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Business Plan for a Startup Business

Thebusinessplanconsistsofanarrativeandseveralfinancialworksheets.The narrativetemplateisthebodyofthebusinessplan.Itcontainsmorethan150 questionsdividedintoseveralsections.Workthroughthesectionsinanyorder thatyoulike,exceptfortheExecutiveSummary,whichshouldbedonelast.Skip anyquestionsthatdonotapplytoyourtypeofbusiness.Whenyouarefinished writingyourfirstdraft,youllhaveacollectionofsmallessaysonthevarious topicsofthebusinessplan.Thenyoullwanttoeditthemintoasmoothflowing narrative. Therealvalueofcreatingabusinessplanisnotinhavingthefinishedproductin hand;rather,thevalueliesintheprocessofresearchingandthinkingaboutyour businessinasystematicway.Theactofplanninghelpsyoutothinkthings throughthoroughly,studyandresearchifyouarenotsureofthefacts,andlook atyourideascritically.Ittakestimenow,butavoidscostly,perhapsdisastrous, mistakeslater. Thisbusinessplanisagenericmodelsuitableforalltypesofbusinesses. However,youshouldmodifyittosuityourparticularcircumstances.Beforeyou begin,reviewthesectiontitledRefiningthePlan,foundattheend.Itsuggests emphasizingcertainareasdependinguponyourtypeofbusiness (manufacturing,retail,service,etc.).Italsohastipsforfinetuningyourplanto makeaneffectivepresentationtoinvestorsorbankers.Ifthisiswhyyoure creatingyourplan,payparticularattentiontoyourwritingstyle.Youwillbe judgedbythequalityandappearanceofyourworkaswellasbyyourideas. Ittypicallytakesseveralweekstocompleteagoodplan.Mostofthattimeis spentinresearchandrethinkingyourideasandassumptions.Butthen,thats thevalueoftheprocess.Somaketimetodothejobproperly.Thosewhodo neverregrettheeffort.Andfinally,besuretokeepdetailednotesonyour sourcesofinformationandontheassumptionsunderlyingyourfinancialdata. Ifyouneedassistancewithyourbusinessplan,contacttheSCOREofficeinyour areatosetupabusinesscounselingappointmentwithaSCOREvolunteeror sendyourplanforreviewtoaSCOREcounseloratwww.score.org.Call1800 6340245togetthecontactinformationfortheSCOREofficeclosesttoyou.

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Business Plan

OWNERS
YourBusinessName AddressLine1 AddressLine2 City,STZIPCode Telephone Fax EMail

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I.
I. II. III. IV. V. VI.

TableofContents

TableofContents ................................................................................................... 3 ExecutiveSummary............................................................................................... 4 GeneralCompanyDescription ............................................................................ 5 ProductsandServices............................................................................................ 6 MarketingPlan ....................................................................................................... 7 OperationalPlan .................................................................................................. 16

VII. ManagementandOrganization ......................................................................... 21 VIII. PersonalFinancialStatement ............................................................................. 22 IX. X. XI. StartupExpensesandCapitalization ................................................................ 23 FinancialPlan ....................................................................................................... 24 Appendices ........................................................................................................... 27

XII. RefiningthePlan .................................................................................................. 28

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II.
Writethissectionlast.

ExecutiveSummary

Wesuggestthatyoumakeittwopagesorfewer. Includeeverythingthatyouwouldcoverinafiveminuteinterview. Explainthefundamentalsoftheproposedbusiness:Whatwillyourproductbe? Whowillyourcustomersbe?Whoaretheowners?Whatdoyouthinkthefuture holdsforyourbusinessandyourindustry? Makeitenthusiastic,professional,complete,andconcise. Ifapplyingforaloan,stateclearlyhowmuchyouwant,preciselyhowyouare goingtouseit,andhowthemoneywillmakeyourbusinessmoreprofitable, therebyensuringrepayment.

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III.

GeneralCompanyDescription

Whatbusinesswillyoubein?Whatwillyoudo? MissionStatement:Manycompanieshaveabriefmissionstatement,usuallyin 30wordsorfewer,explainingtheirreasonforbeingandtheirguidingprinciples. Ifyouwanttodraftamissionstatement,thisisagoodplacetoputitintheplan, followedby: CompanyGoalsandObjectives:Goalsaredestinationswhereyouwantyour businesstobe.Objectivesareprogressmarkersalongthewaytogoal achievement.Forexample,agoalmightbetohaveahealthy,successful companythatisaleaderincustomerserviceandthathasaloyalcustomer following.Objectivesmightbeannualsalestargetsandsomespecificmeasures ofcustomersatisfaction. BusinessPhilosophy:Whatisimportanttoyouinbusiness? Towhomwillyoumarketyourproducts?(Stateitbrieflyhereyouwilldoa morethoroughexplanationintheMarketingPlansection). Describeyourindustry.Isitagrowthindustry?Whatchangesdoyouforeseein theindustry,shorttermandlongterm?Howwillyourcompanybepoisedto takeadvantageofthem? Describeyourmostimportantcompanystrengthsandcorecompetencies.What factorswillmakethecompanysucceed?Whatdoyouthinkyourmajor competitivestrengthswillbe?Whatbackgroundexperience,skills,andstrengths doyoupersonallybringtothisnewventure? Legalformofownership:Soleproprietor,Partnership,Corporation,Limited liabilitycorporation(LLC)?Whyhaveyouselectedthisform?

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IV.

ProductsandServices

Describeindepthyourproductsorservices(technicalspecifications,drawings, photos,salesbrochures,andotherbulkyitemsbelonginAppendices). Whatfactorswillgiveyoucompetitiveadvantagesordisadvantages?Examples includelevelofqualityoruniqueorproprietaryfeatures. Whatarethepricing,fee,orleasingstructuresofyourproductsorservices?

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V.

MarketingPlan

Market research - Why?

Nomatterhowgoodyourproductandyourservice,theventurecannotsucceed withouteffectivemarketing.Andthisbeginswithcareful,systematicresearch.It isverydangeroustoassumethatyoualreadyknowaboutyourintendedmarket. Youneedtodomarketresearchtomakesureyoureontrack.Usethebusiness planningprocessasyouropportunitytouncoverdataandtoquestionyour marketingefforts.Yourtimewillbewellspent.

Market research - How?

Therearetwokindsofmarketresearch:primaryandsecondary. Secondaryresearchmeansusingpublishedinformationsuchasindustryprofiles, tradejournals,newspapers,magazines,censusdata,anddemographicprofiles. Thistypeofinformationisavailableinpubliclibraries,industryassociations, chambersofcommerce,fromvendorswhoselltoyourindustry,andfrom governmentagencies. Startwithyourlocallibrary.Mostlibrariansarepleasedtoguideyouthrough theirbusinessdatacollection.Youwillbeamazedatwhatisthere.Thereare moreonlinesourcesthanyoucouldpossiblyuse.Yourchamberofcommerce hasgoodinformationonthelocalarea.Tradeassociationsandtradepublications oftenhaveexcellentindustryspecificdata. Primaryresearchmeansgatheringyourowndata.Forexample,youcoulddo yourowntrafficcountataproposedlocation,usetheyellowpagestoidentify competitors,anddosurveysorfocusgroupinterviewstolearnaboutconsumer preferences.Professionalmarketresearchcanbeverycostly,buttherearemany booksthatshowsmallbusinessownershowtodoeffectiveresearchthemselves. Inyourmarketingplan,beasspecificaspossible;givestatistics,numbers,and sources.Themarketingplanwillbethebasis,lateron,oftheallimportantsales projection.

Economics
Factsaboutyourindustry: Whatisthetotalsizeofyourmarket?

Page8of31 Whatpercentshareofthemarketwillyouhave?(Thisisimportantonlyif youthinkyouwillbeamajorfactorinthemarket.) Currentdemandintargetmarket. Trendsintargetmarketgrowthtrends,trendsinconsumerpreferences, andtrendsinproductdevelopment. Growthpotentialandopportunityforabusinessofyoursize. Whatbarrierstoentrydoyoufaceinenteringthismarketwithyournew company?Sometypicalbarriersare: o Highcapitalcosts o Highproductioncosts o Highmarketingcosts o Consumeracceptanceandbrandrecognition o Trainingandskills o Uniquetechnologyandpatents o Unions o Shippingcosts o Tariffbarriersandquotas Andofcourse,howwillyouovercomethebarriers? Howcouldthefollowingaffectyourcompany? o Changeintechnology o Changeingovernmentregulations o Changeintheeconomy o Changeinyourindustry

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Product
IntheProductsandServicessection,youdescribedyourproductsandservicesas youseethem.Nowdescribethemfromyourcustomerspointofview. FeaturesandBenefits Listallofyourmajorproductsorservices. Foreachproductorservice: Describethemostimportantfeatures.Whatisspecialaboutit? Describethebenefits.Thatis,whatwilltheproductdoforthecustomer?

Notethedifferencebetweenfeaturesandbenefits,andthinkaboutthem.For example,ahousethatgivesshelterandlastsalongtimeismadewithcertain materialsandtoacertaindesign;thoseareitsfeatures.Itsbenefitsincludepride ofownership,financialsecurity,providingforthefamily,andinclusionina neighborhood.Youbuildfeaturesintoyourproductsothatyoucansellthe benefits. Whataftersaleserviceswillyougive?Someexamplesaredelivery,warranty, servicecontracts,support,followup,andrefundpolicy.

Customers
Identifyyourtargetedcustomers,theircharacteristics,andtheirgeographic locations,otherwiseknownastheirdemographics. Thedescriptionwillbecompletelydifferentdependingonwhetheryouplanto selltootherbusinessesordirectlytoconsumers.Ifyousellaconsumerproduct, butsellitthroughachannelofdistributors,wholesalers,andretailers,youmust carefullyanalyzeboththeendconsumerandthemiddlemanbusinessestowhich yousell. Youmayhavemorethanonecustomergroup.Identifythemostimportant groups.Then,foreachcustomergroup,constructwhatiscalledademographic profile: Age Gender

Page10of31 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,certain customers,orincertainlocations? Willyouhaveimportantindirectcompetitors?(Forexample,videorentalstores competewiththeaters,althoughtheyaredifferenttypesofbusinesses.) Howwillyourproductsorservicescomparewiththecompetition? UsetheCompetitiveAnalysistablebelowtocompareyourcompanywithyour twomostimportantcompetitors.Inthefirstcolumnarekeycompetitivefactors.

Page11of31 Sincethesevaryfromoneindustrytoanother,youmaywanttocustomizethe listoffactors. InthecolumnlabeledMe,statehowyouhonestlythinkyouwillstackupin customersminds.Thencheckwhetheryouthinkthisfactorwillbeastrengthor aweaknessforyou.Sometimesitishardtoanalyzeourownweaknesses.Tryto beveryhonesthere.Betteryet,getsomedisinterestedstrangerstoassessyou. Thiscanbearealeyeopener.Andrememberthatyoucannotbeallthingstoall people.Infact,tryingtobecausesmanybusinessfailuresbecauseeffortsbecome scatteredanddiluted.Youwantanhonestassessmentofyourfirmsstrongand weakpoints. Nowanalyzeeachmajorcompetitor.Inafewwords,statehowyouthinkthey compare. Inthefinalcolumn,estimatetheimportanceofeachcompetitivefactortothe customer.1=critical;5=notveryimportant.
Table1:CompetitiveAnalysis
Factor Me

Strength Weakness CompetitorA

CompetitorB

Importanceto Customer

Products Price Quality Selection Service Reliability Stability Expertise Company Reputation

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Factor

Me

Strength Weakness CompetitorA

CompetitorB

Importanceto Customer

Location Appearance SalesMethod CreditPolicies Advertising Image

Now,writeashortparagraphstatingyourcompetitiveadvantagesand disadvantages.

Niche
Nowthatyouhavesystematicallyanalyzedyourindustry,yourproduct,your customers,andthecompetition,youshouldhaveaclearpictureofwhereyour companyfitsintotheworld. Inoneshortparagraph,defineyourniche,youruniquecornerofthemarket.

Strategy
Nowoutlineamarketingstrategythatisconsistentwithyourniche. Promotion Howwillyougetthewordouttocustomers? Advertising:Whatmedia,why,andhowoften?Whythismixandnotsome other? Haveyouidentifiedlowcostmethodstogetthemostoutofyourpromotional budget?

Page13of31 Willyouusemethodsotherthanpaidadvertising,suchastradeshows,catalogs, dealerincentives,wordofmouth(howwillyoustimulateit?),andnetworkof friendsorprofessionals? Whatimagedoyouwanttoproject?Howdoyouwantcustomerstoseeyou? Inadditiontoadvertising,whatplansdoyouhaveforgraphicimagesupport? Thisincludesthingslikelogodesign,cardsandletterhead,brochures,signage, andinteriordesign(ifcustomerscometoyourplaceofbusiness). Shouldyouhaveasystemtoidentifyrepeatcustomersandthensystematically contactthem? PromotionalBudget Howmuchwillyouspendontheitemslistedabove? Beforestartup?(Thesenumberswillgointoyourstartupbudget.) Ongoing?(Thesenumberswillgointoyouroperatingplanbudget.) Pricing Explainyourmethodormethodsofsettingprices.Formostsmallbusinesses, havingthelowestpriceisnotagoodpolicy.Itrobsyouofneededprofitmargin; customersmaynotcareasmuchaboutpriceasyouthink;andlargecompetitors canunderpriceyouanyway.Usuallyyouwilldobettertohaveaverageprices andcompeteonqualityandservice. Doesyourpricingstrategyfitwithwhatwasrevealedinyourcompetitive analysis? Compareyourpriceswiththoseofthecompetition.Aretheyhigher,lower,the same?Why? Howimportantispriceasacompetitivefactor?Doyourintendedcustomers reallymaketheirpurchasedecisionsmostlyonprice? Whatwillbeyourcustomerserviceandcreditpolicies?

Page14of31 ProposedLocation Probablyyoudonothaveapreciselocationpickedoutyet.Thisisthetimeto thinkaboutwhatyouwantandneedinalocation.Manystartupsrun successfullyfromhomeforawhile. Youwilldescribeyourphysicalneedslater,intheOperationalPlansection.Here, analyzeyourlocationcriteriaastheywillaffectyourcustomers. Isyourlocationimportanttoyourcustomers?Ifyes,how? Ifcustomerscometoyourplaceofbusiness: Isitconvenient?Parking?Interiorspaces?Notoutoftheway? Isitconsistentwithyourimage? Isitwhatcustomerswantandexpect? Whereisthecompetitionlocated?Isitbetterforyoutobenearthem(likecar dealersorfastfoodrestaurants)ordistant(likeconveniencefoodstores)? DistributionChannels Howdoyousellyourproductsorservices? Retail Direct(mailorder,Web,catalog) Wholesale Yourownsalesforce Agents Independentrepresentatives Bidoncontracts

Sales Forecast
Nowthatyouhavedescribedyourproducts,services,customers,markets,and marketingplansindetail,itstimetoattachsomenumberstoyourplan.Usea salesforecastspreadsheettoprepareamonthbymonthprojection.Theforecast

Page15of31 shouldbebasedonyourhistoricalsales,themarketingstrategiesthatyouhave justdescribed,yourmarketresearch,andindustrydata,ifavailable. Youmaywanttodotwoforecasts:1)abestguess,whichiswhatyoureally expect,and2)aworstcaselowestimatethatyouareconfidentyoucanreach nomatterwhathappens. Remembertokeepnotesonyourresearchandyourassumptionsasyoubuild thissalesforecastandallsubsequentspreadsheetsintheplan.Thisiscriticalif youaregoingtopresentittofundingsources.

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VI.

OperationalPlan

Explainthedailyoperationofthebusiness,itslocation,equipment,people, processes,andsurroundingenvironment.

Production
Howandwhereareyourproductsorservicesproduced? Explainyourmethodsof: Productiontechniquesandcosts Qualitycontrol Customerservice Inventorycontrol Productdevelopment

Location
Whatqualitiesdoyouneedinalocation?Describethetypeoflocationyoull have. Physicalrequirements: Amountofspace Typeofbuilding Zoning Powerandotherutilities

Access: Isitimportantthatyourlocationbeconvenienttotransportationortosuppliers? Doyouneedeasywalkinaccess? Whatareyourrequirementsforparkingandproximitytofreeway,airports, railroads,andshippingcenters?

Page17of31 Includeadrawingorlayoutofyourproposedfacilityifitisimportant,asit mightbeforamanufacturer. Construction?Mostnewcompaniesshouldnotsinkcapitalintoconstruction,but ifyouareplanningtobuild,costsandspecificationswillbeabigpartofyour plan. Cost:Estimateyouroccupationexpenses,includingrent,butalsoincluding maintenance,utilities,insurance,andinitialremodelingcoststomakethespace suityourneeds.Thesenumberswillbecomepartofyourfinancialplan. 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?

Page18of31 Doyouhaveschedulesandwrittenproceduresprepared? Haveyoudraftedjobdescriptionsforemployees?Ifnot,taketimetowrite some.Theyreallyhelpinternalcommunicationswithemployees. Forcertainfunctions,willyouusecontractworkersinadditionto employees?

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

Suppliers
Identifykeysuppliers: Namesandaddresses Typeandamountofinventoryfurnished Creditanddeliverypolicies Historyandreliability

Shouldyouhavemorethanonesupplierforcriticalitems(asabackup)? Doyouexpectshortagesorshorttermdeliveryproblems? Aresupplycostssteadyorfluctuating?Iffluctuating,howwouldyoudealwith changingcosts?

Credit Policies
Doyouplantoselloncredit? Doyoureallyneedtoselloncredit?Isitcustomaryinyourindustryand expectedbyyourclientele?

Page19of31 Ifyes,whatpolicieswillyouhaveaboutwhogetscreditandhowmuch? Howwillyoucheckthecreditworthinessofnewapplicants? Whattermswillyouofferyourcustomers;thatis,howmuchcreditand whenispaymentdue? Willyouofferpromptpaymentdiscounts?(Hint:Dothisonlyifitisusual andcustomaryinyourindustry.) Doyouknowwhatitwillcostyoutoextendcredit?Haveyoubuiltthe costsintoyourprices?

ManagingYourAccountsReceivable Ifyoudoextendcredit,youshoulddoanagingatleastmonthlytotrackhow muchofyourmoneyistiedupincreditgiventocustomersandtoalertyouto slowpaymentproblems.Areceivablesaginglookslikethefollowingtable:

Accounts ReceivableAging Total Current 30Days 60Days 90Days Over90Days

Youwillneedapolicyfordealingwithslowpayingcustomers: Whendoyoumakeaphonecall? Whendoyousendaletter? Whendoyougetyourattorneytothreaten?

ManagingYourAccountsPayable Youshouldalsoageyouraccountspayable,whatyouowetoyoursuppliers. Thishelpsyouplanwhomtopayandwhen.Payingtooearlydepletesyourcash, butpayinglatecancostyouvaluablediscountsandcandamageyourcredit. (Hint:Ifyouknowyouwillbelatemakingapayment,callthecreditorbeforethe duedate.)

Page20of31 Doyourproposedvendorsofferpromptpaymentdiscounts? Apayablesaginglookslikethefollowingtable.

AccountsPayable Aging Total

Current

30Days

60Days

90Days

Over90Days

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VII. ManagementandOrganization
Whowillmanagethebusinessonadaytodaybasis?Whatexperiencedoesthat personbringtothebusiness?Whatspecialordistinctivecompetencies?Istherea planforcontinuationofthebusinessifthispersonislostorincapacitated? Ifyoullhavemorethan10employees,createanorganizationalchartshowing themanagementhierarchyandwhoisresponsibleforkeyfunctions. Includepositiondescriptionsforkeyemployees.Ifyouareseekingloansor investors,includeresumesofownersandkeyemployees.

Professional and Advisory Support

Listthefollowing: Boardofdirectors Managementadvisoryboard Attorney Accountant Insuranceagent Banker Consultantorconsultants Mentorsandkeyadvisors

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VIII. PersonalFinancialStatement
Includepersonalfinancialstatementsforeachownerandmajorstockholder, showingassetsandliabilitiesheldoutsidethebusinessandpersonalnetworth. Ownerswilloftenhavetodrawonpersonalassetstofinancethebusiness,and thesestatementswillshowwhatisavailable.Bankersandinvestorsusuallywant thisinformationaswell.

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IX.

StartupExpensesandCapitalization

Youwillhavemanystartupexpensesbeforeyouevenbeginoperatingyour business.Itsimportanttoestimatetheseexpensesaccuratelyandthentoplan whereyouwillgetsufficientcapital.Thisisaresearchproject,andthemore thoroughyourresearchefforts,thelesschancethatyouwillleaveoutimportant expensesorunderestimatethem. Evenwiththebestofresearch,however,openinganewbusinesshasawayof costingmorethanyouanticipate.Therearetwowaystomakeallowancesfor surpriseexpenses.Thefirstistoaddalittlepaddingtoeachiteminthe budget.Theproblemwiththatapproach,however,isthatitdestroysthe accuracyofyourcarefullywroughtplan.Thesecondapproachistoadda separatelineitem,calledcontingencies,toaccountfortheunforeseeable.Thisis theapproachwerecommend. Talktootherswhohavestartedsimilarbusinessestogetagoodideaofhow muchtoallowforcontingencies.Ifyoucannotgetgoodinformation,we recommendaruleofthumbthatcontingenciesshouldequalatleast20percentof thetotalofallotherstartupexpenses. Explainyourresearchandhowyouarrivedatyourforecastsofexpenses.Give sources,amounts,andtermsofproposedloans.Alsoexplainindetailhowmuch willbecontributedbyeachinvestorandwhatpercentownershipeachwillhave.

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X.

FinancialPlan

Thefinancialplanconsistsofa12monthprofitandlossprojection,afouryear profitandlossprojection(optional),acashflowprojection,aprojectedbalance sheet,andabreakevencalculation.Togethertheyconstituteareasonable estimateofyourcompanysfinancialfuture.Moreimportant,theprocessof thinkingthroughthefinancialplanwillimproveyourinsightintotheinner financialworkingsofyourcompany.

12-Month Profit and Loss Projection

Manybusinessownersthinkofthe12monthprofitandlossprojectionasthe centerpieceoftheirplan.Thisiswhereyouputitalltogetherinnumbersandget anideaofwhatitwilltaketomakeaprofitandbesuccessful. Yoursalesprojectionswillcomefromasalesforecastinwhichyouforecastsales, costofgoodssold,expenses,andprofitmonthbymonthforoneyear. Profitprojectionsshouldbeaccompaniedbyanarrativeexplainingthemajor assumptionsusedtoestimatecompanyincomeandexpenses. ResearchNotes:Keepcarefulnotesonyourresearchandassumptions,sothat youcanexplainthemlaterifnecessary,andalsosothatyoucangobacktoyour sourceswhenitstimetoreviseyourplan.

Four-Year Profit Projection (Optional)

The12monthprojectionistheheartofyourfinancialplan.TheFourYearProfit projectionisforthosewhowanttocarrytheirforecastsbeyondthefirstyear. Ofcourse,keepnotesofyourkeyassumptions,especiallyaboutthingsthatyou expectwillchangedramaticallyafterthefirstyear.

Projected Cash Flow

Iftheprofitprojectionistheheartofyourbusinessplan,cashflowistheblood. Businessesfailbecausetheycannotpaytheirbills.Everypartofyourbusiness planisimportant,butnoneofitmeansathingifyourunoutofcash. Thepointofthisworksheetistoplanhowmuchyouneedbeforestartup,for preliminaryexpenses,operatingexpenses,andreserves.Youshouldkeep updatingitandusingitafterward.Itwillenableyoutoforeseeshortagesintime todosomethingaboutthemperhapscutexpenses,orperhapsnegotiatealoan. Butforemost,youshouldntbetakenbysurprise.

Page25of31 Thereisnogreattricktopreparingit:Thecashflowprojectionisjustaforward lookatyourcheckingaccount. Foreachitem,determinewhenyouactuallyexpecttoreceivecash(forsales)or whenyouwillactuallyhavetowriteacheck(forexpenseitems). Youshouldtrackessentialoperatingdata,whichisnotnecessarilypartofcash flowbutallowsyoutotrackitemsthathaveaheavyimpactoncashflow,suchas salesandinventorypurchases. Youshouldalsotrackcashoutlayspriortoopeninginaprestartupcolumn.You shouldhavealreadyresearchedthoseforyourstartupexpensesplan. Yourcashflowwillshowyouwhetheryourworkingcapitalisadequate.Clearly, ifyourprojectedcashbalanceevergoesnegative,youwillneedmorestartup capital.Thisplanwillalsopredictjustwhenandhowmuchyouwillneedto borrow. Explainyourmajorassumptions,especiallythosethatmakethecashflowdiffer fromtheProfitandLossProjection.Forexample,ifyoumakeasaleinmonthone, whendoyouactuallycollectthecash?Whenyoubuyinventoryormaterials,do youpayinadvance,upondelivery,ormuchlater?Howwillthisaffectcash flow? Aresomeexpensespayableinadvance?When? Arethereirregularexpenses,suchasquarterlytaxpayments,maintenanceand repairs,orseasonalinventorybuildup,thatshouldbebudgeted? Loanpayments,equipmentpurchases,andownersdrawsusuallydonotshow onprofitandlossstatementsbutdefinitelydotakecashout.Besuretoinclude them. Andofcourse,depreciationdoesnotappearinthecashflowatallbecauseyou neverwriteacheckforit.

Opening Day Balance Sheet

Abalancesheetisoneofthefundamentalfinancialreportsthatanybusiness needsforreportingandfinancialmanagement.Abalancesheetshowswhat itemsofvalueareheldbythecompany(assets),andwhatitsdebtsare (liabilities).Whenliabilitiesaresubtractedfromassets,theremainderisowners equity.

Page26of31 Useastartupexpensesandcapitalizationspreadsheetasaguidetopreparinga balancesheetasofopeningday.Thendetailhowyoucalculatedtheaccount balancesonyouropeningdaybalancesheet. Optional:Somepeoplewanttoaddaprojectedbalancesheetshowingthe estimatedfinancialpositionofthecompanyattheendofthefirstyear.Thisis especiallyusefulwhensellingyourproposaltoinvestors.

Break-Even Analysis
Abreakevenanalysispredictsthesalesvolume,atagivenprice,requiredto recovertotalcosts.Inotherwords,itsthesaleslevelthatisthedividingline betweenoperatingatalossandoperatingataprofit. Expressedasaformula,breakevenis:

BreakEvenSales= FixedCosts 1VariableCosts (Wherefixedcostsareexpressedindollars,butvariablecostsareexpressedasa percentoftotalsales.) Includeallassumptionsuponwhichyourbreakevencalculationisbased.

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XI.

Appendices

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

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XII. RefiningthePlan
Thegenericbusinessplanpresentedaboveshouldbemodifiedtosuityour specifictypeofbusinessandtheaudienceforwhichtheplaniswritten.

For Raising Capital

ForBankers Bankerswantassuranceoforderlyrepayment.Ifyouintendusingthis plantopresenttolenders,include: o Amountofloan o Howthefundswillbeused o Whatthiswillaccomplishhowwillitmakethebusiness stronger? o Requestedrepaymentterms(numberofyearstorepay).Youwill probablynothavemuchnegotiatingroomoninterestratebutmay beabletonegotiatealongerrepaymentterm,whichwillhelpcash flow. o Collateraloffered,andalistofallexistingliensagainstcollateral ForInvestors Investorshaveadifferentperspective.Theyarelookingfordramatic growth,andtheyexpecttoshareintherewards: o Fundsneededshortterm o Fundsneededintwotofiveyears o Howthecompanywillusethefunds,andwhatthiswill accomplishforgrowth. o Estimatedreturnoninvestment o Exitstrategyforinvestors(buyback,sale,orIPO) o Percentofownershipthatyouwillgiveuptoinvestors

Page29of31 o Milestonesorconditionsthatyouwillaccept o Financialreportingtobeprovided o Involvementofinvestorsontheboardorinmanagement

For Type of Business

Manufacturing Plannedproductionlevels Anticipatedlevelsofdirectproductioncostsandindirect(overhead) costshowdothesecomparetoindustryaverages(ifavailable)? Pricesperproductline Grossprofitmargin,overallandforeachproductline Production/capacitylimitsofplannedphysicalplant Production/capacitylimitsofequipment Purchasingandinventorymanagementprocedures Newproductsunderdevelopmentoranticipatedtocomeonlineafter startup

ServiceBusinesses Servicebusinessessellintangibleproducts.Theyareusuallymoreflexible thanothertypesofbusinesses,buttheyalsohavehigherlaborcostsand generallyverylittleinfixedassets. Whatarethekeycompetitivefactorsinthisindustry? Yourprices Methodsusedtosetprices Systemofproductionmanagement Qualitycontrolprocedures.Standardoracceptedindustryquality standards.

Page30of31 Howwillyoumeasurelaborproductivity? Percentofworksubcontractedtootherfirms.Willyoumakeaprofiton subcontracting? Credit,payment,andcollectionspoliciesandprocedures Strategyforkeepingclientbase

HighTechnologyCompanies Economicoutlookfortheindustry Willthecompanyhaveinformationsystemsinplacetomanagerapidly changingprices,costs,andmarkets? Willyoubeonthecuttingedgewithyourproductsandservices? Whatisthestatusofresearchanddevelopment?Andwhatisrequiredto: o Bringproduct/servicetomarket? o Keepthecompanycompetitive? Howdoesthecompany: o Protectintellectualproperty? o Avoidtechnologicalobsolescence? o Supplynecessarycapital? o Retainkeypersonnel? Hightechcompaniessometimeshavetooperateforalongtimewithoutprofits andsometimesevenwithoutsales.Ifthisfitsyoursituation,abankerprobably willnotwanttolendtoyou.Venturecapitalistsmayinvest,butyourstorymust beverygood.Youmustdolongertermfinancialforecaststoshowwhenprofit takeoffisexpectedtooccur.Andyourassumptionsmustbewelldocumented andwellargued. RetailBusiness Companyimage

Page31of31 Pricing: o Explainmarkuppolicies. o Pricesshouldbeprofitable,competitive,andinaccordancewith companyimage. Inventory: o Selectionandpriceshouldbeconsistentwithcompanyimage. o Inventorylevel:Findindustryaveragenumbersforannual inventoryturnoverrate(availableinRMAbook).Multiplyyour initialinventoryinvestmentbytheaverageturnoverrate.The resultshouldbeatleastequaltoyourprojectedfirstyearscostof goodssold.Ifitisnot,youmaynothaveenoughbudgetedfor startupinventory. Customerservicepolicies:Theseshouldbecompetitiveandinaccordwith companyimage. Location:Doesitgivetheexposurethatyouneed?Isitconvenientfor customers?Isitconsistentwithcompanyimage? Promotion:Methodsused,cost.Doesitprojectaconsistentcompany image? Credit:Doyouextendcredittocustomers?Ifyes,doyoureallyneedto, anddoyoufactorthecostintoprices?