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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

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

Me

Strength Weakness CompetitorA

CompetitorB

Importanceto
Customer

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Factor

Me

SalesMethod
CreditPolicies
Advertising
Image

Strength Weakness CompetitorA

CompetitorB

Importanceto
Customer

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

Accounts
ReceivableAging

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

Page25of31

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

Page28of31

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?