Business plans are very flexible. They can be used for both large and small firms, for start-ups or for expansions, for private or public sector organizations, and can be a few pages or a substantial document running to 10,000 words or more, supported by appendices.
The plan should be written with a particular audience in mind. A plan designed to raise financing from venture capitalists will need a different approach than one designed to obtain financing from a bank. Venture capitalists want to see a strong return on their investment; bankers are more concerned with the survival of the business so that it can repay its loans.
The steps below will give you an excellent idea of what is involved in writing the best business plan for your business. The timetable for developing the plan will depend on your own schedule.
Steps in developing a business plan are:
- Be determined to go into business for yourself.
- Examine your strength and weakness, paying special attention expenses, business education, and desires. Then answer this question: Why should I be in business for myself?
- Choose the products or service that best fits your strengths and desires: then answer these questions.
- What need will my product or services fit?
- What is unique about mv product or services? How do I know it is unique?
- What will my product or services do for my customers? What will it not do?
- What should it do later that it does not now do?
- Research the market for your product or services to find answers to such questions as these:
- Who are my customers?
- Where are they?
- What is their average income?
- How do they buy?
- At what price?
- In what quantities?
- When will they buy my product or services?
- Where will they use it?
- Why will they buy it?
- Who are the competitors?
- Where are they?
- How strong are they?
- What are the total market potentials?
- Are they growing?
- Forecast your share of the market, if possible then forecast your sales revenue over a 3 – year period, broken down as follows:
First-year – monthly
Second-year – quarterly
The third-year – yearly.
Then answer this question: Why do I believe my sales revenue forecast is realistic?
- Choose a site for your business. Then answer this question:
- Why do I prefer this site to other possible sites?
- This step applies only to entrepreneurs who plan to go into manufacturing
Develop your production plan answering these questions:
- What equipment will I need?
- How big should my plant be?
- How shall my production process be laid out?
- In what size?
- How will I control the waste, quality, and inventor of my product?
- Develop your marketing plan, answering such questions as these:
- What kinds of advertising and sales promotion
- How am I going to create customers?
- At what price?
- Through personal selling?
- Develop your Organizational plan, answering this question:
- What kind of skills and talents will I need to make my business grow?
- Draw up an organizational chart that spells out who does what. Who has what authority, and who reports to whom.
- Develop your legal plan, for focusing on whether to form a sole proprietorship, a partnership, or a corporation and then explain your choice.
- Develop your accounting plan explaining the kinds of records and reports you need and how you will use them.
- Develop your insurance plan, answering this question:
- What kind of insurance will I need to protect my ventures against possible loss from unforeseen events?
- Develop a computer plan, spelling out the ways that computer services may help you plan and control your business.
- Develop your financial plan by preparing these statements:
A 3-year cash budget. Show how much cash you need before opening for business and how much cash you expect will flow in and out of your business. Broken down as follows:
The second-year – quarterly
The third-year- yearly
An income statement for the first year only, the balance sheet for the beginning and end of the first year. A profit (break-even chart), showing when you will begin to make a profit. Then determine how you will finance your business and where you expect to raise money.
- Write a cover letter, summarizing your business plan, stressing its purpose and promise.
Here is Another Alternative Way of Writing a Business Plan
It should be noted here that these methods are guides only. Some of the headings described may be unavailable or unnecessary. What the entrepreneur should do is to pick those areas that concern what is being written and develop them.
Here is another detailed outline format of writing a business plan.
1. Introductory Page
(a) Name of business
- Include address and Telephone number.
(b) Legal structure
(c) Date of startup for incorporation, for a limited company
(d) Brief details of yourself and partners (if any) or management team.
- Owner’s name and telephone numbers
(e) Description of the company
- Products or services offered by business and market area
(f) Securities offered to investors or tenders
- Outline securities such as preferred shares, ordinary shares, debentures etc.
(g) Business loans sought
- Such as the term loan operating line of credit mortgage
- Summary of the proposed use of funds
(a) Highlights of the Business plan
- Preferably one-page maximum
- Include your project, competitive advantage and bottom line
3. Table of Contents
- Section titles arid page numbers should be given for easy reference
4. Description of The Industry
(a) Industry outlook and growth potential
- Outline industry trends- past present and future- and new development
- State your sources of information
- Markets and customers
- Estimate size of total market share and sales, new requirements and market trends
- Competitive Companies
- Market shares, strengths and weaknesses profitability trends
- National and economic trends
- Population shifts, consumer indicators
5. Description of Business Venture
(a) Nature of Business
- Characteristics, a method of operation, whether performed locally, regionally, nationally or internationally
- Target market
- Typical clients identified by groups present business patterns and average earnings wants, and needs.
- The competitive advantage of your business concept
- Your market niche uniqueness estimated market share
- Business location and size
- Location relative to the market size of premises, home or office use
- Staff and equipment needed
- Overall requirement capacity, home office use, part of full-staff or as required.
- Brief History
- Principals involved in the business, or proposed business, development work cone, CVs of key associates if applicable.
6. Business Goals
(a) One year
- Specific goals, such as gross sales, profit margin, the share of the market, opening a new office, introducing new service etc.
(b) Over the longer term
7. Marketing Plan
(a) Sales Strategy
- Commission sales staff agents employees
- Sales objectives, sales tools, sales support
- Target Clients
(b) Sales approval
- Style of operation and techniques
- Costing, markups margins break-even
- Media advertising, promotions, publicity appropriate to each target market
- Techniques of developing exposure, credibility, and contacts
- Service Policies that your business will adopt with regard to credit and collection, tendering, types of customers
- Service; performance guarantees or other assurances will vary depending upon nature of your business and type of contract or clients.
(g) Tracking methods
- Methods for confirming who your clients are and how they heard about you.
8. Sales Forecast
- One never has all the necessary information, so state all the assumptions made in developing, the forecast
(b) Monthly forecast for coming
- Sales volume, projected in cash terms.
(c) Annual forecast for the following two to four years
- Sales volume projected in cash tarns. The sales forecast starting point for your projected income statement and cash flow forecast.
9. Production Plan (Manufacturing)
(a) A brief description of the production process
(b) Physical plant requirement
- Building, utility requirements, expansion capability layout
(c) Machinery and Equipment
- New or used, lease or purchase, capacity
(d) Raw materials
- Readily available quality, sources
(e) Stock requirements
- Seasonal levels turnover rates method of control
- Volume discounts, multiple sources
(g) Personnel required
- Full-time part-time skill level, availability training required
(h) Cost of facilities, equipment, and materials
(i) Capital estimates
- One time start-up or expansion, capital required.
(a) Purchasing plans
- Volume discounts, multiple sources, quality price
(b) Inventory System.
- Seasonal variation, turnover rate method of control
(c) Space required
- Floor and office space, improvements required expansion capability
(d) Staff and equipment required
- Personnel by skill level
- Fixtures office equipment
(e) Operations Strategy
11. Corporate Structure
(a) Legal form
- Sole proprietorship, partnership, corporation or cooperative
(b) Share distribution
- List of principal shareholders
(c) Contractors and agreements
- List of contracts and agreements in force
- Management contract, shareholder or partnership agreement, Service contract, lease
(d) Directors and Officers
- Names and addresses, role in the company
(e) Background of Management team
- Brief CVs of active owners and key employees
(f) Supporting Professional Assistance
- Professionals on contract in specialized or deficient areas
(g) Organizational Chart
- Identify reporting relationship
(h) Duties and responsibilities of key personnel
- Brief Job Descriptions-who is responsible for what
12. Research and Development Programme
(a) Product or service improvements, process improvements costs, and risks.
13. Risk Assessment
(a) Competitors’ reaction
Will competitors try to squeeze you out? What form do you anticipate any reaction will take?
(b) List of critical external factors that might occur:
Identify effects of strikes, recession, new technology, weather, new competition, supplier problems, shifts in consumer demand, cost of delays and overruns, unfavorable industry trends.
(c) List of critical internal factors that might occur:
Income projections not realized client dispute or litigation, credit control difficulties, demand for services increases very quickly, key employee leaves or partner becomes sick or dies
(d) Dealing with risk
- A contingency plan to handle the most significant risk
14. Overall Schedule
Interrelationship and training of all major events important to starting and developing your business
15. Action Plan
(a) Steps to accomplish this year’s goal
- Flow chart by month or by a quarter of specific action to be taken and by whom.
(b) Checkpoints for measuring results
- Identify significant dates; sales levels as decision points.
16. Financial Forecast
If a business has been in operation for a period of time, the previous years’ balance sheets and income statements are required, preferably for the past two or three years.
(a) Opening Balance Sheet
- The balance sheet is a position statement, not a historical record, it shows what is owned and owed at a given date.
- There are three sections to a balance sheet: assets, liabilities, and owner’s equity. You determine your firm’s net worth by subtracting the liabilities from the assets.
- Your balance sheet will indicate how your investment has grown over a period of time. Investors and lenders typically examine balance sheets to determine if the company is within acceptable assets to liability limits.
(b) Income and Expense Forecast Statement (profit and loss)
- The income and expense forecast could be described operating statement you would expect to see tor your business at the end of the period for which the forecast is being prepared.
- For a new business, the forecast would show what revenue and expense you expect the business to have in its first year of operation.
- It is very useful, of course, to prepare a forecast for a period longer than one year. A detailed operating forecast ftor the following two years is suggested
- Preparing an income and expense forecast for a new business is more difficult than preparing one for an existing business, simply because, in a new business, there is no historical record to go by. For this reason, the preparation of this forecast is even more essential doing it for an existing business, despite the time and effort required. This analysis exercise will answer the question of whether or not a profit will be made.
- The income statement is the most difficult because it is the most uncertain at the commencement of business. It is essential that a conservative estimate be projected.
- The main concern is lo account for expenses accurately and much details a target or break-even figure toward which to work.
- Some headings may not be appropriate for your type of business other headings should be added.
(c) Cash Flow Forecast
- A cash flow budget measures how of money in and out of the business. It is critical for you and your banker.
- Many businesses operate on a seasonal basis, as there are slow months and busy months. The cash-flow budget projection provides an indication of the times of a cash flow shortage to assist in properly planning and financing your operation. It will tell you in advance if you have enough cash to get by.
- A cash flow budget should be prepared a year in advance and contains monthly breakdowns.
(d) Cash Flow Assumptions
When reviewing the cash flow plan, certain assumptions should be made:
- Sales: Monthly sales (consulting service lees) that are expected to materialize.
- Receipts: Cash sales represent cash actually received’ debus collected represent the collection of the amount due for goods sold on credit; rental income is rent that will be collected in advance at the beginning of each.
- Disbursements: Accounts payable to be paid in the month following the month of purchase.
- Accounting and Legal: To be paid upon receipt of the bill, expected to be paid after your fiscal year end. Financial statements have been completed.
- Advertisement: Anticipated to be the same amount each month and paid for in the month the expense is incurred.
- Car: Anticipated to be the same amount each month anc1 paid for in the month the expense is incurred.
- Bank Charges and Interest: Anticipated to be the same amount each month and paid for in the month the expense is incurred.
- Equipment Rental: To be paid for in monthly payments.
- Income Tax: Amount for lax of the prior year and to be paid in the next season.
- Insurance Annual Premium: To be paid quarterly, semi-annually or annually in equal installments.
- Loan Repayment: Amount is the same each month and paid in accordance with the monthly schedule furnished by the lending institution.
- Office Supplies and Expenses: To be paid in the month following receipt of invoice and supplies to be purchased on a quarterly basis.
- Licenses: To be paid upon due date.
- Telephone: To be paid for quarterly in the month after receipt of the bill. Amount expected to be the same each quarter.
- Utilities: Expected to fluctuate with weather conditions and to pay for quarterly. Wages and Benefits: Wages to increase after pay review. Amount otherwise considered to be the same each month and paid one month in arrears.
- Miscellaneous: Expected to be the same each month and paid for in the same month the expense is incurred.
(e) Break-Even Analysis
- Your break-even analysis is a critical calculation for even business. Rather than calculating how much your firm would make if it attained an estimated sales volume, a more meaningful analysis determines at what sales volume your firm will break even. An estimated sales volume could be very unreliable as there are many factors, which could affect revenue.
- The calculation of a break-even point for every small business is one of the crucial pieces of information. Above the break-even sales volume, it is only a matter of how much money your business can generate; below the break-even level of sales, it is only a matter of how many days a business can operate before bankruptcy.
- A break-even analysis provides a very real and meaningful figure to work towards and might need updating every few months to reflect your business growth.
- The break-even point is where total costs are equal to total revenues.
- The calculation of total costs is determined by adding variable costs to the fixed costs.
- Total costs are all costs of operating the business over a specific period. Variable costs are those costs that vary directly with the number of services provided or marketing and promotion activities vines undertaken. These typically include car expenses, business travel expenses, supplies, and brochures. Variable costs are not direct costs which are passed on to the client in the billing.
- Fixed costs are costs that do not generally vary with the number of clients serviced, Also known as indirect costs, these costs typically include salaries, rent, secretarial service, insurance, telephone, accounting, and legal supplies.
17. Finance and Capitalization
(a) Term loan applied for
- The amount, terms and when required.
(b) The purpose for the term loan
- Attach a detailed description of the aspects of the business to be financed.
(c) Owner’s Equity
- The amount of your financial commitment to the business.
(d) Summary of term loan requirements
- For a particular project or for the business as a whole.
18. Operating Loan
(a) Line of credit applied for
- A new credit or an increase, and security offered.
(b) Maximum operating cash required.
- Amount required, the timing of need (refer to cash flow forecast)
19. Present Financial (If Applicable)
(a) Term loans outstanding
- The balance owing, repayment terms, purpose, security and statutes.
(b) Current operating line of credit
- The amount and security held.
(a) Name of the present lending institution – Bank and type of accounts
(b) Solicitor’s Name
- Address and telephone number
(c) Accountant (name and practice name)
- Address and telephone number
The nature of the contents of the appendices attached, if any depends on the circumstances and requirements of the lender or investor or the desire to enhance the loan proposal. It is recommended that the appendices be prepared for your own benefit and reference to assist your business analysis and to be available if the information is required.
The following list is a guide only. Please, delete inapplicable ones.
(a) Personal net worth statement
- Includes personal property values, investments, cash, bank loans, credit accounts.
- Mortgages and other liabilities. This will substantiate the value of your personal guarantee if required for security.
(b) Letter of intent
- Potential orders or client commitments.
(c) Description of personal and business insurance coverage
- Include insurance policies and the amount of coverage.
(d) Summary of Debtors
- Include an aging schedule of 30, 60 and 90 day periods.
(e) Summary of Creditors
- Include a schedule of payments and total amounts owing.
(f) Legal agreement
- Include a copy of contracts, leases, and other documents.
- The fair market value of business property and equipment.
(h) Financial Statements for associated companies
- Where appropriate a lender may require this information.
(j) Sales forecast and market surveys
(k) List of investors
(l) Credit status information
(m) News articles about you and your business.
FURTHER HINTS ON WRITING BUSINESS PLANS
As the business plan is reviewed in subsequent years, the advantages of forwarding planning should become apparent. The business plan should serve to guide planning throughout the life of the business.
The entrepreneurs should take note of these further hints below:
- Be prepared to accept a long process test, if you are seeking funding from a venture capitalist. The due diligence procedure of a venture capitalist can take six months or more before a decision is made on whether to back a preposition.
- Be confident in the presentation of the Business Plan. Careful research should increase confidence. Potential flinders will need to be impressed by your own confidence and knowledge behind the forecasts that are in the business plan. No matter how well the business plan is prepared, potential backers are still influenced by the presentation.
- Prepare for questions on the business plan. Is there anything missed out? If profit and loss are not presented some rough calculations will give a potential backer an introduction and may prepare for questions on this.
- Do take the business plan to different agencies and backers and get their opinion on how it should be.
- Try to find out what potential funders are looking for. Many agencies might provide funding have very specific criteria, e.g., that you attend enterprise-training sessions (if a new entrepreneur), whether you need these or not, you will have to attend to qualify for the funding.
- Do not give up, if you cannot obtain funding at the first attempt. For example, research has shown that different bank managers can have quite different interpretations of the same business plan, despite the advent of expert system and credit scoring.
- If you can afford it, get the comment of a qualified accountant to verify the contents of the business plan. Research has shown that bank managers are more (positively) influenced by business plans that have been authorized by accountants.
What Turns Investors On Towards Some Certain Business Plans
1. Evidence of Customer Acceptance
Investors like to know that a company’s new products have already being used, even if only on a trial or demonstration basis.
2. Appreciation of Investors Needs
Investors usually want to recover their investment within three or seven years. So they want to see some evidence that entrepreneurs have thought about how to make this possible.
3. Evidence of Focus
Investors want to see that a company’s funders know one or two things the firm does first and concentrate their efforts on them. Investors know that the company’s trying to do too many things won’t do any single thing well-enough to allow for fast-track growth.
4. A Proprietary Position
The exclusive rights to a product or process usually come in the form of patents; they also may be obtained by copyright or trademark protection. A company with such protection has an advantage over its competitors.
What Turns Investors Off Towards Some Certain Business Plans
1. A Product Orientation
This refers to a situation where there is a single cause of excessive entrepreneurial optimism. It is a passion with the company’s product rather than with the market for it. Business plans that devote more space to describing the product than to detailing who will buy it and how it will be sold make investors suspect that the company is really just a playpen in which the founders can fiddle with their latest toys.
2. Projections that Deviate Excessively From Industry Norms
Every industry has a range of accepted financial results. If a fledgling company’s business plan makes projections that differ sharply from acceptable ranges in industry investors will worry that the entrepreneur has not done his or her tome work or is being unduly optimistic.
3. Unrealistic Growth Projections
Entrepreneurs tend to have aggregated expectations of long-term growth. Investors know that and expect it. But when the projections begin losing touch with reality, all kinds of alarms go off in investor’s minds. Unless the speculator projections are explained and argued convincingly in the business plan, investors are likely to be skeptical. Only slightly less bothersome to investors are entrepreneurs who are excessively cautioned in their growth projections.
4. Reliance on Custom or Applications Work
A company’s basic product needs to be altered or specially designed for the customer, potential investors see high costs and low profits. Specially designed goods or services may be successful, but entrepreneurs forming companies of this type should expect resistance when they try to raise investor’s funds.
The challenge for the entrepreneurs as they put together their business plans is to convince investors that the new venture will exploit high-growth opportunities while minimizing possible risks.