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How To Prepare a Business Plan
Success in business comes as a result of planning. You must have a detailed, written plan that states your ultimate goal, the purpose behind your goal, and each milestone that must be passed in order to reach your destination.
A business plan is a written definition and series of operational instructions for achieving your goal. This list of instructions will form a complete business tool with which to define your basic product, income objectives, and specific operating procedures. You must have a business plan if you hope to attract investors, obtain financing, or preserve the confidence of your creditors.
Your plan for business success will serve as the background information and supporting details of any financial proposals you submit to lenders, creditors, or investors. Many entrepreneurs are under the mistaken impression that a business plan is the same as a financial proposal, or thata financial proposal constitutes a complete business plan. This is a misunderstanding of these two separate and different business success aids. Let's describe the difference between them.
The business plan can be considered a longrange map to guide your business toward the goals you've set. This plan details the what, why, where, how, and when of your business the steps to ultimate success for your company. Your financial proposal is a request for money based upon your business plan. It describes your business history and objectives, recounting those details that make you an especially attractive investment for a creditor. The financial proposal draws information from the complete business plan to develop an attractive offer to the investor. Understand the differences between these two important terms. They are closely related, but are not interchangeable.
Writing and putting together a winning business plan takes study, research, and time. Don't try to do it all in one or two days. The easiest way to begin your plan is with a loose leaf notebook, plenty of paper, pencils, apencil sharpener, and several erasers. For your first session, choose a quiet place to work, away from the distraction of ringing telephones, the interruptions of others, and the incessant droning of the television set. Focus your thoughts on your business your hopes, dreams, and ambitions. Let your mind race through the myriad of possibilities that you could accomplish given the capital investment, personnel, location, etc. Jot all these ideas, thoughts, questions, etc. on the paper in your notebook. Over the course of the next several days, it will be a good idea to carry a pocket notebook and jot down those business ideas as they come to you ideas for sales promotion, recruiting distributors, and any other thoughts on how to operate and build your business. Later, when you actually sit down again and begin working on your business plan, you can compile all your notes by category financing, sales, distribution, advertising, etc. Then evaluate your ideas, rework them, refine them, and integrate them into the overall picture of your business plan.
Title a separate page with each subject area of your plan and describe each thoroughly. The subjects must identify your present position, present your ultimate goal in clear, concise language; include a stepbystep description of how you will proceed; and have a specific date set for the attainment of the particular goal.
Developing a set of questions to answer about your business forces you to take an objective and critical look at your ideas. Putting it all down on paper allows you to change, remove, and refine everything into a form that will best meet your needs. You'll be able to spot weaknesses and strengthen them before they develop into major problems. Overall, you'll be developing an operating manual for your business a valuable tool which will keep your business on track and guide you in its profitable management.
Because the plan contains your ideas for your business, it's very important that you do the planning. You must be the one to develop the plan and put it all down on paper just the way it should read. Seek out the advice of other people. Talk with, listen to, and observe others who are operating similar businesses. Enlist the advice of your accountant and attorney. At the bottom line, however, don't ever forget that this must be your business plan! Statistics show the greatest causes of business failures are poor management and lack of operational planning. No one will ever succeed without a clearcut knowledge of where to focus their attentions.
The best business plans for even the smallest of businesses run twentyfiveto thirty pages or more. The suggested outline below is a logical organization of the information every business plan should cover, and should serve as guide for the development of your own plan:
* Title Page
* Statement of Purpose
* Table of Contents
* Business Description
* Market Analysis
* Business Location
* Current Financial Records
* Explanation of Plans For Growth
* Projected Profit, Loss, and Operating Figures
* Explanation of Financing for Growth
* Summary of Business & Outlook for The Future
* Listing of Business & Personal References
On the very first page of your plan, the title page, place the name of your business with the business address underneath. Skip a couple of lines andwrite in all capital letters: PRINCIPAL OWNER followed by your name (if you're the principal owner). For example:
ABC ACTION 1234 SW 5th Avenue, Anytown, USA 12345 PRINCIPAL OWNER: Jack Jones
That's all you'll have on that page except the page number. Following the title page will be your "Statement of Purpose." The page title should be in all capital letters, centered across the top of the page. Skip a few lines and write the statement of purpose. This should be a simple sentence or two summarizing your primary business function, such as: "We are a service business engaged in the direct marketing of business success manuals, books, audio cassettes, and other information by mail." Make the statement direct, clear, and concise. Next, skip several lines and flush with the left hand margin of the paper write out a subheading in all capital letters, such as: EXPLANATION OF PURPOSE. Beneath this subheading briefly explain your statement of purpose. Keep your Explanation of Purpose" short - no longer than one paragraph. Very few business purpose explanations are justifiably more than a half page long. Example: "Our surveys have found most entrepreneurs to be sadly lacking in basic information that will enable them to achieve success. This market is estimated at more than 25 million, with at least half of these actively seeking sources that provide the information they need and want. Combining our business, advertising, and publishing experience, it is our goal to capture at least half of this market of information seekers by utilizing our publication Entrepreneurs' Reports. Our market research indicates we can achieve this goal and realize a profit of $1,000,000 per year within the next five years."
Now you will present the "Table of Contents." Don't really worry about this one until you've got the entire plan completed and ready for final typing. It's a good idea, however, to list the subjects (chapter titles) as we have above, and to check off each one as you complete that portion of your plan. By having a list of the points you want to cover, you'll be able to move around and work on each phase of your business plan as the ideas or interest in organizing that particular phase stimulate you. Thus, you won't have to make your thinking or your planning conform to the chronological order of the individual chapters of your business plan.
Your "Business Description" will begin where your "Statement of Purpose" leaves off. Describe your product, the production or procurement process,who has responsibility for what division of the work, and, most importantly, what makes your product or service unique and gives it an edge in your market. You can also briefly summarize your business beginnings, present position, and potential for future success.
Next, your "Market Analysis" will describe the buyers you're trying to reach, why they need, want, or will buy your product, and the results of any tests or surveys you may have conducted. Once you've defined the market, go on to explain how you intend to reach the buyers how you'll alert these prospects to your product or service and induce them to buy. You might want to break this chapter down into sections such as "Publicity and Promotions," "Advertising Plans," "Direct Sales Force," and "Dealer / Distributor Programs." Each section would then be an outline of your plans and policies for that subject area.
The chapter on "Competition" will identify who your competitors are, their weaknesses, and strong points. Explain how you intend to capitalize on those weaknesses and match or better their strong points. Talk with as many of your indirect competitors as possible those operating in different cities and states. One of the easiest ways of gathering a lot of useful information
about your competitors is by developing a series of survey questions and sending these questionnaires out to each of them. As they respond you will be able to develop a perspective on the market forces aligned against you. As an indirect result, you will later be able to compile the answers to these questionnaires into some form of directory or report on this business that you can sell. It is advisable to contact the trade associations and publications serving your proposed type of business. For information on these associations and specific publications, visit your public library. Ask for the librarian's help, explaining exactly what you are seeking. Reading through the available publications in the field will give you an idea of what additional sales angles your company can take to reach an increased share of the market.
The chapter entitled "Business Location" simply states the present location of your business, the size of the operating area, number of offices, floor plans or designs, types of furnishings, machinery, tools or materialsnecessary for operation, proposed expansion plans, possible sites for building new headquarters, and future possibilities for growth in present location. This chapter will help you determine if the available space of your present location will satisfy your future needs or if a move to adifferent location will be necessary.
"Management" should be a description of the necessary jobs for successful operation of your business. Describe the management hierarchy that actually runs the business, names of individuals, their job titles, duties, responsibilities, and include a resume for each. It's important that you paint a strong picture of your top management because the people coming to work for you or investing in your business will be investing their time, money, and lives in these individuals as much as in your product ideas. The individual tenacity, mature judgment under fire, and innovative problem solving characteristics of good managers have won over more peoplethan all the AAA Credit Ratings and astronomical sales figures put together.
People becoming involved with any new venture want to know that the person in charge knows what he's doing, will not lose his cool when problems arise, and has what it takes to make money for all involved. After demonstrating the strengths of the top person, go on to outline in descending order the other key positions within your business.
If you've been in business for a while, the next chapter, "Current Financial Records," is a picture of your current financial status and a review of your operating costs and income from the beginning of the business to the present date. Generally, this is a listing of your profit and loss statements for the past six months, plus copies of your business income tax records foreach of the previous three years the business has been an entity.
Entitled "Explanation of Plans For Growth," Chapter Nine is simply an explanation of how you plan to keep your business growing a detailed guideof precisely what you're going to do and how you're going to increase your profits. These plans should show your goals for periods covering the comingyear, the next two years, and a complete three year cycle. By breaking your objectives down into annual milestones, your plans will be accepted as more realistic and will be more understandable as a part of your ultimate success.
Next, itemize the projected cost and income figures of your three year plan in the chapter "Projected Profit, Loss, and Operating Figures." It will take a lot of research (and most likely a good deal of writing, editing, and rewriting), but it's very important that you list these figures based upon thorough investigation. You may have to adjust some of your plans downward, but once you've got these two chapters on paper, your complete business plan will fall into line and begin to make sense. You'll have a precise map of where you're headed, how much it's going to cost, when you can expect to start making money, and what percentage you can expect that profit to be. Now that you know where you're going, how much it's going to cost and howlong it's going to be before you begin to recoup your investment, you're ready to talk about how and where you're going to get the money to financeyour journey. Title this chapter "Explanation of Financing for Growth."Unless you're independently wealthy, you'll want to use this chapter to listthe possibilities and alternatives of future financing. Make a list of possible investors you can approach and induce to put up some money as silent partners. Compile a prospect sheet of those people you might be able to sell as stockholders in your company. In many cases, a company can sell up to $300,000 worth of stock on a private issue basis without filing papers with the Securities and Exchange Commission. Check with your corporate or tax attorney for more details.
To further prepare for future financial needs, this chapter may also contain a list of relatives and friends who might help you with a noncollateralized loan for the development of your business. Next, search out and identify possible venture capital organizations that will lend money to a businesssuch as yours. Visit the Small Business Administration office in your areaand pick up the application papers for an SBA loan. Read and study them carefully, even fill them out on a preliminary basis then compare the costs on such a loan with other sources of financing. Determine in which business publications your advertising would be best displayed if you were seeking a partner or investor. Write an example of the ad you'd want to use if you did decide to advertise for monetary help. With a listing of all the options available to meet your needs, all that's left is to arrange these options in the order you would follow when the time came to seek additional capital. While you're researching these money sources, you'll save time by noting the name of the contact person to deal with when you want money. If possible, develop a working relationship with these resources in advance.In your "Documentation" chapter place a copy of all legal papers relative to your business. You should include a credit report on yourself. Use the yellow pages or check at the credit department in your bank for the nearest credit reporting office. When you get your credit report, look it over and take whatever steps are necessary to eliminate any negative comments. Once these have been taken care of, ask for a revised copy of your report to include in your plan. This will help insure potential investors of your credit worthiness. If you own any patents or copyrights be sure to include copies of these in the chapter. Any licenses to use someone else's patent or copyright should also be included. If you own the distribution, wholesale, or exclusive sales rights to a product, include copies of this information as well. You should also place copies of any state county, or city business licenses, all leases, special agreements, or other legal papers that might be pertinent to your business.
In conclusion, write out a brief, overall summary of your
business. Entitled "Summary of Business and Outlook for
The Future," include in this chapter asummation of each
of the preceding chapters. Briefly recap when the businesswas
started, the purpose of the business, what makes your businessdifferent,
how you're going to gain a profitable share of the market, andyour
expected success during the coming five years.
That's it: your complete business plan. Before you have a final draft typedout, read the entire plan over once a day for a week or ten days. Make any changes or corrections to the plan, rewrite portions that seem unclear orweak. Finally, have each chapter reviewed by an attorney and an accountant. It would also be a good idea to have it reviewed by a business consultant serving your business field. After these reviews and any last minute changes, the report will be ready for its final typing.
Hire a professional typist or word processor to type the entire plan on ordinary white bond paper. Make sure you proofread it against the original. Check for and correct any typographical errors, then reread it through for clarity and the perfection you desire. Now you're ready to have it printed and published for whatever use you have planned: for distribution to your partners or stockholders, as the business plan for putting together a winning financial proposal, or as a business operating manual. Take it to a quality printer in your area and have three copies prepared. If it was typeset on a computer, print your copies on a laser printer for greater clarity. Have a copy professionally bound if you wish, place one in a file for safe keeping and as a master from which to make any future copies, and one to use to periodically reassess your goals or use as a daily and weekly guide to business operation. Make the plan as useful a tool as possible for complete business success.
Now you can relax, take a break, and feel good about yourself.
You have a complete and detailed business plan with which to
operate a successful business of your own. You have developed
a plan you can use as the basis for any financing proposal you
may want to submit. You have formulated a precise roadmap for
the attainment of real success, marking out the milestones to
pass on the way. Congratulations. Best wishes for the total fulfillment
of all your hopes, dreams, and ambitions!
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