Business Plans

Why Is It Important?

• A business plan is a written document that describes all the steps necessary for opening and operating a successful business– Describe what your business will produce, how you will

produce it, and who will buy it– Explain who will run your business and who will supply it– State how your business will win over customers from

competitors and how you will keep them– Provide detailed financial info that shows how your

business will earn a profit successfully

What Will You Produce

• To convince investors that your business idea is solid, you will need a completely new product or service or one that is better or less expensive than ones that already exist.

• You will need to identify your target customer and show how you will obtain new customers and keep them.

Objectives or Goals

• A business plan helps you set goals and how you plan on achieving them.

• Goals– Short Term: the first year– Medium Term: years 2-5– Long Term: 5 years and beyond

• Describes products and services to be introduced in the next five years

• Possible expansions to the business

Experience

• A business plan describes the background and experience of the people running the business– This aids in the bank/investors decision based on

how well they think a company can meet objectives

5 Basic Elements

• 1. Introduction• 2. Marketing• 3. Financial Management• 4. Operations• 5. Concluding Statement

Introduction

• A detailed description of the business and goals

• The ownership of the business and legal structure– Partnership, Proprietorship, Corporation

• The skills and experience you bring to business• The advantages you and your business have

over competitors– Performance, Quality, Reliability, Distribution,

Price, Promotion, Public Image

Marketing

• Describe your product – Good or Service

• Identify the market– To whom and where will you be selling your product.

• What is the industry?– External factors such as competition and lack of suppliers– Growth potential of industry– Economic trends of industry– Technology trends t

• Where will you be located?– Location, Location, Location– Can be critical to your success so therefore it is critical to

investors and lenders.

Financial Management

• This forces you to look at potential risks and costs and expenses of your business– Identification of Risks

• Investors will want to know potential risks and how you will face them. Do not be afraid to list potential problems. Every business faces risks.

• Ex: Competitors cutting prices, costs exceeding projections, demand declining

– Financial Statements• All business plans must include projected financial statements• Pro forma financial statement: a financial statement based on projected

revenues and expenses

– Funding Request and Return on Investment (ROI)• How much you need to borrow and how you plan to use the $

Operations

• In this section one should explain how the business will be managed on a day-to-day basis and discuss hiring and personnel procedures.

• Describe the equipment that will be necessary for production

• How products will be delivered should also be mentioned

Concluding Statement

• Summarize the goals and objectives you have for your business

• Emphasize your commitment to the success of the business

Completing the Business Plan

• A business plan should include a cover letter: a letter that introduces and explains an accompanying document or set of documents

• It should also include a Statement of Purpose: a brief explanation of why you are asking for a loan and what you plan to do w/ the money.– No more than two paragraphs

• An executive summary: is a short restatement of the report. It should capture the interest and make them want to read more.

Executive Summary

• Your summary should include– A description of your business

concept and communication about what is unique about your idea

– Projections for sales, costs, and profits

– Your needs (inventory, land, building, equipment)

– Amount you are intending to borrow