Business Plan Basics for Beginners
November 28, 2004
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Business Plan Basics for Beginners
A business plan defines your business, identifies your goals, and serves as your company’s resume. The main components include a current and future (pro forma) balance sheet, a current income statement, and a cash flow analysis of your business. This will help you to allocate business resources properly, to handle unforeseen events, and to make good, solid business decisions. Because the business plan provides specific and detailed information about your company and (as an example) how you will repay a loan, a good business plan will be a crucial part of any loan application at a bank. Additionally, it will inform your sales personnel, your suppliers, and other 3rd parties about your operations and business goals.
The importance of a comprehensive, detailed business plan can’t be overemphasized. Many important things depend on it: external funding, credit lines from suppliers, management of your operations and finances, promotion and marketing of your business, and finally achievement of your goals and business objectives.
If you are tempted to start a business without having a business plan, you will be very likely in trouble running a successful operation. A business plan is like a blue print of your business. Imagine a builder who starts building your new house without having a blue print. Writing these things down, is not the most fun event a new business owner wants to do. Make sure you spent the time and research to create a solid business plan.
Before you begin writing your business plan, consider four important questions:
What service or product does your business provide and what needs does it try to fill?
How will you attract your potential customers?
Who are the potential customers for your products and/or service and why should they purchase it from you?
Where will you get the financial resources (cash, loan, etc.) to start your business?
How does a business plan look like?
1. Cover sheet
2. Statement of purpose
3. Table of contents
-> The Business
A. Description of your business
B. Marketing Strategy and Plan
C. Who is your competition
D. Operating procedures
E. Personnel / Staff
F. Business insurance
-> Financial Data
A. Loan applications
B. Capital equipment and supply list
C. Balance sheet
D. Breakeven analysis
E. Pro-forma income projections (profit & loss statements)
Three-year summary
Detail by month, first year
Detail by quarters, second and third years
Assumptions upon which projections were based
F. Pro-forma cash flow
-> Additional Documents
- Tax returns of principals for last three years Personal financial statement (available at your local bank)
- For franchised businesses, a copy of the franchise contracts and all supporting documents provided by the franchisor
- Copies of letters of intent from suppliers, etc. (if available)
- Copy of proposed lease contract or purchase agreement / contract for office space
- Copy of all business licenses and other legal documents (if related to the business)
- Copy of resumes of all principals / company officers
If you start a new business and do not have financial data going 3 years back, you can substitute this with solid statements of your current situation. Described above is the ideal case - adjustments need to be made if necessary. Be detailed - it’ll be to your own favor. Ask your bank so that you can work with their small business specialists. Regular tellers might be friendly, but you want to make sure that you get decent information.
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