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Business Plan for a Startup Business


Thebusinessplanconsistsofanarrativeandseveralfinancialworksheets.Thenarrative templateisthebodyofthebusinessplan.Itcontainsmorethan150questionsdivided intoseveralsections.Workthroughthesectionsinanyorderthatyoulike,exceptfor theExecutiveSummary,whichshouldbedonelast.Skipanyquestionsthatdonotapply toyourtypeofbusiness.Whenyouarefinishedwritingyourfirstdraft,youllhavea collectionofsmallessaysonthevarioustopicsofthebusinessplan.Thenyoullwantto editthemintoasmoothflowingnarrative. Therealvalueofcreatingabusinessplanisnotinhavingthefinishedproductinhand; rather,thevalueliesintheprocessofresearchingandthinkingaboutyourbusinessina systematicway.Theactofplanninghelpsyoutothinkthingsthroughthoroughly, studyandresearchifyouarenotsureofthefacts,andlookatyourideascritically.It takestimenow,butavoidscostly,perhapsdisastrous,mistakeslater. Thisbusinessplanisagenericmodelsuitableforalltypesofbusinesses.However,you shouldmodifyittosuityourparticularcircumstances.Beforeyoubegin,reviewthe sectiontitledRefiningthePlan,foundattheend.Itsuggestsemphasizingcertainareas dependinguponyourtypeofbusiness(manufacturing,retail,service,etc.).Italsohas tipsforfinetuningyourplantomakeaneffectivepresentationtoinvestorsorbankers. Ifthisiswhyyourecreatingyourplan,payparticularattentiontoyourwritingstyle. Youwillbejudgedbythequalityandappearanceofyourworkaswellasbyyour ideas. Ittypicallytakesseveralweekstocompleteagoodplan.Mostofthattimeisspentin researchandrethinkingyourideasandassumptions.Butthen,thatsthevalueofthe process.Somaketimetodothejobproperly.Thosewhodoneverregrettheeffort.And finally,besuretokeepdetailednotesonyoursourcesofinformationandonthe assumptionsunderlyingyourfinancialdata. Ifyouneedassistancewithyourbusinessplan,contacttheSCOREofficeinyourareato setupabusinesscounselingappointmentwithaSCOREvolunteerorsendyourplan forreviewtoaSCOREcounseloratwww.score.org.Call18006340245togetthe contactinformationfortheSCOREofficeclosesttoyou.

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Business Plan

OWNERS
YourBusinessName AddressLine1 AddressLine2 City,STZIPCode Telephone Fax EMail

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I.
I. II. III. IV. V. VI.

TableofContents

TableofContents ................................................................................................... 3 ExecutiveSummary............................................................................................... 4 GeneralCompanyDescription ............................................................................ 5 ProductsandServices............................................................................................ 6 MarketingPlan ....................................................................................................... 7 OperationalPlan .................................................................................................. 16

VII. ManagementandOrganization ......................................................................... 21 VIII. PersonalFinancialStatement ............................................................................. 22 IX. X. XI. StartupExpensesandCapitalization ................................................................ 23 FinancialPlan ....................................................................................................... 24 Appendices ........................................................................................................... 27

XII. RefiningthePlan .................................................................................................. 28

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II.
Writethissectionlast.

ExecutiveSummary

Wesuggestthatyoumakeittwopagesorfewer. Includeeverythingthatyouwouldcoverinafiveminuteinterview. Explainthefundamentalsoftheproposedbusiness:Whatwillyourproductbe?Who willyourcustomersbe?Whoaretheowners?Whatdoyouthinkthefutureholdsfor yourbusinessandyourindustry? Makeitenthusiastic,professional,complete,andconcise. Ifapplyingforaloan,stateclearlyhowmuchyouwant,preciselyhowyouaregoingto useit,andhowthemoneywillmakeyourbusinessmoreprofitable,therebyensuring repayment.

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III.

GeneralCompanyDescription

Whatbusinesswillyoubein?Whatwillyoudo? MissionStatement:Manycompanieshaveabriefmissionstatement,usuallyin30 wordsorfewer,explainingtheirreasonforbeingandtheirguidingprinciples.Ifyou wanttodraftamissionstatement,thisisagoodplacetoputitintheplan,followedby: CompanyGoalsandObjectives:Goalsaredestinationswhereyouwantyourbusiness tobe.Objectivesareprogressmarkersalongthewaytogoalachievement.Forexample, agoalmightbetohaveahealthy,successfulcompanythatisaleaderincustomer serviceandthathasaloyalcustomerfollowing.Objectivesmightbeannualsalestargets andsomespecificmeasuresofcustomersatisfaction. BusinessPhilosophy:Whatisimportanttoyouinbusiness? Towhomwillyoumarketyourproducts?(Stateitbrieflyhereyouwilldoamore thoroughexplanationintheMarketingPlansection). Describeyourindustry.Isitagrowthindustry?Whatchangesdoyouforeseeinthe industry,shorttermandlongterm?Howwillyourcompanybepoisedtotake advantageofthem? Describeyourmostimportantcompanystrengthsandcorecompetencies.Whatfactors willmakethecompanysucceed?Whatdoyouthinkyourmajorcompetitivestrengths willbe?Whatbackgroundexperience,skills,andstrengthsdoyoupersonallybringto thisnewventure? Legalformofownership:Soleproprietor,Partnership,Corporation,Limitedliability corporation(LLC)?Whyhaveyouselectedthisform?

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IV.

ProductsandServices

Describeindepthyourproductsorservices(technicalspecifications,drawings,photos, salesbrochures,andotherbulkyitemsbelonginAppendices). Whatfactorswillgiveyoucompetitiveadvantagesordisadvantages?Examplesinclude levelofqualityoruniqueorproprietaryfeatures. Whatarethepricing,fee,orleasingstructuresofyourproductsorservices?

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V.

MarketingPlan

Market research - Why?


Nomatterhowgoodyourproductandyourservice,theventurecannotsucceed withouteffectivemarketing.Andthisbeginswithcareful,systematicresearch.Itisvery dangeroustoassumethatyoualreadyknowaboutyourintendedmarket.Youneedto domarketresearchtomakesureyoureontrack.Usethebusinessplanningprocessas youropportunitytouncoverdataandtoquestionyourmarketingefforts.Yourtime willbewellspent.

Market research - How?


Therearetwokindsofmarketresearch:primaryandsecondary. Secondaryresearchmeansusingpublishedinformationsuchasindustryprofiles,trade journals,newspapers,magazines,censusdata,anddemographicprofiles.Thistypeof informationisavailableinpubliclibraries,industryassociations,chambersof commerce,fromvendorswhoselltoyourindustry,andfromgovernmentagencies. Startwithyourlocallibrary.Mostlibrariansarepleasedtoguideyouthroughtheir businessdatacollection.Youwillbeamazedatwhatisthere.Therearemoreonline sourcesthanyoucouldpossiblyuse.Yourchamberofcommercehasgoodinformation onthelocalarea.Tradeassociationsandtradepublicationsoftenhaveexcellent industryspecificdata. Primaryresearchmeansgatheringyourowndata.Forexample,youcoulddoyourown trafficcountataproposedlocation,usetheyellowpagestoidentifycompetitors,and dosurveysorfocusgroupinterviewstolearnaboutconsumerpreferences. Professionalmarketresearchcanbeverycostly,buttherearemanybooksthatshow smallbusinessownershowtodoeffectiveresearchthemselves. Inyourmarketingplan,beasspecificaspossible;givestatistics,numbers,andsources. Themarketingplanwillbethebasis,lateron,oftheallimportantsalesprojection.

Economics
Factsaboutyourindustry: Whatisthetotalsizeofyourmarket?

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Whatpercentshareofthemarketwillyouhave?(Thisisimportantonlyifyou thinkyouwillbeamajorfactorinthemarket.) Currentdemandintargetmarket. Trendsintargetmarketgrowthtrends,trendsinconsumerpreferences,and trendsinproductdevelopment. Growthpotentialandopportunityforabusinessofyoursize. Whatbarrierstoentrydoyoufaceinenteringthismarketwithyournew company?Sometypicalbarriersare: o Highcapitalcosts o Highproductioncosts o Highmarketingcosts o Consumeracceptanceandbrandrecognition o Trainingandskills o Uniquetechnologyandpatents o Unions o Shippingcosts o Tariffbarriersandquotas

Andofcourse,howwillyouovercomethebarriers? Howcouldthefollowingaffectyourcompany? o Changeintechnology o Changeingovernmentregulations o Changeintheeconomy o Changeinyourindustry

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Product
IntheProductsandServicessection,youdescribedyourproductsandservicesasyousee them.Nowdescribethemfromyourcustomerspointofview. FeaturesandBenefits Listallofyourmajorproductsorservices. Foreachproductorservice: Describethemostimportantfeatures.Whatisspecialaboutit? Describethebenefits.Thatis,whatwilltheproductdoforthecustomer?

Notethedifferencebetweenfeaturesandbenefits,andthinkaboutthem.Forexample, ahousethatgivesshelterandlastsalongtimeismadewithcertainmaterialsandtoa certaindesign;thoseareitsfeatures.Itsbenefitsincludeprideofownership,financial security,providingforthefamily,andinclusioninaneighborhood.Youbuildfeatures intoyourproductsothatyoucansellthebenefits. Whataftersaleserviceswillyougive?Someexamplesaredelivery,warranty,service contracts,support,followup,andrefundpolicy.

Customers
Identifyyourtargetedcustomers,theircharacteristics,andtheirgeographiclocations, otherwiseknownastheirdemographics. Thedescriptionwillbecompletelydifferentdependingonwhetheryouplantosellto otherbusinessesordirectlytoconsumers.Ifyousellaconsumerproduct,butsellit throughachannelofdistributors,wholesalers,andretailers,youmustcarefullyanalyze boththeendconsumerandthemiddlemanbusinessestowhichyousell. Youmayhavemorethanonecustomergroup.Identifythemostimportantgroups. Then,foreachcustomergroup,constructwhatiscalledademographicprofile: Age Gender Location

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Incomelevel Socialclassandoccupation Education Other(specifictoyourindustry) Other(specifictoyourindustry)

Forbusinesscustomers,thedemographicfactorsmightbe: Industry(orportionofanindustry) Location Sizeoffirm Quality,technology,andpricepreferences Other(specifictoyourindustry) Other(specifictoyourindustry)

Competition
Whatproductsandcompanieswillcompetewithyou? Listyourmajorcompetitors: (Namesandaddresses) Willtheycompetewithyouacrosstheboard,orjustforcertainproducts,certain customers,orincertainlocations? Willyouhaveimportantindirectcompetitors?(Forexample,videorentalstores competewiththeaters,althoughtheyaredifferenttypesofbusinesses.) Howwillyourproductsorservicescomparewiththecompetition? UsetheCompetitiveAnalysistablebelowtocompareyourcompanywithyourtwo mostimportantcompetitors.Inthefirstcolumnarekeycompetitivefactors.Sincethese varyfromoneindustrytoanother,youmaywanttocustomizethelistoffactors.

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InthecolumnlabeledMe,statehowyouhonestlythinkyouwillstackupincustomers minds.Thencheckwhetheryouthinkthisfactorwillbeastrengthoraweaknessfor you.Sometimesitishardtoanalyzeourownweaknesses.Trytobeveryhonesthere. Betteryet,getsomedisinterestedstrangerstoassessyou.Thiscanbearealeyeopener. Andrememberthatyoucannotbeallthingstoallpeople.Infact,tryingtobecauses manybusinessfailuresbecauseeffortsbecomescatteredanddiluted.Youwantan honestassessmentofyourfirmsstrongandweakpoints. Nowanalyzeeachmajorcompetitor.Inafewwords,statehowyouthinktheycompare. Inthefinalcolumn,estimatetheimportanceofeachcompetitivefactortothecustomer. 1=critical;5=notveryimportant.
Table1:CompetitiveAnalysis
Factor Me

Strength Weakness CompetitorA


CompetitorB

Importanceto Customer

Products Price Quality Selection Service Reliability Stability Expertise Company Reputation Location Appearance

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Factor

Me

Strength Weakness CompetitorA


CompetitorB

Importanceto Customer

SalesMethod CreditPolicies Advertising Image

Now,writeashortparagraphstatingyourcompetitiveadvantagesanddisadvantages.

Niche
Nowthatyouhavesystematicallyanalyzedyourindustry,yourproduct,your customers,andthecompetition,youshouldhaveaclearpictureofwhereyour companyfitsintotheworld. Inoneshortparagraph,defineyourniche,youruniquecornerofthemarket.

Strategy
Nowoutlineamarketingstrategythatisconsistentwithyourniche. Promotion Howwillyougetthewordouttocustomers? Advertising:Whatmedia,why,andhowoften?Whythismixandnotsomeother? Haveyouidentifiedlowcostmethodstogetthemostoutofyourpromotionalbudget? Willyouusemethodsotherthanpaidadvertising,suchastradeshows,catalogs,dealer incentives,wordofmouth(howwillyoustimulateit?),andnetworkoffriendsor professionals? Whatimagedoyouwanttoproject?Howdoyouwantcustomerstoseeyou?

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Inadditiontoadvertising,whatplansdoyouhaveforgraphicimagesupport?This includesthingslikelogodesign,cardsandletterhead,brochures,signage,andinterior design(ifcustomerscometoyourplaceofbusiness). Shouldyouhaveasystemtoidentifyrepeatcustomersandthensystematicallycontact them? PromotionalBudget Howmuchwillyouspendontheitemslistedabove? Beforestartup?(Thesenumberswillgointoyourstartupbudget.) Ongoing?(Thesenumberswillgointoyouroperatingplanbudget.) Pricing Explainyourmethodormethodsofsettingprices.Formostsmallbusinesses,having thelowestpriceisnotagoodpolicy.Itrobsyouofneededprofitmargin;customers maynotcareasmuchaboutpriceasyouthink;andlargecompetitorscanunderprice youanyway.Usuallyyouwilldobettertohaveaveragepricesandcompeteonquality andservice. Doesyourpricingstrategyfitwithwhatwasrevealedinyourcompetitiveanalysis? Compareyourpriceswiththoseofthecompetition.Aretheyhigher,lower,thesame? Why? Howimportantispriceasacompetitivefactor?Doyourintendedcustomersreally maketheirpurchasedecisionsmostlyonprice? Whatwillbeyourcustomerserviceandcreditpolicies? ProposedLocation Probablyyoudonothaveapreciselocationpickedoutyet.Thisisthetimetothink aboutwhatyouwantandneedinalocation.Manystartupsrunsuccessfullyfromhome forawhile. Youwilldescribeyourphysicalneedslater,intheOperationalPlansection.Here, analyzeyourlocationcriteriaastheywillaffectyourcustomers.

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Isyourlocationimportanttoyourcustomers?Ifyes,how? Ifcustomerscometoyourplaceofbusiness: Isitconvenient?Parking?Interiorspaces?Notoutoftheway? Isitconsistentwithyourimage? Isitwhatcustomerswantandexpect? Whereisthecompetitionlocated?Isitbetterforyoutobenearthem(likecardealersor fastfoodrestaurants)ordistant(likeconveniencefoodstores)? DistributionChannels Howdoyousellyourproductsorservices? Retail Direct(mailorder,Web,catalog) Wholesale Yourownsalesforce Agents Independentrepresentatives Bidoncontracts

Sales Forecast
Nowthatyouhavedescribedyourproducts,services,customers,markets,and marketingplansindetail,itstimetoattachsomenumberstoyourplan.Useasales forecastspreadsheettoprepareamonthbymonthprojection.Theforecastshouldbe basedonyourhistoricalsales,themarketingstrategiesthatyouhavejustdescribed, yourmarketresearch,andindustrydata,ifavailable. Youmaywanttodotwoforecasts:1)abestguess,whichiswhatyoureallyexpect, and2)aworstcaselowestimatethatyouareconfidentyoucanreachnomatterwhat happens.

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Remembertokeepnotesonyourresearchandyourassumptionsasyoubuildthissales forecastandallsubsequentspreadsheetsintheplan.Thisiscriticalifyouaregoingto presentittofundingsources.

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VI.

OperationalPlan

Explainthedailyoperationofthebusiness,itslocation,equipment,people,processes, andsurroundingenvironment.

Production
Howandwhereareyourproductsorservicesproduced? Explainyourmethodsof: Productiontechniquesandcosts Qualitycontrol Customerservice Inventorycontrol Productdevelopment

Location
Whatqualitiesdoyouneedinalocation?Describethetypeoflocationyoullhave. Physicalrequirements: Amountofspace Typeofbuilding Zoning Powerandotherutilities

Access: Isitimportantthatyourlocationbeconvenienttotransportationortosuppliers? Doyouneedeasywalkinaccess? Whatareyourrequirementsforparkingandproximitytofreeway,airports,railroads, andshippingcenters?

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Includeadrawingorlayoutofyourproposedfacilityifitisimportant,asitmightbefor amanufacturer. Construction?Mostnewcompaniesshouldnotsinkcapitalintoconstruction,butifyou areplanningtobuild,costsandspecificationswillbeabigpartofyourplan. Cost:Estimateyouroccupationexpenses,includingrent,butalsoincluding maintenance,utilities,insurance,andinitialremodelingcoststomakethespacesuit yourneeds.Thesenumberswillbecomepartofyourfinancialplan. Whatwillbeyourbusinesshours?

Legal Environment
Describethefollowing: Licensingandbondingrequirements Permits Health,workplace,orenvironmentalregulations Specialregulationscoveringyourindustryorprofession Zoningorbuildingcoderequirements Insurancecoverage Trademarks,copyrights,orpatents(pending,existing,orpurchased)

Personnel
Numberofemployees Typeoflabor(skilled,unskilled,andprofessional) Whereandhowwillyoufindtherightemployees? Qualityofexistingstaff Paystructure Trainingmethodsandrequirements

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Whodoeswhichtasks? Doyouhaveschedulesandwrittenproceduresprepared? Haveyoudraftedjobdescriptionsforemployees?Ifnot,taketimetowritesome. Theyreallyhelpinternalcommunicationswithemployees. Forcertainfunctions,willyouusecontractworkersinadditiontoemployees?

Inventory
Whatkindofinventorywillyoukeep:rawmaterials,supplies,finishedgoods? Averagevalueinstock(i.e.,whatisyourinventoryinvestment)? Rateofturnoverandhowthiscomparestotheindustryaverages? Seasonalbuildups? Leadtimeforordering?

Suppliers
Identifykeysuppliers: Namesandaddresses Typeandamountofinventoryfurnished Creditanddeliverypolicies Historyandreliability

Shouldyouhavemorethanonesupplierforcriticalitems(asabackup)? Doyouexpectshortagesorshorttermdeliveryproblems? Aresupplycostssteadyorfluctuating?Iffluctuating,howwouldyoudealwith changingcosts?

Credit Policies
Doyouplantoselloncredit?

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Doyoureallyneedtoselloncredit?Isitcustomaryinyourindustryand expectedbyyourclientele? Ifyes,whatpolicieswillyouhaveaboutwhogetscreditandhowmuch? Howwillyoucheckthecreditworthinessofnewapplicants? Whattermswillyouofferyourcustomers;thatis,howmuchcreditandwhenis paymentdue? Willyouofferpromptpaymentdiscounts?(Hint:Dothisonlyifitisusualand customaryinyourindustry.) Doyouknowwhatitwillcostyoutoextendcredit?Haveyoubuiltthecostsinto yourprices?

ManagingYourAccountsReceivable Ifyoudoextendcredit,youshoulddoanagingatleastmonthlytotrackhowmuchof yourmoneyistiedupincreditgiventocustomersandtoalertyoutoslowpayment problems.Areceivablesaginglookslikethefollowingtable:


Accounts ReceivableAging Total Current 30Days 60Days 90Days Over90Days

Youwillneedapolicyfordealingwithslowpayingcustomers: Whendoyoumakeaphonecall? Whendoyousendaletter? Whendoyougetyourattorneytothreaten?

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ManagingYourAccountsPayable Youshouldalsoageyouraccountspayable,whatyouowetoyoursuppliers.Thishelps youplanwhomtopayandwhen.Payingtooearlydepletesyourcash,butpayinglate cancostyouvaluablediscountsandcandamageyourcredit.(Hint:Ifyouknowyou willbelatemakingapayment,callthecreditorbeforetheduedate.) Doyourproposedvendorsofferpromptpaymentdiscounts? Apayablesaginglookslikethefollowingtable.


AccountsPayable Aging Total

Current

30Days

60Days

90Days

Over90Days

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VII. ManagementandOrganization
Whowillmanagethebusinessonadaytodaybasis?Whatexperiencedoesthatperson bringtothebusiness?Whatspecialordistinctivecompetencies?Isthereaplanfor continuationofthebusinessifthispersonislostorincapacitated? Ifyoullhavemorethan10employees,createanorganizationalchartshowingthe managementhierarchyandwhoisresponsibleforkeyfunctions. Includepositiondescriptionsforkeyemployees.Ifyouareseekingloansorinvestors, includeresumesofownersandkeyemployees.

Professional and Advisory Support


Listthefollowing: Boardofdirectors Managementadvisoryboard Attorney Accountant Insuranceagent Banker Consultantorconsultants Mentorsandkeyadvisors

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VIII. PersonalFinancialStatement
Includepersonalfinancialstatementsforeachownerandmajorstockholder,showing assetsandliabilitiesheldoutsidethebusinessandpersonalnetworth.Ownerswill oftenhavetodrawonpersonalassetstofinancethebusiness,andthesestatementswill showwhatisavailable.Bankersandinvestorsusuallywantthisinformationaswell.

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IX.

StartupExpensesandCapitalization

Youwillhavemanystartupexpensesbeforeyouevenbeginoperatingyourbusiness. Itsimportanttoestimatetheseexpensesaccuratelyandthentoplanwhereyouwillget sufficientcapital.Thisisaresearchproject,andthemorethoroughyourresearch efforts,thelesschancethatyouwillleaveoutimportantexpensesorunderestimate them. Evenwiththebestofresearch,however,openinganewbusinesshasawayofcosting morethanyouanticipate.Therearetwowaystomakeallowancesforsurprise expenses.Thefirstistoaddalittlepaddingtoeachiteminthebudget.Theproblem withthatapproach,however,isthatitdestroystheaccuracyofyourcarefullywrought plan.Thesecondapproachistoaddaseparatelineitem,calledcontingencies,to accountfortheunforeseeable.Thisistheapproachwerecommend. Talktootherswhohavestartedsimilarbusinessestogetagoodideaofhowmuchto allowforcontingencies.Ifyoucannotgetgoodinformation,werecommendaruleof thumbthatcontingenciesshouldequalatleast20percentofthetotalofallotherstart upexpenses. Explainyourresearchandhowyouarrivedatyourforecastsofexpenses.Givesources, amounts,andtermsofproposedloans.Alsoexplainindetailhowmuchwillbe contributedbyeachinvestorandwhatpercentownershipeachwillhave.

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X.

FinancialPlan

Thefinancialplanconsistsofa12monthprofitandlossprojection,afouryearprofit andlossprojection(optional),acashflowprojection,aprojectedbalancesheet,anda breakevencalculation.Togethertheyconstituteareasonableestimateofyour companysfinancialfuture.Moreimportant,theprocessofthinkingthroughthe financialplanwillimproveyourinsightintotheinnerfinancialworkingsofyour company.

12-Month Profit and Loss Projection


Manybusinessownersthinkofthe12monthprofitandlossprojectionasthe centerpieceoftheirplan.Thisiswhereyouputitalltogetherinnumbersandgetan ideaofwhatitwilltaketomakeaprofitandbesuccessful. Yoursalesprojectionswillcomefromasalesforecastinwhichyouforecastsales,costof goodssold,expenses,andprofitmonthbymonthforoneyear. Profitprojectionsshouldbeaccompaniedbyanarrativeexplainingthemajor assumptionsusedtoestimatecompanyincomeandexpenses. ResearchNotes:Keepcarefulnotesonyourresearchandassumptions,sothatyoucan explainthemlaterifnecessary,andalsosothatyoucangobacktoyoursourceswhen itstimetoreviseyourplan.

Four-Year Profit Projection (Optional)


The12monthprojectionistheheartofyourfinancialplan.TheFourYearProfit projectionisforthosewhowanttocarrytheirforecastsbeyondthefirstyear. Ofcourse,keepnotesofyourkeyassumptions,especiallyaboutthingsthatyouexpect willchangedramaticallyafterthefirstyear.

Projected Cash Flow


Iftheprofitprojectionistheheartofyourbusinessplan,cashflowistheblood. Businessesfailbecausetheycannotpaytheirbills.Everypartofyourbusinessplanis important,butnoneofitmeansathingifyourunoutofcash. Thepointofthisworksheetistoplanhowmuchyouneedbeforestartup,for preliminaryexpenses,operatingexpenses,andreserves.Youshouldkeepupdatingit andusingitafterward.Itwillenableyoutoforeseeshortagesintimetodosomething

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aboutthemperhapscutexpenses,orperhapsnegotiatealoan.Butforemost,you shouldntbetakenbysurprise. Thereisnogreattricktopreparingit:Thecashflowprojectionisjustaforwardlookat yourcheckingaccount. Foreachitem,determinewhenyouactuallyexpecttoreceivecash(forsales)orwhen youwillactuallyhavetowriteacheck(forexpenseitems). Youshouldtrackessentialoperatingdata,whichisnotnecessarilypartofcashflowbut allowsyoutotrackitemsthathaveaheavyimpactoncashflow,suchassalesand inventorypurchases. Youshouldalsotrackcashoutlayspriortoopeninginaprestartupcolumn.You shouldhavealreadyresearchedthoseforyourstartupexpensesplan. Yourcashflowwillshowyouwhetheryourworkingcapitalisadequate.Clearly,if yourprojectedcashbalanceevergoesnegative,youwillneedmorestartupcapital. Thisplanwillalsopredictjustwhenandhowmuchyouwillneedtoborrow. Explainyourmajorassumptions,especiallythosethatmakethecashflowdifferfrom theProfitandLossProjection.Forexample,ifyoumakeasaleinmonthone,whendo youactuallycollectthecash?Whenyoubuyinventoryormaterials,doyoupayin advance,upondelivery,ormuchlater?Howwillthisaffectcashflow? Aresomeexpensespayableinadvance?When? Arethereirregularexpenses,suchasquarterlytaxpayments,maintenanceandrepairs, orseasonalinventorybuildup,thatshouldbebudgeted? Loanpayments,equipmentpurchases,andownersdrawsusuallydonotshowon profitandlossstatementsbutdefinitelydotakecashout.Besuretoincludethem. Andofcourse,depreciationdoesnotappearinthecashflowatallbecauseyounever writeacheckforit.

Opening Day Balance Sheet


Abalancesheetisoneofthefundamentalfinancialreportsthatanybusinessneedsfor reportingandfinancialmanagement.Abalancesheetshowswhatitemsofvalueare

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heldbythecompany(assets),andwhatitsdebtsare(liabilities).Whenliabilitiesare subtractedfromassets,theremainderisownersequity. Useastartupexpensesandcapitalizationspreadsheetasaguidetopreparingabalance sheetasofopeningday.Thendetailhowyoucalculatedtheaccountbalancesonyour openingdaybalancesheet. Optional:Somepeoplewanttoaddaprojectedbalancesheetshowingtheestimated financialpositionofthecompanyattheendofthefirstyear.Thisisespeciallyuseful whensellingyourproposaltoinvestors.

Break-Even Analysis
Abreakevenanalysispredictsthesalesvolume,atagivenprice,requiredtorecover totalcosts.Inotherwords,itsthesaleslevelthatisthedividinglinebetweenoperating atalossandoperatingataprofit. Expressedasaformula,breakevenis:

BreakEvenSales= FixedCosts 1VariableCosts (Wherefixedcostsareexpressedindollars,butvariablecostsareexpressedasapercent oftotalsales.) Includeallassumptionsuponwhichyourbreakevencalculationisbased.

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XI.

Appendices

Includedetailsandstudiesusedinyourbusinessplan;forexample: Brochuresandadvertisingmaterials Industrystudies Blueprintsandplans Mapsandphotosoflocation Magazineorotherarticles Detailedlistsofequipmentownedortobepurchased Copiesofleasesandcontracts Lettersofsupportfromfuturecustomers Anyothermaterialsneededtosupporttheassumptionsinthisplan Marketresearchstudies Listofassetsavailableascollateralforaloan

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XII. RefiningthePlan
Thegenericbusinessplanpresentedaboveshouldbemodifiedtosuityourspecifictype ofbusinessandtheaudienceforwhichtheplaniswritten.

For Raising Capital


ForBankers Bankerswantassuranceoforderlyrepayment.Ifyouintendusingthisplanto presenttolenders,include: o Amountofloan o Howthefundswillbeused o Whatthiswillaccomplishhowwillitmakethebusinessstronger? o Requestedrepaymentterms(numberofyearstorepay).Youwill probablynothavemuchnegotiatingroomoninterestratebutmaybeable tonegotiatealongerrepaymentterm,whichwillhelpcashflow. o Collateraloffered,andalistofallexistingliensagainstcollateral ForInvestors Investorshaveadifferentperspective.Theyarelookingfordramaticgrowth,and theyexpecttoshareintherewards: o Fundsneededshortterm o Fundsneededintwotofiveyears o Howthecompanywillusethefunds,andwhatthiswillaccomplishfor growth. o Estimatedreturnoninvestment o Exitstrategyforinvestors(buyback,sale,orIPO) o Percentofownershipthatyouwillgiveuptoinvestors

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o Milestonesorconditionsthatyouwillaccept o Financialreportingtobeprovided o Involvementofinvestorsontheboardorinmanagement

For Type of Business


Manufacturing Plannedproductionlevels Anticipatedlevelsofdirectproductioncostsandindirect(overhead)costshow dothesecomparetoindustryaverages(ifavailable)? Pricesperproductline Grossprofitmargin,overallandforeachproductline Production/capacitylimitsofplannedphysicalplant Production/capacitylimitsofequipment Purchasingandinventorymanagementprocedures Newproductsunderdevelopmentoranticipatedtocomeonlineafterstartup

ServiceBusinesses Servicebusinessessellintangibleproducts.Theyareusuallymoreflexiblethan othertypesofbusinesses,buttheyalsohavehigherlaborcostsandgenerally verylittleinfixedassets. Whatarethekeycompetitivefactorsinthisindustry? Yourprices Methodsusedtosetprices Systemofproductionmanagement Qualitycontrolprocedures.Standardoracceptedindustryqualitystandards.

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Howwillyoumeasurelaborproductivity? Percentofworksubcontractedtootherfirms.Willyoumakeaprofiton subcontracting? Credit,payment,andcollectionspoliciesandprocedures Strategyforkeepingclientbase

HighTechnologyCompanies Economicoutlookfortheindustry Willthecompanyhaveinformationsystemsinplacetomanagerapidlychanging prices,costs,andmarkets? Willyoubeonthecuttingedgewithyourproductsandservices? Whatisthestatusofresearchanddevelopment?Andwhatisrequiredto: o Bringproduct/servicetomarket? o Keepthecompanycompetitive? Howdoesthecompany: o Protectintellectualproperty? o Avoidtechnologicalobsolescence? o Supplynecessarycapital? o Retainkeypersonnel? Hightechcompaniessometimeshavetooperateforalongtimewithoutprofitsand sometimesevenwithoutsales.Ifthisfitsyoursituation,abankerprobablywillnot wanttolendtoyou.Venturecapitalistsmayinvest,butyourstorymustbeverygood. Youmustdolongertermfinancialforecaststoshowwhenprofittakeoffisexpectedto occur.Andyourassumptionsmustbewelldocumentedandwellargued.

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RetailBusiness Companyimage Pricing: o Explainmarkuppolicies. o Pricesshouldbeprofitable,competitive,andinaccordancewithcompany image. Inventory: o Selectionandpriceshouldbeconsistentwithcompanyimage. o Inventorylevel:Findindustryaveragenumbersforannualinventory turnoverrate(availableinRMAbook).Multiplyyourinitialinventory investmentbytheaverageturnoverrate.Theresultshouldbeatleast equaltoyourprojectedfirstyearscostofgoodssold.Ifitisnot,youmay nothaveenoughbudgetedforstartupinventory. Customerservicepolicies:Theseshouldbecompetitiveandinaccordwith companyimage. Location:Doesitgivetheexposurethatyouneed?Isitconvenientfor customers?Isitconsistentwithcompanyimage? Promotion:Methodsused,cost.Doesitprojectaconsistentcompanyimage? Credit:Doyouextendcredittocustomers?Ifyes,doyoureallyneedto,anddo youfactorthecostintoprices?