Business Planning Guide for Entrepreneurs
212 East 4th
Street
Waterloo, Iowa
319-236-8123
888-237-8124
Developing a
business plan is the first step to a successful business. This guide will provide
an outline in
organizing your effort to gather and evaluate information about your
business.
By planning your
business’s needs, you will develop an essential part of the business-it’s
strategy!
The Business Plan Outline
Starting and managing a
business takes motivation, desire and talent.
It also takes research and planning.
The process of developing a business plan will help you think through
some important issues that you will need to consider. Your plan will become a valuable tool as you set out to raise
money for your business. It should also
provide milestones to gauge your success.
A business plan precisely defines your business, identifies your goals and serves as your firm's resume. Its basic components include a market study, marketing/promotional strategy, current balance sheet, an income statement and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers and others about your operations and goals. (Note: The UNI Regional Business Center has Business Planning Software available in our computer lab). The business plan brings several legal issues to light including licenses, permits, zoning laws that may vary business-to-business and state-to-state. Your local Small Business Administration (SBA) office and/or chamber of commerce can provide you with general information, but you will need to consult your attorney for advice specific to your enterprise and area. You also must decide about your form of organization (corporation, partnership or sole proprietorship).
The following is a suggested
outline of the material that should be included in your business plan. This guide focuses on product/service,
market, management, and money. Every
business plan is unique, as is every business.
This guide was designed with a general purpose in mind; therefore, some
things may not apply to your business.
Consult your SBDC counselor if you have questions on what to include in
your plan. View a sample business plan
on the UNI Regional Business Center’s website http://www.uni.edu/rbc/basics/sampleplan.doc.
Business Plan Outline
Cover Page
The cover page is the first impression of your business plan. It should include the name of the company, company address, company phone number, owners and their addresses/phone numbers, and the date of the plan. Also incorporate the company logo if there is one.
Table of
Contents (optional)
Executive Summary
The executive summary briefly states the company's
present situation as well as its goals and objectives for the business ventures
of the company. This section should be
written after sections IV-VIII have been completed.
A. The
Business
The business portion of the business plan provides an overview of your planned business operation. You should briefly describe your product/service and how you will maintain a sustainable competitive advantage.
B. Management
The management plan of your business outlines the organizational structure that defines the lines of authority and the responsibilities of the key players.
C. Market
The marketing plan includes information about the total market with an emphasis on your target market and how you plan to make your product/service available to them.
D. Money
The money section of your business plan shows past, current and projected financial activity. Documents that should be included are the summary of financial needs, sources and uses of funds statement, three-year income projection and cash flow projection, notes and critical assumptions for the projections, and a break-even analysis.
Exhibits
Include only documents needed to substantiate what has been presented in the body of the plan. Examples would include resumes, purchase agreements, bids, contracts, etc.
A. The Business
Describe your Business Include
detailed information about the overall industry and how your business will
maintain a sustainable competitive advantage.
Tell about your history, present status and future projections. Project a sense of what you expect to
accomplish in the first years.
Describe your Product(s) Outline
your product or service in terms of marketability. Describe the purpose of your product, the need it satisfies and
what makes your product unique. List
future products or services you plan to provide.
If manufacturing,
tell all about the manufacturing process.
Give a detailed description of your products from raw materials to
finished items. Also describe product
development and research efforts.
Describe the stage of development, formal testing and alternative uses
for your product. Include your quality
assurance procedures. Identify your
primary suppliers and alternative suppliers.
Proprietary Information Describe
any specific knowledge or technology that you have and your competitors do
not. Describe any efforts taken to
obtain patents, copyrights, and trademark or name registration.
Regulations Describe
any regulations that affect the sale and use of your product. Remember to check on the local, state and
federal levels.
Competition Describe
the strengths and weaknesses of your product or service in comparison to
existing or potential competitors. Also
describe any products that may be substituted for yours.
Location Describe
the site and why it was chosen.
Facility and Equipment Describe
the building and equipment needs for your business and how you determined this
need. Also describe how long the
facility will meet your needs and the actions you plan to take at that
point. If manufacturing, what is the
maximum production capacity of the facility and equipment and your expected
level of production.
Operational Needs Describe your
transportation and utility needs and any associated costs.
Environmental Factors Describe
the impact of regulations and the use and disposal of any hazardous
wastes. Identify the agencies that may
regulate your business and potential impact.
Barriers Describe
the most significant barriers you expect while launching and operating your
business. Explain how you expect to
overcome these problems.
B. Management
Ownership Composition Define
the form of the business organization (see “Choosing a Business
Organization”). Specify who the owners
of your business are and what percentage they own. Also describe members of your Board of Advisors.
Management Describe
who is behind the business. For each
owner, tell about responsibilities and abilities. Indicate the level of knowledge and interest in the industry and
any formal training received. Support
with resumes. Also indicate who manages
the business on a day-to-day basis, who is responsible for long-range planning
and who initiates changes. Indicate how
this person monitors industry trends.
Be sure to indicate who has primary operational, marketing and
accounting responsibilities and their qualifications to do so.
Personnel Indicate
the number of employees and briefly define their positions. Describe who will be doing the work, why
they are qualified, the responsibilities of each position, and the wages and
benefits. Consult
your trade association and accountant to learn the most current practices. While there is a minimum wage set by federal
law and by some states for most jobs, the actual wage paid is entirely between
you and your prospective employee.
Security Address
in terms of inventory control, theft of information and employee
screening. Consider security measures
such as a physical security system and computer security system as well as
seminars to spot shoplifters. In
addition, design a plan for your personnel; careful pre-hire screening and
policies to ensure awareness and honesty.
Security measures should also include natural disaster plans and
off-site regularly updated business records.
Consultants List
professionals that will provide services to your business. These include accountants, lawyers and
consultants (such as the SBDC).
Consider including the following documentation of your Management Plan
in the Exhibits:
Personal Resumes Should be
limited to one page and include work history, educational background,
professional affiliations, honors and special skills.
Legal Documents All legal
papers pertaining to your legal structure, proprietary rights, insurance,
titles, etc.
Schedule Prepare
a schedule of employee staffing.
Determine the number of hours the business will be open and indicate the
level of staffing during the schedule period.
These numbers should correspond with your estimates of payroll expenses
on your projected financial statements (see the Money section of this guide).
C.
Marketing
Product When
you think about a Product, you usually think of something tangible that has to be
designed, manufactured, and packaged.
That applies if you are manufacturing a product. But what if your business is Retail,
Wholesale, Construction, or even Service?
The idea of a Product applies, and is an essential
ingredient in any good marketing plan, for nearly every type of business. In the Retail and Wholesale trades, your
product consists of two or three basic parts.
First, the actual
products on your shelves need to be selected.
What will be the Product Mix of the items your
select? For example, if you sell
primarily impulse items but you carry a core of items to keep people coming
back, talk about your strategy.
The second area is Service
in Retail and Wholesale. Have you been
in a store where finding someone to help you is like trying to find an ice cube
in the Sahara Desert? What about one
where you're pampered? What will your
service be like, why, and does it make sense in the overall business strategy?
What about overall
atmosphere or theme? This is a third
area of concern. What will your
customer "take away" from
his or her experience with you? Too
many times businesses, both large and small, forget to pay attention to how a
customer will feel after they're done doing business with you. That is why the idea of "what the customer takes away from the
experience" is critical to even Service businesses. In fact, in many service businesses, what
the customer remembers from the experience is the only "tangible"
product. Their washing machine may
work, or their taxes may be done, but if the customer goes away with a bad
impression, will that customer likely ever come back?
Whatever the line of business, describe "what" you will offer to bring customers in the door the first
time, and then keep them coming back.
Target Market Describe
your market niche. Identify who your
customers will be and describe their characteristics. Business markets might be classified by industry, company size,
location, or product use/application.
Consumer (household) markets might be segmented by demographics, (age,
gender), geographic location, economic status, lifestyle, product
use/application or benefits sought.
Estimate the
approximate size and growth potential of the target market(s) using population
figures, sales tax info, industry information etc. Estimate how much of the market you will capture.
Marketing (continued)
Competition Evaluate
indirect and direct competition in terms of location, market and business
history. Describe how you will
differentiate your business from competitors with regards to Product
(features and performance), Service (delivery and installation), Personnel
(expertise and courtesy), and Image (atmosphere and events). Explain why customers will leave your
competition and switch to your business.
These items are your competitive advantage. Also describe what you will offer that your competitor can't
easily copy and what you will do to combat competitive reactions.
Market Entry Tell
when you plan to enter the market and how you arrived at your decision.
Location If
your choice of location is related to a target market, cover it in this section
of your business plan. If necessary,
describe traffic count and flow, income and demographic characteristics of the
surrounding area.
Industry Trends Give
current trends, project how the market may change and what you plan to do to
keep up. Define the life cycle stage of
the industry as introduction, growth, maturity or decline and support with
documented research. Also describe new
technologies being introduced and changes in production methods, operations or
sales.
Methods of Distribution Describe
the manner in which products and services will be made available to the
customer. Back up decisions with
statistical reports or rate sheets.
Consider finding suppliers, manufacturers and distributors in the Thomas
Register (available at your local library).
Promotion How
will your promotional activities (such as advertising, personal selling or
publicity) be tailored to your target market?
Include rate sheets, promotional material and time lines for your
promotional campaign.
Pricing Pricing
will be determined as a result of market research and the cost of your product
or service plus overhead. Tell how you
arrived at your pricing structure and back it up with material from your
research. How does your price(s)
compare to your competition? If your
prices are high-why? How will you
justify them to customers? If your
prices are lower-why? How will they
help you attract customers?
D. Money
Financial Documentation
With
the exception of high-tech industries that require long periods of research,
start-up companies must expect to generate income in a short period of
time. The money section of your
business plan should include historical financial statements, financial
projections, and a description of the source and use of proceeds. The following are major documents you will
want to include in your business plan.
Summary of Financial Need Outline
total financial need and why you are applying for a loan. Describe the total estimated cost of the
project, including the need for working capital. Describe the equity invested into the project. Equity if funding invested into the business
that is not repaid on a set schedule; it is typically money the owner or
investors contribute to the project.
Start Up Costs Describe
the costs associated with the initial start-up of the business. Incorporate these costs into your projected
financial statements. These costs may
include the following:
Rent Describe the total
monthly rent and what it includes (maintenance,
utilities, etc.) and any
deposits required.
Office Equipment Describe the acquisition and use of
computers, software, printers,
fax machines, copiers, mobile phones, etc. Also include desks, chairs, filing cabinets,
lights, etc.
New Building Describe the costs
associated with engineering, architect fees,
surveys, blue prints, drainage, water, sewer,
electrical, HVAC, site preparation, etc.
Also include appraisal fees, permit fees, phase I, II, and III
environmental studies.
Closing
Costs Describe the
closing costs associated with any loans.
Banking Fees Describe the fees to
be charged by the bank for start-up of
accounts, credit card
service equipment, forms, etc.
Outside Services Describe services which
will be contracted out such as janitorial, snow removal, lawn service etc.
Insurance Describe the
insurance needs of the business.
Provide the costs
associated from the
insurance carrier.
Inventory To stock your shelves or
for use in your production process.
Working Capital Cash required to pay the bills until the business is
self-supporting
Money
(continued)
A lender or
investor typically will need to see the following financial documents.
Three Year Income Projection* The income statement shows your business financial
activity over a period of time. It is a moving picture showing what has happened
in your business and is an excellent tool for assessing your business. The income projections should show the
projections for your company for the next three years. These projections should be shown on a
month-by-month basis to evaluate the seasonal aspect of the business. Projections should be based on economic
trends and industry norms and standards and should be supported by the market
analysis.
Statement of Cash Flow* This document projects what your business plan
means in
terms of dollars.
It shows cash inflow and outflow over a three-year period and is used
for internal planning. Cash flow
statements show both how much and when cash flow must flow in and out of your
business.
Balance Sheet* The Balance Sheet shows the
condition of the business as
of a fixed date.
It is a picture of your firm's financial condition at a particular
moment and will show you whether your financial position is strong or
weak. It is usually done at the close
of an accounting period and contains assets, liabilities and net worth.
Break-Even Analysis* The
break-even point is where a company's expenses exactly match the sales or
service volume. It can be expressed in
total dollars or revenue exactly offset by total expenses or total units of
production (cost of which exactly equals the income derived from their
sales). This analysis can be done
either mathematically or graphically.
Personal Financial Statement A
statement of personal assets, liabilities and net worth
(each lender typically can
provide you with a form for this).
Credit Reports Business
and personal from suppliers or wholesalers, credit
bureaus and banks.
(Check your credit report at the local credit bureau before submitting a
funding proposal).
Copies of Leases All agreements currently in force
between your company
and a leasing agency.
Contracts Include all business
contracts, both completed and currently
in force.
*The SBDC office can assist
you with these 4 financial documents, once you have made estimates of your
projected revenue, expenses and costs involved in your project. If you would like assistance in preparing
these items, please follow these guidelines:
Money (continued)
Instructions
for Preparing Projected Financial Statements
1. Use the blank Pro Forma Income Statement worksheet(s) provided by the
SBDC. On this form, list your expected monthly
revenues and expenses.
"Revenue" includes all sales, whether or not the proceeds of
such sales are actually collected. If
an item (defined by the headings down the left column) is not used, leave it
blank. If you will have an expense
category that is not listed, you may change the heading (in the left column) of
any items not listed to a new heading to reflect your own category(ies).
2. Develop a set of "Notes and Critical Assumptions to the Pro Forma
Financial Statements". This is simply a page that
starts with "1. Revenue:" and explains your thinking or logic for how
you developed the numbers or projections you are using. This is actually a valuable tool to help you
organize your thoughts in developing your projections. We recommend that you do one item at a
time for the entire forecast period (i.e.: work left to right, not down the
columns. In other words, forecast only
Revenue for the entire period, then move on to the next item). If an item is a function of something else
(i.e.: Cost of Goods Sold is, say, "40% of Revenue", or Payroll
Expense if perhaps "18% of Salaries") it is sufficient to state that
in the Notes and just write in the formula on the worksheet. Some items, such as Revenue, may require
quite a bit of explanation, while others, such as Insurance, may only require a
statement such as "14 Insurance: Coverage's of XXX and YYY and ZZZ, based
on a quote from So-and-so Insurance agency". Not only will these "Notes" make your forecasting more
organized, and hopefully easier, they are essential for a reader to understand
what you are doing.
3. Remember, "Cost of
Goods Sold" is the direct cost of merchandise or services that
are sold, not what you purchase for inventory (what goes out the door, not
what comes in). If you will purchase
more inventory than you sell in a given month (to stock up or buy in large
lots) use the Inventory Purchase line to indicate the timing and amount of
these purchases.
4. Please answer the following questions:
Will you offer credit (and why)? In today's marketplace, it is not normally necessary for a business to take the place of the local bank in offering credit to customers. If you must, how will you determine credit worthiness, what terms will you offer, and when do you expect to collect the balance of the accounts? Provide a breakdown of the timing of your accounts receivable collections-
_____%
of accounts collected in cash or credit cards (on average)
_____%
of accounts collected in 0-30 days
_____%
of accounts collected in 31-59 days
_____%
of accounts collected in 60-89 days
_____%
of accounts collected in 90+ days
_____%
of accounts not collected (bad debts)
How much will you withdraw
from the business on a monthly basis?
How much cash will you be investing into the
business?
What will be the form of the business entity (sole
proprietor, partnership, corporation, LLC)?
Will you issue stock?
Will you use a cash or accrual method of accounting? You may want to consult an accountant or bookkeeper regarding this issue.
5.
Develop a "Sources and
Uses of Funds" Statement. (Sample on
next page) This should list, on the top
half, where all funds and/or assets will come from, including all equity (cash
"down payment" or other assets you will contribute) and debt (loans)
proposed. On the bottom half, list the
"uses" of funds, or what you will use the money for. If you are contributing any non-cash assets
as equity, be sure to also show these assets in the "uses"
section. The two sections (sources
& uses) should "match" (i.e.: don't show more unless you have
sources).
6.
Explanation of Expense
Categories on the Projected Income Statement.
Salaries-mgmt: Compensation for owners or
other salaried employees.
Wages-non-mgmt: Your hourly wage(s) times
the number of employees times the number of days/months you anticipate they
will be working.
Payroll Taxes: We ordinarily base these on
the salaries/wages above. Ordinarily,
you must pay 7.65% for Social Security and 1.9% for Medicare. Federal unemployment tax is figured at .8%
on the first $7000 of wages. Iowa
unemployment tax varies between 1.037 – 7.037%, depending on the business, and
is only figured on the first $18,600.
Bad Debts: May be based on a percentage of your total sales. Will vary by industry and your credit
policies.
Outside Services: Monthly fees for cleaning,
snow removal, errand services, etc.
Dues, Fees &
Subscriptions:
Chamber or professional organization dues, membership fees or subscriptions to
business related publications
Supplies: Usually office supplies
that will be used up in less than one year, such as paper, pens, paper clips,
etc. Do not include inventory purchases
in this line.
Maintenance: Repairs of your building or
equipment.
Adv/Promotion: Costs related to printing
materials, advertising, direct mail, trade show exhibits or other marketing
activities.
Car/Travel: To reimburse employees for
work-related travel in their own vehicles, gas and maintenance of company
vehicles, or travel and meal costs for attending trade shows, visiting
customers, etc.
Acct & Legal: Fees for professional
accounting or legal services.
Telephone: Installation fees, cost of
the phones themselves, long distance service, etc.
Utilities: Usually includes gas,
electricity, water, sewer and garbage collection fees.
Insurance: Can include cost of
liability, health, fire, flood, and worker's compensation insurance. Please reflect how you will pay-monthly,
up-front for a year, 6 months, etc.
Taxes (RE): Call your county assessor
to get an estimate of the real estate taxes you are responsible for. Usually are paid twice a year.
Miscellaneous: a line for other small
expenses that don't fit any category above
We can add or
delete categories as necessary on our spreadsheet.
Project Budget Proposal
____________________________________
Your Name
_________________________________________________
Purchase of Real Estate $________________________
Closing Costs _________________________
Remodeling Costs _________________________
Machinery & Equipment _________________________
Furniture & Fixtures _________________________
Supplies _________________________
Inventory _________________________
Other _______________________ _________________________
Other _______________________ _________________________
Other _______________________ _________________________
TOTAL $__________________
Advertising & Promotion __________________________
Public Relations Activities __________________________
Professional Fees __________________________
Licenses & Permits __________________________
Insurance __________________________
Utilities Deposits __________________________
Rental Deposits __________________________
Other _______________________ __________________________
Other _______________________ __________________________
Other _______________________ __________________________
TOTAL $__________________
WORKING CAPITAL $__________________
TOTAL PROJECT START-UP
COSTS $__________________
Owner’s Cash Contribution $_________________
TOTAL LOANS $__________________
Bank Loan(s) ________________________ ___________________
Other _______________________________ ___________________
Other
______________________________ ___________________
TOTAL ASSISTANCE PROGRAMS $__________________
State Financial Assistance ___________________ _________________
Federal Financial Assistance _________________ _________________