THEBASICSONHOWTODEVELOPABUSINESSPLAN

OVERVIEW Whetheryourcompanyisorganizedasasoleproprietorshipsmallbusiness,corporationornonprofit,a wellwrittenbusinessplanisconsideredyourmostimportantroadmaptosuccess.Thedocumentmay varyinlength,butshouldbecomprehensiveandincludeaspecifictimeline:atleastsixmonthsof detailedstrategy,ayearortwoofgeneralplanning,andavisionaboutwherethebusinessisheadedfor thenextfiveyears. Abusinessplanhastoanswersomecriticalquestionsaboutthenewbusinessventure. Isthisaviablebusinessidea? Isthereamarketforthisproductorservice? Whatwillittaketoproduceanddelivertheproductorservice(materials,resources,personnel) Whowillbuyit,howmuch,howoftenandhowwillyourpotentialcustomersfindoutabout you? Whoandwhereisyourcompetition? Yourcashflowprojectionsshouldcoverboththestartupphaseofyourbusinessandongoing operations.Howmuchwillittaketoopenthedoors? And,whatwillittaketocoverdirectcosts,overheadandexpenses,andstillclearaprofit? Astartupbusinessororganizationbeginstoincurcosts(licenses,fees,permits,leases,telephones, computers,etc)longbeforeitstartstogenerateanyincome.Mostlikely,moneywillbegoingout fasterthanitiscomingin.Thisnegativecashflowwillcontinueuntilyourbusinessororganizationis generatingenoughrevenuetoequal theamountofmoneygoingoutthedoor.Thisisthebusiness cashbreakevenpoint.You,thebusinessowner,musthavesomewayoffinancingthenegativecash flowofyourbusinessuntilyoureachthatcashbreakevenpoint.Ifyouprojectthatyourbusinesswill haveanaccumulatednegativecashflowof$50,000beforeyoureachyourcashbreakevenpoint,then youneedtodeterminehowyouwillgetthe$50,000youllneedbeforeyoustartthebusiness. Mostbanksandtraditionallendersdonotusuallylendtostartupbusinesses.However,ifyoure startingabusinessinagrowthindustryandyouvegotasolidbusinessplanthatclearlyshowshow yourbusinesswillmakemoney,abankloanmightbepossible.Thelenderislookingforasolidplan forthemoney howmuchyoullneed,howyoulluseit,andhowyoullpayitback!Yourpersonal credithistorymatters,andyoullneedsomecollateraltoguaranteetheloan.Theloanisnota substituteforyourowncapital,though.Youllneedmoreateverystageofyourbusiness development.
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Thesameholdstruefornonprofitcorporations.Yournonprofitmaybeseekingloansaswellasgrant moniestofundyouroperations,programsandservices.Forgovernmentagenciesandfoundations, yourbusinessplanmustexplainhowyourorganizationsmissionfitstheirprogramandfundinggoals, provideaclearplanforyourorganizationsoperationsandservicedeliverysystems,andasound financialstructurethatwillleverageanyloansorgrantdollarsyoumightreceiveandensurethe sustainabilityof theorganization. Acomprehensivebusinessplanshouldhelpseparateyourbusinessororganizationfromthethousands ofothersseekingfinancingandtryingtoenterthemarketplace.Thereareonlinetemplatesand productsthatcanbeusefulinproducingaprofessionallookingbusinessplaninthestandardized formatthatseriousfinanciersexpect.Thefollowingaresomecriticalelementsforconsiderationas youdevelopabusinessplan. OUTLINEOFSAMPLEBUSINESSPLAN I. ExecutiveSummary [ThisisashortsummaryofthecontentsoftheBusinessPlan,soitmightbeeasiertowriteSection Iaftercompletingalltheothersections.] A.BusinessConcept whatyouareplanningtodo,thewhatofyourbusiness B. CurrentProfile C. KeySuccessfactors D. FinancialNeeds,SourcesandProjections II. CompanyDescription A.VisionStatement,MissionandValues B.Primary,SecondaryObjectives C.Location,PhysicalFacilities D.OrganizationalStructure III. MarketAnalysis A.OverviewofBusinessLandscape(Local,National,International) B. ChangesinYourIndustry C. MarketSegments D. TargetMarket,TargetCustomers E. CustomerCharacteristics 1.Demographics(Age,Gender,Education,FamilialStructure,etc.) 2.IncomeandSpendingHabits 3. GeographicalLocation 4. CurrentBehaviorandTrendsthatWillDriveFutureBehavior 5. OtherUniqueAttributes IV. CompetitiveAnalysis A.PrimaryCompetitorsandNatureofCompetition B. CompetitiveProducts/Services C. KeyCompetitiveStrengthsandWeaknesses D. KeyIndustryThreats[toYourCompany]

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V. ProductsandServices A.Product/ServiceDescription B.PricingandPositioning C.GrowthPossibilities VI. Strategy A.KeyCompetitiveCapabilities 1.Companystrengthsormarketniches? 2. Whatisuniqueaboutyourproductorservices? 3. Investors/Supporters/Members/Employees 4. TechnologicalEfficiencies B.KeyCompetitiveOpportunities 1.Productsorservicesnotcurrentlyavailable 2. Neworunmetneedsoftargetcustomers 3. Neworemergingissues,trendsorinnovations 4. ProspectiveB2BNetworks,PublicPrivateCollaborations,etc. 5. TechnologicalEfficiencies C.ImplementationStrategies 1.Seasonaland/orCyclicalConsiderations 2.Program,Policyand/orRegulatoryConsiderations VII. MarketingandProjectedGrowth A.Company/Product/ServiceBranding B. MarketingandSalesStrategies C.Advertising D.CustomerPromotions/Incentives E.OTHERConsiderations

VIII. Operations A.OrganizationalStructure B.KeyPersonnel C.Product/ServiceDelivery/Cycle D.CustomerServicePlan/MembershipServices E. QualityAssurance/EmergencyPreparedness F.Facilities IX. Financials A.AssumptionsandComments B.StartingBalanceSheet C.ProfitandLossProjections D.CashFlowProjections X. Appendix/SupportingDocumentation A.MarketStudies B.ResumesofPartners C.SignedContracts D.Articles E.OTHER
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EXECUTIVESUMMARY Thisisthefirstimpressionofyourbusinessforaninvestororfinancier.Thissectionisusuallywritten afteryouvecompletedthemainbodyofthebusinessplanandisarecapofthemostsalientpointsof thebusinessproposal.Explainwhoyouare,youradvisors,supporters,investorsandother stakeholders,andthecompanymanagementteam.Shapethebigpicture,includesomehistorical perspectiveofthebusinessconcept,descriptionofproductsandservices,financingplan,andhow youllensurethesurvivabilityofthebusinessororganization.Thisisanopportunitytobuild credibilityforthebusinessanditsmanagementteam.

MARKETANALYSIS Themarketanalysisisanimportantfirststepindeterminingifyouhaveaviablebusinessidea,and howbesttoproceed.Themarketanalysiswillexplorethepracticalaspectsofproducingyourproduct orservice: Isthereaneedcurrent,emerging,unmetforthisproductorservice? Whatrawmaterialsorresourceswouldbeneeded? Whereandhowwouldyouobtainthem?Atwhatcost? Willyouneedspecialequipmentormanpowertoproducethisproduct,orspecialtrainingor credentialstoprovidethisservice? Whoandhowmanyothersaredoingsomethingsimilartowhatyoureplanning? Whowouldbelikelytobuy,benefitand/orinvestinsuchaproductorserviceoffering? Whoselikelytobuyhowmuchofwhatyoureselling,howoften? Wouldthisproductorserviceappealtoawideaudience,orwoulditmeetthespecificneedsof aselectfew? Conversely,isthisproductorservicecontroversial,closelyregulated,orsubjecttopublic approval? Islocationacriticalfactor? Arethereculturalorcommunityfactorsinfluencingthemarket? Howareyouuniquelyequippedtofillthegapbetweensupplyanddemand? Howwouldyoureachyourtargetcustomer? Howmuchmoneywouldbeneededtostartthisbusiness? Fundamentalmarketresearchalwaysstartswithsomebasicinformationonhistoricaleconomic performance,businessandmarkettrends,andconsumerspendinghabits.AnInternetsearchcanhelp supplymuchofthisdata.Moreindustryspecificdatamayrequireadditionallegwork.Periodicals, annualreports,specialstudiesandotherwidelydistributedpublicationsmaybethemostaccessible andcosteffectivemethodofgatheringinformationfortheaverageprospectivebusinessowner.The publiclibrary,universitylibrariesandthelocalbureauof publicrecordsareoftenoverlookedvenues. Manynationaltradeassociationsandthinktankstrackandcompileindustryspecificandrelated information,butmayreserveaccesstothatdataformembersonly.Onewayaroundthathurdleisto checktheirwebsitesforpressreleases,reportsissued,testimonyandpublicappearancesmadeby industryleaders,andmedia(printandelectronic)coverageofparticulartopics.Mostlocal,stateand federalgovernmentagenciesincludevitalstatisticsontheirwebsitesandimportantlinkagestoother informationsources.Thesewebsitesaregreatforanoverviewoflocaleconomiccompetitiveness, tradesectorhealth,productivityandpublicfinancerecords.
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Dependingonyourbusinessidea,otherissuesworthresearchingcouldincludepatents,trademarksand copyrights,andgovernmentspendingandregulatoryproposals.Youcouldalsotesttheassumptions behindyourbusinessideabycontacting/interviewingbusinesscolleagues,vendors,distributorsand potentialclients. Basedonyourresearch,yourbusinessplannarrativewilldescribeyourmarketnichewithinthe industryintermsofsize,region,potential,growthrateandcustomerbuyingpower.Identifyany existingproductsandservicesbyname/manufacturerthatsatisfythesameneedsyourbusinessor organizationwilltarget.Thisisachancetodescribewhatwilldistinguishyourbusinessfromthe competition,andhowthisdistinctionwillattractcustomers.Assessthefutureforyourcompanys performance,includingprojectionsonmarketshareandrevenuetargets.

BUSINESSSTRUCTUREANDOPERATIONS Choosingastructureforthebusinessororganizationsetsthetoneforhowyourbusinesswilloperate, taxandinsuranceconsiderations,anddisbursementsofanyprofits.Consultanattorneyforlegal guidanceonbusinessstructure,leases,contractsandotherelementsdesignedtoprotectyourbusiness relationshipsandhelpyourbusinessprosper.Themostcommonbusinessstructuresinclude: SoleProprietorshipAnindividualoperatesthebusiness,andtherearenooutsideinvestors. Thisisthesimplestwayofdoingbusinessandthemostcommonformofbusinessstructure. However,theindividualcanbeexposedtopersonalliabilityforeveryactanddebtofthe business,andthereisnoroomforexpandingthroughnewownersortheircapital.Alsosome ofthetaxdeductionsavailabletootherformsofbusinessarenotavailabletothesole proprietor. GeneralPartnershipWhentwoormorepeoplecreateabusiness,ageneralpartnershipis formed.Theirpartnershipisbaseduponanagreementtooperatethebusinesstogether,andthe partnersarejointlyandseverallyliableforallobligationsofthepartnership.Thepartnership filesaninformationaltaxreturn,andthepartnersmustreporttheirportionofthe partnershipsearningsorlossontheirindividualincometaxreturns. LimitedPartnershipThisisaspecialformofpartnershipwheresomeofthepartnersarein chargeofmanagingthedaytodayactivitiesofthebusiness(generalpartners),andtheothers (limitedpartners)aresilentinvestorsanddonotparticipateinthedaytodayactivities.The generalpartnersarejointlyandseverallyliableforthepartnership,andthelimitedpartnersare onlyliableforpartnershipdebtstotheextentoftheirinvestment. CoOp&LLCCooperativesareemployeeownedcompanies.Allprofitsearnedbythe companyarepassedto theowners.ALimitedLiabilityCompany(LLC)isestablishedbyan operatingagreement,similartothebylawsofacorporation.TheLLCistaxedlikea partnership,butliabilityislimitedlikeacorporation. Corporation TheCorporationisaseparatelegalentity,whollyapartfromtheindividual shareholderswhoownit.ACcorporationmayhavemorethanoneformofstock(suchas commonandpreferred),itmayhavealimitednumberofshareholders,andtaxesonitsprofits arepaidbythecorporationasaseparatetaxpayingentity(thiscanresultindoubletaxation wherethecompanysprofitsaretaxedandanyincomethecompanysownersreceiveas
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dividendsisalsotaxed).AnScorporationislimitedtoonekindofstock,andthecompanys profitsandlossesarereportedontheownerspersonaltaxreturns.Allstateshavelawsthat describehowcorporationsmayoperatewithinthatstate. 501(c)(3)DesignationbytheInternalRevenueServiceTheorganizationmustcompletethe formsrequiredtobecomeanonprofitcorporationinthestateinwhichtheorganizationintends toincorporate. Iftheorganizationplanstoraisefundsinseveralstates,itmustregisterinthose statesaswell. OnceArticlesofIncorporationarefiledinthestateinwhichtheorganization willoperate,theorganizationmustthenfilefortaxexemptstatuswiththeIRS. Tobe designated501(c)(3),theorganizationmustbeorganizedandoperatedexclusivelyfor charitable,religious,educational,scientific,literary,testingforpublicsafety,fosteringnational orinternationalamateursportscompetition,orthepreventionofcrueltytochildrenoranimals. Privateshareholdersorindividualsofthecorporationcannotbenefitfromtheearningsofthe nonprofit,and501(c)(3)organizationsarerestrictedintheamountofpoliticalandlegislative (lobbying)activitiestheymayconduct.

VISIONANDMISSION Thevisionandmissionstatementsforyourbusinessareusuallybroadstatementsthatdescribethe guidingprinciplesforyourbusinessororganization,andobjectivesspellouttheprimaryreasoning aboutwhatthecompanyhopestoaccomplish.Theseguidingprinciplescanbeusedasatoolto evaluatenewprospectsandtohelpkeepthebusinessontrack.

ORGANIZATIONALSTRUCTURE Theorganizationalstructuredetailsthekeyjobpositionsandtitles,bothpresentandfuture, responsibilities,skillsandqualifications,aswellasthereportingstructure.Anypersonnelalreadyon board,particularlythosewithindustryexperienceorspecializedtrainingshouldbeincluded.Thetotal numberofemployees,traininganddevelopmentplan,salariesandbenefitsareimportantinformation. Thisdemonstratesyourexpertise,competitiveadvantages,performancepotentialandgrowthdirection. Thebusinessplannarrativeshoulddescribethebusinesslocation,facilitysizeandcapacity,whether thespacewillbeleasedorowned,andhowthesiteaddressescurrentaswellasfutureneedsofthe business.Thedescriptionshouldincludeequipment,furnitureandfixtures.Specialequipmentor plansforequipmentacquisitionmayhaveanimpactonproductorservicedelivery,andultimatelythe businessbottomline.

EMERGENCYPREPAREDNESSANDBUSINESSINSURANCE Any emergencypreparednessplanismeanttominimizeriskandprotectthebusinessanditsassets. Universalinsurancecoveragecouldbecriticalpartofyouremergencyplan.Theextentofyour insurancecoveragewillvarydependingupontheindustry,thesizeofyourbusiness,equipment, logisticsandoperations.Thislistisntmeanttobeexhaustive,justsummarizesomeofthemost commontypesofbusinessinsurance:

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 EquipmentandMachineryinsurancetocoverdamagesandprovidepaymentsforanyinjuries causedbythem BusinessInterruptioninsurancetopayforthecompanysongoingbusinessexpensesinthe eventofashutdownperiod(naturaldisaster,strike,etc.) Propertyinsurancecoversdamagestothebuildingthathousesyourbusinessaswellasthe itemsinside(vandalism,fire,waterdamage,damagecausedbyfallingobjects,etc.) ComprehensiveCrimeinsurancecoverslossesduetoburglaryoremployeetheft ComprehensiveAutoLiabilityinsuranceshouldcoverallcompanyvehiclesanyemployees drivingtheirownvehicleswhileoncompanybusiness ErrorsandOmissionsinsuranceprotectsthecompanyifyoumakeamistakeorforgettodo somethingthatcausesharmtoyourcustomer GeneralLiabilityinsurancewillprotectthecompanyintheeventof anincidentthatwould requirethecompanytopayoutalargesettlement(accidentsatacompanyfacilityoraccidents causedbyitsproducts,servicesoragents).

FINANCIALS Thissectionofthebusinessplandetailsthecompanysfinancialperformance,bothhistoricaland projected.Yourassumptionsmightincludecommentsaboutfinancialrequirements,performance indicators,andpersonalstatusoftheprinciples.Youllgenerateyourfinancialstatementsby forecasting:yourcoststoproduceanddeliverproductsorservicesthecostofmarketingtheproducts orservicesthelengthofthebusinesscyclebetweenproduction,salesandcollectingthemoneyfrom thesalesalaries,andthecostsofmaintainingthebusinessoperations(rent,utilities,telephones,office supplies,insurance,etc.). TherearethreebasicfinancialstatementsCashFlowStatement,theBalanceSheetandtheProfitand LossStatement. TheCashFlowStatementShowstheinflowandoutgoofcashonamonthlybasis,andis typicallyusedtodetermineacompanysabilitytopayitsbillsontime. Separatelyshowscash providedbyorusedfor operations,investingandfinancing. Companiescanbeprofitable,buthavenocash.Thisstatementshowswherethecashis going. CashFlowforecastingidentifiesacompanysneedforadditionalsourcesoffundsto coverpotentialcashflowshortfalls.Thisisacriticalfinancialtoolforstartupor emergingcompaniesororganizations. TheBalanceSheet Thisisasnapshotof thecompanyatanyonemomentintime. Separatelyshowscash providedbyorusedfor operations,investingandfinancingTells whereacompanygetsitsfundshowthecompanyusesitsfunds. Showswhatacompanyowns,whatitowesandhowmuchtheownershaveinvestedin thebusinessovertheyears. Measureshowwellacompanymanagesitsassets,liabilitiesandfinancialreserves. Profit&LossStatementRevenuesandexpensesofacompanyovertime. Showstheabilityofacompanytomanageanduseitsresourcestomakeaprofit. Showswhatcashflowacompanyhasavailabletorepaydebtservice,andhowwella companymanagesitstax liability.
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Effectivecashmanagementisakeyfactorinrunningasuccessfulbusinessororganization.Your financialstatementswillhelpyouplanandtrackhowmuchandwherethemoneyiscomingfromand whomuchandwherethemoneyisgoing.

TheImportanceofABusinessPlan 1. Itforcesyoutoanalyzeallfacetsofyourbusinessgoodandbad. 2. Itsetsfinancialgoalsandguidelines. 3. Itestablishesoperatinggoals,setspriorities,andhelpsyoudevelopstrategies(i.e., HowwillIfindasteadystreamofcustomers?Howcan Ibesurethebusiness willbeprofitable?). 4. Itisabsolutelynecessaryifyouaregoingtopersuadeinvestorsandlenderstoback yourbusiness.

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