Essentials of a Business Plan

Why do we need a Business Plan?

Helps to describe:

Merits
Requirements
Risks & Potential rewards
Develop and examine operating strategies and expected results
Quantifies objectives, providing measurable benchmarks for
comparing forecasts with actual results.
Provides the entrepreneur with a communication tool for
outside financial sources and
an operational tool for guiding the venture towards success.
Raise capital
Attract key advisors, directors or team members
Contents
Executive Summary
The industry and the firm
Market Research and Analysis
The Economics of the business
Marketing Plan
Design and Development Plan
Manufacturing and Operational Plan
Management Team
Overall Schedule
Critical Risks, Problems and Assumptions
Financial; Plan
Appendices
Executive Summary
Very important compelling and appealing
One or two pages
Usually prepared after the other sections are completed
Business concept and the business
Should explain how product or service will change the way customers
currently do certain things
Proprietary technology, trade secrets, or unique capabilities
The opportunity and strategy
Summarize the opportunity
Why it is compelling
Entry strategy to exploit it

Target market and projections
Primary customer groups
Positioning of product(s) & service(s)
How to reach and service these groups
Structure of the market
Market size and anticipated share
Pricing strategy

The competitive advantage
The economics, profitability, and harvest potential
Gross & operating margins
Expected profitability
Durability
Break-even and positive cash flow
Key financial projections
The team
The financial plan

The Industry and the Company
A major area of consideration is the company, its concept for its
product(s) & service(s), and its interface with the industry in which it
will be competing
The industry
Current status & prospectus
Market size, growth trends, & competitors
Any new products or developments, new markets & customers, new
requirements
National or economic trends & factors that could affect the venture
The company and the concept

Concept of the business, product(s) or service(s), principal customers
The product(s) and service(s)
Describe in some detail each product or service
Application of the product or service and describe end use as well as any
significant secondary applications
Unique features of the product or service; how value will be added; pay
back period to the customer

Any possible drawbacks
Present state of development of the product or service and the time &
money needed to fully develop, test, & introduce
Any head start
Patents, trade secrets, or proprietary features
Opportunities for expansion of product line

Entry and growth strategy
Key success variables in the marketing plan
Pricing, distribution, advertising, and promotion plans
How fast you intend to grow

Market Research and Analysis
Most important and most difficult section
Prepare this section before any other

Customers
Describe customers for product(s) or sevices(s)
Segmentation
Location of the customers regional, national, international
Whether customers are easily reachable
Describe customers purchasing processes
Why they might change current purchasing decisions
Any orders, contracts, or letters of commitment
Market size and trend
Current market size & anticipated share by market segment and/or by
regions and/or country
Potential annual growth for three years
Major factors affecting market growth

Competition and competitive edges
Realistic assessment of the strengths & weaknesses of competitors
Compare fundamental value added or created by your product or service

Discuss current advantages and disadvantages of existing products
Indicate any knowledge of competitorsactions, their profit trends
Discuss three or four key competitors and why customers buy from them
and why they leave them

Estimated market share and sales
Mentioning assumptions of advantages of your product, the market size
and trend, customers, competition, estimate your market share

Ongoing market evaluation
Plan for ongoing market evaluation to guide product-improvement
programs.
The Economics of the Business
Economic and financial characteristics need to support the
fundamental attractiveness of the opportunity
Gross and operating margins
Profit potential and durability
Fixed, variable, and semi-variable costs
Show relevant industry benchmarks
Months to breakeven
Months to reach positive cash flow
Marketing plan
Shows how sales projections will be attained

Overall marketing strategy
Describe specific marketing philosophy
Plans for identifying and contacting potential customers
What features of the product or service will be emphasized to
generate sales
Introduction of product regional, national, or international
Seasonal trends that underlie the cash conversion cycle in the
industry
Plans to obtain institutional contracts
Pricing

Discuss pricing strategy and compare this with that of the major
competitors
Whether gross profit margin large enough to cover all costs and
still allow a profit
Justify your pricing strategy in terms of economic payback to
customers
If product priced lower than that of competitors, how will maintain
profitability
Describe any discount allowance for prompt payment or volume
purchases
Sales tactics
Describe the methods
Discuss the value chain and the margins for
intermediaries
Special policies regarding discounts, exclusive
distribution rights
How intermediaries will be selected
Present a selling schedule and sales budget
Service and warranty policy
Indicate importance to the customerspurchasing decisions and
discuss your method of handling service problems
Describe the kind and term of warranties
Compare service and warranty policies to those of your
competitors

Advertising and promotion
Trade show participation, direct mailing, trade magazine
advertisement, use of advertising agencies
Schedule and approximate costs
Distribution
Methods and channels of distribution
Sensitivity of shipping cost as a percent of the selling
price
If international sales are involved, how these will be
handled
Design and Development Plan
Design and development costs are often underestimated
Development status and tasks
Current status of each product or service and what remains to be done
Competence and expertise of the company has or will require

Difficulties and risks
Possible effect on the cost of design & development, on the time to market
introduction

Costs
Design and development budget
Discuss the impact on cash flow projections of underestimating this budget

Proprietary issues
Describe any patent, trademark, copyright you own or are seeking
Contractual rights or agreements
Manufacturing and Operational Plan
Operating cycle
Lead/lag times
Plan for handling any seasonal production load
Geographical location
Advantages and disadvantages of the site location
Facilities and improvements
How & when the necessary facilities to start production will be acquired
Equipment & space leased or acquired
Future equipment needs
Strategy and plans
Describe the manufacturing process
Potential subcontractors
Production plan
Approach to quality control, production control, inventory control
Regulatory and legal issues
State, national, or foreign regulatory requirements
Any pending regulatory changes that can affect the nature of opportunity
and its timing
Management Team
Organization
Key management roles and individuals who will fill these

Key management personnel
Detailed background about each key person
Describe exact duties and responsibilities of each of the key
members
Complete resumes for each key member to be included as an exhibit

Management compensation and ownership
Other investors
Board of directors
Supporting professional advisors and services
Overall Schedule
Shows the timing and interrelationship of the major events necessary
to launch the venture
Deadlines or milestones critical to the ventures success
Incorporation of the venture
Completion of design & development
Completion of prototypes
Obtaining of sales representatives
Ordering of materials in production quantities
Starting of production or operation
Receipt of first order
Delivery on first sale
Receiving the first payment on accounts receivable

Activities most likely to cause a schedule slippage and
impact on the ventures operation; steps to be taken
correct such slippages

Critical Risks, Problems, & Assumptions
Major problems or risks
Running out of cash before orders are secured
Potential price cutting by competitors
Any potentially unfavorable industry wide trend
Sales projections not achieved
Difficulty encountered in obtaining needed bank credit
Running out of cash after orders pour in

Assumptions concerning sales projections, customer
orders etc.
The Financial Plan
Indicates the ventures potential and presents a
timetable for financial viability

Pro forma income statements for at least three years
Fully discuss the assumptions (e.g., amount for bad debts and
discounts)
Highlight any major risks such as the effect of a 20 percent
reduction in sales from those projected
Pro forma balance sheets for three years
Pro forma cash flow analysis monthly for first year
Determine the need for and timing of additional financing and indicate
peak requirements for working capital
How additional financing will be obtained
Discuss assumptions and sensitivity of cash flow to these assumptions

Break-even chart
How the break-even might be lowered
Cost control
Mechanisms for the control of various cost elements

Highlights
Maximum amount of cash required and the timing
Amount of debt and equity needed
How fast can the debt be paid
Desired financing
Use of funds
Appendices
Product specifications or photos
List of references
Suppliers of critical components
Special location factors
Facilities or technical analysis
Reports from consultants or technical experts
Copies of any regulatory approval, licenses etc.
Possible drawbacks in a business plan
No realistic goals
Failure to anticipate roadblocks
No commitment or dedication
Lack of demonstrated experience (business or
technical)
No market niche
Dont forget
1. Keep the plan respectably short

2. Organize and package the plan appropriately

3. Orient the plan towards the future

4. Avoid exaggeration

5. Highlight critical risks

Dont forget
6. Give evidence of an effective entrepreneurial team

7. Do not over diversify

8. Identify the target market

9. Plan should be written in the third person

10. Attempt to capture the readers interest

Prepare your B-plan

Work hard

Watch your business grow