The Business Plan is an essential step for the potential entrepreneur to help turn an idea for a product or service into a profitable business venture. Whether you are starting a business or wish to expand your present business, an effective business plan will be your "road map" to success. A well-organized business plan will work out the details of your business on paper first, before you invest time and money into your venture. It is a "must" if you plan to obtain a business loan.
An effective business plan serves at least four useful purposes:
There are no hard and fast rules in formatting your business plan. However, it should be written by the owner of the business with outside assistance as necessary. A business plan written by an outside consultant is someone else's business plan. The length and content often vary depending on such factors as the company's maturity, the nature and complexity of the business and the market it serves. The following outline is effective and comparatively easy to develop.
This section is a summary of the key elements of your plan. The executive summary is sometimes all the potential investor or lender will read, so it must capture his/her attention. An effective summary will properly position your company and help to distinguish your concept from the competition. It should be concise, persuasive and no more than two pages in length. If the executive summary fails to move your potential investor into the depths of your plan, it has failed to do its job.
The Executive Summary should include:
The purpose of this section is to explain in detail who you are, what you do, what your goals are and how you plan to get there. This section should include:
The purpose of the financial plan is to provide the reader with vital financial information about your business. The financial plan should include projections for two to five years minimum. Projections, as realistic as possible, are vital for the success of a new business. If you have not had experience in preparing financial information, you may need to obtain professional assistance with this section of your business plan. This section should include:
A breakeven analysis allows you to demonstrate when your business will reach its breakeven point – when sales will reach a level to cover expenses. A breakeven analysis can tell you quickly if your costs are too high or if the price of your product or service is too low. A basic breakeven formula is:
BE = FC/(P-VC)
BE = Breakeven: The point where total costs equal total revenue
FC = Fixed Costs: Costs that remain constant over time such as rent insurance, interest, salaries, etc.
P = Price: Money received for a product or service
VC = Variable Costs per unit: The per unit costs that vary directly with sales volume such as manufacturing labor, materials, sales costs, etc.
Financial projections demonstrate what your business will look like at a certain future period of time. Projections should be prepared on a month by month basis for the first year and by quarters for the second and third years. They should be organized in a summary type financial format and should cover your company's sales revenues, costs and income (Income Statement) and cash flows (Statements of Cash Flows).
A deviation analysis recalculates your financial projections from the aforementioned based on changes in your income, cash flow, etc. Typically, this analysis is performed for two situations. First, based on a 50 percent increase in your projections, and second based on a 50 percent decrease.
Historical financial reports should be included for an existing business such as balance sheets, income statements and tax returns for the past three years if available.
You may include personal resumes and financial statements, credit reports, letters of reference, letters of intent, copies of leases, legal documents and anything else relevant to your plan.
As you complete sections of the plan, ask impartial third parties to review them and give their perspective on the quality, clarity and thoroughness of your plan. The SBDC would be happy to review your business plan. Call 243-5242 for an appointment.
Finally, if you intend to use your plan to attract capital, honestly ask yourself whether you would invest in the business based on reading the plan. If you can't honestly answer yes, then the plan needs more work.