Developing Your Business Plan

 There are many reasons why a business plan should be prepared. Each is sufficient by itself for why one must go through the exercise of preparing the actual business plan. Regardless of the specific reason, the underlying goal of preparing a business plan is to insure the success of the business. Here are the main reasons why a business plan should be prepared:

Below is an outline for a business plan. Use this model as a guide when developing the business plan for your business.

1. Cover sheet

2. Executive Summary

3. Table of contents

A. The Business

(1) Description of business

(2) Marketing

(3) Competition

(4) Operating procedures

(5) Personnel

(6) Financial data

B. Financial Data

(1) Loan applications

(2) Capital equipment and supply list

(3) Balance sheet

(4) Break-even analysis

(5) Pro-Forma income projections (profit & loss statements)

* Three-year summary

* Detail by month first year

* Detail by quarters, second and third years

* Assumptions upon which projections were based

(6) Pro-forma cash flow

* Follow guidelines for (5).

C. Supporting Documents

What goes in a business plan? This is an excellent question to ask. And, one that many new and potential small business owners should ask, but oftentimes don't ask. The body of the business plan can be divided into four distinct sections:

1) the description of the business,

2) the marketing plan,

3) the financial management plan and

4) the management plan.

In this section, provide a detailed description of your business. An excellent question to ask yourself is: "What business am I in?" In answering this question include your products, market and services as well as a thorough description of what makes your business unique. Remember, however, that as you develop your business plan, you may have to modify or revise your initial questions.

The business description section is divided into three primary sections. Section 1 actually describes your business, Section 2 the product or service you will be offering and Section 3 the location of your business, and why this location is desirable.

1. Business Description

When describing your business, generally you should explain:

• Legalities - business form: proprietorship, partnership, corporation, franchise. What licenses or permits you will need.
• Business type: merchandising, manufacturing or service.
• What your product or service is.
• Is it a new independent business, a takeover, an expansion, a franchise?
• Why your business will be profitable. What are the growth opportunities?
• When your business will be open (days, hours).
• What you have learned about your kind of business or franchise from outside sources (trade suppliers, bankers, other franchise owners, franchisor, publications).

A cover sheet goes before the description. It includes the name, address and telephone number of the business and the names of all principals. In the description of your business, describe the unique aspects and how or why they will appeal to consumers. Emphasize any special features that you feel will appeal to customers and explain how and why these features are appealing.

The description of your business should clearly identify goals and objectives and it should clarify why you are, or why you want to be, in business.

2. Product/Service

Try to describe the benefits of your goods and services from your customers' perspective. Successful business owners know or at least have an idea of what their customers want or expect from them. This type of anticipation can be helpful in building customer satisfaction and loyalty. And, it certainly is a good strategy for beating the competition or retaining your competitiveness. Describe:

• What you are selling.
• How your product or service will benefit the customer.
• Which products/services (in your case the franchise) are in demand; if there will be a steady flow of cash.
• What is different about the product or service your franchise is offering.

3. The Location

The location of your business can play a decisive role in its success or failure. Your location should be built around your customers, it should be accessible and it should provide a sense of security. Consider these questions when addressing this section of your business plan:

• What are your location needs?
• What kind of space will you need?
• Why is the area desirable? the building desirable?
• Is it easily accessible? Is public transportation available? Is street lighting adequate?
• Are market shifts or demographic shifts occurring?

Marketing plays a vital role in successful business ventures. How well you market your business, along with a few other considerations, will ultimately determine your degree of success or failure. The key element of a successful marketing plan is to know your customers -- their likes, dislikes, expectations. By identifying these factors, you can develop a marketing strategy that will allow you to arouse and fulfill their needs.

Identify your customers by their age, sex, income/educational level and residence. At first, target only those customers who are more likely to purchase your product or service. As your customer base expands, you may need to consider modifying the marketing plan to include other customers.

Develop a marketing plan by answering these questions. Potential franchise owners will have to use the marketing strategy the franchisor has developed; however, it should be included in your business plan and contain answers to the questions outlined below.

• Who are your customers? Define your target market(s).
• Are your markets growing? steady? declining?
• Is your franchise market share growing? steady? declining?
• Has your franchisor segmented your markets?
• Are your markets large enough to expand, depending on franchisor restrictions?
• How will you attract, hold, increase your market share? Will the franchisor provide assistance in this area? Based on the franchisor's strategy, how will you promote your sales?
• What pricing strategy, if any, has the franchisor devised?

1. Competition

Competition is a way of life. We compete for jobs, promotions, scholarships to institutes of higher learning, in sports -- and in almost every aspect of your lives. Nations compete for the consumer in the global marketplace as do individual business owners. Advances in technology can send the profit margins of a successful business into a tailspin causing them to plummet overnight or within a few hours. When considering these and other factors, we can conclude that business is a highly competitive, volatile arena. Because of this volatility and competitiveness, it is important to know your competitors.

Questions like these can help you:

• Who are your five nearest direct competitors?
• Who are your indirect competitors?
• How are their businesses: steady? increasing? decreasing?
• What have you learned from their operations? from their advertising?
• What are their strengths and weaknesses?
• How does their product or service differ from yours?

Start a file on each of your competitors. Keep manila envelopes of their advertising and promotional materials and their pricing strategy techniques. Review these files periodically, determining when and how often they advertise, sponsor promotions and offer sales. Study the copy used in the advertising and promotional materials, and their sales strategy. For example, is their copy short? descriptive? catchy? or how much do they reduce prices for sales? Using this technique can help you to understand your competitors better and how they operate their businesses.

2. Pricing and Sales

Your pricing strategy is another marketing technique you can use to improve your overall competitiveness. It may be a good idea to get a feel for the pricing strategy your competitors are using. That way you can determine if your prices are in line with competitors in your market area and if they are in line with industry averages.

Some of the pricing strategies you may use, depending on the type of business, are:

• retail cost and pricing
• competitive position
• pricing below competition
• pricing above competition
• price lining
• multiple pricing
• service costs and pricing (for service businesses only)
• service components
• material costs
• labor costs
• overhead costs

The key to success is to have a well-planned strategy, to establish your policies and to constantly monitor prices and operating costs to ensure profits. It is a good policy to keep abreast of the changes in the marketplace because these changes can affect your competitiveness and profit margins.

3. Advertising and Public Relations

How you advertise and promote your business may make or break your business. Having a good product or service and not advertising and promoting it is like not having a business at all. Many business owners operate under the mistaken concept that the business will promote itself, and channel money that should be used for advertising and promotions to other areas of the business. Advertising and promotions, however, are the life line of a business and should be treated as such.

Managing a business, requires more than just the desire to be your own boss. It demands dedication, persistence, the ability to make decisions and the ability to manage both employees and finances. Your management plan, along with your marketing and financial management plans, sets the foundation for and facilitates the success of your business.

Like plants and equipment, people are resources -- they are the most valuable asset a business has. You will soon discover that employees and staff will play an important role in the total operation of your business. Consequently, it's imperative that you know what skills you possess and those you lack since you will have to hire personnel to supply the skills that you lack. Additionally, it is imperative that you know how to manage and treat your employees. Make them a part of the team. Keep them informed of, and get their feedback regarding, changes. Employees oftentimes have excellent ideas that can lead to new market areas, innovations to existing products or services or new product lines or services which can improve your overall competitiveness.

Your management plan should answer questions such as:

Sound financial management is one of the best ways for your business to remain profitable and solvent. How well you manage the finances of your business is the cornerstone of every successful business venture. Each year thousands of potentially successful businesses fail because of poor financial management. As a business owner, you will need to identify and implement policies that will lead to and ensure that you will meet your financial obligations.

To effectively manage your finances, plan a sound, realistic budget by determining the actual amount of money needed to open your business (start-up costs) and the amount needed to keep it open (operating costs). The first step to building a sound financial plan is to devise a start-up budget. Your start-up budget will usually include such one-time-only costs as major equipment, utility deposits, down payments, etc.

The start-up budget should allow for these expenses.

Start-up Budget

• personnel (costs prior to opening)
• legal/professional fees
• occupancy
• equipment
• supplies
• salaries/wages
• income
• utilities
• payroll expenses
• licenses/permits
• insurance
• advertising/promotions
• accounting

An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how your spend your money, the expenses you will incur and how you will meet those expenses (income). Your operating budget also should include money to cover the first three to six months of operation. It should allow for the following expenses.

Operating Budget

• personnel
• rent
• loan payments
• legal/accounting
• supplies
• salaries/wages
• dues/subscriptions/fees
• repairs/maintenance
• insurance
• advertising/promotions
• depreciation
• payroll expenses
• taxes
• miscellaneous expenses

The financial section of your business plan should include any loan applications you've filed, a capital equipment and supply list, balance sheet, break-even analysis, pro-forma income projections (profit and loss statement) and pro-forma cash flow. The income statement and cash flow projections should include a three-year summary, detail by month for the first year, and detail by quarter for the second and third years.

The accounting system and the inventory control system that you will be using is generally addressed in this section of the business plan also. Whether you develop the accounting and inventory systems yourself, have an outside financial advisor develop the systems, you will need to acquire a thorough understanding of each and how it operates. Your financial advisor can assist you in developing this section of your business plan.

The following questions should help you determine the amount of start-up capital you will need to purchase and open your business.

• How much money do you have?
• How much money will you need for start-up?
• How much money will you need to stay in business?

Other questions that you will need to consider are:

• What type of accounting system will your use? Is it a single entry or dual entry system?
• What will your sales goals and profit goals for the coming year be?
• What financial projections will you need to include in your business plan?
• What kind of inventory control system will you use?