Why do I need a business plan?
Entrepreneurs generally are described as risk takers who take chances based on a gut feeling. However, when you are investing money or asking another to invest money it requires careful planning and preparation. A business plan organizes all the necessary elements required to start a business and continue a successful business in a simplistic format. It is also the tool you will present to lenders to convince them to take a risk on your business and provide you with financing. Therefore, it must be extremely thorough and thought provoking.
Remember, aside from the general business plan objectives, every business plan is unique. Your plan should include all the relevant information, but be customized for your business. Finally, focus on the content and not the number of pages.
Once complete, the business plan should identify the expectations you have for your new or existing business. If you plan to utilize the plan to obtain financing, the completed plan should “tell the story” of your business to a potential lender. The plan should serve as a stand-alone document in that all business issues are addressed without requiring additional verbal explanation. Review your plan regularly and make appropriate changes when your plans and strategies change.
Remember, aside from the general business plan objectives, every business plan is unique. Your plan should include all the relevant information, but be customized for your business. Finally, focus on the content and not the number of pages.
Once complete, the business plan should identify the expectations you have for your new or existing business. If you plan to utilize the plan to obtain financing, the completed plan should “tell the story” of your business to a potential lender. The plan should serve as a stand-alone document in that all business issues are addressed without requiring additional verbal explanation. Review your plan regularly and make appropriate changes when your plans and strategies change.
Below is an outline of the sections and pertinent information that should be included in a business plan. Remember to contact your local Small Business Development Center for assistance in developing and completing a business plan.
Writing a Business Plan
The following is a suggested business plan outline.
The business plan describes an entrepreneur’s idea or a company’s past and current operations and then demonstrates how the request for an investment or loan will enhance the company goals and reward the investor. However, the most important function of the business plan is to communicate your goals and guide your company.
The business plan describes an entrepreneur’s idea or a company’s past and current operations and then demonstrates how the request for an investment or loan will enhance the company goals and reward the investor. However, the most important function of the business plan is to communicate your goals and guide your company.
- Highlights major points of a business plan, including management team, market size, marketing strategy, strategic alliances, potential profits, dollar amount requested and proposed terms for repayment
- This section should be the LAST section written
- Explain the business
- Mission statement, company goals & objectives, business philosophy
- Describe industry, overview of product(s) or service(s) offered, market and competition and management experience
- Company strengths and core competencies
- Legal form of ownership
- Explain products and/or services in depth, pricing, fee structure, if applicable
(A) Market Analysis
- Target Market: Identify customers, provide demographic information explaining their characteristics
- Industry Overview: Detailed analysis of market size, growth, major trends, etc.
- Competition: Detailed analysis of top 3 – 5 competitors (review of competitor’s strengths and weaknesses)
(B) Marketing Strategy
- Explain in detail how your company will capture market share and your marketing/advertising public relations plan
- Explain the daily operations of the business: location, equipment, legal environment, personnel, processes, etc.
- Describe in detail your team’s experience, strengths, job functions, and plans to fill gaps in management team
- Cash flow, assumptions, income statement, balance sheet spreadsheets, break even analysis, sources and applications of funds.
Management & Organization
Who has management responsibilities? Include the resumes of key managers as supporting documents. Include position descriptions for all key employees. List important advisors, such as attorney, accountant, banker, insurance agent, and advisory board or board of directors. Include estimated financial costs and necessary services provided.
Operational Plan
Discuss methods of production or service delivery, product or service development, quality control, inventory control.
What is your credit policy? Do/will you sell on credit? What are the terms? Explain how you perform a credit check. What are your collection policies?
How many employees are required? What skills are necessary? Define the pay and personnel policies. Are there any position descriptions and/or training programs?
How much inventory is needed? What is its value? Why is that amount of inventory appropriate for your business and location? List your major suppliers and discuss any terms they extend to your business. What equipment and technology is necessary to operate the business?
Research and understand all legal issues. (Licensing, bonding, permits, insurance, zoning, government regulations, patents, trademarks, copyrights, etc.)
Describe exit strategies should the firm perform lower than expectations (personal or business). Will inventory be liquidated? Will you close the business or sell?
The financial plan provides the numbers that correspond to your written plan. Historical and/or projected figures should be included. In addition, you should always include a narrative explaining the assumptions you used to arrive at the dollar value of sales, expenses, etc. You must demonstrate that your numbers are reasonable. Detailed financial information is critical to the business planning process.
Carefully calculate and categorize all start-up expenses including inventory, rent, etc. For example, what amount will be needed for renovations and equipment? Remember to include any cash you may need to operate and pay bills until the business begins generating cash. Provide a detailed list of equipment, furniture, and/or fixtures to be purchased. Include actual price quotes for larger items.
If yours is an existing firm, include the income statements, balance sheets and/or tax returns for the past three years.
Include a monthly profit and loss projection for at least 12 months of business operation. Be sure to provide a written explanation of assumptions used to develop your projections.
Include a monthly cash flow projection for at least 12 months of business operation. The cash flow projection differs from the profit and loss statement. Cash flow statements illustrate how much and when cash flows in and out of your business. Be sure to provide a written explanation of assumptions used to develop your projections.
Your plan should include a projected balance sheet showing assets (things owned), liabilities (debts) and owner’s equity. If yours is a start-up business, the balance sheet should show your financial position on opening day.
- Personal résumés for owners and management
- Letters of reference
- Personal financial statements from all principals
- Contracts and/or letters of intent from suppliers and customers
- Copies of leases, licenses, permits, or any other legal documents
- Any document referred to within the plan but not included in body
Contact your local Kentucky SBDC for additional tips and templates for preparing an effective business plan. Your Kentucky SBDC Business Coach will provide assistance preparing and reviewing the business plan prior to meeting with lending institutions.