Finance Globe

U.S. financial and economic topics from several finance writers.
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Writing a Business Plan

Writing a business plan is a crucial step to your business' development. A well thought-out business plan defines your business, outlines your strategy for the growth of your business, expenses and income expectations, marketing strategies. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. And a realistic business plan is a basic requirement if you plan to obtain a loan to help start or grow your business.

The Small Business Administration (SBA) recommends that before you begin writing your business plan, consider four core questions:
  • What service or product does your business provide and what needs does it fill?
  • Who are the potential customers for your product or service 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?
Your business plan should include something about your business in each of the following areas:

Executive Summary - This is the most important part of your business plan, but it should be written last after you've completed the rest of your plan. The executive summary should include the following:
  • The Mission Statement - The mission statement briefly explains the thrust of your business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.
  • Date business began
  • Names of founders and the functions they perform
  • Number of employees
  • Location of business and any branches or subsidiaries
  • Description of plant or facilities
  • Products manufactured/services rendered
  • Banking relationships and information regarding current investors
  • Summary of company growth including financial or market highlights (e.g. your company doubled its worth in 12-month period; you became the first company in your industry to provide a certain service)
  • Summary of management's future plans - With the exception of the mission statement, all of the information in the Executive Summary should be highlighted in a brief, even bulleted, fashion. Remember, these facts are laid out in-depth further along in the plan.
  • Include a table of contents directly following the executive summary. Make sure that the content titles are very broad and avoid detailed descriptions in your table of contents.
Market Analysis - The market analysis section should illustrate your knowledge about the particular industry your business is in. It should also present general highlights and conclusions of any marketing research data you have collected; however, the specific details of your marketing research studies should be moved to the appendix section of your business plan. The market analysis should include:
  • an industry description and outlook
  • target market information
  • market test results
  • lead times
  • an evaluation of your competition
Company Description - Without going into detail, this section should include a high level look at how all of the different elements of your business fit together. The company description section should include information about the nature of your business as well as list the primary factors that you believe will make your business a success. When defining the nature of your business or why you're in business, be sure to list:
  • the marketplace needs that you are trying to satisfy
  • the ways in which you plan to satisfy the market's needs using your products or services
  • the specific individuals and/or organizations that you have identified as having these needs
  • Primary success factors might include a superior ability to satisfy your customers' needs, highly efficient methods of delivering your product or service, outstanding personnel, or a key location. Each of these would give your business a competitive advantage.
Organization and Management - This section should spell out:
  • your company's organizational structure
  • details about the ownership of your company
  • profiles of your management team
  • the qualifications of your board of directors
Marketing and Sales Management - In this section, the first thing you want to do is define your marketing strategy:
  • Market penetration strategy
  • Strategy for growing your business. Buying other businesses, branching out with other product or services, or reaching out beyond your current customer base?
  • Channels of distribution strategy. Choices for distribution channels could include: original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.
  • Communication strategy. How are you going to reach your customers? Usually some combination of the following works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
Once you have defined your marketing strategy, you can then define your sales strategy. How do you plan to actually sell your product? Do you plan to use internal or independent representatives? Also answer the questions of how large of a sales force, how will you recruit your sales force, how will you train your sales force, and how will you compensate your sales force.

Your sales activities - when you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize it. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor.

Service or Product Line - In this section, describe your service or product, emphasizing the benefits to potential and current customers. The SBA gives this example, "Don't tell your readers which 89 foods you carry in your "Gourmet to Go" shop. Tell them why busy, two-career couples will prefer shopping in a service-oriented store that records clients' food preferences and caters even the smallest parties on short notice." Overall, this section should include:
  • A detailed description of your product or service - from your customers' perspective.
  • Information related to your product's life cycle, including where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
  • Any copyright, patent, and trade secret information that may be relevant.
  • Research and development activities you are involved in or are planning to be involved in.
Funding Request - This is the section where you request funding to start or expand your business. If necessary, you can include different funding scenarios, such as worst and best case scenarios. Be sure to include:
  • your current funding requirement
  • your future funding requirements over the next five years
  • the terms you would like to have applied
  • how you will use the funds you receive
  • any long-range financial strategies that you are planning that would have any type of impact on your funding request
Last of all, make sure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as: going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future. Each of these are extremely important to a future creditor, since they will directly impact your ability to repay your loan.

Financials - The financials should be developed after you've analyzed the market and set clear objectives. That's when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet. If you own an established business, creditors will expect to see historical financial data for the last three to five years, depending on the length of time you have been in business. Include:
  • your company's income statements
  • balance sheets
  • cash flow statements for each year you have been in business (usually for up to 3 to 5 years)
  • collateral that you may have that could be used to ensure your loan
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year's documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years 2 through 5.

Appendix - This section will include personal, sensitive information that you will not want every reader to see. So keep this type of information separate from the business plan, but within easy reach in case you need the information for creditors or for legal purposes. The appendix would include:
  • Credit history (personal & business)
  • Resumes of key managers
  • Product pictures
  • Letters of reference
  • Details of market studies
  • Relevant magazine articles or book references
  • Licenses, permits, or patents
  • Legal documents
  • Copies of leases
  • Building permits
  • Contracts
  • List of business consultants, including attorney and accountant
Source:Small Business Administration
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Wednesday, 24 April 2024

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