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Table of Contents

Executive Summary

The Business

      Strengths and Weaknesses

      Legal Structure

      Business Description

      Product or Service Description

      IP Property Description

      Location

      Management Personnel

      Records

      Insurance

      Security

      Litigation

      Risk Factors

The Marketing

      Markets

      Competition

      Distribution and Sales

      Marketing

      Industry and Market Trends

      Strategy

The Financials

      Uses of Funds

      Income Statement

      Cash Flow Statement

      Balance Sheet

      Income Projections

      Breakeven Analysis

The Supporting Documents 
    

• 7/10 businesses fail even with business plans
• Most business plans are written to attract funding, to start a business or to expand
• They are also built to help a business grow

 

You must answer the following questions:

1. Can I make money investing in this business?-risk versus reward
2. Do I like and understand the business I’m investing in?
3. Do I trust the people I’m investing with?

 

Don't forget to include an exit plan: the ultimate goal of the business

      For example, do you intend to run the business forever until you're 120 years old or do you plan  on selling it to your kids? 

A B Quadrant Person will:

• Plan
• Learn more about a business before purchasing it
• Analyze a local market for price points
• Attend business classes
• Seek help from mentors
• Form a business plan

 

An S Quadrant Person will go solo 

A business plan is not only a roadmap to check list of things that must be done in a proper order; It will also alert you to the risks 

An S person cannot remove themselves from the business without losing cash flow. 

A B person creates assets that deliver passive cash flow, they build a team of employees, advisors and mentors that grow businesses without them (team players)  

If you want both personal and financial freedom, plan to build a business that can at some point run itself and provide excessive cash flow. 

Business plan will capture the major W's:

• who
• what
• when
• why
• where

 

Money follows management; Investors look first at people involved in the company-experience, education and track record. 

A business plan looks at everything inside the company (cost, products, services and personnel), as well as everything outside the company (competition, market trends, and political forces). 

A business plan outlines goals, communicates strategies and establishes plans for both the best and worst-case scenarios. 

The business plan should cite several critical functions:

1. Helps to clarify, focus and research business development and prospects
2. Remember the mission is the compass, the goals are the map, and the tactics are the steps to get there.

 

1. It serves as a basis for discussion with third parties including shareholders, bankers and investors.

 

1. It’s also benchmarking against which actual performance can be measured and reviewed.

 
 

Business plan elements

There are four major parts to a business plan: the business, the marketing, the financials, and the supporting materials. 

The business section discusses all pertinent aspects of your business. It covers every aspect of production from the idea to service after the sale, including management, personnel, equipment, paperwork and property involved. 

The marketing covers all the forces that come to bear on your business from the customers to the competition, advertising to the pricing, industry trends to global economics.  This section gives the reader a thorough understanding of how your business will deal with getting the product to potential buyers. 

The financials should represent the income and cash flow of the business as well as the balance sheet as it moves through time. 

The supporting material can include documents such as resumes, letters of reference, better reports, legal documents, agreements and contracts. 
 

Mission and goals

Mission = compass

Goals = the map

Tactics = steps to achieve your goals 

Remember how important goals are. You must first have a target in order to hit it. The key tactic to setting goals is to set specific goals.

      For example, if you want to lose weight, it is better to say I want to weigh 171 pounds by  September 22, 2010 at 7 PM than it is to say I wish to be lighter.

Write out a list of your goals: be  specific, read them three times a day, rewrite them one time a day, read them out loud twice a day, visualize them as already complete three times a day.

These goals should be in your business plan and if you follow through on the previous tactics you will have a much higher chance of reaching them. 

The mission statement is the main reason why you are in business. It is not good enough to say that you are in business to make a lot of money. You must also be seeking to deliver a higher value purpose mission. Many businesses are formed to serve others and as a result of higher and higher levels of service, they reap a higher economic reward. Your mission statement should succinctly state your overall purpose which leads to an economic reward. 

The executive summary

This is the highlight reel of your business and should be written last. You can include a summary of the other four sections here; You can include highlight pieces of the business, the marketing, the financials and the supporting materials.

The executive summary is a summary of the business and answers all the key W questions: why, who, what, when, where and how. 

It includes the basics including the name and type of business, legal structure, required investment or loan info as well as the why, which is the dreams and the mission statement. Remember, the executive summary is just that: it's a summary and should be very short-one page is ideal. 

The business plan is a long-term planning document that will cover a lot of ground. The final goal is the realization of your business goals as set out in your plan. 

Project the future-what will your work force look like in the future? What will your costs and income be? Will you expand? Will there be new technology? What is the picture of your cash flow in your balance sheet in the future? What will your role be? 

Benchmark of similar companies both industry wise and numbers wise. 

The business section

This section is a detailed description of your business and includes:

• Entity choice
• Strengths and weaknesses
• Description of operations
• Location
• Personnel
• Records
• Insurance and security

 

With each section, you can provide an intro with a brief one-page summary and then get into the details in the subsection. 

This section is colored with two main questions:

• Why are you in business?
• What is your business?

 
 

Strengths and weaknesses~

A strength is either something that you do well or something that you do better than others in your field.  For example, if you're an excellent painter and your business is an art gallery than one of your  strengths is your skill and planning. Another example would be if you open a hamburger stand  and you are able to cook hamburgers faster than anybody and deliver them to customers faster  than existing business systems. This would be something you do better than others in your field  which is a competitive strength.

So when you think of strengths think of it quite simply as something you do well or something you do better than others. What are the things that will be a strength in your business? 

Common weaknesses are those you share with a lot of other businesses such as startup hurdles, learning curves and cash flow. Catastrophic weaknesses are those that consistently put you at the bottom of the pile.

      For example, if you're bad with numbers this is a weakness but you would mention this in your  business plan because you can overcome this weakness by outsourcing your bookkeeping and  accounting work.

You can see how the business plan helps you realistically evaluate your business and find solutions. Don't sugarcoat this section- be honest and candid with yourself and your investors. And then address the weakness stating how you're going to accommodate for that weakness. 
 

Legal structure~

If you are a business operating as a sole proprietorship, change that now or get out of business. You are 100% exposed asset-wise when you operate as a sole proprietorship. In addition, an investor will not take you seriously if they see you are a sole proprietor under the legal structure subsection of the business section. They will promptly put your business plan in the trash. 

You should state your entity in this section-for example the business is organized as an LLC, elected to be taxed as a sole proprietorship, and you should also state why you chose this entity.

      For example, this entity was chosen for its asset protection and its pass through taxation to the  owner’s personal tax return as well as its low yearly maintenance. 
 

Business description~

The business description section is about the structure and strategy of your company. It should be a textual snapshot of your business showing the primary activities of the business and how the business will make money. 

Start with the basics: What type of business are you pursuing- retail, service, franchise, etc? What is the product or service you offer? What is your market share?

      For example, if you will be competing with three other retailers and you will split the market evenly  then you will have a 25% market share.  

What resources do you currently have on hand for your business? How was the business established-as a startup, franchise, purchase or expansion? Where is the business located and what are the business hours? 

In this section, keep the money flowing to the customer. Describe what problem you solve for the consumer, what niche do your fill. Don't worry about marketing here-that is reserved for the marketing section. 

Include pertinent information from the past, present and future. What is the company's history? What is the current status of the company and what does the future hold? What milestones are down the road? What opportunities await you and what risk do you foresee and how can you prepare for them? You should deal with business goals in this section as well and how you meet those goals. 
 

Organizational structure~

Also include an organizational chart in the business section. The organizational chart is not only an opportunity to see your name at the top of a bunch of boxes but it describes roles and responsibilities, details that are very important in your business. You must detail out who is responsible for what and how they are held accountable. 

Product or service description~

In this subsection, address the process by which you execute the strategy that was described in the business description. Quite simply this section describes the product. If it is a service business, the service is the product. Think of the product from front-end for this section and what I mean by that is is there any research and development that needs to take place to bring a product to market?  Do you need to register patents and trademarks?  Who is going to make the product? You can include flowcharts for discussion of key processes within the company. 

Discuss product specifics-Are they built to order or do you purchase the product? What materials are required to produce the product? Where do you get these materials? Will you have shipping costs? Is there any required capital equipment such as machinery, computers, etc. that will be required to make the product? Why do you need the capital equipment and when do you need it? What are the costs? Make sure to account for depreciation and your financial projections. 
 

Vendors and suppliers~

In Porter's five forces analysis, vendors and suppliers are pointed out as a key control factor in your business.

      For example, if you only have one supplier of hamburger meat in a hamburger stand business  and that supplier raises prices, you are at their mercy.

So the question here is who are your key suppliers and vendors and what is your relationship with them? How do you pay them? What is the quality level of the product you receive from them? Do they offer discounts?  Do prices fluctuate?  What happens if they go away? You should have backup suppliers and vendors in mind as part of a well-rounded business plan. 
 

Inventory, facilities and personnel~

If you need a warehouse to hold product or to assemble a product they need a warehouse. If you need an office space to deliver a service then you merely need office space. Will you subcontract out work or have all the work done in-house by employees? How many employees will you have?- and remember their roles and responsibilities should be answered in the organization chart. How will you attract employees with the right skills? Is suitable labor available locally? Will you offer training? what pay and benefits will you offer in-house personnel contractors and trainees? 

Also, detail product quality, any warranties and customer service in this subsection. If you offer both products and services, discuss both. Also include a discussion around information technology, both hardware and software, that is important to the business. You can also include product strengths or weaknesses in this section. 

Investors typically only give you money for a piece of business that they think is going to offer strong returns. Bankers are more likely to take a risk and loan you money if they think your product or service will sell. 
 

Intellectual property description~

You need to consider IP 101 in this section: any trademarks, patents, trade dress, copyrights that you will need to obtain for your business.  You can describe domain names that your party secured since they are intellectual property. Any trade secrets would go here as well and for appropriate protections you should visit with an IP attorney. 
 

Management and personnel~

Great entrepreneurs and savvy investors know that the first thing to look at in an investment is the quality of the company's management team. Investors and lenders look to management-experience, education, track record of success and rewarding investors and or paying down debt. Money follows good management. 

Again, an organizational chart is important in the business plan. You need to detail position titles, roles and responsibilities. This is important because down the road you will know for example that Phil is in charge of accounting. That means that whether he does the bookkeeping and taxes himself or hires it out, he is responsible for taking care of the business’s accounting. If the accounting gets screwed up then Phil is answerable to why the accounting got messed up. This goes a long way in enforcing the structure of your business and save for example following up in weekly meetings how each of the important areas are performing. This organization chart is one of the key foundation blocks to systematizing your business. 

One of the first things you need to do for this subsection is to analyze what skills and tasks will be needed to make the business run. Your research into your industry and competition should give you a list of necessary skills. Next you can rate your personal skill level in each of the categories that you need. You should be able to organize new job means based on your areas of weakness as well as your time constraints and then devise job descriptions accordingly and hire. This exercise will help you determine the job roles necessary in your business. Also include future personnel needs. 

Again, this is another section where you can detail some weaknesses and how you overcome those weaknesses. Again, there is no need to sugarcoat weaknesses. Serious business plan readers will see right through your oversight. By getting the elephant out from underneath the rug you have the opportunity to get ahead of the story so to say and address how you will handle weaknesses. 

Records~

How will your bookkeeping and accounting be handled? Where will the records be kept? What about security? Will you be able to lock away sensitive materials? 
 

Insurance~

Insurance is not a mundane detail. In the realm of asset protection you only have two defenses against laws and lawsuits. These include your entity and your insurance. You need to describe in this section what type of insurance you need-do you need property insurance? and do you need civil liability insurance to protect against injuries? 
 

Security~

How will you prevent theft from inside your business? 
 

Litigation~

Typically the statement that goes here is the company is not currently engaged in or threatened with any litigation or other legal proceedings.

But if you are, you should disclose it here. 
 

Risk factors~

A risk factor is any operating element outside of your control that could negatively affect your business.  Examples include extreme weather, political upheaval, and acts of God.

On a more micro level they could include changing tastes and shifting demographics, technological advancements and management mistakes. In addition risk factors can include common factors to new businesses such as the startup curve, management strategy and competition. 
 

Location~

If your business is a restaurant the location is going to be more of a vital factor then say if your business is a manufacturing plant. Of course the manufacturing plant needs access to good roads and highways and transportation in general. But you get my drift. This subsection should include the basics: the address of the business, why you chose this location and what facilities are at this location. 

The Marketing section

This section identifies appropriate markets and customers, the competition, and plans for efficient and effective distribution, establishes relationships, identifies and implements appropriate advertising, details awareness of industry market trends, and finds the perfect strategy for your business, including pricing, packaging and positioning. Marketing is the systematic process that inspires targeted customers to take action and buy your product and service. 

Again start this section with a brief overview of the details that are to follow as with previous sections. 
 

Markets~

Markets are usually described in two ways: the buyers and dollars. 

In terms of buyers, your market encompasses all the people who might pay for your product or service. This subsection should start with a description of the overall potential market and then work into a more manageable target market. 

Start with who will purchase the product or service. Explain why this group will be interested in your product or service. 

Narrow this group down by considering why these consumers would choose your product over your competitors. If there is more than one reason why they would choose yours then there might be more than one market in this group. Will they choose your product based on quality, advertising, ease, and distance or the price? 

When it comes to identifying target markets, think in terms of demographics-age, sex, family size, income, occupation, race, religion and region-psychographics-needs, interests, attitudes and lifestyles-industrial demographics-SIC code, location, net worth, employee numbers and sales. What is the average ADH, income level and education level of this group? What is the gender makeup? Where do they live? Once you identify the similarities you have developed a target market. You can take the customers you know of and start looking for other customers who share the characteristics of that existing group. 

In terms of dollars, what is the size of the current market? How much of that market can you hope to capture and how? Is this market growing? 

Now that you know how big your markets are in terms of dollars and customers, break it down even more. What do the members of each group buy?- Not just in your industry but in others as well. With this information you can extrapolate what elements consumers are looking for such as quality, price, customization and location. 
 

Market research~

In order to do this section or to fill in information for the previous section you might have to track down census data from your local library. The hows and whys of your market research should be included in the marketing section. Discuss how you did the research and what you found out. What resources did you use? What were the results of your market research? What did you find out about your target markets? Are they growing or declining or remaining steady? 

Don't forget to include demographics of the target market here as well. 

Do your research and discuss how your business strengths, resources, and experience can serve your target market. Keep in mind that your product is not going to appeal to or be used by everyone. Back up your statements, assumptions and projections with data when you can. 
 

Competition~

First do some research. Over the Internet you can find out how all small independent businesses of your same nature fare against larger competitive rivals. You can see what their strategies are. You can also call existing businesses and ask them how they have implemented a competitive strategy. You can also get information on public companies at SEC.gov. You can look for 10 days and 10 queues for public companies. 

One of the chief questions in this section is to ask who is your competition.  Are their sales going up and down? Is the competition direct or indirect which means offering the same product or service to the same customer base or offering the same product or service but to a two different target market respectfully. How are they targeting their customer and can you target them better? Are there any untapped markets you can target? 

At a minimum, you want to know the names and locations of your major competitors, products or services offered, pricing structure, methods of distribution, strengths, weaknesses, profitability and market share. In addition you'll be served by the analysis of how the competition is viewed by current or potential customers. What is their reputation?  How has the competition performed in the past and how are they positioned for the future? 

There are many ways to find out about your competition. The Internet is replete with information and an excellent way to find out about public companies again is through SEC.gov. Other good sources are stock market reports and talking to customers, suppliers and distributors. 

Don't forget to look down the road-who will be the future competitors? 

Going forward don't forget to keep an eye on the competition at all times. You must monitor your competition to see what they are doing differently and if they are stealing your market share. 
 

Distribution and sales~

Distribution should be results of your marketing research.

      For example, you don't want to set up your entire system to deliver products as catalog sales if you know that your target market only buys in stores. Be sure you understand the purchasing patterns of your target customers and set up your business to make use of those patterns. 

Be sure to include a discussion of any shipping necessary to your business. Give your view of your distribution strategy including all channels available to you. What shipping resources do you use and why?  What is the cost and do you have backup plans? Include agreements, rates and other supporting documents to show that this is in place. If you're running a service business, discuss how you will handle delivering services. Will you go to customers or will they come to you and who will pay for travel? 

As for sales, will you be selling business-to-business or directly to customers? Who'll be doing the selling? Do you have a sales department, sales staff, consultants or all of the above? 

How will sales be conducted-in-store, online, catalog, direct mail, retail etc? If you use the Internet what is your web strategy? If you use retail, what stores will you have a presence in? What discounts will you offer, to whom, and under what circumstances? 

At some point, you're going to include a detailed sales forecast broken out by month. This can fluctuate depending upon your customer classes if they change or not. 
 

Marketing~

Advertising, public relations, and promotions-they're all about the same thing-getting your product or service in front of potential customers. A sunnier shop is marketing. Your spouse telling a friend is marketing. Your business card stationary and even your business plan is marketing. Just about everything you do or say can be construed as marketing. 

The results of your research should help you determine the best advertising campaign for your product or service. Keep your target market fresh in your brain. Are your potential customers reached more efficiently by radio or television? Which stations do your target customers listen to and when? Do they read newspapers or magazines? If so, which ones and how often? 

Go back to your research on the competition. Where do competitors advertise? How often? Do competitors ad campaigns work? Why or why not? You don't have to reinvent the wheel in this section. Just see what your competitors are doing and if it is working. Learn,copy and improve. Explain your advertising plan in this subsection and include any visuals you have such as brochures, print ads and mail pieces. Who will be handling your marketing campaign-inside staff, or an outside firm? How much will it cost you to implement your plan? Give a timeline for your campaign.   

Industry and market trends~

Your business exists within a series of ever-expanding spheres of influence. The discussion of the spheres as elements affecting your business will be the bulk of the industry and market trends subsection of your plan. 

The elements to consider include:

• Your business
• The competition
• The market
• The industry
• The government
• International affairs
• Other market factors

 

In this subsection, readers are more concerned with how your business interacts with the other elements or outside forces and how those interactions currently and in the future could affect your business’s potential to make money. 

Consider how competitive the industry is and how easy it has been for new ventures to break-in. How healthy, financially, is the industry? Does your industry go through cycles? What does the future hold in terms of trends within the industry? The sphere of government influence is your business, the competition, the market in the industry. What regulatory bodies have influence on your industry? What regulations apply? Do you have intellectual property rights that may lose protection through expiration? How does the relative strength or weakness of the dollar affect your company? Are there geographic areas whose instability threatens your industry? Is war in the offing? What is the state of the world economy and how does that affect your company? 
 

Pricing strategy~

Your pricing strategy should be based on a careful analysis of production costs and overhead, competition and target markets. Pricing may be a part of your marketing plan, or may be a standalone subsection. 

First, you need to know how much it costs you to deliver your products and/or services to customers. Be sure to take all costs into account-the raw materials to shipping costs, from office rent or leases to taxes, from payroll to advertising, from lawyer fees to construction. Make sure your pricing will cover not only the day-to-day operating costs but contingency plans as well. Address how pricing may change over time based on market changes and cost changes. 

Once you have a handle on your costs, you need to understand your competition's pricing, customer perceptions and market norms. How much does the competition charge for the same or similar products or services? What is the real and perceived quality of your product or service? 

Services may be harder to price. Again, you need to understand the value of your offering to your business as well as the perceived value to customers. Consultants don't charge for the cost of paper named even if the only tangible product is a report. Clearly, what the consultant offers is more valuable than simply the tangible. Service offerings solve problems. Still, pricing is to reflect market norms. 

Know where you want to be price wise within your market. One luxury end of the market can be difficult the margins can be significant. 

Pricing can also include the detail of discounts offered. 
 
 
 

Timing~

Part of your business strategy should be the timing of your entry into the market. Your market entry should be more about the customer than about you. Perform a little research to see if your customers are ready for your business. Would your customers be more likely to buy your product or service during the winter or summer for example? Use common sense. Don't introduce a line of beach umbrellas to Denver in December. 

Product design and packaging is an important topic for this section as trade dress. When you look at for example Robert Keith Sacchi's Rich dad book series you see that the trade dress is all in purple and gold. It is important to keep this in mind when developing a product series. Get another taste and preference of your target market as well as some of the psychology behind the packaging of your product, which is your first chance to make an impression on consumers. Every time you change your design you start your branding all over again. Visual recognition is strong. Sometimes, a change in your product packaging design can cause more confusion than changing your product name. Get it right the first time then watch business build on its own momentum. 
 

Positioning~

Positioning separates your product or service from the competition. Explain how your product or service is unique and/or how it will take unique advantage of the potential market. 
 

The financials

The first thing I wish to see in the financials is cash flow. I want to see if the business can make money and then I'll want to know what those assumptions are based on. So the chief thing for me to see in your business plan is the first year of cash flow broken out by month and then a brief summary on how you reached the key assumptions in a cash flow including sales, cost of goods sold, and the various operating expenses. I also want to see a breakdown of your start up expenses including an itemized list of one-time capital expenses as well as operating expenses multiplied by the number of months you expect to be unprofitable. So for example I would like to see a number of months of working capital requested in order to cover your operating expenses in the startup care. 

Additionally, a starting and ending first year balance sheet will show if the business is retiring debt and building equity.  A cash flowing business that is building equity is a successful business. 

Don't sugarcoat your projections, do not present blue sky here. You want to be realistic for your investors and bankers say that chiefly for your own sake. You do not want to go into business based on unrealistic and some assumptions that show he will simply make “a lot of money.” 

The main statements include:

• the income statement
• the balance sheet
• the cash flow statement
• income projections
• breakeven analysis
• uses of funds

 

Quite simply the income statement is income minus expenses equals net profit or loss. This statement shows operating profit, not cash per se, it does not show the principal payment on your loan, it will reflect the interest payment but it will also include depreciation expense which is a non-cash item. The best way to think of the income statement again is income minus expenses equals what is left over. You want to project this out for the first three years of your business, the first year being broken out monthly. 

The cash flow statement is done on a cash basis. It includes your starting cash balance, subtracts out all your expenses for uses of funds, includes any new funds for sources of funds, and then reports your ending cash balance. One of the chief differences between the cash flow statement and income statement is the cash flow statement will record transactions when money changes hands.

      So for instance if you purchase materials in January that you don't pay for until March, the income  statement will show the cash outflow from the two serials purchased in January but the cash flow  statement will not show the cash outflow until March.

This is known as a cash accounting basis and the same would be true for your receivables as well. Also the cash flow statement will not reflect a depreciation expense since this is a non-cash item but it will include the principal payment of your debt along with the interest payment, both a cash expense. 

The cash flow statement will also include running balances of your financing as well as the activity of your financing. So the banker can see a picture of your retiring or increasing of debt. 

The balance sheet is a snapshot of what your business, owns what your business does and the difference between the two for the equity.

      For example, a beginning balance sheet would include an asset of $100,000 as a piece of  equipment in which $50,000 is out against it in a long-term liability. The difference of $50,000  would be considered equity. If over time the business is able to pay down the debt to $25,000 you  would now have $75,000 equity in the piece of equipment.

Investors and bankers want to see that your business is able to cash flow and retire debt which are signs of a healthy business that is not throwing good money after bad money. If the business is not cash flowing, it will be stagnant on its debt repayment.