Would you build a house without a blueprint?
A business plan is the blueprint that describes and analyzes your business and gives detailed projections about its future. It should be a flexible document allowing you to change the individual parts of your business concept.
Hone Your Concept By Planning
The ability to fine tune your idea and business concept increases your chance of success overtime. It will help you make decisions and provide the tools to analyze problems and develop solutions. A business plan is also essential when seeking financing. It helps financiers make decisions more quickly and easily.
In addition, you will learn about your marketplace, customers, and sales strategies. Successful entrepreneurs are continually developing new ideas, refining old ones, or adapting to a changing environment. The following is an outline intended to provide direction, purpose, and discipline, with the end result being a workable business plan.
The elements of a business plan include:
1. The Introduction to your business plan should:
- Give a summarized description of the business.
- Explain the type of business.
- Discuss the ownership of the business and its legal structure.
- List the skills and experience you bring to the business.
- Discuss the products and services offered.
- Discuss the advantages over your competitors.
2. The Marketing section of your business plan should:
- Identify the demand for your product or service.
- Identify your customers and their locations.
- Identify your competition and their locations
- Explain your pricing strategy
- Identify selling strategy
- Explain how your product or service will be advertised.
- Explain how your product or service will be delivered.
3. The Management section of your business plan will:
- Identify the owner/owners and key employees.
- Discuss the skills and experience they bring to the business.
- List your professional advisors (banker, lawyer, mentor, etc.)
- Define your organizational structure
4. The Operations section of your business plan will:
- Describe the method of production for product or services
- Explain the site selection
- Discuss the building and equipment required
- Define the human resources needs including job descriptions
- Outline policies and procedures
- Identify suppliers
- Explain the distribution process
5. The Finance section of your business plan will:
Now you will need to create financial forecasts/projections in order to create a realistic business model. Financial projections will help in determining what will happen to your business related to sales, expenses, sources, and uses of cash.
- Explain your source and amount of initial equity capital.
- Develop start up costs budget
- List monthly operating expenses and sales revenue
- Provide Pro Forma Financial Statements for your business
- Develop a monthly income statement for the first year.
- One to two years monthly cash flow statements that tie to the annual income statements.
- Three years of projected annual cash flow and income statements.
- Three years of year-end balance sheet statements
- Discuss your breakeven point.
- Provide your Personal Financial Statement
- Include current credit report
- Provide three years of past personal tax returns (and business tax returns for a purchased business)
- Pro Forma Statements
Pro Forma Financial Information, or Pro Forma Financial Statements, are essentially projections of the financial performance of the business in the future based upon documented assumptions. A common use of Pro Forma information is to present financial statements as they would be if a proposed change were to take place, in this case the opening of a business.
- Balance Sheet
The Balance Sheet captures the financial condition of the business. It reflects the asset, liabilities and equity (equity = assets – liabilities). You must project month by month for year one and annually for years two and three.
- Income Statements
The Income Statement reflects the financial performance of your business and reflects revenue from sales, variable costs, fixed cost, and net profit.
- Cash Flow
Cash flow reflects sources and uses of cash. This statement demonstrates that you have enough cash to keep the business operating.
- Break Even Analysis
Break even helps you determine the sales volume necessary to cover your fixed and variable costs. Break even can also be used to determine target selling price and quantity.
- Personal Financial Statements
For all those owning more than 20% of the business, personal financial statements are required by lenders. Personal statements present your personal assets and liabilities as well as net worth.