our purposes, we will use the following outline:
Cover Sheet
Table of Contents
Mission Statement
Executive Summary
The Business
Strengths and Weaknesses
Legal Structure
Business Description
Product or Service Description
Intellectual Property Description
Location
Management and Personnel
Records
Insurance
Security
Litigation
The Marketing
Markets
Competition
Distribution and Sales
Marketing
Industry and Market Trends
Strategy
The Financials
Uses of Funds
Income Statement
Cash Flow Statement
Balance Sheet
Income Projection
Break-Even Analysis
The Supporting Documents
Although not necessarily in the exact order above, we shall discuss the various elements of the outline and how to flesh them out into a winning business plan in the chapters ahead. Some funding and/or investment entities may have their own outline to follow. If you are given guidelines, follow them. Remember the golden rule. Those with the gold get to make the rules.
Ideally, by the time the plan is complete, you will have enough information to suit anyone’s guidelines. Compiling the initial information is the real work. Rearranging it into different formats should not be difficult. No matter what outline you choose, be sure to cover all your bases. It is tempting to skip management information if you are preparing the plan for loan purposes only or to skip financials if you are preparing the plan for your own management purposes. If you want to give into temptation, have a piece of chocolate. Do not let temptation shortchange all the potential usefulness of a business plan. You never know when having a complete business plan will, out of the blue, lead to a large opportunity. Be concise, but be thorough.
If there are no content requirements from lenders or investors, customize your plan to suit yourself and/or your management team. Consider the Rich Dad B-I Triangle as a useful format. Use headings that you and your team understand. For example, does “Core Competencies and Challenges” or “Strengths and Weaknesses” make more sense to you? Does your company deal with licenses rather than manufactured products? Then name and construct your sections accordingly. Ease of understanding is the cornerstone of any good business plan. Remember, there is no federal or state law mandating what has to be in a business plan. Obviously you can’t make material misstatements or fraudulent claims, but beyond that caveat the content is up to you. So write it to satisfy the questions both a novice and a sophisticated investor would ask.
Before choosing what to include in each section and subsection of your plan, you may want to do some detailed outlining – not necessarily to include in your plan, but for your own use. Know yourself so that you can build your plan to help you. If you know numbers are your weak point, spend some extra time coming to terms with the Financials section of your plan and surround yourself with experts and mentors. If you’re a math whiz, but linear goal setting sets your teeth on edge, take some extra time to build planning sections. If you have someone else help you develop your plan (which is a great way to supplement your own areas of expertise), be sure you spend the time necessary to work closely with the planner on their section because it is your business and the plan must be a reflection of you.
If you are preparing your plan for a franchise startup, pay close attention to the manuals, materials and operating procedures provided to you by the franchisor. Read everything carefully before you begin to write your plan. This information is the starting point of your plan and much of it may be able to be incorporated directly into your plan. Take advantage of the experience of those who have traveled this path before you. And be careful that your plan is not so far removed from the franchisor’s operations that your franchise becomes incompatible with the chain from which it came. Franchisors have strict guidelines they expect each franchisee to follow. We all know what happens to the nail that sticks out above the rest.
That said, business plans are beneficial to a number of businesses and activities that one wouldn’t normally associate with needing a plan. Like the franchisee that has a set program to follow, certain real estate investors know exactly what they need to do to maximize a property’s value. And yet, as we’ll learn later on, a business plan is useful in many such situations. Similarly, existing businesses may be surprised by where a plan may lead…
Pat
Pat was the proud owner of a successful plumbing business. He had put the last several years into growing the business. It was now positioned to go to the next level and seek out large government and public works projects. Pat knew writing business plans wasn’t one of his key strengths. He liked the idea of an independent advisor bringing new thoughts and ideas to his business. So Pat hired a consulting firm to help him “invent the future” and they worked together closely to create a six-year plan for his business.
The plan and the process of creating it were eye openers for Pat. Through the process suggestions were made on how to streamline inventory controls and save money using vendor discounts for prompt payment. While this was basic information it was never taught in school and his friendly competitors, naturally, never revealed such strategies. The biggest weakness and opportunity uncovered was that Pat’s company needed to increase their bonding limit so that it could pursue higher dollar projects. Although each state was different, Pat knew that his state’s contractor’s licensing division required a bond be posted for a maximum dollar amount of work to be done. So, for example, a $100,000 bond allowed Pat’s company to bid jobs up to $1 million. The bond was issued by a surety or bank or insurance company and cost Pat $10,000, or 10% of the $100,000 face value per year. The plan suggested the bonding limit be increased to $1 million. Pat was in a growing area and large public works projects were headed his way. The plan suggested that a higher bonding would allow Pat to partake in such projects.
The plan contained great information for Pat. He immediately went to his bank to see how the increased bonding could be financed. His banker indicated they would consider Pat’s request if he had a business plan that outlined exactly how the increased bonding would be utilized to generate greater cash flow for his company. Pat was quite pleased to hand his banker just such a document. Pat’s banker was impressed. The plan involved innovations and useful strategies. The bonding was increased shortly thereafter and Pat’s company moved up to the next level of business.
Pat learned that a business plan can have immediate benefits for existing business owners looking to expand to a new level. Whether you are a new company or have been around for 200 years, it is never too late, as Pat learned, in the business cycle to obtain and utilize fresh ideas and new approaches.
As our case illustrates, there are many strategic reasons for why a business plan makes sense. You might want a plan to take to potential investors and/or lenders in order to expand or rejuvenate your business. Or maybe you sense flaws in your organization – you’re not sure of your long-term goals, pricing is based on your mood, management styles change with every personnel change and the like. Small problems and even smaller poor choices can add up fast. Don’t wait for all the little problems to begin spiraling into a vortex that can take your business straight down the tubes.
Using your Plan
First, you need a business plan to get to know your business and to create the path that will describe how you