Description
The business plan consists of a narrative and several financial spreadsheets.The narrative template is the body of the business plan. It contains over 150 questions divided into several sections.Work through the sections in any order you like, except for the Executive Summary which should be done last. Skip any questions that do not apply to your type of business.
Business Plan for Startup Business
The business plan consists of a narrative and several financial spreadsheets.The narra-
tive template is the body of the business plan. It contains over 150 questions divided into
several sections.Work through the sections in any order you like, except for the Executive
Summary which should be done last. Skip any questions that do not apply to your type of
business.When you are through writing your first draft, you will have a collection of small
essays on the various topics of the business plan.Then you will want to edit them into a
smooth flowing narrative.
The real value of doing a business plan is not having the finished product in hand;
rather, the value lies in the process of research and thinking about your business in a sys-
tematic way.The act of planning helps you to think things through thoroughly, study and
research when you are not sure of the facts, and look at your ideas critically. It takes time
now, but avoids costly, perhaps disastrous, mistakes later.
This business plan is a generic model suitable for all types of businesses. However, you
should modify it to suit your particular circumstances. Before you begin, review the sec-
tion entitled Refining the Plan, found at the end of the narrative. It suggests emphasizing
certain areas depending upon your type of business (manufacturing, retail, service, etc.). It
also has tips for fine tuning your plan to make an effective presentation to investors or
bankers. If this is why you are writing your plan, then pay particular attention to your writ-
ing style.You will be judged by the quality and appearance of your work as well as your
ideas. For your guidance, we have included a document entitled Writing Guide.This is an
example of an executive summary written in a clear and concise style suitable for this type
of document.It typically takes several weeks to complete a good plan. Most of that time is
spent in research and re-thinking your ideas and assumptions. But then, that is the value of
the process. So make time to do the job properly.Those who do, never regret the effort.
And finally, be sure to keep detailed notes on your sources of information and the assump-
tions underlying your financial data.
Business Plan
OWNERS
Business name: Example Corporation
Address: Address Line 1
Address Line 2
City, ST 22222
Telephone: 222-333-4444
Fax: 111-222-3333
Email: [email protected]
Table of contents
I. Table of contents 3
II. Executive summary 3
III. General Company Description 3
IV. Products and services 3
V. Marketing plan 3
VI. Operational Plan 3
VII. Management and organization 3
VIII. Personal financial statement 3
IX. Startup Expenses and Capitalization 3
X. Financial plan 3
XI. Appendices 3
XII. Refining the Plan 3
Executive summary
Write this section last!
We suggest you make it 2 pages or less.
Include everything that you would cover in a 5-minute interview.
Explain the fundamentals of the proposed business: what will your product be, who will
be your customers, who are the owners, what do you think the future holds for your busi-
ness and your industry?
Make it enthusiastic, professional, complete and concise.
If applying for a loan, state clearly how much you want, precisely how you are going to
use it, and how the money will make your business more profitable, thereby ensuring
repayment.
General Company Description
What business will you be in? What will you do?
Mission Statement: Many companies have a brief mission statement, usually in thirty words
or less, explaining their reason for being and their guiding principles. If you want to draft a
mission statement, this is a good place to put it in the plan. Followed by:
Company goals and objectives: Goals are destinations — where you want your business to
be. Objectives are progress markers along the way to goal achievement. For example, a
goal might be to have a healthy, successful company that is a leader in customer service
and has a loyal customer following. Objectives might be annual sales targets and some spe-
cific measures of customer satisfaction.
Business philosophy:What is important to you in business?
To whom will you market your products? Your target market? (State it briefly here - you
will do a more thorough explanation in the Marketing section).
Describe your industry. Is it a growth industry? What changes do you foresee in your indus-
try, short term and long term? How will your company be poised to take advantage of
them?
Your most important company strengths and core competencies:
What factors will make the company succeed?
What do you think your major competitive strengths will be?
What background experience, skills, and strengths do you personally bring to this new
venture?
Legal form of ownership: Sole Proprietor, Partnership, Corporation, Limited Liability
Corporation (LLC)?
Why have you selected this form?
Products and services
Describe in depth your products and/or services (technical specifications, drawings, pho-
tos, sales brochures, and other bulky items belong in the Appendix).
What factors will give you competitive advantages or disadvantages? For example, level of
quality or unique or proprietary features.
What are the pricing, fee or leasing structures of your products and/or services?
Marketing plan
Notes on preparation:
Market research - Why?
No matter how good your product and your service, the venture cannot succeed with-
out effective marketing.And this begins with careful, systematic research. It is very danger-
ous to simply assume that you already know about your intended market.You need to do
market research to make sure they are on track. Use the business planning process as your
opportunity to uncover data and question your marketing efforts.Your time will be well
spent.
Market research - How?
There are 2 kinds of market research: primary and secondary.
Secondary research means using published information such as industry profiles, trade
journals, newspapers, magazines, census data, and demographic profiles.This type of infor-
mation is available in public libraries, industry associations, chambers of commerce, ven-
dors who sell to your industry, government agencies (Commerce Dept. and state and local
development agencies), and the SBA Business Information Centers and One Stop Capital
Shops.
Start with your local library. Most librarians are pleased to guide you through their busi-
ness data collection.You will be amazed at what is there.There are more online sources
than you could possibly use.A good way to start is at the SBA site,http://www.sba.gov/;
click the Outside Resources button for a great collection of resource links.Your Chamber
of Commerce has good information on the local area.Trade associations and trade publica-
tions often have excellent industry specific data.
Primary market research means gathering your own data. For example, you could do
your own traffic count at a proposed location, use the yellow pages to identify competi-
tors, and do surveys or focus group interviews to learn about consumer preferences.
Professional market research can be very costly, but there are many books out that show
small business owners how to do effective research by themselves.
In your marketing plan, be as specific as possible; give statistics and numbers and
sources.The marketing plan will be the basis, later on, of the all-important sales projection.
The Marketing Plan:
Economics
Facts about your industry:
What is the total size of your market?
What percent share of the market will you have? (This is important only if you think you
will be a major factor in the market.)
Current demand in target market
Trends in target market - growth trends, trends in consumer preferences, and trends in
product development.
Growth potential and opportunity for a business of your size
What barriers to entry do you face in entering this market with your new company? Some
typical ones are:
High capital costs
High production costs
High marketing costs
Consumer acceptance/brand recognition
Training/skills
Unique technology/patents
Unions
Shipping costs
Tariff barriers/quotas
And of course, how will you overcome the barriers?
How could the following affect your company?
Change in technology
Government regulations
Changing economy
Change in your industry
Product
In the Products/Services section, you described your products and services as YOU see
them. Now describe them from your CUSTOMER’S point of view.
Features and Benefits
List all your major products or services.
For each product/service:
Describe the most important features.That is, what will the product do for the customer?
What is special about it?
Now, for each produce/service, describe its benefits.That is, what will the product do for
the customer?
Note the difference between features and benefits, and think about them. For example, a
house gives shelter and lasts a long time, is made with certain materials and to a certain
design; those are its features. Its benefits include pride of ownership, financial security, pro-
viding for the family, inclusion in a neighborhood.You build features into your product so
you can sell the benefits.
What after-sale services will be given?
For example: delivery, warranty, service contracts, support, follow up, or refund policy.
Customers
Identify your targeted customers, their characteristics, and their geographic locations;
i.e., demographics.
The description will be completely different depending on whether you plan to sell to
other businesses or directly to consumers. If you sell a consumer product, but sell it
through a channel of distributors, wholesalers and retailers, then you must carefully ana-
lyze both the end consumer and the middlemen businesses to whom you sell.
You may well have more than one customer group. Identify the most important groups.
Then, for each consumer group, construct what is called a demographic profile:
Age
Gender
Location
Income level
Social class/occupation
Education
Other (specific to your industry)
Other (specific to your industry)
For business customers, the demographic factors might be:
Industry (or portion of an industry)
Location
Size of firm
Quality/technology/price preferences
Other (specific to your industry)
Other (specific to your industry)
Competition
What products and companies will compete with you?
List your major competitors:
Names & addresses
Will they compete with you in across the board, or just for certain products, certain cus-
tomers, or in certain locations?
Will you have important indirect competitors? (For example, video rental stores compete
with theaters, though they are different types of business.)
How will your products/services compare with the competition?
Use the table called Competitive Analysis, below to compare your company with your
three most important competitors. In the first column are key competitive factors. Since
these vary from one industry to another, you may want to customize the list of factors.
In the cell labeled “Me”, state how you honestly think you will likely stack up in cus-
tomers’ minds.Then check whether you think this factor will be a strength of a weakness
for you. Sometimes it is hard to analyze our own weaknesses.Try to be very honest here.
Better yet, get some disinterested strangers to assess you.This can be a real eye-opener.And
remember that you cannot be all things to all people. In fact, trying to be so, causes many
business failures because it scatters and dilutes your efforts.You want an honest assess-
ment of your firm’s strong and weak points.
Now analyze each major competitor. In a few words, state how you think they compare.
In the final column, estimate the importance of each competitive factor to the customer. 1
= critical; 5 = not very important.
Table 1: Competitive Analysis
Factor
Me
Strength
Weakness
Competitor A
Competitor B
Competitor C
Importance to Customer
Products
Price
Quality
Selection
Service
Reliability
Stability
Expertise
Company Reputation
Location
Appearance
Sales Method
Credit Policies
Advertising
Image
Having done the competitive matrix, write a short paragraph stating your competitive
advantages and disadvantages.
Niche
Now that you have systematically analyzed your industry, your product, your customers
and the competition, you should have a clear picture or where your company fits into the
world.
In one short paragraph, define your niche, your unique corner of the market.
Strategy
Now outline a marketing strategy that is consistent with your niche.
Promotion
How will you get the word out to customers?
Advertising: what media, why, and how often? Why this mix and not some other?
Have you identified low cost methods to get the most out of your promotional budget?
Will you use methods other than paid advertising, such as trade shows, catalogs, dealer
incentives, word of mouth (how will you stimulate it?), network of friends or profession-
als?
What image do you want to project? How do you want customers to see you?
In addition to advertising, what plans do you have for graphic image support? This
includes things like logo design, cards and letterhead, brochures, signage, and interior
design (if customers come to your place of business).
Should you have a system to identify repeat customers, and then systematically contact
them?
Promotional Budget
How much will you spend on the items listed above?
Before startup? (These numbers will go into your Startup budget.)
Ongoing? (These numbers will go into your Operating Plan budget.)
Pricing
Explain your method(s) of setting process. For most small businesses, having the lowest
price is not a good policy. It robs you of needed profit margin; customers may not care as
much about price as you think; and large competitors can under-price you anyway. Usually
you will do better to have average prices and compete on quality and service.
Does your pricing strategy fit with what was revealed in your competitive analysis?
Compare your prices with those of the competition.Are they higher, lower, the same?
Why?
How important is price as a competitive factor? Do your intended customers really make
their purchase decisions mostly on price?
What will be your customer service and credit policies?
Proposed Location
Probably you do not have a precise location picket out yet.This is the time to think
about what you want and need in a location. Many startups run successfully from home for
a while.
You will describe your physical needs later, in the Operational section of your business
plan. Here in the marketing section, analyze your location criteria as they will affect your
customers.
Is your location important to your customers? If yes, how so?
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out of the way?
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for you to be near them (like car dealers or
fast food restaurants) or distant (like convenience food stores)?
Distribution Channels
How do you sell your products/services?
Retail
Direct (mail order, web, catalog)
Wholesale
Your own sales force
Agents
Independent reps
Bid on contracts
Sales Forecast
Now that you have described your products, services, customers, markets, and market-
ing plans in detail, it is time to attach some numbers to your plan. Use the Sales Forecast
spreadsheet to prepare a month-by-month projection.The forecast should be based upon
your historical sales, the marketing strategies that you have just described, upon your mar-
ket research, and industry data, if available.
You may wish to do two forecasts: 1) a “best guess”, which is what you really expect,
and 2) a “worst case” low estimate that you are confident you can reach no matter what
happens.
For this section, please refer to the Twelve-Month Sales Forecast Spreadsheet.
Remember to keep notes on your research and your assumptions as you build this sales
forecast, and all subsequent spreadsheets in the plan.This is critical if you are going to
present it to funding sources.
Operational Plan
Explain the daily operation of the business, its location, equipment, people, processes,
and surrounding environment.
Production
How and where are your products/services produced?
Explain your methods of:
Production techniques & costs
Quality control
Customer service
Inventory control
Product development
Location
What qualities do you need in a location? Describe the type of location you will have.
Physical requirements:
Space; how much?
Type of building
Zoning
Power and other utilities
Access:
Is it important that your location be convenient to transportation or to suppliers?
Do you need easy walk-in access?
What are your requirements for parking, and proximity to freeway, airports, railroads, ship-
ping centers?
Include a drawing or layout of your proposed facility if it is important, as it might be for a
manufacturer.
Construction? Most new companies should not sink capital into construction, but if you
are planning to build, then costs and specifications will be a big part of your plan.
Cost: Estimate your occupation expenses, including rent, but also including: maintenance,
utilities, insurance, and initial remodeling costs to make it suit your needs.These numbers
will become part of your financial plan.
What will be your business hours?
Legal Environment
Describe the following
Licensing and bonding requirements
Permits
Health, workplace or environmental regulations
Special regulations covering your industry or profession
Zoning or building code requirements
Insurance coverage
Trademarks, copyrights, or patents (pending, existing, or purchased)
Personnel
Number of employees
Type of labor (skilled, unskilled, professional)
Where and how will you find the right employees?
Quality of existing staff
Pay structure
Training methods and requirements
Who does which tasks?
Do you have schedules and written procedures prepared?
Have you drafted job descriptions for employees? If not, take time to write some.They
really help internal communications with employees.
For certain functions, will you use contract workers in addition to employees?
Inventory
What kind of inventory will be kept: raw materials, supplies, finished goods?
Average value in stock (i.e., what is your inventory investment)?
Rate of turnover and how this compares to industry averages?
Seasonal buildups?
Lead-time for ordering?
Suppliers
Identify key suppliers.
Names & addresses
Type & amount of inventory furnished
Credit & delivery policies
History & reliability
Should you have more than one supplier for critical items (as a backup)?
Do you expect shortages or short term delivery problems?
Are supply costs steady or fluctuating? If fluctuating, how would you deal with changing
costs?
Credit Policies
Do you plan to sell on credit?
Do you really need to sell on credit? Is it customary in your industry and expected by
your clientele?
If yes, what policies will you have about who gets credit and how much?
How will you check the creditworthiness of new applicants?
What terms will you offer your customers; i.e., how much credit and when is payment
due?
Will you offer prompt payment discounts (hint: do this only if it is usual and customary in
your industry).
Do you know what it will cost you to extend credit? Have you built the costs into your
prices?
Managing your Accounts Receivable
If you do extend credit, you should do an aging at least monthly, to track how much of
your money is tied up in credit given to customers, and to alert you to slow payment prob-
lems.A receivables aging looks like this:
Total Current 30 Days 60 Days 90 Days Over 90 Days
Accounts Receivable Aging
You will need a policy for dealing with slow paying customers.
When do you make a phone call?
When send a letter?
When get your attorney to threaten?
Managing your Accounts Payable
You should also age your Accounts Payable, what you owe to your suppliers.This helps
you plan who to pay and when. Paying too early depletes your cash, but paying late can
cost you valuable discounts and damage your credit. (Hint: if you know you will be late
making a payment, call the creditor before the due date. It tends to relax them.)
Are prompt payment discounts offered by your proposed vendors?
A payables aging looks like this:
Total Current 30 Days 60 Days 90 Days Over 90 Days
Accounts Payable Aging
Management and organization
Who will manage the business on a day to day basis? What experience does that person
bring to the business? What special or distinctive competencies? Is there a plan for contin-
uation of the business if this person lost or incapacitated?
If you will have more than about ten employees, create an organizational chart showing
the management hierarchy and who is responsible for key functions.
Include position descriptions for key employees. If you are seeking loans or investors,
then also include resumes of owners and key employees.
Professional and Advisory Support
List board of directors and management advisory board.
Attorney
Accountant
Insurance agent
Banker
Consultant(s)
Mentors and key advisors in addition to the above
Personal financial statement
Include personal financial statements for each owner and major stockholder, showing
assets and liabilities held outside the business and personal net worth. Owners will often
have to draw on personal assets to finance the business, and these statements will show
what is available. Bankers and investors usually want this information as well.
Please refer to the Personal Financial Statement Spreadsheet.
Startup Expenses and Capitalization
You will have many expenses before you even begin operating your business. It is
important to estimate these expenses accurately, and then to plan where you will get suffi-
cient capital.This is a research project, and the more thorough your research, the less
chance you will leave out important expenses or underestimate them.
Even with the best of research, however, opening a new business has a way of costing
more than you anticipate.There are two ways to make allowances for surprise expenses.
The first is to add a little “padding” to each item in the budget.The problem with that
approach, however, is that it destroys the accuracy of your carefully wrought plan.The sec-
ond approach is to add a separate line item, which we call contingencies, to account for
the unforeseeable.This is the approach we recommend, and you will see a “Contingencies”
line in our spreadsheet.
Talk to others who have started similar businesses to get a good idea of how much to
allow for contingencies. If you cannot get good information, we recommend a rule of
thumb that contingencies should equal at least 20% of the total of all other startup expens-
es.
For this section, please refer to the Startup Expenses Spreadsheet.
Explain your research and how you arrived at your forecasts of expenses. Give sources,
amounts, and terms of proposed loans.Also explain in detail how much will be con-
tributed by each investor and what percent ownership each will have.
Financial plan
The financial plan consists of a 12-month profit and loss projection, a four-year profit
and loss projection (optional), a cash flow projection, a projected balance sheet, and a
breakeven calculation.Together they constitute a reasonable estimate of your company’s
financial future. More importantly, however, the process of thinking through the financial
plan will improve your insight into the inner financial workings of your company.
Twelve Month Profit and Loss Projection
Many business owners think of this as the centerpiece of their plan.This is where you
put it all together in numbers and get an idea of what it will take to make a profit and be
successful.
Forecast sales, cost of goods sold, expenses, and profit month by month for one year.
Your sales projections will come from the Twelve-Month Sales Forecast you did in the
Marketing Plan section.
Please refer to the Twelve-Month Profit and Loss Spreadsheet.
Profit projections should be accompanied by a narrative explaining the major assump-
tions used to estimate company income & expenses.
Research Notes: In addition, keep careful notes on your research and assumptions, so
you can explain them later if necessary, and also so you can go back to your sources when
it is time to revise your plan later on.
Four Year Profit Protection (optional)
Please refer to the Four-Year Profit Projection spreadsheet.
The 12-month projection is the heart of your financial plan. However, we provide this
work sheet for those who want to carry their forecasts beyond the first year. It is expected
of those seeking venture capital. Bankers pay more attention to the 12 month projection.
Of course, keep notes of your key assumptions, especially about things you expect to
change dramatically after the first year.
Projected Cash flow
Please refer to the Twelve-Month Cash Flow Spreadsheet.
If the profit projection is the heart of your business plan, then cash flow is the blood.
Businesses fail because at some point they cannot pay their bills. Every part of your busi-
ness plan is important, but none of it means a thing if you run out of cash.
The point of this worksheet is to plan how much you need before startup, for prelimi-
nary expenses, operating expenses, and reserves.You should keep updating it and using it
afterwards as well. It will enable you to foresee shortages in time to do something about
them; perhaps to cut expenses, or perhaps to negotiate a loan. But at least not to be taken
by surprise.
There is no great trick to preparing it: the cash flow projection is just a forward look at
your checking account.
Use the 12-month Profit and Loss statement for a starting point. For each item, deter-
mine when you actually expect to receive cash (for sales) or when you will actually have
to write a check (for expense items)
The bottom section,“Essential Operating Data”, is not part of cash flow but allows you
to track items which have a heavy impact upon cash flow, such as sales and inventory pur-
chases.
The “Pre Startup” column is for cash outlays prior to opening.You have already
researched those for your Startup Expenses plan.
Your cash flow will show you whether your working capital is adequate. Clearly, if your
projected cash balance ever goes negative, you will need more startup capital.This plan
will also predict just when and how much you will need to borrow. New loans go on the
line called “Loan / other inj.”.
Explain your major assumptions; especially, those which make the cash flow differ from
the Profit and Loss Projection. For example: If you make a sale in month one, when do you
actually collect the cash? When you buy inventory or materials do you pay in advance,
upon delivery, or much later?
How will this affect cash flow?
Are some expenses payable in advance? When?
Are there irregular expenses such as quarterly tax payments, maintenance and repairs,
or seasonal inventory buildup which should be budgeted?
Loan payments, equipment purchases, and owner’s draws usually do not show on profit
and loss statements, but definitely do take cash out. Be sure to include them.And of
course, depreciation does not appear in the cash flow at all because you never write a
check for it.
Opening Day Balance Sheet
A balance sheet is one of the fundamental financial reports which any business needs
for reporting and financial management.A balance sheet shows what items of value are
held by the company (Assets), and what its debts are (Liabilities).When liabilities are sub-
tracted from assets, the remainder is Owners’ Equity.
Use your Startup Expenses and Capitalization spreadsheet as a guide to preparing a bal-
ance sheet as of opening day.
Please refer to the Opening Day Balance Sheet Spreadsheet.
In this section of your business plan explain how you calculated the account balances
on your Opening Day Balance Sheet.
OPTIONAL: Some people want to add a projected balance sheet showing the estimated
financial position of the company at the end of the first year.This is especially useful when
selling your proposal to investors. If you want to do this, use the Projected Balance Sheet
spreadsheet template in our Established Business plan.
Breakeven Analysis
A breakeven predicts the sales volume, at a given price, required to recover total costs.
In other words, it’s the sales level that is the dividing line between operating at a loss and
operating at a profit .
Expressed as a formula, breakeven is:
Breakeven Sales = Fixed Costs
1- Variable Costs
(Where fixed costs are expressed in dollars, but variable costs are expressed as a percent
of total sales.)
Please refer to the Breakeven Analysis Spreadsheet.
Include all assumptions upon which your breakeven calculation is based.
Appendices
Following is a list of all the spreadsheets required in this business plan in order of appear-
ance:
Name of spreadsheet Filename
12-month Sales Forecast TBD
Personal Finance Statement TBD
Startup Expenses TBD
12-month Profit and Loss TBD
4-year Profit projection TBD
12-Month Cash Flow TBD
Opening Day Balance Sheet TBD
Breakeven Analysis TBD
Include details & studies used in your Business Plan; for example:
Brochures & advertising materials
Industry studies
Blueprints & plans
Maps & photos of location
Magazine or other articles
Detailed lists of equipment owned or to be purchased
Copies of leases & contracts
Letters of support from future customers
Any other materials needed to support the assumptions in this plan
Market research studies
List of assets available as collateral for a loan
Refining the Plan
The generic business plan presented above should be modified to suit your specific
type of business and the audience for which the plan is written.
For Raising Capital
For Bankers
Bankers want assurance of orderly repayment. If you intend using this plan to present to
lenders, include:
Amount of loan
How the funds will be used
What will this accomplish (how will it make the business stronger?)
Requested repayment terms (number of years to repay).You will probably not have much
negotiating room on interest rate, but may be able to negotiate a longer repayment term,
which will help cash flow.
Collateral offered, and list of all existing liens against collateral
For Investors
Investors have a different perspective.They are looking for dramatic growth, and they
expect to share in the rewards.
Funds needed short term
Funds needed in 2 to 5 years
How company will use funds, and what this will accomplish for growth.
Estimated return on investment
Exit strategy for investors (buyback, sale, or IPO)
Percent of ownership you will give up to investors
Milestones or conditions you will accept
Financial reporting to be provided
Involvement of investors on the Board or in management
Refine for type of business
Manufacturing
Planned production levels
Anticipated levels of direct production costs and indirect (overhead) costs — how do
these compare to industry averages (if available)
Prices per product line
Gross profit margin, overall and for each product line
Production/ Capacity limits of planned physical plant
Production/ Capacity limits of equipment
Purchasing and inventory management procedures
New products under development or anticipated to come on line after startup
Service Businesses
Service businesses sell intangible products.They are usually more flexible than other
types of business, but they also have higher labor costs and generally very little in fixed
assets.
What are the key competitive factors in this industry?
Your prices
Methods used to set prices
System of production management
Quality control procedures. Standard or accepted industry quality standards
How will you measure labor productivity?
Percent of work subcontracted to other firms.Will you make a profit on subcontracting?
Credit, payment, and collections policies and procedures
Strategy for keeping client base
High Technology Companies
Economic outlook for the industry.
Will the company have info systems in place to manage rapidly changing prices, costs, and
markets?
Will you be on the cutting edge with your products and services?
What is the status of R&D? And what is required to:
Bring product/service to market?
Keep the company competitive?
How does the company:
Protect intellectual property?
Avoid technological obsolescence?
Supply necessary capital?
Retain key personnel?
High tech companies sometimes have to operate for a long time without profits, and some-
times even without sales. If this fits you, then banker probably will not want to lend to
you.Venture capitalists may invest, but your story must be very good.You must do longer
term financial forecasts to show when profit take-off is expected occur.And your assump-
tions must be well documented and well argued.
Retail Business
Company image.
Pricing:
Explain markup policies.
Prices should be profitable, competitive and in accord with company image.
Inventory:
Selection and price should be consistent with company image.
Inventory Level: Find industry average numbers for annual inventory turnover rate (avail-
able in RMA book). Multiply your initial inventory investment times the average turnover
rate.The result should be at least equal to your projected first year’s Cost of Goods Sold. If
it is not, then you may not have enough budgeted for startup inventory.
Customer service policies: should be competitive and in accord with company image.
Location: Does it give the exposure you need? Is it convenient for customers? Is it consis-
tent with company image?
Promotion: methods used, cost. Does it project a consistent company image?
Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor
the cost into prices?
MSU is an affirmative-action, equal-opportunity institution. Michigan State University Extension programs and mate-
rials are open to all without regard to race, color, national origin, gender, religion, age, disability, political beliefs,
sexual orientation, marital status, or family status. • Issued in furtherance of Extension work in agriculture and home
economics, acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Tom Coon,
Extension Director, Michigan State University, E. Lansing, MI 48824. • This information is for education purposes
only. References to commercial products or trade names do not imply endorsement by MSU Extension or bias
against those not mentioned.
doc_289280192.pdf
The business plan consists of a narrative and several financial spreadsheets.The narrative template is the body of the business plan. It contains over 150 questions divided into several sections.Work through the sections in any order you like, except for the Executive Summary which should be done last. Skip any questions that do not apply to your type of business.
Business Plan for Startup Business
The business plan consists of a narrative and several financial spreadsheets.The narra-
tive template is the body of the business plan. It contains over 150 questions divided into
several sections.Work through the sections in any order you like, except for the Executive
Summary which should be done last. Skip any questions that do not apply to your type of
business.When you are through writing your first draft, you will have a collection of small
essays on the various topics of the business plan.Then you will want to edit them into a
smooth flowing narrative.
The real value of doing a business plan is not having the finished product in hand;
rather, the value lies in the process of research and thinking about your business in a sys-
tematic way.The act of planning helps you to think things through thoroughly, study and
research when you are not sure of the facts, and look at your ideas critically. It takes time
now, but avoids costly, perhaps disastrous, mistakes later.
This business plan is a generic model suitable for all types of businesses. However, you
should modify it to suit your particular circumstances. Before you begin, review the sec-
tion entitled Refining the Plan, found at the end of the narrative. It suggests emphasizing
certain areas depending upon your type of business (manufacturing, retail, service, etc.). It
also has tips for fine tuning your plan to make an effective presentation to investors or
bankers. If this is why you are writing your plan, then pay particular attention to your writ-
ing style.You will be judged by the quality and appearance of your work as well as your
ideas. For your guidance, we have included a document entitled Writing Guide.This is an
example of an executive summary written in a clear and concise style suitable for this type
of document.It typically takes several weeks to complete a good plan. Most of that time is
spent in research and re-thinking your ideas and assumptions. But then, that is the value of
the process. So make time to do the job properly.Those who do, never regret the effort.
And finally, be sure to keep detailed notes on your sources of information and the assump-
tions underlying your financial data.
Business Plan
OWNERS
Business name: Example Corporation
Address: Address Line 1
Address Line 2
City, ST 22222
Telephone: 222-333-4444
Fax: 111-222-3333
Email: [email protected]
Table of contents
I. Table of contents 3
II. Executive summary 3
III. General Company Description 3
IV. Products and services 3
V. Marketing plan 3
VI. Operational Plan 3
VII. Management and organization 3
VIII. Personal financial statement 3
IX. Startup Expenses and Capitalization 3
X. Financial plan 3
XI. Appendices 3
XII. Refining the Plan 3
Executive summary
Write this section last!
We suggest you make it 2 pages or less.
Include everything that you would cover in a 5-minute interview.
Explain the fundamentals of the proposed business: what will your product be, who will
be your customers, who are the owners, what do you think the future holds for your busi-
ness and your industry?
Make it enthusiastic, professional, complete and concise.
If applying for a loan, state clearly how much you want, precisely how you are going to
use it, and how the money will make your business more profitable, thereby ensuring
repayment.
General Company Description
What business will you be in? What will you do?
Mission Statement: Many companies have a brief mission statement, usually in thirty words
or less, explaining their reason for being and their guiding principles. If you want to draft a
mission statement, this is a good place to put it in the plan. Followed by:
Company goals and objectives: Goals are destinations — where you want your business to
be. Objectives are progress markers along the way to goal achievement. For example, a
goal might be to have a healthy, successful company that is a leader in customer service
and has a loyal customer following. Objectives might be annual sales targets and some spe-
cific measures of customer satisfaction.
Business philosophy:What is important to you in business?
To whom will you market your products? Your target market? (State it briefly here - you
will do a more thorough explanation in the Marketing section).
Describe your industry. Is it a growth industry? What changes do you foresee in your indus-
try, short term and long term? How will your company be poised to take advantage of
them?
Your most important company strengths and core competencies:
What factors will make the company succeed?
What do you think your major competitive strengths will be?
What background experience, skills, and strengths do you personally bring to this new
venture?
Legal form of ownership: Sole Proprietor, Partnership, Corporation, Limited Liability
Corporation (LLC)?
Why have you selected this form?
Products and services
Describe in depth your products and/or services (technical specifications, drawings, pho-
tos, sales brochures, and other bulky items belong in the Appendix).
What factors will give you competitive advantages or disadvantages? For example, level of
quality or unique or proprietary features.
What are the pricing, fee or leasing structures of your products and/or services?
Marketing plan
Notes on preparation:
Market research - Why?
No matter how good your product and your service, the venture cannot succeed with-
out effective marketing.And this begins with careful, systematic research. It is very danger-
ous to simply assume that you already know about your intended market.You need to do
market research to make sure they are on track. Use the business planning process as your
opportunity to uncover data and question your marketing efforts.Your time will be well
spent.
Market research - How?
There are 2 kinds of market research: primary and secondary.
Secondary research means using published information such as industry profiles, trade
journals, newspapers, magazines, census data, and demographic profiles.This type of infor-
mation is available in public libraries, industry associations, chambers of commerce, ven-
dors who sell to your industry, government agencies (Commerce Dept. and state and local
development agencies), and the SBA Business Information Centers and One Stop Capital
Shops.
Start with your local library. Most librarians are pleased to guide you through their busi-
ness data collection.You will be amazed at what is there.There are more online sources
than you could possibly use.A good way to start is at the SBA site,http://www.sba.gov/;
click the Outside Resources button for a great collection of resource links.Your Chamber
of Commerce has good information on the local area.Trade associations and trade publica-
tions often have excellent industry specific data.
Primary market research means gathering your own data. For example, you could do
your own traffic count at a proposed location, use the yellow pages to identify competi-
tors, and do surveys or focus group interviews to learn about consumer preferences.
Professional market research can be very costly, but there are many books out that show
small business owners how to do effective research by themselves.
In your marketing plan, be as specific as possible; give statistics and numbers and
sources.The marketing plan will be the basis, later on, of the all-important sales projection.
The Marketing Plan:
Economics
Facts about your industry:
What is the total size of your market?
What percent share of the market will you have? (This is important only if you think you
will be a major factor in the market.)
Current demand in target market
Trends in target market - growth trends, trends in consumer preferences, and trends in
product development.
Growth potential and opportunity for a business of your size
What barriers to entry do you face in entering this market with your new company? Some
typical ones are:
High capital costs
High production costs
High marketing costs
Consumer acceptance/brand recognition
Training/skills
Unique technology/patents
Unions
Shipping costs
Tariff barriers/quotas
And of course, how will you overcome the barriers?
How could the following affect your company?
Change in technology
Government regulations
Changing economy
Change in your industry
Product
In the Products/Services section, you described your products and services as YOU see
them. Now describe them from your CUSTOMER’S point of view.
Features and Benefits
List all your major products or services.
For each product/service:
Describe the most important features.That is, what will the product do for the customer?
What is special about it?
Now, for each produce/service, describe its benefits.That is, what will the product do for
the customer?
Note the difference between features and benefits, and think about them. For example, a
house gives shelter and lasts a long time, is made with certain materials and to a certain
design; those are its features. Its benefits include pride of ownership, financial security, pro-
viding for the family, inclusion in a neighborhood.You build features into your product so
you can sell the benefits.
What after-sale services will be given?
For example: delivery, warranty, service contracts, support, follow up, or refund policy.
Customers
Identify your targeted customers, their characteristics, and their geographic locations;
i.e., demographics.
The description will be completely different depending on whether you plan to sell to
other businesses or directly to consumers. If you sell a consumer product, but sell it
through a channel of distributors, wholesalers and retailers, then you must carefully ana-
lyze both the end consumer and the middlemen businesses to whom you sell.
You may well have more than one customer group. Identify the most important groups.
Then, for each consumer group, construct what is called a demographic profile:
Age
Gender
Location
Income level
Social class/occupation
Education
Other (specific to your industry)
Other (specific to your industry)
For business customers, the demographic factors might be:
Industry (or portion of an industry)
Location
Size of firm
Quality/technology/price preferences
Other (specific to your industry)
Other (specific to your industry)
Competition
What products and companies will compete with you?
List your major competitors:
Names & addresses
Will they compete with you in across the board, or just for certain products, certain cus-
tomers, or in certain locations?
Will you have important indirect competitors? (For example, video rental stores compete
with theaters, though they are different types of business.)
How will your products/services compare with the competition?
Use the table called Competitive Analysis, below to compare your company with your
three most important competitors. In the first column are key competitive factors. Since
these vary from one industry to another, you may want to customize the list of factors.
In the cell labeled “Me”, state how you honestly think you will likely stack up in cus-
tomers’ minds.Then check whether you think this factor will be a strength of a weakness
for you. Sometimes it is hard to analyze our own weaknesses.Try to be very honest here.
Better yet, get some disinterested strangers to assess you.This can be a real eye-opener.And
remember that you cannot be all things to all people. In fact, trying to be so, causes many
business failures because it scatters and dilutes your efforts.You want an honest assess-
ment of your firm’s strong and weak points.
Now analyze each major competitor. In a few words, state how you think they compare.
In the final column, estimate the importance of each competitive factor to the customer. 1
= critical; 5 = not very important.
Table 1: Competitive Analysis
Factor
Me
Strength
Weakness
Competitor A
Competitor B
Competitor C
Importance to Customer
Products
Price
Quality
Selection
Service
Reliability
Stability
Expertise
Company Reputation
Location
Appearance
Sales Method
Credit Policies
Advertising
Image
Having done the competitive matrix, write a short paragraph stating your competitive
advantages and disadvantages.
Niche
Now that you have systematically analyzed your industry, your product, your customers
and the competition, you should have a clear picture or where your company fits into the
world.
In one short paragraph, define your niche, your unique corner of the market.
Strategy
Now outline a marketing strategy that is consistent with your niche.
Promotion
How will you get the word out to customers?
Advertising: what media, why, and how often? Why this mix and not some other?
Have you identified low cost methods to get the most out of your promotional budget?
Will you use methods other than paid advertising, such as trade shows, catalogs, dealer
incentives, word of mouth (how will you stimulate it?), network of friends or profession-
als?
What image do you want to project? How do you want customers to see you?
In addition to advertising, what plans do you have for graphic image support? This
includes things like logo design, cards and letterhead, brochures, signage, and interior
design (if customers come to your place of business).
Should you have a system to identify repeat customers, and then systematically contact
them?
Promotional Budget
How much will you spend on the items listed above?
Before startup? (These numbers will go into your Startup budget.)
Ongoing? (These numbers will go into your Operating Plan budget.)
Pricing
Explain your method(s) of setting process. For most small businesses, having the lowest
price is not a good policy. It robs you of needed profit margin; customers may not care as
much about price as you think; and large competitors can under-price you anyway. Usually
you will do better to have average prices and compete on quality and service.
Does your pricing strategy fit with what was revealed in your competitive analysis?
Compare your prices with those of the competition.Are they higher, lower, the same?
Why?
How important is price as a competitive factor? Do your intended customers really make
their purchase decisions mostly on price?
What will be your customer service and credit policies?
Proposed Location
Probably you do not have a precise location picket out yet.This is the time to think
about what you want and need in a location. Many startups run successfully from home for
a while.
You will describe your physical needs later, in the Operational section of your business
plan. Here in the marketing section, analyze your location criteria as they will affect your
customers.
Is your location important to your customers? If yes, how so?
If customers come to your place of business:
Is it convenient? Parking? Interior spaces? Not out of the way?
Is it consistent with your image?
Is it what customers want and expect?
Where is the competition located? Is it better for you to be near them (like car dealers or
fast food restaurants) or distant (like convenience food stores)?
Distribution Channels
How do you sell your products/services?
Retail
Direct (mail order, web, catalog)
Wholesale
Your own sales force
Agents
Independent reps
Bid on contracts
Sales Forecast
Now that you have described your products, services, customers, markets, and market-
ing plans in detail, it is time to attach some numbers to your plan. Use the Sales Forecast
spreadsheet to prepare a month-by-month projection.The forecast should be based upon
your historical sales, the marketing strategies that you have just described, upon your mar-
ket research, and industry data, if available.
You may wish to do two forecasts: 1) a “best guess”, which is what you really expect,
and 2) a “worst case” low estimate that you are confident you can reach no matter what
happens.
For this section, please refer to the Twelve-Month Sales Forecast Spreadsheet.
Remember to keep notes on your research and your assumptions as you build this sales
forecast, and all subsequent spreadsheets in the plan.This is critical if you are going to
present it to funding sources.
Operational Plan
Explain the daily operation of the business, its location, equipment, people, processes,
and surrounding environment.
Production
How and where are your products/services produced?
Explain your methods of:
Production techniques & costs
Quality control
Customer service
Inventory control
Product development
Location
What qualities do you need in a location? Describe the type of location you will have.
Physical requirements:
Space; how much?
Type of building
Zoning
Power and other utilities
Access:
Is it important that your location be convenient to transportation or to suppliers?
Do you need easy walk-in access?
What are your requirements for parking, and proximity to freeway, airports, railroads, ship-
ping centers?
Include a drawing or layout of your proposed facility if it is important, as it might be for a
manufacturer.
Construction? Most new companies should not sink capital into construction, but if you
are planning to build, then costs and specifications will be a big part of your plan.
Cost: Estimate your occupation expenses, including rent, but also including: maintenance,
utilities, insurance, and initial remodeling costs to make it suit your needs.These numbers
will become part of your financial plan.
What will be your business hours?
Legal Environment
Describe the following
Licensing and bonding requirements
Permits
Health, workplace or environmental regulations
Special regulations covering your industry or profession
Zoning or building code requirements
Insurance coverage
Trademarks, copyrights, or patents (pending, existing, or purchased)
Personnel
Number of employees
Type of labor (skilled, unskilled, professional)
Where and how will you find the right employees?
Quality of existing staff
Pay structure
Training methods and requirements
Who does which tasks?
Do you have schedules and written procedures prepared?
Have you drafted job descriptions for employees? If not, take time to write some.They
really help internal communications with employees.
For certain functions, will you use contract workers in addition to employees?
Inventory
What kind of inventory will be kept: raw materials, supplies, finished goods?
Average value in stock (i.e., what is your inventory investment)?
Rate of turnover and how this compares to industry averages?
Seasonal buildups?
Lead-time for ordering?
Suppliers
Identify key suppliers.
Names & addresses
Type & amount of inventory furnished
Credit & delivery policies
History & reliability
Should you have more than one supplier for critical items (as a backup)?
Do you expect shortages or short term delivery problems?
Are supply costs steady or fluctuating? If fluctuating, how would you deal with changing
costs?
Credit Policies
Do you plan to sell on credit?
Do you really need to sell on credit? Is it customary in your industry and expected by
your clientele?
If yes, what policies will you have about who gets credit and how much?
How will you check the creditworthiness of new applicants?
What terms will you offer your customers; i.e., how much credit and when is payment
due?
Will you offer prompt payment discounts (hint: do this only if it is usual and customary in
your industry).
Do you know what it will cost you to extend credit? Have you built the costs into your
prices?
Managing your Accounts Receivable
If you do extend credit, you should do an aging at least monthly, to track how much of
your money is tied up in credit given to customers, and to alert you to slow payment prob-
lems.A receivables aging looks like this:
Total Current 30 Days 60 Days 90 Days Over 90 Days
Accounts Receivable Aging
You will need a policy for dealing with slow paying customers.
When do you make a phone call?
When send a letter?
When get your attorney to threaten?
Managing your Accounts Payable
You should also age your Accounts Payable, what you owe to your suppliers.This helps
you plan who to pay and when. Paying too early depletes your cash, but paying late can
cost you valuable discounts and damage your credit. (Hint: if you know you will be late
making a payment, call the creditor before the due date. It tends to relax them.)
Are prompt payment discounts offered by your proposed vendors?
A payables aging looks like this:
Total Current 30 Days 60 Days 90 Days Over 90 Days
Accounts Payable Aging
Management and organization
Who will manage the business on a day to day basis? What experience does that person
bring to the business? What special or distinctive competencies? Is there a plan for contin-
uation of the business if this person lost or incapacitated?
If you will have more than about ten employees, create an organizational chart showing
the management hierarchy and who is responsible for key functions.
Include position descriptions for key employees. If you are seeking loans or investors,
then also include resumes of owners and key employees.
Professional and Advisory Support
List board of directors and management advisory board.
Attorney
Accountant
Insurance agent
Banker
Consultant(s)
Mentors and key advisors in addition to the above
Personal financial statement
Include personal financial statements for each owner and major stockholder, showing
assets and liabilities held outside the business and personal net worth. Owners will often
have to draw on personal assets to finance the business, and these statements will show
what is available. Bankers and investors usually want this information as well.
Please refer to the Personal Financial Statement Spreadsheet.
Startup Expenses and Capitalization
You will have many expenses before you even begin operating your business. It is
important to estimate these expenses accurately, and then to plan where you will get suffi-
cient capital.This is a research project, and the more thorough your research, the less
chance you will leave out important expenses or underestimate them.
Even with the best of research, however, opening a new business has a way of costing
more than you anticipate.There are two ways to make allowances for surprise expenses.
The first is to add a little “padding” to each item in the budget.The problem with that
approach, however, is that it destroys the accuracy of your carefully wrought plan.The sec-
ond approach is to add a separate line item, which we call contingencies, to account for
the unforeseeable.This is the approach we recommend, and you will see a “Contingencies”
line in our spreadsheet.
Talk to others who have started similar businesses to get a good idea of how much to
allow for contingencies. If you cannot get good information, we recommend a rule of
thumb that contingencies should equal at least 20% of the total of all other startup expens-
es.
For this section, please refer to the Startup Expenses Spreadsheet.
Explain your research and how you arrived at your forecasts of expenses. Give sources,
amounts, and terms of proposed loans.Also explain in detail how much will be con-
tributed by each investor and what percent ownership each will have.
Financial plan
The financial plan consists of a 12-month profit and loss projection, a four-year profit
and loss projection (optional), a cash flow projection, a projected balance sheet, and a
breakeven calculation.Together they constitute a reasonable estimate of your company’s
financial future. More importantly, however, the process of thinking through the financial
plan will improve your insight into the inner financial workings of your company.
Twelve Month Profit and Loss Projection
Many business owners think of this as the centerpiece of their plan.This is where you
put it all together in numbers and get an idea of what it will take to make a profit and be
successful.
Forecast sales, cost of goods sold, expenses, and profit month by month for one year.
Your sales projections will come from the Twelve-Month Sales Forecast you did in the
Marketing Plan section.
Please refer to the Twelve-Month Profit and Loss Spreadsheet.
Profit projections should be accompanied by a narrative explaining the major assump-
tions used to estimate company income & expenses.
Research Notes: In addition, keep careful notes on your research and assumptions, so
you can explain them later if necessary, and also so you can go back to your sources when
it is time to revise your plan later on.
Four Year Profit Protection (optional)
Please refer to the Four-Year Profit Projection spreadsheet.
The 12-month projection is the heart of your financial plan. However, we provide this
work sheet for those who want to carry their forecasts beyond the first year. It is expected
of those seeking venture capital. Bankers pay more attention to the 12 month projection.
Of course, keep notes of your key assumptions, especially about things you expect to
change dramatically after the first year.
Projected Cash flow
Please refer to the Twelve-Month Cash Flow Spreadsheet.
If the profit projection is the heart of your business plan, then cash flow is the blood.
Businesses fail because at some point they cannot pay their bills. Every part of your busi-
ness plan is important, but none of it means a thing if you run out of cash.
The point of this worksheet is to plan how much you need before startup, for prelimi-
nary expenses, operating expenses, and reserves.You should keep updating it and using it
afterwards as well. It will enable you to foresee shortages in time to do something about
them; perhaps to cut expenses, or perhaps to negotiate a loan. But at least not to be taken
by surprise.
There is no great trick to preparing it: the cash flow projection is just a forward look at
your checking account.
Use the 12-month Profit and Loss statement for a starting point. For each item, deter-
mine when you actually expect to receive cash (for sales) or when you will actually have
to write a check (for expense items)
The bottom section,“Essential Operating Data”, is not part of cash flow but allows you
to track items which have a heavy impact upon cash flow, such as sales and inventory pur-
chases.
The “Pre Startup” column is for cash outlays prior to opening.You have already
researched those for your Startup Expenses plan.
Your cash flow will show you whether your working capital is adequate. Clearly, if your
projected cash balance ever goes negative, you will need more startup capital.This plan
will also predict just when and how much you will need to borrow. New loans go on the
line called “Loan / other inj.”.
Explain your major assumptions; especially, those which make the cash flow differ from
the Profit and Loss Projection. For example: If you make a sale in month one, when do you
actually collect the cash? When you buy inventory or materials do you pay in advance,
upon delivery, or much later?
How will this affect cash flow?
Are some expenses payable in advance? When?
Are there irregular expenses such as quarterly tax payments, maintenance and repairs,
or seasonal inventory buildup which should be budgeted?
Loan payments, equipment purchases, and owner’s draws usually do not show on profit
and loss statements, but definitely do take cash out. Be sure to include them.And of
course, depreciation does not appear in the cash flow at all because you never write a
check for it.
Opening Day Balance Sheet
A balance sheet is one of the fundamental financial reports which any business needs
for reporting and financial management.A balance sheet shows what items of value are
held by the company (Assets), and what its debts are (Liabilities).When liabilities are sub-
tracted from assets, the remainder is Owners’ Equity.
Use your Startup Expenses and Capitalization spreadsheet as a guide to preparing a bal-
ance sheet as of opening day.
Please refer to the Opening Day Balance Sheet Spreadsheet.
In this section of your business plan explain how you calculated the account balances
on your Opening Day Balance Sheet.
OPTIONAL: Some people want to add a projected balance sheet showing the estimated
financial position of the company at the end of the first year.This is especially useful when
selling your proposal to investors. If you want to do this, use the Projected Balance Sheet
spreadsheet template in our Established Business plan.
Breakeven Analysis
A breakeven predicts the sales volume, at a given price, required to recover total costs.
In other words, it’s the sales level that is the dividing line between operating at a loss and
operating at a profit .
Expressed as a formula, breakeven is:
Breakeven Sales = Fixed Costs
1- Variable Costs
(Where fixed costs are expressed in dollars, but variable costs are expressed as a percent
of total sales.)
Please refer to the Breakeven Analysis Spreadsheet.
Include all assumptions upon which your breakeven calculation is based.
Appendices
Following is a list of all the spreadsheets required in this business plan in order of appear-
ance:
Name of spreadsheet Filename
12-month Sales Forecast TBD
Personal Finance Statement TBD
Startup Expenses TBD
12-month Profit and Loss TBD
4-year Profit projection TBD
12-Month Cash Flow TBD
Opening Day Balance Sheet TBD
Breakeven Analysis TBD
Include details & studies used in your Business Plan; for example:
Brochures & advertising materials
Industry studies
Blueprints & plans
Maps & photos of location
Magazine or other articles
Detailed lists of equipment owned or to be purchased
Copies of leases & contracts
Letters of support from future customers
Any other materials needed to support the assumptions in this plan
Market research studies
List of assets available as collateral for a loan
Refining the Plan
The generic business plan presented above should be modified to suit your specific
type of business and the audience for which the plan is written.
For Raising Capital
For Bankers
Bankers want assurance of orderly repayment. If you intend using this plan to present to
lenders, include:
Amount of loan
How the funds will be used
What will this accomplish (how will it make the business stronger?)
Requested repayment terms (number of years to repay).You will probably not have much
negotiating room on interest rate, but may be able to negotiate a longer repayment term,
which will help cash flow.
Collateral offered, and list of all existing liens against collateral
For Investors
Investors have a different perspective.They are looking for dramatic growth, and they
expect to share in the rewards.
Funds needed short term
Funds needed in 2 to 5 years
How company will use funds, and what this will accomplish for growth.
Estimated return on investment
Exit strategy for investors (buyback, sale, or IPO)
Percent of ownership you will give up to investors
Milestones or conditions you will accept
Financial reporting to be provided
Involvement of investors on the Board or in management
Refine for type of business
Manufacturing
Planned production levels
Anticipated levels of direct production costs and indirect (overhead) costs — how do
these compare to industry averages (if available)
Prices per product line
Gross profit margin, overall and for each product line
Production/ Capacity limits of planned physical plant
Production/ Capacity limits of equipment
Purchasing and inventory management procedures
New products under development or anticipated to come on line after startup
Service Businesses
Service businesses sell intangible products.They are usually more flexible than other
types of business, but they also have higher labor costs and generally very little in fixed
assets.
What are the key competitive factors in this industry?
Your prices
Methods used to set prices
System of production management
Quality control procedures. Standard or accepted industry quality standards
How will you measure labor productivity?
Percent of work subcontracted to other firms.Will you make a profit on subcontracting?
Credit, payment, and collections policies and procedures
Strategy for keeping client base
High Technology Companies
Economic outlook for the industry.
Will the company have info systems in place to manage rapidly changing prices, costs, and
markets?
Will you be on the cutting edge with your products and services?
What is the status of R&D? And what is required to:
Bring product/service to market?
Keep the company competitive?
How does the company:
Protect intellectual property?
Avoid technological obsolescence?
Supply necessary capital?
Retain key personnel?
High tech companies sometimes have to operate for a long time without profits, and some-
times even without sales. If this fits you, then banker probably will not want to lend to
you.Venture capitalists may invest, but your story must be very good.You must do longer
term financial forecasts to show when profit take-off is expected occur.And your assump-
tions must be well documented and well argued.
Retail Business
Company image.
Pricing:
Explain markup policies.
Prices should be profitable, competitive and in accord with company image.
Inventory:
Selection and price should be consistent with company image.
Inventory Level: Find industry average numbers for annual inventory turnover rate (avail-
able in RMA book). Multiply your initial inventory investment times the average turnover
rate.The result should be at least equal to your projected first year’s Cost of Goods Sold. If
it is not, then you may not have enough budgeted for startup inventory.
Customer service policies: should be competitive and in accord with company image.
Location: Does it give the exposure you need? Is it convenient for customers? Is it consis-
tent with company image?
Promotion: methods used, cost. Does it project a consistent company image?
Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor
the cost into prices?
MSU is an affirmative-action, equal-opportunity institution. Michigan State University Extension programs and mate-
rials are open to all without regard to race, color, national origin, gender, religion, age, disability, political beliefs,
sexual orientation, marital status, or family status. • Issued in furtherance of Extension work in agriculture and home
economics, acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture. Tom Coon,
Extension Director, Michigan State University, E. Lansing, MI 48824. • This information is for education purposes
only. References to commercial products or trade names do not imply endorsement by MSU Extension or bias
against those not mentioned.
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