Preparing a business plan

1.Cover Page

Include:
Legal name of business
Name of document ("Business Plan")
Date of preparation or modification of the document
Name, address and phone number of the business or contact person
Name, address and phone number of the individual or business who prepared the plan
Optional: A notice advising the reader that the plan is confidential

2.Executive Summary

The format should start with an executive summary describing the highlights of the business plan. Even though your entire business is well described later on, a crisp, one or two page introduction helps to capture the immediate attention of the potential investor or lender.
Company name (include address and phone number)
Contact person (presenter's name and phone number)
Paragraph about company (nature of business and market area)
Securities offered to investors (preferred shares, common shares, debentures,etc.)
Business loans sought (term loan, operating line of credit)
Highlights of Business Plan (your project, competitive advantage and "bottom line" in a nutshell--preferably one page maximum)
This summary page is extremely important in capturing the reader's attention. Make sure it sells your idea so the reader will retain interest and continue reading.

Investor's questions:

Who? What? Why? How?
Is this the type of business in which I want to invest?
Will it provide the return on investment for which I'm looking?

Include the following:

Who is asking for money? Is the business a sole proprietor ship (one owner), partnership, or corporation.
The opportunity: Product or business venture being proposed, and the size and expected growth rate.
Total financial requirement? Major uses to which you'll apply the money. (Purchase of facilities, etc.)
From what sources will you obtain funds (owner's contribution, term loans,etc.)
Expected return on investment
For a loan: How and when do you plan to repay the money?

Note: This section is written upon completion of the entire plan. The reader may decide to read the rest of the plan based on the executive summary. Therefore, it must be written in a way that will capture the interest of the reader.

3. Table of Contents

Section titles and page numbers (for easy reference)

4. Business Concept

The business concept identifies your market potential within your industry and outlines your action plan for the coming year. Make sure your stated business goals are compatible with your personal goals, your own management ability and family considerations.
The heart of the Business Concept is your monthly sales forecast for the coming year. It is your statement of confidence in your marketing strategy and forms the basis for your cash flow forecast and projected income statement.
The business concept contains an assessment of business risks and a contingency plan. We urge you to take the offensive and be your own devil's advocate. Being honest about your business risks and how you plan to deal with them is evidence of sound management.

4.1 Description of the Industry

Industry outlook and growth potential (industry trends, new products and developments. State your sources of information)
Markets and customers (size of total market, new requirements and market trends)
Competitive companies (market share, strengths and weaknesses, profitability)
National and economic trends (population shifts, consumer trends, relevant economic indicators)

4.2 Description of Business Venture

Product(s) or service (pictures, drawings, characteristics, quality)
Product protection/exclusive rights (patents, copyrights, trade marks, franchise rights)
Target market (typical customers identified by groups, present buying patterns and average purchase in money, wants and needs)
Competitive advantage of your business concept (your market niche, uniqueness, estimated market share)
Business location and size (location(s) relative to market, size of premises)
Staff and equipment needed (overall requirement, capacity)
Brief history (principals involved, development work done)

4.3Business Goals

One year (specific goals, such as gross sales, profit margins, share of market, opening new store, plant or office, introducing new product, etc.)
Over the longer term (return on investment, business net worth, sale of business)

5.Marketing Plan

Sales strategy (commissioned sales staff, agents, sales objectives, target customers, sales tools, sales support)
Distribution (direct to public, whole sale, retail, multiple outlets)
Pricing (costing, mark-ups, margins, break-even)
Promotion (media advertising, promotions, publicity-appropriate to reach target market)
Guarantees (product guarantees, service warranties) Tracking methods (method for confirming who your customers are and how they heard about you).

6.The opportunity

Investor's questions:

Why will people buy this product/service?
Will enough people buy it?
What future is there for it?

The Product or Service

What is it? What is it used for?

Is it a new idea? Has it been protected by patent, copyright, or other legal means?
Describe unique or innovative features.
How soon could it be expected to become obsolete?
Do you have plans to modify or up-date it in the future?

The Market

Who are your potential customers?
How does your product or service satisfy their needs?

Size of market. Support this figure with market research data, statistics,etc.
Market growth potential. Support with factual data. Look at local, national, and international markets.
Your market share and the share you hope to obtain in the first year.
Pricing: How will you make a profit yet remain competitive?
Sales forecast for the next five years (pessimistic, optimistic, and expected).

Competition

Major competitors: names and market shares.

Are competitors sales increasing, decreasing, steady? Why?
Strengths and weaknesses: Compare your company with theirs (size, reputation, location, distribution channels, etc.).
Strengths and weaknesses: Compare your product/ service with theirs (warranty, quality, price, image, etc.).
What have you learned from watching their operations?

Promotion/Sales

How will your product/service be sold (personal selling, mail order, etc.)?
How will it be advertised and promoted?

7.Sales Forecast

Assumptions (one never has all the necessary information, so state all the assumptions made in developing the forecast)
Monthly forecast for coming year (sales volume in units and money)
Annual forecast for following 2-4 years (sales volume in money)
Note: The sales forecast is the starting point for your projected income statement and cash flow forecast in Part II

8.Production Plan (Manufacturing)

Brief description of production process (don't be too technical)
Physical plant requirements (building, utility requirements, expansion capability, layout)
Machinery and equipment (new or used, lease or purchase, capacity)
Raw materials (readily available, quality, sources)
Inventory requirements (seasonal levels, turnover rates, method of control)
Suppliers (volume discounts, multiple sources)
Personnel required (full-time, part-time, skill level, availability, training required)
Cost of facilities, equipment and materials (estimates and quotations)
Capital estimates (one time start-up or expansion capital required)

9.Production Plan (Retail or Service)

Purchasing plans (volume discounts, multiple sources, quality, price)
Inventory system (seasonal variation, turnover rates, method of control)
Space requirements (floor and office space, improvement required, expansion capability)
Staff and equipment required (personnel by skill level, fixtures, office equipment)

10.Corporate Structure

Legal form (proprietor ship, partnership, corporation)
Share distribution (list of principal shareholders)
List of contracts and agreements in force (management contract, shareholder or partnership agreement, franchiser service agreement, service contract)
Directors and officers (names and addresses and role in company)
Background of key management personnel (brief resumes of active owners and key employees)
Contract professionals/consultants (possible outside assistance in specialized or deficient areas)
Organization chart (identify reporting relationships)
Duties and responsibilities of key personnel (brief job descriptions--who is responsible for what?)

11.Risk Assessment

Competitors' reaction (will competitors try to squeeze you out?)
What if . . . list of critical external factors (identify effects of strikes, recession, new technology, weather, new competition, supplier problems, shifts in consumer demand)
What if . . . list of critical internal factors (sales off by 30%, sales double, key manager quits, workers unionize)
Dealing with risks (contingency plan to handle the most significant risks)

12.Action Plan

Steps to accomplish this year's goals (flow chart by month or by quarter of specific action to be taken and by whom)
Check points for measuring results (identify significant dates, sales levels, production levels as decision points)

13.Financial Plan

The financial plan outlines the level of present financing and identifies the financing sought. This section should be kept concise with supporting material supplied only when requested.

The Financial Plan contains pro-forma financial forecasts. In carrying out your action plan for the coming year, these operating forecasts are your guide to business survival and profitability. Resolve now to refer to them often and, if circumstances dictate, re-work them as necessary. Before presenting your Business Plan to a lender or investor, review your financial statements with your accountant. This familiarity will increase your credibility and at the same time provide you with a good understanding of what the financial statements reveal about the viability of your business.

13.1Financial Statements

Previous years' balance sheets and income statements (include past 2-3 years if applicable)

13.2Financial Forecasts

Opening balance sheet (for a new business only)
Projected income statements (detailed operating forecast for next year of operation and less detailed forecast for following two years. Use sales forecast as starting point)
Cash flow forecast (budget of cash inflow and outflow on a monthly basis for next year of operation)

14.References

Name of present lending institution (branch, type of accounts)
Lawyer's name (include address and phone number)
Accountant's name (include address and phone number)

15.Appendixes

The following documents may be requested by your banker or potential investor.
Personal net worth statement (including personal property values, investments,cash, bank loans, charge accounts, mortgages, other liabilities. This will substantiate the value of your personal guarantee if required for security.)
Letters of intent (potential orders, customer commitments, letters of support)
List of inventory (type, age, value)
List of lease hold improvements (description, when made)
List of fixed assets (description, age, serial numbers)
Price lists (to support cost estimates)
Description of insurance coverage (insurance policies, amount of coverage)
Accounts receivable summary (include aging schedule)
Accounts payable summary (include schedule of payments)
Copies of legal agreements (contracts, lease, franchise agreement, mortgage, debenture)
Appraisals (property, equipment)
Financial statements for associated companies (where appropriate).

Examples:

APPENDIX A - MARKET SHARE

Market share is determined by dividing a firm's sales by total market sales.

EXAMPLE:

Market share of Company A:= $50,000 / $295,000 = .17
Multiply by 100 to determine percentage
Market share of Company A = 17%.
Sales of Company A account for approximately 17% of total market sales.

To determine sales volume: To determine the sales volume of each firm, you should contact suppliers, retailers, trade associations, or others who may be in a position to help you to form an estimate.

Other sources of information:

Annual reports for each company
Government reports on industry, market trends, etc.
Trade publications or journals

NOTE: You may find it useful to display market share values in a pie chart.

APPENDIX B - RETURN ON INVESTMENT

" Return on investment" indicates the efficiency of use of the firm's assets. It also allows comparison of businesses with different capital structures.

The following formula is used to calculate return on investment:

Note: Interest is added back to remove the effect of borrowed funds.

APPENDIX C - THE ORGANIZATIONAL CHART

You may wish to use an organizational chart to illustrate the way in which your staff will be organized. Below is an example of such a chart.

Approaching Lenders

When approaching any financial institution, you are effectively selling the merits of your business proposal. As in all sales, consider the needs of the other party.

Ability to service the debt with sufficient surplus to cover contingencies (carry interest charges, eventually repay in full--cash flow forecast and projected income statement will show this)
Track record/integrity (personal credit history, management ability as demonstrated in your Business Plan, company results)
Your level of commitment (your equity in the business or cash investment in the particular asset being purchased)
Secondary source of repayment (this includes security in the event of default and other sources of income--discuss this subject with your lawyer before submitting your proposal)
Lead time (lender needs a reasonable time to assess your proposal--also, the loan may have to be referred to another level within the financial institution)
Don't over do it (be sensible with the amount of documentation you provide initially--for example, the Introductory Page, Summary and Financial Plan sections provide a good basic loan submission if the amount requested is small)

Attracting Investors
Start first by approaching people you know, i.e. friends, bank, credit union or trust company manager, lawyer, accountant, doctor. They, in turn, may know of possible investors. If your business concept exhibits high growth potential, a second alternative is to approach a venture capital company. Either way, take a moment to consider the investor's needs which may differ from a lender's needs.

Your level of commitment (to be sure that you are sharing the risk)

Resources
Sample business plans at

http://www.bplans.co.uk/sample_plans/businessplans.cfm

Library of template BP at Microsoft web site:

http://office.microsoft.com