This business plan is written by Tim Berry
Tim Berry is Founder and President of
Palo Alto Software and a renowned planning expert. He is listed in the index of
"Fire in the Valley", by Swaine and Freiberger, the history of the
personal computer industry. Tim contributes regularly to the bplans blog,
the Huffingtonpost.com as well as his own blogs, Planning, Startups,
Stories, Up and Running, and others. His full biography is available
at timberry.com.
Tim
Berry says:
Business advisors,
experienced entrepreneurs, bankers, and investors generally agree that you
should develop a business plan before you start a business. A plan can help you move forward, make decisions, and make
your business successful. However, not all business plans are
the same, not every business needs the same level of detail. You might develop
a fairly simple plan first as you start a small business, and that might be enough for you. You can also start simple
and then elaborate as you prepare to approach bankers or investors.
For a simple example,
imagine a woman making jewelry at home and selling it at a local flea market on
the weekend. A business plan could give her a chance to step back from the
normal flow and look at ways to develop and improve the business. The planning
process should help her understand her business. It should help her define what
she wants from the business, understand what her customers want, and decide how
to optimize her business on her own terms. She might benefit from developing a
simple sales and expense forecast, maybe even a profit and loss, so she can
plan how to use and develop her resources. She might not need to create
detailed cash flow, balance sheet, and business ratios. A simple
plan may be just what she needs to get going.
This first stage of a
plan, that we call the Concept Kick-Start, focuses only on a few starter
elements. The Mission Statement, Keys to Success, Market Analysis, and Break-Even Analysis give you a critical head start toward
understanding your business.
However, not all startups are that simple.
Many of them need product development, packaging, retail fittings and signage,
office equipment, websites, and sometimes months or even years of payroll
before the sales start. Unless you’re wealthy enough to finance these
expenditures on your own, then you’ll need to deal with bank loans or investors
or both; and for that you’ll need a more extensive business plan. Startup
company or not, the plan has to meet expectations.
One suggestion for getting started is to
develop your plan in stages that meet your real business needs. A few key text
topics might be enough to discuss the plan with potential partners and team
members, as a first phase. You may well want to add a basic sales and expense
forecast, leading to profit and loss, as next phase. Adding business numbers
helps you predict business flow and match spending to income.
This might be an intermediate plan,
incorporating a more extensive outline and business analysis:
Outline |
Topic
|
Table
|
Chart
|
1.0 |
Executive Summary
|
Highlights
|
|
1.1
|
Objectives
|
||
1.2
|
Mission
|
||
1.3
|
Keys to Success
|
||
2.0
|
Company Summary
|
Start-up
|
Start-up
|
3.0
|
Product Description
|
||
4.1
|
Market Segmentation
|
||
4.2
|
Target Market
Segment Strategy
|
||
4.3
|
Market Needs
|
||
4.4
|
|||
5.0
|
Strategy and Implementation Summary
|
||
5.1
|
Competitive Edge
|
||
5.2
|
Sales Strategy
|
Sales Forecast
|
|
6.0
|
Management Summary
|
||
7.0
|
Financial Plan
|
||
7.1
|
Break-even
|
Break-even
|
|
7.2
|
Projected Profit
and Loss
|
||
7.3
|
Projected Cash
Flow
|
Cash Flow
|
Cash Flow
|
Ultimately, the choice of plan isn’t
based as much on the stage of business as it is on the type of business,
financing requirements, and business objective. Here are some important
indicators of the level of plan you’ll need, even as a startup:
§ Some of the simpler businesses keep a
plan in the head of the owner, but every business has a plan. Even a one-person
business can benefit from creating a plan document with ideas written down,
because the process of producing a plan is useful and valuable.
§ As soon as a second person is
involved, the need for planning multiplies. The plan is critical for
communicating values, goals, strategies, and detailed implementation.
§ As soon as anybody outside the
company is involved, then you have to provide more information. When a plan is
for internal use only, you may not need to describe company history and product
features, for example. Stick to the topics that add value, that make you think,
that help support decisions. When you involve people outside the company, then
you need to provide more background information as part of the plan.
§ For discussion purposes, text is
enough to get a plan started. Try describing your mission, objective, keys to
success, target market, competitive advantage, and basic strategies. How well
does this cover your business idea?
§ Can you live without a sales and expense
forecast? Sometimes the one-person business keeps numbers in its (the owner’s)
head. However, it’s much easier to use some tools that can put the numbers in
front of you, and add and subtract them automatically. That’s where a plan
helps.
§ Do you really know your market? A
good market analysis can help you see opportunities that might not otherwise be
obvious. Understand why people buy from you. What are the needs being served?
How many people are out there, as potential customers?
§ Do you manage significant amounts of
inventory? That makes your cash management more complicated, and usually
requires a more sophisticated plan. You need to buy inventory before you sell
it.
§ Do you sell on credit? If you are a
business selling to businesses, then you probably do have to sell on credit,
and that normally means you have to manage money owed to you by your customers,
called accounts receivable. Making the sale is no longer the same thing as
getting the money. That usually requires a more sophisticated plan.
§ Do you do your taxes on a cash basis,
or accrual basis? If you don’t know, and you are a very small (one person,
maybe 2-3 people) business, then you’re likely to be on a cash basis. That
makes your planning easier. However, most businesses big enough to work with a
CPA and have separate tax statements use accrual accounting because they want
to deduct expenses as they are incurred, even if they aren’t fully paid for. By
the time you are using accrual accounting, you’ll probably need more
sophisticated cash flow tools, and a more extensive business plan.
§ As you approach banks and other
lending institutions, expect to provide more detail on personal net worth,
collateral, and your business’ financial position. Some banks will accept a
very superficial business plan as long as the collateral looks good. Others
will demand to see detailed monthly projections. No bank can lend money on a
business plan alone; that would be against banking law. But a good bank wants
to see a good plan.
§ If
you’re looking for venture investment, take a good look at your plan.
Professional investors will expect your plan to provide proof, not just
promises. They’ll want to see market data, competitive advantage, and
management track records. They’ll want to see robust and comprehensive
financial projections. True, you’ll hear stories about investors backing new
companies without a plan, but those are the exceptions, not the rule.
So, however you cut it, your business plan is
very important, even at the early startup stage, and even if you can keep it in
your head. Before you purchase business stationery, telephones, or rent a
location, you should do a business plan.
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