Every object that you see, an Ipod, a book, a picture, a car,  a business starts with an idea. Regardless of what the idea is, a well-thought-out business plan is what  transforms an idea into a reality. It is a common misconception to think that business plans are written for the sole purpose of obtaining financing. Actually, the most important reason for writing a business plan have direction of where you are going, it’s like a road map. It’s there to create an essential management tool to use in the present, as well as the future.

A business plan is a written document fully describing and analyzing a particular business; it provides complete, detailed information about short- and long-term business plans. Information providing potential investors with complete knowledge of a business; investors will then be able to understand all of its strengths and weaknesses, enabling them to identify present and future potential.

• A COMPLETE BUSINESS PLAN WILL:

• Assist management in obtaining various sources of financing

• Identify the strengths and weaknesses of a business

• Present correct details about the business; i.e. past, present, and future performance

• Furnish detailed projections about the company

• Discuss the financial aspects of starting or expanding the business

• Guide management through the steps of developing and fine-tuning a business

• Provide clear business objectives and short- and long term goals

• Provide answers for any potential financial backers

• Provide prospective investors with the information to determine whether the company is the correct investment for them

• Provide a chronology of events and financial markers against which the firm can compare their actual results

• Keep a business focused

• Improve odds for success

• Chances of receiving funding are dependent on the accuracy and completeness of the business plan

Things to consider when developing a business plan:

• SUMMARY SECTION: The four basic questions to guide you in developing the business plan

• What are the firm's own success strengths and weaknesses?

• What is the overall business concept? Manufacturing, retail, or service sector?

• What is the current situation? Develop an overview of the business operation, focusing on the competitive environment .

• What is the current financial picture?

• Products and/or Services: What the business offers to the customer in the marketplace

• Operations Analysis: How the company's infrastructure is going to work

• MARKETING AND SALES OPERATIONS:

How the business is going to create the need for the product/service:

DEVELOPING THE FINANCIALS OF A BUSINESS PLAN: Projects how the business will perform in the future

Developing the Business Plan

Front Matter

This section of the business plan should be written last

• COVER LETTER: States why the business owner is creating and submitting the business plan

• Highlight important information from the plan

• If the business plan is being presented to a specific individual, make certain his/her name and address is spelled correctly

• NON-DISCLOSURE STATEMENT: This informs the reader to keep the plan's contents confidential

• TITLE PAGE: Contains the information:

• Current date

• Company logo

• Company name

• Company address

• Company email address

• Company telephone numbers

• Home and office numbers of employees

• Company Web site address

• TABLE OF CONTENTS: Should specifically outline core sections and sub-sections of the business plan; it is a good idea to wait until the plan is written before adding page numbers

• EXECUTIVE SUMMARY: This section is the most important part of any business plan and should be written when the plan is complete; if you can't sell the plan in the executive summary, your plan has less chance of being read; it should include:

• Business Description: Must specifically state what the business is and why it will be successful

• Vision and Mission Statement:

• Vision statement describes where you want to be

• Mission statement describes how you will get there; it is what makes a business     unique

• What are the opportunities for the business?

• Discuss the market

• Discuss the industry

• What are the competitions?

• What are the marketing/sales strategies?

• What are the financials?

• What is the profit potential like?

• What are the sales projections?

• What is the growth potential?

• What personnel are needed?

• What is the product/service?

What type of business?

If the company is:

• A MANUFACTURING BUSINESS:

• What is the source of the competition?

• Is there available skilled labor to hire?

• Will products be made for inventory or per order and how much of each should     be made?

• Will the business make one or more than one product?

• A RETAIL BUSINESS:

• By what means will the business be kept current of fashion changes and taste changes in the business?

• How will the advertising needs be handled?

• How much actual inventory should be purchased?

• Should the store open in a mall or a free-standing location?

• A SERVICE BUSINESS:

• Are the skills better than competitors?

• Should the business insist on cash only?

• Identify the market(s) to be served

• Should franchising be considered?

• Identify the business' competitive advantage

• Is the client list big enough or should the business start fresh?

• Explain how the business' product/service is different from competitors

• Explain the legal structure of the company; is it a sole proprietor, partnership or corporation? Be as specific as possible

• Tell the reader if the business is a start-up or identify the length of time it has been in business

• Provide a brief overview of progress to date; be sure to mention contracts, patents and any market research identifying the viability of the business

• Describe the management team, as well as their individual experience

• Indicate exactly how much money has been invested and how it has been spent

• Summarize the past financial performance by identifying the projected gross revenues and net profits

• Explain if management will be drawing a salary from the business in the beginning; if so, be as specific as possible when quoting the salary requirements

LEGAL STRUCTURE

What is the legal structure of the business (if selling equity)?

GENERAL PARTNERSHIP:

The general partnership is an association between two or more people in business seeking a profit. General partnerships have pass-through taxation and the owners are personally liable for the debts of the business. General partnerships can be formed with little formality, but because more than one person is involved it is wise to have a written partnership agreement stipulating the terms of the partnership. All the partners' assets can be involved in a bankruptcy case against the company.
Both groups are usually involved in day-to-day operations.

LIMITED PARTNERSHIP (LP): A business organization with one or more general partners who manage the business and assume legal debts and obligations, as well as one or more limited partners, who do not participate in day-to-day operations and are liable only to the extent of their investments.
The limited partnership comprises general partners who run the business and are exposed to personal liability, and limited partners who invest in the business and have only their invested capital at risk. Limited partnerships are especially useful for raising capital since they permit investors to participate financially in the business without incurring personal liability.

• CORPORATION: is the most common form of business entity among larger companies, chartered by a state and given many legal rights as an entity separate from its owners. Unlike sole proprietorships and partnerships, corporations are separate and distinct from their owners in the eyes of the law. As a separate entity, corporations have several distinguishing characteristics including limited liability, easy transferability of shares, and perpetual existence. Corporations also have centralized management who may be different persons from the actual owners.

Characterized by the limited liability of its owners and the issuance of shares of easily transferable stock. In corporations, shareholders may transfer stock or their interest in ownership.

• LIMITED LIABILITY COMPANY (LLC): Venture capitalists do not like the flow-through taxation associated with LLC's. However, in many cases an LLC is better than an S corporation for taxes because there are fewer hurdles and income can be allocated more flexibly.

Because it is not a partnership or a corporation, the owners of an LLC are not partners or shareholders, they are "members." Such companies are frequently labeled Limited Liability Corporations, but corporation is inaccurate and company is the proper term.

An LLC actually combines aspects of partnerships and corporations, so an LLC is less formal and more flexible than a typical corporation, yet offers protection as well as certain advantages that are much the same. For example, members cannot be found personally liable for company debts. Their assets are separate from the assets of the LLC so they cannot be seized. One of the advantages of an LLC is that taxation is based on the partnership model. Flow-through taxation is advantageous since members are only required to pay taxes on their earnings once instead of paying both corporate and individual taxes.

A Limited Liability Company, unlike a corporation, can be made up of as many members as the company wishes to have and it does not require bylaws, meetings, or the recording of minutes. While many states do not demand an operating agreement, it is a good idea to have one in place of the usual bylaws or contracts.

LOCATION

RETAIL LOCATIONS

What will the hours of operation be?

Where will the store(s) be located?

What foot traffic does the location have?

How easy is it to get into the store?

What are the demographics of the area?

• MANUFACTURING LOCATIONS

Where will the business be located?

Where is the majority of the customer base located? This will affect shipping costs.

Where are the suppliers located?

• SERVICE LOCATIONS

Where will the business be located?

What is the distance from the customer base? 

What foot traffic does the location have?

What are the demographics of the area?

WHAT PROCESS?

How will the product/service be made/performed?

• STAGE OF DEVELOPMENT:

• What are the problems in the development of the product/service?

• Indicate which industry associations the owners of the business will affiliate with.

• Are there any industry guidelines that must be complied with?

• Are there any government regulations that management must follow?

• Who are the suppliers to the business?

• Are there alternate suppliers for backup?

• What are their prices, terms and conditions?

• PRODUCTION PROCESS:

• What are basic requirements for the business? Consider land, equipment and office space Management should be familiar with these costs

• When will production begin on the product or service?

• How long will it take to produce the products?

• Be familiar with the costs of all materials

• Who will make purchases on the components necessary for production?

• How will the company respond if the demand for goods fluctuates?

• Did the company perform feasibility testing on their product (testing of the process, prototyping and pricing)?

• What will be the system for keeping track of inventory?

ENVIRONMENT AND MARKET

Conduct a market analysis: Market research that supplies information about the marketplace.  This involves:

• COMPETITIVE ANALYSIS: One must know who the competition is and what they are doing; competition is the rivalry among firms operating in a market to fill the same customer need.

• Competitive intelligence is the public information available on competitors, current and potential; it has 3 parts:

• Defensive intelligence: Information gathered to avoid being caught off guard; serves to keep track of moves that deal with the firm's business

• Passive intelligence: Information obtained for a specific decision (i.e. a company may seek information about a competitor's return policy when developing its own)

• Offensive intelligence: Identifies new opportunities.

• Awareness of all current and potential business opportunities and risks in the marketplace

• An extensive understanding of the nature of the competition, both direct and indirect, to help obtain competitive advantage; complete a review of the industry, as well as the primary competitors.

• Familiarity with the strengths and weaknesses of the competition

• CUSTOMER ANALYSIS: Businesses compete to serve consumer needs

• Define the consumer needs

• What are their buying patterns?

What is the market potential: What is the total demand for a product in an environment?

Measured by:     

            • Market size

            • Market growth

            • Profitability

            • Type of business decisions and customer market potential

            • Define the customer's purchasing decisions

            • What is the make-up of customers and the target market? Include demographics like age, gender and income.

• INDUSTRY ANALYSIS: Determines the attractiveness of a market based on its economic structure

• What is the current status of the industry? (Business-to-business or business-to-consumer)

• Changes in the marketplace; note new entries into the marketplace

• Estimate total size of target market in terms of gross sales/units of product or service sold

• Scan the environment: There are five different types of environments:

Technological: Technological developments come out of the research effort
Political: Observe trends that may have an impact on business
Economic: Economic trends and events that affect businesses (e.g. depression, high inflation)
Social: Be familiar with emerging social trends; an important part of this environment concerns the values consumers hold

Regulatory: Government influence businesses

MARKETING PLAN

Describes the marketing strategies one will use to influence the customer to purchase the product or service

• MARKETING MIX: The "four Ps" of marketing, price, product, place and promotion

• Price: The four factors used to arrive at a price:

* Pricing objectives
* Cost
* Competition
* Demand; ask and answer the following questions:

    - Is the product or service better than those of its competitors?

    - If the price is lower, how will the business be able to charge less?

    - How will the price of products/service compete with market prices?

    - If price is higher, why would a customer choose the product?

    - Is the company offering discounts to students, seniors or for those who pay in cash rather     than by credit?

    - Does the company sell in large volume?

    - How are similar products/services priced?

    - Is the quality different and/or is the production process more efficient?

    - Provide a brief summary of the fixed and variable costs. What do the costs include?

    - What kind of a return is management looking for in the investment and how soon does the     business anticipate recouping the investment?

• PRICING STRATEGY: Determine the price of the product and/or service

• New Products

Skimming pricing: Setting a high price during the initial stage of the product's life

Penetrating pricing: Setting a low price during the initial stages of the product's life; promote heavily at this time to gain market share

• Established Products

• Maintaining the price: Pricing that maintains position in the marketplace and builds on the product's public image

• Reducing the price: Cut price to meet or beat that of competition

• Increasing the price: To segment the current served market and to take advantage of product differences

• Price-Flexibility Strategy:

• One-price strategy: Charging the same price to all customers based on same conditions and quantities; helps to simplify pricing decisions and to keep goodwill among customers

• Flexible-pricing strategy: Charging different prices to different customers for the same product and quantity; price is based on customer value (financial worth) to the business

• PRODUCT/SERVICE STRATEGIES

• Product/services strategies state market needs that may be served by different product offerings

• What are the business' products and/or services?

• Evaluate all of the firm's products and/or services

• Understand the consumer perception of a product and/or service compared to the competition

• Identify the one thing that makes the product or service unique

• What other features does the product/service have? Consider quality, price, convenience, selection, packaging and service

• Identify benefits customers will experience from buying the product/service

• Product-Positioning Strategy: Introducing a brand in the marketplace:

• Where will it be received favorably compared with competing brands?

• This will help position the product so that it stands apart from the competition

• Product-Repositioning Strategy: View the current status of the product and find a new position that seems like it wilI work better

• Increases the life of the product

• Corrects an original positioning mistake

• New-Product Strategy: A new product introduced to meet new needs and to continue competitive pressure on existing products

Value-Marketing Strategy: Delivering on promises made for the product or service; promises of product quality, customer service, and meeting time commitments; geared toward total customer satisfaction

• SALES/DISTRIBUTION PLAN

• Describe the type of person/business likely to buy the product/service

• What is the distribution of the product or service?

• Will the company use mail-order, wholesaler, retailer?

• Describe the return policy

• Describe the service guarantees and any other warranties

• What post-sales support will be offered?

• What payment plans will be offered?

• Identify specific marketing materials to be used

• Identify cost of advertising

• How much business is anticipated from these sources?

• What are the costs for various services?

• Will the company use the Web?

• SALES/DISTRIBUTION STRATEGIES

• Channel-Structure Strategy: The process of using intermediaries in the flow of goods from manufacturers to customers; distribution can be direct or indirect; reaches the largest number of customers as quickly as possible, at a low cost, but still maintaining control

• Multiple-Channel Strategy: When there are two or more different channels for distribution of goods and services; achieves greatest access to each market segment to increase business

• PROMOTION: Creates awareness, gets the buyer to buy and describes how a product/service solves the buyer's need

• What is the position you want to hold in the customer's mind?

• Creating a consistent message when communicating the product's position; it is what the business wants the customer to think of when he/she sees their brand

The following are some promotional tools:

-Sales and sales management

- Advertising: Trade publications

- Trade shows

- Promotional materials

- Advertising: Direct mail

- Internet

- Packaging

- Public relations

- Television

- Radio

• The main purpose of advertising is to build brand awareness and create a new want or awareness of the product; must identify ways of advertising the product/service

• Identify the cost for advertising

• Identify necessary marketing material specifically:

     Promotion strategies

- Media-Selection Strategy: Choose channels (i.e. newspapers, magazines, television, etc.) through which messages for the product/service are transmitted to the customer; helps move the customer along the desired path of the purchase process

- Advertising-Copy Strategy: Designing the content of an advertisement to communicate a product/service message to the potential customer

- Selling Strategy: Moving the customer to the purchase phase of the decision-making process through personal contact

Financials

• How financially viable will the business be?

• Why is it necessary to determine amount and type of all expenses?

• It is imperative to show expected results for the first and/or current year of operation

• Up to five years of future projections are necessary

• A business plan for an on-going business should include financial statements from the previous five years

• Financial projections should be realistic

This section will serve as a benchmark for the company to gauge progress against original projections

Determine amount and type of all expenses the business will incur; this basic information will help create the financial statements for the business;

These statements are:

Balance sheet: A "snapshot" of the financial state of the business at a particular point in time

- It outlines the assets, liabilities and equity

- It helps one understand the net worth of the business

- Balance sheet should list current assets, such as Accounts Receivable, Cash Balances and Inventory

- It should also list fixed assets, such as property, equipment, furniture and fixtures, and vehicles

- Current liabilities include accounts payable and debts that must be paid within a year; normally, these debts are payable to creditors and suppliers

- Long-term liabilities include long-term loans, such as mortgages, equipment loans or loans made to the business

- Shareholder's equity consists of permanent funds contributed to the business by owner; also, shareholder's equity can be contributed by someone who invests in the business for a share of ownership (capital stock) and retained earnings -

• Income Statement

- Shows the profit or loss for a particular time period

- Details all revenues, expenses and other costs; as with the cash-flow statement, it should be prepared monthly, or quarterly

- It is an accounting tool used to measure business performance

- Reveals the break-even point for the business (the point at which the level of sales in either dollars or units causes revenue to equal total costs)

• Statement of Cash Flows

- A reflection of how much money the business has at a particular point in time

- If the cash inflows ( collected revenue) exceed the cash outflows (disbursements), the cash flow is positive

- If the cash outflows (disbursements) exceed the cash inflows (collected revenue), the cash flow is negative

- A cash-flow statement enables one to see exactly where cash is low and when the company will have a surplus; it should be prepared on a monthly basis

- The important point is anticipating and planning for fluctuations

- There is an essential difference between cash flow and income statement

- The cash-flow statement includes details of time when revenue is collected or expenses are paid

• EXPENSES: All businesses have two (2) types of expenses: one-time expenses and operating expenses

• One-time expenses are costs incurred only once when first setting up a business; one-time expense examples are:

• Cars and trucks

• Decorating, remodeling, installation of equipment, fixtures and leasehold improvements

• Deposit or down payment on equipment

(computers, photocopiers, etc.) and fixtures

• Down payment on property or deposit on rent

• Incorporation costs: where applicable

• Licenses and permits

• Product and development costs or franchise fees,

where applicable

• Promotion costs in anticipation of business opening

• Starting inventory

• Utility installation fees

• Operating expenses are ongoing costs to be paid every month. Operating expense examples are:

• Distribution costs

• Electricity fees

• Insurance fees

• Maintenance fees

• Promotion fees

• Other financial expenses, i.e. sales discounts and bad debts

• Repayment of loan capital and interest

• Auto expenses

• Travel expenses

• Fees for accountants and lawyers

• ANALYSIS

• Benefit-cost analysis: Used to compare advantages and disadvantages of various solutions to a specific problem

• The management team must following five (5) functions:

• Fully define the problem

• Determine the objectives

• Develop alternatives

• Attach a dollar value on all benefits and costs of each alternative

• Calculate the Benefit - Cost Ratio -  (objectives divided by alternatives, B/C) and make the decision

- This form of analysis establishes a clear relationship between expenditure (cost) and purchases (benefit)

- Therefore, this calculation can be used to study problems where the costs and benefits of alternatives to achieving an objective can be assigned dollar values

• FORECASTING: Useful technique for making decisions based on predictions of future events, including future interest rates, employment levels, inflation and supply costs

• The major emphasis in forecasting techniques is looking for specific patterns and fluctuations over a period of time; this period could be short-term (I year or less) or long-term (more than 1 year)

• There are three (3) types of forecasting techniques; it is essential to monitor these projections regularly

• Casual Models: Emphasizing correlational/causal relationships

• Time-Series Projections: Projections where quantifiable observations are made over time

• Qualitative Models: Reliance on expert judgments by professional managers

• Break-even analysis: Use to determine at what point the company's costs match its sales volume

• Fixed expenses/gross profit margin = sales to break even

Now you have seen the complexity  of a Business Plan and you understand that it is a road map for the success of a company, we will elaborate more on specific parts of a business plan.

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