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ОглавлениеCHAPTER THREE - The Business Plan
One of the first questions that clients raise when coming to SCORE for counseling is whether they have to write a business plan. The correct answer to this question is whether the individual is willing to use the business plan as a working document in the venture, or only as a one time exercise to start the business or to help raise money. In the ideal world, the business plan is a living document that is developed when a business is started, and then maintained and updated at regular intervals as the venture matures
Why Develop a Formal Business Plan? - There are several very important reasons why a business would benefit from doing a business plan. Specifically:
It provides a discipline that forces the writer to think-through all the aspects of a business that will be important to the success of the venture. This includes both the strategic approach (i.e., overall business strategy; marketing strategy, pricing strategy etc) and the tactical elements (promotion programs, advertising, networking, etc.) of a program to launch the business.
It increases the likelihood that the writer of the plan has carefully evaluated the competitive marketplace, is familiar with the category/business where they will compete and, importantly, knows the profile of the major competition to whom they will face as they begin the venture.
It provides a very important communications vehicle for explaining the business to other parties. For example, anyone who would consider investing in the business will want to see a business plan to be able to understand the market in which they are operating and what their plan is to enter the category in light of the competition. It also provides the very important financial details such as P&L projections, cash flow analyses and balance sheet estimates for the first three years of the venture.
It forces you to set financial goals for the business that will become the benchmark for success as the venture matures. These goals should be updated at least semi-annually based on the experiences in the actual marketplace.
It gives you the discipline to set specific goals for the business for the coming year. For example, what are the 3-5 things that you would like your business to accomplish in the plan year? Do you want to generate ‘x’ number of new accounts, ‘y’ levels of awareness, ‘ z’ levels of retail distribution, etc. These are very important benchmarks against which you would be able to judge the progress of the business as time goes on. Importantly, this is an exercise that should be on going, and not just something that is implemented only in the first year of preplanning the business.
A business plan should be a dynamic, rather than a static document. Some organizations write a plan when they start their business and never look at it again. The smarter organizations will continuously review their plan and revise it based on new learning and actual in-the-market experience.
How to Write a Business Plan - An effective business plan is generally written over an extended period of time (weeks or months) as each section will require some research and analysis. Some SCORE clients come to us with the goal of seeking to develop an effective plan, and our goal is often to try and write one section every week or two based on the learning at that point in time. There are a few key steps that should be taken in the process that will facilitate writing the plan.
Conduct your own research of the business category in which you will enter, with the objective of learning as much as possible about how the category operates, and importantly what it takes to be successful in the market. Before you write the plan you should be able to identify the 3-5 keys to success in the business you will be entering.
Seek secondary sources that can add to your knowledge of the categories. For example, some business libraries will have examples of business plans written by others that you could use as an example of how you plan to approach the venture. One library in New York City (Science and Industry Business Library -. SIBL) contains hundreds of business plans for different types of companies, and you might find one written about your type of business or something very close to it. Another excellent source for business plan examples is the website www.bplans.com. They also have hundreds of sample plans you can use to help you develop your document.
Identify a business plan format that appeals to you. There is no ‘ right’ business plan format. If you search Google for business plan formats you will get 20,800,000 results, none of which is the ideal, but most of which probably are adequate. In this chapter we will identify the sections of a business plan that we believe to be most important. You can decide if this is right for you, or you go to other sources for an approach that makes you feel more comfortable.
Determine your personal goals. Specifically, what are you trying to achieve with your venture. Are you seeking to develop a large business with many employees that will generate approximately $XXX in personal income? Or is your goal to just create a successful one-person venture that can give you $YYY income each year? Perhaps your goal is to be a high profile businessperson who is regularly quoted in the papers and online, and this is more important to you than the income you make from the business? Needless to say, there are infinite combinations of personal goals but it is essential that you carefully think through yours, as they will impact significantly on the type of business plan you develop.
Length of a Business Plan - One of the most common questions we get from clients is how long the plan should be. We have seen plans that are three pages and others that are eighty pages. Generally, the length of the plan depends on the use for which it is written, thus it is often necessary to have two plans. Specifically, an investor or lender of any type generally will not be favorable toward a plan that exceeds 10 pages, thus requiring you to summarize much of the important information. However, a plan written to help you assess and ultimately manage the business might be 20-40 pages. We always suggest writing the more thorough plan first, and then reducing it to the short version when the need arises relative to reaching outside investors or lenders.
The Sections of a Business Plan - The following will provide a description of the various sections of a business plan. Each of these is essential to the plan. Should you wish to add other sections that would be fine based on your own judgment.
Executive Summary - This is the first section of any business plan but the last one that should be written. The goal of this section is to provide a 1-2 page overview of the key information in your plan so a reader could quickly read the summary and get a general idea about the business category you will be entering, how you will approach the venture and what the anticipated financial results are that you are anticipating.
Market Overview - This section should consist of a very brief, but thorough overview of the business category in which you will be entering. Specifically, what are the key characteristics of the business in terms of operations, marketing, sales and distribution? What have been the growth patterns of the business in the past and what is the anticipation for the future? In the event you are creating a new category where there is no specific history, this section should provide information about other similar categories and what you have learned from their dynamics and growth patterns that will provide a sufficient background for your specific entry into the related business.
Competitive Environment - This is a very important section as it provides a detailed analysis of the various competitors in the market in terms of their overall business strategy, how they have performed, and what you believe to be the key reason for their success. For example, were they the first in the market, do they have the strongest brand name, the best distribution system, the largest advertising budget? Each of these is very important. Further this section should explore the key messages of the various brands that would give their customer a reason why to purchase them versus the other similar brands in the market.
Description of your Product or Service - This is a brief section that provides a detailed description of the product or service you will be marketing. The key to this section is to ensure that a person who knows nothing about your venture could read this section and have a complete understanding of what you are offering.
Overall Business Strategy - This is a one-paragraph statement of the goals of the business and the strategic approach to achieving this goal. The implementation of the plan would be a direct outgrowth of the strategies from this paragraph. The following would be an example of a business strategy for a new dry cleaning business:
The overall objective for the XYZ dry cleaning business is to be the leading supplier in ABC County in terms of both volume and profitability. To achieve this objective our strategic focus will be:
To provide a level of quality and professionalism that is unique to the industry
To be the premium price dry cleaner in the area, justifying the higher price by offering a much higher level of service than is currently offered
To generate customers by offering convenience via multiple drop-off outlets and free pick-up and delivery
To execute a marketing plan unique to the industry involving both awareness generating advertising and trial and repeat pro motional programs
Keys to Success - This is an essential section of the business plan as it identifies the key elements of your program that will lead to the success of your product or service. This section would consist of a description of the element(s) of the marketing program that will determine the success or failure of your program. It is based on an in-depth analysis of the market in which you determine that the real leverage in the category and reason you will succeed will depend on being able to deliver on the key(s) to success you have identified. Some examples of potential keys to success might be:
The ability to obtain in depth distribution in independent toy stores
The ability to generate substantial traffic to our web site
The capability to communicate that we offer a superior service, at a justifiability higher price
Our ability to deliver on the promise of providing 12 hour service for our equipment in the event of failure
Marketing Plan - The marketing plan is the tactical part of the business plan, and it identifies the programs you have developed that will make you successful in the marketplace. It consists of several sub sections as identified below:
Description of the USP for the product or service - This consists of a clear articulation of why your product or service is different (and hopefully more appealing) than the others in your category. Does it meet a need that others do not, or does it fulfill a wish that customers have but cannot get from the other items in the category.
Positioning of your product in the category - Positioning is essentially how you would like your target customers to view your product or service. It will be covered in great detail in a later chapter of this book.
Description of your target audience - This is a brief description of the market segment to which you will direct your marketing effort, and from which you anticipate your sales.
Program(s) to generate awareness of your offering - If your target customers are not aware of the item you have available it cannot succeed. Therefore you should identify what programs you will be implementing to create awareness of your offering. This would include a discussion of any of the following:
Media advertising
Social media
Networking
Speaking engagements
E-mail blasts
etc.
Program(s) to generate trial and usage of your product or service - Once you have created some awareness of your offering, it is necessary to do something to motivate the target customer to become a buyer/customer/client. In some product categories this consists of offering coupons or refund offers, in others it might be a free consultation and in a third it could be a store wide promotion offering a special event to draw in customers.
Management and Organization - This is a section where you will identify your plans for operating the company for the first three years. It should include a discussion of your legal structure (i.e., C Corp, S Corp, LLC, PC, etc.), and an overview of the personnel requirements of the organization. For example if you will require a sales effort to generate revenues, how will you achieve this in terms of using employees, brokers, distributors or just yourself as the selling entity for the organization. The section should also outline the organizational structure in terms of reporting relationships for employees who will work for the company for the initial three years.
Start-up Expenses - This is a section that will identify all the expenses that will be required to get you into the business. It will include only the ONE TIME expenses such as the purchase of computers, office equipment, supplies etc. that are needed to get the operation started.
Financial Projections - This is the most important part of the entire business plan, as it outlines your sense of the revenue and cash flow that will be coming to the company for the first three years. It should consist of four documents:
Pro Forma P&L - This is a projected profit and loss statement for the initial three year period of operations. It is a very difficult worksheet to create, as most new ventures do not have a clear path as to their revenues for the initial 12-18 months. Therefore it is important to make assumptions (which you will keep as an Appendix to the plan) so they can be revisited as the business begins operating. Do not make the mistake of assuming that your revenues will be flat for the first 12 months. Every business experiences a ramp-up time as you get started so the revenues in the early months will be significantly less than in the later months. It should be relatively easy to project expenses, as most of the expenses you will incur will probably be easily identified. These are items such as rent, utilities, staff salaries, product cost of goods, etc. A sample P&L for a company is shown at the end of this chapter.
Cash Flow Statement - This is an absolutely essential document that most business plans do not include. It shows the monthly flow of cash for the first year of the business. The intent is to identify cash needs of the business during the early stages of operation. It starts with the opening balance of your business account and reflects both the revenues and the expenses each month, showing the cash balance each in the company each month. A sample cash flow statement for a hypothetical company is shown at the end of this chapter.
Balance Sheet - This is a statement of the assets, liabilities and net worth of the organization and is a vital document when seeking funding for the organization. An example of a balance sheet for a hypothetical company is shown at the end of this chapter.
If a business plan is being developed for the purpose of applying for a loan, then it also must include a personal financial statement. This is essentially a statement of the assets you own, the income you have coming in from work or investments, and the liabilities you currently have such as mortgages or car loans. Virtually every loan to a small business will be secured based on the assets of the individual. Generally this is the equity in the home. For this reason it is very important that new businesses carefully think through their needs for start-up monies, as there is considerable risk in putting your house up as the collateral for obtaining operating cash for your business.
SUMMARY - It is almost impossible to do too much planning when starting a new business. While developing a business plan might appear to be an academic exercise to the aggressive entrepreneur, it will pay you back in dividends over time. Take the extra time to develop your plan, and then use it as a dynamic document as the business proceeds. You will be glad you did.
