Your Business Plan
The Business Plan: What It IncludesWhat goes in a business plan? This is an excellent question. And, it is one that many new and potential small business owners should ask, but oftentimes don't ask. The body of the business plan can be divided into four distinct sections:
description of the business,
management plan, and
financial management plan.
The business description section is divided into three primary sections.
- Section 1 actually describes your business,
- Section 2 the product or service you will be offering and
- Section 3 the location of your business, and why this location is desirable (if you have a franchise, some franchisors assist in site selection).
Business DescriptionWhen describing your business, generally you should explain:
- Legalities: business form (proprietorship, partnership, corporation). The licenses or permits you will need.
- Business type: merchandizing, manufacturing or service.
- What your basic product or service is.
- Is it a new independent business, a takeover, an expansion, a franchise?
- Why your business will be profitable. What are the growth opportunities? Will franchising impact on growth opportunities?
- When your business will be open (days, hours)?
- What you have learned about your kind of business from outside sources (trade suppliers, bankers, other franchise owners, franchisor, publications).
A cover sheet goes before the description. It includes the name, address and telephone number of the business and the names of all principals. In the description of your business, describe the unique aspects and how or why they will appeal to consumers. Emphasize any special features that you feel will appeal to customers and explain how and why these features are appealing. The description of your business should clearly identify goals and objectives and it should clarify why you are, or why you want to be, in business.
Product or ServiceTry to describe the benefits of your goods and services from your customers' perspective. Successful business owners know or at least have an idea of what their customers want or expect from them. This type of anticipation can be helpful in building customer satisfaction and loyalty. And, it certainly is a good strategy for beating the competition or retaining your competitiveness. Describe:
- What you are selling.
- How your product or service will benefit the customer.
- Which prod ucts/services are in demand; if there will be a steady flow of cash.
- What is different about the product or service your business is offering.
The LocationThe location of your business can play a decisive role in its success or failure. Your location should be built around your customers, it should be accessible and it should provide a sense of security. Consider these questions when addressing this section of your business plan:
- What are your location needs?
- What kind of space will you need?
- Why is the area desirable? the building desirable?
- Is it easily accessible? Is public transportation available? Is street lighting adequate?
- Are market shifts or demographic shifts occurring?
Identify your customers by their age, sex, income/educational level and residence. At first, target only those customers who are more likely to purchase your product or service. As your customer base expands, you may need to consider modifying the marketing plan to include other customers.
Some of the pricing strategies are:
- retail cost and pricing competitive position pricing below competition pricing above competition price lining multiple pricing service costs and pricing (for service businesses only)
- service components
- material costs
- labor costs
- overhead costs
The key to success is to have a well-planned strategy, to establish your policies and to constantly monitor prices and operating costs to ensure profits. Even in a franchise where the franchisor provides operational procedures and materials, it is a good policy to keep abreast of the changes in the marketplace because these changes can affect your competitiveness and profit margins.
Advertising and Public RelationsHow you advertise and promote your goods and services may make or break your business. Having a good product or service and not advertising and promoting it is like not having a bus' iness at all. Many business owners operate under the mistaken concept that the business will: promote itself, and channel money that should be used for advertising and promotions to other areas of the business. Advertising and promotions, however, are the life line of a bus iness and should be treated as such.
Devise a plan that uses advertising and networking as a means to promote your business. Develop short, descriptive copy (text material) that clearly identifies your goods or services, its location and price. Use catchy phrases to arouse the interest of your readers, listeners or viewers. In the case of a franchise, the franchisor will provide advertising and promotional materials as part of the franchise package, you may need approval to use any materials that you and your staff develop. Whether or not this is the case, as a courtesy, allow the franchisor the opportunity to review, comment on and, if required, approve these materials before using them. Make sure the advertisements you create are consistent with the image the franchisor is trying to project. Remember the more care and attention you devote to your marketing program, the more successful your business will be.
Like plants and equipment, people are resources. They are the most valuable asset a business has. You will soon discover that employees and staff will play an important role in the total operation of your business. Consequently, it's imperative that you know what skills you possess and those you lack since you will have to hire personnel to supply the skills that you lack. Additionally, it is imperative that you know how to manage and treat your employees. Make them a part of the team. Keep them informed of, and get their feedback regarding, changes. Employees oftentimes have excellent ideas that can lead to new market areas, innovations to existing products or services or new product lines or services which can improve your overall competitiveness.
Your management plan should answer questions such as:
- How does your background/business experience help you in this business?
- What are your weaknesses and how can you compensate for them?
- Who will be on the management team? What are their strengths/weaknesses? What are their duties? Are these duties clearly defined?
- If a franchise, what type of assistance can you expect from the franchisor? Will this assistance be ongoing?
- What are your current personnel needs?
- What are your plans for hiring and training personnel?
- What salaries, benefits, vacations, holidays will you offer?
- If a franchise, are these issues covered in the management package the franchisor will provide?
- What benefits, if any, can you afford at this point?
If a franchise, the operating procedures, manuals and materials devised by the franchisor should be included in this section of the business plan. Study these documents carefully when writing your business plan, and be sure to incorporate this material. The franchisor should assist you with managing your franchise. Take advantage of their expertise and develop a management plan that will ensure the success for your franchise and satisfy the needs and expectations of employees, as well as the franchisor.
To effectively manage your finances, plan a sound, realistic budget by determining the actual amount of money needed to open your business (start-up costs) and the amount needed to keep it open (operating costs). The first step to building a sound financial plan is to devise a start-up budget. Your start-up budget will usually include such one-time-only costs as major equipment, utility deposits, down payments, etc.
Start-up BudgetThe start-up budget should allow for these expenses.
- personnel (costs prior to opening)
- legal/professional fees
- payroll expenses
- insurance rent depreciation loan payments advertising/promotions legal/accounting miscellaneous expenses supplies payroll expenses salaries/wages
- dues/subscriptions/fees taxes repairs/maintenance
The financial section of your business plan should include any loan applications you've filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma income projections (profit and loss statement) and pro-forma cash flow. The income statement and cash flow projections should include a three-year summary, detail by month for the first year, and detail by quarter for the second and third years.
The accounting system and the inventory control system that you will be using is generally addressed in this section of the business plan also. If a franchise, the franchisor may stipulate in the franchise contract the type of accounting and inventory systems you may use. If this is the case, he or she should have a system already intact and you will be required to adopt this system. Whether you develop the accounting and inventory systems yourself, have an outside financial advisor develop the systems or the franchisor provides these systems, you will need to acquire a thorough understanding of each segment and how it operates. Your financial advisor can assist you in developing this section of your business plan.
The following questions should help you determine the amount of start-up capital you will need to purchase and open a franchise.
- How much money do you have?
- How much money will you need to purchase the franchise?
- How much money will you need for start-up?
- How much money will you need to stay in business?
Other questions that you will need to consider are:
- What type of accounting system will your use? Is it a single entry or dual entry system?
- What will your sales goals and profit goals for the coming year be? If a franchise, will the franchisor set your sales and profit goals? Or, will he or she expect you to reach and retain a certain sales level and profit margin?
- What financial projections will you need to include in your business plan?
- What kind of inventory control system will you use?
Your plan should include an explanation of all projections. Unless you are thoroughly familiar with financial statements, get help in preparing your cash flow and income statements and your balance sheet. Your aim is not to become a financial wizard, but to understand the financial tools well enough to gain their benefits. Your accountant or financial advisor can help you accomplish this goal.