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THE BUSINESS PLAN’S OUTLINE
This outline is not only a suggested format to guide you in understanding the sequence of
content but also provide an useful method for brainstorming a business plan.
in order to Develop business projects, you should follow this outline.
Section Title
I. Executive Summary
Overview
Products/Services Offered
Mission, Goals & Objectives
Funding Requirements/Proposal
II. Products & Services
Introduction
Products/Services
Affiliated Products & Services
Summary
III. Market & Industry Analysis
Product/Service Usage
Demographic Analysis
The Competition
Research Notes
Summary
IV. Target Markets
Target Clients
Geographic Target Market
Pricing Structures
Summary: Why Us?
V. Advertising & Promotional Strategies
Promotional Strategies
Advertising Media
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Web Site Design & Content
Sales Projections
Summary
VI. Operations
Organization & Key Personnel
Tangible Asset Acquisition
Start-Up Costs
VII. Financial Analysis
Assumptions
Ratio Analysis
Profit & Loss Projections
Cash Flow Projections
Balance Sheets
Risks & Contingencies
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EXECUTIVE SUMMARY: THE INTRODUCTION
Like any newspaper article, book or story, a business plan needs an introduction. You are
informing the reader about basic information regarding the company, what you offer, the
intention of the business plan and the capital requirements, if any.
1. Overview:
Overview: You begin the process by explaining the reason for the business plan. It could
be start-up, reorganization, downsizing or expansion. Provide a brief description of your
company, including name, location, web site (if you have one), contact information,
company ownership and products and services offered.
2. Products & Services Offered:
Offered: Be more explanatory about the nature of the products
and services offered by your company. Make note of what it is about your products and
services that make them stand out above and beyond the competition. Don't be detailed.
The details are addressed in a latter section of the business plan.
3. Mission, Goals and Objectives:
Objectives: The mission statement should express what you offer
and what will be the benefit to the customer. This should not exceed two sentences. The
Goals are generalized statements regarding the direction the company takes regarding
products, services, customer service and the like. For example, "we will attract
customers for the extraordinary new features our product offers plus exemplary support
and follow-up after the sale". Objectives are quantified statements addressing monetary
intentions related to profitability, market share, target markets, cash flow, sales volume
and other measurable items regarding markets, operations and finances. They should
include timelines for fulfillment. For example, the company will reach profitability by a
specific date with average annual sales reaching $230,000 by the 16th month of
operations.
4. Funding Requirements/Proposal:
Requirements/Proposal: Complete the executive summary with a summary
definition, Sources & Uses of Funds, of the capital investment required to fulfill the goals
and objectives of the business plan. If outside investment is sought, stipulate the terms
and conditions under which the investment capital is sought (commercial loans and/or
venture capital). If you are approaching venture capitalists then go to our Downloads
page and download Term Sheet Parts 1 and 2, written by the staff of Brobeck Hale &
Dorr. It represents an exellent description of the document used when negotiating with
VC's.
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1. The Business Planning Process
Organizing the concepts of the proposal begin with the outline and the first draft of the
executive summary. In logical order, market research, operational assessment, sales and
financial projections are developed and revised along with your concepts and visions.
First determine the market in which you intend to sell your products and services. Conduct your
general market and industry analysis research. You want qualified secondary data
sources, not just any source. Be specific about your target markets related to product, people,
place and price. From your research there should be sufficient data on which to develop
advertising and promotional strategies. It should culminate with and result in developing
sales projections.
Resources sufficient to provide quantity of products and/or services to be sold, and excellent
customer service must support the target market. Conduct operations assessments to insure
adequate resources related to staffing, office space, vehicles, equipment, machinery, supplies,
inventory and any other human and tangible assets required to meet the needs of your market
and sales projected. This section typically terminates with the line item description of start-up
costs.
At this point you develop a conservative estimate of sales projections that match your
operational capacity, but do not burden expenses.
Market research and operational assessments must then be converted to dollar values. Those
dollar values are then inserted into financial projections, including balance sheets, income
and cash flow statements. In the process of developing those statements you will adjust costs
and sales projections in a manner that is consistent with feasibility and capital resources
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MARKET & INDUSTRY ANALYSIS
Whether your geographic target market is local, regional, national or international, it is always
wise to begin your research with the industry at-large.. Know the direction and growth trends all
related industry sectors are going. Are they growing, steady or declining?. And open your
eyes. Don't just look for all the good news, and ignore information that may signal risks and
demands for contingency planning. Remember, the first reason for the business plan is to
determine feasibility, not how to attract capital. That comes later.
Product/Service Usage: Examine the growth and/or decline of similar and like products and
services in your particular industry. It is possible you may want to examine industries related to
or reliant on your industry. Likewise, you may want to examine industries for which yours is
directly impacted by growth or decline. For example, if the automotive industry begin
dramatically shifting to solar and cell-powered vehicles, then you don't want to be looking at gas
additives and carburetor cleaner as the linchpins of your projected sales and sales growth.
Demographic Analysis: Examine the demographic characteristics of individuals who are the
most likely candidates to purchase the products and/or services you provide. Examples include
age, gender, household income, individual income, type of profession, modes of travel,
ethnicity, race, and geographic location by states, regions, cities and other levels of population
centers. On the other hand, your typical customer can be identified as institutions. Identify them
by industries, location, size of employees, headquarters and branch locations, legal business
structures, ratio analysis positioning, organizational environment, and any other characteristics
which common to them or demanding your types of products and/or services.
The Competition: No business plan can ignore the competition. Examine the marketing mix of
your competition. You already started considering the competition when defining products and
services. Are their products and/or services identical to yours? Do they offer more or less than
you? Who do they target as customers? In what geographic target markets are each of the
significant competitors found? Are their prices discounted, customary or prestige? Do any of
them engage in predatory pricing? How do the successful competitors advertise and promote
themselves? Look at the less-than-successful competitors. Why are they not successful? You
certainly want to avoid their mistakes. How old are the competitions' firms?
It is important to realize that you are attempting to take customers away from competitors. You
need to give the customers a reason to leave places where they have been satisfied. In other
words, why should they come to you? If a start-up, you are new and have no track record.
Research Notes: Existing and small business start-ups, more often than not, cannot afford to
pay the premium prices for research offered by the more reputable marketing firms. For
example, some categories of Internet, e-commerce and IT research data come at a premium.
These documents can typically cost $500 to $2,000. Frankly, that is a lot of money to most small
businesses. Every penny is being counted on for the actual start-up or ongoing operation of the
venture. Therefore, seek reputable, relevant secondary data through the Bureau of the Census
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(demographic and economic census data). Some of the major market research firms and Biz
Journals do offer some free data at their web sites. The federal government is possibly the most
valuable and reliable source of research data. Sites include Fed Stats, Country Watch, Stat USA,
Bureau of Economic Analysis and the Economic & Statistics Administration.
Summary: Now you want to tie all this data together in a manner that justifies the feasibility of
your proposal. Use your best writing skills to summarize the pros and cons of the trends in
your industry. Don't hide the facts that may not be supportive of your proposal. If the sum of the
research supports your venture, then negative results are defined as risks for which
contingencies must be developed.
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TARGET MARKETS
1. Target Clients: Clearly define your customers. Keep in mind the demographics
describing the typical customers in your industry. There may or may not be a
differentiation between who you and your competition. A classic example in recent times
provides product or service delivery to women. For example, there are very many web
sites devoted to entrepreneurship. However, there are some devoted exclusively to
women, Hispanic, Black and Black female entrepreneurs. Other examples can be found in
brick-and-mortar environments. For example, some auto shops do body work. Others will
align vehicles or change oil pan gaskets.
Rely, in part, on the industry data in the General Market & Industry Analysis section to
define which will be your targeted client base. Then consider local demographics (see
below) in your target market. Do they provide sufficient numbers to potentially generate
sufficient sales?
2. Geographic Target Markets: This appears pretty simple to define. Yes? Maybe so, but
you better be certain your target clients reside or do business in the geographic target
market. Economic and Demographic Census data play a key role in deciding geographic
markets for institutional and individual clients respectively. For institutional clients this
data, when compared over time, can identify types, rises and declines of specific
industries. For example, your business is in California, and your clients are typically high-
tech. It only seems natural that Silicon Valley and the surrounding area will be one of
your markets. Others areas of the United States are defined as "upstarts" in the high-
tech industry. You may want to target those areas. If you direct your business to high-
tech markets overseas Dubai in the Middle East and Bangalore in India are Silicon Valley
counterparts.
The individual client is not located everywhere. Demographic data plays a key role in
identifying the growth or decline of your targeted client by country, province, state,
county or city. In the North America, for example, compare census data from 1990 to
2000. Furthermore, there are county growth patterns for intermittent periods between
each decennial.
Likewise, there are other geographic patterns that can impact your business. For
example, you may cater to tourists. Certain parts of the United States are subject to
seasonal sales due to the tourist seasons. If you do business in Mexico consider Cancun,
Acapulco and Baja California, which are premier tourist destinations.
3. Pricing Structures: There are three primary categories of pricing - discount, customary
and prestige. The pricing structure you choose should be a part of the total advertising
and promotional strategy, which is influenced by your market research. Furthermore, the
financial analysis should be able to substantiate positive cash flow and profitability under
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the pricing structure chosen. Don't choose a discount price structure simply to undercut
the competition. It may prove unprofitable.
For example, there are perfumes and colognes, of the same brand name, that are found
in all three pricing models. They are discounted by high-volume discount retailers like
Wal-Mart. They are customarily priced at such outlets as JC Penney or Sears. Finally, the
same perfume or cologne will receive prestige pricing at Saks, Burdines or Dillard's.
We do not endorse predatory pricing - long-term selling at a price so low as to gain
the attention of all consumers, and wean them away from the competition. Predatory
pricing is not profitable, and it can lead to competitor retaliation. Some competitors may
be so cash-rich has to endure rock-bottom prices longer than you. Other competitors
may have such customer loyalty that your predatory prices will have minimal impact on
them. In the meantime, you suffer negative cash flow, create questionable images in the
minds of some potential customers and create instant enemies in your competitors.
Besides, where will the customer loyalty go when you move up to customary pricing?
4. Summary: Again, use your excellent writing skills to identify the target customers,
geographic target markets and pricing strategies. The summary must convey a
consistent image from client to market to price. It becomes the foundation of your
advertising and promotional strategy.
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ADVERTISING & PROMOTIONAL STRATEGIES
Promotional Strategies: Promotional strategies, most often, incur costs. They are different
from advertising in that you are not conducting advertising campaigns, promoting products and
services in the media that are directed to the targeted clients. To the contrary, you are taking
actions that enhance your image, create awareness and can provide a "jumpstart" preceding
any advertising campaigns. For example, a personal organizer wants to consider membership in
the National Association of Personal Organizers (NAPO). Targeting a more localized market may
encourage membership in one or more local chambers of commerce. Sponsoring workshops or
providing discounts to fellow chamber members can draw more business from outside the
organization. More high-profile memberships to county economic councils afford exposure to
executives of local corporate firms, banks and government agencies.
Advertising Media: Be careful. Many dollars have been wasted advertising where no one is
watching, reading or listening. A good clue to defining your media is to examine the advertising
habits and media of your successful competitors. You need to budget each media outlet. This
requires the leg work of getting cost quotations. Remember you are the potential client to the
media outlet. Many start-ups have been overwhelmed by account executives claiming their
media outlet is the best way to go. Demand some form of research data from the salesperson
that confirms the claims to success for your type of business.
Web Site Design & Content: The level of reliance you place on a web site is directly
proportional to the budget applied. If you are an Internet company (B2B or B2C) then place a lot
of emphasis on the budget for this category. The web site is your business card and brochure.
Unlike the print format, web sites are subject to constant change, adapting to the rapidly
evolving technology and design etiquette so often associated with this media. If you rely on the
web site as your primary "first line of contact" with customers then pay very critical attention to
customer service, e-commerce shopping cart software, graphics, response times and ease of
navigation.
Sales Projections: For most, this subsection represents the most challenging task in the
business plan. If you have no sales track record where do you begin? It requires a combination
of tangible and intangible sources. On the intangible side you have a vision of what can be
accomplished. That vision is more easily quantified for local markets. Regional, national and
international markets will force you to take the more tangible route of learning as much as
possible about the sales performance of the competition. That becomes extremely difficult when
competitors are privately held companies, with no obligation to post financial performance.
There are no public shareholders.
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As graphically displayed above, the delicate process for arriving at legitimate sales projections
requires a review and revision of market research and operational needs. You need to be certain
the level of operations is sufficient to meet the needs of your customers. A top-heavy
organization means sales will not meet expenses and generate a profit. An attempt to minimize
operations to save expenses can mean customer service and follow-up are insufficient to insure
return business.
Begin the process of projecting sales. Consider the level of expenses required to meet the sales
goals. Be certain your market research supports your vision. The development of financial
projections will eventually force you to adjust the sales projections up or down. There is more
discussion about sales in the section on Financial Analysis.
Summary: Summarize the promotional strategies and advertising media. Insert a graphic chart
showing the sales projections for the next three to five years, depending on the number of years
of financial projections to be included in your plan.
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FINANCIAL ANALYSIS & PROJECTIONS
It's all about numbers. Start-ups cringe at the thought of having to develop financial statements.
Most are obligated to learn the basics of what each financial statement represents, how it is
used to analyze the financial condition of the company and how to create them. Eventually, they
learn to use these documents as tools to measure levels of success or failure. Properly learned
and monitored on a regular basis, actual financial statements can be used to compare
performance with projections, and to potentially identify wasted resources, as well as factors of
success.
It is equally important to begin the projection process by overestimating expenses and
underestimating sales. Decreasing expenses and increasing sales in the projections should
come only with viable financial assumptions to justify your revisions.
Cost of Goods Sold (COGS):
(COGS): Did you ever wonder how a company decides the price of its
products? It all begins with determining the cost of goods sold (COGS). You have to know the
cost of your products before deciding on the sale price. Manufacturers, wholesalers and retailers
must determine the COGS. The following is the example of a company that sells finished goods:
Cost of Goods Sold = Beginning Inventory + Purchases - End Inventory
The formula can applied to one week, one month or a year, but must be the same for each value
of the formula. The formula for a manufacturer includes raw goods and unfinished product in
inventory. There is no formula for a service firm, which relies exclusively on market research of
competitors and deciding a pricing strategy that allows profitability.
Breakeven Analysis:
Analysis: Simply stated, this formula indicates how much sales volume must be
accomplished in order to cover all costs (fixed and variable), and begin generating a profit. In
other words, it is the point in sales volume at which you have no profit and no loss. This is most
commonly applied to a business that sells product. The following formula is applied:
Breakeven = Fixed Costs / (Revenue – Variable Costs)
The breakeven point equals fixed costs divided by the result of revenue minus variable costs. Go
to www.dinkytown.net/java/BreakEven.html to apply company information and learn your
breakeven point.
Ratio Analysis:
Analysis: Ratio analysis is the use of a simple set of easily understood math formulas to
measure your financial projections with the actual performance of other companies in your
industry. Go to our Calculators page to learn some of those formulas. Go to Valuation
Resources to locate sources of ratio analysis data and the SIC code for your company's
industry.
Projected Profit & Loss (Income Statements):
Statements): The P&L, as it is commonly called, reflects
how you use your resources (assets) to generate sales. The use of the assets is reflected in the
form of expenses. View the simple retail profit and loss statement below:
Income Statement 01/01/02 to
06/30/02
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Revenue
Sales $98,560
Cost of Goods Sold
Inventory 71,080
Gross Margin $27,480
Expenses
Rent $21,000
Utilities 900
Wages 11,500
Insurance 800
Office Supplies 900
Advertising 1,200
Taxes 300
Equipment 14,000
Other 2,000
Interest Expense 726
Depreciation Expense 500
Total Expenses $53,826
Net Profit (Before Taxes) ($26,346)
Projected Cash Flow Statements:
Statements: On first glance, to the layperson, income statements and
cash flow statements can look so much alike. Understand the distinctions. Cash flow statements
reflect the flow of cash in and out of the company. Cash in is reflected as revenue. Cash out is
reflected as disbursements. On the income statement, income is reflected when the sale is
consummated. It may or may not be the same time when the cash (revenue) is collected. On an
income statement expenses are recorded when incurred. On the cash flow statement the
disbursement is recorded when actually paying the expense. View the first six months of a
simple, retail cash flow statement below:
Monthly Cash Flow
01/01/02 to 06/30/02
January February March April May June Total
Cash Receipts
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Sales $10,000 $16,000 $16,250 $16,370 $19,990 $19,950 $98,560
Investment 15,000 15,000
Loan 15,000 15,000
Total Cash Receipts $40,000 $16,000 $16,250 $16,370 $19,990 $19,950 $128,560
Cash Disbursements
Inventory $15,000 $10,000 $8,750 $10,000 $15,000 $12,330 $71,080
Rent 3,500 3,500 3,500 3,500 3,500 3,500 21,000
Utilities 150 150 150 150 150 150 900
Wages 1,500 2,500 2,500 3,000 1,000 1,000 11,500
Insurance 400 400 800
Office Supplies 150 150 150 150 150 150 900
Advertising 200 200 200 200 200 200 1,200
Taxes 150 150 300
Equipment 14,000 14,000
Principal & Interest
(loan) 319 319 319 319 319 319 1,914
Other Cash
Disbursements 2,000 2,000
Total Cash
Disbursements $36,819 $16,819 $16,119 $17,319 $20,319 $18,199 $125,594
Net Cash Flow $3,181 ($819) $131 ($949) ($329) $1,751
Opening Cash on Hand 0 3,181 2,362 2,493 1,544 1,215
Ending Cash on Hand $3,181 $2,362 $2,493 $1,544 $1,215 $2,966
Projected Balance Sheets:
Sheets: Simply stated, balance sheets report the financial condition of
your company at one point in time. P&L's and cash flow statements reflect performance over a
period of time. The balance sheet, in over simplistic terms, reflects what you own (assets), what
you owe (liabilities) and what is reflected as net worth (pay off all liabilities by liquidating your
assets and what do you have left?). View a simple retail balance sheet below:
Balance Sheet June 30, 2002
Assets Liabilities
Cash $2,966 Loan Payable $13,813
Inventory 13,750 Taxes Payable 150
Equipment 14000 Total Liabilities $13,963
Leasehold Improvements 2900
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Subtotal: Fixed Assets 16900 Owners Equity
Less: Depreciation Exp. 500 $16,400 Equity 15,000
Retained Earnings 4,153
Total Liabilities
Total Assets $33,116 &Owner's Equity $33,116
Assumptions:
Assumptions: While developing a business plan you will conduct market research. You will also
gather information about the costs to purchase and/or lease office equipment, computers,
wages, salaries, benefits, borrowing and any other expense associated with starting and
operating the business. An example of marketing may be your assumption the new company's
sales growth will parallel that of your industry. Of course, this assumption is based, in part, on
the actual sales growth data you located for your industry. An example of operations is your
assumption monthly office lease expense will be $1,000. Of course, this assumption is based on
you having actually researched the office leasing market in the area where your facility will be
located. This information forms the basis of assumptions and the foundation on which to
develop financial projections. Assumptions can be listed in the same section as the related
financial projection, or you can set aside a separate section in which to list all your assumptions.
You may want to begin the financial analysis section with these assumptions. It eliminates
questions, from the outset, regarding the financial projections. You may even include sales
projections, breakeven analysis and COGS as part of the Assumptions.
Risks & Contingencies:
Contingencies: All business ventures encounter risk on a daily basis. The level of risk
is obviously greater for a start-up. You need to make note of those risks and the contingencies
you will consider should those risks arise. Please understand that investors and commercial
lender are keenly aware of risks. Don't let them ask you. To note those risks and contingencies
in your plan is the same as recognizing the reality and attempting to plan ahead. This leads an
investor or lender to believe you are attempting to make decisions based on maturity and sound
judgment. An example of risk is lower than expected sales. A resulting contingency may be the
reduction or elimination of certain line item expenses until positive cash flow and cash on hand
are more stable.
PRODUCTS & SERVICES
Have you ever asked someone about a product, get a two-sentence response, and feel as if
nothing has been learned? Describing your product is more than simply stating the name and
what it does in 20 words or less.
Introduction:
Introduction Briefly describe what you offer. Highlight the details and outstanding
characteristics, the accommodations they provide the customer and any other characteristics
that make them stand out from the competition. Please be brief. The proceeding subsections
allow for detailed descriptions.
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Products/Services:
Products/Services Selling products made elsewhere is not too challenging to describe.
Typically, in this case you want to address diversity of product lines and support services
provided with the sale of those products. For example, you may open a grocery store. Some
offer home delivery, online purchasing and delivery, and others may offer automated checkouts.
Defining your product or service is more than a simple one-liner:
Define uniqueness, appeal, quality and any other product or service characteristic the
competition fails to provide. You have to stand out from the crowd. Why is a customer going
to change just because you're the "new kid on the block"?
Define why customers would change from the old product or service to your offering.
People have been doing things other ways before you came along. And some will be
reluctant to change. They have the attitude, "if it ain't broke, don't fix it".
Define the details of new products. Provide detailed descriptions, drawings and any
other graphics that clearly define what it looks like and how it functions. New product
developers will be challenged to provide extensive detail regarding all the elements,
fabrication, functionality and detailed improvements over existing products.
Graphically define products, if you can. The use of graphs and charts is encouraged if
they succeed in defining what you offer. A picture can paint a thousand words.
In the example above a local satellite ISP provider graphically compares its faster Internet
connection to that of a traditional dial-up modem competitor.
Define the superiority of your product or service to that of the competition.
5. Affiliated Products & Services:
Services If you are going to sell products or services, in addition
to your primary offer, choose what fits within the theme of your company and what you
offer. For example, if you sell toys, don't add tools to your product lines. You are
attempting to attract children, not mechanics. If interior design is your service, furniture
may be a possibility, but not kitchen utensils.
6. Summary:Product
Summary and service descriptions clearly go beyond what you read in the
newspaper ads. This detailed description lends to developing advertising and
promotional strategies while beginning to examine the competition for strengths and
weaknesses.
