Business Planning Guide
Making your business dream a reality
Copyright Colonial Savings 2007
Your Business Plan
If you’ve been dreaming of beginning your own business, the
planning has already begun and Colonial Savings is here to
help. With the right idea and the perfect plan, you can launch
your dream right into success.
This Business Planning Guide is the first step in the right
direction to establishing your business. This plan will analyze
your business proposal, develop a plan specific to your
business and develop financial projections with coherent
assumptions.
Why is a business plan important?
• The process of developing a business plan forces us to look
with an objective and critical eye on our intended business.
• It is a way to communicate our ideas in written form and the
basis for our financing proposal.
• The product of this process should help us manage a
successful business.
The key to success is to plan
and to follow what we have planned.
Organizing a Business Plan
Your business plan should unfold the details of your intended
business and provide purpose.
Cover:
- Should identify the business and the document
- Should provide contact information
- Should identify who prepared the business plan
- Must be clean, attractive and brief
Organizing a Business Plan
In a brief and practical way, establish your business Purpose
by specifying the intended purpose for the document.
If it is being used as a loan proposal:
1. Who is requesting the loan?
2. What type of business organization is it?
Partnership, Corporation or Sole Proprietorship
2. What is the size of the loan request?
3. What is the purpose of the loan?
4. How will the business benefit?
5. How will the loan be repaid?
6. Why is this a reasonable proposal?
Organizing a Business Plan
The contents of your business plan should include details
about your business, financial information and supporting
Documentation. Begin by establishing your business objectives
that will constitute the written policy for the business.
1.
2.
3.
4.
5.
6.
What is, or will be, the business?
What market does it serve? (size, market share)
What are your competitive advantages?
Why this location?
Who will be your management and personnel?
Why will this loan or investment help the business?
Organizing a Business Plan
Describe your business completely by answering these
questions as a guideline:
1. Is it a retail, manufacturing or service business?
2. Is it new, an expansion or the purchase of an established
business?
3. What legal form of business organization is being used?
4. Why will it be profitable?
5. When do you plan to establish the business?
6. How do you plan to operate? (hours, seasons)
Organizing a Business Plan
For a new business:
1.
2.
3.
4.
Why will you succeed?
What experience do you have?
Do you know other similar businesses?
What makes it special?
(comparative and competitive advantages)
5. What do you know about suppliers?
(supply chain, credit terms, assistance)
6. Terms of contracts? (lease, franchise or licensing)
7. What credit terms will you offer your customers?
Organizing a Business Plan
Purchasing a new business:
1.
2.
3.
4.
5.
By whom and when was it started?
Why are they selling now?
How did you arrive at the price?
What is the current sales trend?
If a downward trend, how do you plan to reverse it?
Why will you succeed?
6. How will you improve profitability?
Organizing a Business Plan
Other considerations if you are purchasing a business:
-
Have you examined the inventory?
Have you met with creditors?
How old are the accounts receivable?
How liquid are the investments?
How ages is the equipment?
Is the equipment in good condition or obsolete?
- Will you assume responsibility for incurred liabilities?
- Are there any tax or IRS obligations?
Organizing a Business Plan
Establish your market by answering these questions:
1. What is your market?
2. What is the real size of that market?
3. What market share can you grab and when?
4. What potential for growth is the market?
5. As the market grows, will your share of it grow or shrink?
6. How will you serve the market?
7. How will you determine the prices or fees to be competitive
and still make a profit?
8. How will you attract and retain market share?
9. How will you grow?
Organizing a Business Plan
Market continued:
10. What prices do you intend to charge?
Are they competitive?
11. Why will a customer bay them?
12. Are they profitable?
13. Do you have advantages that will allow you to charge a
higher price?
Organizing a Business Plan
An important topic to include is the credit terms for your
customers:
1.
2.
3.
4.
5.
Will you offer credit?
Is it required?
How will you make the credit decision?
Can you afford to provide financing?
Can you withstand credit losses? Do you expect any?
Organizing a Business Plan
Establish who the competition is by stating:
1.
2.
3.
4.
5.
Who are the main competitors?
How will your business be better than theirs?
How are their businesses doing?
Why?
How are they like your business and how are they
different?
6. What have you learned about how customers interact?
Organizing a Business Plan
Location is key in business success and rent is a function of
space and advertising.
What to do?
- Don’t always take the lower price
- Consider access to the target markets
- Analyze traffic studies
- Consult business development organizations
- Examine census data
- Analyze available economic reports
Organizing a Business Plan
Location continued
- What is the address?
- Describe the building or space
- Will you own or lease?
- Are improvements required? If so:
Plans and specifications
Cost estimates and time required
Contractors and bids
-
How is the neighborhood?
Zoning and permit issues
Why was this location chosen?
How will location impact the business and its operating
expenses?
Organizing a Business Plan
Management incompetence is the number
one reason for business failure.
Management incompetence
Experience mismatch
Management inexperience
Inexperience in business type
Negligence or inattention
Fraud
Disaster
Total
45%
20%
18%
9%
3%
2%
1%
98%
Organizing a Business Plan
You must consider five factors in making decisions about
Management:
1.
2.
3.
4.
5.
The resume of the owners or principals
Experience relevant to the business
Duties and responsibilities
Salary and compensation
Resources available to the business
Organizing a Business Plan
The personal history of management should be included on
their resume and discuss:
- What is their knowledge of the business
- Prior management experience
- Formal and informal education that may be relevant to
the business
- Personal information such as why they are pursuing this
business, special aptitude for the business and why they
expect to be successful.
Organizing a Business Plan
Their relevant experience of management should include:
- Direct experience in the type of business
- Direct experience managing this type of business
- Management or administrative experience acquired
elsewhere
Organizing a Business Plan
Duties and responsibilities should reinforce the strengths and
mitigate the weaknesses, but never lie. Make time to plan and
to review those plans.
1. The most important jobs are:
-
Purchasing
Sales
Personnel
Production
Logistics
2. Planning
Organizing a Business Plan
Salary and Compensation
- All members of the management team must have a salary
- This wage must be fair and allow them to cover reasonable
family expenses
- Once proposed, all should adjust to this income
The reward will be received when the profits
are distributed and business is successful.
Organizing a Business Plan
When establishing your personnel ask yourself these
questions:
- What are the current needs?
- What are the needs in five years?
- What skills must they have?
- Are they available in the market?
- Do you need full-time or part-time employees?
- Do you need salaried or hourly workers?
- What benefits will be offered?
- What are the training needs?
Organizing a Business Plan
You can outline your required investments using this as a
guide whether you are considering a loan or will finance it
yourself.
Make a list for each and determine the ideal mix:
The required
minimum necessary
The reasonable
What can be achieved.
Some new, some used.
The ideal
What you would get if there
were no money issues and
profits were not relevant.
Organizing a Business Plan
Answer the following questions about your investment:
-
How will the money be used?
What must be purchased?
Who will supply it?
What price will be charged?
What model and how many? (a list of equipment is useful)
What related expenses must be incurred?
Compare leasing and purchase options.
How will this help make the business more profitable?
Organizing a Business Plan
In your summary, review the discussed ideas,
integrate the various parts of the document
and leave the reader with a concise and
convincing memory that backs your request.
Organizing a Business Plan
The financial information section should cover:
1. Sources and uses of cash
2. Critical equipment needs
3. Statement of financial condition (balance sheet)
4. Break-even analysis
5. Pro-Forma Income Statement
6. Pro-Forma Cash Flow Analysis
7. Deviation Analysis Actual vs. Budget
8. Historic Financials for an on-going business
Organizing a Business Plan
FUNDS MANAGEMENT
Net Income
Debt Repayment
New Debt
Asset Purchase
CASH
Sale of Assets
New Equity
Investment
Dividends
Collected Sales
Less
$ paid to suppliers, workers,
inventory, taxes, services, etc.
Net Operating Profit
Equity
Distribution
Organizing a Business Plan
Sources and uses of funds
In-Flows:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Cash Beginning Balance
Collected sales
Cash from other sources
Cash from accounts receivable collected
Cash from sale of assets
Cash from equity investment
Cash from new loans
Cash from recovered charged-off accounts
Cash from sundry other sources
= Total Available Cash
Organizing a Business Plan
Sources and uses of funds
Out-Flows:
1. Purchase of inventory
2. Salaries, wages and benefits paid
3. New equipment purchased
4. Insurance, services and fees paid
5. Advertising
6. Allowance for uncollectible accounts
7. Transportation and delivery
8. Taxes and duties paid
9. Interest and principal paid on debt
10. Dividends paid
11. Reserve for contingencies
= Total Cash Out-Flows
Organizing a Business Plan
Sources and uses of funds
Total Available Cash
- Total Cash Out-Flows
_____________________
Ending Cash Balance
Organizing a Business Plan
A list of critical equipment is absolutely necessary for the
business and should include accessories and critical parts
and supplies.
- Auxiliary Equipment: those that help the business
function better
- Other Equipment: vehicles, delivery and warehouse
Organizing a Business Plan
Statement of Financial Condition
Assets
Cash
Accounts Receivable
Inventory
Fixed Assets
Accumulated Depreciation
Net Fixed Asset
Total Assets
Liabilities and Equity
Current Liabilities
Long Term Liabilities
Total Liabilities
Stockholders’ Equity
Total Liabilities and Equity
Organizing a Business Plan
Analysis of Financials
- Working capital
- Current Assets (turn to cash in less than 1 year)
- Current Liabilities (to be paid in less than 1 year)
- Compare year to year
- Ratio Analysis
- Current Ratio (current assets/current liabilities)
- Quick Ratio
- Leverage (total liabilities/stockholders’ equity)
Organizing a Business Plan
An increase in sales does not necessarily
imply an increase in profits.
Break-even Analysis will help you evaluate
where you need to be in your sales to produce a profit.
Fixed Costs
+ Variable Costs
Break-even Point in Sales
Organizing a Business Plan
• Fixed Costs:
– Remain Constant
– Are incurred regardless
of sales
– Are distributed among
all units sold.
• Variable Costs:
– Fluctuate directly in
proportion to sales
– Include:
• Direct labor
• Cost of goods sold
• Sales commission
Organizing a Business Plan
Fixed costs for business
Gross profit as a
percentage of sales
=
Break-even Point
Break-even Point
Unit Price
=
Break-even Point in
number of units
Projections or Pro-Form Financials
Please consider the following:
- They must be realistic.
- You should project the first year on a monthly basis and 5 years going forward.
- They should not be overly optimistic, neither should they be pessimistic.
- You should not project chance events, or those uncertain as to date or amount.
- You must take into consideration the reality of similar businesses.
- Your assumptions should be based on your market analysis.
- You must consider your cost estimates.
- You must take into account the break-even point calculated previously.
- Everyone working in the business should have a salary and it must be included.
Then they must adjust themselves to it.
- You must include an allowance for unforeseen events.
- Make sure you include debt service and any payments committed to investors.
- Your should clearly state your assumptions.
- Be pessimistic on costs and expenses.
- Be conservative in projecting sales.
- If you are evaluating an existing business, compare your projection against
historical figures and justify any differences.
Your Business Plan
Good planning is the key to business success
- Your planning must be done in an objective and
serious manner.
- You should take time to compare the possible performance
against the planning budget.
- You must regularly take time, away from pressure and
telephone interruptions, to review and actualize the plans.
The Loan Proposal
Two Major Risks:
- The lender that will not turn down the proposal, but
cannot provide adequate financing.
- The banker that provides the wrong financing for the
right reasons.
The Loan Proposal
Types of Loans
Short term loans
- Repaid within the current year
- Finances working capital needs
- Is documented through notes that are cancelled in less than 1 year
- Finances cash needs of short duration
- May be structured as a line of credit
Medium term loans
- Repaid within 1 and 5 years from profits
- Finances equipment purchases
- Can finance working capital for a business experiencing fast growth
- Requires collateral to support it
- Should only be used when the need is evident and suitable
Long term loans
- Requires more than 5 years to be fully repaid from profits
- Finances fixed asset purchase
- A faster repayment may weaken the business
- Requires collateral support
- Requires disciplined performance
The Loan Proposal
Some words of advice:
-
Anticipate financial needs.
Be clear and concise in your statements.
Don’t request more than you need and can use.
Analyze the need and how it will be repaid.
If the banker does not agree; listen and analyze their
reasoning, but never accept a repayment schedule that you
cannot meet.
Good planning is the key to success in business.
Copyright Colonial Savings 2007