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Writing a Business Plan
Small Business Development Center
Georgia State University
404-651-3550
web: www
...
edu/sbdc
Writing a Business Plan
Georgia State SBDC
1
Why Write a Business Plan?
A Business Plan helps you evaluate the feasibility of a new
business idea in an objective, critical, and unemotional way
...
• Identify opportunities and avoid mistakes
• Develop production, administrative, and marketing plans
• Create budgets and projections to show financial outcomes
It communicates your idea to others, serves as a “selling tool,”
and provides the basis for your financing proposal
...
If you are
presenting it to outsiders as a financing proposal, presentation
quality and thorough financial analysis are very important
...
Up to 100 hours or
more is not uncommon for a new business that requires a lot of research
...
Section one is a written section
describing Management and Marketing aspects of the business
...
Section Three is supplemental information
...
• Section One should be thorough, but concise and to-the-point
...
Length of this
section is usually 10 - 20 pages
...
Your financial projections should be based on facts
and research, not “wild guesses
...
• Section Three contains supporting information to reinforce the first two
sections
...
Owners should be very involved in the planning process
...
No plan (or a poor plan) is a leading cause of business failure
...
Writing a Business Plan
Georgia State SBDC
3
Ten Ways to Ruin Your Business Plan
These errors in business plan preparation and presentation will undermine the
credibility of the plan and hurt your chances to receive funding:
• Submitting a “rough copy,” (with coffee stains and typos) tells the reader that
management doesn’t take the planning process seriously
...
• Unsubstantiated assumptions can hurt a business plan; the business owner
must be prepared to explain the “why” of every point in the plan
...
• A lack of understanding of financial information
...
• Lack of specific, detailed strategies
...
”) without important details will be dismissed as fluff
...
The lender expects the
entrepreneur to have some equity capital invested in the business
...
If the business owner isn’t
willing to stand behind his or her company, then why should the bank?
• Starting the plan with unrealistic loan amounts or terms
...
• Too much focus on collateral
...
Cash flow should
be emphasized as the source of repayment
...
Description of Business
B
...
Market Analysis
D
...
Location
F
...
Management and Operations
H
...
Application and Effect of Loan or Investment
Section Two: Financial Data
A
...
Break Even Analysis
C
...
Writing a Business Plan
Georgia State SBDC
5
Section One: The Business
The following pages describe in detail each part (A through I) of the previous
Business Plan Outline
...
A
...
Aim for clarity and simplicity in this part
...
The Elevator Test - Can you explain your
basic business idea in the time it takes to get from the lobby to the 5th floor?
Basic Questions:
1) What general type of business is this?
2) What is the status of the business? Start-up, expansion or take-over?
3) What is the business form? Sole Proprietorship, Partnership, Corporation
or Limited Liability Company?
4) What are your products?
5) Who are (will be) your customers?
Additional Questions for Start-Ups:
1)
2)
3)
4)
Why will you be successful in this business?
What is your experience with this type of business?
What will be special or unique about this business?
Why will your business be successful?
Additional Questions for Purchase of Existing Business:
1)
2)
3)
4)
5)
When and by whom was the business founded?
Why is the owner selling?
How was the purchase price determined?
What are the current financial conditions and trends?
How will your management make the business more profitable?
Writing a Business Plan
Georgia State SBDC
6
B
...
This will include details of product
features and an overview of unique technology or processes
...
You must also describe the product benefits and
why customers will want to buy
...
If yours are, take
advantage of this while you can and plan for the competitive battles that will come
...
Positioning is the process of establishing your image with prospects or
customers
...
)
Basic Questions:
1)
2)
3)
4)
5)
6)
What products/services are you (will you be) selling?
What are the features and benefits of what you sell?
What Position do you have (or want to have) in the market?
How do your products/services differ from the competition?
What makes your products unique and desirable?
Why do (will) customers buy from you?
Writing a Business Plan
Georgia State SBDC
7
C
...
Existing businesses will rely
heavily on past performance as an indicator of the future
...
In all cases, make sure
your market analysis is relevant to establishing the viability of the business and the
reasonableness of the sales forecast
...
)
2) What do they buy from you?
3) Why do they buy from you? (Quality, Price, Reputation, etc
...
Marketing Plan
In this section, you include the highlights or your detailed marketing plan
...
)
2) How will you compare with competition and how will they respond?
3) Why will customers pay your price?
4) What will be your credit policies?
5) Is there anything about your business which insulates you from price
competition?
6) Can you add value and compete on issues other than price?
Promotional Strategies
1)
2)
3)
4)
Who are your Target Markets?
How will you reach your Target Markets? (What Media will you use?)
How will you motivate them to buy? (What Message will you stress?)
What is the cost and timetable for implementation of the marketing plan?
Writing a Business Plan
Georgia State SBDC
9
E
...
This is especially true of
retail businesses where traffic count and accessibility are critical
...
Why is this a good location for your business?
For Mail Order, Telemarketing, Manufacturing, Consulting, or other companies
where the customer does not purchase while physically at the business address, less
location detail is needed
...
In some
cases, a good location may be one close to suppliers, transportation hubs or a
complementary business that will also attract your Target Market
...
Competition
"Who is your competition?" is one of the first questions a banker or investor will ask
...
If there
are no competitors, be careful; there may be no market for your products
...
If you plan to open the first roller skating rink
in town, your competition includes movie theaters, malls, bowling alleys, etc
...
How will your operation be better (and worse) than your competitors?
How are competitors doing? What are their sales and profits?
(If Start-Up) How will competition respond to your market entry?
Writing a Business Plan
Georgia State SBDC
10
G
...
Resumes of Principals
should be included in supporting data
...
If
you are seeking financing, include personal financial statements for all principals in
supporting data section
...
)
H
...
The amount of emphasis in your plan will depend on the number
and type of employees required
...
Application and Effect of Loan or Investment
This section is important whether you are seeking a loan, outside investment (equity)
or investing your own money
...
Basic Questions:
1)
2)
3)
4)
5)
What is the total investment required?
How will the loan or investment be used?
How will the loan or investment make the business more profitable?
When will the loan be repaid?
If you are seeking equity (selling part of the business to an investor): What percent of the company are you willing to give up?
- What rate of return is possible for the investor? (Note: If your business
plan will be presented to private investors, seek legal counsel to be sure
you are in compliance with securities laws
...
Projected Financial Statements
The basic purposes of financial projections are:
• Establish the profit potential of the business, given reasonable assumptions
• Determine how much capital the company needs and how it will be used
• Demonstrate the business can generate the cash to operate and re-pay loans
It is usually helpful, but not necessary, to complete at least a rough draft of Section
One (the written section) before attempting the financial section
...
In the
financial section, you will estimate the financial impact of those strategies by
developing projected Income Statements, Balance Sheets, and Cash Flow Statements
...
Activity
displayed beyond the monthly detail may be in summary form (such as quarterly or
annually
...
Before you start developing projected financial statements, gather the suggested
information on the following pages
...
(There
are also some specialized software programs which have basic templates to help with
your financial forecast
...
(Garbage
in - Garbage out
...
Start-ups have greater challenges
...
Examples of sources include:
Industry data from public sources and trade associations, personal interviews with
potential customers and people in the business, competitive observation and analysis,
etc
...
The SBDC will review the
information from your research and help you develop your projection
...
”
1)
Estimate fixed asset requirements for the first year
...
2)
Estimate any start-up or one-time expenses
...
For item 3, use the following “Unit Selling Price and Cost Analysis” sheet
...
In the appropriate places on the form, estimate Cost of Sales and
calculate Gross Profit as a percentage of the selling price
...
4)
Estimate sales by month for at least one year
...
) Consider how start-up, marketing, and seasonal factors affect sales
...
Use a weighted average if multiple product lines
...
Include things
like rent, insurance, utilities, salaries, marketing, legal/accounting, etc
...
”
Research items 7 through 10, and provide a short narrative
...
Express in number of days sales or turnover if possible
...
If you will make sales on credit,
estimate the number of days after the sale before the average customer pays
...
10) Also:
- Estimate obligations for Income Taxes
...
Writing a Business Plan
Georgia State SBDC
14
Fixed Asset/Start-up Expense List
Fixed Asset Description:
Cost:
Land/Building
____________________________________
Equipment and/or Vehicles
____________________________________
Leasehold Improvements
____________________________________
(Other)_____________________________
____________________________________
___________________________________
____________________________________
___________________________________
____________________________________
Start-up Expense Description:
Legal/Organization Costs
Initial Marketing & Promotion
____________________________________
____________________________________
Licenses and Permits
____________________________________
Beginning Inventory
____________________________________
(Other)_____________________________
____________________________________
___________________________________
____________________________________
___________________________________
____________________________________
___________________________________
____________________________________
Total Fixed Asset and Start-up Expenses: _______________________________
Note: List major items individually
...
Writing a Business Plan
Georgia State SBDC
15
Unit Selling Price and Cost Analysis
(Make additional copies of this sheet if necessary
...
Selling Price:
less
Direct Costs:
Materials
Labor
Sub-contractors
(Other)_______________
_____________________
_____________________
_____________________
B
...
Unit Gross Profit (A minus B)
__________________
D
...
Selling Price:
less
Direct Costs:
Materials
Labor
Sub-contractors
(Other)_______________
_____________________
_____________________
_____________________
B
...
Unit Gross Profit (A minus B)
__________________
___________
___________
___________
___________
___________
___________
___________
__________________
__________________
D
...
(Cont
...
If the business will start making sales very soon after opening, you may decide to multiply
monthly fixed expenses by a number smaller than six
...
Break Even Analysis
Break even (B/E) analysis is a simple, but very effective financial feasibility test
...
) In your business plan, it
represents a minimum acceptable performance
...
Contribution Margin (CM) equals Sales minus
Variable Expenses
...
Note: The biggest variable
expense is usually Cost of Goods Sold (CGS), which is the direct material and labor necessary
to make a product or service ready for sale
...
) Fixed
expenses do not rise or fall with sales volume
...
3) Break Even Sales is Fixed Expenses divided by Contribution Margin %
...
$10,000
Unit Contribution Margin = $6
($10 - $3 - $1)
CM % ($6 ÷ $10) =
60%
B/E = Fixed Expense ÷ CM %
B/E = $10,000 ÷
...
Sources and Uses of Funds
The Sources and Uses of Funds is a statement of how much money you need (and where it will
come from) and how that money will be used
...
By definition, sources must equal uses
...
Sources:
Term Loan
__________
Line of Credit
__________
Personal Equity
__________
Outside Equity
__________
Other
__________
Total Sources
__________
Uses:
Purchase Building
__________
Purchase Equipment
__________
Renovations
__________
Inventory
__________
Working Capital
__________
Cash Reserve
__________
Other
__________
Total Uses:
Writing a Business Plan
__________
Georgia State SBDC
20