What is a business plan?

A Business Plan

The simple definition of a business plan is that it is a roadmap for how you are running or how you intend to run your small business.  It is comprehensive and covers virtually every aspect of your business; from sales and marketing, to human resources and production, to customer service and the competition. The value lies in considering everything.

Entrepreneurs tend to have seemingly well defined business plan, or visions of their endeavor, in their head and they are often confident that they have considered all the factors that would contribute to making their business a success. However, our experience has been that the exercise of formulating a cohesive strategy around this plan and memorializing this strategy on paper will almost always result in a plan change.  For instance, if the business owner plans on opening a store in a new area, s/he would need to look up some of the local government regulations, which can be very different from their existing local.

There are many styles of writing business plans and some elements vary but common elements include:

1.    Cover sheet

1.    Brief and to the point

2.    What's the business in simple English?

3.    How much money do you need?

4.    What's your advantage?

2.    Executive Summary

1.    Since this is a summary, it should be written last.

3.    Table of contents

4.    Body

1.    Business overview

1.    Business description

1.    Description and location

2.    Marketing plan

1.    Who are your customers and how will you attract them and at what price.

3.    Competition

1.    There is ALWAYS competition so don't ignore them.  Also remember you don't need to be the best at everything.

4.    Operations

1.    How do you plan on operating your company?

5.    Personnel plan

1.    What are your human resource needs and where will you find them?

6.    Financial overview

7.    Breakeven analysis

1.    When will you start paying back investors?

2.    When will you start earning a profit?

8.    Loan applications and capital requirements

9.    Pro forma statements (profit and loss statements)

1.    CASH FLOW (most important statement)

2.    Income statement

3.    Balance sheet (least important)

10.   Three to five year forecasts

1.    Detailed month-to-month for first year

2.    Detailed quarterly for each additional year

11.    All assumptions

3.    Supplemental documents

1.    Tax returns for owners or partners

1.    Last three years

2.    Personal financial statements

2.    Copies of key contracts

1.    Leases

2.    Franchise agreements

3.    Loans

3.    Copies of legal documents

1.    Articles of incorporation

2.    Partnership agreement

4.    Resumes for senior management

5.    Exit strategy

1.    With investors who intend to be paid back, there are four scenario's

1.    There is an Initial Public Offering (IPO) and the money raised is used to pay back initial investors

2.    Shares are sold to subsequent private investors and the money raised is used to pay back initial investors

3.    The owner or company buys back the shares owned by the initial investor

4.    The business fails

1.    This scenario should not be placed in your business plan!