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Business Plans: A Simple Approach

Adapted from The Small Business Start-Up Kit

All good business plans have two basic goals: to describe the fundamentals of the business idea, and to provide financial calculations to show that it will make good money. Depending on how you intend to use it, a business plan can take somewhat different forms:

  • If you will use your plan to borrow money or interest investors, write it with an eye toward selling your vision to skeptical people. Generally, you should include a persuasive introduction and a request for funds, in-depth market research information, an evaluation of your main competitors, your key marketing strategies, a management plan and detailed financial information. The writing should be polished and the format clean and professional.
  • If your plan will primarily be for your own use, don't worry so much about making a sales pitch or slick presentation (although you'll probably want to do a quick analysis of your market and competition). But don't skimp when it comes to doing your numbers. You'll need to include estimates of start-up costs, revenues and expenses.
Describing Your Business and Yourself

The first several sections of your plan should describe the beauty of your business idea. You'll want to show potential lenders, investors or colleagues that you've hit on a product or service that customers really want, and that you are exactly the right person to make this fine idea a roaring success.

To accomplish these goals, include the following sections in your plan:

  • A statement of the purpose of your business. What will your product or service be? And why does the great big world -- or your small town or narrow niche market -- need the product or service you want to offer? The first paragraph should show how your business will solve a real problem or fill an actual need, and explain why customers will pay you to accomplish the task.
  • A detailed description of how the business will work. Once you've stated the need that your business will fill, describe exactly how you’ll go about filling it. Outline in detail exactly how your business will operate. Use the process of writing your business description as an opportunity to change or refine your business idea.
  • An analysis of your market. Demonstrate that there are indeed customers out there, ready and willing to buy your product or service. The better you can show that you know exactly who your market is, the more confident lenders and investors will be that you can actually find these people and sell to them.
  • An analysis of your competitors. Explain why your business will have few direct competitors -- or, if competitors will abound (as is far more likely), show how your business will develop and keep an edge. Detail competitors' strengths as well as weaknesses as part of showing why your business will better meet customers' needs.
  • A description of your marketing strategy. Explain the methods you will use to reach your customers, such as radio or newspaper advertising, Web marketing or directory listings such as trade directories or the Yellow Pages. And no matter what kind of marketing strategy you outline, be sure to explain why you think it will work.
  • A resume setting out your business accomplishments. Show that you're the right person to run your business by creating a resume that describes your business accomplishments. Highlight all of your relevant experience and training, as well as any other personal information likely to inspire confidence in you as a business person.
Making Financial Projections

You'll need to do some number-crunching to show that your business will in fact turn a profit. Basically, projecting the finances of your business consists of making educated guesses about how much money you’ll need to spend and how much you'll take in, then using these estimates to calculate whether your business will be sufficiently profitable.

For a basic understanding of your business's projected financial situation, you’ll need to make the following estimates and calculations:

  • A break-even analysis. Here you use income and expense estimates for a year or more to see whether, in theory at least, your business will be able to turn a profit. If you have trouble projecting a solid profit, you might need to consider abandoning your idea altogether.
  • A profit/loss forecast. Here you'll refine the sales and expense estimates that you used for your break-even analysis into a formal, month-by-month projection of your business’s net profit for at least the first year of operations.
  • A start-up cost estimate. As the name suggests, this is simply the total of all the expenses you'll incur before your business opens. These costs should be included in your business plan to give a true picture of how much money you’ll need to get your business off the ground.
  • A cash flow projection. Even if your profit/loss forecast tells you that your business will have higher revenues than expenses, that doesn't mean that you'll always have enough cash available on key dates, such as when rent is due or when you need to buy more inventory. A cash flow projection lays out how much cash you'll have -- or how much you'll be short -- month by month. This lets you know if you'll need to get a credit line or set up other arrangements to make sure funds are available.