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Writing a Business Plan
While it may be tempting to put off, creating a business plan is an essential part of starting your own business. Plans and proposals should be put in a clear format making it easy for potential investors to understand. Because every company has a different goal and product or service to offer, there are business plan templates readily available to help you get on the right track. Many of these templates can be adapted for any company. In general, a business plan writing guide will recommend that the following sections be incorporated into your plan.
Executive Summary
The executive summary is the first section that business plans open with, but is often the last section to actually be written as it’s the most difficult to write. The executive summary is a summary of the overall plan that highlights the key points and gives the reader an idea of what lies ahead in the document. It should include areas such as the business opportunity, target market, marketing and sales strategy, competition, the summary of the financial plan, staff members and a summary of how the plan will be implemented. This section needs to be extremely clear, concise and engaging as you don’t want the reader to push your hard work aside.
Company Description
The company description follows the executive summary and should cover all the details about the company itself. For example, if you are writing a business plan for an internet café, you would want to include the name of the company, where the café would be located, who the main team members involved are and why, how large the company is, who the target market for the internet cafe is, what type of business structure the café is, such as LLC, sole proprietorship, partnership, or corporation, what the internet café business mission and vision statements are, and what the business’s short-term objectives are.
Services and Products
This is the exciting part of the plan where you get to explain what new and improved services or products you are offering. On top of describing the product or service itself, include in the plan what is currently in the market in this area, what problems there are in this area and how your product is the solution. For example, in a business plan for a food truck, perhaps there are numerous other food trucks in the area, but they are all fast –food style and unhealthy so, you want to introduce fast food that serves only organic and fresh ingredients every day. This is where you can also list your price points and future products or services you anticipate.
Market Analysis
The market analysis section will take time to write and research as a lot of effort and research need to go into it. Here is where you have the opportunity to describe what trends are showing up, what the growth rate in this sector looks like, what the current size of this industry is and who your target audience is. A cleaning business plan, for example, may include how this sector has been growing by 10% every year due to an increase in large businesses being built in the city.
Organization and Management
Marketing and sales are the part of the business plan where you explain how you will attract and retain clients. How are you reaching your target customers and what incentives do you offer that will keep them coming back? For a dry cleaner business plan, perhaps if they refer customers, they will get 10% off their next visit. In addition, you may want to explain what needs to be done in order for the business to be profitable. This is a great way of showing that you are conscious about what clear steps need to be taken to make a business successful.
Financial Projections & Appendix
The financial business plan section can be a tricky one to write as it is based on projections. Usually what is included is the short-term projection, which is a year broken down by month and should include start-up permits, equipment, and licenses that are required. This is followed by a three-year projection broken down by year and many often write a five-year projection, but this does not need to be included in the business plan.
The appendix is the last section and contains all the supporting documents and/or required material. This often includes resumes of those involved in the company, letters of reference, product pictures and credit histories. Keep in mind that your business plan is always in development and should be adjusted regularly as your business grows and changes.
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Oxmoor Corporation prepared the following adjusted trial balance.
Oxmoor Corporation Adjusted Trial Balance December 31, 2019 \begin{array}{c} \textbf{Oxmoor Corporation}\\ \textbf{Adjusted Trial Balance}\\ \textbf{December 31, 2019} \end{array} Oxmoor Corporation Adjusted Trial Balance December 31, 2019
Account Debit Credit Cash $ 13 , 300 Accounts Receivable 6 , 700 Prepaid Rent 54 , 000 Inventory 481 , 400 Long-Term Investment 110 , 900 Equipment 88 , 000 Accumulated Depreciation 23 , 700 Accounts Payable 111 , 700 Interest Payable 4 , 400 Note Payable (short-term) 50 , 000 Bonds Payable 180 , 000 Common Stock 300 , 000 Retained Earnings, 1/1/2019 45 , 635 Dividends 50 , 000 Sales Revenue 583 , 900 Cost of Goods Sold 277 , 000 Wages Expense 98 , 250 Rent Expense 50 , 000 Depreciation Expense 29 , 000 Interest Expense 2 , 700 Income Taxes Expense 38 , 085 ‾ ‾ Totals $ 1 , 299 , 335 ‾ ‾ $ 1 , 299 , 335 ‾ ‾ \begin{array}{lrr} \textbf{Account}&\textbf{Debit}&\textbf{Credit}\\\hline \text{Cash}&\$~~~~~13,300\\ \text{Accounts Receivable}&6,700\\ \text{Prepaid Rent}&54,000\\ \text{Inventory}&481,400\\ \text{Long-Term Investment}&110,900\\ \text{Equipment}&88,000\\ \text{Accumulated Depreciation}&&23,700\\ \text{Accounts Payable}&&111,700\\ \text{Interest Payable}&&4,400\\ \text{Note Payable (short-term)}&&50,000\\ \text{Bonds Payable}&&180,000\\ \text{Common Stock}&&300,000\\ \text{Retained Earnings, 1/1/2019}&&45,635\\ \text{Dividends}&50,000\\ \text{Sales Revenue}&&583,900\\ \text{Cost of Goods Sold}&277,000\\ \text{Wages Expense}&98,250\\ \text{Rent Expense}&50,000\\ \text{Depreciation Expense}&29,000\\ \text{Interest Expense}&2,700\\ \text{Income Taxes Expense}&\underline{~~~~~~~~38,085}&\underline{~~~~~~~~~~~~~~~~~~~~}\\ \text{Totals}&\underline{\underline{\$1,299,335}}&\underline{\underline{\$1,299,335}} \end{array} Account Cash Accounts Receivable Prepaid Rent Inventory Long-Term Investment Equipment Accumulated Depreciation Accounts Payable Interest Payable Note Payable (short-term) Bonds Payable Common Stock Retained Earnings, 1/1/2019 Dividends Sales Revenue Cost of Goods Sold Wages Expense Rent Expense Depreciation Expense Interest Expense Income Taxes Expense Totals Debit $ 13 , 300 6 , 700 54 , 000 481 , 400 110 , 900 88 , 000 50 , 000 277 , 000 98 , 250 50 , 000 29 , 000 2 , 700 38 , 085 $1 , 299 , 335 Credit 23 , 700 111 , 700 4 , 400 50 , 000 180 , 000 300 , 000 45 , 635 583 , 900 $1 , 299 , 335
Prepare a classified balance sheet for Oxmoor at December 31, 2019.
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1.5: Chapter 5 – Business Planning
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- Page ID 21257
- Lee A. Swanson
- University of Saskatchewan
Business planning is an important precursor to action in new ventures. By helping firm founders to make decisions, to balance resource supply and demand, and to turn abstract goals into concrete operational steps, business planning reduces the likelihood of venture disbanding and accelerates product development and venture organizing activity. – Delmar and Shane (2003, p. 1165)
We always plan too much and always think too little. We resent a call to thinking and hate unfamiliar argument that does not tally with what we already believe or would like to believe. – Joseph Schumpeter
Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. – Peter Drucker
Learning Objectives
After completing this chapter you will be able to
- Describe the purposes of business planning
- Describe common business planning principles
- List and explain the elements of the business plan development process outlined in this book
- Explain the purposes of each of the elements of the business plan development process outlined in this book
- Explain how applying the business plan development process outlined in this book can aid in developing a business plan that will meet entrepreneurs’ goals
- Describe general business planning guidelines and format
This chapter describes the purposes of business planning, the general concepts related to business planning, and guidelines and a format for a comprehensive business plan.
Business Planning Purposes
Business plans are developed for both internal and external purposes. Internally, entrepreneurs develop business plans to help put the pieces of their business together. The most common external purpose for a business plan is to raise capital.
Internal Purposes
- defines the vision for the company
- establishes the company’s strategy
- describes how the strategy will be implemented
- provides a framework for analysis of key issues
- provides a plan for the development of the business
- is a measurement and control tool
- helps the entrepreneur to be realistic and to put theories to the test
External Purposes
The business plan is often the main method of describing a company to external audiences such as potential sources for financing and key personnel being recruited. It should assist outside parties to understand the current status of the company, its opportunities, and its needs for resources such as capital and personnel. It also provides the most complete source of information for valuation of the business.
Business Planning Principles
Business plan communication principles.
As Hindle and Mainprize (2006) note, business plan writers must strive to communicate their expectations about the nature of an uncertain future. However, the liabilities of newness make communicating the expected future of new ventures difficult (more so than for existing businesses). They outline five communications principles:
- Translation of your vision of the venture and how it will perform into a format compatible with the expectations of the readers
- you have identified and understood the key success factors and risks
- the projected market is large and you expect good market penetration
- you have a strategy for commercialization, profitability, and market domination
- you can establish and protect a proprietary and competitive position
- Anchoring key events in the plan with specific financial and quantitative values
- your major plan objectives are in the form of financial targets
- you have addressed the dual need for planning and flexibility
- you understand the hazards of neglecting linkages between certain events
- you understand the importance of quantitative values (rather than just chronological dates)
- Nothing lasts forever—things can change to impact the opportunity: tastes, preferences, technological innovation, competitive landscape
- the new combination upon which venture is built
- magnitude of the opportunity or market size
- market growth trends
- venture’s value from the market (% of market share proposed or market share value in dollars)
- Four key aspects describing context within which new venture is intended to function (internal and external environment)
- how the context will help or hinder the proposal
- how the context may change & affect the business & the range of flexibility or response that is built into the venture
- what management can or will do in the event the context turns unfavourable
- what management can do to affect the context in a positive way
- Brief and clear statement of how an idea actually becomes a business that creates value
- Who pays, how much, and how often?
- The activities the company must perform to produce its product, deliver it to its customers and earn revenue
- And be able to defend assertions that the venture is attractive and sustainable and has a competitive edge
Business Plan Credibility Principles
Business plan writers must strive to project credibility (Hindle & Mainprize, 2006), so t here must be a match between what the entrepreneurship team (resource seekers) needs and what the investors (resource providers) expect based on their criteria. A take it or leave it approach (i.e. financial forecasts set in concrete) by the entrepreneurship team has a high likelihood of failure in terms of securing resources. Hindle and Mainprize (2006) outline five principles to help entrepreneurs project credibility:
- Without the right team, nothing else matters.
- What do they know?
- Who do they know?
- How well are they known?
- sub-strategies
- ad-hoc programs
- specific tactical action plans
- Claiming an insuperable lead or a proprietary market position is naïve.
- Anticipate several moves in advance
- View the future as a movie vs. snapshot
- Key assumptions related to market size, penetration rates, and timing issues of market context outlined in the business plan should link directly to the financial statements.
- Income and cash flow statements must be preceded by operational statements setting forth the primary planning assumptions about market sizes, sales, productivity, and basis for the revenue estimate.
- If the main purpose is to enact a harvest, then the business plan must create a value-adding deal structure to attract investors.
- Common things: viability, profit potential, downside risk, likely life-cycle time, potential areas for dispute or improvement
General Business Plan Guidelines
Many businesses must have a business plan to achieve their goals. The following are some basic guidelines for business plan development.
- A standard format helps the reader understand that the entrepreneur has thought everything through, and that the returns justify the risk.
- Binding the document ensures that readers can easily go through it without it falling apart.
- everything is completely integrated: the written part must say exactly the same thing as the financial part
- all financial statements are completely linked and valid (make sure all balance sheets validly balance)
- the document is well formatted (layout makes document easy to read and comprehend—including all diagrams, charts, statements, and other additions)
- everything is correct (there are NO spelling, grammar, sentence structure, referencing, or calculation errors)
- It is usually unnecessary—and even damaging—to state the same thing more than once. To avoid unnecessarily duplicating information, you should combine sections and reduce or eliminate duplication as much as possible.
- all the necessary information is included to enable readers to understand everything in your document
- For example, if your plan says something like “there is a shortage of 100,000 units with competitors currently producing 25,000. We can help fill this huge gap in demand with our capacity to produce 5,000 units,” a reader is left completely confused. Does this mean there is a total shortage of 100,000 units, but competitors are filling this gap by producing 25,000 per year (in which case there will only be a shortage for four years)? Or, is there an annual shortage of 100,000 units with only 25,000 being produced each year, in which case the total shortage is very high and is growing each year? You must always provide the complete perspective by indicating the appropriate time frame, currency, size, or another measurement.
- if you use a percentage figure, you indicate to what it refers, otherwise the figure is completely useless to a reader.
- This can be solved by indicating up-front in the document the currency in which all values will be quoted. Another option is to indicate each time which currency is being used, and sometimes you might want to indicate the value in more than one currency. Of course, you will need to assess the exchange rate risk to which you will be exposed and describe this in your document.
- If a statement is included that presents something as a fact when this fact is not generally known, always indicate the source. Unsupported statements damage credibility
- Be specific. A business plan is simply not of value if it uses vague references to high demand, carefully set prices, and other weak phrasing. It must show hard numbers (properly referenced, of course), actual prices, and real data acquired through proper research. This is the only way to ensure your plan is considered credible.
Developing a High Power Business Plan
The business plan development process described next has been extensively tested with entrepreneurship students and has proven to provide the guidance entrepreneurs need to develop a business plan appropriate for their needs; a high power business plan .
The Stages of Development
There are six stages involved with developing a high power business plan . These stages can be compared to a process for hosting a dinner for a few friends. A host hoping to make a good impression with their anticipated guests might analyze the situation at multiple levels to collect data on new alternatives for healthy ingredients, what ingredients have the best prices and are most readily available at certain times of year, the new trends in party appetizers, what food allergies the expected guests might have, possible party themes to consider, and so on. This analysis is the Essential Initial Research stage.
In the Business Model stage, the host might construct a menu of items to include with the meal along with a list of decorations to order, music to play, and costume themes to suggest to the guests. The mix of these kinds of elements chosen by the host will play a role in the success of the party.
The Initial Business Plan Draft stage is where the host rolls up his or her sleeves and begins to assemble make some of the food items, put up some of the decorations, send invitations, and generally get everything started for the party.
During this stage, the host will begin to realize that some plans are not feasible and that changes are needed. The required changes might be substantial, like the need to postpone the entire party and ultimately start over in a few months, or less drastic, like the need to change the menu when an invited guest indicates that they can’t eat food containing gluten. These changes are incorporated into the plan to make it realistic and feasible in the Making the Business Plan Realistic stage.
Making A Plan to Appeal to Stakeholders stage involves further changes to the party plan to make it more appealing to both the invited guests and to make it a fun experience for the host. For example, the host might learn that some of the single guests would like to bring dates and others might need to be able to bring their children to be able to attend. The host might be able to accommodate those desires or needs in ways that will also make the party more fun for them—maybe by accepting some guests’ offers to bring food or games, or maybe even hiring a babysitter to entertain and look after the children.
The final stage— Finishing the Business Plan— involves the host putting all of the final touches in place for the party in preparation for the arrival of the guests.
Figure 5 – Business Plan Development Process (Illustration by Lee A. Swanson)
Essential Initial Research
A business plan writer should analyze the environment in which they anticipate operating at each of the s ocietal , i ndustry , m arket , and f irm levels of analysis (see pages 51–60). This stage of planning, the e ssential initial research , is a necessary first step to better understand the trends that will affect their business and the decisions they must make to lay the groundwork for, and to improve their potential for success.
In some cases, much of the e ssential initial research should be included in the developing business plan as its own separate section to help build the case for readers that there is a market need for the business being considered and that it stands a good chance of being successful.
In other cases, a business plan will be stronger when the components of the e ssential initial research are distributed throughout the business plan as a way to provide support for the plans and strategies outlined in the business plan. For example, the industry or market part of the e ssential initial research might outline the pricing strategies used by identified competitors and might be best placed in the pricing strategy part of the business plan to support the decision made to employ a particular pricing strategy.
Business Model
Inherent in any business plan is a description of the business model chosen by the entrepreneur as the one that they feel will best ensure success. Based upon their essential initial research of the setting in which they anticipate starting their business (their analysis from stage one) an entrepreneur should determine how each element of their business model—including their revenue streams, cost structure, customer segments, value propositions, key activities, key partners, and so on—might fit together to improve the potential success of their business venture (see Chapter 4 – Business Models).
For some types of ventures, at this stage an entrepreneur might launch a lean start-up (see page 68) and grow their business by continually pivoting, or constantly adjusting their business model in response to the real-time signals they get from the markets’ reactions to their business operations. In many cases, however, an entrepreneur will require a business plan. In those cases, their initial business model will provide the basis for that plan.
Of course, throughout this and all of the rounds in this process, the entrepreneur should seek to continually gather information and adjust the plans in response to the new knowledge they gather. As shown in Figure 8 by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the business model and moving on to the initial business plan draft.
Initial Business Plan Draft
The Business Plan Draft stage involves taking the knowledge and ideas developed during the first two stages and organizing them into a business plan format. An approach preferred by many is to create a full draft of the business plan with all of the sections, including the front part with the business description, vision, mission, values, value proposition statement, preliminary set of goals, and possibly even a table of contents and lists of tables and figures all set up using the software features enabling their automatic generation. Writing all of the operations, human resources, marketing, and financial plans as part of the first draft ensures that all of these parts can be appropriately and necessarily integrated. The business plan will tell the story of a planned business startup in two ways by using primarily words along with some charts and graphs in the operations, human resources, and marketing plans and in a second way through the financial plan. Both ways must tell the same story.
The feedback loop shown in Figure 8 demonstrates that the business developer may need to review the business model. Additionally, as shown by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the Initial Business Plan Draft stage and moving on to the Making Business Plan Realisticstage.
Making Business Plan Realistic
The first draft of a business plan will almost never be realistic. As the entrepreneur writes the plan, it will necessarily change as new information is gathered. Another factor that usually renders the first draft unrealistic is the difficulty in making certain that the written part—in the front part of the plan along with the operations, human resources, and marketing plans—tells the exact same story as the financial part does. This stage of work involves making the necessary adjustments to the plan to make it as realistic as possible.
The Making Business Plan Realistic stage has two possible feedback loops. The first goes back to the Initial Business Plan Draft stage in case the initial business plan needs to be significantly changed before it is possible to adjust it so that it is realistic. The second feedback loop circles back to the Business Model stage if the business developer need to rethink the business model. As shown in Figure 8 by its enclosure in the progressive research box, the business plan developer might need conduct further research before finishing the Making Business Plan Realistic stage and moving on to the Making Plan Appeal to Stakeholders stage.
Making Plan Appeal to Stakeholders and Desirable to the Entrepreneur
A business plan can be realistic without appealing to potential investors and other external stakeholders, like employees, suppliers, and needed business partners. It might also be realistic (and possibly appealing to stakeholders) without being desirable to the entrepreneur. During this stage the entrepreneur will keep the business plan realistic as they adjust plans to appeal to potential investors and to themselves.
If, for example, investors will be required to finance the business start, some adjustments might need to be relatively extensive to appeal to potential investors’ needs for an exit strategy from the business, to accommodate the rate of return they expect from their investments, and to convince them that the entrepreneur can accomplish all that is promised in the plan. In this case, and in others, the entrepreneur will also need to get what they want out of the business to make it worthwhile for them to start and run it. So, this stage of adjustments to the developing business plan might be fairly extensive, and they must be informed by a superior knowledge of what targeted investors need from a business proposal before they will invest. They also need to be informed by a clear set of goals that will make the venture worthwhile for the entrepreneur to pursue.
The caution with this stage is to balance the need to make realistic plans with the desire to meet the entrepreneur’s goals while avoiding becoming discouraged enough to drop the idea of pursuing the business idea. If an entrepreneur is convinced that the proposed venture will satisfy a valid market need, there is often a way to assemble the financing required to start and operate the business while also meeting the entrepreneur’s most important goals. To do so, however, might require significant changes to the business model.
One of the feedback loops shown in Figure 8 indicates that the business plan writer might need to adjust the draft business plan while ensuring that it is still realistic before it can be made appealing to the targeted stakeholders and desirable to the entrepreneur. The second feedback loop indicates that it might be necessary to go all the way back to the Business Model stage to re-establish the framework and plans needed to develop a realistic, appealing, and desirable business plan. Additionally, this stage’s enclosure in the progressive research box suggests that the business plan developer might need conduct further research.
Finishing the Business Plan
The final stage involves putting all of the important finishing touches on the business plan so that it will present well to potential investors and others. This involves making sure that the math and links between the written and financial parts are accurate. It also involves ensuring that all the needed corrections are made to the spelling, grammar, and formatting. The final set of goals should be written to appeal to the target readers and to reflect what the business plan says. An executive summary should be written and included as a final step.
General Business Plan Format
Include nice, catchy, professional, appropriate graphics to make it appealing for targeted readers
Executive summary
- Can be longer than normal executive summaries, up to three pages
- Write after remainder of plan is complete
- Includes information relevant to targeted readers as this is the place where they are most likely to form their first impressions of the business idea and decide whether they wish to read the rest of the plan
Table of Con t ents
List of tables.
Each table, figure, and appendix included in the plan must be referenced within the text of the plan so the relevance of each of these elements is clear.
List of Figures
Introduction.
- Describes the business concept
- Indicates the purpose of the plan
- Appeals to targeted readers
Business Idea
- May include description of history behind the idea and the evolution of the business concept if relevant
- Generally outlines what the owner intends for the venture to be
- Should inspire all members of the organization
- Should help stakeholders aspire to achieve greater things through the venture because of the general direction provided through the vision statement
- Should be very brief—a few sentences or a short paragraph
- Indicates what your organization does and why it exists—may describe the business strategy and philosophy
- Indicates the important values that will guide everything the business will do
- Outlines the personal commitments members of the organization must make, and what they should consider to be important
- Defines how people behave and interact with each other.
- Should help the reader understand the type of culture and operating environment this business intends to develop
Major Goals
- Describes the major organizational goals
- Specific, Measurable, Action-Oriented, Realistic, and Timely [SMART]
- Realistic, Understandable, Measurable, Believable, and Achievable [RUMBA]
- Perfectly aligns with everything in plan
Operating Environment
Trend analysis.
- Consider whether this is the right place for this analysis: it may be better positioned in, for example, the Financial Plan section to provide context to the analysis of the critical success factors, or in the Marketing Plan to help the reader understand the basis for the sales projections.
Industry Analysis
- Includes an analysis of the industry in which this business will operate
- consider whether this is the right place for this analysis: it may be better placed in, for example, the Marketing Plan to enhance the competitor analysis, or in the Financial Plan to provide context to the industry standard ratios in the Investment Analysis section
Operations Plan
- expressed as a set physical location
- expressed as a set of requirements and characteristics
- How large will your facility be and why must it be this size?
- How much will it cost to buy or lease your facility?
- What utility, parking, and other costs must you pay for this facility?
- What expansion plans must be factored into the facility requirements?
- What transportation and storage issues must be addressed by facility decisions?
- What zoning and other legal issues must you deal with?
- What will be the layout for your facility and how will this best accommodate customer and employee requirements?
- Given these constraints, what is your operating capacity (in terms of production, sales, etc.)?
- What is the workflow plan for your operation?
- What work will your company do and what work will you outsource?
Operations Timeline
- When will you make the preparations, such as registering the business name and purchasing equipment, to start the venture?
- When will you begin operations and make your first sales?
- When will other milestone events occur such as moving operations to a larger facility, offering a new product line, hiring new key employees, and beginning to sell products internationally?
- May include a graphical timeline showing when these milestone events have occurred and are expected to occur
Business Structure and other Set-up Elements
Somewhere in your business plan you must indicate what legal structure your venture will take. Your financial statements, risk management strategy, and other elements of your plan are affected by the type of legal structure you choose for your business:
- Sole Proprietorship
- Partnership
- Limited Partnership
- Corporation
- Cooperative
As part of your business set-up, you need to determine what kinds of control systems you should have in place, establish necessary relationships with suppliers and prior to your start-up, and generally deal with a list of issues like the following. Many of your decisions related to the following should be described somewhere in your business plan:
- Zoning, equipment prices, suppliers, etc.
- Lease terms, leasehold improvements, signage, pay deposits, etc.
- Getting business license, permits, etc.
- Setting up banking arrangements
- Setting up legal and accounting systems (or professionals)
- Ordering equipment, locks and keys, furniture, etc.
- Recruiting employees, set up payroll system, benefit programs, etc.
- Training employees
- Testing the products/services that will be offered
- Testing the systems for supply, sales, delivery, and other functions
- Deciding on graphics, logos, promotional methods, etc.
- Ordering business cards, letter head, etc.
- Setting up supplier agreements
- Buying inventory, insurance, etc.
- Revising business plan
- And many more things, including, when possible, attracting purchased orders in advance of start-up through personal selling (by the owner, a paid sales force, independent representatives, or by selling through brokers wholesalers, catalog houses, retailers), a promotional campaign, or other means
- What is required to start up your business, including the purchases and activities that must occur before you make your first sale?
- When identifying capital requirements for start-up, a distinction should be made between fixed capital requirements and working capital requirements.
Fixed Capital Requirements
- What fixed assets, including equipment and machinery, must be purchased so your venture can conduct its business?
- This section may include a start-up budget showing the machinery, equipment, furnishings, renovations, and other capital expenditures required prior to operations commencing.
- If relevant you might include information showing the financing required; fixed capital is usually financed using longer-term loans.
Working Capital Requirements
- What money is needed to operate the business (separately from the money needed to purchase fixed assets) including the money needed to purchase inventory and pay initial expenses?
- This section may include a start-up budget showing the cash required to purchase starting inventories, recruit employees, conduct market research, acquire licenses, hire lawyers, and other operating expenditures required prior to starting operations.
- If relevant you might include information showing the financing required … working capital is usually financed with operating loans, trade credit, credit card debt, or other forms of shorter-term loans.
Risk Management Strategies
- enterprise – liability exposure for things like when someone accuses your employees or products you sell of injuring them.
- financial – securing loans when needed and otherwise having the right amount of money when you need it
- operational – securing needed inventories, recruiting needed employees in tight labour markets, customers you counted on not purchasing product as you had anticipated, theft, arson, natural disasters like fires and floods, etc.
- avoid – choose to avoid doing something, outsource, etc.
- reduce – through training, assuming specific operational strategies, etc.
- transfer – insure against, outsource, etc.
- assume – self-insure, accept, etc.
Operating Processes
- What operating processes will you apply?
- How will you ensure your cash is managed effectively?
- How will you schedule your employees?
- How will you manage your inventories?
- If you will have a workforce, how will you manage them?
- How will you bill out your employee time?
- How will you schedule work on your contracts?
- How you will manufacture your product (process flow, job shop, etc.?)
- How will you maintain quality?
- How will you institute and manage effective financial monitoring and control systems that provide needed information in a timely manner?
- How will you manage expansion?
- May include planned layouts for facilities
Organizational Structure
- May include information on Advisory Boards or Board of Directors from which the company will seek advice or guidance or direction
- May include an organizational chart
- Can nicely lead into the Human Resources Plan
Human Resources Plan
- How do you describe your desired corporate culture?
- What are the key positions within your organization?
- How many employees will you have?
- What characteristics define your desired employees?
- What is your recruitment strategy? What processes will you apply to hire the employees you require?
- What is your leadership strategy and why have you chosen this approach?
- What performance appraisal and employee development methods will you use?
- What is your organizational structure and why is this the best way for your company to be organized?
- How will you pay each employee (wage, salary, commission, etc.)? How much will you pay each employee?
- What are your payroll costs, including benefits?
- What work will be outsourced and what work will be completed in-house?
- Have you shown and described an organizational chart?
Recruitment and Retention Strategies
- Includes how many employees are required at what times
- Estimates time required to recruit needed employees
- employment advertisements
- contracts with employment agency or search firms
- travel and accommodations for potential employees to come for interviews
- travel and accommodations for interviewers
- facility, food, lost time, and other interviewing costs
- relocation allowances for those hired including flights, moving companies, housing allowances, spousal employment assistance, etc.
- may include a schedule showing the costs of initial recruitment that then flows into your start-up expense schedules
Leadership and Management Strategies
- What is your leadership philosophy?
- Why is it the most appropriate leadership approach for this venture?
- What training is required because of existing rules and regulations?
- How will you ensure your employees are as capable as required?
- Health and safety (legislation, WHMIS, first aid, defibulators, etc.)
- Initial workplace orientation
- Financial systems
- Product features
Performance Appraisals
- How will you manage your performance appraisal systems?
Health and Safety
- Any legal requirements should be noted in this section (and also legal requirements for other issues that may be included in other parts of the plan)
Compensation
- Always completely justifies your planned employee compensation methods and amounts
- Always includes all components of the compensation (CPP, EI, holiday pay, etc.)
- Outlines how will you ensure both internal and external equity in your pay systems
- Describes any incentive-based pay or profit sharing systems planned
- May include a schedule here that shows the financial implications of your compensation strategy and supports the cash flow and income statements shown later
Key Personnel
- May include brief biographies of the key organizational people
Marketing Plan
- You must show evidence of having done proper research, both primary and secondary. If you make a statement of fact, you must back it up with properly referenced supporting evidence. If you indicate a claim is based on your own assumptions, you must back this up with a description as to how you came to the conclusion.
- It is a given that you must provide some assessment of the economic situation as it relates to your business. For example, you might conclude that the current economic crisis will reduce the potential to export your product and it may make it more difficult to acquire credit with which to operate your business. Of course, conclusions such as these should be matched with your assessment as to how your business will make the necessary adjustments to ensure it will thrive despite these challenges, or how it will take advantage of any opportunities your assessment uncovers.
- If you apply the Five Forces Model, do so in the way in which it was meant to be used to avoid significantly reducing its usefulness while also harming the viability of your industry analysis. This model is meant to be used to consider the entire industry—not a subcomponent of it (and it usually cannot be used to analyze a single organization).
- Your competitor analysis might fit within your assessment of the industry or it might be best as a section within your marketing plan. Usually a fairly detailed description of your competitors is required, including an analysis of their strengths and weaknesses. In some cases, your business may have direct and indirect competitors to consider. Be certain to maintain credibility by demonstrating that you fully understand the competitive environment.
- Assessments of the economic conditions and the state of the industry appear incomplete without accompanying appraisals outlining the strategies the organization can/should employ to take advantage of these economic and industry situations. So, depending upon how you have organized your work, it is usually important to couple your appraisal of the economic and industry conditions with accompanying strategies for your venture. This shows the reader that you not only understand the operating environment, but that you have figured out how best to operate your business within that situation.
- Have you done an effective analysis of your venture? (See the Organizational Analysis section below.)
Market Analysis
- Usually contains customer profiles, constructed through primary and secondary research, for each market targeted
- Contains detailed information on the major product benefits you will deliver to the markets targeted
- Describes the methodology used and the relevant results from the primary market research done
- If there was little primary research completed, justifies why it is acceptable to have done little of this kind of research and/or indicate what will be done and by when
- Includes a complete description of the secondary research conducted and the conclusions reached
- Define your target market in terms of identifiable entities sharing common characteristics. For example, it is not meaningful to indicate you are targeting Canadian universities. It is, however, useful to define your target market as Canadian university students between the ages of 18 and 25, or as information technology managers at Canadian universities, or as student leaders at Canadian universities. Your targeted customer should generally be able to make or significantly influence the buying decision.
- You must usually define your target market prior to describing your marketing mix, including your proposed product line. Sometimes the product descriptions in business plans seem to be at odds with the described target market characteristics. Ensure your defined target market aligns completely with your marketing mix (including product/service description, distribution channels, promotional methods, and pricing). For example, if the target market is defined as Canadian university students between the ages of 18 and 25, the product component of the marketing mix should clearly be something that appeals to this target market.
- Carefully choose how you will target potential customers. Should you target them based on their demographic characteristics, psychographic characteristics, or geographic location?
- You will need to access research to answer this question. Based on what you discover, you will need to figure out the optimum mix of pricing, distribution, promotions, and product decisions to best appeal to how your targeted customers make their buying decisions.
Competition
- However, this information might fit instead under the market analysis section.
- Describes all your direct competitors
- Describes all your indirect competitors
- If you can, includes a competitor positioning map to show where your product will be positioned relative to competitors’ products
Figure 6 – Competitor Positioning Map (Illustration by Lee A. Swanson)
- What distinguishes your business from that of your competitors in a way that will ensure your sales forecasts will be met?
- You must clearly communicate the answers to these questions in your business plan to attract the needed support for your business. One caution is that it may sound appealing to claim you will provide a superior service to the existing competitors, but the only meaningful judge of your success in this regard will be customers. Although it is possible some of your competitors might be complacent in their current way of doing things, it is very unlikely that all your competitors provide an inferior service to that which you will be able to provide.
Marketing Strategy
- Covers all aspects of the marketing mix including the promotional decisions you have made, product decisions, distribution decisions related to how you will deliver your product to the markets targeted, and pricing decisions
- Outlines how you plan to influence your targeted customers to buy from you (what is the optimum marketing mix, and why is this one better than the alternatives)
Organizational Analysis
- Leads in to your marketing strategy or is positioned elsewhere depending upon how your business plan is best structured
- If doing so, always ensure this analysis results in more than a simple list of internal strengths and weaknesses and external opportunities and threats. A SWOT analysis should always prove to the reader that there are organizational strategies in place to address each of the weaknesses and threats identified and to leverage each of the strengths and opportunities identified.
- An effective way to ensure an effective outcome to your SWOT Analysis is to apply a TOWS Matrix approach to develop strategies to take advantage of the identified strengths and opportunities while mitigating the weaknesses and threats. A TOWS Matrix evaluates each of the identified threats along with each of the weaknesses and then each of the strengths. It does the same with each of the identified opportunities. In this way strategies are developed by considering pairs of factors
- The TOWS Matrix is a framework with which to help you organize your thoughts into strategies. Most often you would not label a section of your business plan as a TOWS Matrix. This would not normally add value for the reader. Instead, you should describe the resultant strategies—perhaps while indicating how they were derived from your assessment of the strengths, weaknesses, opportunities, and threats. For example, you could indicate that certain strategies were developed by considering how internal strengths could be employed toward mitigating external threats faced by the business.
Product Strategy
- If your product or service is standardized, you will need to compete on the basis of something else – like a more appealing price, having a superior location, better branding, or improved service. If you can differentiate your product or service you might be able to compete on the basis of better quality, more features, appealing style, or something else. When describing your product, you should demonstrate that you understand this.
Pricing Strategy
- If you intend to accept payment by credit card (which is probably a necessity for most companies), you should be aware of the fee you are charged as a percentage of the value of each transaction. If you don’t account for this you risk overstating your actual revenues by perhaps one percent or more.
- Sales forecasts must be done on at least a monthly basis if you are using a projected cash flow statement. These must be accompanied by explanations designed to establish their credibility for readers of your business plan. Remember that many readers will initially assume that your planned time frames are too long, your revenues are overstated, and you have underestimated your expenses. Well crafted explanations for all of these numbers will help establish credibility.
Distribution Strategy
- If you plan to use e-commerce, you should include all the costs associated with maintaining a website and accepting payments over the Internet.
Promotions Strategy
- If you are attracting customers away from competitors, how will these rivals respond to the threat you pose to them?
- If you intend to create new customers, how will you convince them to reallocate their dollars toward your product or service (and away from other things they want to purchase)?
- In what ways will you communicate with your targeted customers? When will you communicate with them? What specific messages do you plan to convey to them? How much will this promotions plan cost?
- If your entry into the market will not be a threat to direct competitors, it is likely you must convince potential customers to spend their money with you rather than on what they had previously earmarked those dollars toward. In your business plan you must demonstrate an awareness of these issues.
- Consider listing the promotional methods in rows on a spreadsheet with the columns representing weeks or months over probably about 18 months from the time of your first promotional expenditure. This can end up being a schedule that feeds the costs into your projected cash flow statement and from there into your projected income statements.
- If you phone or visit newspapers, radio stations, or television stations seeking advertising costs, you must go only after you have figured out details like on which days you would like to advertise, at what times on those days, whether you want your print advertisements in color, and what size of print advertisements you want.
- Carefully consider which promotional methods you will use. While using a medium like television may initially sound appealing, it is very expensive unless your ad runs during the non-prime times. If you think this type of medium might work for you, do a serious cost-benefit analysis to be sure.
- Some promotional plans are developed around newspaper ads, promotional pamphlets, printing business cards, and other more obvious mediums of promotion. Be certain to, include the costs of advertising in telephone directories, sponsoring a little league soccer team, producing personalized pens and other promotional client give-always, donating items to charity auctions, printing and mailing client Christmas cards, and doing the many things businesses find they do on-the-fly. Many businesses find it to be useful to join the local chamber of commerce and relevant trade organizations with which to network. Some find that setting a booth up at a trade fair helps launch their business.
- If you are concerned you might have missed some of these promotional expenses, or if you want to have a buffer in place in case you feel some of these opportunities are worthwhile when they arise, you should add some discretionary money to your promotional budget. A problem some companies get into is planning out their promotions in advance only to reallocate some of their newspaper advertisement money, for example, toward some of these other surprise purposes resulting in less newspaper advertising than had been intended.
Financial Plan
- It is nearly certain you will need to make monthly cash flow projections from business inception to possibly three years out. Your projections will show the months in which the activities shown on your fixed capital and working capital schedules will occur. This is nearly the only way to clearly estimate your working capital needs and, specifically, important things like the times when you will need to draw on or can pay down your operating loans and the months when you will need to take out longer-term loans with which to purchase your fixed assets. Without a tool like this you will be severely handicapped when talking with bankers about your expected needs. They will want to know how large of a line of credit you will need and when you anticipate needing to borrow longer-term money. It is only through doing cash flow projections will you be able to answer these questions. This information is also needed to determine things like the changes to your required loan payments and when you can take owner draws or pay dividends.
- Your projected cash flows are also used to develop your projected income statements and balance sheets.
Pro forma Cash Flow Statements
Pro forma income statements, pro forma balance sheets, investment analysis, projected financial ratios and industry standard ratios, critical success factors (sensitivity analysis).
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Coronavirus-related relief for retirement plans and IRAs questions and answers
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Section 2202 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, provides for special distribution options and rollover rules for retirement plans and IRAs and expands permissible loans from certain retirement plans.
Rehires Following Bona Fide Retirement; In-Service Distributions
General information, partial termination of a qualified retirement plan under section 209 of the taxpayer certainty and disaster tax relief act of 2020, q1. a qualified pension plan that does not provide for in-service distributions commences benefit distributions to an individual who applies for retirement benefits and experiences a bona fide retirement. if the plan sponsor rehires the individual due to unforeseen hiring needs related to the covid-19 pandemic, will the rehire cause that individual's prior retirement to no longer be considered a bona fide retirement (added 10/22/2021).
A1. Generally, no. Treasury regulations generally require a qualified pension plan to be maintained primarily to provide systematically for the payment of definitely determinable benefits over a period of years, usually for life, after retirement or attainment of normal retirement age. See Treas. Reg. § 1.401(a)-1(b)(1)(i). Accordingly, a plan that does not permit in-service distributions may commence benefit distributions to an individual only when the individual has a bona fide retirement. Although the determination of whether an individual's retirement under a plan is bona fide is based on a facts and circumstances analysis (in the absence of plan terms specifying the conditions under which a retirement will be considered bona fide), a rehire due to unforeseen circumstances that do not reflect any prearrangement to rehire the individual will not cause the individual's prior retirement to no longer be considered a bona fide retirement under the plan. For example, if a public school district sponsoring a qualified pension plan experiences a critical labor shortage due to the COVID-19 pandemic that was unforeseen at the time of an individual's prior bona fide retirement, the public school district rehires the individual to help ease the labor shortage, and the plan terms do not define a bona fide retirement in a way that prevents the rehire, the individual's reemployment would not cause the prior retirement to fail to be a bona fide retirement. Consequently, if plan terms permit, benefit distributions could continue after the rehire.
In addition, if the sponsor of a qualified pension plan wishes to rehire a retired employee to fill an unforeseen hiring need related to the COVID-19 pandemic, the sponsor should analyze the impact of the rehire under the plan by taking into account any plan terms, including any need for plan amendments, relating to rehires. For example, plan sponsors should review any plan terms requiring that an individual who retires and commences benefit distributions not be rehired within a specified period, any plan terms relating to the suspension of distributions upon rehire, and any other plan terms that may have an impact on the pension benefit of a rehire.
Q2: May a qualified pension plan permit individuals who are working to commence in-service distributions? (added 10/22/2021)
A2: Yes. A qualified pension plan generally may allow individuals to commence in-service distributions if the individuals have attained either age 59½ or the plan's normal retirement age. See Internal Revenue Code section 401(a)(36) (in-service distributions generally permitted at age 59½); final regulations on distributions from a pension plan upon attainment of normal retirement age (Treas. Reg. § 1.401(a)-1(b), TD 9325, 72 FR 28604); proposed regulations on the applicability of the normal retirement age regulations to governmental pension plans (Prop. Treas. Reg. § 1.401(a)-1(b)(2)(v), 81 FR 4599); and Section F of Notice 2020-68, 2020-38 IRB 567 (regarding recent changes to in-service distribution rules under § 401(a)(36). However, distributions commencing to an individual before age 59½ may be subject to a 10% additional tax under Internal Revenue Code section 72(t), unless the distributions fit within an exception to that tax (for a description of the exceptions to the 10% additional tax under section 72(t), see Retirement Topics - Exceptions to Tax on Early Distributions ).
Q1. What are the special rules for retirement plans and IRAs in section 2202 of the CARES Act?
A1. In general, section 2202 of the CARES Act provides for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans (certain employer retirement plans, such as section 401(k) and 403(b) plans, and IRAs) to qualified individuals, as well as special rollover rules with respect to such distributions. It also increases the limit on the amount a qualified individual may borrow from an eligible retirement plan (not including an IRA) and permits a plan sponsor to provide qualified individuals up to an additional year to repay their plan loans. See the FAQs below for more details.
Q2. Does the IRS intend to issue guidance on section 2202 of the CARES Act?
A2. The Treasury Department and the IRS are formulating guidance on section 2202 of the CARES Act and anticipate releasing that guidance in the near future. IRS Notice 2005-92 PDF , issued on November 30, 2005, provided guidance on the tax-favored treatment of distributions and plan loans under sections 101 and 103 of the Katrina Emergency Tax Relief Act of 2005 (KETRA) as those provisions applied to victims of Hurricane Katrina. The Treasury Department and the IRS anticipate that the guidance on the CARES Act will apply the principles of Notice 2005-92 to the extent the provisions of section 2202 of the CARES Act are substantially similar to the provisions of KETRA that are addressed in that notice.
Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?
A3. You are a qualified individual if –
- You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
- Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
- You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
- You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
- You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.
Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.
Q4. What is a coronavirus-related distribution?
A4. A coronavirus-related distribution is a distribution that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs.
Q5. Do I have to pay the 10% additional tax on a coronavirus-related distribution from my retirement plan or IRA?
A5. No, the 10% additional tax on early distributions does not apply to any coronavirus-related distribution.
Q6. When do I have to pay taxes on coronavirus-related distributions?
A6. The distributions generally are included in income ratably over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. However, you have the option of including the entire distribution in your income for the year of the distribution.
Q7. May I repay a coronavirus-related distribution?
A7. In general, yes, you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that the distribution was received. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct trustee-to-trustee transfer so that you do not owe federal income tax on the distribution.
If, for example, you receive a coronavirus-related distribution in 2020, you choose to include the distribution amount in income over a 3-year period (2020, 2021, and 2022), and you choose to repay the full amount to an eligible retirement plan in 2022, you may file amended federal income tax returns for 2020 and 2021 to claim a refund of the tax attributable to the amount of the distribution that you included in income for those years, and you will not be required to include any amount in income in 2022. See sections 4.D, 4.E, and 4.F of Notice 2005-92 for additional examples.
Q8. What plan loan relief is provided under section 2202 of the CARES Act?
A8. Section 2202 of the CARES Act permits an additional year for repayment of loans from eligible retirement plans (not including IRAs) and relaxes limits on loans.
- Certain loan repayments may be delayed for one year: If a loan is outstanding on or after March 27, 2020, and any repayment on the loan is due from March 27, 2020, to December 31, 2020, that due date may be delayed under the plan for up to one year. Any payments after the suspension period will be adjusted to reflect the delay and any interest accruing during the delay. See section 5.B of Notice 2005-92.
- Loan limit may be increased: The CARES Act also permits employers to increase the maximum loan amount available to qualified individuals. For plan loans made to a qualified individual from March 27, 2020, to September 22, 2020, the limit may be increased up to the lesser of: (1) $100,000 (minus outstanding plan loans of the individual), or (2) the individual's vested benefit under the plan. See section 5.A of Notice 2005-92.
Q9. Is it optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act?
A9. It is optional for employers to adopt the distribution and loan rules of section 2202 of the CARES Act. An employer is permitted to choose whether, and to what extent, to amend its plan to provide for coronavirus-related distributions and/or loans that satisfy the provisions of section 2202 of the CARES Act. Thus, for example, an employer may choose to provide for coronavirus-related distributions but choose not to change its plan loan provisions or loan repayment schedules. Even if an employer does not treat a distribution as coronavirus-related, a qualified individual may treat a distribution that meets the requirements to be a coronavirus-related distribution as coronavirus-related on the individual's federal income tax return. See section 4.A of Notice 2005-92.
Q10. Does section 2202 of the CARES Act provide additional distribution rights to participants or otherwise change the rules applicable to plan distributions?
A10. Under section 2202 of the CARES Act, a coronavirus-related distribution is treated as meeting the distribution restrictions for a section 401(k) plan, section 403(b) plan, or governmental section 457(b) plan. For example, under section 2202 of the CARES Act, a section 401(k) plan may permit a coronavirus-related distribution, even if it would occur before an otherwise permitted distributable event (such as severance from employment, disability, or attainment of age 59½). However, the CARES Act does not otherwise change the limits on when plan distributions are permitted to be made from employer-sponsored retirement plans. For example, a pension plan (such as a money purchase pension plan) is not permitted to make a distribution before an otherwise permitted distributable event merely because the distribution, if made, would qualify as a coronavirus-related distribution. Further, a pension plan is not permitted to make a distribution under a distribution form that is not a qualified joint and survivor annuity without spousal consent merely because the distribution, if made, could be treated as a coronavirus-related distribution. See section 2.A of Notice 2005-92.
Q11. May an administrator rely on an individual's certification that the individual is eligible to receive a coronavirus-related distribution?
A11. The administrator of an eligible retirement plan may rely on an individual's certification that the individual satisfies the conditions to be a qualified individual in determining whether a distribution is a coronavirus-related distribution, unless the administrator has actual knowledge to the contrary. Although an administrator may rely on an individual's certification in making and reporting a distribution, the individual is entitled to treat the distribution as a coronavirus-related distribution for purposes of the individual's federal income tax return only if the individual actually meets the eligibility requirements.
Q12. Is an eligible retirement plan required to accept repayment of a participant's coronavirus-related distribution?
A12. In general, it is anticipated that eligible retirement plans will accept repayments of coronavirus-related distributions, which are to be treated as rollover contributions. However, eligible retirement plans generally are not required to accept rollover contributions. For example, if a plan does not accept any rollover contributions, the plan is not required to change its terms or procedures to accept repayments.
Q13. How do qualified individuals report coronavirus-related distributions?
A13. If you are a qualified individual, you may designate any eligible distribution as a coronavirus-related distribution as long as the total amount that you designate as coronavirus-related distributions is not more than $100,000. As noted earlier, a qualified individual may treat a distribution that meets the requirements to be a coronavirus-related distribution as such a distribution, regardless of whether the eligible retirement plan treats the distribution as a coronavirus-related distribution. A coronavirus-related distribution should be reported on your individual federal income tax return for 2020. You must include the taxable portion of the distribution in income ratably over the 3-year period – 2020, 2021, and 2022 – unless you elect to include the entire amount in income in 2020. Whether or not you are required to file a federal income tax return, you would use Form 8915-E (which is expected to be available before the end of 2020) to report any repayment of a coronavirus-related distribution and to determine the amount of any coronavirus-related distribution includible in income for a year. See generally section 4 of Notice 2005-92.
Q14. How do plans and IRAs report coronavirus-related distributions?
A14. The payment of a coronavirus-related distribution to a qualified individual must be reported by the eligible retirement plan on Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This reporting is required even if the qualified individual repays the coronavirus-related distribution in the same year. The IRS expects to provide more information on how to report these distributions later this year. See generally section 3 of Notice 2005-92.
Q15. Are employees who participated in a business's qualified retirement plan, then laid off because of COVID-19 and rehired by the end of 2020, treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the plan occurred? (added July 30, 2020)
A15. Generally, no. Subject to the facts and circumstances of each case, participating employees generally are not treated as having an employer-initiated severance from employment for purposes of calculating the turnover rate used to help determine whether a partial termination has occurred during an applicable period, if they're rehired by the end of that period. That means participating employees terminated due to the COVID-19 pandemic and rehired by the end of 2020 generally would not be treated as having an employer-initiated severance from employment for purposes of determining whether a partial termination of the retirement plan occurred during the 2020 plan year.
See Revenue Ruling 2007-43 for more information on partial terminations, including vesting rules, how to calculate the turnover rate for employer-initiated severances, the presumption that a turnover rate of at least 20 percent during an applicable period results in a partial termination, and how to determine the applicable period.
Q1. What does Section 209 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act), Division EE of the Consolidated Appropriations Act, 2021, provide regarding partial termination of a qualified retirement plan? (added April 27, 2021)
A1. Section 209 of the Relief Act provides that a plan is not treated as having a partial termination (within the meaning of Internal Revenue Code Section 411(d)(3)) during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021, is at least 80% of the number of active participants covered by the plan on March 13, 2020.
Q2. Who is an "active participant covered by the plan"? (added April 27, 2021)
A2. For purposes of Section 209 of the Relief Act, a reasonable, good-faith interpretation of the term "active participant covered by the plan," applied in a consistent manner, should be used when determining the number of active participants covered by a plan on March 13, 2020, and March 31, 2021.
Q3. How does Section 209 of the Relief Act apply to a plan year if only part of the plan year falls within the period beginning on March 13, 2020, and ending on March 31, 2021? (added April 27, 2021)
A3. If any part of the plan year falls within the period beginning on March 13, 2020, and ending on March 31, 2021, then Section 209 of the Relief Act applies to any partial termination determination for that entire plan year.
For example, if a plan has a calendar year plan year, the 80% partial termination test in Section 209 of the Relief Act applies to both the January 1 to December 31, 2020, plan year and the January 1 to December 31, 2021, plan year, because both plan years include a part of the statutory determination period of March 13, 2020 to March 31, 2021.
Q4. Is the 80% test applied by identifying the pool of active participants covered by a plan on March 31, 2021, and determining whether at least 80% of those same individuals were active participants covered by the plan on March 13, 2020? (added April 27, 2021)
A4. No. Section 209 of the Relief Act is applied by counting the number of active participants covered by a plan on each of those two dates. The number of active participants covered by a plan who are counted on March 31, 2021, includes all individuals who are active participants covered by the plan on that date, regardless of whether those same individuals were active participants covered by the plan on March 13, 2020.
Q5. Does Section 209 of the Relief Act apply solely to reductions in the number of active participants covered by a plan that are related to the COVID-19 national emergency? (added April 27, 2021)
A5. No. Although the first day of the statutory determination period - March 13, 2020 - is the date the COVID-19 national emergency was declared, the provision's terms are not limited to reductions related to the COVID-19 national emergency.
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Whether you’re a seasoned business owner or just beginning to think about starting a business , demands come at you fast. Amidst the rush of to-do lists and meetings, determining how to write a business plan—much less following a business plan template—often feels time-consuming and intimidating.
But nearly 70% of business owners who have been there and done that recommend writing a business plan before you start a business, according to a recent QuickBooks survey . After all, when done right, business plans have enormous payoffs.
And yet, more than 10% of prospective business owners said they do not intend to write a business plan. Another 10% aren’t sure if they need a plan.
It’s more than the old cliche: A failure to plan is a plan to fail. In fact, a wealth of data now exists on the difference a written business plan makes, especially for small or growing companies.
In this post, we’ll cover everything you need to write a successful business plan, step-by-step, and turn your idea into a reality. Even better, if you’re pressed for time, we’ve compiled the 10 steps and examples into a downloadable (PDF) template . The 10 steps to write a business plan are:
- Create an executive summary
- Compose your company description
- Summarize market research and potential
- Conduct competitive analysis
- Describe your product or service
- Develop a marketing and sales strategy
- Compile your business financials
- Describe your organization and management
- Explain your funding request
- Compile an appendix for official documents
But, first things first.
What is a business plan?
A business plan is a comprehensive road map for your small business’s growth and development. It communicates who you are, what you plan to do, and how you plan to do it. It also helps you attract talent and investors.
But remember that a business idea or business concept is not a plan.
Investors want to know you have:
- Product-market fit: Have you done the research to determine the demand for your product or service?
- A solid team in place: Do you have the people you need to support your goals and objectives?
- Scalability: Can you grow sales volume without proportional growth in headcount and fixed costs?
A templated business plan gives investors a blueprint of what to expect from your company and tells them about you as an entrepreneur.
Why do you need a business plan?
You need a business plan because the majority of venture capitalists (VCs) and all banking institutions will not invest in a startup or small business without a solid, written plan. Not only does a business plan help you focus on concrete objectives, but it gives outside parties reassurance that you’ve thought ahead.
In 2018, entrepreneurial resource center Bplans worked with the University of Oregon to compile and analyze research around the benefits of business planning . Here’s what they found:
- Businesses with a business plan grow 30% faster than those without.
- Owners with business plans are twice as likely to grow, get investments, or secure loans than those without.
- Entrepreneurs with a business plan have a 129% increased likelihood of growing beyond the startup phase and a 260% increased likelihood of growing from “idea” to “new business.”
Perhaps the strongest evidence comes from the Journal of Business Venturing’s 2010 meta-analysis of 46 separate studies on 11,046 organizations: Its findings confirm that “business planning increases the performance of both new and established small firms.”
When do you need a business plan?
Before you leave a nine-to-five income, your business plan can tell you if you’re ready. Over the long term, it’ll keep you focused on what needs to be accomplished.
It’s also smart to write a business plan when you’re:
- Seeking funding, investments, or loans
- Searching for a new partner or co-founder
- Attracting, hiring, and retaining top talent
- Experiencing slow growth and need a change
Feel confident from day one
You're never too small, and it's never too soon to know you're on track for success.
How to write a business plan in 10 steps
Start with a clear picture of the audience your plan will address. Is it a room full of angel investors? Your local bank’s venture funding department? Or is it you, your leaders, and your employees?
Defining your audience helps you determine the language you’ll need to propose your ideas as well as the depth to which you need to go to help readers conduct due diligence.
Now, let’s dive into the 10 key elements of your business plan.
1. Create an executive summary
Even though it appears first in the plan, write your executive summary last so you can condense essential ideas from the other nine sections. For now, leave it as a placeholder.
What is an executive summary?
The executive summary lays out all the vital information about your business within a relatively short space. An executive summary is typically one page or less. It’s a high-level look at everything and summarizes the other sections of your plan. In short, it’s an overview of your business.
How do I write an executive summary?
Below, you’ll find an example from a fictional business, Laura’s Landscapers. (We’ll use that same company throughout this guide to make each step practical and easy to replicate.)
This executive summary focuses on what’s often called the value proposition or unique selling point: an extended motto aimed at customers, investors, and employees.
You can follow a straightforward “problem, solution” format, or a fill-in-the-blanks framework:
- For [target customers]
- Who are dissatisfied with [current solutions]
- Our [product or service] solves [key customer problems]
- Unlike [competing product], we have [differentiating key features]
This framework isn’t meant to be rigid, but instead to serve as a jumping-off point.
Example of an executive summary
Market research indicates that an increasing number of wealthy consumers in Richmond are interested in landscape architecture based on sustainable design. However, high-end firms in the area are scarce. Currently, only two exist—neither of which focus on eco-friendly planning nor are certified by green organizations.
Laura’s Landscapers provides a premium, sustainable service for customers with disposable incomes, large yards, and a love of nature.
2. Compose your company description
Within a business plan, your company description contains three elements:
- Mission statement
These elements give context to the bigger picture in your business plan, letting investors know the purpose behind your company so the goals make sense as well.
What is a mission statement?
A mission statement is your business’s reason for existing. It’s more than what you do or what you sell, it’s about why exactly you do what you do. Effective mission statements should be:
- Inspirational to make others believe in your vision
- Emotional to captivate readers and grab their interest
Throughout every part of your plan, less is more. Nowhere is that truer than your mission statement. Think about what motivates you, what causes and experiences led you to start the business, the problems you solve, the wider social issues you care about, and more.
Tip: Review your mission statement often to make sure it matches your company’s purpose as it evolves. A statement that doesn’t fit your core values or what you actually do can undermine your marketing efforts and credibility.
How do you describe a company’s history?
Don’t worry about making your company history a dense narrative. Instead, write it like you would a profile:
- Founding date
- Major milestones
- Location(s)
- Number of employees
- Executive leadership roles
- Flagship products or services
Then, translate that list into a few short paragraphs (like the example below).
Why do business objectives matter?
Business objectives give you clear goals to focus on, like the North Star. These goals must be SMART, which stands for:
They must also be tied to key results. When your objectives aren’t clearly defined, it’s hard for employees and team members to work toward a common purpose. What’s worse, fuzzy goals won’t inspire confidence from investors, nor will they have a profitable impact on your business.
Example of a company description
Laura’s Landscapers’ mission is to change the face of our city through sustainable landscaping and help you create the outdoor living space of your dreams.
Founded in 2021 by sisters Laura and Raquel Smith, we have over 25 years of combined landscape architecture experience. Our four employees work in teams of two and have already completed 10 projects for some of Richmond’s most influential business and community leaders.
Our objectives over the next three years are to:
- Solidify a glowing reputation as a service-based business that always exceeds customers’ expectations and honors the environment
- Complete at least 18 projects during year one, 24 in year two, and 36 in year three generated through word of mouth, referrals, and home shows
- Increase revenue from $360,000 in FY2021 to $972,000 in FY2023 based upon 10 completed projects in the last nine months
3. Summarize market research and potential
The next step is to outline your ideal potential customer as well as the actual and potential size of your market. Target markets—also known as personas—identify demographic information like:
By getting specific, you’ll illustrate expertise and generate confidence. If your target market is too broad, it can be a red flag for investors.
- Example: If your product is perfect for people with money to hire landscape architects, listing “anyone with a garden” as your target market might not go over so well.
The same is true with your market analysis when you estimate its size and monetary value. In addition to big numbers that encompass the total market, drill down into your business’s addressable market—meaning, local numbers or numbers that apply the grand total to your specific segments. You may even map your customer’s journey to get a better understanding of their wants and needs.
Example of market research and potential
Laura’s Landscapers’ ideal customer is a wealthy baby boomer, a member of Gen X, or a millennial between the ages of 35 and 65 with a high disposable income. He or she—though primarily, she—is a homeowner. They’re a working professional or have recently retired. In love with the outdoors, they want to enjoy the beauty and serenity of nature in their own backyard, but don’t have the time or skill to do it for themselves.
Market research shows the opportunity for Laura’s Landscapers has never been better:
- In the U.S., total revenue for landscaping services increased from $69.8 billion in 2013 to $99 billion in 2019. ( 1 )
- Among landscaping contractors, designing and building is the second fastest growing service offering. ( 2 )
- What’s more, landscape design and construction is the number one “new service” existing companies plan to add over the next year. ( 3 )
In Richmond, leading indicators for interest in green, eco-friendly, and sustainable landscaping have all increased exponentially over the last five years:
- Online search volume for those terms is up 467%
- 10 new community organizations have been formed
- 73 high-profile projects have been covered by local media
- And currently 13% of Richmond’s residents have a household income of $125,000 or more (compared to the U.S. average of 5%)
4. Conduct competitive analysis
Competitive research begins with identifying other companies that currently sell in the market you’re looking to enter. The idea of carving out enough time to learn about every potential competitor you have may sound overwhelming, but it can be extremely useful.
Answer these additional questions after you’ve identified your most significant competitors:
- Where do they invest in advertising?
- What kind of press coverage do they get?
- How good is their customer service?
- What are their sales and pricing strategies?
- How do they rank on third-party rating platforms?
Spend some time thinking about what sets you apart. If your idea is truly novel, be prepared to explain the customer pain points you see your business solving. If your business doesn’t have any direct competition, research other companies that provide a similar product or service.
Next, create a table or spreadsheet listing your competitors to include in your plan, often referred to as a competitor analysis table.
Example of competitive analysis
Within Richmond’s residential landscaping market, there are only two high-end architectural competitors: (1) Yukie’s Yards and (2) Dante’s Landscape Design. All other businesses focus solely on either industrial projects or residential maintenance.
Yukie’s Yards
- Average cost per project: $12,000
- Ongoing maintenance fee: $200 per month
- Google My Business: 3.1 stars from 163 reviews
- Environmental certifications: None
- Primary marketing channels: Google Ads
Dante’s Landscape Design
- Average cost per project: $35,000
- Ongoing maintenance fee: $500 per month
- Google My Business: 3.7 stars from 57 reviews
- Primary marketing channels: Home shows
5. Describe your product or service
This section describes the benefits, production process, and life cycle of your products or services, and how what your business offers is better than your competitors.
When describing benefits, focus on:
- Unique features
- Translating features into benefits
- Emotional and practical payoffs to your customers
- Intellectual property rights or any patents that protect differentiation
For the production process, answer how you:
- Create existing and new products or services
- Source raw materials or components
- Assemble them through manufacturing
- Maintain quality control and quality assurance
- Receive and deliver them (supply chain logistics)
- Manage your daily operations, like bookkeeping and inventory
Within the product life cycle portion, map elements like:
- Time between purchases
- Up-sells, cross-sells, and down-sells
- Future plans for research and development
Example of product or service description
Laura’s Landscapers’ service—our competitive advantage—is differentiated by three core features.
First, throughout their careers, Laura and Raquel Smith have worked at and with Richmond’s three leading industrial landscaping firms. This gives us unique access to the residents who are most likely to use our service.
Second, we’re the only firm certified green by the Richmond Homeowners Association, the National Preservation Society, and Business Leaders for Greener Richmond.
Third, of our 10 completed projects, seven have rated us a 5 out of 5 on Google My Business and our price points for those projects place us in a healthy middle ground between our two other competitors.
- Average cost per project: $20,000
- Ongoing maintenance fee: $250 per month
- Google My Business: 5 stars from 7 reviews
- Environmental certifications: Three (see Appendix)
- Primary marketing channels: Word of mouth, referrals, and home shows
6. Develop a marketing and sales strategy
Your marketing strategy or marketing plan can be the difference between selling so much that growth explodes or getting no business at all. Growth strategies are a critical part of your business plan.
You should briefly reiterate topics such as your:
- Value proposition
- Ideal target markets
- Existing customer segments
Then, add your:
- Launch plan to attract new business
- Growth tactics for established businesses to expand
- Retention strategies like customer loyalty or referral programs
- Advertising and promotion channels such as search engines, social media, print, television, YouTube, and word of mouth
You can also use this section of your business plan to reinforce your strengths and what differentiates you from the competition. Be sure to show what you’ve already done, what you plan to do given your existing resources, and what results you expect from your efforts.
Example of marketing and sales strategy
Laura’s Landscapers’ marketing and sales strategy will leverage, in order of importance:
- Word of mouth
- Reviews and ratings
- Local Google Ads
- Social media
- Direct mail
Reputation is the number one purchase influencer in high-end landscape design. As such, channels 1-4 will continue to be our top priority.
Our social media strategy will involve YouTube videos of the design process as well as multiple Instagram accounts and Pinterest boards showcasing professional photography. Lastly, our direct mail campaigns will send carbon-neutral, glossy brochures to houses in wealthy neighborhoods.
7. Compile your business financials
If you’re just starting out, your business may not yet have financial data , financial statements, or comprehensive reporting. However, you’ll still need to prepare a budget and a financial plan.
If your company has been around for a while and you’re seeking investors, be sure to include:
- Income statements
- Profit and loss statements
- Cash flow statements
- Balance sheets
Other figures that can be included are:
- How much of your revenue you retain as your net income
- Your ratio of liquidity to debt repayment ability
- How often you collect on your invoices
Ideally, you should provide at least three years’ worth of reporting. Make sure your figures are accurate and don’t provide any profit or loss projections before carefully going over your past statements for justification.
Avoid underestimating business costs
Costs, profit margins, and sale prices are closely linked, and many business owners set sale prices without accounting for all costs. New business owners are particularly at risk for this mistake. The cost of your product or service must include all of your costs, including overhead. If it doesn’t, you can’t determine a sale price to generate the profit level you desire.
Underestimating costs can catch you off guard and eat away at your business over time.
- Example: Insurance premiums tend to go up annually for most forms of coverage, and that’s especially true with business insurance. If an employee gets injured, Laura’s Landscapers’ workmen’s compensation insurance to cover this risk will increase.
Example of business financials
Given the high degree of specificity required to accurately represent your business’s financials, rather than create a fictional line item example for Laura’s Landscapers, we suggest using one of our free Excel templates and entering your own data:
- For new businesses: Start up budget template
- For existing businesses: Income statement template
Once you’ve completed either one, then create a big picture representation to include here as well as in your objectives in step two.
In the case of Laura’s Landscapers, this big picture would involve steadily increasing the number of annual projects and cost per project to offset lower margins:
Current revenue for FY2022: $200,000
- 10 completed projects
- ~$20,000 per project
- 15% profit margins
- $30,000 net
FY2022 projections: $360,000
- 18 completed projects
- $54,000 net
FY2023 projections: $552,000
- 24 completed projects
- ~$23,000 per project
- 12% profit margins
- $66,240 net
FY2024 projections: $972,000
- 36 completed projects
- ~$27,000 per project
- 10% profit margins
- $97,200 net
8. Describe your organization and management
Your business is only as good as the team that runs it. Identify your team members and explain why they can either turn your business idea into a reality or continue to grow it. Highlight expertise and qualifications throughout —this section of your business plan should show off your management team superstars.
You should also note:
- Roles you still need to hire to grow your company
- The cost of hiring experts to assist operations
To make informed business decisions, you may need to budget for a bookkeeper , a CPA, and an attorney. CPAs can help you review your monthly accounting transactions and prepare your annual tax return. An attorney can help with client agreements, investor contracts (like shareholder agreements), and with any legal disputes that may arise.
Ask your business contacts for referrals (and their fees), and be sure to include those costs in your business plan.
Example of organization and management
Laura Smith, Co-founder and CEO
- Professional background
- Awards and honors
- Notable clients
Raquel Smith, Co-founder and Chief Design Officer
Laura’s Landscapers’ creative crews
- Cumulative years of experience
9. Explain your funding request
When outlining how much money your small business needs, try to be as realistic as possible. You can provide a range of numbers if you don’t want to pinpoint an exact number. However, include a best-case scenario and a worst-case scenario.
Since a new business doesn’t have a track record of generating profits, it’s likely that you’ll sell equity to raise capital in the early years of operation. Equity means ownership—when you sell equity to raise capital, you are selling a portion of your company.
- Remember: An equity owner may expect to have a voice in company decisions, even if they do not own a majority interest in the business.
Most small business equity sales are private transactions. The investor may also expect to be paid a dividend, which is a share of company profits, and they’ll want to know how they can sell their ownership interest. Additionally, you can raise capital by borrowing money, but you’ll have to repay creditors both the principal amount borrowed and the interest on the debt.
If you look at the capital structure of any large company, you’ll see that most firms issue both equity and debt. When drafting your business plan, decide if you’re willing to accept the trade-off of giving up total control and profits before you sell equity in your business.
- Tip: Put together a timeline so your potential investors have an idea of what to expect. Some customers may not pay for 30 days or longer, which means the business needs a cash balance to operate.
The founder can access cash by contributing their own money into the business by securing a line of credit (LOC) at a bank or applying for QuickBooks Capital . If you raise cash through a LOC or some other type of loan, it needs to be paid off ASAP to reduce the interest cost on debt.
Example of a funding request
Laura’s Landscapers has already purchased all necessary permits, software, and equipment to serve our existing customers. Once scaled to $972,000 in annual revenue—over the next three years and at a 10% profit margin—our primary ongoing annual expenses (not including taxes) will total $874,800.
While already profitable, we are requesting $100,000 in the form of either a business loan or in exchange for equity to purchase equipment necessary to outfit two additional creative crews.
10. Compile an appendix for official documents
Finally, assemble a well-organized appendix for anything and everything readers will need to supplement the information in your plan. Consider any info that:
- Helps investors conduct due diligence
- Gives context and easy access to you or your employees
Useful details to cover in an appendix include:
- Deeds, local permits, and legal documents
- Certifications that bolster your credibility
- Business registries and professional licenses pertaining to your legal structure or type of business
- Patents and intellectual properties
- Industry associations and memberships
- State and federal identification numbers or codes
- Key customer contracts and purchase orders
Your appendix should be a living section of the business plan, whether the plan is a document for internal reference only or an external call for investors.
- Tip: As you include documents in the appendix, create a miniature table of contents and footnotes throughout the rest of the plan linking to or calling attention to them.
How to make a business plan that stands out
Investors have little patience for poorly written documents. You want your business plan to be as attractive and readable as possible.
- Keep it brief. A typical business plan can range from 10 to 20 pages. As long as you cover the essentials, less is more.
- Make it easy to read. Divide your document into distinct sections, so that investors can quickly flip between key pieces of information.
- Know your margins. List every cost your business incurs, and make sure that you’re assigning those costs to each product or service that you sell.
- Proofread. Double-check for typos and grammatical errors. Then, triple-check. Otherwise, you might risk your credibility.
- Invest in quality design and printing. Proper layout, branding, and decent printing or bookbinding give your business plan a professional feel.
- Be prepared in advance. Have everything ready to go at least two weeks ahead so you have time to make revisions in case of a last-minute change.
3 tips to update your business plan
It’s a good idea to periodically revisit your business plan, especially if you are looking to expand. Conducting new research and updating your plan could also provide answers when you hit difficult questions.
Mid-year is a good time to refocus and revise your original plans because it gives you the opportunity to refocus any goals for the second half of the year. Below are three ways to update your plan.
1. Refocus your productivity
When you wrote your original business plan, you likely identified your specific business and personal goals. Take some time now to assess if you’ve hit your targets.
- Example: If you planned to launch a new tips and trends video series and it hasn’t happened yet, what’s stopping you? Put a timeline together and set a launch date.
If you only want to work a set number of hours per week, you must identify the products and services that deliver the returns you need to make that a reality. Doing so helps you refocus your productivity on the most lucrative profit streams.
Also, use what you’ve achieved and the hard lessons you’ve learned to help you re-evaluate what is and isn’t working.
2. Realign with your goals
Do a gut check to determine whether all of your hard work is still aligned with your original goals and your mission statement. Ask yourself these questions:
- Are my goals still relevant?
- Am I still focused on the big picture?
- Where do I want to be a year from now?
- Will my existing plan still take me where I want to go?
These questions may be tough to answer at first glance, but they reveal your ties to your goals and what most likely needs to change to achieve new wins.
3. Repurpose your offerings
If your time has become more focused on small projects rather than tangible growth and building a valuable client list, consider packaging your existing products or services differently. Can you bundle a few things together?
- Example: Laura’s Landscapers might be able to offer a special pool and patio package. Doing so might help them bring in fewer yet higher-paying projects. Perhaps they can offer a maintenance package as well to keep that customer long term.
You must deliberately manage your revenue streams, and that might require shuffling things around a little to focus on what is working for you.
Business plan template
Even if you don’t plan on seeking investments early on, there are other important reasons to use a business plan template to write a great business plan:
- Clarifies what you’re trying to accomplish
- Identifies opportunities to understand your market, like demographics and behaviors
- Establishes the role of each team member
- Gives team members a benchmark to reference and stay on track
- Helps catch errors to make sure financial projections are accurate
- You’ll see the holes and blind spots that could cause future issues
Download the following template to build your business plan from the ground up, considering all the important questions that will help your investors and employees.
The old cliche is still true today: A failure to plan is a plan to fail. Your business plan is crucial to the growth of your business, from giving direction, motivation, and context to employees, to providing thoughtful reassurance and risk mitigation to financers. Before you get your small business up and running , put down a plan that instills confidence and sets you up for success.
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What's the connection between business and community development?
What's a business plan, why should you make a business plan, when should you make a business plan, how do you make a business plan.
Although your primary goal is improving the community rather than making a profit, "business" can still be important to your work. Even non-profit organizations need resources to sustain their work, and business operations can be a good way to acquire those necessary resources.
Your business operations usually involve things you sell. Those "things" can be products - actual goods - or they can be services. Below are some examples of each.
But is it ethical for us to sell products and services?
Yes, if it is done honestly, openly, and fairly. What is sold should be of high quality and good value,fairly advertised and delivered as stated.
And selling products and services can be more than ethically permissible . It can be the ethically responsible thing to do if you are selling something that people need, and that will actually help them.
And is it legal ?
Yes, in a great number of cases. Here's a key fact:
A nonprofit group can make a profit. Of course, the selling of products and services must comply with local laws and regulations. It's up to you to know what those laws and regulations are where you live.
Does this mean all nonprofit groups should go into business?
No, not necessarily. There are other ways to pay expenses and to ensure your financial sustainability. Among them are grants , fund-raisers , membership dues , and in-kind support . Your decision about going into business should depend upon what funding you need, what you have on hand, what funding options are available to you, and what your prospects for success are in each case.
To plan for your overall financial sustainability requires an overall financial plan, and if business operations are part of what sustains you, then you will also need a business plan.
What is a business plan?
A business plan is a written document that describes in detail what kind of business you intend to operate, how you intend to operate it, and why you believe it will succeed. It is backed with logical, factual and financial documentation.
Why should you have a business plan?
- Setting your thoughts down on paper, and forming a plan, will clarify your own thinking
- Your business plan will raise confidence in your business ventures among members of your own group and among potential outside backers
- A business plan will increase your likelihood of business success
- When you are seriously thinking about embarking on a particular business venture
- When you need clarity on the details
- When you want expert feedback or advice on the specifics of your ideas
- When you need to attract outside grants, gifts, loans, supplies, other materials or moral support
How should I make a business plan?
We'll cover three main elements:
- What should the plan contain?
How should the plan be written?
How should the plan be packaged, what should the plan contain.
Successful business plans vary in format, but all contain some basic components. Don't hesitate to adapt them to your own situation, but try to stay fairly close to the mark.
This should include a title, your organization name, and accessible contact information (phone/fax/e-mail). The title should reflect the nature of your plan, and it should be phrased for maximum appeal to your intended audience. You want to capture audience attention and interest right from the beginning.
Table of contents
List each section of your plan, with appropriate page numbers.Tabs attached to the first page of each section can make it easier for the reader to find a specific section. This table should be a maximum of one page.
Executive summary
This summary is usually the most important section of your plan. It should not be more than two pages long, and normally should be written last. Your executive summary will be a condensed version of your entire business plan. A reader of the executive summary should be able to understand what your business purpose is, what your plan contains, what your organization wants, and why it wants it.
If your executive summary is effectively written, it will:
- Communicate your organization's vision of the future
- Establish your organization's credibility
- Describe your product or service, and how it will be sold
- Explain and document the need for your product or service
- Inform the reader of key steps you plan to take
- Make the reader want to read the entire plan
- If money is being asked for: Request an appropriate amount of money, and present a defensible case for such a request
Description of your organization Or, in other words, "Who are you?" This should include:
- What your organization does
- Where it is located
- How long it has been in operation
- Its goals and objectives
- What it has accomplished
- What financial support (if any) it receives at the moment
- What specific background it has in selling products or services
- What is distinctive about your organization that sets it apart from everybody else
Description of your management
If you are looking for outside support, this will be a vital element of your plan, because potential supporters will be investing in your organization's management and its ability to perform. Briefly describe your key officers and staff, including their qualifications relevant to this plan. If you have a board of directors, advisory board, or other professional or technical advisors, they can be listed here too.
This section of your plan, together with the previous one describing your organization, is the equivalent of your organizational resume. It should convince potential supporters that the current leadership can carry out the plan.
Description of your product or service
Here's where you describe the product or service you want to sell. What exactly is it? What are the "product specifications?" Give the details, but don't overload the reader with technical jargon.
Try to present some clear examples. If it's a physical product, try to include photographs, drawings, or brochures. If there are any special permits or licenses that you need, or regulations you must comply with, cite these too.
Point out any particular beneficial features your product might have. And if you can document previous customer support, provide endorsements, or cite experts who recommend its use, such testimonials should certainly be included.
Information about your market
Your reader will want to know what your market is, what research you have done to determine that market, and how you plan to reach that market.
This will frequently be your most detailed section, because it spells out precisely how you intend to carry out your business plan. So let's take the above points in order:
- Your market means who your customers are . How many potential customers are there? Are they likely to grow in number; if so, why? What distinguishing characteristics do they have, demographic or otherwise? Where are they located? Your plan should answer these questions concretely. What you want to show here is that there are enough customers for your product or service to justify the sales levels you are projecting. (Those sales levels will be detailed later, but can be previewed here.) If there is a particular part of the market you want to capture, say so.
- Your market research means documenting why you believe your potential customers will become actual buyers . Here you need evidence. For example, what do you really know about the habits of your market? Have you gathered data on sales off similar products? Have you observed consumers, or done a survey, or conducted interviews? And have you tested out some prototype designs, and measured consumer reaction? This is the type of evidence we mean.
- Your market plan means how you plan to reach your intended market. How can customers find your product or service? Where will it be sold - in stores (which ones?); by advertisements (where? when? how often?); at special events; by mail; by local or toll-free phone line; over the Internet; or through some combination of the above? Will there be discounts, contests, free samples, or tie-ins with other local happenings? Are there contingency plans, in case one marketing strategy fails?
Information about your competition
It's rare that a totally new product or service comes onto the scene; often, your product or service has been sold before, and there may even be others nearby who are selling it now.
Your plan should profile these competitors, briefly describing what they provide. Then, if you can, you should give reasons why your product or service is superior to your competition's. If you can't justifiably claim superiority, then at minimum you should document that there is enough customer demand for a new competitor on the scene - that is, you.
Details of your operating plan
Somewhere along the line, your product will have to be manufactured or acquired; if it's a service, someone will need to provide it. Your operating plan describes just how this will be done.
An operating plan should answer the following questions:
- What is the production process?
- Who produces it, and where?
- How many employees are needed?
- Is production occurring right now, or are matters simply in the "research and development" stage?
- Is production machinery involved?
- Is there a specific production location?
- How will production be scheduled? (If you acquire the product from somewhere else - coffee mugs, for example - who are your suppliers, and what are the precise supply arrangements?)
- What about outside production regulations?
- What about labor and maintenance considerations?
- How will items get to the customers?
- What about quality control?
- What contingencies exist in case things go wrong?
- How will customer satisfaction be assessed and assured?
- Is there a flow chart that summarizes and diagrams your operational steps?
If you can't answer all of these questions right away, it will stimulate you to think about the questions, and come up with your best responses.
Financial information
This is where you present the actual financial information to show how you will make a profit selling your product or service.
The specifics here include:
- Historical data from selling the product or service (if such data exist)
- Projections of how much income you will take in from selling your product or service; this is done for several different points of time in the future
- Projected sales costs, broken down by category, and covering the same multiple points in time as your income projections. (Your total projected income minus total projected costs will yield your projected profits for each time point.)
- Financial assumptions which underlie and justify your projections
- Cash on hand, and other assets available
- Additional cash needed, if any, to put the business into operation at your desired level
If you are seeking a loan, this last item of course requires special attention. You need to demonstrate precisely what the loaned funds will be used for, justify your ability to repay them, and suggest and how and when they will be repaid.
There are two common forms used in presenting financial information, which respond to the points above. These are a Balance Sheet and an Income Forecast, and blank samples of each are provided under Tools.
You should have a timeline or chart that specifies each action step in your plan and when it will be completed.Creating a timeline is an excellent planning discipline and can be persuasive to potential supporters.
Lastly, you may have other supporting information to present which strengthens your business plan, but which does not fit easily into the main text. Such information can be placed in an appendix to your plan. Examples here could include more specifics of management qualifications, letters of endorsement, or details of your market research. What other information might apply to your own situation?
These are your basic business plan ingredients. Now let's move on to how the plan should be written, and then presented.
Your plan should be written simply, clearly, persuasively, honestly, and to the point.
Adapted from "Guide to Writing a Business Plan" here are some of the most common writing mistakes:
- The writing is unclear. It's difficult to understand.
- The plan is too long. The writer does not get to the point, support it with facts, and move on.
- The layout is poor, and/or illogical. Illustrations, product descriptions, and graphs are missing.
- An executive summary is omitted.
- There is too much technical jargon. The writer does not clearly demonstrate what the benefits are and why someone would want to use the product or service
- There is insufficient detail on the qualifications of the proposers to implement the plan.
- The market is not defined. And/or: Market research is not cited. And/or: A marketing plan is missing.
- No mention, or sketchy mention, is made of the market competition.
- The financial information given is not straightforward.
- The reader is given no compelling reason to invest in the plan, or to otherwise support it.
Remember these pitfalls before putting your plan onto paper!
Your reader will see your plan before reading it, and will form an impression without having scanned a single page.
Make sure your plan looks professional. To be specific:
- It should be printed on high-quality paper, by a high-quality printer.
- As a guideline, its overall length should be about 20 pages, plus-or-minus ten. (Sometimes a shortened version of the plan can be created for other promotional purposes.)
- Color printing, when thoughtfully employed, can give you an edge; so can tasteful presentation graphics.
- The completed plan should be bound according to the standards of your readers. Seek the advice of your local print shop - or get hold of some comparable finished plans.
- Have several people read over the plan before it is printed to make sure it's totally error-free.
To enhance your persuasive content and your clear writing, your plan should have an attractive and professional appearance, without being unnecessarily flashy.
Online Resources
Service Corps of Retired Executives (SCORE) has more than 500 chapters nationwide, provides free counseling, workshops, and seminars for small businesses. SCORE is sponsored by the Small Business Administration.
StrongNonprofits.org provides best-practice guidance and hands-on tools to help you understand and manage your non-profit’s financial health. The site offers helpful resources in the areas of financial planning, operations, monitoring, and governance.
Print Resources
Bangs, D., Jr. (1995). The business planning guide: Creating a plan for success in your own business . (7th ed.). Chicago, IL: Upstart Publishing Company, Inc. This book also includes many sample business plans, sample documents, and a very comprehensive listing of more specialized references. Upstart Publishing is itself one of the leading small business publishers in the U.S.; to request its catalog, call 1-800-235-8866.
Mancuso, J. (1983). How to prepare and present a business plan . Englewood Cliffs, NJ: Prentice-Hall.
Massachusetts Office of Business Development (no date). Guide to writing a business plan . Boston, MA: Massachusetts Office of Business Development. One Ashburton Place, Boston, MA 02108 1-800-5-CAPITAL
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Study with Quizlet and memorize flashcards containing terms like Business plan, Executive summary, Vision statement and more.
Chapter 5 Entrepreneurship Section 5.2- The B…
Sample answers: 1. Successful entrepreneurs are not quitters. 2. ... Plan; Company Description; Product or Ser-.
Initial Steps in Setting up a Business Plan ... 2. Key Term vision statement establishes the scope and purpose.
Operations Plan. Answers several key questions: What are your facility plans? Where will your facility be located? expressed as a
How many sections of the Business Plan were presented in 5.2? answer choices. 5.
You'll refer to this section later when you make financial projections, so make sure to thoroughly describe your complete marketing and sales strategies.
relief for retirement plans and IRAs questions and answers ... See section 5.
Use this business plan template to set your small business up for ... 5. Describe your product or service. This section describes the
2. 3. 4. Challenges. 1. 2. 3. 4. 76. Chapter 5 Entrepreneurship ... glencoe.com to check your answers.
Guide to writing a business plan. Boston, MA: Massachusetts Office of Business Development. One Ashburton Place, Boston, MA 02108 1-800-5-CAPITAL.