Term Definition_ Business PlanSmall Business Encyclopedia

9/2/2015 TermDefinition:BusinessPlanSmallBusinessEncyclopedia

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BusinessPlanDefinition:Awrittendocumentdescribingthenatureofthebusiness,thesalesandmarketingstrategy,andthefinancialbackground,andcontainingaprojectedprofitandlossstatement

Abusinessplanisalsoaroadmapthatprovidesdirectionssoabusinesscanplanitsfutureandhelpsitavoidbumpsintheroad.Thetimeyouspendmakingyourbusinessplanthoroughandaccurate,andkeepingituptodate,isaninvestmentthatpaysbigdividendsinthelongterm.

Yourbusinessplanshouldconformtogenerallyacceptedguidelinesregardingformandcontent.Eachsectionshouldincludespecificelementsandaddressrelevantquestionsthatthepeoplewhoreadyourplanwillmostlikelyask.Generally,abusinessplanhasthefollowingcomponents:

TitlePageandContentsAbusinessplanshouldbepresentedinabinderwithacoverlistingthenameofthebusiness,thename(s)oftheprincipal(s),address,phonenumber,emailandwebsiteaddresses,andthedate.Youdon'thavetospendalotofmoneyonafancybinderorcover.Yourreaderswantaplanthatlooksprofessional,iseasytoreadandiswellputtogether.

Includethesameinformationonthetitlepage.Ifyouhavealogo,youcanuseit,too.Atableofcontentsfollowstheexecutivesummaryorstatementofpurpose,sothatreaderscanquicklyfindtheinformationorfinancialdatatheyneed.

ExecutiveSummaryTheexecutivesummary,orstatementofpurpose,succinctlyencapsulatesyourreasonforwritingthebusinessplan.Ittellsthereaderwhatyouwantandwhy,rightupfront.Areyoulookingfora$10,000loantoremodelandrefurbishyourfactory?Aloanof$25,000toexpandyourproductlineorbuynewequipment?Howwillyourepayyourloan,andoverwhatterm?Wouldyouliketofindapartnertowhomyou'dsell25percentofthebusiness?What'sinitforhimorher?Thequestionsthatpertaintoyoursituationshouldbeaddressedhereclearlyandsuccinctly.

Thesummaryorstatementshouldbenomorethanhalfapageinlengthandshouldtouchonthefollowingkeyelements:

Businessconceptdescribesthebusiness,itsproduct,themarketitservesandthebusiness'competitiveadvantage.Financialfeaturesincludefinancialhighlights,suchassalesandprofits.Financialrequirementsstatehowmuchcapitalisneededforstartuporexpansion,howitwillbeusedandwhatcollateralisavailable.Currentbusinesspositionfurnishesrelevantinformationaboutthecompany,itslegalformofoperation,whenitwasfounded,theprincipalownersandkeypersonnel.Majorachievementspointsoutanythingnoteworthy,suchaspatents,prototypes,importantcontractsregardingproductdevelopment,orresultsfromtestmarketingthathavebeenconducted.

DescriptionoftheBusinessThebusinessdescriptionusuallybeginswithashortexplanationoftheindustry.Whendescribingtheindustry,discusswhat'sgoingonnowaswellastheoutlookforthefuture.Dothenecessaryresearchsoyoucanprovideinformationonallthevariousmarketswithintheindustry,includingreferencestonewproductsordevelopmentsthatcouldbenefitorhinderyourbusiness.Baseyourobservationsonreliabledataandbesuretofootnoteandciteyoursourcesofinformationwhennecessary.Rememberthatbankersandinvestorswanttoknowhardfactstheywon'triskmoneyonassumptionsorconjecture.

Whendescribingyourbusiness,saywhichsectoritfallsinto(wholesale,retail,foodservice,manufacturing,hospitalityandsoon),andwhetherthebusinessisneworestablished.Thensaywhetherthebusinessisasoleproprietorship,partnership,CorSubchapterScorporation.Next,listthebusiness'principalsandstatewhattheybringtothebusiness.Continuewithinformationonwhothebusiness'customersare,howbigthemarketis,andhowtheproductorserviceisdistributedandmarketed.

DescriptionoftheProductorServiceThebusinessdescriptioncanbeafewparagraphstoafewpagesinlength,dependingonthecomplexityofyourplan.Ifyourplanisn'ttoocomplicated,keepyourbusinessdescriptionshort,describingtheindustryinoneparagraph,theproductinanother,andthebusinessanditssuccessfactorsintwoorthreemoreparagraphs.

Whenyoudescribeyourproductorservice,makesureyourreaderhasaclearideaofwhatyou'retalkingabout.Explainhowpeopleuseyourproductorserviceandtalkaboutwhatmakesyourproductorservicedifferentfromothersavailableinthemarket.Bespecificaboutwhatsetsyourbusinessapartfromthoseofyourcompetitors.

Thenexplainhowyourbusinesswillgainacompetitiveedgeandwhyyourbusinesswillbeprofitable.Describethefactorsyouthinkwillmakeitsuccessful.Ifyourbusinessplanwillbeusedasafinancingproposal,explainwhytheadditionalequityordebtwillmakeyourbusinessmoreprofitable.Givehardfacts,suchas"newequipmentwillcreateanincomestreamof$10,000peryear"andbrieflydescribehow.

Otherinformationtoaddresshereisadescriptionoftheexperienceoftheotherkeypeopleinthebusiness.Whoeverreadsyourbusinessplanwillwanttoknowwhatsuppliersorexpertsyou'vespokentoaboutyourbusinessandtheirresponsetoyouridea.Theymayevenaskyoutoclarifyyourchoiceoflocationorreasonsforsellingthisparticularproduct.

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MarketAnalysisAthoroughmarketanalysiswillhelpyoudefineyourprospectsaswellashelpyouestablishpricing,distribution,andpromotionalstrategiesthatwillallowyourcompanytobesuccessfulvisvisyourcompetition,bothintheshortandlongterm.

Beginyourmarketanalysisbydefiningthemarketintermsofsize,demographics,structure,growthprospects,trends,andsalespotential.Next,determinehowoftenyourproductorservicewillbepurchasedbyyourtargetmarket.Thenfigureoutthepotentialannualpurchase.Thenfigureoutwhatpercentageofthisannualsumyoueitherhaveorcanattain.Keepinmindthatnoonegets100percentmarketshare,andthatasomethingassmallas25percentisconsideredadominantshare.Yourmarketsharewillbeabenchmarkthattellsyouhowwellyou'redoinginlightofyourmarketplanningprojections.

You'llalsohavetodescribeyourpositioningstrategy.Howyoudifferentiateyourproductorservicefromthatofyourcompetitorsandthendeterminewhichmarketnichetofilliscalled"positioning."Positioninghelpsestablishyourproductorservice'sidentitywithintheeyesofthepurchaser.Apositioningstatementforabusinessplandoesn'thavetobelongorelaborate,butitdoesneedtopointoutwhoyourtargetmarketis,howyou'llreachthem,whatthey'rereallybuyingfromyou,whoyourcompetitorsare,andwhatyourUSP(uniquesellingproposition)is.

Howyoupriceyourproductorserviceisperhapsyourmostimportantmarketingdecision.It'salsooneofthemostdifficulttomakeformostsmallbusinessowners,becausetherearenoinstantformulas.Manymethodsofestablishingpricesareavailabletoyou,buttheseareamongthemostcommon.

Costpluspricingisusedmainlybymanufacturerstoassurethatallcosts,bothfixedandvariable,arecoveredandthedesiredprofitpercentageisattained.

Demandpricingisusedbycompaniesthatselltheirproductsthroughavarietyofsourcesatdifferingpricesbasedondemand.

Competitivepricingisusedbycompaniesthatareenteringamarketwherethere'salreadyanestablishedpriceandit'sdifficulttodifferentiateoneproductfromanother.

Markuppricingisusedmainlybyretailersandiscalculatedbyaddingyourdesiredprofittothecostoftheproduct.

You'llalsohavetodeterminedistribution,whichincludestheentireprocessofmovingtheproductfromthefactorytotheenduser.Makesuretoanalyzeyourcompetitors'distributionchannelsbeforedecidingwhethertousethesametypeofchanneloranalternativethatmayprovideyouwithastrategicadvantage.

Finally,yourpromotionstrategyshouldincludeallthewaysyoucommunicatewithyourmarketstomakethemawareofyourproductsorservices.Tobesuccessful,yourpromotionstrategyshouldaddressadvertising,packaging,publicrelations,salespromotionsandpersonalsales.

CompetitiveAnalysisThepurposeofthecompetitiveanalysisistodetermine:

thestrengthsandweaknessesofthecompetitorswithinyourmarket.strategiesthatwillprovideyouwithadistinctadvantage.barriersthatcanbedevelopedtopreventcompetitionfromenteringyourmarket.anyweaknessesthatcanbeexploitedintheproductdevelopmentcycle.

Thefirststepinacompetitoranalysisistoidentifybothdirectandindirectcompetitionforyourbusiness,bothnowandinthefuture.Onceyou'vegroupedyourcompetitors,startanalyzingtheirmarketingstrategiesandidentifyingtheirvulnerableareasbyexaminingtheirstrengthsandweaknesses.Thiswillhelpyoudetermineyourdistinctcompetitiveadvantage.

Whoeverreadsyourbusinessplanshouldbeveryclearonwhoyourtargetmarketis,whatyourmarketnicheis,exactlyhowyou'llstandapartfromyourcompetitors,andwhyyou'llbesuccessfuldoingso.

OperationsandManagementTheoperationsandmanagementcomponentofyourplanisdesignedtodescribehowthebusinessfunctionsonacontinuingbasis.Theoperationsplanhighlightsthelogisticsoftheorganization,suchastheresponsibilitiesofthemanagementteam,thetasksassignedtoeachdivisionwithinthecompany,andcapitalandexpenserequirementsrelatedtotheoperationsofthebusiness.

FinancialComponentsofYourBusinessPlanAfterdefiningtheproduct,marketandoperations,thenextareatoturnyourattentiontoarethethreefinancialstatementsthatformthebackboneofyourbusinessplan:theincomestatement,cashflowstatement,andbalancesheet.

Theincomestatementisasimpleandstraightforwardreportonthebusiness'cashgeneratingability.Itisascorecardonthefinancialperformanceofyourbusinessthatreflectswhensalesaremadeandwhenexpensesareincurred.Itdrawsinformationfromthevariousfinancialmodelsdevelopedearliersuchasrevenue,expenses,capital(intheformofdepreciation),andcostofgoods.Bycombiningtheseelements,theincomestatementillustratesjusthowmuchyourcompanymakesorlosesduringtheyearbysubtractingcostofgoodsandexpensesfromrevenuetoarriveatanetresult,whichiseitheraprofitorloss.Inadditiontotheincomestatements,includeanoteanalyzingtheresults.Theanalysisshouldbeveryshort,emphasizingthekeypointsoftheincomestatement.YourCPAcanhelpyoucraftthis.

Thecashflowstatementisoneofthemostcriticalinformationtoolsforyourbusiness,sinceitshowshowmuchcashyou'llneedtomeetobligations,whenyou'llrequireitandwhereitwillcomefrom.Theresultistheprofitorlossattheendofeachmonthandyear.Thecashflowstatementcarriesbothprofitsandlossesovertothenextmonthtoalsoshowthecumulativeamount.Runningalossonyourcashflowstatementisamajorredflagthat

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indicatesnothavingenoughcashtomeetexpensessomethingthatdemandsimmediateattentionandaction.

Thecashflowstatementshouldbepreparedonamonthlybasisduringthefirstyear,onaquarterlybasisforthesecondyear,andannuallyforthethirdyear.Thefollowing17itemsarelistedintheordertheyneedtoappearonyourcashflowstatement.Aswiththeincomestatement,you'llneedtoanalyzethecashflowstatementinashortsummaryinthebusinessplan.Onceagain,theanalysisdoesn'thavetobelongandshouldcoverhighlightsonly.AskyourCPAforhelp.

Thelastfinancialstatementyou'llneedisabalancesheet.Unlikethepreviousfinancialstatements,thebalancesheetisgeneratedannuallyforthebusinessplanandis,moreorless,asummaryofalltheprecedingfinancialinformationbrokendownintothreeareas:assets,liabilitiesandequity.

Balancesheetsareusedtocalculatethenetworthofabusinessorindividualbymeasuringassetsagainstliabilities.Ifyourbusinessplanisforanexistingbusiness,thebalancesheetfromyourlastreportingperiodshouldbeincluded.Ifthebusinessplanisforanewbusiness,trytoprojectwhatyourassetsandliabilitieswillbeoverthecourseofthebusinessplantodeterminewhatequityyoumayaccumulateinthebusiness.Toobtainfinancingforanewbusiness,you'llneedtoincludeapersonalfinancialstatementorbalancesheet.

Inthebusinessplan,you'llneedtocreateananalysisforthebalancesheetjustasyouneedtodofortheincomeandcashflowstatements.Theanalysisofthebalancesheetshouldbekeptshortandcoverkeypoints.

SupportingDocumentsInthissection,includeanyotherdocumentsthatareofinteresttoyourreader,suchasyourresumecontractswithsuppliers,customers,orclients,lettersofreference,lettersofintent,copyofyourleaseandanyotherlegaldocuments,taxreturnsforthepreviousthreeyears,andanythingelserelevanttoyourbusinessplan.

Somepeoplethinkyoudon'tneedabusinessplanunlessyou'retryingtoborrowmoney.Ofcourse,it'struethatyoudoneedagoodplanifyouintendtoapproachalenderwhetherabanker,aventurecapitalistoranynumberofothersourcesforstartupcapital.Butabusinessplanismorethanapitchforfinancingit'saguidetohelpyoudefineandmeetyourbusinessgoals.

Justasyouwouldn'tstartoffonacrosscountrydrivewithoutaroadmap,youshouldnotembarkonyournewbusinesswithoutabusinessplantoguideyou.Abusinessplanwon'tautomaticallymakeyouasuccess,butitwillhelpyouavoidsomecommoncausesofbusinessfailure,suchasundercapitalizationorlackofanadequatemarket.

Asyouresearchandprepareyourbusinessplan,you'llfindweakspotsinyourbusinessideathatyou'llbeabletorepair.You'llalsodiscoverareaswithpotentialyoumaynothavethoughtaboutbeforeandwaystoprofitfromthem.Onlybyputtingtogetherabusinessplancanyoudecidewhetheryourgreatideaisreallyworthyourtimeandinvestment.

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