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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. TableofContents
I. TableofContents ................................................................................................... 3
II. ExecutiveSummary............................................................................................... 4
III. GeneralCompanyDescription ............................................................................ 5
IV. ProductsandServices............................................................................................ 6
V. MarketingPlan....................................................................................................... 7
VI. OperationalPlan .................................................................................................. 16
VII. ManagementandOrganization......................................................................... 21
VIII. PersonalFinancialStatement ............................................................................. 22
IX. StartupExpensesandCapitalization................................................................ 23
X. FinancialPlan ....................................................................................................... 24
XI. Appendices ........................................................................................................... 27
XII. RefiningthePlan.................................................................................................. 28
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II. ExecutiveSummary
Writethissectionlast.
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:

Total Current 30Days 60Days 90Days Over90Days

Accounts
ReceivableAging

Youwillneedapolicyfordealingwithslowpayingcustomers:
Whendoyoumakeaphonecall?
Whendoyousendaletter?
Whendoyougetyourattorneytothreaten?
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ManagingYourAccountsPayable
Youshouldalsoageyouraccountspayable,whatyouowetoyoursuppliers.Thishelps
youplanwhomtopayandwhen.Payingtooearlydepletesyourcash,butpayinglate
cancostyouvaluablediscountsandcandamageyourcredit.(Hint:Ifyouknowyou
willbelatemakingapayment,callthecreditorbeforetheduedate.)
Doyourproposedvendorsofferpromptpaymentdiscounts?
Apayablesaginglookslikethefollowingtable.
Total Current 30Days 60Days 90Days Over90Days
AccountsPayable
Aging


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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:

FixedCosts BreakEvenSales=
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?