Thinking about staring your own business? You probably already know that you need a business plan. Business plans are required when pitching your business to investors, business plans outline specific, concrete actions you must take to achieve your goal, business plans provide background information to future staff…etc. In a word, business plans guide you, so they are the key towards giving you direction and purpose. A business plan has 8 subsections: business description, business environment, industry background, competitive analysis, market analysis, marketing plan, operations plan, and financial plan.
Your business description includes key logistics about your company, like your purpose, your services, etc. It also delineates the vision and direction of your company so that folks interested in your company have an accurate concept of what your company is all about. In your business description, be sure to include the qualities, the nature, the purpose, and the history of your business, as well as a description of your products and services. Precision and directness is the key, and increase your business clout by explicitly stating your “unique selling proposition”, or USP. In other words, what makes YOUR company special and different? Let your creativity and innovation shine in your business description.
A business environment consists of two key aspects: the micro environment and the macro environment. Your macro environment is everything in your immediate periphery: who are your competitors? Who are your customers? What is your market? On the other hand, macro environment is the general, encompassing picture of your business environment: what is the industry? How do the general economy, politics, culture, and demography impact your business? All of these factors should be taken into account when analyzing your business environment. Having a good understanding of your business environment allows you to easily recognize, analyze and react to both internal and outside forces that impact your business.
Understanding your industry is vital towards planning for success. You’ll want to think about what products and services are already currently produced by the industry, as well as the sizing of the industry, important trends in the industry, and all barriers to entry (i.e. anything that would stop a business from entering the industry, such as lack of resources for production and financial requirements). Apply this background knowledge to your own business; how do growth rates and new patterns/factors contribute to future growth and increase profitability for you and your business?
Who and what are you up against? That’s the questions you answer here. Because every business has competition, you get the upper hand if you know your competition well. Knowing the strengths and weaknesses of your competition will help you think about future steps in your business must take in order to survive and prosper. The first steps towards competitive analysis is researching your competitors and identifying the “threats to your existence”. Who solves the same the problems you do? What is their market share? How do they market? The next step is reflecting on your business. What makes your business different? Do you have a new, useful, or unique way of responding to customer needs? How much are competitors a threat to you? Keep in mind that getting to know your competitors is also a learning process. Learn from their strengths and weaknesses, and compare them with your own strengths and weaknesses.
Your market should, ultimately, help you develop better products and services. be sure to know what your target market is. For example, if you’re selling dresses to all women, you’ll probably be selling dresses to a certain age group with certain taste in style. So, who are your target customers? Are they individuals or companies? Where are your customers from? Additionally, know your market size and growth. Can your business prosper in your market? Will the market demand grow? Lastly, identify the value proposition. Why will customers buy your product? What are your solutions? What customer “pain” will you ease?
As a follow up to your marketing analysis, you will want to create a marketing plan. Treat your marketing plan as a road map; here, you can test ideas and explore various options for your business. When it comes to thinking about your plan, you should concentrate on opportunity, review objectives (your business goals and purpose), and define your marketing media mix ( all promotional activities to promote your product your product, including TV advertising, print and newspaper advertising, radio advertising, coupons, social media, etc).
The operations plan describes the daily activities of your business. You can divide your planning into two sections: development and production. In the development section, detail the process of how your product or service will be made and consider any alternative arrangements; be sure to also explain quality control measures you have taken or plan to take and how you accomplished them or plan to accomplish them. As for the production sections, make sure to include the following details: a general outline of your day to day operations (example: business hours), the location of the operating plant, the equipment used, business assets, special requirements (example: drainage), logistics of productions (i.e. how long it takes to make one product, what factors will affect the production time frame, etc.), inventory, feasibility, and cost.
This is where you justify your business with good, solid numbers. These numbers are crucial towards gaining investors or bank loans. Make sure you engage in forward-looking view; you should not be accounting previous numbers but present and future numbers. As Tim Berry, president and founder of Palo Alto software said, “It’s not tax reporting. It’s an elaborate educated guess.”
- The first step towards your financial plan is a sales forecast for the next several years. You will want to detail the projections of different units, including int sales, pricing, sales, unit costs, and cost of sales. To effectively predict sales, you should look at past results.
- The next step is creating an expenses budget. How much does it cost you to make the sales you’ve forecasted? Be sure to take into account taxes and interest.
- In the same vein, develop a cash-flow statement. The difference between your CFS and income statement is that cash does not include credit. So, the components of the cash flow statements are mainly cash from operating activities, cash from investing activities, cash from financing activities and disclosure of noncash activities. There are two ways to calculate cash flow; the direct method and the indirect method. The direct method calculates cash figures directly from cash receipts and payments. The indirect method is the prediction of cash flow via adjustment of the new incomes. Typical adjustments of net income include: adding back depreciation expense, adding the decrease in accounts receivable, deducting the increase in inventory, deducting the decrease in accounts payable, and more.
- After developing your cash flow statement, calculate income projections. In other words, this is your pro forma profit and loss statement.
- Then consider assets and liabilities. Assets provide your company future economic benefits, while liabilities are what you owe. This is important because assets and liabilities are not in the profits and loss statements. Some examples of assets are cash, investments, inventory, office equipment, and real estate; some examples of liabilities are bank debt, mortgage debt, wages owed, taxes owed, and money owed to suppliers.
- Finally, determine your break-even point. Break Even Analysis calculates the point in which total cost equals total revenue. Knowing your break-even point is crucial because only after that break-even point does your company start making revenue.
Ultimately, keep in mind that your business plan is a living document as you develop new goals. Refer back to your business plan to get inspired or to be reminded of your purpose.
Should you have any questions or would like to learn more, please feel free to consult with one of our attorneys at McDowall Cotter, or give us a call at (650)572-7933. Our experienced and knowledgeable staff will be able to help you with any of your needs or concerns.
– Florence Ye