating duties: purchasing, sales, personnel, production,

distribution, promotion, advertising, marketing, accounting, etc. One purpose of the Business

Plan is to make the business run more smoothly, more profitably and more easily. Take the time

to allocate duties and responsibilities. Be sure that the chain of command or the structure is well

defined. An organizational chart (sample on next page) can be used to help explain the duties.

In a small business, it is okay for one person to perform several duties. Job descriptions help a

reader understand the business.

5. Who are the decision makers? Is there appropriate delegation?

6. What is the compensation package for the management group? Salaries? Stock

ownership? Other benefits? Be realistic, not greedy. How will employees be paid?

Commission? Salary?

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7. When and where will new employees be recruited? How many new employees will be

needed in the near future? What skills will they need? Jobdescriptions are important. What

criteria will be used for selection, training and orientation, and termination. What benefits will be

offered? What efforts will be made to retain and compensate loyal and faithful employees?

8. What personnel policies will need to be written? Put together a draft of a simple

Company Policy Manual to be included in the Appendices.

9. What other resources are available to the business? These can include the lawyer,

accountant or CPA, insurance agents, bankers, special consultants or trade associations.

Remember, assistance can be obtained from the Small Business Development Centers (SBDC),

Service Core of Retired Executives (SCORE), Chambers of Commerce's, civic organizations,

etc.

10. Who is on the Board of Directors? What talents do they offer to the business?

11. How will the business adapt in response to management injury, disability, or death?

What is the plan for succession? Have buyout agreements been negotiated by the owners or

partners? Is insurance in place to help with these issues?

12. What insurance is in place for fire, theft, flooding, etc.

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MARKETING PLAN

I have bought Golden opinions from all sorts of people.

William Shakespeare, Macbeth, in Macbeth

Inadequate marketing can be as fatal to a small business as under-capitalization. No matter how

great the product or service idea, if the customers don't know that the business is open and

where it is located, they will not be able to buy what the business is selling. The owner of the

business does not have to be a marketing wizard to succeed in business, but the principals must

understand the importance of marketing and communicate that understanding in the marketing

section of the Business Plan.

The Marketing Plan section of the Business Plan can be divided into three sections: Market

Analysis, Competitive Analysis and Market Strategy. Each section will be discussed separately.

Market Analysis

Although it is in the middle of the Business Plan, the marketanalysis section is one of the most

important. In this section, the company's management demonstrates their understanding of the

dynamics of the marketplace and explains how changes in the market are creating an

opportunity for the business. The most effective marketing analyses are the ones that draw

heavily on trade literature and third-party sources to authoritatively document the trends and

changes on which the company owners claim to be basing business decisions. Document each

source of information quoted in the plan.

Visit the library and find out as much as possible about the industry. Read trade journals,

magazines or other periodicals for inside information on market trends. Usually, quite a bit of this

information can be found through government and educational studies. Many entrepreneurs

choose to conduct their own surveys to collect necessary information.

Seek out the following statistics:

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1. Define the target market. Who will purchase your product or service? Consumers,

manufacturers, businesses, institutions or government?

2. What is the present size of the market: international, national, regional and local.

3. What is the market's growth potential? As the market grows, will the business' share

of the market increase?

4. What are the demographics of the target market? If individuals, what are their ages?

Income level? Education level? Profession? Sex? Neighborhood? If the target market is

businesses, what are their revenues? Number of employees? Number of customers? Number

of suppliers? Location?

5. What is important to them: image, quality, price, convenience, etc? How can the

business attract them?

6. Define their buying habits: newspapers they read, radio they listen to, TV they watch,

etc. What newspapers, trade journals or information services will the business customer use?

7. What are the trends in the industry? How will the business respond to changes in the

industry over the next three to five years?

Competitive Analysis

The purpose of this section is to illustrate the owners' knowledge about the competitive forces at

work in the marketplace. This is the time to highlight the strengths and weaknesses of the

business. To be successful, the business must be perceived as being superior to the

competition. Even if competitors are offering similar products or services, customers must be

convinced that they are making a wise choice by patronizing the owners' business. Show how

the business will be able to counteract the competitors advantages and compensate for its own

weaknesses. Success will depend on business' response to the customer's wants and needs.

This section is best described by a chart that lists all of the area competitors and ways to

compare them. For example:

Length of time in business

Sales in dollars or units

Number of employees, suppliers, support personnel

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Number of customers

Products carried or services offered

Prices

Advertising, newspapers, radio, TV, Yellow Pages

Technology being used

Customer services offered: pickup and delivery, layaway, credit,

warrantees, guarantees, etc.

Successful strategies

Strategies which could be improved

Market Strategies

The Marketing Strategy section of the Marketing Plan for the Business Plan describes the plan

of action for success in the marketplace. To be truly effective detail what tactics the company will

use to translate demand into sales.

Discuss the internal policies and use of media that will contribute to success. Discuss

sales appeal among the market segments. Note customers who have precommitted and how

they will help the business to penetrate the market. Pricing is important. It must be carefully

defined. Other issues to address include: discounts, cost of goods, packaging, labeling design,

methods of sales, distribution networks, selling arrangements, warranty policies, advertising,

public relations and promotions.

This section includes information on the following:

1. How will prospective customers be identified? Who are the decision makers for the

product or service offered? How will the business communicate with its identified customer

base? Does the customer base need to be divided or segmented to communicate efficiently?

2. What will be the average size of each customer's order? How often will the customer

be likely to repeat a purchase?

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3. How will the products and services be sold to the target markets? Retail store?

Warehouse Outlet? Direct Sales? Direct Mail? Brochures? Trade Shows? Advertising?

Other? It is common to have a selling and marketing strategy for each target market. If

available, include samples of brochures or direct mail pieces. Specific information on the

relevant Trade Shows can be included.

4. Which advertising and promotion media will be used? Why? It is common to use a

mix of the various media sources. The media are an excellent source of information concerning

the marketplace.

5. If the business employs salespeople, what is the commission structure? The quotas?

6. What are the geographic areas the business plans to cover? Why? What areas are

likely for future expansion?

7. Discuss the pricing structure? What will the margins be? How does it compare to the

industry margins?

9. How are credit and collection policies structured? Why?

10. What services, warranties and guarantees are offered to the customers? How will

these services be promoted? Will the services affect profits?

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PRODUCTS AND SERVICES

No man who is occupied in doing a very difficult thing,and doing it very well, ever loses his self-respect.

George Bernard Shaw The Doctors Dilemma,

The Products and Services (use the title that fits the business) section of the Business Plan

describes all of the firm's existing or planned products or services and points out all unique

features. If the products and services are unique, state-of-the-art or otherwise noteworthy,

clearly present that difference. This section explains why consumers will buy the product or

service.

Differentiating the products and services from those of the competition starts with thorough

product or service knowledge. One of the most important aspects of business management is

giving the customers reasons to buy the products. The best reason is that the benefits offered

meet the need of the target market. Consumers buy what they want, NOT what the owners think

they sell. For example, many entrepreneurs think that the hardware business sells hardware,

i.e., hammers, saws, nails and paint. The customers may think that they are buying savings,

improved homes, and fulfillment of a do-it-yourself ethic along with the hammers, nails, and paint.

In reality, the reason a particular hardware store is chosen over others probably has more to do

with convenience, cleanliness, friendly sales help, product selection, good parking, service, etc.

Describe the status of all research done and development underway along with

discussions of any legal aspects such as patents, copyrights, trademarks, pending lawsuits and

legal claims against the firm. Address the necessary government approvals and clearances. If

available, include appropriate catalog sheets, photographs and other visual aids.

This section should address the following:

1. What is the firm's Standard Industrial Code(SIC)? This is a code, used nationally, to

identify types of businesses and can be found in the library or at the SBDC.

2. Describe the products or services. What is the business REALLY selling? How are

the products or services provided? Define any technical terms used and all acronyms.

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3. What are the unique characteristics of the product or service? What does the product

look like? What does the service offer? What makes this project different from products already

available to the customer? What are the special advantages? What are the benefits offered?

What will the product or service do for the consumer?

4. How does the product or service compare with what is offered by the competitors?

How do they differ? What makes this company's service superior? Why would consumers buy

from this company? What makes the company unique?

5. What additional products or services might be offered in the future? How will

obsolescence be handled?

6. What liabilities are involved? Has the product been tested and

evaluated? When? Where? How?

7. What legal protection applies? Patents? Copyrights? Trademarks?

What government regulatory approval is needed? Federal? State? Local?

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OPERATIONS OR MANUFACTURING PLAN

Method goes far to prevent trouble in business: for itmakes the task easy, hinders confusion, savesabundance of time, and instructs those that havebusiness depending, both what to do and what to hope.

William Penn: Some Fruits of Solitude

The Operations or Manufacturing(use the term appropriate to the business) section of the

Business Plan describes the type of facilities, plant location, space requirements, capital

equipment and suppliers. For a manufacturing business, give emphasis to the production

process that will be used for: the inventory control system, purchasing and production control

systems and to decisions concerning whether to purchase components of the product or to have

the employees manufacture these components. A service business may require particular

attention and focus on an appropriate location and ability to minimize overhead, lease the

required equipment and obtain competitive productivity from a skilled or trained labor force. A

retail business will emphasize the location, size of space, layout of the store and the inventory by

departments. An existing business will not need the detail that is required of a start-up business.

This section should address the following:

1. Where is the business located? Why? How large is the space? What are the rent

expenses? What are the advantages and disadvantages of this location? What renovations are

planned? How much will they cost? What zoning permits are required? What other businesses

are in the area? How do they complement the business?

2. How will the interior facilities be arranged or laid out? Where will the offices, working

space, reception area, retail departments, production areas, etc. be located within the space? A

simple floor plan will help readers visualize the concept. What fixtures and furniture will be

needed? Are they owned or will they be purchased? How much will it cost to purchase what is

needed?

3. How will the product or service be produced? Will some work be assigned to

subcontractors? How will quality control be maintained? How will inventory be controlled? How

will supplies or raw materials be controlled?

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4. Who are the suppliers? Are they reliable? How do you know? Are backup suppliers

in place? How will costs be controlled?

5. Are there environmental issues that need to be addressed?

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FINANCIAL PLAN

The surest way to ruin a man who doesnt know howto handle money is to give him some.

George Bernard Shaw: Boss Mangan, inHeartbreak House

The overriding purpose of the business is to find out what the target market wants, satisfy those

wants and make a profit while doing so. The implementation of that purpose depends on

planning the business and using the plan as a means of running the business.

IF THE PRINCIPALS DO NOT CONTROL THE BUSINESS,

SOMEONE ELSE WILL CONTROL IT FOR THEM.

There are three basic control documents which, when properly used, act as a budgeting tool, an

early warning system, a problem identifier and a solution generator. They are:

* CASH FLOW STATEMENTS

* INCOME STATEMENTS

* BALANCE SHEETS

Used inconsistently or not at all, they are worthless. Used incorrectly, they are dangerous.

Misleading financial information can lead to poor or disastrous decisions. Keep Financial

Statements simple and uncomplicated. Financial Statements reflect the business and its needs.

Design them to fit. There are numerous, reasonably priced software packages that can be

adapted to the business. Shop carefully. Purchase a software package that fits the business

and use it to create the financial projections. The owners can become familiar with the software

while creating the needed projections. Budgeting data will then be in the computer before the

opening of the business.

The three basic documents in the FinancialPlan section of the Business Plan are:

Cash Flow Statements, Income Statements and Balance Sheets (Samples are in section 9). The

Cash Flow Statements should be completed by month for the first three years. Complete the

Income Statements annually for three years. Complete the Balance Sheets for the start-up

position and annually for all three years. If the business is a start-up business all financials will

be "proforma" statements. That means all numbers are projections rather than actuals. If it is an

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existing business, include three years of operating history in the cash flow, income statement and

balance sheet formats along with the proformas.

Compile the projections based on conservative assumptions. Explain all assumptions

made such as, dollar sale per customer, number of projected customers, any expansion plans,

etc. Use the marketing data to build sales projections. Research on expenses is essential to

project costs of running the business. Carefully think through all projections. Be honest for the

business' benefit and the benefit of the other owners. Over optimism can lead to failure.

The Financial Plan section of the Business Plan should answer the following:

1. What are the current financial arrangements? What debt obligations does the

business have? Discuss any unique financial arrangements. How will the proceeds from the

requested loan be used? Major planned expenditures are supported by copies of contracts,

leases, purchase agreements, etc. in the Appendices. Prepare a Sources and Uses Statement

that lists the sources of funds and defines the use of the funds.

2. State assumptions to the Financial Projections. Include assumptions made to

generate the projections for capitalization, income, expenses and fixed assets. 3. Discuss

financial history, if the company is an existing business. Three years of the company's financial

statements will need to be included in the Appendices. For a start-up business, prepare a start-

up balance sheet.

4. Prepare three years of Cash Flow Statements by month. Provide dates for the years

of projections each statement covers. The Cash Flow Statements show how much cash will be

required, when it will be needed and what will be the source of funds. Good cash management

begins with forecasting. Get in the habit of forecasting sales and expenses routinely. Try to

slightly underestimate expected sales and overstate expenses. It is better to be conservative

than budget optimistically and fall below projected profit margins. A positive Cash Flow is critical

to the existence of any business.

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5. Using the Cash Flow information, compile three years of Income Statements. These

statements can be annual. If the business does not show a profit in the first three years,

continue to project until it does. Date each statement with the year it represents. If notes and

explanations are needed, they can be added at the bottom of the statement.

6. Compile three years of Balance Sheets, annually. These sheets show how the

assets, liabilities and worth of a company are distributed at a specific point in time. A start up or

proforma balance sheet should be included to show the effect of any additional debt on the

business.

7. Prepare a Capital Equipment List which shows the major equipment used to

manufacture the product, provide the service, or sell or deliver the merchandise. Separate into

categories such as major equipment, minor equipment, furniture, vehicles, etc. A chart can be

used for this list.

8. Prepare Key Ratios for the business using either industry standards or historic

standards. The lending industry uses Key Business Ratios to analyze the business and its

projections. Typically the Ratios are also used to compare the business with other businesses in

the industry. If the business is truly unique in its marketplace and has a history, build the industry

statistics from the business history. Calculate the key ratios for the business and compare the

ratios to the industry standards (Robert Morris Associates, published annually). Explain large

deviations from the standards. A discussion of the Key Business Ratios is located in Section 9.

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EXECUTIVE SUMMARY

The Executive Summaryof the Business Plan is written last. It is a summary. Keep in mind

that even though this sums up all of the factual information that follows, it may be the only part of

the document the investor actually reads. As a result, the facts have to be presented concisely

and persuasively. This is the part of the plan that sells the business project. The quality of this

section will determine whether or not the rest of the plan is read.

Generally, the Executive Summary is condensed into two to three pages. This section presents

an overview of the business and highlight its significant points. It is similar to the Description of

the Business, but it is exciting and upbeat!

Summarize sections on Description of the Business, Management, Marketing, etc. into one or

two paragraphs. Spend several paragraphs, if necessary, to emphasize the critical points. For

the Financial Plan, summarize the loan requirements, collateral offerings, sales and profits.

Leave the reader with a concise, convincing summary that shows that the proposed business is

well planned and economically feasible. Be positive and upbeat! Although this section is written

last, it precedes the other sections. It is Chapter 1 of the Business Plan.

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