Guidelines for Business Planning
The business plan is your pathway to profit.
It can mean the difference between success and
failure. A business plan with goals and actions
can guide you through turbulent economic times
with alternative channels which you can fall
back upon as changes dictate.
Through the development of a business plan,
you will be able to identify your areas of strengths
and weaknesses and spot opportunities and threats
which may loom on the horizon. You will review
the competitive conditions of the marketplace
and isolate opportunities and situations that
seem advantageous to your business.
The business plan will communicate your understanding
of the industry in which you operate, the competitive
situation you face, the capability of your management,
the suitability of your location, and the capacity
of your particular business. It will make reasonable
assumptions and forecasts of your expectations
concerning sales, expenses, cash flow, and goal
attainment.
Letter of Transmittal
You should enclose a letter explaining why
your business plan is being sent to the addressee
and what he or she is expected to do with it.
The contents of the letter of transmittal typically
include:
The identity and purpose of the business
A very short history of the business
The purpose of the plan (e.g. financing proposal)
Identity of the person requesting money
The amount and type of financing required
The amount of equity already invested in the
business
The productive purpose for which the money will
be used
When the money will be needed
The goals and market potential of the business
with the new funds
Collateral and other security offered
Title Page
You should start the plan with a title page
which identifies the name of the business; title
of the plan; date, copy and revision number,
if applicable; and instructions regarding confidentiality.
Executive Summary
A one page summary of the plan should be presented
next. It is not necessary to cover the contents
of the letter of transmittal or all of the sections
of the plan in the executive summary. The summary
must identify the purpose of the business, its
short and long term goals and the means by which
they will be reached.
Table of Contents/Outline of the
Business Plan
The table of contents lists the major divisions
and subdivisions of your plan. The page number
where the section begins is also indicated.
Sections are usually numbered and appendices
are lettered. Typical contents, and the contents
of this outline, include (Items in BLUE
may be clicked on for more detail):
I.
The Business.
The purpose of this section is to explain to
the targeted reader what you are as a business,
who the intended customer is, what you are trying
to accomplish through your business, and where
you wish to go to in the future.
A.
What are the specific products or services that
you sell (or plan to sell)?
B.
Do you possess any proprietary positions on
your products such as patents, copyrights, trademarks,
market position, or legal or technical considerations?
Place applicable diagrams and documents in the
appendix.
C. What are
some of the other factors that your customers
perceive as part of their purchase?
D. How do your
products or services compare to those of your
competitors?
1. If they are not unique, why would people
buy from you?
2. Are you able to differentiate your products
or services from those of your competitors
based on the above?
3. Do you plan to market future "new"
products or services?
III.
Market Analysis.
Provide an analysis of the industry, customers,
market, and competition in sufficient detail that
the reader knows that you understand what it takes
to succeed in your industry.
IV.
Approach to Selling.
This
is your opportunity to express your philosophy
toward sales. All businesses must sell - be it
to other businesses, the government, or the general
public. Your philosophy toward service, returns,
promotion, and price will markedly affect your
sales and, ultimately, your success as a business.
Factors typically considered in the selling process
are:
A. Overall Strategy
and Approach.
B. Selling Tactics
.
C. Pricing Objectives.
1. Profit oriented - Maximizes profit (practiced
over a long time period). Look at total
output rather than single items. Uses return
on sales, percentage return on sales to
net sales, or sales to net investment.
2 . Sales oriented - Percentage increase
over previous periods. Might use a lower
price to increase market share or to gain
a foothold in the market.
3 . Status Quo - Uses price leadership with
the leader stabilizing the price or competitive
pricing where the others follow the leader.
4.
Market oriented.
a. Skimming - Initially high price then
lower price according to demand.
b. Penetration - Lower initial price
to gain a market share foothold then,
once established, raise prices to meet
competition.
c. Premium - Price above competitive
price if firm is able to differentiate
its product/service as having higher
quality, superior features, etc.
5. Margin oriented - Cost and profit margins
on each item are primary consideration.
D. Sales Terms
and Conditions.
E. Merchandising - The attractive
display of goods and services.
F. Channels of Distribution - Transferring
the goods or services from the production
location to the location of the final consumer.
V.
Production Process.
Whether
you are a service business, a manufacturer, retailer,
or whatever, you must produce. The production
may be a product or something as intangible as
a smile, but something must be produced. This
section addresses how you plan to deliver the
goods or services which form the basis of your
business. Considerations include:
A. Physical layout.
B. Required furniture, fixtures and equipment.
C. Review of operations flow and quality control
D. Inventory and inventory control.
E. Vendors.
VI.
Management and Personnel.
Your
proposal is only as strong as the people you have
available to assist you in executing the plan.
Here you detail the key players who you have already
identified or the qualifications of successful
candidates if you must recruit. It is wise to
have already selected your most important personnel.
VII.
Financial Data.
The proof of the business plan is in its pro forma
financial reports. Many readers read the cover
letter first, the summary second, and skip back
to the financial data before reading the rest
of the plan. The discussions contained in the
other sections of the plans should be reflected
in the revenue and expense columns of the projections.
A. List the sources and uses of the
proposed funding.
B. List the productive purposes to
which the money will be put.
C. Develop pro forma balance sheets
for three years.
D. Prepare projective
purposes to which the money will be put.
1. Detail by month for the first year.
2. Detail by quarter for the second year.
3. Provide an outlook for the third year.
4. Explain how you were able to develop
the projections. Provide list of major assumptions.
E. Prepare projected
cash flow statements.
F. Prepare financial
statements for businesses already in existence.
1. Balance sheets for the past three years.
2. Income statements for the past three
years.
3. Personal and business tax returns for
the past three years.
G. Develop break-even analysis.
H. Develop key financial ratios and comparison
with standards.
I. Develop cost/benefit analysis.
J. Develop calculation of the pay back period.
VIII.
Summary and Conclusions.
This section summarizes the major goals in your
plan and reiterates how you will achieve them
and what the company will become if you are successful.
This section should be short, to the point, and
contains the most important aspects of your plan
- the ones you want the reader to retain.
IX.
Appendices and Supporting Documents.
Provide clear and legible copies of pertinent
documents which will help you prove your case.
These documents typically include the following,
which are presented as appendices:
A. Corporate or partnership documents
(if applicable).
B. Personal resumes of owners and key management
personnel.
C. Personal financial statements (tax returns
and balance sheets) of all pertinent owners
and stockholders.
D. Copy of credit report.
E. Copy of aged accounts payable by vendor.
F. Copy of aged accounts receivable by vendor.
G. Letter of recommendation of support.
H. Letters of intent.
I. Copies of leases, significant agreements
and contracts.
J. Cost of living budget (if applicable).
K. Any other documents relevant to the business.
Outline prepared by John Faris,
PhD and Dana C. Goodrich, MBA for the Maryland
Small Business Development Center Network.
