How to Write a Business Plan Presenter: Telaekah Brooks, JD Dean, School of Professional Studies Trinity Washington University What is a Business Plan ? A road map A dynamic, living document that describes who you are, what you sell, how much money you will need, who will work for you, and so on. Business plans often include strategies for expansion or risk. Why Develop a Business Plan ? The process of putting a business plan together, including the thought you put in before you write it, forces you to take an objective, critical, emotional look at your business project in its entirety. The finished product is an operating tool which, if properly used will help you manage your business and work effectively toward its success. The completed business plan communicates your ideas to others and provides the basis for corporate buy-in and ownership. BUSINESS PLAN FORMAT What is the correct model ? The Three Basic Sections of a Business Plan Description Marketing Financials of the business 1. Description of Your Business •Mission Statement •Legal Structure •Products & services •Location •Management & personnel •Insurance •Taxes •Security •Recordkeeping Mission Statement Your mission statement states, in the broadest terms possible, what your business hopes to be and do. “To help people work more efficiently and comfortably,” or “To provide healthy, energizing juices,” or “To take the anxiety out of tax preparation.” Mission Statement Exercise In just a few sentences the mission statement should communicate the essence of your company to both your stakeholders and to the public. What values would you like your business have? What is the purpose of your business? What is your vision for the future of your business? Mission Statement: (50 words or less) Legal Structure Sole Proprietorship Partnerships General Partnerships Limited Partnerships Limited Liability Company Corporations S Type Corporations C Type Corporations Sole Proprietorships In a sole proprietorship, you have all of the control and all of the liability. It is the easiest to start, and usually does not require significant licensure. You run the show and keep the money. Major Downside: You are completely, 100% personally liable if something goes wrong. General Partnerships General Partnerships These are relatively easy to start by requiring only 2 or more people. This type of business requires little licensure and is easy to run. All partners share in the management of the business, the profits, and the personal liability. Major Downside: You can be liable for the actions of your partner, and it is sometimes difficult to manage disputes. Limited Partners Limited Partnerships Limited Partnerships are a little more complicated to start and do require some incorporation in most states. Though you can start an LP with just 2 people, there is a catch: At least one partner is limited and one is general. The limited partner is like a silent partner- they get to avoid most liability, but have to give up management control to get it. The general partner has management control- and is fully liable if something goes wrong. Major Downside: It is hard for limited partners to resist the urge to manage. Limited Liability Companies LLCs were designed to provide you with the best of two worlds: The flexibility and ease of ownership found in a sole proprietorship And, the restricted personal liability of a corporation. These can be started with just one owner/member and little investment. They do require incorporation in most states. Major Downside: More complicated than a sole proprietorship- but the restricted liability can be worth it. Corporations S Type Corporations These require formal incorporation in every state. You are required to have a Board of Directors, which sets policy and controls the President of the corporation. It can be a complicated process, Board members and Officers have little personal liability, and shareholders are taxed on dividends. Major Downside: Most small business owners try to run corporations like sole proprietorship- forgetting to keep good corporate records and “buy” ownership in their business. More on Corporations C Type Corporations This type of structure also requires formal incorporation in all states. This is the most complex business structure, which is subject to stricter regulations by the gov’t. Though the personal liability of owners is shielded, there is not total protection against lawsuits. Shareholders, Board members, and officers run the business Major Downside: Complicated management structure, “double taxation” on earnings. Product & Services Most businesses are built around products and/or services already available. A fish market for example has a simply described product line (seafood); the service element involves how they process the product and satisfy their customers. If your products or services are unique, state-of-the-art, or otherwise noteworthy, take advantage of it. Such differentiation is valuable, tends to be fleeting, and attracts imitators. Products & Services cont’d The Internet has a wealth of information that can lead you to better understand your product or service and its place in the market. Using Google.com to search for “Maine + seafood” yielded 51,900 responses. Don’t faint—of the 51,900 responses only the first 20 had much to offer, including descriptions of seafood products, services, and trade association studies. A search for “Maine + seafood + retail” yielded a mere 4,780 sites. Some of the other sites observed were very specific: seafood retailers (from everywhere, even though “Maine” was a qualifier) with a description of their prices and products. Some were general: aquaculture. A general rule for conducting a Web search is to make your descriptors as specific as possible. This will give you more useful results. Location Factors to consider: Type of building Organization of space Parking Transportation accessibility Traffic Community residents Target Market Incentives Space Plan your space How much space should you set aside for offices? How much storage do you need? How will you utilize your storefront? What about signage? How much display space do you need? Let’s talk basic consumer economics Management & Personnel About your principals: Business Background Management Experience Educational Background About your staff: Types of staff you will need Duties and responsibilities Policies and procedures (employee handbook) Personnel Con’t Timesheets Work Schedules Classes of employees Pay rates/tables Full- time vs. part- time vs. independent contractor Benefits Insurance General Business Liability Insurance Workmen’s Compensation Bonding Performance bonds Tender bonds General Liability Insurance A Commercial General Liability (CGL) insurance policy is the first line of defense against many common claims. General Liability insurance covers claims of bodily injury or other physical injury or property damage. It is frequently offered in a package with Property insurance to protect your business against incidents which may occur on your premises or at other covered locations where you normally conduct business. Commercial General Liability enables your business to continue operations while it faces real or fraudulent claims of certain types of negligence or wrongdoing. Workmen’s Compensation This insurance protects you, the business owner, from financial devastation in the event that an employee is injured on the job. It also helps the employee return to work with little or no loss of income. It provides: Legal protection for the business owner Income, medical and rehab benefits for employee workrelated injuries Payment to surviving family members if your employee is fatally injured on the job Employer’s liability insurance (including damages due to a third party) for care and loss of services for consequential body injury to a family member Bonds Performance Bonds Most capital works projects require this type of bond. This bond is an indicator that your company has the necessary skills and capabilities to carry out the required work and comply with the terms of the contract. Tender Bonds Bid or Tender bonds provide a financial fallback for the contracting agency in the event that you are unable to finish the contract. Taxes Corporate franchise tax Sales and Use Taxes The general rule here is that you must pay sales tax for all retail products that you sell. You can usually elect to pay monthly or quarterly. Personal Property Tax In most states, your business will have to pay corporate income taxes on income made in that state. Rates will vary based upon location Many states require you to pay taxes on the aggregate value of your business possessions. Employer Taxes Some can be deducted from the gross salaries of your employeeswithholding taxes Some come out of your pocket Security Facilities & equipment Security of employees Intellectual property Client records and business files Personnel records Internet/network security Recordkeeping Database managements Filing systems and procedures Reporting mechanisms Manual vs. automated Software usage 2. Marketing Who are your customers? What benefits do you provide them? How many are there? How many do you need? What are there current buying patterns? Where do they currently buy? How will they know about you? What are your major risks and opportunities? Your Target Market For Individuals • Age • Gender • Race and ethnic group • Hobbies • Lifestyle • Reading, listening, and viewing patterns (newspapers, magazines, TV, radio) • Education • Social class • Occupation • Income level • Family life cycle Competition Who are your five nearest competitors? How is their business? Steady, increasing, decreasing? What are the similarities and differences between their business and yours? What have you learned from watching their business? What works for them and what doesn’t? How will your operation be better than theirs? Your Industry Background Industry Information Current/Future Trends The Business Fit in the Industry Marketing Strategies Advertising Print Radio Television Promotion Design of Materials Pricing Press Relations Risk and Opportunities A SWOT Analysis may be helpful in identifying Risks and Opportunities SWOT Analysis (your organization’s major Strengths and Weaknesses, and the most important Opportunities and Threats internal to your organization). Sample SWOT Factor Strength Quality X Training Capital Management X Operations X Production Staff X Weakness X X X CONT’D Factor Opportunities Customer Base X Competition Technology X Political Climate Regulatory Bodies X Economic Environment Legal Threats X X X X 3. Financials How much capital do you need? How can you maintain cash flow and Liquidity? How much working capital do you need? What kind of budgets should you follow? How can you control your finances? How much growth can you afford? Financials Uses and Sources Profit & Loss Statements Income Statement Balance Sheet Cash Flow Projections Break Even Analysis Start Up Costs The Balance Sheet The balance sheet show the business’s financial situation on a given day only. The formula for the balance sheet is: Assets = Liabilities + Owner’s equity Assets are economic resources owned by the business, purchased with the funds supplied by creditors or owners. Liabilities are amounts owned by the business to creditors. Owner's equity is amounts owned by the business to the owners. Break-Even Analysis A. Total sales: B. Fixed costs: C. Gross margin: D. Gross margin as % sales: (C÷A) E. Break-Even Sales: (B÷D) F. Profit goals: G. Sales required to reach profit goal may be calculated: [(B+F)÷D] $_______ $_______ $_______ _______% $_______ $_______ $_______ Operating Expenses Fixed Variable Salaries Sales Commissions Payroll Boxes, Paper, Etc. Benefits Both Travel for Sales Utilities Postage Overtime Personnel & Extra Licenses Telephone Labor for Manufacturing Insures Etc. Freight Out Advertising Office Supplies Legal & Accounting Maintenance & Cleaning Depreciation Interest Etc. Cash Flow Projections Plot out the revenue that you are expecting to come in over a 12-month schedule Plot out your expected expenses over the same period Make sure to include stable monthly expenses (utilities, rent, etc) and contract receivables Business Plan Checklist Prepare Objectives and Mission □Growth plan description □ Stage of development □ Mission Statement □ Objectives Compile the financial Plan □ Financial worksheets □ Cash flow projections □ Financial statements □ Additional financial information Prepare Background Information □ Industry analysis and trends □ The business “fit” in the industry Assemble Appendices □ Timetable □ Supporting documents Design the Organization □ Business structure □ Management □ Personnel □ Outside services/advisors □ Risk management □ Operating controls Write Executive Summary □ Analyze target readers (investors/leaders) and write accordingly □ Consolidate and summarize all accumulate data □ Adjust original business concept as needed Prepare the Marketing Plan □ Description of products or services □ Market analysis □ Competitor analysis □ Market size and trends □ Sales volume potential □ Marketing mix strategy □ Explain market strategy □ Price □ Placement □ Product □ Promotion Finishing Touches □ Proofread and edit document □ Create/collect graphs, charts, and photographs □ Reread entire business plan □ Determine overall feasibility of plan □ Give plan to friends, advisors, or family for review □ Make changes as necessary Business Resources US Small Business Administration (www.sba.gov) Service Corps of Retired Executives (www.score.org) Maryland State Department of Assessments and Taxation Corporate Charter Division Telephone: (410) 7671340 http://www.dat.state.md.us Marketing Resources 1. American Demographics, the monthly magazine, has an excellent home page at <www.marketingtools.com>. American Demographics is the magazine of record for demographic research. They make using census data simple and effective. 2. Princeton University’s Survey Research Center home page <www.princeton.edu/—abelsonf index.html> is a must-visit. It contains a number of links to other sites, and is of value in itself. 3. The National SBDC Research Network home page <www.smallbiz.suny.edu/> is your entry into the SBDCs extraordinary wealth of information. 4. SCORE On Line <www.score.org> has one-on-one marketing research advice as well as plenty of helpful links. 5. Hoover’s Online (“The ultimate source of information on businesses”) is terrific for getting financial information on publicly traded companies <www.hoovers.com/> Contact Information Telaekah Brooks, JD Dean, School of Professional Studies Trinity Washington University (202) 884-9620 brookste@trinitydc.edu