A Skeleton Business Plan

Table of Contents Executive Summary Brief Description of the Business & Industry Strategic Planning Mission Goals Legal Organization Form of organization Key personnel Organization chart Risk Management Insurance needs Risk management protocols Marketing Management Target market Competitive analysis SWOT analysis Marketing strategies (4 Ps) Labor Management Labor needs Labor cost estimates General labor policies Financial Analysis Start-up capital needs (loan request) Financial statements Sensitivity and breakeven analysis Financial ratio analysis Appendix

Brief Description of your Business:

Include a brief description of your business so that a lender or investor has a good idea about your business or business idea. Do not go into much detail that is what the rest of the business plan is for. Heres some information to include: - What you produce or sell - Where you are located - Brief overview of the industry o Size o Trends Write a brief description of your business.

Briefly describe your industry. Include 2-3 recent trends in the industry.

Mission Statements:
Provide direction for the owners and employees Help you focus on the important issues in decision making Let your customers know why you are in business Keep em short (under 100 words if possible) Get input from everyone owners, employees, customers, suppliers, etc. Use key words/phrases to help you get started Suggested issues to address: Product Profits People (owners, employees, customers, community) What key words/phrases are important to you (owner)?

Take a first stab at your Mission Statement:

Goals:
Crucial for having managed growth in your firm Helps move the business towards the Mission of the firm Keeps owners and employees on task Gives you a reason to celebrate when you accomplish a goal! Short term goals less than 1 year Intermediate goals 1-10 years Long term goals over 10 years Shorter term goals should help you achieve your longer term goals!! Be sure your business goals coincide with your mission and your personal goals!! Develop goals for the important aspects of your business - Sales, market share, customer base - Net Worth - Financial performance (net income, return on assets, etc.) - Marketing (target market, awareness, etc.) - Other List: The specific goal The desired time frame for completion (deadlines) How you will measure progress

Develop 3 short term, intermediate, and long term goals for your business: Short term Timeframe Measurement

Intermediate

Long term

Legal Organization:
Lenders/investors want to know how your business is formed from a legal standpoint There are 5 main forms of organization: - Sole proprietorship - General partnership - Limited partnership - S-corporation (sub-chapter S) - Limited Liability Company (LLC) - C-corporation (sub-chapter C) Organization impacts: - Income taxation - Transferability of ownership - Legal hoops (recordkeeping, registration, etc.) Myth some forms of organization can protect your personal assets from lawsuits or bankruptcy Truth a small business owner gains very little liability protection from a corporation or LLC - All forms of organization NEED liability insurance for adequate protection List your form of legal organization:

List the key personnel, percent of ownership, and their responsibilities:

An organizational chart is helpful regardless of your form of ownership. Please draw an organizational chart that shows the chain of command.

Critical Factors & Main Assumptions:

What do you see as the most critical factors in the success/survival of your business?

What planning assumptions are you going to make in creating your business plan? - Inflation rate, population trends, competition, etc.

What patents, copyrights, trademarks, etc. will you need?

Risk Management:
Protect yourself from the main risks with proper risk management strategies: - Self-insure (pay out of pocket) - Risk reduction - Risk avoidance - Risk transfer (insurance) What main types of risk do you face and how do you plan to manage these risks? Type of Risk How to Manage

For any insurance needs, please list the type of insurance needed, the coverage level ($) desired, and the approximate cost of the insurance: Type of Insurance Coverage Level Approximate Cost

Marketing Plan (VERY IMPORTANT!!)

Marketing helps your business in several ways: - Identify your target market (describe your main customers) - Determine your potential market size (demographics) - Identify your main competitors and their competitive advantages/disadvantages - Identify your Strengths, Weaknesses, Opportunities, and Threats (SWOT analysis) - Determine your specific marketing plan (the 4 Ps) Who is most likely to purchase your product/service (your target market). Why? You may have more than one primary market; if so, describe 1-2 other target markets.

Build a customer profile to describe your primary target market(s) (age, income, education, location, gender, interests, etc.). The more specific, the better.

What is the potential size of your market? Use some demographic information to support your estimates.

Who are your main competitors? What are their strengths/weaknesses compared to you? Primary/Direct Competitors Advantages Disadvantages

Indirect Competitors

Advantages

Disadvantages

How can you compete against your primary/direct competitors? How can you take advantage of their disadvantages? How can you deal with their advantages?

SWOT analysis - Internal to the company Strengths and Weaknesses - External to the company Opportunities, Threats For each section, list 2-3 supporting statements: Strengths (what my company does well)

Weaknesses (what my company does not do well)

Opportunities (what are possible areas outside my company that we can take advantage of)

Threats (what are possible areas outside my company that may hurt my company)

The Marketing Plan - the 4 Ps of marketing - Product - Price - Promotion (advertising) - Place (distribution how you will deliver your product to the customer) What is your product what are you actually selling?

Why is your product/service unique? Why should I buy from you?

Pricing strategy - Typically one of the hardest aspects of running a small business - May be different for each product or service you offer - Match your pricing strategy to your target market!! - Main types of pricing: - Competitive pricing - Cost markup pricing - Will your cost markup cover overhead costs? Skimming (start high and come down) - Penetration (start low and increase) - Premium pricing - Bulk pricing How will you determine your price? What is your pricing strategy? Why?

How will you promote/advertise your product to reach your target market? Be specific! What medium will you use? How often/when will you advertise? How much do you plan to spend on each medium? Medium How Often When Budget

What main aspects of your business or product/service are you going to emphasize in your advertising? Think about how you can set yourself apart from your competition.

Its common to include examples of your advertising materials either at this point of the business plan or in the appendix.

How will you get your product/service to your target market (distribution)? Briefly discuss your marketing chain so a lender/investor will understand. Include your operating radius if applicable.

Operations
Your lender/investors may not fully understand the way that the business operates. Take a few minutes to describe the typical operations of your business (without too much jargon) so that a novice can understand what you do. You may include the following information: Locations & facilities & hours of operation Primary materials suppliers Staffing, schedule of production Quality controls Briefly describe the primary operations of your business. List the things that you think are important for your lender/investor to know about the operations of your business.

Labor Management
Labor tends to be one of the biggest expenses for most industries. This section helps you think about what types of labor you need, how many to hire, etc. It also helps you make sure that all the main tasks/jobs are covered by your labor force. Put some thought into the following labor issues: - Types of labor needed - Written job descriptions for each main type - Number of employees to be hired - Labor cost - Labor cost estimate worksheets are helpful - Brief discussion of major labor policies (as needed) - Hiring, firing, grievance, training, on-site behavior, etc. What main types of labor does your business require? How many workers are needed for each area? Write a brief job description for each type of labor.

Labor cost estimate worksheets can be included here or in the appendix. They will help you think through how much you will pay, what benefits you will provide, payroll taxes, etc. and help you determine how much your labor will actually cost you.

Financial plan
This section is of vital concern to lenders (and investors). This section explains: - Your start-up capital needs (loan request) - The assets you need and how you will pay for them - Your current and projected financial condition - 2-3 years of balance sheets (if available) - 2-3 years of income tax returns or income statements (if available) - 2-3 years of cash flow projections - Comparison of your firm to the industry averages - Sensitivity analysis - Breakeven analysis - Best case/worst case scenarios My webpage (still under construction) has Excel spreadsheets for each of the above items. Please feel free to visit my site, download the files you want, and make comments on how I can improve the site. http://faculty.agecon.vt.edu/alexwhite/ Start-up capital needs worksheet (for start-up businesses) This worksheet shows all of the assets you will need and whether you will pay for them: - Out of pocket (owner contribution) - Operating loan or line of credit - Term loan (mortgage, equipment loan) Balance sheet Balance sheets show a lender what you own (assets) and how you paid for it (liabilities and net worth). This financial statement helps a lender determine: - your financial position (liquidity and solvency) - your overall debt structure - what you owe others - what assets are available for collateral List your business assets at net market value (usually) - Current assets are turned to cash/used up within 1 year - Non-current assets support production, have a life greater than 1 year List your liabilities in terms of what you owe on that day - Current liabilities are what you owe that is due within 1 year - Non-current liabilities represent the principal balance remaining after this year Net Worth (or Owners Equity) is what you have personally invested in the business Owner Contribution is the dollar amount of assets you have provided to the business Retained Earnings is an estimate of all the profits earned over the years Retained Earnings = Total Assets Total Liabilities Owner Contributions Lenders like to see 2-3 years of balance sheets to look at trends in the business

Income Statement (aka Profit/Loss Statement or Schedule C tax form) Income statements show the profits of the business for the year. Can be on cash or accrual accounting system Im using the simpler, but less powerful, cash accounting system today Gross Margin = Total Revenues Cost of Goods Sold Profits = Total Revenues Cost of Goods Sold - Overhead Expenses Total Revenues are your dollars of sales for all aspects of the business You can adjust for returns as necessary Cost of Goods Sold is the direct costs of producing your product/service Cost of purchased inventory, operating expenses (fuel, etc.) Can include hired labor Overhead Expenses are the expenses that cant be directly attributed to any particular job or product. Examples include office rent payments, utilities, administrative expenses, salaried labor, licenses, office supplies, depreciation, interest, etc. Lenders use income statements to evaluate the profitability of your business. They will look at your Profit (aka Net Income), as well as several profitability measures: - Rate of return on sales - Rate of return on assets - Rate of return on equity - Operating profit margin You can also measure repayment ability and financial efficiency from the income statement. These are key area of analysis for lenders!! - Debt coverage ratio - Operating expense/receipt ratio - Capital turnover ratio You can use your income statement for sensitivity analysis. I like to estimate the Best and Worst Cases, as well as the expected scenario. Further, I always calculate breakeven analysis to determine the minimum level of performance needed to cover your expenses. Lenders love this!! So do most managers!! Lenders like to see a couple of historical income statements as well as 1-2 years of projected income statements. This helps them see trends and identify strengths and weaknesses of a business.

Cash Flow Statement The cash flow statement is, in my opinion, the most important statement for managers. It shows how much cash is coming into or leaving the business and it shows WHEN the cash is coming in or leaving. You use cash flow statements to - estimate your income statements - determine your operating loan/line needs throughout the year - schedule your loan payments more appropriately - identify your main cash outflows to improve your cost control For simplicity I will show you a quarterly cash flow statement. Most managers do at least a monthly statement or a weekly statement. Cash Inflows list all cash inflows in the column WHEN they come into the business Cash Outflow list all outflows WHEN they occur Be sure to include: - Cost of goods sold (however you measure it) - All cash overhead expenses - Principal and interest payments - Income taxes Lenders will jump for joy if you provide them with cash flow statements!! Again, I would provide them with 2-3 years of cash flows, including one for the projected year.

Financial Analysis A lot of business owners do not include financial analysis in their business plans because they are not familiar with this analysis they typically leave this to the lender! However, there is a lot of great management information hiding in your financial statements. I like to use a few key financial ratios to help me identify the main strengths and weaknesses of the business. I compare my ratios to the Robert Morris Associates Annual Statement Studies. This is a collection of financial averages and benchmarks for almost every industry in the US. Were not going to get too deep into the analysis, but here are a couple of the main ones I would recommend:

Current Ratio a measure of liquidity

Current Assets/Current Liabilities

The numbers come from your balance sheet Compare your ratio to the RMA average on the line that reads Current Typically, you want it to be above 1.0, and the higher it is, the less trouble you will have meeting your upcoming liability payments Debt/Asset Ratio a measure of solvency Total Assets/Total Liabilities

The numbers come from your balance sheet Look at the RMA average on the line that reads Net Worth Take this number and subtract it from 100 to get the industry Debt/Asset ratio Typically, you want it to be below 60-70, and the higher it is, the more financial risk you are facing Sales/Total Assets the capital turnover ratio Total Sales/Total Assets

The numbers come from your balance sheet and income statement Compare to the RMA average on the Sales/Total Assets line This ratio tell you how efficiently you are using your assets to generate sales Typically, the higher the better this means you are generating a lot of sales for every dollar you have invested in assets. Operating Expense/Receipt Ratio measures financial efficiency (Total Expenses Depreciation Interest) / Total Sales The numbers come from your income statement Compare to the RMA average on the Operating Expenses line This tells you how much you are spending to generate $1 of sales The lower, the better (usually) Debt Coverage Ratio measures repayment ability ((Total Sales + Depreciation + Interest) Income Taxes)/ Annual Loan Payments The numbers come from your income statement and balance sheet Compare to the RMA average on the Net Profit + Dep/Cur. Mat L/T/D line This tells you how much cash you have available to make your regularly scheduled loan payments The higher, the better If you include financial analysis in your business plan, I would recommend listing the ratios in a table that shows each year, side-by-side. This helps you see the trends much easier.

Use the appendix to provide supporting materials that will help the lender/investor dig deeper into your plan and to see how you arrived at your conclusions. I typically put the nitty-gritty information in the appendix to avoid cluttering up the actual business plan. Be careful not to go overboard on your appendix. I personally dont want to see every piece of supporting information! Too much to read. Items that are typically included in a business plan: Maps and pictures of the business (storefront, main equipment) Resumes of the owners and key management personnel Demographic information and sources Examples of advertisements Supporting information for the financial statements Examples of job cost estimates and pricing A list of the sources of information

Executive Summary
After you have completed the main sections of the business plan, you will probably find that the entire plan is 30-100 pages in length. That can be intimidating to lenders and investors. Remember, time is money, and everyones time is valuable. I like to recommend that you develop a 3-5 page executive summary that highlights the key points of your entire business plan. This can be in paragraph form or in bullet form (I like bullets myself). Do not try to say everything in the executive summary just hit the highpoints. Dont go into details and long explanations that will be covered in depth in the actual meat of the business plan. The executive summary is intended to give the reader a flavor for what your business does . If you catch their attention here, they will read the rest of the business plan to get the level of details they desire. I would place the executive summary in the front of the business plan right after the table of contents.

Miscellaneous Recommendations:
Place your business plan in a nice-looking folder, or get it bound at a local copy shop Have an eye-catching front cover that includes your name and contact information Dont just put your business plan on a shelf use it often, revise it It will help you make decisions into the future a powerful management tool!!