A business plan serves as a guide or map to the course a company should take on its road to success. It provides a reference manual for difficult times. If the business is a start up trying to attract investors or obtain a Small Business Administration guaranteed loan, a business plan is required. Working with a consultant or Small Business Development Center is often the most effective way to create a quality business plan.
Think Before You Write
Refine the product pricing model. Look for multiple sources for the raw materials necessary to build the product or acquire inventory to sell. Research the labor market to determine how much it will cost to hire help. Consider what the average customer will likely buy and how much money is made on the average sale. Determine who will buy the product and how to reach them.
Review the industry and market data to develop a comprehensive picture of the ideal customer. Then extrapolate the individual market from the gross data and compose a picture of the ideal demographic and use a marketing strategy to illustrate how to entice the buyer to the store. If the words sell on the Internet are included be sure to explain how the company will attract the necessary traffic.
Analyze the historical financial data for the company and prepare a synopsis that will describe and explain the trends in income illustrated. If the trend is negative, formulate a plan to reverse them. If the trend is positive, explain why it is likely to continue in that direction. Absent historical data for the company, use historical data for the industry to accomplish the same task. If the trend is down, explain why it is a good idea to enter this market now.
Analyze the list of competitors in a meaningful way. Compare pricing, products and services to the proposed company. Describe advantages the company has over competitors in a factual rather than subjective manner. If the company is a retail location, visit the competition and map the distances between stores. Use a demographic reporting system to study the market in the local ZIP code to see if the right customers are easily accessible.
Create a Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis. Done properly, this will illustrate whether the company has a chance of success. Overly optimistic analysis will do nothing more than jeopardize the investment in the company and the guaranty the owners have executed. This is one of the most difficult areas in which to be objective. Step back from the emotion of ownership and look at the reality of the investment.
Put Pencil to Paper
Use the spreadsheet templates available from both the SBA and SCORE websites as well as several commercial programs to build a financial model of the company. Banks want to see the first year profit and loss projection by month followed by a minimum of two years by quarter. The cash flow template is critical because it shows just how much money the company needs to operate through the business cycle.
Use the plan outline, available with the templates, to put down the narrative about how the company will be successful. Explain the assumptions made and the data used to support them. Pay attention to the five "Cs" of credit (capital, collateral, character, conditions, credit history) because these are the factors every bank will be evaluating. Address each C in the body of the plan sufficiently to illustrate an understanding of the concept. Pay particular attention to the collateral issue, banks want at least two sources of repayment.
Write the Executive Summary last. This is the one chance to get a bank or investor to read the plan. It should be a summary of the plan itself, not a marketing pitch or long dissertation on the benefits of the new product or concept. Give the highlights of the market size, projected income, funding request, ownership, management and exit or repayment plan. If the bank or investor's interest is not captured in the first page, the plan goes to the bottom of the pile.
Use the free services available through the SBA to get valuable market research. Always have someone else proofread the plan for spelling, grammar and usage. If using a software package, eliminate the redundant parts inevitably created. ZipSkinny.com is a free demographic reporting service. Market data is available free from the U.S. Census Bureau
Longer is not better; Use only the length necessary to convey the idea. Beware of charlatans selling prepackaged business plans. Too many charts and graphs are distracting. A bank will not use a PowerPoint in lieu of a written plan.
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