How to Prepare BP

8/3/2019 How to Prepare BP

1/47

1. Introduction

A business plan precisely defines your business, identifiesyour goals, and serves as your firm's resume. The basic

components include a current and pro forma balance sheet,an income statement, and a cash flow analysis. It helps youallocate resources properly, handle unforeseencomplications, and make good business decisions.Because it provides specific and organized informationabout your company and how you will repay borrowedmoney, a good business plan is a crucial part of any loan orgrant application. Additionally, it informs sales personnel,

suppliers, and others about your operations and goals.

Plan Your WorkThe importance of a comprehensive, thoughtful businessplan cannot be overemphasized. Much hinges on it: outsidefunding, credit from suppliers, management of youroperation and finances, promotion and marketing of yourbusiness, and achievement of your goals and objectives."The business plan is a necessity. If the person who wantsto start a small business can't put a business plan together,he or she is in trouble.Most prospective entrepreneurs are reluctant in preparing aBusiness Plan, arguing that it is a loss of time and money(especially when it is assigned to a third party) and that thefinal document is mere bureaucracy. A new business, eitherby a new entrepreneur or an established one, needs aBusiness Plan the same way a house construction needs

blueprints.Once again, after having mentioned it in the booklet aboutstart-ups, the Business Plan must be done by the BusinessTeam, as a whole, not pieces assigned to the members ofthe team and then after put together.The participation in the planning procedure of the whole ofthe Team, in all stages, is the only warrantor that the planwill be effectively and accurately implemented.

Before you begin writing your business plan, consider fourcore questions:

1


2/47

What service or product does your business provideand what needs does it fill?

Who are the potential customers for your product orservice and why will they purchase it from you?

How will you reach your potential customers? Where will you get the financial resources to start

your business?

What is it?Business Planning is not just about producing a report. Thework of writing, of thinking things through is as important asthe final document.It's a tool for understanding how your business will be put

together. The process will help you learn how to manageyour own company more effectively while you become anexpert in your industry and business. It creates a frameworkfor you to start and grow your business.The Business Plan is dynamic. Each business and itspersonality are different and the Business Plan shouldreflect this.

Why do you have to do a business plan?It is becoming increasingly tough to survive in business.It is not good enough to have a good product or service.Business people, whether they be roof makers,manufacturers or doctors must also be good managers.Successful business managers have clear objectives,produce good products or services, understand the market,manage their money properly and are good employers.

Accordingly, the primary reason to formulate a businessplan is to address all the issues that make a successfulbusiness. In the case of a new business, a business planwill assist in determining the feasibility of the proposal. Foran existing business, comparing actual outcomes againstprojections will assist in refining the business plan andimproving performance.But there are other important reasons to formulate abusiness plan. For a start, no bank will lend money to a

business unless it has a business plan that demonstrateshow the business proposes to service the interest and

2


3/47

repay the loan. The involvement of stakeholders such asstaff, family and partners in the formulation of a businessplan is also a good way of securing their commitment to thebusiness.

For whom do you prepare the Business Plan?First of all, you prepare the Business Plan for you and thebusiness team. Before everyday operations start callingyour immediate decision and action, you have to see all theaspects of your business.Many people think of a business plan as a documentpredominantly used to secure external funding. This isimportant - as potential investors, including banks, may

invest in your idea, work with or lend you money as a resultof the strength of your plan.But there are other benefits to creating and managing arealistic business plan - even if you just use it in-house. Itcan:

Help you spot potential pitfalls before they happen. Structure the financial side of your business

efficiently.

Focus your development efforts. Work as a measure of your success.

The following people or institutions may request to see yourbusiness plan at some stage:

Banks External investors - whether this is a friend, a

venture capitalist firm or another enterprise, wishingto associate with you.

Grant providers, European or National Anyone interested in buying your business Potential senior partners

You should also bear in mind that a business plan is a livingdocument that will need updating and changing as yourbusiness expands. And regardless of whether you intend touse your plan internally, or as a document for externalpeople, it should still take an objective and honest look at

your business. Failing to do this could mean that you and

3


4/47

others have unrealistic expectations of what can beachieved and by when.

Business Plan Targeting Summary *

Stakeholder Issues to emphasize Issues to deemphasize

BankerCash-flow, assets, solid

growthFast growth, hot market

Investor Fast growth, potentialAssets, large market,

management team

Strategic Partner Synergy, proprietarySales force, assets,

products

Large customers Stability, service Fast growth, hot market

Key employees Security, opportunity Technology

Merger &

acquisition

specialist

Past accomplishments Future outlook

* Portable MBA for Entrepreneurship, William D. Bygrave,John Wiley and Son, Inc., 1994

What are the benefits of planning?While it has been acknowledged that business planningdoes not guarantee success, studies show that businesseswhich consistently undertake planning perform better thanthose where planning is lacking.The planning process produces a number of benefits foryour business:

Forces an early consideration of essential goals and

basic policies. Helps to challenge old ideas and create a climate for

new initiatives. Gives you a clear focus. Enables problems to be recognized that call for

external sources of information and assistance. Increases your objectivity. By converting everything

to numbers, planning prevents you viewing the

future in ways that the facts do not support.

4


5/47

Increases your personal motivation and that of anyemployees you may have.

Enables growth to be planned and associatedcapital requirements to be determined in advance.

Provides feedback of information and periodicreappraisal against established objectives andperformance standards.

Some objectionsAlthough all financial institutions (banks, venture capitalists,development funding agencies, Municipalities, Ministriesetc) want to see your Business Plan before allocatingresources to your enterprise, either it is a new or existing

one, if you are preparing a business plan for your personal(or enterprise) internal use, you should not prepare abusiness plan, when:

You are planning to speculate on warehouse stocks,because you are foreseeing a rapid change of theprices of the goods you are about to deal with, eitherbecause of inflation or a dramatic disturbance of theoffer / demand equilibrium. If you are really

convinced that you are going to make a rapid profitout of such extraordinary opportunities, do not loosetime with planning. Your plans will never beimplemented, anyhow. On the other hand, nobodywill give you his money, so that you will speculate.He will do it all by himself!

You base a significant part of your expectedsuccess on the market price of shares of companies

other than yours (provided that your company iseligible to purchase its own shares). It is speculationas well. When you speculate, you make predictionsand you buy goods or shares from someone else.He makes predictions as well. In the end, in thefinancial markets, the profit of the winners is equalto the loss of the others. Everyone thinks that he willwin!

You base your activity on intermediation oftransactions that you expect to take place with youractions, because you know both parties. People and

5


6/47

most of all companies, do not act as you areplanning that they will. Instead of making a businessplan, concentrate on the trade.

You base your sales to the government. You mayneed a Business plan for typical purposes (Bank

loan, subsidies) but do not spend your time, effortand money on a serious Business Plan. Publicprovisions are quite particular. Concentrate on theparticularities (calls for tenders, formalities of yourbids, legal representation, lobby and humanrelations) instead. Do not forget that if you want tosell to the government you have to establish yourfirm in the marketplace first.

You are absolutely convinced that your business willhave a very rapid success because there is a gap inthe market. If you spend your time to prepare adetailed Business Plan, somebody else will fill thisgap and you will loose your opportunity. But,beware; such opportunities are so rare, that onemay say that they dont really exist. People aroundyou will try to make you believe that you have to

start your business immediately, instead of loosingtime with preparations. They do it for their ownbenefit, neither yours, nor your companys.

Barriers to business PlanningBefore you decide to start preparing a Business Plan, youface a series of barriers or factors that dictate you not toget involved in such a procedure, being the planning itselfor making business at all.The business world is a complicated one, but where haveyou ever seen human activities without complexity?The barriers, obstacles or whatever will be calling you awayfrom the planning activity, are usually:

1. Fear of the unknown:You think that you dont know enough of this verycomplicated business world, while you must compete withothers with a long experience.

There is a very positive side, when you understand whatyou dont know. You can do something about it.

6


7/47

Read the booklets prepared for you. List the items that you dont know and they

are critical for your success. Attend training courses to acquire the

knowledge that you need. Get external guidance from an agency that

you trust. Identify and contact experts that you will use

both in the planning and implementationphases (the pool of experts of the agencythat you trust, may save you time andincrease your efficiency).

Remember:

There is no such a person who knows everything.Most of the business failures had a boss who kneweverything and failed because he had a verdict foreverything.The fact that most of the businesses have been createdand run without a Business Plan, does not mean that youmust do what others are doing. Economies become moreand more sophisticated and plans are made for the future.

2. Fear of failure:There is always a possibility of failure, in whatever a persondoes.Students participate in exams and some of them fail. Theydo not avoid the exams because there is a possibility to fail!People get married and there is a possibility to fail and get adivorce.

Failure is a tragedy. It may become a nightmare when youdo not admit that you have failed and stick with a rottenbusiness.The business plan will help you understand the situation offailure. Not every difficulty or discrepancy from what hasbeen planned, mean a failure. It is very rare to fail, if youprepare a business plan, but if this happens, you alreadyhave a plan to get rid of the business that you have failed,before it becomes a disaster. Even then, you still havesomething valuable in return; experience.

7


8/47

You may even fail to complete your Business Plan. Still youdid something which is better than nothing.Failure is different than risk. Later in this booklet, there is asection of risk assessment.

3. Inexactness

No matter how carefully I plan, things do not usually workout according to the plan.In the business world, probability is sufficient to governaction. Planning allows you to determine what is likely tohappen in business according to the odds.It is better to attempt to predict and prepare rather thanassuming the passive and dangerous role of wait and see.

4. Speed of change

Developments happen too frequently to make planningworthwhile.Provide a measure of flexibility in the business plan to meetchanging circumstances and review your plan frequently.You also need to develop flexibility of attitude.

5. Lack of specialised knowledgeHow do I start?Start with self training, in order to assess the knowledge

that you really need to have yourself.Devote some time to learn the news about the sector youare considering making business in. There are plenty ofnews for practically every sector in the newspapers andbusiness magazines. But, beware; do not trust the forecastsof the journalists. Stick to the news and try to make yourinterpretations. Journalists may be experts in their field, butafter they print their opinion, they influence the evolution ofthe market.Discuss your needs for knowledge with your coach (thebusiness agency that you trust) and how and where youcan get really get it.

6. CostIt costs too much to prepare a complete Business PlanThe expense of planning must be justified by tangibleresults. You can keep the whole exercise cost-effective byundertaking the planning yourself under the direction of a

skilled professional. You really can do most of the planyourself.

8


9/47

Keep in mind: You are not going to become a planningGuru. Your highest possible cost is the opportunity cost;you may devote time and effort to learn how to do thingsthat you will only need once (in making your plan). Do nothesitate to assign (with an appropriate fee) these parts of

your plan to external experts.Action checklists covering each aspect of the plan can help.

7. Difficulty in Starting your Business PlanDevelopment of a personal commitment to planning, self-discipline and a firm grasp of the benefits that planning canprovide, will help you to create a Plan.You must allocate a weekly time in your schedule, devotedto your planning activities. This must contain your

homework as well as couching time. You can scheduleyour individual work as you please, but you have to followthe availability of the experts and, once you have bookedthem, you must keep the schedule at almost any cost.Establishing a goal is the essential first step in the planningprocess.

8. Time PressureEfficient organisation and time management are required.

Time for planning will not turn up by itself. A scheduleneeds to be set and planning may have to be undertakenoutside normal business hours - perhaps in the evening orone or two mornings during the weekend.It is understandable that it is not only your Business Plan.To succeed in your business requires a social andcommunity life, as described in the booklet How to start myBusiness. Give the appropriate weight to socialparticipation and business planning.

You are not experienced in writing business plans. Yourcoach is; let him put deadlines and milestones and keepthem, without compromising the quality of your plans.

2. Contents of the Business Plan

The Business Plan is a document proving that you haveexamined a prospective business in a way that shows afuture success.

There is an internationally expected typical structure of aBusiness Plan, so that, whoever is the receiver of the plan,

9


10/47

can run through it and find the information he needs toknow, before deciding to support it.Different parts are interesting for different potential partners,from banks and venture capitalists to potential staffmembers, main suppliers, research institutes and main

clients. One thing is common. They all need to see thewhole picture and be able to have an easy access to thepart of their interest.A question arises; how long a Business Plan should be?Well, it depends upon the nature of the business your planconcerns and not its size. Being in the same time accurate,comprehensive and effective, you may produce a BusinessPlan no less than 30 and no more than 100 pages.

As a general rule, the contents should include: The business idea. The business Team and ownership. The Market Analysis. The premises. The Technology. The Management. The Marketing Plan. The Financial projections. The Promotion of the products / services.

3. Cover

The first impression is the most important, while it must alsoprovide the most crucial information.To present a Business Plan to a potentially interested party,you must deliver it with a cover letter, matching the cover

page of your Business Plan.The delivering letter should not exceed one page. It isimperative to state your proposal in the last sentence of thisletter.For example, if your target is to borrow from a bank, youmay state it as:Therefore, we propose that you approve a loan of XXX topartially finance our prospective business of a value ofYYY, as in our attached business Plan.OrIf the destination is a main supplier;

10


11/47

We propose that you proceed to contracting to us a salesagreement of ZZZ initial value of sales, under theprospective described in the attached Business Plan, sothat we both be benefited.Or

If the destination is a Key Person;We would like you to go through our attached BusinessPlan and assess for yourself the benefits and requirementsof joining our business.

In this cover letter, as well as in the whole of your BusinessPlan, you need a name for your Business.Naming an enterprise is not an easy task. Specialists in the

field are very rare. They may just create an impressive logo.You have to name the business yourself. For the naming ofyour enterprise, you should consider that:

The name of your enterprise recalls the businessyou are about to start and develop.

Has to be brief. Has to be imprinted in the memory of whoever sees

or hears it.

Hs to be international, so only use common lettersbetween Cyrillic and Latin alphabets.The name should not be:

Indicating something your business is not yet (forexample: holding, international, innovative, typical,franchising, chain and so on).

Generalist (for example: import export, goodsprocessing and trading, manufacturing and

distribution and such). Restricting (for example: manufacturing of ping T-

shirts made of Egyptian cotton).The name has to be legally examined; you have to examineand be sure that it is not already used by others. To do so,you must:

Ask the Chambers of Commerce, if the name isregistered.

Browse the Yellow Pages. The TelephoneCompanies include all the names of the enterprises

11


12/47

with the name that they are using, either it isregistered or not.

The introductory letter briefly states why you aresubmitting/creating your plan and highlights important

information for the receiver. If you are presenting yourbusiness plan to someone specific, be sure to research thecorrect spelling of their name and mailing address.You also have to prepare a cover page for your BusinessPlan. In addition to the words "Business Plan", your coverpage should clearly identify who you are, your companyname and how you can be contacted. Consider making itstand out by using images of your product/service in action,

if any. Do not put imaginary pictures or made-u / retouched.Your Cover Page should include the following: Your name Company name Address Telephone number Date

It might also include (if available):

Fax number E-mail address Website address Company logo Picture of product or service in action

If your Business Plan is addressed to Financial Institutes(Banks, Funding etc), you must put in the cover page:

The Total Value of your prospective Business The Loan or Funding that you are asking for.

Next page is the Table of Contents.A reader may often use the table of contents to skip to thepart of your plan they are most interested in. Therefore yourtable of contents should clearly outline the core sectionsand subsections of your plan. Wait until your business planis complete to add page numbers.

12


13/47

4. Executive Summary

The executive summary is the most important part of yourbusiness plan. It is where you grab the attention of thereader by summarizing the highlights of your business planin a short document.Succinctly state what the business is about and why it willbe successful. Don't assume people will read your plancover-to-cover. It is a good idea not to write the executivesummary until your entire plan is finished - that way you canselect the most relevant information to be included in yoursummary.Your Executive Summary should cover the following:

1. Describe your business concept. Be sure to includewhat industry sector you will be operating in (e.g.retail, manufacturing, wholesale etc.), the marketyou will serve, and your competitive advantage.

2. How will you differentiate your product or servicefrom competitors?

3. What is the legal structure of your company (e.g.sole proprietorship, partnership or incorporated

company)?4. Is your company already in operation or is it a start-

up operation? If it is operational, give a briefoverview of your progress to date. Includeachievements such as patents, prototypes,contracts, and market research indicating that thebusiness is viable.

5. Who is involved in the venture? Briefly summarize

your management team's experience andcredentials.6. How much money (if any) are you seeking and for

what purpose?7. How much money has the founder(s) invested in the

business to date? How has this money been spent?8. How much money will the proprietors spend to fund

the implementation of the plan?

13


14/47

9. Summarize your projected financial performance.Include projected gross revenues and net profits inthe first three to five years of business.

10. Do you intend to draw a salary from the businessesin the beginning? If not, how will you support

yourself? If so, how much?

5. The Business Team and Legal Status

Your management team and staff can make the differencebetween a successful business and one that will probablyfail. Therefore, it is important to include a section in yourbusiness plan that outlines the skills that your teammembers possess and how these skills will help bring your

product or service to market.The Team section of your business plan should include: Management Team Profiles & Ownership Structure

Management Team Profiles & Ownership Structure sectionshould cover the following:

1. What are the major categories of businessmanagement in your company (i.e. marketing, sales,research, administration)? Include an organizationalchart of your business or explain the functions ofyourself and key team members.

2. Who are the people who have agreed to work withyour business? (Attach complete resumes ofmanagement team members) What are their jobdescriptions?

3. What positions are still unfilled at your company?4. What skills and job experience will the people who fill

these positions have?

5. What skills do you personally have (include any skillsfrom last job or business - how do these skillscorrelate with your business?)?

6. Describe the compensation package for yourself andthe management team (e.g. salary, benefits, profitsharing schemes etc.)

7. What work contracts, non-competition agreementsand other contractual agreements have you put in

place for your management team? (Include contractsin Appendix)

14


15/47

8. Describe the ownership structure of your business,mentioning percentages controlled by managementteam (if applicable).

Advisors

No matter what size your company, creating a board ofadvisors for your company is an excellent way to benefitfrom the skills and expertise of people you may not yet beable to afford to employ. By outlining your Advisor'scredentials, you can help to enhance the credibility of yourmanagement team. Therefore, it is important to include asection of your business plan on your board of advisors.The Advisors section of your business plan should cover

the following:1. Outline who is on your board of advisors. Listnames, titles, employment, education, expertise andhow their guidance will positively impact yourbusiness.

2. If you have not yet assembled your board ofadvisors, describe the types of people you willapproach. (It is important to make sure you look for

board members who can supplement skills yourbusiness may be lacking for example, if yourbusiness is technology based, try to include peoplewith marketing and finance backgrounds.) Advisorsare not necessarily in your payroll. They may be themembers of a business supporting agency, an NGOor just entrepreneurs that would like to assist you inthe most substantial way, with their knowledge andexperience.

Professional ServicesAnother important aspect of your business plan should be asection that lists all the professional support services - suchas your lawyer, accountant, banker and consultants - thatyour company will use.This is necessary, especially for engineers and consultants,because this proves that you have already taken into

consideration of their fees and you have negotiated them.

15


16/47

Human ResourcesOnce you have defined your management team, you needto include details on the other employees your businessmay or may not need and what their function(s) will be. Inthe beginning it may be just you and a selection of

freelance, contract or part-time help. You will need to thinkahead and consider all the options you may be faced with.The purpose of this section will be to ensure that you haveconsidered the labor situation in the area and industry inwhich you're starting the business and have madeallowances for the compensation and training of this staff.The Human Resources Requirements of your business planshould cover the following:

1. How many people do you require for your business?2. What specific skills do these employees need topossess?

3. What is the compensation package for eachemployee?

4. Are your employees protected by workers'compensation coverage?

5. Is there sufficient local labor? How will you recruit

people if there is not?6. How much does this labor cost now? In the future?7. How will you train your staff?8. What is your policy for ongoing training for your

staff? Remember to include safety training.

The Legal Status of your business.This is explained in the booklet how to start my businessin this series.It may be one of the following:

Sole Proprietorship Partnership Partnership with Limited Liability Socit Anonyme (Corporation)

6. The business idea

The Business Idea is a hypothesis that a team of persons is

able to produce and sell a good or service, or both, at a

16


17/47

price above the cost and that there will be enoughconsumers who want to pay the price.

Product-Based Businesses

A business primarily engaged in the sale of products has afocus that is different from that of a service-based business.In a product-based business, customers don't, for the mostpart, expect extensive personal services to be performed aspart of the deal. They want their box of chocolate, or theirauto accessory, or their new flight simulator software.In some cases, your business may be the only source forthe product. Some software is available only by mail fromthe manufacturers. If you want their product, you buy it from

them. But even with such "unique" products, there aregenerally similar competitors. At the other extreme arebusinesses that carry goods that are widely and readilyavailable. The bottle of lemonade may be purchased at aSuper Market, but it is also available at a gas station, at anautomatic vending machine, a Kiosk in the square and alsoat the bench of an ambulant vendor.This suggests that businesses based on a unique product

face a somewhat different environment from that faced bybusinesses carrying products that are widely available. Inthe case of a unique product, the competitive advantageyour business should enjoy is based on theproductitself. Inthe case of fungible products, your ability to sell turns onfactors otherthan the identity of your product.This distinction should be kept in mind when formulating abusiness plan. Of particular significance is how long you

can expect a unique product to remain unchallenged in themarket place. If you're having some success, you can betothers will rush to break your temporary "monopoly."Another factor to be considered is the identity of yourcustomers.Retailers sell to the general public at large; wholesalersprimarily sell to retailers and manufacturers can sell towholesalers, to retailers, or to the public directly.Where does your business stand in that hierarchy?

17


18/47

Who are your customers? For example, consider amanufacturer expecting to use established wholesalechannels to distribute a new product. Not only must thewholesalers and retailers be convinced to carry the product,the retailers must generate sales sufficient to make the

product profitable. Successfully selling to the distributorsdoesn't ensure successful marketing of the product to theultimate consumer.

Service BusinessesThe starting point of a service business is the fact that thereare certain things that people will pay to have done forthem.

Maybe they don't know how to do these things themselves.Maybe they don't have the time.Maybe they don't have the special tools.Whatever the reason, your business exists because otherpeople are unwilling or unable to do what you do. The focusof a service business is on results.So, from a planning perspective, what's of particularimportance to a service business?

Your appearance and demeanor can be critical if you areengaged in personally performing services. The same holdstrue if you have employees. You are, in some sense, sellingyourself to prospective customers. You are asking them totrust you to do something for them, and there is at leastsome commitment to an ongoing relationship with thecustomer. The impact on your plan may be something assimple as planning for the expense of a uniform service and

for regular cleaning of service vehicles.Another issue service providers face, relates to billing andcollections. When goods are sold, there is a clear event thattriggers the need for payment. For a service provider, theevent that should trigger payment might not be so clear. Forexample, a contractor may feel that he should be paid whenhe informs the homeowner that the job is complete. Thehomeowner, however, may feel that he has a right to havethe work inspected before tendering payment. One way toreduce the possibility of this type of problem is to seek

18


19/47

progress payments as a job proceeds. Another is to plancash flow requirements realistically, providing for thechance that a certain portion of what you are owed mightnot be immediately forthcoming.If you personally are responsible for getting new customers

and also for providing services to them, it is critical tomanage your own time well. Many personal servicebusinesses require the owner to spend substantial timedoing presentations, preparing bids or estimates, or doingother sales-related activities to acquire future business. Tothe extent that your time is spent on these activities, youaren't currentlyworking on your present business.

Mixed Goods and ServicesA business that provides its customers with both goods andservices will probably have a somewhat more complicatedbusiness plan than a business that primarily provides eithergoods or services. There are many logistical considerationsrelating to managing the interaction between the delivery ofgoods and the performance of services.The financial aspects of a mixed goods and services

business require careful scrutiny. The relative mix betweengoods and services must be managed to maintain areasonable return on the entire enterprise. Pricing is moreof an issue because you are trying to cover the wide varietyof components that make up the entire package. How doyou associate your labor costs with the cost of goods sold?The business planning process affords you with anopportunity to examine this and other relationships that can

impact on the profitability of your business.The business idea must be explained in a brief andconcentrated way, together with an explanation why it isexpected to succeed.

6.1. Innovation

The demand in the Market is already satisfied by otherenterprises offering goods and / or services acceptable by

the consumers. To be able to position your business in the

19


20/47

Marketplace, you have to present something new to theexisting span of offers.You are not meant to create an invention. It is enough thatyou present a new approach of a product, service,productions method or distribution (even financing the

buyers) in a given market.Even when this approach is copying something alreadysuccessful in another place, it is enough that it is presentedin the market of your interest for the first time, it is adaptedto the characteristics of this market and you can prove thatthere is no intellectual property abuse or infringement.If the destination of the Business Plan is an authority thatdistributes development funds, it is obligatory to state what

your innovation is. The innovative character of yourbusiness is necessary, so that the funding authority isconvinced that by providing financial assistance to yourbusiness, the already existing enterprises in the samesector will not face illicit competition. In other words, youhave to prove that by getting financial assistance, you willnot damage other businesses.

6.2.Unique selling positionIn order to successfully market itself, every business ownerneeds to focus on what's special and different about his orher business. The best way to do this is to try to expressthis uniqueness in a single statement.Rosser Reeves was the author of the phrase, "uniqueselling proposition," or USP, which is a unique messageabout itself versus the competition that each business or

brand should develop and use consistently in its advertisingand promotion. By USP we don't necessarily mean aslogan or a phrase that will appear in your advertising,although that's one possible use for it. However, at thispoint we're focusing on its usefulness as a tool to help youfocus on what your business is all about.If you cannot concisely describe the uniqueness of youridea (and create some excitement in potential users), youmay not have the basis for a successful business.There are several questions to ask about your business todetermine a USP:

20


21/47

1. What is unique about your business or brand vs.direct competitors? You'll probably find a whole listof things that set you apart; the next questions willhelp you decide which of these to focus on.

2. Which of these factors are most important to the

buyers and end users of your business or brand?3. Which of these factors are not easily imitated by

competitors?4. Which of these factors can be easily communicated

and understood by buyers or end users?5. Can you construct a memorable message (USP) of

these unique, meaningful qualities about yourbusiness or brand?

6. Finally, how will you communicate this message(USP) to buyers and end users? Marketing tools tocommunicate USPs include media advertising,promotion programs (e.g., direct mail), packaging,and sales personnel.

For examples of USPs, think about different brands ofproducts you've seen advertised on TV. What's the mainmessage underlying the ad? Different brands and types of

products utilize different primary themes, attributes, or ideasassociated with each brand. For example, cigarette, liquor,and perfume advertising tends to sell brands based onemotional, "borrowed values," instead of strictly productfeatures. Users are encouraged to fantasize that they mayaccrue the "benefits" of sex appeal or a more satisfying/funlifestyle, perhaps portrayed by the famous or beautifulspokespersons for a particular brand.Food products may also utilize borrowed values in addition

to describing product features and benefits. However,products like medicinal brands (e.g., cough and coldproducts) work hard at identifying and promoting uniquefeatures that will provide more relief faster than competitors.For these types of products, the way the product works isthe most meaningful factor for customers.The simple test of determining whether you've constructeda good USP for your business is whether it sells for you. If it

sells your business or brand, your USP is meaningfullydifferent. If you've been in business for a while, you may

21


22/47

have constructed a USP unconsciously. For example, if youdecided to provide free delivery service to your customersbecause no one else in town is doing it, you've constructeda USP based on service that you are communicating to theintended target buyer. If, however, you offer free delivery

service because everyone else around does so and youneed to provide it simply to keep up with the competition,it's not something that sets you apart and should not be thefocus of your USP.For many small businesses, packaging, sales materials,and sales personnel may be the only marketing toolsaffordable. It is even important to clearly determine yourUSP to communicate with these limited means.

6.3.The vision, the mission and thestatement of purpose

Once you have identified your USP, you must state in yourBusiness Plan, your Strategic concerns.Your personal vision is very important for your partners,lenders and any kind of other associates. Your vision maybe to become as rich as your business plan can confirm it is

feasible. This is something that creates trust among yourcollaborators. If you say that your vision is to createemployment or help the poor, people and institutions donttrust you. But even if it is really true, you will not succeed inyour business, while your collaborators expect you to havea successful business and get the benefits of that.A company mission statement can be a powerful force toclearly define your company's purpose for existence. In the

beginning, your company was formed to accomplishsomething that did not exist in the marketplace, or to do abetter job than existing companies. What was that specialpurpose? Small companies seldom take the time to discussor write out their company mission, but they should. It willpay measurable financial dividends over time.The commitment to formulating a company mission can becritical to your company's success. It helps keepmanagement focused on preserving or strengthening thecompany's unique competitive niche. It can also prevent

22


23/47

panic and unwise marketing or spending responses to meetan indirect thrust by competitors into your market.The most successful company missions are measurable,definable, and actionable project statements with emotionalappeal that everyone knows and can act upon.

For example, a mission to "be the best health-care providerin the world" for a multi-national HMO organization soundsgood. But a simple mission statement from Honda "beatGM!" is better because it's a project statement that canbe measured every day by every employee.Mission statements can also affect company strategies andtactics. If Honda Motors were to change its mission to "BeatToyota," different strategies would be called for, along with

different geographic tactics in sales, advertising, anddistribution of cars.How important is it to define your company's mission?Having always in your mind your mission and sharing it witheveryone else involved, you face the ever changing realitywith an eye of the winner.Some possible USP's are:

lower price

higher quality longer life faster operation rapid maintenance comprehensive back-up service smaller size

6.4.The Strategy

Entrepreneurs and business managers are often sopreoccupied with immediate issues that they lose sight oftheir ultimate objectives. That's why a business review orpreparation of a strategic plan is a virtual necessity. Thismay not be a recipe for success, but without it a business ismuch more likely to fail. A sound plan should:

Serve as a framework for decisions or for securingsupport/approval.

Provide a basis for more detailed planning.

23


24/47

Explain the business to others in order to inform,motivate & involve.

Assist benchmarking & performance monitoring.A strategic plan should not be confused with a businessplan. The former is likely to be a (very) short document

whereas a business plan is usually a much moresubstantial and detailed document. A strategic plan canprovide the foundation and frame work for a business plan.A strategic plan is not the same thing as an operational

plan. The former should be visionary, conceptual anddirectional in contrast to an operational plan which is likelyto be shorter term, tactical, focused, implementable andmeasurable. As an example, compare the process of

planning a vacation (where, when, duration, budget, whogoes, how travel are all strategic issues) with the finalpreparations (tasks, deadlines, funding, weather, packing,transport and so on are all operational matters).A satisfactory strategic plan must be realistic and attainableso as to allow managers and entrepreneurs to thinkstrategically and act operationally.

7. Market study

The market is the arena in which the plan of campaign is tobe fought out. It is therefore necessary to define the marketfor the new product in terms of its size, its state ofdevelopment, the types of customers and the competitors.A detailed presentation is in the booklet how to prepare aMarketing Plan in this series.

7.1.The consumers

The consumers are those fueling the enterprise.You have to identify who the consumers of the product orservice will be, what you thing that they have in common,what are their buying habits, how many they are and howyou will convince them to abandonee their supplier / vendorand turn to you.To do this you must prepare a Marketing Plan, detailed inthe booklet how to prepare a Marketing Plan.

In order to answer these questions you must prepareyourself to do some market and marketing research.

24


25/47

The Market research will show to you how many thepotential consumers are and what income they usuallydevote to the products / services that you are planning tooffer to them and how they are grouped according to similarcharacteristics (market segmentation).

The Marketing research concern the point of sales (wherethis products / services are usually being sold), how arethey usually packaged, at what price, through whatchannels are they usually delivered, what are the conditionsof entering a distribution network and what convinces themto prefer one out of other similar products / services.Although you must attach a Marketing Plan to yourBusiness Plan, the highlights of the Marketing Plan must be

included in your Business Plan.

7.2.The competitors

You will not ever monopolize the market. Even if youmanage to obtain a patent for your product (almostimpossible to get one for a service), there will always becompetitors. They will not be able to sell the same thing, ifyou have patented it, but they will offer alternative products

which satisfy the same needs or desires.You have to place in your Business Plan a description ofthe competitors and the potential once, in comparison withyour proposed market position. The details of yourconfrontation with the competitors must be attached, in yourMarketing Plan.

7.3.Sales Forecast

The resumption of your sales forecast is the fundament ofyour economic calculations. Sales forecasting is a simple,yet sophisticated task. On one hand, once you have alreadydone your Marketing Plan, your possibility to sell at areasonably probable volume (and value, at a price, mostprobably paid by these consumers) is easy to put innumbers, on the other hand, there is a great uncertaintyabout the previsions, because the reactions of the

competitors are unknown.

25


26/47

The market share scenario, is quite helpful. It will go indetails in the Marketing Planning guide, of this series. Forthe purposes of your written Business Plan, you have toindicate the Market Share which your business is expectedto have, for the first year and for the 3-5 following years.

This will permit you and the people your plan is addressedto, to understand how reasonable your forecast are andwhat is the likelihood to come true. For example, if yourinitial prediction is that you will win a 30% share of themarket in the first year and you will reach 60% by the 5th

year, you are extremely over optimist and your salesforecast is not credible.Do not bother to go into calculations using advanced

statistical and mathematical methods, unless you havehistorical data by doing the same business for at least 5years, in a very similar market and only apply thesemethods to your own data.In most European countries, with an exception of UK andthe Scandinavian countries, public statistics are notaccurate and up to date. You will need to extrapolate databy carefully observing the effects of the market facts, for

example by collecting primary data about the number ofinhabitants of a town of your interest, by the number ofhouses and an average of the family members. Whateveryour statistical method accuracy, your primary data isbiased to such an extend, that your primary data error willnot be corrected by your error-free method.Do collect your own data. Do not rely on the data that hasbeen collected by others for other reasons or purposes.Many consultants are copying primary data from project to

project, adjusting it to the needs of their client. Unless it isdata from official census or Eurostat, they contain so manyassumptions, that they are far from representing thepopulation and its behavior, which they are supposed todescribe.

8. The investment

There are some original questions that you have to answer,before you put your decisions in your Business Plan;

26


27/47

How much space you will need to house yourbusiness?

Where is the location you have better placing yourbusiness?

What kind of building is needed for your business? Will you erect your own building, buy a building,

lease? What is the technology you are going to use, in

terms of machinery and know-how?

8.1.Premises

If you are just starting out in business, and you're selectingyour first business facility, spend some time to considerwhat you need from your facility. This process will require alot of cold, hard planning, as well as some measure ofdreaming. (If you didn't have at least a little bit of thedreamer in you, you probably wouldn't be an entrepreneur!)But if you have been in business for some time (possiblyworking out of your home) and are now considering movingto a new facility, you may have a good idea about what youneed. In this case, you may be ready to decide how to

choose the right facility.Finally, maybe you have a clear picture of your facilityneeds and have identified one or more potential sites foryour business. The next question is often: should you rentor buy? Because important, and complex, tax and cashmanagement issues are tied up in this rent or buy question,many small business owners rely heavily on the advice oftheir accountant or attorney when making this decision. You

may also wish to do so. But even if you do, you should beaware that the decision on the rent or buy question will,down the road, influence other business decisions that gobeyond tax and cash management issues.We stronglysuggest that your first move should be to mapout your facility needs in some detail. To do this, you maywish to consider what small business owners generally lookfor in a business facility and how the facility can aid their

businesses. As a small business owner, you can greatlyincrease the chances that you will acquire a business

27


28/47

facility that will make a positive contribution to your bottomline if you carefully consider the functions that the facilitymust perform for your business. A good facility should:

Foster efficient business operation. Present your business in a good light. Allow for future business growth. Accomplish these objectives at an economical cost. Allocate the less possible part of your investment in

building facilities. Consider the time required to make the building

facility ready for operation. Consider the risk involved in your investment on

buildings.Beware, if you consider the construction of your ownbuilding:It is very rare to get external finance (co-investors, bankloans, development funds, venture capitalists) for theacquisition of land. In this case, you must provide the landyourself.Reminder 1:If you are not in the construction business yourself, the

budget that the engineers will prepare for you will never beenough to complete your building. Budget excess will makeyour plan useless.Reminder 2:Do not speculate on the future value of the building. In mostcases, the prices of commercial buildings are dropping,even when the prices of the houses increase.Reminder 3:

The faster the availability of the building the sooner you getinto business. If you choose to rent a building, instead ofconstructing your own, you will discourage competitors,since you already covered the market gap. If you choose tomake your own building, consider fast and low costconstruction with a high degree of certainty; for exampleprefabricated, steel pillar and panels, may accelerate yourstarting time. The longer it takes to finish your building, themore interests you pay and you risk loosing the marketopportunity.

28


29/47

Reminder 4:Calculate your real needs for space to house your activity.Your clients will buy your product or service, at areasonable price. Impressive building facilities will increaseyour costs and may kick you out of the market, because

you will not be able to compete on prices.

8.2.Technology

Once technology changed lives only when the next wave ofinvaders swept across the Mesopotamian farmlands. Nowtechnology can change our lives as we read the morningpaper. Explain how technology affects your business, theproducts you sell, the means you use to sell them, and the

needs of the customers you serve.In some cases this might be a change in scanningtechnology, retail point-of-sale systems, or even videodisplays. In others, technology changes the nature of thegoods or services you sell, such as cellular phones or DVDvideos that didn't even exist a few years ago. Do you wantto include the Internet? Will a Web site change the way youdo business?

Sometimes, technology can be vital to a service company,such as the case of the Internet provider that uses wirelessconnections as a competitive edge, or the local companythat offers conference rooms for video conferencing. Anaccounting practice might gain a competitive advantagefrom proprietary software or wide-area network connectionsto its clients. A medical laboratory might depend completelyon certain expensive technologies for medical diagnostics.

A travel agency might depend on its connection to an airlinereservation system.All businesses have a technological aspect. The shelves ofa point of sales (a shop), the cashiers and the lightingdevices, are technology dependant, in one extreme, whilein the other, you have to describe the technology of amanufacturing system or the technology incorporated inyour products.Your Business Plan has to describe and the cost of theacquisition of technology and know-how.Machine Lay-out

29


30/47

You have to include in your Business Plan a block diagramof the machinery you will house in your establishment, ifyour plan is to manufacture. It does not have to be ablueprint, but in very simple way it has to demonstrate thatyou know what machinery you will use and what each piece

is doing.Work FlowIn your work flow you must demonstrate how your businessis about to function. Readers of your Business Plan will in agraphical way see and understand if you have omittedimportant stages of the necessary work, from raw material(or tradable goods) and provisions payment to selling andcollecting money.

Reminder 1:Do not get attracted by high technology devices, unless youcan justify that they represent a competitive advantage andin the same time that you will be able to make them work,because there is available work force with the appropriateskills.Reminder 2:You cannot base your Business Plan on the outcome of

research. There is a high degree of uncertainty in cost andtime required and your plan will result in being abstracted.Reminder 3:Make your own research for technology suppliers. You willbe surprised to see the cost differences of offers, with thesame specifications. Ask your engineers to set thespecifications of the equipment needed, not to provide youwith a list of suppliers and the relative costs.Reminder 4:

Vertical integration has its privileges, but if you are new to abusiness, consider outsourcing of every possible part, butkeep in house, whatever gives you a competitiveadvantage.Reminder 5:See the documentation section for how to attach thenecessary list of equipment.

8.3.Management

30


31/47

Details are in the booklet how to manage my business ofthis series.This part of your Business Plan must show to the receiversthat you have studied the implications deriving from thesystem and the people that will govern the enterprise.

You have to devote some place in your plan todemonstrate:

Who and how decides on the Institutional questionsof the enterprise.

Who and how decides on everyday operations. Who controls the everyday operations coherence. How the number of employees is adequate and in

the same time, not excessive. What kind of skills is required and their local

availability, or the incentives to attract skilful personsfrom other places.

How the operations integrity are safeguarded.

8.3.1.The Decision Making

Your enterprise may be a sole proprietorship. If so, you arethe one making all Institutional decisions, for example if you

accept partners of any kind (create a legal entity, associatewith others, go for venture capital, participate in jointventures, or apply for a loan or financial assistance).If your enterprise is a company then the Institutionaldecisions making shows the capability of your enterprise togo forward to success without a potential discordance (notpresent in planning time) that will drive you to legallitigation.

This should occupy a part of your Plan, not exceeding half apage. It must be the highlights of the most important part ofyour study of the booklet how to manage your businessand you have to be ready to answer questions by thepotential audience of your Business Plan, on how did youchoose the specific scheme.

31


32/47

8.3.2.Administration

Administration is different from Management. Administrationsystem is not making decisions on Institutional maters, buton the operational once.Your Business plan, in a space occupying no more thanone page, must demonstrate the system of producingprograms, budgets and delegation of authority.

8.3.3.Organization

You have to demonstrate in the rest of the previous page,how different administrative activities intercommunicate witheach other (even in the cases that you dont have distinctdepartments, the functions have to inform one another) so

that co-ordination is achieved.You have to show, in a brief and understandable way, howauthority distribution is delegated to the specific functions(even in the cases that more than one, even all, of thefunctions are assigned to the same persons workpositions) together with the authority responsibility jobdescription and span of control, as they are presented inthe how to manage your business booklet of this series.

8.3.4.Operational Plan

The operational plan is not essential for a Business Plancompletion, but if included, makes the plan more credibleand sound.The operational plan must be in accordance with theattached documentation and must demonstrate to thereader your readiness for implementation.

The operational plan must refer to the: Suppliers

A list of potential suppliers is not one that you haveextracted from the Yellow pages or a list of enterprises thatthe Chamber of Commerce has delivered to you.Potential suppliers in the list are enterprises that you havealready contacted and you include their offers in yourattached documentation.

These agreements may be in Pro-forma Invoices, Letters ofIntent or Preliminary Agreements. In all cases, these are

32


33/47

not contracts. They cannot be contracts, because they arebounding both parties involved; they are bilateralagreements. The Business Plan readers or audience, willunderstand that you are ready to start businesses, becauseyou already know where to buy your necessary items

(either raw material or commercial goods) and you haveinvestigated the provision terms (prices, transportation,conditions of payment, minimal orders). You are not obligedto keep these agreements and proceed to final contractsonly with those appearing in your operational plan. Neitheryour suppliers can be forced to sell to you under theconditions they have put in these papers. Both parties canchoose not to keep these agreements, without any

consequences. Manufacturing Plans (if applicable)

If your business aims to manufacturing, then you have todescribe your manufacturing plans.Do not include any blueprints of your product (if it is atechnical artifact) or chemical composition. Remember thatyour Business Plan readers or audience, are not engineers;they are market and money people.

Try to explain in the simplest way the manufacturingprocedure to make the readers understand them. Theyneed to check your business teams ability to implement themanufacturing plan and manage production, because theyknow the essentials.Reminder 1:Emphasize the competitive advantage that yourmanufacturing plan has incorporated.Reminder 2:Do not invent competitive advantages that are imaginary.If you have not considered any competitive advantage, tryto revise your manufacturing plans and examine thepossibility to include procedures that will reflect amarketable characteristic. Such characteristics may be:

Faster production and delivery. Versatility; adaptation to the demands of the clients. Production patents (proprietary or licensed)

Reminder 3:

33


34/47

Quality control is essential. As a new manufacturer it will bevery difficult for you to certify total quality (ISO series). Yourclients must trust the quality of your products; this is whythey require quality certification. If your business concernsfood, you can certify the quality with a HACCP certificate,

which can be obtained even before starting your production.If your products are different than foodstuff, you can certifythe quality of your first products, if they meet therequirements, of different certificates, like TV, forexample, or EU, for compliance with the European norms.

Operating RequirementsExcept the working capital, to be presented later, you haveto meet all the necessary requirement, so you have to

briefly present that:You have or you can obtain a license to start your business,if required. In most cases you will need a license. Show thatyou are prepared to get one and you have made all therequired preparation, if you dont already have one. In somecases, in addition to a license to operate you will need alicense to start operating, after your production facilities areaudited by the appropriate authorities. Show in your

Business Plan that you will be prepared to obtain aninitiation approval, because you have taken intoconsideration all the necessary preparations, likeenvironmental studies and infrastructure, road node,loading decks etc.Show that you have made all the necessary arrangementsfor water supply, power supply, road connection, telephonelines and other communal facilities.

Accounting

In order to make a consistent Business Plan, as in thefinancial part, you dont need to be an accounting literateyourself.You need an accountant to run your business, even you arean accountant yourself! Indicate your accountant in yourBusiness Plan and collaborate with him / her, during thepreparation of your financial data.If you dont understand accounting at all, try to learn the

essentials, like the distinction between: Capital and Value of assets.

34


35/47

Profits and Cash. Depreciation and marketable value of

assets. Assets and Liabilities. Cost and expenditure.

Margin and net profits.

Human ResourcesHuman beings are complicated. You cannot treat peoplethe same way you treat other resources like capital, powersupply and materials.Whatever the validity of your plans, you need people tomake it function and people are assumed to be productive,

efficient, honest and collaborative.You must go through the booklet how to manage mybusiness of this series and show in your Business Plan theoutline of your managerial style, together with anorganization chart of your business.Even if your plan is to operate your business alone (withouta team or any employees) you have to show how thedifferent activities are interconnected.

Financial ControlWith your Business Plan you are trying to convince peopleto collaborate in a venture, being Bankers, staff members,suppliers etc, because your enterprise will be successful.Business success means that the enterprise will be bothprofitable and cash sufficient. You may straggle for profitsand remain without cash, or you may be afraid to remainwithout cash and keep the money from the Bank loan inyour safe, instead of using them for your businessexpansion.In general terms, cash flow is antagonizing profits. Althoughyou will prepare accounts of profit and loss, as well ascash-flow tables for the next 3 to 5 years, they are all basedon your sales forecast. If you are operating for years withthe same products in the same place, you can stand a verygood possibility to make almost exact forecasts for the firstyear and less possibilities as your forecasts become long

term. If you are planning to introduce a new product inmarket that you are entering for the first time, even if you

35


36/47

are living in this place, the possibilities to make accurateforecast, are very poor, even for the first year.Moreover, your Business Plan implementation, althoughyou will try to do as exactly written in it, will be flexible,because of the unpredictable market evolution. For

example, if you see that the price of your product (orservice) has dropped, because new competitors appeared,you must adjust your price, so that you sell as well. Or,even worst, some competitors withdrew from the market,giving you the possibility to double your sales at the sameprice! Although this seems to be a heaven of profits, it maybecome a hell of cash!Making business needs to trust people, as much as you

expect others to trust you. It is necessary to trust people,but keep your safe locked as well, because temptation maydrive them to become fallen angels.In order to be sure that your enterprise will diminish the riskof becoming untrustworthy, you will always keep theequilibrium between profits and cash sufficiency and thatyour collaborators (staff and employees, suppliers andclients) are being watched.

You are expected to indicate in your Business Plan:Who will perform a yearly external auditing of your accountsand financial statements and how he /she will be chosen.Who will be adjusting your cash-flow, with what qualificationand what compensation.How internal auditing (as presented in the how to managemy business booklet of this series) will be continuouslydone.

8.3.5.The external Advisors

Even if you have a solid entrepreneurial background, youare going to do something new for you, even in terms ofsize.The readers / audience of your Business Plan would like toknow if other reputable business persons support yourbusiness initiative and will be at your disposal for advise,when you face a difficult decision, which is new to you.

36


37/47

It is not imperative, but very helpful, to put the names of oneto three other entrepreneurs, because in the same time itshows that they share your expectations.Beware to ask their permission. The readers or audience ofyour Business Plan probably know them and may ask them

about. If you dont have the support of such persons, it isbetter to omit this part.

9. Marketing Promotion and PublicRelations

As shown in the previous pages, sales and sales forecastare the fundaments of your plan and your business.You must have a separate Marketing Plan and place an

outline in your Business Plan.The main parts of this outline are:The SWOT analysisA comparison of your business and product (or service)with the competition. The acronym means: Strengths,Weaknesses, Opportunities and Threats.A PEST analysisIdentification of the characteristics of the Business. Theacronym means: Political, Economic, Sociocultural andTechnological factors.What is your market?What is its present size?What is the markets growth potential?As it grows, will you share increase or decrease? Why?How are you going to satisfy your market? Who needs your service? Who needs your product?

Who buys the kind of merchandise you stock?What is your anticipation of price? How did you arrive at thisprice?Who are your five nearest competitors?What is similar / dissimilar with them?How are you going to distribute your products?How will your potential clients know what you offer?What is your confection / packaging of your product?

What is the difference between Marketing and PublicRelations?

37


38/47

How will you learn the changes of the consumersbehaviour and adapt your product / services, in order tomeet their new desires?What is your after sale service?What funds will you allocate to advertisement and what

advertisement do you plan?Please, refer to the booklet how to make a MarketingPlan, for detailed analysis.

9.1.The Break EvenPoint (BEP)

Your expected profits are not just the difference betweenthe cost per unit and the price at the marketplace. Thisrepresents a margin which is useful, but not enough to

determine the profits.In addition to the direct cost of your product or service,you it also absorbs fixed costs of your business.Fixed costs are paid, even if your enterprise does not sell atall, like rents, capital interests, security, insurance and thealike.As it is obvious, the break even point is a function of thequantity that you expect to sell. There is a certain quantity

of sales that your cumulative margins are absorbed by thefixed costs and you dont have profits or loss.Lowering your price may give you the possibility increasesales, but a bigger quantity of sales will be needed to coverthe fixed costs. Increasing your price, you need a smallerquantity of sales, but will you be able to sell?The determination of the Break Even Point is not a mereapplication of a formula. You have to explore different

hypothesis and pursue their impact, examining thefeasibility. For purposes of the break-even analysis, makesure to include cost of sales in your variable costs figure.Make sure that you have included the depreciation of yourfixed assets, in your fixed costs. The depreciation is thevalue of the enterprise fixed assets (machinery, means oftransportation, furniture, other equipment, specialinstallations, initial studies, but not stock material orterrains) which is lost because they become old andobsolete, either they are used or not.

38


39/47

You can calculate the BEP both graphically andmathematically. The result is the same. Since you may notbe familiar with accounting and mathematics, here is aneasy way to calculate the BEP under different pricingscenarios: BEP quantity = fixed costs divided with the

margin (sales price per unit variable costs).Your BEP must be accompanied by the assumptions thatyou have based your calculations on and your descriptionof the explorations and the scenarios that you have takeninto consideration. For example, what you think is theelasticity of demand as a function of the price; how muchyou expect to sell more by lowering the price? The scienceof economics will explain to you the exact function, but do

you have enough information (available data) about thecustomers reactions in price changes? You makeassumptions and you have to show (not justify) them.Your Business Plan readers / audience want to see if yourcalculations are the result of reasonable assumptions andthat you have really devoted time, effort and imagination, aswell as the way it influences all the other financial aspects.More about depreciation in the booklet how to manage

your business booklet of this series.9.2.The Marketing Plan

The Marketing Plan is not entirely included in your BusinessPlan; it is a separated plan, usually longer and moreexhaustive than your Business Plan. This part of yourBusiness Plan must highlight the actions and the relativecost, of:

Your Market Research, in terms of the identificationof your target market and the characteristics of yourproduct / service that you have decided to offer.

Your Target Market choice, in terms of Market Niche(consumers with similar characteristics) and thereasons of your choice.

Your Marketing Research, in terms of promotionaltools, in respect of the once used by yourcompetitors and their expected efficiency.

39


40/47

Your Marketing message to the potentialconsumers, in respect of the value that you promiseand your sincerity of keeping this promise, as wellas the difference from the competitors.

The physical and communicative characteristics

(packaging, points of sales, merchandisingtechniques, brand name and others) of your productor service, in comparison with your competitors.

Consumer satisfaction; in terms of knowing whatsatisfies the consumers and how you will manage tooffer it to them, as well as how will they know thatyou do.

Please, refer to the booklet how to make a Marketing

Plan, of this series, for detailed analysis.10.Financial Calculations

The financial part of your Business Plan is what yourreaders / audience expect to see and decide if your plan isfeasible, if you will be able to return the capital they areproposed to contribute, if your business has a predictableprosperous future and so collaborate.

Financial calculations have to be very carefully preparedand show your financial projections in compliance with theaccounting and finance principles and in accordance withyour sales forecasts.Some terminology is required:Working CapitalIs the money needed to pay suppliers, workforce, energy,advertisement, outsourcing, insurance, rents, facilities andinterests for a business cycle. This money is expected to

be collected from the clients, by selling to them. In otherwords; Cash required to pay the bills until the business isself-supporting.Business CycleIs the time between the inputs acquisition and the collectionof debts of your clients.Start Up CostsDescribe the costs associated with the initial start-up of the

business. Incorporate these costs into your projected

40


41/47

financial statements. These costs may include thefollowing:RentDescribe the total monthly rent and what it includes(maintenance, utilities, etc.) and any deposits required.

Office EquipmentDescribe the acquisition and use of computers, software,

printers, fax machines, copiers, mobile phones, etc. Alsoinclude desks, chairs, filing cabinets, lights, etc.New BuildingDescribe the costs associated with engineering, architect

fees, surveys, blue prints, drainage, water, sewer, electrical,HVAC, site preparation, etc. Also include appraisal fees,

permit fees, phase I, II, and III environmental studies.Banking FeesDescribe the fees to be charged by the bank for start-up of

accounts, credit card service equipment, forms, etc.Outside ServicesDescribe services which will be contracted out such as

janitorial, snow removal, lawn service etc.Insurance

Describe the insurance needs of the business. Provide thecosts associated from the insurance carrier.Inventory

To stock your shelves or for use in your productionprocess.AssetsEverything that the enterprise owns, including intangibles(patents, licenses, studies etc).Liabilities

Everything the enterprises has to pay to others; in otherwords the debts, including the net worth (capital) which isthe money that the enterprise has to pay back to theowners.

10.1.Pro-forma Balance sheet

You have to clearly display in your Business Plan theprojection of your business value in two ways:

41


42/47

By displaying the use of capital, as in your proposal to thereaders / audience. You have to show how their financialcontribution is going to be used. For example:

Funds available:

Owners' fundsOther equityLoan No. 1Loan No. 2Total

Uses of funds:

LandBuilding

EquipmentMachineryRenovationsPrepaid insurancePromotionsInventoryFurniture and fixturesDeposits

OtherTotal

CASH BALANCE:(or working capital)

Reminder 1:Your contribution (owners funds) cannot be less than theworth of the land. If it does, you have to convince your

readers /audience that the land is connected to yourproduction (for example for agriculture or mining) and thatyou have plans to contribute with further funds, after youwill liquidate other possessions, or that you are contributingwith collateral of other properties that you have.

Reminder 2:Even if you plan to invest in equities of other enterprises

(longterm investments) do not mention it here. Your planreaders / audience are investors themselves. They would

42


43/47

prefer to directly invest in these equities, instead of passingthrough you.

The pro-forma balance sheet must show the start-upsituation and the evolution of the next 3 to 5 years.

Use the Central European Standard for your BalanceSheet. This is different than the Anglo-Saxon, while it startswith long term and ends in immediately available.Your balance sheet and projections must be as brief aspossible, but with the critical information, analyzed.For example:Assets Year

0Year1

Year2

Year3

Year4

Fixed AssetsStart-up StudiesLandBuildingsMachineryVehiclesFurniture

Current AssetsInventory

Accounts receivableCash and deposits

TOTAL ASSETS

Liabilities Year0

Year1

Year2

Year3

Year4

CapitalNet Worth or EquityReserve capital

Retained earningsLong TermLong term BankLoansOther long termobligations

Short TermBank LoansAccounts Payable

Other LiabilitiesUndistributed Profits

43


44/47

TOTALLIABILITIESDo not forget to calculate and subtract depreciation of fixedassets for every consecutive year, so that only net value ofassets is present.

Under the title other long term obligations you put (andexplain) any investment related future payments, likelicense (for example; mining license) and not any paymentconnected to your sales or supplies.Other Liabilities include; taxes, VAT and wages, to be paidin the next year. These obligations must comply with yourcash flow statement.Undistributed profits are a debt of the enterprise to the

owners and they are usually paid within the next year. Theymust comply with your income Statement.

10.2.Pro-forma Income Statement

The income (profit and loss) statement shows yourbusiness financial activity over a period of time, usually yourtax year. In contrast to the balance sheet, which shows apicture of your business at a given moment, this statement

can be likened to a moving picture, which shows what hashappened in your business over a period of time.The income statement is an excellent tool for assessingyour business. You will be able to pick out weaknesses inyour operation and plan ways to run your business moreeffectively and thereby increase your profits.A typical pro-forma Income Statement, may be:Income Statement Year

0

Year

1

Year

2

Year

3

Year

4IncomeTotal Net Sales-Cost of goods soldGross Profit

Expenses

Selling ExpensesAdministrative ExpensesDepreciation not includedin the cost

Income from operations+Interests from clients

44


45/47

-Interests to Suppliers-Interest to BanksNet Profit before Taxes

Company Income TaxesNet Profit (loss) aftertaxes

Note that:Income from other sources (dividends from long terminvestments, surplus value of foreign currency) are notrelated to the operations and thus any forecasts should notbe shown.

10.3.Cash Flow Forecasts

When you think about business you are always thinking

prospective profits. Your business is not only projected toincrease your wealth, but also to provide you with income,which is your share of the profits in cash.Start thinking that profits are not equal to income. Profitsmay be an increment of your inventory, but can you payyour family expenditure with an increment, for example, ofraw material? Can you pay the bills of your enterprise, thewages, the loans, with goods in your warehouse and

accounts receivable (money that your clients will pay later)?You know that until you collect from your clients, yoursuppliers must have been paid, even if you sell immediatelywhat you have bought.The readers / audience of your Business Plan, know it aswell. They expect you to have taken into consideration, not

just the profitability of your business, but also if the moneycirculation has been taken into account.

Cash flow projections are a parachute to the highprofitability flying. Enterprises risk Bankruptcy in proportionto their profitability (the more profitable a business thehigher the risk) because high profitability obscures themoney circulation! Money makes the world go round!The receivers of your Business Plan are proposed tocontribute with their financial means or their skills and workand they need to know if you are well prepared to pay backthe loans or work, in cash and in due time.

45


46/47

For the first year you have to prepare a monthly projectionof what and when you will have to pay, in comparison ofyour payments. A yearly statement for the following years isusually adequate. Here is an example:

Month1 2 3 4 5 6 7 8 9 10 11 12

Beginning cash

Add:

Receipts

Sales

Proceeds of Financing

Other receipts

Total receipts

Cash Available

Less Disbursements

Material purchases

Wages

Salaries

Loan repayments

Lease payments

Utilities

Insurance

Advertising and promotion

Automobile

Other travel

Office

Storage

Maintenance

Loan interest

Asset purchases

Other

Total disbursementsNet cash available or needed

11. Documentation

People make or loose money. You must start with peopleand continue your documentation with procedures andstudies.People are described by their Resume. Keep it brief and

make sure is signed: Start with owners. Proceed with the other members of your business

team. Go on with your Accountants. Include your consultants or the consulting entity

profile. Add your advisors.

Supporting documents are the records that back up thestatements and decisions made in the three main parts of

46


47/47

your plan. As you are compiling the first three sections, it isa good idea to keep a separate list of the supportingdocuments that you mention or that come to mind.For instance, discussion of your business location mightindicate a need for demographic studies, location maps,

area studies, leases, etc. If you are considering applying fora loan to purchase equipment, your supporting documentsmight be existing equipment purchase agreements or leasecontracts.By listing these items as you think of them, you will have afairly complete list of all of your supporting documents bythe time you reach this part of your task. You will be readyto sort them into a logical sequence and add any new ones

that come to mind.Include all legal documents pertaining to your business.Some of these are articles of incorporation, partnershipagreements, copyrights, trademark registrations, patents,insurance policies, property and vehicle titles, etc.Include studies already completed, or agreements withengineers that will perform the studies.Do not forget to include the bank statement of your (and the

other owners) credit history.

Documents

How to Prepare BP