Do I really need a business plan and, if so, how is it constructed and how do I generate the information such as revenue, cost and cash flow projections?
Your business plan will provide:
- A prototype of your business, facilitating your evaluation of whether or not you should launch the proposed business before you put money into it. For existing businesses it helps evaluate whether you should continue or implement an exit strategy.
- A guide for the operation of the business. The strategies generated during the development of the plan provide direction and confidence in the operation of the business according to the plan.
- Through the process of creating the plan, the ability to be able to take an objective, critical and unemotional look at the business and, essentially, take ownership of not only the business but the plan for its operation.
- A strong, confidence building platform for communicating your ideas to others and that provides the basis for financing proposals.
Information abounds about what a business plan is and how it should be constructed in both electronic and hard copy media. Many of the web sites noted in the “Getting Started” FAQ, especially, www.score.org, www.sba.gov andwww.about.com are helpful or one can enter, “Small Business Planning” into Google or another search engine. Your SCORE Counselor can provide a booklet, “Business Basics” which prescribes a better than average approach to business planning. Here is an outline for your plan:
- Cover Sheet (Business address, names, addresses & telephones of owners).
- Statement of Purpose (If for a financing proposal).
- Table of Contents
- Executive Summary (Do this after the plan. It may be all some loan officers read).
- Business Description (What your business is about).
- Marketing Plan (How you plan to take your products/services to market).
- Operational Plan (Production, location, legal environment, policies & procedures)
- Financial Plan (Projections of P&L, Balance Sheets and Cash Flow)
- Exit Strategy (The best solution for getting out of the business if necessary).
- Supporting Documents (Personal resumes, personal financial statements, letters of reference, letters of intent, copies of leases, contracts, brochures and the list of assumptions supporting your financial projections).
In order to simplify the gathering and preparation of all of this information, break it into pieces and start with a small piece, say the “Business Description”, complete it and go to the next piece. The task will be less overwhelming if approached in this manner.
While you can hire someone to do a business plan, you should really do it yourself. It is important that the plan be your plan for your business.
It is helpful to be able to use a computer for preparing your business plan mainly because making changes is so easy. The computer and appropriate software make it much easier to do “what if” scenarios with the data and be able to present “worst case”, “most likely” and “best case” data for the financial plan. Although there are software packages for preparing business plans, they are far from necessary and, arguably, it is better to simply use a word processor like “Word” or “Word Perfect” and a spread sheet package like, “Excel”. At www.score.org there are excellent word processing and spreadsheet templates for plan preparation. At the site, query, “Business Tools” and click on “templates” under “Template Gallery”. Help with computer tools may be available from your SCORE Counselor.
Perhaps the most challenging part of putting together a business plan is generating the financial projections. As you prepare to meet this challenge, keep in mind that no one knows more about your business than you do. You are the expert!
Revenues are the key to your financial plan. Start with a list of all the goods and services you are going to provide and estimate how many units (hours, if services) you are going to sell in the first month, then the second, third, etc. and on into the next two to three years. You may be adding goods or services along the way and your sales may be impacted by seasonal influences. Further, your sales may benefit from the impact of your marketing plan. Factor all of these in to your numbers. Don’t forget price changes and inflation and potential supply interruptions.
To help you get a handle on all of this, seek out information from similar businesses in non-competing areas. Owners are happy to talk about their businesses as long as it doesn’t pose a threat. Trade associations amass huge databases of statistics about their member businesses. Find out who they are and what’s available. Use the library or the Web to find the trade associations. To find out about your customers’ sex, age and income levels along with many other useful pieces of information, use the state’s census data. Go to www.stats.indiana.edu. You can determine if your market is growing, shrinking or staying the same based on the census demographics.
Once you have generated the revenue numbers go to cost of sales then each expense item and think through each just as you did with the revenue numbers. After you have completed the profit and loss statement. go to the balance sheet and cash flow statements and conduct the same thorough examination of the factors affecting each element. Are you going to buy a car, truck, equipment, inventory, etc. What is your credit sales policy going to be (effects your balance sheet and cash flow). See the “Budgeting” FAQ for information on cash flow.
As part of your plan, filed in the appendix, you should prepare a “list of assumptions”. These are the conditions you based your estimates upon. They are important for two reasons: (1) in six months you won’t remember why you said sales were going to be “x” amount in September of 2011 and (2) they will support your numbers if challenged by a financial institution in the loan process.
In order to validate your estimates of revenues, you may want to compare your results with peer businesses. This can be accomplished by using the RMA Annual Statement Studies found in the business reference section of the Evansville Vanderburgh Public Library. These are a compilation of financial data gathered from banks about every type of business and the data are sorted by business size within type. Library staff will help with your search.
Remember…….A goal……..without a plan is…….just a wish!