Business Plan for a Startup Business

Thebusinessplanconsistsofanarrativeandseveralfinancialworksheets.Thenarrative templateisthebodyofthebusinessplan.Itcontainsmorethan150questionsdividedinto severalsections.Workthroughthesectionsinanyorderthatyoulike,exceptforthe Executive Summary,whichshouldbedonelast.Skipanyquestionsthatdonotapplytoyourtypeof business.Whenyouarefinishedwritingyourfirstdraft,youllhaveacollectionofsmall essaysonthevarioustopicsofthebusinessplan.Thenyoullwanttoeditthemintoa smoothflowingnarrative. Therealvalueofcreatingabusinessplanisnotinhavingthefinishedproductinhand; rather,thevalueliesintheprocessofresearchingandthinkingaboutyourbusinessina systematicway.Theactofplanninghelpsyoutothinkthingsthroughthoroughly,studyand researchifyouarenotsureofthefacts,andlookatyourideascritically.Ittakestimenow, butavoidscostly,perhapsdisastrous,mistakeslater. Thisbusinessplanisagenericmodelsuitableforalltypesofbusinesses.However,you shouldmodifyittosuityourparticularcircumstances.Beforeyoubegin,reviewthesection titledRefiningthePlan,foundattheend.Itsuggestsemphasizingcertainareasdepending uponyourtypeofbusiness(manufacturing,retail,service,etc.).Italsohastipsforfinetuning yourplantomakeaneffectivepresentationtoinvestorsorbankers.Ifthisiswhyyoure creatingyourplan,payparticularattentiontoyourwritingstyle.Youwillbejudgedbythe qualityandappearanceofyourworkaswellasbyyourideas. Ittypicallytakesseveralweekstocompleteagoodplan.Mostofthattimeisspentinresearch andrethinkingyourideasandassumptions.Butthen,thatsthevalueoftheprocess.So maketimetodothejobproperly.Thosewhodoneverregrettheeffort.Andfinally,besure tokeepdetailednotesonyoursourcesofinformationandontheassumptionsunderlying yourfinancialdata. Ifyouneedassistancewithyourbusinessplan,contacttheSCOREofficeinyourareatoset upabusinesscounselingappointmentwithaSCOREvolunteerorsendyourplanforreview toaSCOREcounseloratHYPERLINK"http://www.score.org"www.score.org.Call1800 6340245togetthecontactinformationfortheSCOREofficeclosesttoyou.

Business Plan

OWNERS
YourBusinessName AddressLine1 AddressLine2 City,STZIPCode Telephone Fax EMail

TOC\h\z\t"Heading3,1" HYPERLINK\l"_Toc52620470" I. Contents _Toc52620470\h3

TableofContents

Table of PAGEREF

HYPERLINK\l"_Toc52620471" II. HYPERLINK\l"_Toc52620472" III. _Toc52620472\h5 HYPERLINK\l"_Toc52620473" IV. HYPERLINK\l"_Toc52620474" V. HYPERLINK\l"_Toc52620475" VI. HYPERLINK\l"_Toc52620476" VII. _Toc52620476\h21 HYPERLINK\l"_Toc52620477" VIII. _Toc52620477\h22 HYPERLINK\l"_Toc52620478" IX. _Toc52620478\h23 HYPERLINK\l"_Toc52620479" X. HYPERLINK\l"_Toc52620480" XI. HYPERLINK\l"_Toc52620481" XII.

Executive Summary PAGEREF_Toc52620471\h4 General Company Description PAGEREF Products and Services PAGEREF_Toc52620473\h6 Marketing Plan PAGEREF_Toc52620474\h7 Operational Plan PAGEREF_Toc52620475\h16 Management and Organization PAGEREF Personal Financial Statement PAGEREF PAGEREF

Startup Expenses and Capitalization Financial Plan Appendices Refining the Plan

PAGEREF_Toc52620479\h24 PAGEREF_Toc52620480\h27 PAGEREF_Toc52620481\h28

Writethissectionlast.

ExecutiveSummary

Wesuggestthatyoumakeittwopagesorfewer. Includeeverythingthatyouwouldcoverinafiveminuteinterview. Explainthefundamentalsoftheproposedbusiness:Whatwillyourproductbe?Whowill yourcustomersbe?Whoaretheowners?Whatdoyouthinkthefutureholdsforyour businessandyourindustry? Makeitenthusiastic,professional,complete,andconcise. Ifapplyingforaloan,stateclearlyhowmuchyouwant,preciselyhowyouaregoingtouseit, andhowthemoneywillmakeyourbusinessmoreprofitable,therebyensuringrepayment.

Whatbusinesswillyoubein?Whatwillyoudo?

GeneralCompanyDescription

MissionStatement:Manycompanieshaveabriefmissionstatement,usuallyin30wordsor fewer,explainingtheirreasonforbeingandtheirguidingprinciples.Ifyouwanttodrafta missionstatement,thisisagoodplacetoputitintheplan,followedby: CompanyGoalsandObjectives:Goalsaredestinationswhereyouwantyourbusinesstobe. Objectivesareprogressmarkersalongthewaytogoalachievement.Forexample,agoal mightbetohaveahealthy,successfulcompanythatisaleaderincustomerserviceandthat hasaloyalcustomerfollowing.Objectivesmightbeannualsalestargetsandsomespecific measuresofcustomersatisfaction. BusinessPhilosophy:Whatisimportanttoyouinbusiness?

Towhomwillyoumarketyourproducts?(Stateitbrieflyhereyouwilldoamorethorough explanationintheMarketingPlansection). Describeyourindustry.Isitagrowthindustry?Whatchangesdoyouforeseeinthe industry,shorttermandlongterm?Howwillyourcompanybepoisedtotakeadvantageof them? Describeyourmostimportantcompanystrengthsandcorecompetencies.Whatfactorswill makethecompanysucceed?Whatdoyouthinkyourmajorcompetitivestrengthswillbe? Whatbackgroundexperience,skills,andstrengthsdoyoupersonallybringtothisnew venture? Legalformofownership:Soleproprietor,Partnership,Corporation,Limitedliability corporation(LLC)?Whyhaveyouselectedthisform?

Describeindepthyourproductsorservices(technicalspecifications,drawings,photos,sales brochures,andotherbulkyitemsbelonginAppendices). Whatfactorswillgiveyoucompetitiveadvantagesordisadvantages?Examplesincludelevel ofqualityoruniqueorproprietaryfeatures. Whatarethepricing,fee,orleasingstructuresofyourproductsorservices?

ProductsandServices

MarketingPlan

Market research - Why?

Nomatterhowgoodyourproductandyourservice,theventurecannotsucceedwithout effectivemarketing.Andthisbeginswithcareful,systematicresearch.Itisverydangerousto assumethatyoualreadyknowaboutyourintendedmarket.Youneedtodomarketresearch tomakesureyoureontrack.Usethebusinessplanningprocessasyouropportunityto uncoverdataandtoquestionyourmarketingefforts.Yourtimewillbewellspent.

Market research - How?

Therearetwokindsofmarketresearch:primaryandsecondary. Secondaryresearchmeansusingpublishedinformationsuchasindustryprofiles,trade journals,newspapers,magazines,censusdata,anddemographicprofiles.Thistypeof informationisavailableinpubliclibraries,industryassociations,chambersofcommerce, fromvendorswhoselltoyourindustry,andfromgovernmentagencies. Startwithyourlocallibrary.Mostlibrariansarepleasedtoguideyouthroughtheirbusiness datacollection.Youwillbeamazedatwhatisthere.Therearemoreonlinesourcesthanyou couldpossiblyuse.Yourchamberofcommercehasgoodinformationonthelocalarea.Trade associationsandtradepublicationsoftenhaveexcellentindustryspecificdata.

Primaryresearchmeansgatheringyourowndata.Forexample,youcoulddoyourown trafficcountataproposedlocation,usetheyellowpagestoidentifycompetitors,anddo surveysorfocusgroupinterviewstolearnaboutconsumerpreferences.Professionalmarket researchcanbeverycostly,buttherearemanybooksthatshowsmallbusinessownershow todoeffectiveresearchthemselves. Inyourmarketingplan,beasspecificaspossible;givestatistics,numbers,andsources.The marketingplanwillbethebasis,lateron,oftheallimportantsalesprojection.

Economics
Factsaboutyourindustry: Whatisthetotalsizeofyourmarket? Whatpercentshareofthemarketwillyouhave?(Thisisimportantonlyifyouthinkyouwill beamajorfactorinthemarket.) Currentdemandintargetmarket. Trendsintargetmarketgrowthtrends,trendsinconsumerpreferences,andtrendsin productdevelopment. Growthpotentialandopportunityforabusinessofyoursize. Whatbarrierstoentrydoyoufaceinenteringthismarketwithyournewcompany?Some typicalbarriersare: Highcapitalcosts Highproductioncosts Highmarketingcosts Consumeracceptanceandbrandrecognition Trainingandskills Uniquetechnologyandpatents Unions Shippingcosts Tariffbarriersandquotas Andofcourse,howwillyouovercomethebarriers?

Howcouldthefollowingaffectyourcompany? Changeintechnology Changeingovernmentregulations Changeintheeconomy Changeinyourindustry

Product
IntheProductsandServicessection,youdescribedyourproductsandservicesasyousee them.Nowdescribethemfromyourcustomerspointofview. FeaturesandBenefits Listallofyourmajorproductsorservices. Foreachproductorservice: Describethemostimportantfeatures.Whatisspecialaboutit? Describethebenefits.Thatis,whatwilltheproductdoforthecustomer? Notethedifferencebetweenfeaturesandbenefits,andthinkaboutthem.Forexample,a housethatgivesshelterandlastsalongtimeismadewithcertainmaterialsandtoacertain design;thoseareitsfeatures.Itsbenefitsincludeprideofownership,financialsecurity, providingforthefamily,andinclusioninaneighborhood.Youbuildfeaturesintoyour productsothatyoucansellthebenefits. Whataftersaleserviceswillyougive?Someexamplesaredelivery,warranty,service contracts,support,followup,andrefundpolicy.

Customers
Identifyyourtargetedcustomers,theircharacteristics,andtheirgeographiclocations, otherwiseknownastheirdemographics. Thedescriptionwillbecompletelydifferentdependingonwhetheryouplantoselltoother businessesordirectlytoconsumers.Ifyousellaconsumerproduct,butsellitthrougha channelofdistributors,wholesalers,andretailers,youmustcarefullyanalyzeboththeend consumerandthemiddlemanbusinessestowhichyousell. Youmayhavemorethanonecustomergroup.Identifythemostimportantgroups.Then,for eachcustomergroup,constructwhatiscalledademographicprofile: Age

Gender Location Incomelevel Socialclassandoccupation Education Other(specifictoyourindustry) Other(specifictoyourindustry) Forbusinesscustomers,thedemographicfactorsmightbe: Industry(orportionofanindustry) Location Sizeoffirm Quality,technology,andpricepreferences Other(specifictoyourindustry) Other(specifictoyourindustry)

Competition
Whatproductsandcompanieswillcompetewithyou? Listyourmajorcompetitors: (Namesandaddresses) Willtheycompetewithyouacrosstheboard,orjustforcertainproducts,certaincustomers, orincertainlocations? Willyouhaveimportantindirectcompetitors?(Forexample,videorentalstorescompete withtheaters,althoughtheyaredifferenttypesofbusinesses.) Howwillyourproductsorservicescomparewiththecompetition? UsetheCompetitiveAnalysistablebelowtocompareyourcompanywithyourtwomost importantcompetitors.Inthefirstcolumnarekeycompetitivefactors.Sincethesevaryfrom oneindustrytoanother,youmaywanttocustomizethelistoffactors. InthecolumnlabeledMe,statehowyouhonestlythinkyouwillstackupincustomers'

minds.Thencheckwhetheryouthinkthisfactorwillbeastrengthoraweaknessforyou. Sometimesitishardtoanalyzeourownweaknesses.Trytobeveryhonesthere.Betteryet, getsomedisinterestedstrangerstoassessyou.Thiscanbearealeyeopener.Andremember thatyoucannotbeallthingstoallpeople.Infact,tryingtobecausesmanybusinessfailures becauseeffortsbecomescatteredanddiluted.Youwantanhonestassessmentofyourfirm's strongandweakpoints. Nowanalyzeeachmajorcompetitor.Inafewwords,statehowyouthinktheycompare. Inthefinalcolumn,estimatetheimportanceofeachcompetitivefactortothecustomer.1= critical;5=notveryimportant.

TableSEQTable\*ARABIC1:CompetitiveAnalysis
Factor Products Price Quality Selection Service Reliability Stability Expertise Company Reputation Location Appearance SalesMethod CreditPolicies Advertising Image Me Strength Weakness CompetitorA CompetitorB Importanceto Customer

Now,writeashortparagraphstatingyourcompetitiveadvantagesanddisadvantages.

Niche
Nowthatyouhavesystematicallyanalyzedyourindustry,yourproduct,yourcustomers, andthecompetition,youshouldhaveaclearpictureofwhereyourcompanyfitsintothe world. Inoneshortparagraph,defineyourniche,youruniquecornerofthemarket.

Strategy
Nowoutlineamarketingstrategythatisconsistentwithyourniche. Promotion Howwillyougetthewordouttocustomers? Advertising:Whatmedia,why,andhowoften?Whythismixandnotsomeother? Haveyouidentifiedlowcostmethodstogetthemostoutofyourpromotionalbudget? Willyouusemethodsotherthanpaidadvertising,suchastradeshows,catalogs,dealer incentives,wordofmouth(howwillyoustimulateit?),andnetworkoffriendsor professionals? Whatimagedoyouwanttoproject?Howdoyouwantcustomerstoseeyou? Inadditiontoadvertising,whatplansdoyouhaveforgraphicimagesupport?Thisincludes thingslikelogodesign,cardsandletterhead,brochures,signage,andinteriordesign(if customerscometoyourplaceofbusiness). Shouldyouhaveasystemtoidentifyrepeatcustomersandthensystematicallycontactthem? PromotionalBudget Howmuchwillyouspendontheitemslistedabove? Beforestartup?(Thesenumberswillgointoyourstartupbudget.) Ongoing?(Thesenumberswillgointoyouroperatingplanbudget.) Pricing Explainyourmethodormethodsofsettingprices.Formostsmallbusinesses,havingthe lowestpriceisnotagoodpolicy.Itrobsyouofneededprofitmargin;customersmaynotcare asmuchaboutpriceasyouthink;andlargecompetitorscanunderpriceyouanyway. Usuallyyouwilldobettertohaveaveragepricesandcompeteonqualityandservice. Doesyourpricingstrategyfitwithwhatwasrevealedinyourcompetitiveanalysis?

Compareyourpriceswiththoseofthecompetition.Aretheyhigher,lower,thesame?Why? Howimportantispriceasacompetitivefactor?Doyourintendedcustomersreallymake theirpurchasedecisionsmostlyonprice? Whatwillbeyourcustomerserviceandcreditpolicies? ProposedLocation Probablyyoudonothaveapreciselocationpickedoutyet.Thisisthetimetothinkabout whatyouwantandneedinalocation.Manystartupsrunsuccessfullyfromhomeforawhile. Youwilldescribeyourphysicalneedslater,intheOperationalPlansection.Here,analyze yourlocationcriteriaastheywillaffectyourcustomers. Isyourlocationimportanttoyourcustomers?Ifyes,how? Ifcustomerscometoyourplaceofbusiness: Isitconvenient?Parking?Interiorspaces?Notoutoftheway? Isitconsistentwithyourimage? Isitwhatcustomerswantandexpect? Whereisthecompetitionlocated?Isitbetterforyoutobenearthem(likecardealersorfast foodrestaurants)ordistant(likeconveniencefoodstores)? DistributionChannels Howdoyousellyourproductsorservices? Retail Direct(mailorder,Web,catalog) Wholesale Yourownsalesforce Agents Independentrepresentatives Bidoncontracts

Sales Forecast
Nowthatyouhavedescribedyourproducts,services,customers,markets,andmarketing

plansindetail,itstimetoattachsomenumberstoyourplan.UseaHYPERLINK "http://www.score.org/downloads/12%20Month%20Sales%20Forecast1.xls" sales forecast spreadsheettoprepareamonthbymonthprojection.Theforecastshouldbebasedonyour historicalsales,themarketingstrategiesthatyouhavejustdescribed,yourmarketresearch, andindustrydata,ifavailable. Youmaywanttodotwoforecasts:1)a"bestguess",whichiswhatyoureallyexpect,and2)a "worstcase"lowestimatethatyouareconfidentyoucanreachnomatterwhathappens. Remembertokeepnotesonyourresearchandyourassumptionsasyoubuildthissales forecastandallsubsequentspreadsheetsintheplan.Thisiscriticalifyouaregoingtopresent ittofundingsources.

Explainthedailyoperationofthebusiness,itslocation,equipment,people,processes,and surroundingenvironment.

OperationalPlan

Production
Howandwhereareyourproductsorservicesproduced? Explainyourmethodsof: Productiontechniquesandcosts Qualitycontrol Customerservice Inventorycontrol Productdevelopment

Location
Whatqualitiesdoyouneedinalocation?Describethetypeoflocationyoullhave. Physicalrequirements: Amountofspace Typeofbuilding Zoning Powerandotherutilities Access:

Isitimportantthatyourlocationbeconvenienttotransportationortosuppliers? Doyouneedeasywalkinaccess? Whatareyourrequirementsforparkingandproximitytofreeway,airports,railroads,and shippingcenters? Includeadrawingorlayoutofyourproposedfacilityifitisimportant,asitmightbefora manufacturer. Construction?Mostnewcompaniesshouldnotsinkcapitalintoconstruction,butifyouare planningtobuild,costsandspecificationswillbeabigpartofyourplan. Cost:Estimateyouroccupationexpenses,includingrent,butalsoincludingmaintenance, utilities,insurance,andinitialremodelingcoststomakethespacesuityourneeds.These numberswillbecomepartofyourfinancialplan. Whatwillbeyourbusinesshours?

Legal Environment
Describethefollowing: Licensingandbondingrequirements Permits Health,workplace,orenvironmentalregulations Specialregulationscoveringyourindustryorprofession Zoningorbuildingcoderequirements Insurancecoverage Trademarks,copyrights,orpatents(pending,existing,orpurchased)

Personnel
Numberofemployees Typeoflabor(skilled,unskilled,andprofessional) Whereandhowwillyoufindtherightemployees? Qualityofexistingstaff Paystructure

Trainingmethodsandrequirements Whodoeswhichtasks? Doyouhaveschedulesandwrittenproceduresprepared? Haveyoudraftedjobdescriptionsforemployees?Ifnot,taketimetowritesome.Theyreally helpinternalcommunicationswithemployees. Forcertainfunctions,willyouusecontractworkersinadditiontoemployees?

Inventory
Whatkindofinventorywillyoukeep:rawmaterials,supplies,finishedgoods? Averagevalueinstock(i.e.,whatisyourinventoryinvestment)? Rateofturnoverandhowthiscomparestotheindustryaverages? Seasonalbuildups? Leadtimeforordering?

Suppliers
Identifykeysuppliers: Namesandaddresses Typeandamountofinventoryfurnished Creditanddeliverypolicies Historyandreliability Shouldyouhavemorethanonesupplierforcriticalitems(asabackup)? Doyouexpectshortagesorshorttermdeliveryproblems? Aresupplycostssteadyorfluctuating?Iffluctuating,howwouldyoudealwithchanging costs?

Credit Policies
Doyouplantoselloncredit? Doyoureallyneedtoselloncredit?Isitcustomaryinyourindustryandexpectedbyyour clientele?

Ifyes,whatpolicieswillyouhaveaboutwhogetscreditandhowmuch? Howwillyoucheckthecreditworthinessofnewapplicants? Whattermswillyouofferyourcustomers;thatis,howmuchcreditandwhenispayment due? Willyouofferpromptpaymentdiscounts?(Hint:Dothisonlyifitisusualandcustomaryin yourindustry.) Doyouknowwhatitwillcostyoutoextendcredit?Haveyoubuiltthecostsintoyourprices? ManagingYourAccountsReceivable Ifyoudoextendcredit,youshoulddoanagingatleastmonthlytotrackhowmuchofyour moneyistiedupincreditgiventocustomersandtoalertyoutoslowpaymentproblems.A receivablesaginglookslikethefollowingtable:
Total Accounts Receivable Aging Current 30Days 60Days 90Days Over90Days

Youwillneedapolicyfordealingwithslowpayingcustomers: Whendoyoumakeaphonecall? Whendoyousendaletter? Whendoyougetyourattorneytothreaten? ManagingYourAccountsPayable Youshouldalsoageyouraccountspayable,whatyouowetoyoursuppliers.Thishelpsyou planwhomtopayandwhen.Payingtooearlydepletesyourcash,butpayinglatecancost youvaluablediscountsandcandamageyourcredit.(Hint:Ifyouknowyouwillbelate makingapayment,callthecreditorbeforetheduedate.) Doyourproposedvendorsofferpromptpaymentdiscounts? Apayablesaginglookslikethefollowingtable.
Total Current 30Days 60Days 90Days Over90Days

Accounts PayableAging

Whowillmanagethebusinessonadaytodaybasis?Whatexperiencedoesthatpersonbring tothebusiness?Whatspecialordistinctivecompetencies?Isthereaplanforcontinuationof thebusinessifthispersonislostorincapacitated? Ifyoullhavemorethan10employees,createanorganizationalchartshowingthe managementhierarchyandwhoisresponsibleforkeyfunctions. Includepositiondescriptionsforkeyemployees.Ifyouareseekingloansorinvestors,include resumesofownersandkeyemployees.

ManagementandOrganization

Professional and Advisory Support

Listthefollowing: Boardofdirectors Managementadvisoryboard Attorney Accountant Insuranceagent Banker Consultantorconsultants Mentorsandkeyadvisors

IncludeHYPERLINK"http://www.score.org/downloads/Personal%20Financial %20Statement1.xls"personal financial statementsforeachownerandmajorstockholder, showingassetsandliabilitiesheldoutsidethebusinessandpersonalnetworth.Ownerswill oftenhavetodrawonpersonalassetstofinancethebusiness,andthesestatementswillshow whatisavailable.Bankersandinvestorsusuallywantthisinformationaswell.

PersonalFinancialStatement

YouwillhavemanyHYPERLINK"http://www.score.org/downloads/Startup %20Expenses1.xls"startup expensesbeforeyouevenbeginoperatingyourbusiness.Its importanttoestimatetheseexpensesaccuratelyandthentoplanwhereyouwillgetsufficient

StartupExpensesandCapitalization

capital.Thisisaresearchproject,andthemorethoroughyourresearchefforts,thelesschance thatyouwillleaveoutimportantexpensesorunderestimatethem. Evenwiththebestofresearch,however,openinganewbusinesshasawayofcostingmore thanyouanticipate.Therearetwowaystomakeallowancesforsurpriseexpenses.Thefirstis toaddalittlepaddingtoeachiteminthebudget.Theproblemwiththatapproach, however,isthatitdestroystheaccuracyofyourcarefullywroughtplan.Thesecond approachistoaddaseparatelineitem,calledcontingencies,toaccountfortheunforeseeable. Thisistheapproachwerecommend. Talktootherswhohavestartedsimilarbusinessestogetagoodideaofhowmuchtoallow forcontingencies.Ifyoucannotgetgoodinformation,werecommendaruleofthumbthat contingenciesshouldequalatleast20percentofthetotalofallotherstartupexpenses. Explainyourresearchandhowyouarrivedatyourforecastsofexpenses.Givesources, amounts,andtermsofproposedloans.Alsoexplainindetailhowmuchwillbecontributed byeachinvestorandwhatpercentownershipeachwillhave.

Thefinancialplanconsistsofa12monthprofitandlossprojection,afouryearprofitandloss projection(optional),acashflowprojection,aprojectedbalancesheet,andabreakeven calculation.Togethertheyconstituteareasonableestimateofyourcompany'sfinancial future.Moreimportant,theprocessofthinkingthroughthefinancialplanwillimproveyour insightintotheinnerfinancialworkingsofyourcompany.

FinancialPlan

12-Month Profit and Loss Projection

ManybusinessownersthinkoftheHYPERLINK "http://www.score.org/downloads/12%20Month%20Profit%20and%20Loss %20Projection1.xls" 12-month profit and loss projection asthecenterpieceoftheirplan.Thisis whereyouputitalltogetherinnumbersandgetanideaofwhatitwilltaketomakeaprofit andbesuccessful. Yoursalesprojectionswillcomefromasalesforecastinwhichyouforecastsales,costof goodssold,expenses,andprofitmonthbymonthforoneyear. Profitprojectionsshouldbeaccompaniedbyanarrativeexplainingthemajorassumptions usedtoestimatecompanyincomeandexpenses. ResearchNotes:Keepcarefulnotesonyourresearchandassumptions,sothatyoucan explainthemlaterifnecessary,andalsosothatyoucangobacktoyoursourceswhenits timetoreviseyourplan.

Four-Year Profit Projection (Optional)

The12monthprojectionistheheartofyourfinancialplan.HYPERLINK

"http://www.score.org/downloads/FourYear%20Profit%20Projection1.xls"The Four-Year Profit projectionisforthosewhowanttocarrytheirforecastsbeyondthefirstyear. Ofcourse,keepnotesofyourkeyassumptions,especiallyaboutthingsthatyouexpectwill changedramaticallyafterthefirstyear.

Projected Cash Flow

Iftheprofitprojectionistheheartofyourbusinessplan,cashflowistheblood.Businesses failbecausetheycannotpaytheirbills.Everypartofyourbusinessplanisimportant,but noneofitmeansathingifyourunoutofcash. Thepointofthisworksheetistoplanhowmuchyouneedbeforestartup,forpreliminary expenses,operatingexpenses,andreserves.Youshouldkeepupdatingitandusingit afterward.Itwillenableyoutoforeseeshortagesintimetodosomethingaboutthem perhapscutexpenses,orperhapsnegotiatealoan.Butforemost,youshouldntbetakenby surprise. Thereisnogreattricktopreparingit:TheHYPERLINK "http://www.score.org/downloads/12%20Month%20Cash%20Flow%20Statement1.xls" cashflow projectionisjustaforwardlookatyourcheckingaccount. Foreachitem,determinewhenyouactuallyexpecttoreceivecash(forsales)orwhenyou willactuallyhavetowriteacheck(forexpenseitems). Youshouldtrackessentialoperatingdata,whichisnotnecessarilypartofcashflowbut allowsyoutotrackitemsthathaveaheavyimpactoncashflow,suchassalesandinventory purchases. Youshouldalsotrackcashoutlayspriortoopeninginaprestartupcolumn.Youshouldhave alreadyresearchedthoseforyourstartupexpensesplan. Yourcashflowwillshowyouwhetheryourworkingcapitalisadequate.Clearly,ifyour projectedcashbalanceevergoesnegative,youwillneedmorestartupcapital.Thisplanwill alsopredictjustwhenandhowmuchyouwillneedtoborrow. Explainyourmajorassumptions,especiallythosethatmakethecashflowdifferfromthe ProfitandLossProjection.Forexample,ifyoumakeasaleinmonthone,whendoyouactually collectthecash?Whenyoubuyinventoryormaterials,doyoupayinadvance,upon delivery,ormuchlater?Howwillthisaffectcashflow? Aresomeexpensespayableinadvance?When? Arethereirregularexpenses,suchasquarterlytaxpayments,maintenanceandrepairs,or seasonalinventorybuildup,thatshouldbebudgeted? Loanpayments,equipmentpurchases,andowner'sdrawsusuallydonotshowonprofitand

lossstatementsbutdefinitelydotakecashout.Besuretoincludethem. Andofcourse,depreciationdoesnotappearinthecashflowatallbecauseyouneverwritea checkforit.

Opening Day Balance Sheet

Abalancesheetisoneofthefundamentalfinancialreportsthatanybusinessneedsfor reportingandfinancialmanagement.Abalancesheetshowswhatitemsofvalueareheldby thecompany(assets),andwhatitsdebtsare(liabilities).Whenliabilitiesaresubtractedfrom assets,theremainderisownersequity. Useastartupexpensesandcapitalizationspreadsheetasaguidetopreparingabalancesheet asofopeningday.Thendetailhowyoucalculatedtheaccountbalancesonyour HYPERLINK"http://www.score.org/downloads/Opening%20Day%20Balance %20Sheet1.xls"opening day balance sheet. Optional:SomepeoplewanttoaddaHYPERLINK"http://www.score.org/downloads/C %20Projected_Balance_Sheet3.xls"projected balance sheetshowingtheestimatedfinancial positionofthecompanyattheendofthefirstyear.Thisisespeciallyusefulwhensellingyour proposaltoinvestors.

Break-Even Analysis
AHYPERLINK"http://www.score.org/downloads/BreakEven%20Analysis1.xls" break-even analysispredictsthesalesvolume,atagivenprice,requiredtorecovertotalcosts.Inother words,itsthesaleslevelthatisthedividinglinebetweenoperatingatalossandoperatingat aprofit. Expressedasaformula,breakevenis:

BreakEvenSales=

FixedCosts 1VariableCosts

(Wherefixedcostsareexpressedindollars,butvariablecostsareexpressedasapercentof totalsales.) Includeallassumptionsuponwhichyourbreakevencalculationisbased.

Appendices

Includedetailsandstudiesusedinyourbusinessplan;forexample: Brochuresandadvertisingmaterials Industrystudies Blueprintsandplans Mapsandphotosoflocation Magazineorotherarticles Detailedlistsofequipmentownedortobepurchased Copiesofleasesandcontracts Lettersofsupportfromfuturecustomers Anyothermaterialsneededtosupporttheassumptionsinthisplan Marketresearchstudies Listofassetsavailableascollateralforaloan

Thegenericbusinessplanpresentedaboveshouldbemodifiedtosuityourspecifictypeof businessandtheaudienceforwhichtheplaniswritten.

RefiningthePlan

For Raising Capital

ForBankers Bankerswantassuranceoforderlyrepayment.Ifyouintendusingthisplantopresentto lenders,include: Amountofloan Howthefundswillbeused Whatthiswillaccomplishhowwillitmakethebusinessstronger? Requestedrepaymentterms(numberofyearstorepay).Youwillprobablynothavemuch negotiatingroomoninterestratebutmaybeabletonegotiatealongerrepaymentterm, whichwillhelpcashflow. Collateraloffered,andalistofallexistingliensagainstcollateral ForInvestors

Investorshaveadifferentperspective.Theyarelookingfordramaticgrowth,andtheyexpect toshareintherewards: Fundsneededshortterm Fundsneededintwotofiveyears Howthecompanywillusethefunds,andwhatthiswillaccomplishforgrowth. Estimatedreturnoninvestment Exitstrategyforinvestors(buyback,sale,orIPO) Percentofownershipthatyouwillgiveuptoinvestors Milestonesorconditionsthatyouwillaccept Financialreportingtobeprovided Involvementofinvestorsontheboardorinmanagement

For Type of Business

Manufacturing Plannedproductionlevels Anticipatedlevelsofdirectproductioncostsandindirect(overhead)costshowdothese comparetoindustryaverages(ifavailable)? Pricesperproductline Grossprofitmargin,overallandforeachproductline Production/capacitylimitsofplannedphysicalplant Production/capacitylimitsofequipment Purchasingandinventorymanagementprocedures Newproductsunderdevelopmentoranticipatedtocomeonlineafterstartup ServiceBusinesses Servicebusinessessellintangibleproducts.Theyareusuallymoreflexiblethanothertypesof businesses,buttheyalsohavehigherlaborcostsandgenerallyverylittleinfixedassets. Whatarethekeycompetitivefactorsinthisindustry?

Yourprices Methodsusedtosetprices Systemofproductionmanagement Qualitycontrolprocedures.Standardoracceptedindustryqualitystandards. Howwillyoumeasurelaborproductivity? Percentofworksubcontractedtootherfirms.Willyoumakeaprofitonsubcontracting? Credit,payment,andcollectionspoliciesandprocedures Strategyforkeepingclientbase HighTechnologyCompanies Economicoutlookfortheindustry Willthecompanyhaveinformationsystemsinplacetomanagerapidlychangingprices, costs,andmarkets? Willyoubeonthecuttingedgewithyourproductsandservices? Whatisthestatusofresearchanddevelopment?Andwhatisrequiredto: Bringproduct/servicetomarket? Keepthecompanycompetitive? Howdoesthecompany: Protectintellectualproperty? Avoidtechnologicalobsolescence? Supplynecessarycapital? Retainkeypersonnel? Hightechcompaniessometimeshavetooperateforalongtimewithoutprofitsand sometimesevenwithoutsales.Ifthisfitsyoursituation,abankerprobablywillnotwantto lendtoyou.Venturecapitalistsmayinvest,butyourstorymustbeverygood.Youmustdo longertermfinancialforecaststoshowwhenprofittakeoffisexpectedtooccur.Andyour assumptionsmustbewelldocumentedandwellargued. RetailBusiness

Companyimage Pricing: Explainmarkuppolicies. Pricesshouldbeprofitable,competitive,andinaccordancewithcompanyimage. Inventory: Selectionandpriceshouldbeconsistentwithcompanyimage. Inventorylevel:Findindustryaveragenumbersforannualinventoryturnoverrate(available inRMAbook).Multiplyyourinitialinventoryinvestmentbytheaverageturnoverrate.The resultshouldbeatleastequaltoyourprojectedfirstyear'scostofgoodssold.Ifitisnot,you maynothaveenoughbudgetedforstartupinventory. Customerservicepolicies:Theseshouldbecompetitiveandinaccordwithcompanyimage. Location:Doesitgivetheexposurethatyouneed?Isitconvenientforcustomers?Isit consistentwithcompanyimage? Promotion:Methodsused,cost.Doesitprojectaconsistentcompanyimage? Credit:Doyouextendcredittocustomers?Ifyes,doyoureallyneedto,anddoyoufactorthe costintoprices?

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