- Writing a Business Plan
- Financial Statements
- Business Forecasting
- Business Checklist
How to Write a Business Plan
Whether you intend to start a new business or expand an existing one, you will need to develop a business plan. Not only is your business plan necessary to acquire financing through a bank or financing through a government organization, but the business plan, if written properly, can be used as a road map to guide you and your business through the difficult periods. Below outlines the components to writing a business plan.
It is recommended that you prepare the business plan yourself so that you get the full appreciation of the venture and what it completely involves. In addition, by doing the business plan yourself, you can better determine whether the idea is feasible within your geographic area.
Below lists all the components of a how to write a Business Plan. For your convenience, examples are provided in each Business Plan component.
What is a Business Plan
Title Page of the Business Plan
Table of Contents of Business Plan
Executive Summary of Business Plan
Mission Statement and Strategy Statements
Management and Staffing Section of Business Plan
Marketing Components of the Business Plan
Operating Plan of the Business Plan
Financials of the Business Plan
Appendices of Business Plan
Tips on Presenting Business Plan
For your convenience, below provides a narrative of the topics addressed under the "Writing a Business Plan" section. Think of the following as a sitemap for humans opposed to search engines. Let’s begin the narrative by defining “What is a Business Plan”.
What is a Business Plan
What is a Business Plan section consists of three main parts. In Part A entitled, Three Types of Business Plans, you'll learn the difference between a Complete Business Plan, a Brief Plan and thirdly, an Operational Plan. Each type has its own business format and strategic use.
Part B looks at each functional area and provides a brief summary of the structure of a business plan. In a later section, we explain this structure in greater detail using business plan examples and templates.
The remaining topics under How to Write a Business Plan deal with each individual section of the business plan. For your convenience, the topics are discussed in the order in which they would appear in the final draft of the business plan.
Title Page of a Business Plan
Obviously, the first item a reader will see is the Title Page or Cover Page. Under this section, we begin by discussing the necessary information needed to appear on the Title Page of a business plan. Several examples of a title page are provided at the end of the discussion.
Table of Contents of the Business Plan
The next section to appear is the Table of Contents. Here you will learn the key areas and subsections to be included in the Table of Contents of a Business Plan. Several examples are added and act as possible business plan templates.
Executive Summary of a Business Plan
Immediately following the Table of Contents is the Business Plan Executive Summary. Although you write the executive summary in the final stages, it always appears after the table of contents. It simply provides a quick overview of all the major functional areas of the business plan. A well written executive summary will tantalize an investor, banker, or other reader so that they will read the entire business plan.
After reading this section and viewing a number of the executive summary examples, you will understand how the excutive summary should be written.
Mission Statement and Strategy Statement
A Mission Statement and Strategy Statement immediately following the Executive Summary. A Mission Statement consists of two parts. Firstly, the mission statement defines what "business" your organization is really in. To help with your definition, three questions must be clearly answered. In other words, the answers to the following questions will form the first part of the mission statement. 1) What consumer need or consumer needs will your business satisfy? 2) Who are your actual customers or end consumers? and 3) How will the “consumer need” be satisfied.
The second and equally important component of the mission statement involves clearly defining your long-term goal. The importance of this knowledge becomes much clearer when you read through the section on strategic planning.
Besides the mission statement, you will also need to write a Strategy Statement. The strategy statement simply tells the business plan reader how your company is going to succeed. Examples of strategy statements are provided so you can see what’s involved in the process.
Since these statements are two of the most important components of a business plan, we have written additional complimentary topics entitled, 1) Strategic Planning and the Strategic Planning Process and 2) Three Types of Competitive Strategies. Below provides additional information outlining the topics covered under the areas of strategic planning and the strategic planning process.
Strategic Planning and Strategic Planning Process
Under the Strategic Planning and the Strategic Planning Process sections, you’ll learn how business strategies help achieve short term goals of the business and how short-term goals achieve long term goals of the business. In addition, you'll discover how corporate long term goals ultimately achieve the company’s mission statement.
Strategic Planning also involves the identification of Competitive Strengths, Competitive Weaknesses, Key Success Factors in the Industry, Driving Forces, and Competitors in the Industry. Each of these categories of the Strategic Planning Process are discussed in great detail. Extensive examples of Competitive Strengths, Competitive Weaknesses, Key Success Factors, and Driving Forces are provided so you too can develop a strategic plan for the business.
Depending on how you write a business plan, will determine the structure of the next section of your Plan. Some will place the operational plan after the mission statement and strategy statement. Others will place the management and staffing section immediately following the mission statement and strategy statement. Either way is just fine. The most important thing to consider is the “flow” of the business plan. Your objective is to write the business plan so it has a consistent transition from one topic or functional area to the next. By doing so, the investor or lender of money (IE the reader) will not be confused and will better understand the overall business plan.
The above main menu of www.businessplanhut.com labeled "How to Write a Business Plan" shows the Marketing Section appearing after the Mission Statement and Strategy Statement. That said, below briefly describes the topics you’ll discover at Business Plan Hut under the marketing section of a business plan.
Marketing Section of a Business Plan
The Marketing Section of a Business Plan discusses various components consisting of a Market Description, Competition in the industry, the overall Marketing Plan, and Customer Profile (including such variable as demographic variables segmentation, behavioristic variables segmentation, geographic variables segmentation, and psychographic variables segmentation. For additional information, on segmentation variables and identifying your customers, please refer to the section entitled, "Who are the End Consumers of Your Product or Service".
The Marketing Plan deserves more attention since you’ll need to discuss important topics such as Pricing Strategy, Distribution Strategy, and Advertising/Promotions. You’ll find an in depth discussion on each of these marketing plan components.
For your convenience, we have expanded the Pricing Strategy of the Marketing Plan to include a discussion on five competitive pricing strategies known as Markup Pricing Strategy, Break-even Pricing Strategy, Perceived Pricing Strategy, Competitor Pricing, and Billable Hours Pricing Strategy. You’ll also discover plenty of marketing examples so it makes writing the marketing plan much easier.
The Operating Plan of a business plan consists of many components. Many of the operating components will apply to a company’s production process while other operational components of, less complicated businesses, will not apply. For example, explaining the operational plan of a manufacturing plant requires much more detail and planning then the operational plan of a hair salon. Furthermore, the operating plan for a restaurant can be extremely complicated and should be discussed thoroughly in the business plan. On the other end of the continuum, the operational plan for a plumber requires less detail.
Our discussion provides an in depth view on all the components of an operating plan whether you own or plan to own a service, retail business or a manufacturing company. As a result, when you’re developing a business plan, you'll know which components of the operating plan need to be addressed. Below provides links to the components of an operating plan.
Types of Business Structure such as sole proprietorship, partnership and corporation.
Business Licenses and Permits
Capital Assets in the Operational Plan
Copyrights, Trademarks, Patent
Direct Materials in the Operating Plan including selecting a supplier
Facility and Business Location
Operating Plan Time Line
After Sale Service Business
Again, as you read through each of the above components of the operating plan, you will know which topics need to be included in your business plan and how much detail is required.
The operating plan ends with several examples which will assist you when Writing your Business Plan.
Management and Staffing
The management and staffing section of the business plan is an extremely important section and great attention should be geared towards it. The following three categories should be addressed under the Management and Staffing section of a business plan.
1) The Management Team of your business plan will discuss important areas including: personal background & status of the management team, employment history, industry background & experience, small business experience, education & training, duties & responsibilities and each management team member's projected salary, wage, owner’s cash drawings, and/or commission.
Resumes of each member of the management team should be placed in the appendix of the business plan.
A funder or loan manager is extremely interested in knowing who the management team consists of and whether they can implement the operational plan, as well as, all other functional area strategies of the company. Gaining the confidence of the lender, greatly improves the odds of receiving external financing. That said, be sure the business plan also discusses management skills and the effective management style.
2) Outside Support or Strategic Alliances is the second component of the Management and Staffing section of the business plan. Since most management teams and select staff do not have the complete talents, skills or resources to successfully carry out the overall duties of the company, management must rely on other resources. Examples of outside supporters or strategic alliances include accountants, lawyers, loan managers, government agencies, insurance brokers, and others who add value to the business or have important specialized skills. When you read this section, you’ll quickly learn how to organize the strategic alliance component of your business plan.
3) Staffing Requirements is the final topic to be addressed under the management and staffing section of the business plan. Discussions here will include staffing levels, title of each position, skills necessary for each position, staffing duties and responsibilities, the available of staff in the geographic service area, and wages and benefits for each staff member.
Other topics and questions to be addressed under staffing include the following.
How do you intent to recruit employees
Who will interview prospective employees?
What methods have you chosen to motivate employees?
What approaches do you have in place to support employees?
What corporate culture do you want for your business?
You'll also discover the importance of employee training guides as they relate to the roles, duties and responsibilities. We include a number of employee training guides relating to employees working in a restuarant and motel setting. Below lists the sample employee training guides.
Training Guide for Waitresses
Training Guide for Night Hostess
Training Guide for Day Hostess
Training Guide for Busser
Training Guide for Line Cook
Training Guide for Prep Cook
Training Guide for Dishwasher
Training Guide for Baker
Training Guide for Bartenders
Training Guide for Housekeeping
Our discussion on the management and staffing section of the business plan ends with several business plan examples. These examples will certainly help you better prepare the management and staffing section of the business plan.
The Financial Section of a Business Plan is usually the most examined section of the entire document. Lenders review it and determine whether the numbers and assumptions are reasonable. In other words, a prospective lender will determine whether the business plan is feasible and, if so, then calculates the odds of getting “their” money back.
As you’ll discover, the financial plan consists of three main components; namely, Introduction to the Financial Plan, Forecasted or Projections to the Financial Statements, and Notes to Financial Statements. Below briefly discusses and defines each component of the Financial Plan. More detailed information can be read by following the link to each associated component below.
The Introduction of the Financial Plan general explains what the reader will see when he/she views the financial statements. You may decide to briefly explain each financial statement independently or simply give an ov\erview of the entire Financial Plan. The general rule of thumb is to provide as much detail as necessary so the lender fully understands your financial plan.
The next component of the Financial Plan involves creating Forecasted Financial Statements and other financial analysis. The financial statements include:
The financial analysis include the following:
Below briefly defines each financial statement and financial analysis discussed under the financial section of the business plan. Again, greater detail and several examples are provided for each of the financial statements and financial analysis upon following the associated links below.
The Income Statement:
The Income Statement is generally the first financial statement to appear in the Financial Plan. The forecasted income statement projects revenue, cost of goods sold, operating expenses, administrative expenses, and marketing expenses. Revenues are subtracted from all costs and operating expenses to arrive at earnings before taxes (EBT). A provision for taxes is calculated and subtracted from the EBT to arrive at the projected or forecasted Net Earnings. Net earnings are also referred to as the bottom line. For an in depth discussion, please refer to the section entitled Forecasted Income Statement.
For your convenience, we have also developed several income statement examples which are as follows:
The Balance Sheet is usually the second financial statement to appear in the Financial Plan. The balance sheet lists the company’s projected assets, liabilities, and equity. Be sure to create an opening balance sheet and include it in your business plan. Three year financial projections along with your opening balance sheet, means your Forecasted Balance Sheet section will consist of four columns. For greater details on how to make or create a balance sheet as well as how to develop an opening balance sheet, please refer to the section entitled Forecasted Balance Sheet.
You will also discover several balance sheet examples and samples for retailers, manufacturers and service providers. The business plan examples are listed below:
Cash Flow Statement:
The Cash Flow Statement generally is the next financial statement to appear in the financial plan. The Cash Flow Statement is a financial statement which predicts when cash is anticipated to arrive in the business bank account (referred to as cash inflows) and when cash is anticipated to leave the business bank account (referred to as cash outflows). When you subtract the cash outflows from the cash inflows, you arrive at either an excess of cash or a deficiency of cash. The cash balance at the start of the period is then added to the beginning cash balance to arrive at the ending cash balance.
As you’ll discover, we strongly urged you to create a monthly cash flow statement. Doing so, enables you to create financial projections and determine which month or months require you to secure additional financing or business funding. For additional information on cash flow examples and cash flow projections, please refer to the section entitled Forecasted Cash Flow Statement. Here you will discover several cash flow statement examples as well as helpful tips you may use when developing your projections. For your convenience, we have listed the cash flow statement examples below:
Our discussion on the financial plan now deviates from financial statements and turns towards a number of financial analysis. Below provides information on how financial analysis should apear in your business plan.
A well written business plan includes three types of financial analysis; namely, break-even analysis, sensitivity analysis and ratio analysis. These analyses are not financial statements but rather tools which add additional value to the financial statements. Below briefly defines each of financial analysis and discusses the usefulness of each. Let’s begin with break-even analysis.
Break-even Analysis, also written as Breakeven Analysis, calculates the point at which a business neither makes a profit nor incurs a loss. In other words, break even is when net earnings equal $0.00. Income statement components are needed in order to calculate the break even point. More specifically, you need to calculate fixed costs, variable costs and selling prices. Below defines the break even formula:
Break even = Fixed Costs
Selling Price per unit - Variable Costs per unit
When you substract the variable costs from the selling price, the resulting figure is called Contribution Margin.
Here is a quick break-even example. Let’s assume your selling price per unit is $50 and your variable costs to produce one unit of product is $20 and your projected fixed costs total $100,000 for the year. Using the above data, you can calculate the break even point to be 3,333 units. In other words, you have to sell 3,333 units of product in order to achieve net earnings of $0.00. For each sale above 3,333 units, you will profit $30.00 ($50-$20=$30).
The $30 per unit is also referred to as the Contribution Margin. Dividing the contribution margin in dollars per unit by dollar sales per unit provides you with another important financial term referred to contribution margin ratio. In this case, the contribution margin ratio, also referred to as contribution rate is .60 or 60% ($30 contribution margin per unit divide by $50 sales per unit = .60 or 60%).
For complete information on the break even formula, Contribution Margin, or contribution margin ratio, please refer to the section entitled Break-even Analysis. Additional break even examples are provided as they appear below:
Please Note: if you sell multiple products or sell multiple services, you should consider calculating a weighted average selling price and a weighted average cost. Upon reading this Breakeven Analysis, you'll discover the importance of weighted averages as it relates to selling multiple products and breaking even. In addition, you’ll learn how much product you need to sell in order to achieve the salary you wish to make on an annual basis.
The sensitivity analysis is the next analysis to discussed. As mentioned earlier. a sensitivity analysis is not a financial statement but rather an analysis which attempts to forecast what net earnings would be if sales increased or decreased by a certain percentage or by a certain number of units. The forecasted Sensitivity Analysis attempts to answer a number of “what if” situations. "What if" situations might include the following:
“What if” sales were 1,000 units higher than my original projections?
“What if” sales were 500 units lower than my projections?
“What if” sales were 10% lower than my projections?
“What if” sales were 50% higher than my original projections?
And so on…
“What if” situations are easy to create in Excel or any other spreadsheet software program. You simply use the values appearing in the forecasted or projected income statement and apply certain percentage increases and decreases. The “what if” situations could be the following:
- What would net earnings be if sales increased by 15%, 30%, or 50% above the original sales projection, or
- What would net earnings be if sales decreased by 15%, 30%, or 50% above the original sales projection.
In this case, your sensitivity analysis would have 7 columns, consisting of the above categories plus your original projected income statement or pro forma statement.
Lenders like to see a sensitivity analysis in the Financial Plan of the business plan so they can see exactly the positive and negative effects on earnings at various sales increases and sales decreases.
Like the break even analysis, the sensitivity analysis requires you to differentiate fixed costs from variable costs. For a complete discussion on sensitivity analysis and how it appears in a business plan, including differentiating a fixed cost from a variable cost, please refer to the section entitled Forecasted Sensitivity Analysis. Several examples are discussed here in order for you to fully understand the power of this “what if” tool.
Ratios and Ratio Analysis:
A well written business plan will also include a section on Ratio Analysis. The ratio analysis section of the business plan appears under the Financial Plan. Again, the final three analyses appear after the projected income statement, balance sheet and cash flow statement.
Ratios are the result of dividing at least two numbers into one another. The resulting number can easily be converted into a percentage or currency for further analysis. Income Statement accounts (revenues, cost of goods sold and operating expenses) and balance sheet accounts (assets, liabilities, and equity) are used when creating a ratio analysis.
There are various categories of ratios that should be addressed in the business plan. These include activity ratios, liquidity ratios, profitability ratios, and leverage ratios. Each type of ratio consists of a number of ratios. For instance, leverage ratios consist of two main types including the debt-to-equity ratio and debt ratio. Similarly, profitability ratios include the return on equity ratio, gross profit margin ratio, return on total assets ratio calculation and net profit margin ratio formula. The most popular Activity Ratios include the average collection period and the inventory turnover ration. Finally, the most popular Liquidity Ratios include the current ratio and the quick ratio. The quick ratio is also known as the acid-test ratio.
For more in depth information on Ratios in the business plan, please refer to the section entitled Forecasting Ratio Analysis. Examples and several ratio calculations are also provided below.
Notes to Financial Statements:
The final section of the financial plan is known as the Notes to Financial Statements. This section basically explains how you arrived at the numbers appearing in the Forecasted Income Statement, Forecasted Balance Sheet and the Forecasted Cash Flow Statement.
Only significant revenue, cost of goods sold, operating expenses, asset, liability, and equity accounts need to be explained in the notes to financial statements. For example, an annual office supply budget of $200 is immaterial and would not deserve a note. On the other hand, a $20,000 office equipment budget is considered material and therefore would require a discussion under the Notes to Financial Statements. The rule of thumb is this... If you feel a lender will question an account or an account balance, then create a note and provide adequate detail.
For additional information on how to create your forecasted notes, please refer to the section entitled Notes to Financial Statements. For your convenience, we have included many examples and samples that will help you prepare your notes to financial statements section of the financial plan.
The Appendix of the Business Plan
The final category of a business plan is the appendix or business plan appendicies. Here is where you place supporting documents such as quotes, resumes of the management team, facility layout and designs, partnership agreement and other information that cannot be categorized in the other areas of the business plan. For further information and how to organize and create the appendicies, please refer to the section called Appendices of the Business Plan. Examples of the business plan appendicies are also provided.
Tips on Presenting your Business Plan
How to Write a Business Plan concludes by providing you with some Tips on Presenting Business Plan. Here you will discover a number of things to consider when writing your business plan and when presenting the business plan to a potential investor or financial lender.
The more professional your business plan is and the more professional you present yourself, the better chance of securing the necessary funds to start a business, maintain the business and grow the business.
Remember this though: The purpose of the business plan is to help you determine if the proposed venture is feasible and whether it will provide you with a business opportunity. If it passes that test, then the next objective of the business plan is to acquire the necessary financing to start the business venture.
Finally, the business plan should be used as a road map to guide you and the company through good times and bad. Ultimately, the company needs to provides you with meaningful and a long term, sustainable income.
Business Plannning and the business planning process is extremely important when starting a business or growing a business. The above discussion as well as the other components on this website will guide you through the process of business planning and assist you with the steps needed to start a business and grow a business. Remember this... mistakes made on paper are less costly then mistakes made when in business. This concludes our discussion on How to Write a Business Plan.