Writing a Business Plan

Minnesota Small Business Development
Center program is funded by the US Small Business Administration, Minnesota Department of Employment and Economic Development, and sponsoring centers. SBA’s funding is
not an endorsement of any product, opinions, or services. All SBA-funded programs
are extended to the public on a non-discriminatory basis. Welcome to the UMD Center for Economic Development’s Writing a Business Plan Seminar. Brought to you by the Minnesota Small Business Development Centers You may want to take notes as we present
each slide on the screen. We’ll be using the vending industry for
examples. Let’s start with some writing tips. People struggle with their attempt to
write a business plan for a variety of reasons. The problem isn’t that they don’t know
or can’t research the information needed. It occurs when they are asked to write
something on paper. A business plan is a feasibility study and what you’re trying to accomplish is
to plan out your idea on paper. So don’t become a perfectionist
in your writing. In the first draft, don’t think about
grammar, or spelling, or how it looks. Just write the information you have regarding the topic. Start by writing a sentence about
each of the topics we will be covering in today’s seminar. Then, build the sentence into a paragraph and you will be well on your way to writing your business plan. Let’s take a look at some additional
tools that can be used to help you develop your business plan. The first tool is a workbook. The workbook is a series of questions
with information and a place to answer the questions. Workbooks are available at the UMD CED
website. The second tool is a start-up guide. Start-up guides are business plans that were developed by Entrepreneur Magazine,
on popular businesses to start. There’s one on starting a vending business. These guides are available at the website shown on your screen. The third tool is software programs. Software programs are similar to workbooks as they ask you questions. And once you have completed them, the program creates your business plan. This tool is somewhat repetitive in the questions it asks, and I would not attempt completing the
financials component. It’s a great tool to help you overcome
the writing problem. The fourth tool is sample business
plans. They can be located at the website shown
on your screen. A business plan has four components and an executive summary. The components
include: the business, the market, the organization, and the financials. The heart and soul of the plan are the financials and the market. The numbers do the talking and they must be backed up with a solid market opportunity. Each component of the business plan has
major subtopics. By combining the sub topics with this
slide you will have a table of contents for your business plan. Under the business, the sub topics are
industry, company, and products. Under the market, the sub topics are customers, competition, and market strategies. Under the organization, the sub topics are ownership, personnel, and operations. Under the financials, the sub topics are
sources and uses, depreciation, loan amortizations, income statements, cash flow statements, and balance sheets. The executive summary is written last as the four components must be complete in order to summarize the business. A business plan has two cover pages. The outside cover page is an opportunity
to market your business to the reader. It includes the name of the business and the business logo. The inside cover page is a contact page for the reader in case they have any questions. You don’t want who is reading the
business plan to have to try to figure out who they should call. Make sure that whoever is listed is
available at the telephone number listed and answers the email at the email
address listed. The executive summary follows the inside
cover. The executive summary is usually two to
three pages long, recapping the four components of the
business plan, writing your statement of request, and the time frame in which you
will start your business. We also may strategize what should
dominate the executive summary. For instance, if there are major points
that you want to get across, or things that may be difficult to
understand, you would use a majority of the pages to accomplish that. As an example, if you’re going to start
a vending business, your executive summary would be
dominated by explaining your unfair competitive advantage, as you’re starting a business in an
already saturated market. We will now look to begin at the first
component of the business plan. In the first topic in that component. There are three issues under the
industry topic of your business plan. Starting with what industry your
business is in. Research can be done by going to a
library and looking up the association that represents your industry in the
Encyclopedia of Associations. Once you have the name of
the association, you can search for the website and for an industry report. For example, there is a National Association of Vendors and an annual industry report
on the state of the vending industry. What we’re looking for is a history of the industry, its size and future trends. The industry trade magazine is another source for this information. The next issue is a national economy and what effect it will have on your
business start-up. We don’t expect you to become a top economist here, but at minimal you should understand the
prime rate as it is the basis for the interest rate
you will have to pay on your startup loan. You also need to understand inflation as
it will be the basis for projecting increased expenses. The final issue in this topic is whether
your business is regulated or not. If it is, it becomes a red flag for the
lender as an outside authority has control over your business. To overcome this, you must know all the
regulations and set your standards higher. For example, the vending industry is
regulated by the Department of Agriculture and that means that they have the
authority to shut down your machines at any given time if they do not meet inspection standards. The next topic under this component of
the business plan is usually the easiest to write as this is where your idea for starting
a business originated. By now, we have researched the industry
you are in, and it’s time to explain exactly what
your business is going to do. This is a time describe your vision and
goals. For example, what kind of vending business are you going to start? a full-line company? a snack and soda
company? coffee only services? or an honor system? You also need to name your company and develop your logo. This is your cheapest form of marketing
so choose a name that instantly grabs a customer and a logo that enhances a customer’s
understanding of what your business is. The final topic under this component is
also usually easy to write about. What you want to be clear on here is
what it is you sell to the customer or what service do you provide to the
customer. If you’re in the manufacturing business, you will need to explain your manufacturing costs and what your profit margins are. We advise you to work with an accountant to make sure that you have calculated everything properly. If you’re in the wholesale or retail
business, you’ll need to explain your markup and what your profit margins are. As an example, the vending industry standard markup is a hundred percent, giving you a fifty percent profit margin
on everything you sell. You can check out industry standards in the Robert Morris Associates annual edition. If you’re in a service business, you need to set the fees you will be
charging per hour for the service you provide. We will now begin to look at the second
component of the business plan and the first topic in that component. There are three issues under the
customer topic of your business plan. Starting with customer profiles. It is very important here to clearly explain to the reader who it is that is going to buy your
products or services. And you may have multiple customer
profiles. For example, if you had vending machines
in a hotel, you would have multiple customer
profiles of guests, visitors, staff, and meeting attendees. The next issue is doing market research. It starts with the customer profiles within the geographic area of your market. Using the hotel examples, we know that a new hotel is built based
on market research done by the owners that projects a 65 percent occupancy rate. On a 100 unit hotel in the multiple
customer profiles, we could project at least 125 guests, visitors, and staff in the hotel on a daily basis. The final issue is sales forecasting. It is based on the potential sales from the customer profiles your market research
came up with. In the vending business, we would do
research on industry standards to find out the average person spends per day in a vending machine. Again, using the hotel example, and the industry standard of the average
person spends one dollar per day, we would forecast sales of $125 per day. There are two issues under the competitors topic of your business plan. Starting with demographics. Here you need to establish your home base, and decide how far from that base you will be able to effectively compete with your
competition. Once you have defined the area, you
literally need to go to the yellow pages and determine who your competition is. In the vending business, you would be
calculating time and expenses as to how far you could drive from your place of
business and still be competitive. The final issue, is to do competitive comparisons. This starts with making a list of everything that you will actually compete on, such as service, price, warranty, parking, etc. Think of as many detail items as possible. The next step is to design a competitor comparison sheet with line items such as name, address, hours of operation, signage, any items
you will actually compete on. Have separate sheets for each competitor,
and go out and study your competition. This should be an ongoing study
throughout the life of your business. Once you have gathered this data, you
will recap it in a one-page matrix for your business plan. You would analyze this page, looking for unfair competitive advantage, something your company can do that the
competition can’t. As I stated earlier, if you’re starting
a vending business you would be entering a saturated market
and you would have to find a niche setting you aside from the vendors that are already well established. There are three issues under the
strategies topic of your business plan. Starting with the selling methods. It’s one thing to know your customer profiles, and the exact number of potential customers in your targeted demographic area, but the key is determining how you’re
going to approach them. Even if you have their name, address, and
phone number you still have a problem. Are you going call them on the phone,
email them, knock on their door, or send them something in the mail? Once you have determined your approach, you need to put together an advertising and promotions plan, and costed out because we will be using those figures in our financial projections. The final issue is how you distribute your products to your customers. In some industries, there is a
distribution system you may have to enter in order to get your products on the shelf. For example, if you had a shelf-ready
product that would sell well in a Walmart store and the store manager was you good neighbor and friend, that manager could not place your product on the shelf. He or she may be able to explain the
distribution system to you and give you the names of the key
contact persons. We will now move onto the organization component of your business plan. There are three issues under the
ownership topic of your business plan. Starting with the type of organization
you’re going to form. As you can see on the current slide, you
have multiple choices. The pros and cons of each and the tax
forms for each are covered in depth in our Starting a Business in Minnesota seminar which is also brought to you by the Minnesota Small Business Development Centers. The next issue are the resumes. An entrepreneurs resume is completely different from a resume used to apply for a job. The goal here is to prove you have the
ability to operate the business you’re trying to start. This is one of the first things a lender
will look at. For example, if you’re going to start a restaurant and have never worked in one, the lender
would likely turn you down. My suggestion is to look at all the
things you have done in your life that pertain to business and write your resume in that manner. For example, having a paper route and being in junior achievement lend more to your ability to operate a business than the fact that you graduated from high
school. You can also add to your resume to overcome potential weaknesses. If you were starting a vending business,
you could go to maintenance school and get certified, and put that in your
resume. The final issue under the ownership
topic is creating a chart outlining who is responsible for every
aspect of running the business. This is important to even the smallest
two-person business and can alleviate many unnecessary arguments. As you can see on the current slide,
there are three issues under the personal topic of your business plan. Starting with employee issues. Employing people should be taken very seriously and a written paragraph here should state
that you know all of the responsibilities required of an employer, that you have copies of all the state
guidebooks, and are working on an employee handbook and job descriptions. These issues are also covered in depth
in our Starting a Business in Minnesota Seminar and in a guide to Starting a
Business in Minnesota published by the Department of Employment and Economic Development. The final issue under the personnel topic
is support professionals. In this section of the business plan, you
should list an account that you’re going to work with, a lawyer that you’re going to work with, and the name of your insurance agent. Listing them gives a lender confidence that
you’re getting good advice on business issues as they arise in
your new venture. The final topic under the organization
component of your business plan is what you will need to start your
business and run your business. The first issue is location. Some
business experts will tell you success is based on location location location. Yes, location is important, but all the
factors in your business plan have an effect on whether you will
succeed or not. Research here can be frustrating, and it is
a major factor in your ability to do financial projections. You actually need to find a location and
a facility in order to determine your start-up costs and your operating costs. Guessing or ball parking numbers here will lead to inaccurate
projections that a lender will quickly dismiss. For example, the cost of remodeling, even if it’s only a canopy and a checkout counter are start-up
costs, while the cost of rent is a monthly operating cost. Once you have done your location and facility research, you need to research the equipment and
supplies necessary to start your business. Right down to a box of paper clips. The classic mistake here is that people don’t pay attention to details under $100 and they go into business undercapitalized. If a box of paper clips costs a dollar, then you need to include it in your total
start-up costs. The final issue under the operations
topic is who will be your suppliers. If you only have one supplier you’ll
need a backup plan or the lender will consider this a red
flag. We will now move to the final component
of your business plan. The final component of your business
plan are the projected financial statements. This is where you need to seek
assistance from a small business counselor or an accountant. The sources are where you get your
capital to start your business, starting with the amount you are investing–called owners equity– followed by the loan amounts. The uses are what you’re spending the capital on in the categories of land, building
equipment, inventory, and working capital. As a rule of thumb, for every dollar you invest you can borrow two. This is called a 30 percent equity position. The building and equipment are
depreciated over a period years determined by accounting standards. Loan amortizations separate the interest that becomes an expense on your projected income statement in the principal. That becomes a rejection on your
cash flow statement. Your business plan will need three years
of projected income statements, three years of projected cash flow
statements, a beginning balance sheet, and three years of ending balance
sheets. The first year’s income statement and cash flow statement are done on a
12-month basis taking into consideration seasonality in
both sales and expenses. The final version of these statements
will become your operating budget for your first year in business and should be compared on a monthly basis to your actual income and cash flow statements. Your monthly income statement would consist of gross sales, less your cost of goods–giving you the
gross profit for the month. You would then list all of your monthly
expenses, subtracting them from the gross profit, giving you the
net income before taxes. What we’re looking for here is how many
sales you will have to make in order to buy or manufacture your products, cover your expenses, cover your loan payment, and draw salary. This is called a break-even point and as
I stated up front the numbers do the talking. For example, in the vending business, if your expenses were two thousand
dollars per month and your loan payment was one thousand dollars per month, and you needed to draw a salary of two
thousand dollars per month, you would have to have vending sales of ten thousand dollars per month. Because your product costs are fifty
percent of that, leaving you five thousand dollars to cover your loan payment, your expenses,
and your salary. The monthly income statement is converted into a cash flow statement by adding the depreciation to the net income and subtracting the principal amount of your loan. Cash flow can also be affected by growing your inventory, accounts
receivable, accounts payable, and additional investments into equipment. Once you have completed the first years
monthly income and cash flow statements, the totals for the year are annualized,
increasing sales by industry trends and expenses by a
predicted inflation for the next two years. The annual statements are converted into cash flow statements using the same process that was used in
creating the first year’s monthly cash flow statement. The final part of your financial projections are your balance sheets. They would include your beginning balance sheet and the three years of ending balance sheets A balance sheet consists of assets, liabilities, and your equity. The total assets must equal the total liabilities plus the total equity. The beginning balance sheet data comes from the sources and uses data. The year ending balance sheet data comes
from the cash flow statement, the depreciation schedule, the loan amortization, and the income statement. Inventory, accounts receivable, accounts payable, and investments into equipment also affect the balance sheet. As you can see, the financial projections are the most complicated part of your business plan. Before you seek assistance, you should have the following financial information ready for the small business counselor or accountant, you’re going to work with. We covered profit margins under the
products section of the business plan. We covered the start-up costs under the
operations portions of the business plan. Determining your monthly expenses can
also be frustrating research. As we said before, you have to find a
location, negotiate the monthly rent, and ask the landlord what the heat and lights will be. You have to call the phone company and find out what your monthly phone bill will be. You need to research what your yellow
page ads will cost per month. You need to contact an insurance agent
to find out what your monthly insurance costs will be. The list goes on from advertising costs
to vehicle costs. If you miss something in projecting
expenses, it could ultimately lead to business failure. The final piece of information, is your
monthly salary requirement. Let’s take a quick review of the
business plan components before we end the seminar. A business plan has four components, with
subtopics, and an executive summary. The components include the business, the market, the organization, and the
financials. Under the business the sub topics are industry, company, and products. Under the market, the sub topics are
customers, competition, and market strategies. Under the organization, the sup topics are ownership, personnel, and operations. Under the financials, the sub topics are
sources and uses, depreciation, loan amortizations, income statements, cash flow statements,
and balance sheets. As we stated earlier, once you have
completed the four components of your business plan, you’re ready to write the executive
summary. An addendum may be added to your business plan listing reports and data available to the
reader for them to further understand the business you’re trying to develop. And, finally, if you search for your local
SBDC office on the website, click on find a center. Thank you for joining us in this business planning seminar.

, , , , , , , , , ,

Post navigation

Leave a Reply

Your email address will not be published. Required fields are marked *