Business Plan Overview

Definition:
Business planning is the continuous process of making present entrepreneurial decisions systematically and with the greatest knowledge of their futurity. To organize systematically the efforts needed to carry out those decisions. To measure the results of those decisions against the expectations through organized systematic feedback.
Peter Drucker

It is the major tool used in guiding the formation of a business, and it is the primary document
for managing it. It is more than a written document. It is a process that starts when
entrepreneurs begin to gather information, and then it continues as plans are made, implemented,
measured and updated.
Five Basic Questions to Ask Yourself before You Start

1. How much money is needed?
2. On what will the money be spent?
3. Who will operate the business?
4. What are the projected financial results for the company?
5. Do I really know enough about this business to operate it?

Why a small business fails

(From Gerber Development Corp.)

• Lack of vision and purpose
• Lack of financial planning and review
• Over dependence on specific individuals
• Poor market segmentation or strategy
• Failure to establish or communicate company goals
• Lack of knowledge of the market and your competition
• Inadequate capitalization
• Absence of a standardized quality program
• Owners concentrating on technical rather than strategic work at hand
• Lack of systems

A Business Plan Includes
Source: Small Business Administration

I. Business Description

In this section, provide a detailed description of your business, divided into three primary
sections. Section 1 describes your business, Section 2 the product or service you will be
offering, Section 3 the location of your business, and why this location is desirable. In the
description of your business, describe the unique aspects and how or why they will
appeal to consumers. Emphasize any special features that you feel will appeal to
customers and explain how and why these features are appealing. The description of
your business should clearly identify goals and objectives and it should clarify why you
are, or why you want to be, in business.

A. Cover Sheet

A cover sheet goes before the description. It includes the name, address and telephone
number of the business and the names of all principals.

B. Business Description

When describing your business, generally you should explain:
1. Legalities - business form: proprietorship, partnership, or corporation. The
licenses or permits you will need.
2. Business type: retailing.
3. What your product or service is.
4. Is it a new independent business, a takeover, an expansion, a franchise?
5. Why your business will be profitable. What are the growth opportunities? Will
franchising impact on growth opportunities?
6. When your business will be open (days, hours)?
7. What you have learned about your kind of business from outside sources (trade
suppliers, bankers, other franchise owners, franchisor, publications).

C. Description of Product or Service

Describe the benefits of your goods and services from your customers' point of view. Successful business owners know or at least have an idea of what their customers want or expect from them. This type of anticipation can be helpful in building customer satisfaction and loyalty. And, it certainly is a good strategy for beating the competition or retaining your competitiveness. Describe:

1. What you are selling.
2. How your product or service will benefit the customer.
3. Which products/services are in demand.
4. What is different about the product or service your business is offering.

D. Description of the location

The location of your business can play a decisive role in its success or failure. Your location should be built around your customers, it should be accessible and it should provide a sense of security. Consider these questions when addressing this section of your business plan:

1. What are your location needs?
2. What kind of space will you need?
3. Why is the area desirable? Is the building desirable?
4. Is it easily accessible? Is public transportation available? Is street lighting adequate?
5. Are market shifts or demographic shifts occurring?

II. Situation Analysis

In this section, describe your strengths and weaknesses, evaluate your competition, your image and reputation and the current conditions in your market.

A. Evaluate your competition.

Start a file on each of your competitors. Keep files of their advertising and promotional materials and their pricing strategy techniques. Review these files periodically, determining when and how often they advertise, sponsor promotions and offer sales. Study the copy used in the advertising and promotional materials, and their sales strategy. For example, is their copy short? descriptive? catchy? or how much do they reduce prices for sales? This technique can help you to understand your competitors better and how they operate their businesses. You should answer the following questions.

1. Who are your five nearest direct competitors?'
2. Who are your indirect competitors?
3. How are their businesses: steady? increasing? decreasing?
4. What have you learned from their operations? from their advertising?
5. What are their strengths and weaknesses?
6. How does their product or service differ from yours?
7. How does your competitor's pricing strategy compare to yours?

B. Evaluate current market conditions

1. Who are your customers? Define your target market(s).
2. Are your markets growing? steady? declining?
3. Is your market share growing? steady? declining?
4. Are your markets large enough to expand?
5. How will you attract, hold, increase your market share?

C. List your strengths and weaknesses compared to your competition

Consider such areas as location, size of resources, reputation, services, personnel, etc.

III. Financial plan

To effectively manage your finances, plan a sound, realistic budget by determining the actual amount of money needed to open your business (start-up costs) and the amount needed to keep it open (operating costs). The first step to building a sound financial plan is to develop a start-up budget. Your start-up budget will usually include such one-time- only costs as major equipment, utility deposits, down payments, etc. The start-up budget should allow for these expenses.

A. Start-up Budget

• accounting
• advertising/promotions
• equipment
• income insurance
• legal/professional fees
• licenses/permits
• occupancy
• payroll expenses
• personnel (costs prior to opening)
• salaries/wages
• supplies
• utilities

B. Operating Budget

An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how your spend your money, the expenses you will incur and how you will meet those expenses (income). Your operating budget also should include money to cover the first three to six months of operation. It should allow for the following expenses

• advertising/promotions
• depreciation
• dues/subscriptions/fees
• insurance
• legal/accounting
• loan payments
• miscellaneous
• expenses
• payroll expenses
• personnel
• rent
• repairs/maintenance
• salaries/wages
• supplies
• taxes
• utilities

The financial section of your business plan should include any loan applications you've filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma income projections (profit and loss statement) and pro-forma cash flow. The income statement and cash flow projections should include a three-year summary, detail by month for the first year, and detail by quarter for the second and third years. The accounting system and the inventory control system that you will be using is generally addressed in this section of the business plan also.

IV. Marketing Plan

A.   Marketing plays a vital role in successful business ventures. How well you market your business, along with a few other considerations, will ultimately determine your degree of success or failure. The key element of a successful marketing plan is to know your customers-their likes, dislikes, expectations. By identifying these factors, you can develop a marketing strategy that will allow you to stimulate and fulfill their needs. Identify your customers by age, sex, income/educational level and residence. At first, target only those customers who are more likely to purchase your product or service. As your customer base expands, you may need to consider modifying the marketing plan to include other customers. How you advertise and promote your goods and services may make or break your business. Having a good product or service and not advertising and promoting it is like not having a business at all. Many business owners operate under the mistaken concept that the business will promote itself, and channel money that should be used for advertising and promotions to other areas of the business. Advertising and promotions, however, are the life line of a business and should be treated as such. Devise a plan that uses advertising and networking as a means to promote your business. Develop short, descriptive copy (text material) that clearly identifies your goods or services, its location and price. Use catchy phrases to arouse the interest of your readers, listeners or viewers. The more care and attention you devote to your marketing program, the more successful your business will be.

B.   When developing your marketing plan, be sure to apply the following marketing concepts:

1. Spaced Repetition The number of times per year that you reach your market with your message will impact your return on your marketing efforts. For example, you will have a higher return if you mail newsletters 6 times per year rather than 4 times per year.
2. Distribution The size of your market base will also impact your results. Each year the size of your database should grow from previous marketing and sales efforts, allowing a predictable increase in sales volume.
3. Consistency Don't change your message from repetition to repetition. Keep the same logo, typesetting, colors, etc. Remember that McDonald's has never changed the look of their famous arches!
4. Positioning Positioning has nothing do to with your product or service; it has to do with how the customer feels about you. You must establish a permanent position in the mind of the consumer. For example, when you go to the store, do you think of buying facial tissue or Kleenex? Kleenex has positioned itself so strongly in the marketplace that its brand name has become synonymous with the product.
5. Marketing Mix

You have 5 ways you can reach your markets. Plan each of them.

• Face-to-face
• Telephone
• Direct Mail
• Institutional advertising
• Ecommerce

When you combine any of these marketing efforts in a "mix", your return will increase dramatically! For example, you might send post cards highlighting new furniture pieces, or you might call previous customers to tell them of an impending sale. Or you might have a customer appreciation event. Your chances of success would be enhanced if you combined all 3.

6. Pricing strategy

Your pricing strategy is another marketing technique you can use to improve your overall competitiveness. Get a feel for the pricing strategy your competitors are using. That way you can determine if your prices are in line with competitors in your market area and if they are in line with industry averages. Some pricing strategies are:

• retail cost and pricing
• competitive position
• pricing below competition
• pricing above competition
• Price lining
• multiple pricing

The key to success is to have a well-planned strategy, to establish your policies and to constantly monitor prices and operating costs to ensure profits. Even in a franchise where the franchisor provides operational procedures and materials, it is a good policy to keep abreast of the changes in the marketplace because these changes can affect your competitiveness and profit margins.

V. MANAGEMENT PLAN

Managing a business requires more than just the desire to be your own boss. It demands dedication, persistence, the ability to make decisions and the ability to manage both employees and finances. Your management plan, along with your marketing and financial management plans, sets the foundation for and facilitates the success of your business. Like plants and equipment, people are resources - they are the most valuable asset a business has. You will soon discover that employees and staff will play an important role in the total operation of your business. Consequently, it's imperative that you know what skills you possess and those you lack since you will have to hire personnel to supply the skills that you lack. Additionally, it is imperative that you know how to manage and treat your employees. Make them a part of the team. Keep them informed of, and get their feedback regarding, changes. Employees oftentimes have excellent ideas that can lead to new market areas, innovations to existing products or services or new product lines or services which can improve your overall competitiveness. Your management plan should answer questions such as:

• How does your background/business experience help you in this business?
• What are your weaknesses and how can you compensate for them?

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