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Transcript Of HOW TO WRITE A BUSINESS PLAN - Small Business

U.S. Small Business Administration



Managing and Planning Series


Copyright 1993, Linda Pinson and Jerry Jinnett. All rights reserved. No part may be reproduced, transmitted or transcribed without the permission of the authors. SBA retains an irrevocable, worldwide, nonexclusive, royalty-free, unlimited license to use this copyrighted material. While we consider the contents of this publication to be of general merit, its sponsorship by the U.S. Small Business Administration does not necessarily constitute an endorsement of the views and opinions of the authors or the products and services of the companies with which they are affiliated.

All of SBA's programs and services are extended to the public on a nondiscriminatory basis. ______________________________________________________________________________






Legal Structure


Description of the Business 2

Products or Services 3

Location 3

Management 3

Personnel 3

Methods of Record Keeping 3

Insurance 4

Security 4

Summary 5

MARKETING Target Market 5 Competition 5

Methods of Distribution 5

Advertising 7



Product Design 7

Timing of Market Entry 7

Location 8

Industry Trends



Summary of Financial Needs 8

Sources and Uses of Funds Statement


Cash Flow Statement (Budget) 9

Three-year Income Projection 10

Break-even Analysis Graph 15

Actual Performance Statements 16

Balance Sheet 16

Summary 21

SUPPORTING DOCUMENTS Personal Resumes 22 Personal Financial Statement 22 Credit Reports 22 Copies of Leases 22 Letters of Reference 22 Contracts 22 Legal Documents 23 Miscellaneous Documents 23




Making Revisions 23

Implementing Changes


Anticipating Problems







There are two main purposes for writing a business plan. The first, and most important, is to serve as a guide during the life of your business. It is the blueprint of your business and will serve to keep you on the right track. To be of value, your plan must be kept current. If you spend

the time to plan ahead, many pitfalls will be avoided and needless frustrations will be eliminated. Second, the business plan is a requirement if you are planning to seek loan funds. It will provide potential lenders with detailed information on all aspects of the company's past and current operations and provide future projections.

The text of a business plan must be concise and yet must contain as much information as possible. This sounds like a contradiction, but you can solve this dilemma by using the Key Word approach. Write the following key words on a card and keep it in front of you while writing:

Who What Where


Why How How Much

Answer all of the questions asked by the key words in one paragraph at the beginning of each section of the business plan. Then expand on that statement by telling more about each item in the text that follows.

There is no set length to a business plan. The average length seems to be 30 to 40 pages, including the supporting documents section. Break the plan down into sections. Set up blocks of time for work with target dates for completion. You may find it effective to spend two evenings per week at the library where the reference materials needed will be close at hand. It takes discipline, time and privacy to write an effective business plan.

You will save time by compiling your list of supporting documents while writing the text. For example, while writing about the legal structure of your business, you will realize the need to include a copy of your partnership agreement. Write partnership agreement on your list of supporting documents. When compiling that section of your plan, you will already have a list of necessary documents. As you go along, request any information that you do not have, such as credit reports.

With the previous considerations in mind, you are ready to begin formulating your plan. Read through this entire publication to get an overall view of the business planning process. ______________________________________________________________________________


The first page of your business plan will be the cover sheet. It serves as the title page of your plan. It should contain the following information:

Name of the company Company address Company phone number (include area code) Logo (if you have one) Names, titles, addresses, phone numbers (include area code) of owners Month and year in which the plan is issued Name of preparer

The following example will serve as a guide.
ABC CORPORATION 372 East Main Street Burke, BY 10071 (207) 526-4319
John Smith, President (207) 814-0221 724 South Street
Jamestown, NY 10081
Mary Blake, Vice President (207) 764-1213 86 West Avenue Burke, NY 10071
James Lysander, Secretary (207)842-1648 423 Potrero Avenue Jessup, NY 10602
Tandi Higgins, Treasurer (207) 816-0201 321 Nason Street Adams, NY 10604
Plan prepared September 1992 by Corporate Officers
The statement of purpose is also called the mission statement or executive summary. If your lender were to read only this information, he or she would know the name and nature of your business, its legal structure, the amount and purpose of your loan request and your plan for repayment. Use the key word approach mentioned earlier. Be concise and clear. The statement of purpose is contained on one page. Although it is positioned after the cover sheet, it is most effectively written after the plan has been completed. At that time, all the information and financial data needed are available.
If you are writing your plan for a lender, be specific about the use of funds. Support the amount requested with information such as purchase orders, estimates from suppliers, rate sheets and marketing results. Include this information in the supporting documents section. Address the question of loan repayment. You want to show the lender your company's ability to meet payments of interest as well as principal. Some investors like to see two ways out, i.e., two different sources of repayment. When you have answered the key word questions, you are ready to present that information in one or two concise paragraphs. A sample statement of purpose

ABC CORPORATION, an S-Corporation established in 1985, is a tool and die company that manufactures specialized parts for the aerospace industry and is located at 372 East Main Street, Burke, N.Y. The company is seeking growth capital in the amount of $50,000 for the purpose of purchasing new and more modern equipment and for training existing personnel in the use of that new equipment.
Funding is needed in time for the equipment to be delivered and in place by 11 January 1993. There is a two-month period between order placement and delivery date.
The modernized equipment will result in a 35 percent increase in production and a 25 percent decrease in the unit cost. Repayment of the loan and interest can begin promptly within 30 days of receipt and can be further secured by real estate, which is owned by the company and which has a 1990 assessed valuation of $185,000. _________________________________________________________________ ______________________________________________________________________________
The first major section of your plan covers the details of your business. Begin this section with a one-page summary addressing the key elements of your business. The following text will expand on each area presented in the summary. Use the key word system to help you write concisely. Address all of the topics as they relate to your business in an order that seems logical to you. Include information about your industry in general, and your business in particular. Be prepared to back up statements and justify projections with data in the supporting documents section.
Legal Structure
State the reasons for your choice of legal structure. If you are a sole proprietor, you may include a copy of your business license. If you have formed a partnership, include a copy of your partnership agreement in the supporting documents section. Your agreement should include provisions for partners to exit and for the dissolution of the company. It must spell out the distribution of the profits and the financial responsibility for any losses. Explain the reasoning behind the terms of the agreement. If you have formed a corporation, explain why this legal form was chosen and how the company will operate within the corporate structure, and include a copy of the charter and articles in the supporting document section.

If you plan to change your legal structure in the future, make projections regarding why you would change, when the change would take place, who would be involved and how the change would benefit the company.
Description of the Business
This is the section of the plan in which you go into greater detail about your business. Answer the key word questions regarding the business's history and present status, and your future projections for research and development. Outline your current business assets and report your inventory in terms of size, value, rate of turnover and marketability. Include industry trends. Stress the uniqueness of your product or service and state how you can benefit the customer. Project a sense of what you expect to accomplish three to five years into the future.
Products or Services
Give a detailed description of your product from raw materials to finished item. What raw materials are used, how much do they cost, who are your suppliers, where are they located and why did you choose them? Include cost breakdowns and rate sheets to back up your statements. Although you may order from one main supplier, include information on alternate suppliers. Address how you could handle a sudden increase of orders or a loss of a major supplier.
You may hear a lender refer to the worst case scenario. This means that the lender wants you to be able to anticipate and solve potential problems. It is also to your advantage to think in terms of alternatives and to prepare for the unexpected so that your business can continue to run smoothly. Some businesses fail because they become too successful too soon. Therefore, it is also good to plan for the best case scenario. If you are inundated with orders, your business plan should contain information needed to hire staff and contact additional suppliers.
If you are providing a service, tell what your service is, why you are able to provide it, how it is provided, who will be doing the work and where the service will be performed. Tell why your business is unique and what you have that is special to offer to your customers. If you have both a product and a service that work together to benefit your customer (such as warranty service for the products you sell) be sure to mention this in your plan. Again the key words come into use. List future services you plan to add to your business. Also, anticipate any potential problem areas and work out a plan for action.
You should state any proprietary rights, such as copyrights, patents or trademarks, in this section.
If location is important to your marketing plan, you may focus on it in the marketing section. For example, if you are opening a retail shop, your choice of location will be determined by your target market. If you are a manufacturer and ship by common carrier, your location is not directly tied to your target market so you can discuss location in the business section. You may

begin this topic with a sentence such as "ABC Corporation is housed in 25,000 square feet of warehouse space located at 372 East Main Street, Burke, NY. This site was chosen because of accessibility to shipping facilities, good security provisions, low square footage costs and proximity to sources of supplies."
Now expand on each reason for choosing that location and back up your statements with a physical description of the site and a copy of the lease agreement. Give background information on your site choice and list other possible locations. You may want to include copies of pictures, layouts or drawings of the location in the supporting document section.
Use the worksheet on page 4 as a guideline for writing a location (site) analysis. Cover only those topics that are relevant to your business. If you need assistance, contact the SBA resource center nearest you (see Information Resources).
1. Address:
2. Name of realtor/contact person:
3. Square footage/cost:
4. History of location:
5. Location in relation to target market:
6. Traffic patterns for customers:
7. Traffic patterns for suppliers:
8. Availability of parking: (include diagram)
9. Crime rate for area:
10. Quality of public services (e.g. police, fire protection)
11. Notes on walking tour of area:
12. Neighboring shops and local business climate:
13. Zoning regulations:
14. Adequacy of utilities (get information from utility company representatives):

15. Availability of raw materials/supplies:
16. Availability of labor force;
17. Labor rate of pay for the area:
18. Housing availability for employees:
19. Tax rates (state, county, income, payroll, special assessments):
20. Evaluation of site in relation to competition: _________________________________________________________
This section describes who is behind the business. If you are a sole proprietor, tell about your abilities and include your resume. Be honest about areas in which you will need help and state how you will get that help. Will you take a marketing seminar, work with an accountant or seek the advice of someone in advertising?
If you have formed a partnership, explain why the partners were chosen, what they bring to the company and how their abilities complement each others. Experience, background and qualifications will be covered in their resumes in the supporting documents section.
If your business is incorporated, give detailed information on the corporate structure and officers. Include a resume for each officer and describe each one by answering the following questions: Who are they? What are their skills? Why were they chosen? What will they bring to the organization?
Who will be doing the work? Why are they qualified? How will they be hired? What is their wage? What will they be doing? Outline the duties and job descriptions for all personnel. Explain any employee benefits. If you are inundated with orders for your product or items to be serviced, do you have a plan for increasing personnel?
Methods of Record Keeping
Tell what accounting system will be used and why the system was chosen. What portion of your record keeping will be done internally? Who will be responsible for keeping those records? Will you be using an outside accountant to maximize your profits? If so, who within your company will be skilled at reading and analyzing financial statements provided by the accountant? It is important not only to show that your accounting will be taken care of, but that you will have some means of using your financial statements to implement changes to make your company more profitable. After reading this section, the lender should have confidence in your company's

ability to keep and interpret a complete set of financial records.
Insurance is an important consideration for every business. Product liability is a major consideration, especially in certain industries. Service businesses are concerned with personal liability, insuring customers' goods while on the premises or during the transporting of those goods. If a vehicle is used for business purposes, your insurance must reflect that use. If you own your business location, you will need property insurance. Some types of businesses require bonding. Partners may want life insurance naming each other as the beneficiary. Consider the types of coverage appropriate to your business. Tell what coverage you have, why you chose it, what time period it covers and who the carrier is. Keep your insurance information current.
According to the U.S. Chamber of Commerce, more than 30 percent of business failures result from employee dishonesty. This concerns not only theft of merchandise, but also theft of information.
Address the issue of security as it relates to your business. For example, if you are disposing of computer printout data, a small paper shredder may be cost-effective. Anticipate problem areas in your business, identify security measures you will put into practice, tell why you chose them and what you project they will accomplish. Discuss this area with your insurance agent. By installing security devices you may be able to lower certain insurance costs along with protecting your business.
You have now covered all the areas which should be addressed in the business section. Use the key words, be thorough, anticipate any problem areas and be prepared with solutions, and analyze industry trends and be ready to project your business into the future. When you have completed the business section, you are ready to begin developing the marketing section. ______________________________________________________________________________
The second major section of your business plan covers the details of your marketing plan. A good marketing plan is essential to your business development and success. Include information about the total market with emphasis on your target market. You must take the time to identify your customers and find the means to make your product or service available to them. The key here is time. It takes time to research and develop a marketing plan, but it is time well spent. Most of the information you need will be found in your public library and in the publications of the U.S. Department of Commerce, the U.S. Small Business Administration (SBA) and the U.S. Census Bureau. Remember that you need a clear understanding of who will purchase your product, who will make use of your service, why they will choose your company and how they will find out about it.

Begin this section with a one-page summary covering the key elements of your marketing plan. The following text will expand on each area presented in the summary. Back up statements and justify projections with data in the supporting documents section. Again, the key word approach will help you to thoroughly cover each area. The topics may be covered in any order that seems logical to you.

Target Market

The target market has been defined as that group of customers with a set of common characteristics that distinguish them from other customers. You want to identify that set of common characteristics that will make those customers yours. Tell how you did your market research. What were your resources and your results? What are the demographics of your target market? Where do your customers live, work and shop? Do they shop where they live or where they work? If you are in the business of video cassette recorder (VCR) repair, how many VCRs are owned within a certain radius of your shop? Would in-home service be cost-effective and a benefit to your customers? Back up your findings with U.S. Census Bureau reports, questionnaires and test marketing results. State how you feel you can serve this market in terms of your resources, strengths and weaknesses. Focus on reasonable, believable and obtainable projections regarding the size of your potential market. (See Information Resources.)


Direct competition is a business offering the same product or service to the same market. Indirect competition is a company with the same product or service but with a different target market. Evaluate both types of competitors. You want to determine the competitors' images. To what part of the market are they trying to appeal? Can you appeal to the same market in a better way? Or can you find an untapped market?

Use the worksheet to compile, organize and evaluate information on your competition. Your analysis of this information will help you plan your market entry. What is the competition's current market share (what percent of the total customer base is theirs)? Can you tap into this share or will you need to carve out your own market niche?







1. Name of Competitor(s):

2. Location:

3. Products or services offered:
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