Business Plans Made Simple Webinar

In this webinar we'll cover:

Free business plan template demo
Market research tools
Free Resources and Support
Financial projections
Break-even analysis
Live Q & A

It’s not super exciting, but it’s absolutely essential if you talk to any established business owner. Writing a business plan is a critical exercise for both established businesses and startups, but there are some rules you need to know about first.

3 Rules of Writing a Business Plan

Be real with yourself. A business plan is just a collection of assumptions put together and if you're not being real with yourself it won't work.
Keep it simple. No matter how technical your product or service is, be sure to stay focused and keep it simple. As Albert Einstien said, "If you know something well enough, you should be able to explain it simply"
Do it yourself. Don't just hire someone to write the plan for you because it's not the plan that's important - it's the planning process.

Why write a business plan?

If you fail to plan, you are planning to fail -Benjamin Franklin

Whether you are looking for a small business loan or just trying to determine the feasibility of your business idea – a business plan can be a daunting task, but it doesn’t have to be. Writing a business plan is really just an exercise to identify two things;

The things you know about the business, and;
The things you don’t know about the business.

But how do you know what you don't know, you ask? Simple. We've created a web application tool called the Business Plan Project (https://www.businessplanproject.org) that breaks down the business plan into easy to answer questions.

If you know the answer, great - just plug it in! If you don't know, or aren't sure, then you'll need to think it about or research it further as you move forward.

The best part of the business plan project is that free, easy to use and we offer free one-on-one consulting to help you through the process so you're never feeling lost or don't know what to do.

Below are the most common areas that need to be addressed in the business plan and why each section is important.

Executive Summary

Typically, the executive summary of a business plan will be the first section of the document and it lists out at a high level the salient points from each section in the rest of the plan. Generally, you want to write the business plan in it's entirety first and then write the executive summary section last to simply list out the key points from each section.

Marketing

Industry Trends

When developing a marketing plan it is important to start out at a high level looking at the overall industry, because the reader most often doesn’t come from the industry like you.

It is oftentimes costly and hard to get industry research data, but through the SBDC program we have access to a market research databases that can help you.

Hopefully, you come from the industry and already know the trends of the industry, but you'll still want to have some secondary research to back up your experience. If you don't have direct industry experience you may want to seriously consider working in the industry before jumping in headfirst with a new business venture.

Target Market

After laying out the overall industry that our business is part of, it's important to quickly identify our target audience or ideal customer. Under the “Target Market” section, we want to explain to the reader who our target customer is...Obviously we will provide our products/services to anyone, but in all honesty there is likely an ideal customer out there who would see the value of our products/services more than someone else and we are hoping to reach through our marketing.

In this section it is important to characterize in detail who you’re going after in terms of age, income, location for Business-to-Consumer type businesses and employee size, gross revenue and industry for Business-to-Business type businesses

Once you’ve described your target audience, you'll also want to address the top needs of your customer and how you intend to meet those needs. This is often referred to as your "value proposition". For example, how are you better, faster, cheaper, etc.

Competition

Under the competition section, we want to show the reader that we know who we are up against. Hopefully you come from the industry and have a keen understanding of who your competition is, but if you don’t this is where you’ll need to take a deep dive into your direct and indirect competition. Please, please, don’t be one of those entrepreneurs who says that you don’t have any competition...

Everyone has competition, weather it be direct, indirect or an alternative to your businesses solution. Typically, the best way to illustrate how you stand up to the competition is through what's called a competitive analysis chart. Below is an example of what a competitive analysis chart looks like and essentially it has 5 columns.

The column to the far left will list out the criteria that is important to your customers and the columns to the right will list out how you and your competition stack up against each criteria. Generally, a "X" or a checkmark will mean that you or your competition is strong in this area and a blank will mean that you or they are weak.

Competitive analysis is an important step in planning out the business because if your customers don’t buy your service they’re going to go get it somewhere else.

Secret shop your customers online, over-the-phone or in-person to observe first hand what potential customers have to choose from. Evaluate their website presence by using tools like Builtwith.com to see what platform they're building their website on, use tools like woorank and SEMrush to see what keywords they’re using and google alerts to be notified every time they are mentioned in the news. Don't forget to Join their facebook page and email distributions and look at their reviews to help evaluate what customers like and don’t like about the business.

Marketing Strategy

On the marketing strategy section you’ll want to list out where you plan to spend your time, talent and treasure to let people know that your business exists. This is usually the section that most jump to first when they think of marketing but it's important to consider your target market and competition to help determine what outlets are most appropriate.

Here, the key takeaway is what is going to be "your one thing"!. What is your Call-to-Action that no matter the outlet (social media, website, directory listing, etc.) are you going to tell customers to do when they visit your marketing.

Often, it can be "Buy now", "Schedule Consultation", "Contact Us", etc., but this is so critical to your marketing success because what can be measured can be managed! And that is often the cheif complaint of business owners related to marketing "How do I know if it's working?"

Well, if you're clear on your one thing then you will know how to track this in a way that is reportable, but it does take time and effort to setup systems and processes. But it's worth every minute you put in to be able to know that what you're doing is, or isn't, working. Then, once you've got it working you can scale it with paid advertising or other methods.

Ultimately, as a customer we all go through a decision making process when we choose to buy a product or service. First, we realize we have a problem. Sometimes we need to be educated on this, but often it is apparent and is a strong enough pain point that we will then search for alternatives to alleviate this pain. In the search for alternatives, we want to get inside the mind of our target audience to be able to know where they would go to search so that we can be there! After we locate a possible solution then we evaluate it against criteria that is important to us and either take action or not. Lastly, we are either satisfied or dissatisfied with our decision and from there we will either end or continue our search.

Below is a sample decision making model and how each of the factors we discussed thus far fit into the target customers decision making process.

Team

On the team section, we need to show the reader who is involved with the business and what their roles and responsibilities are going to be in the business.

This is also where we begin to draft the assumptions behind a personnel budget which is often one of the larger expenses for any business.

To help draft a budget for your business salaries, wages, payroll taxes and benefits we need to think about each position and develop assumptions regarding for hourly rates, average hours per week per employee.

In addition to wages and payroll taxes, other important consideration that you will want to consider are payroll processing companies to work with, workers compensation insurance and overall HR functions in the business and what systems or processes will you plan to use to manage and develop your team.

Financial Projections

Starting Point

When developing a budget, it's important to establish a starting point.

If you're an established business, often times you'll start with the beginning of your fiscal year (i.e. - January) and pull your balance sheet figures from the end of the last fiscal year. Your balance sheet will list out all of your long-term and current assets along with your liabilities (i.e. - loans) and equity. One of the most important figures to develop a budget for the business is the amount of cash we have on hand at the start. That's because later we will use this starting balance as part of our cash flow statement.

If you're a startup business, this is where we need to account for the things we will need to buy just to get started in the business we choosing. Then we will need to determine how much of the total project costs we are contributing and the amount, if any, that will be financed via commercial loans, credit cards, etc. Also, it's important to consider the amount of cash that we plan to have in the bank on day #1 to operate the business. This isn't a "cost" perse to starting the business, but it is definitely necessary to have available or on-hand to operate the business. This "working capital" or "Cash on-hand" is often overlooked and critical to the implementation of the the business above and beyond the trucks, equipment or other assets we need to buy to establish the business.

Sales

The sales section is probably the most important section in the entire business plan. This is where we explained the reader what we are selling, our margin on what we sell and ultimately how much we plan to sell on a monthly basis.

Most lenders will want to see your sales forecast broken down on a monthly basis and more importantly the assumptions behind the numbers. For example, if you're a startup business...

"We plan to start with 40 monthly subscribers and based on our marketing activities we plan to grow by 5 subscribers each month for the first 18 months."

Or,

If you're an established business...

"We plan to increase sales by 5% over last year by offering X and Y value-added services to our customers"

Here it's important to know that any good bank or investor is going to benchmark your profit margins or cost of goods sold by the industry average and if you're beating that figure you should be able to explain why. Also, when seeking financing, most banks will "Stress Test" your projections. Meaning they will reduce what you say you think you can do by a certain percentage to see more of the worst case scenario and how much wiggle room you have built into the business for unexpected events.

Expenses

In the expense section of the business plan we want to show the reader we have a firm understanding of the operating expenses necessary to run the business.

In the prior sections we already addressed payroll, cost of goods and financing expenses, and here we want to cover any remaining expenses that may be applicable to our business-things like advertising, insurance, rent etc.

If you're an established business you'll want to run your most recent profit and loss statement and determine what expenses will increase, decrease, remain the same or be eliminated entirely based on your plan for the coming year.

If your a startup business, you'll want to research the typical monthly overhead costs you'll have for your business. Talk with your local small business development center to learn about what are likely expenses that you'll need to cover and if possible, talk with other small business owners in the industry.

Additional Information

Lastly, before we move into the financial statements that are typically included in a business plan, we need to look at some other areas to consider that may or may not be applicable to your business. First up, accounts receivable and accounts payable.

Accounts Receivable / Accounts Payable

Here we need to explain to the reader our assumptions for accounts receivable and accounts payable-essentially how quickly we get our money from our customers and how quickly we pay our vendors

Most businesses will be a cash based business. This means that you get paid by your customers at the time of purchase and you pay your vendors the same. For example, rent is due a the 1st of the month rather than 30 days after the end of the month.

Most often times both will be 100% within 30 days however if you are a construction company or perhaps a consultant that bills for services after they’ve been delivered you may need to budget for revenue that comes in later than the month the services were delivered. This can impact your flow of cash and you will want to account for this to make sure you don't need a line of credit to cover receivables.

Line of Credit

A line of credit is like a safety net for a business and in any good projection there will be a line item for LOC or Line of Credit. This will be used for any months that

As we develop a budget for a business we also need to see if there is a need for a line of credit or LOC. in a financial forecast you'll usually need to identify two things:

What is our desired minimum cash balance and
What is your line of credit interest rate is should we drop below your min cash balance in the projections

In terms of the minimum cash balance, this is a personal preference and business decision but generally you wanna keep enough cash on hand at any given time to cover one or two month's worth of operating expenses

In terms of your line of credit interest-rate, you’ll need to speak with your bank about what rates they can offer you but for purposes of the business plan the website will assume if you drop below your desired minimum cash balance that these expenses will be financed via your line of credit.

Income Taxes

As Benjamin Franklin put it, the only things for certain in life are death are taxes.

In the income tax section we want to budget for potential income taxes we may owe based on the profits we’re projecting.

This rate will vary greatly from business-to-business and owner-to-owner based on how the company is structured, but taxes are an important business expense and you’ll want to talk with your tax professional on what a good rate for your business would be to set aside for taxes.

Once you have that rate you can plug it into your business plan to budget for quarterly tax payments you may need to make based on any profits the business is projecting

Financial Statements

Income Statement

The income statement, also know as a profit and loss or P&L for short, is where we can begin to see the fruits of our labor.

Based on the revenue that we projected from our sales and the expenses we budgeted for the business we can see if we are selling enough to cover our costs.

Cash Flow Statement

The cash flow statement is similar to the income statement but the key difference is it does not include expenses like depreciation and amortization that are included on the income statement because they are non-cash expenses.

It also includes some balance sheet items like the repayment of principal on a loan because as you make your loan payments “in cash” your reducing your liability on that loan which is tied to the balance sheet which we will get to next.

Balance Sheet

The balance sheet is an important financial statement to evaluate the health of your business. Is like a snapshot in time. Unlike the income statement and the cash flow statement which will essentially resets at the start of each year the balance sheet tracks the business performance over time.

In my opinion, the balance sheet is kinda like your professional resume, but for the business. Just like your resume, you start out with very little work experience at first and over time soon you have an impressive work history. The same holds true with a balance sheet. You often start out with few assets and owner's equity, but over time you pay down your liabilities and generate retained earnings year after year building up wealth in the business.

Break-Even Analysis

We’ve saved the best for last - the break-even analysis. To determine our break-even we need to know two things;

Our Gross Profit Margin (%)
Our Annual Fixed Costs

To determine our gross margin, we'll take a look at our income statement and divide our gross profit by our total projected sales for the year. Let's play out a quick example;

Let's say we have a plumbing business that expects to do plumbing repairs that generate $139,500/year. In order to complete these plumbing repairs there is of course parts and materials needed which they expect to cost $18,600/year. Thus, the gross profit for the business would be $139,500 (total sales) - $18,600 (total costs of goods sold) = $120,900 in Gross Profit. Now, if we divide our $120,900 (gross profit) / $139,500 (total sales) = 87% Profit Margin.

Essentially, in this example, we are saying that we make 87 cents on every dollar that we think we can sell. Therefore, the question is how many dollars do we need to sell just to break-even? Or cover our costs?

Well, if we know our annual fixed costs for the business for things like payroll, depreciation, operating expenses, etc. are $81,277/year then we can simply divide the two. $81,277 (annual fixed costs) / .87 (87% gross margin) = $93,422/year in annual sales to break even. Or $7,785 per month.

If we take this one step further and assume that the average plumbing repair order brings in $750/each then we can see that we need to be doing around 10 plumbing repairs each month to cover our costs!

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