Chapter 3 DEVELOP A BUSINESS PLAN Lesson 3. 1 – Why a Business Plan is Important Lesson 3. 2 – What Goes into a Business Plan? Lesson 3. 3 – How to Create an Effective Business Plan
A Business Plan serves 3 Important PURPOSES: 1. Explains the Idea & How your pdt/svc will be Produced and Sold • New pdt/svc, Better pdt/svc, Less expensive… • Identify TC/TM & show obtain/keep them 2. Set Specific Obj. & How to Achieve (GOALS) • Short (3 mo. -1 st yr. ), Medium (2 -5 yrs. ), Long term (More than 5 yrs. ) 3. Describes Bkgrounds/Exp. of those Running business
IMPORTANCE of Business Plan for 4 Reasons: Important 1. Makes you think about ALL Aspects of your business • Development, Startup Phases, • Business Strategies, Recognize Limits, Identify Problems, • Gain more confidence in business idea, 2. May help you Secure Financing for your business • Lenders/Investors – require BP • Serious About Idea, Spent Time in planning process
IMPORTANCE of Business Plan Continued… 3. Helps you Communicate your ideas to others • Communicate well on paper = Convince Readers of Success • Give suppliers confidence in extending credit to you 4. Serve as a Tool for Managing you business • Use in Decision Making, • Vision of how the company would grow
Lesson 3. 2 What Goes into a Business Plan? All Business Plans contain the same 3 basic components… INTRODUCTORY ELEMENTS The MAIN BODY The APPENDIX
INTRODUCTORY Elements: • Cover Letter • Title Page – Introduces & Explains documents Company, Owner, Date, Address, Phone #, Email, etc. • Table of Contents - Listing of Content w/ Accurate Page #’s Statement of Purpose • Executive Summary - Brief, Why & What $$ Short, Capture Interest
The MAIN BODY Compile First Organized into the following sections/elements: • INTRODUCTION • MARKETING • FINANCIAL MANAGEMENT • OPERATIONS • CONCLUDING STATEMENT
The APPENDIX Supporting documents that provide additional information and back up statements made in the body of the report. • Tax Returns • Personal Financial Statement • Copy of Proposed Lease • Copy of Licenses & other Legal doc’s • Copy of Resume • Letters of Recommendation
The MAIN BODY - Introduction • DETAILED DESCRIPTION • Describe HOW you came up with your IDEA. • Outline your Short, Medium, and Long-term GOALS, • Describe your VISION • OWNERSHIP and LEGAL STRUCTURE • Detail your FORM of OWNERSHIP: • Sole Proprietorship, Partnership, or a Corporation • Who are your partners? , How many shareholders do you have? • SKILLS and EXPERIENCE • Summary of YOUR Experience (ALL Experience) • Paid Work Experience, Volunteer Experience, • Related Hobbies • Summary of Managers or Professional Employees who will be hired • ADVANTAGES – list your company’s advantages over the competition. • Performance, Quality, Reliability, Distribution, Price, Promotion, Public Image
The MAIN BODY - Marketing • PRODUCTS/SERVICES – • • Describe your Product or Service Explain How they Differ from those already on market Highlight any Unique Features Explain the Benefits customers will receive • MARKET – • • Explain whom your prospective customers are How large the market is for your pdt/svc How you plan to enter the market, Explain how you plan to deal with competition
The MAIN BODY – Marketing Continued… • INDUSTRY – • External factors affecting your business • high competition, lack of suppliers, inconsistent demand • Growth potential of the Industry • Economic Trends of the Industry • Technology Trends that may affect the Industry • LOCATION – • Where will your business be, EXACTLY… • Downtown, Neighborhood Shopping Center, Community Shopping Center, Regional Shopping Center, Stand Alone Store, Warehouse
The MAIN BODY – Financial Management • Help you determine your financial needs, and it forces you to look at financial risks & the costs and expenses of running your business It consists of 3 elements: 1. IDENTIFICATION of RISKS – some kind of loss to your business • What Risks does your business face? What could go wrong? • How do you plan to deal with them? • Potential Problems - competition cutting prices, costs exceeding projections, demand for pdt/svc declining, Theft, Bounced Checks, Technology changes, Business Operations, Local Factors 2. FINANCIAL STATEMENTS – Pro Forma Financial Statement 3. FUNDING REQUEST and RETURN on INVESTMENT – • How much do you need to borrow? , How you plan to use the money? , • How much money investors could expect to earn on investment? • How much money are you personally investing?
The MAIN BODY - Operations • How will business be managed on a day-to-day basis? • Discuss Hiring and Personnel Procedures • Include information on Lease/Rental Agreements • Include information on Insurance: • Property, Interruption, Liability Protection, Life Insurance, Flood, Crime, Renters • Describe the equipment that will be necessary for production of your pdts/svc • How will the pdts/services be Produced & Delivered?
The MAIN BODY – Concluding Statement • Summarize the Goals and Objectives you have for your business. • Emphasize your commitment to the success of the business.
INTRODUCTORY Elements COVER LETTER – (Read textbook pg. 74) • introduces & explains accompanying document(s) • Includes your name, name of your business, your address, & phone number • Briefly describes your business & its potential for success • Needs to tell the reader how much capital you need
INTRODUCTORY Elements Continued… TITLE PAGE – • • • includes: Name of Your Company, The Date, The Owner of the Company, The Title of the Owner, The Address and Phone Number of the Company TABLE of CONTENTS – • a listing of the material included in a publication, • Shows reader what each page covers, • Accurate, Proper Order, & Correct Page Numbers
INTRODUCTORY Elements Continued… (Review Textbook pg. 75) STATEMENT of PURPOSE – a brief explanation of why you are asking for a loan, and what you are planning to do with the money. EXECUTIVE SUMMARY – • A Short restatement of the report. • Capture the readers Interest, make them want to read more. • Write AFTER the business plan has been completed. 1. Describe your business concept and communicate what is unique about your idea, 2. Key individuals for operation, Location of business 3. Include projection for Sales, Costs, Profits, Money Needed 4. Identify you Needs (inventory, land, building, equipment),
The APPENDIX Supporting documents that provide additional information and back up statements made in the body of the report. • Tax Returns • Personal Financial Statement • Copy of Proposed Lease • Copy of Licenses & other Legal doc’s • Copy of Resume • Letters of Recommendation
How to Create an Effective Business Plan, Lesson 3. 3 RESEARCH the Business Plan Must include information & data from objective sources to show that your idea is founded on solid evidence. • Hours spent on developing business plan, 50 to 100 Process requires: Patience, Research, Thought, & a great deal of Writing/Editing…
MISTAKES in Business Planning AVOID Making the Following Common Mistakes: 1. UNREALISTIC FINANCIAL PROJECTIONS – • Be Realistic, Base on solid evidence 2. UNDEFINED TARGET MARKET – • Clear picture of potential customers, • Clearly explain why they will buy your product 3. POOR RESEARCH – • Use up-to-date reasearch information, • Verify facts and figures in BP
MISTAKES in Business Planning Continued… AVOID Making the Following Common Mistakes: 4. IGNORED COMPETITION – • • Do not overlook competition, Do not focus only on what they have done wrong, How do you plan to compete in the market? How will you differentiate yourself from them? 5. INCONSISTENCIES in the BUSINESS PLAN – • Written Well, Formatted in an Attractive Style, • Consistent Information, • Have someone objective review your business plan
Community, Gov’t, & Professional Resources SBA (Small Business Administration) – independent agency of the federal gov’t that was created to help American’s start, build, and grow businesses. SBDC (Small Business Development Centers) – provides management asistance to current & prospective small business owners. Counselors provide free one-on-one assistance in developing a business plan. Also provides inexpensive workshops. SCORE (Service Corps of Retired Executives) – retired executives who volunteer their time to provide entrepreneurs with real-world advice and know-how.
Community, Gov’t, & Professional Resources CHAMBER OF COMMERCE – provides information on trends affecting local businesses, local resources, and zoning & licensing information. TRADE ASSOCIATIONS – organizations made up of professionals in a specific industry. They exist to provide information, education, and networking opportunities to individuals in their industry. PROFESSIONAL CONSULTANTS – hire experts to help them. FINANCIAL INSTITUTIONS – when writing the financial section of BP, it may be benefical to talk w/ banker & accountant. Print & Online Resources – books, magazines, gov’t documents
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