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What goes into a business plan? It's a good question -- and one that anyone thinking about starting a small business should ask.
The body of the business plan can be divided into the four main sections shown below. Addenda to the plan should include the executive summary, supporting documents, and financial projections.
Description of the Business
Marketing Plan
Financial Management Plan
Management Plan
In this section, provide a detailed description of your business. Ask yourself, "What business am I in?" In answering, talk about your products, market, and services, and provide a thorough explanation of what makes your business unique.
The business description section is often divided into three sub-sections. The first describes your business, the second describes the product or service you're offering, and the third discusses the location of the business and why that location is desirable.
This sub-section usually starts with a cover sheet that includes the name, address and telephone number of the business, and the names of all principals.
When describing your business, you should explain:
In this sub-section, describe the unique aspects and special features of our business and how or why they will appeal to consumers. The description of your business should clearly state your goals and objectives, and identify why you are (or want to be) in business.
Successful business owners know (or at least have an idea) what their customers want from them. Try to describe the benefits of your goods and services from your customers perspective. This anticipation can be helpful in building customer satisfaction and loyalty, and it's a particularly good strategy for beating the competition or retaining your competitiveness. Describe:
Your location should be targeted to your customers: it should be accessible, and provide a sense of security. Consider these questions when addressing this sub-section of your business plan:
By identifying your customers, and their likes, dislikes, expectations, you can develop a marketing strategy that will allow you to arouse and fulfill their needs. Identify your customers by their age, sex, income/educational level and residence. At first, target only those customers who are most likely to purchase your product or service. As your customer base expands, you may want to modify the marketing plan to include other customers.
Develop your marketing plan by answering these questions. (Potential franchise owners will have to use the marketing strategy the franchiser has developed.)
Competition is a way of life. It's important to know your competitors, so you can position yourself to have an edge over them. Questions like these can help you:
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?
Start a file on each of your competitors. Include copies of their advertising and promotional materials. Study the copy used in these materials, and their sales strategy. Determine how, when, and how often they advertise, sponsor promotions, and offer sales. Make notes on their pricing strategy and techniques. How much do they reduce prices for sales? Using this technique can help you to understand your competitors better.
Your pricing strategy is another tool you can use to improve your 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, as well as with industry averages.
Some common pricing strategies are:
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 franchiser provides operational procedures and materials, it's a good policy to keep abreast of the changes in the marketplace, because these changes can affect your competitiveness and profit margins.
If people don't know about your product or service, you might as well not have it. Many business owners operate under the mistaken idea that the business will promote itself. Unwisely, they put the money that should be used for advertising and promotion into other areas of the business.
Don't make that mistake. Instead, devise a plan that uses advertising and networking as a means to promote your business. Develop short, descriptive copy that clearly identifies your goods or services, location and price. Use catchy phrases to arouse the interest of your readers, listeners, or viewers.
A franchiser will provide advertising and promotional materials as part of the franchise package; you may need approval to use any materials that you develop. Whether or not this is the case, as a courtesy, allow the franchiser to review these materials before using them. Make sure the ads you create are consistent with the image the franchiser wants to project.
Each year, thousands of potentially successful businesses fail because of poor financial management. As a business owner, you will need to identify and implement policies that will ensure that you will meet your financial obligations.
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 to keep it open (operating costs).
The first step to building a sound financial plan is to devise a start-up budget. It will usually include such one-time costs as major equipment, utility deposits, and down payments. Your operating budget is prepared when you are ready to open for business. It reflects 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 3 to 6 months of operation.
The table below shows the expenses that should, as a minimum, be included in these two budgets:
Item |
Start-Up |
Operating |
Personnel costs (before opening) |
X | |
Personnel costs |
X | |
Occupancy |
X | |
Equipment |
X | |
Supplies |
X | X |
Salaries/Wages |
X | X |
Income |
X | |
Legal/Accounting/Professional |
X | X |
Licenses/Permits |
X | |
Insurance |
X | X |
Advertising/Promotion |
X | X |
Accounting |
X | |
Utilities |
X | X |
Rent |
X | |
Loan Payments |
X | |
Dues/Subscription Fees |
X | |
Repairs/Maintenance |
X | |
Depreciation |
X | |
Payroll Expenses |
X | |
Taxes |
X | |
Miscellaneous Expenses |
X |
This 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 3-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 are also addressed in this section of the business plan. Whether you develop the accounting and inventory systems yourself, have an outside financial advisor develop the systems, or use systems provided by the franchiser, you will need to acquire a thorough understanding of each system and how it operates.
The following questions should help you determine the amount of start-up capital you will need to purchase and open your franchise.
Other questions you'll need to consider are:
Your plan should include an explanation of all projections. Unless you're thoroughly familiar with financial statements, get help in preparing your cash flow and income statements and your balance sheet. Your aim is not to become a financial wizard, but to understand the financial tools well enough to gain their benefits. Your accountant or financial advisor can help you accomplish this goal, as well as to develop this section of your business 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 flexibility to handle both employees and finances. Your management plan, along with your marketing and financial management plans, establishes the foundation for the success of your business.
Like plants and equipment, people are resources - often the most valuable asset a business has. It's imperative that you know what skills you possess, since you will have to hire personnel to supply the skills that you lack. Additionally, it's vital that you know how to manage and treat your employees. Make them a part of the team. Keep them informed of changes, and get their feedback. Employees often have excellent ideas that can lead to new market areas, improvements to existing products or services, or new lines that make your business more competitive. Your management plan should answer questions such as:
How does your background/business experience help you in this business?
If your business is a franchise, you should study the operating procedures, manuals, and materials devised by the franchiser, and include them in this section of your business plan. The franchiser should assist you with managing your franchise. Take advantage of their expertise and develop a management plan that will ensure the success for your franchise and satisfy the needs and expectations of employees, as well as the franchiser.
This information was excerpted from a 48-page U.S. Small Business Administration publication entitled The Business Plan- Road Map To Success.
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