Develop a Business Plan

This is probably the most important step in starting a business but one that is often overlooked. It is important that you write the plan although seeking assistance or advice may be necessary to complete it. The business plan is really your blueprint for success. In developing it you will determine the market potential for your product/service, study and evaluate the competition, determine pricing of your product/service, and develop financial statements.

There are two purposes for writing a business plan: to provide a clearly articulated statement of strategy for internal operational purposes and to create a selling document to be shared with outsiders for the purpose of convincing potential lenders or investors that your business is potentially profitable and conceptually sound.

The Reasons for Developing a Business Plan

• Management is forced to realistically evaluate strengths and weaknesses of the new venture concept or the business, and to assess the competitiveness of the firm. Brakes are applied to concepts that may sound great, but have inherent problems.
• For new ventures, management is forced to consider all aspects of the prospective business, reducing the number of mistakes that will be made.
• Planning sets a direction for the business, focusing the business on where it is going AND not going, and providing measurable goals to assess progress.
• Areas that are “out of control” in a business or have received inadequate attention will be identified.
• Weaknesses in the management information system are highlighted.
• One of the most beneficial reasons for many entrepreneurs that are looking for funding is that a well-written plan makes the borrowing or capitalization process easier, and more successful.

Reasons People Avoid Developing a Business Plan

There are many common reasons why people will put off this planning process. People find they lack the time to put into the process. Some have a disbelief in the value of the process or belief that unwritten plans are sufficient. Others just lack the tools and know how of writing a business plan.

The Planning Process

• Determine the objective of planning.
• Gather information. Worksheets are helpful in assembling large amounts of data from various sources.
• Outline the plan and assemble information into plan segments.
• Add form to the plan or hire a consultant to do editing. When using software that is designed to help you write a business plan, make sure to tailor your specific plan to the needs of your business.
• A timetable for completion of the segments must be set and enforced.

The plan must be flexible and the process must be recognized as an on-going effort, not something done once a year. Ownership of the plan must be created in the personnel who are impacted.

The Elements of a Business Plan

• Mission Statement
• Executive Summary
• The Company and its Product(s) and Service(s)
• Marketing Plan
• Management Team
• Financial Plan
• Appendices

Mission Statement

This is where you include the vision of your company. This statement represents what your company stands for, where your importance lies in the company and what your focus is for the future of your business and your customers.

Executive Summary

This section is the most important part of the business plan. It summarizes the whole business plan. The length of the executive summary should be limited to two pages. It should include a summary of all of the important sections of your business plan including the following:

Business concept:

The beginning statement should get the attention of the reader.

Product/service:

Describe the product or service you offer.

Marketing plan:

Discuss who your customers are, your competition, competitive edges, and the pricing of your product or service.

Management team:

This section would discuss your key management personnel and their specific duties.

Financial plan:

Include your best estimates of your businesses financial needs.

Remember, the executive summary is the first section the reader is introduced to your company’s concept and this is why it is so crucial to get it right.

The Company and It’s Product(s) or Service(s)

Business Description

• Give the legalities of your business including the form of business, and the needed licenses or permits.
• Describe your type of business.
• Discuss the product or service that you offer.
• Explain the current status of your business. Is it a new independently running business, a takeover; are you expanding, or maybe a franchise?
• Discuss the reasons why this business will be profitable.
• Present the growth opportunities of your business.
• Include the days and times your business is operational.

The Company and the Concept

• Describe what business your company is in, or will enter.
• Give the legal name of the business, address, phone number, and legal form of business.
• Explain why you chose this type of business.
• If your company has been in business for several years, review its prior sales and profit performance. If your company has had setbacks, discuss these and emphasize what has or will be done.
• Present the current status and prospects for the industry in which you operate.

Product(s) or Service(s)

• Describe in some detail your product or service.
• Highlight any differences between what is currently on the market and your product or service.

Facilities and Improvements

• Describe the current or planned geographical location of your business.
• For an existing business, describe the facilities, including plant, special tooling, and machinery currently used to conduct business, and discuss whether these facilities are adequate.
• For start-up, describe how and when the necessary facilities will be acquired. Discuss whether equipment and space will be leased or bought and indicate the costs and timing of such actions.

The Location

• Describe your location needs.
• Describe the kind of space that is needed.
• Present the benefits of the building or area that you are considering.
• Give the accessibility of the location. Include if there is public transportation available, and if there is adequate lighting.
• Discuss the occurrence of market shifts or demographic shifts if applicable.

Marketing Plan

Because of the importance of market analysis, you may want to prepare this section of the business plan before any other. Give yourself enough time to be very thorough. This section is usually the most difficult to prepare, but it is the most important.

Customers

• Discuss who the customers for the product(s) or service(s) are or will be. You would need to reflect two market segments. The number of potential customers and the share of the market you plan to obtain.
• List any orders, contracts, or letters of commitment that you have. For an existing business, list your principal current customers and qualify the amount they buy each year.

Competition and Competitive Edges

• Make a realistic assessment of the strengths and weaknesses of your competitors.
• Compare competing products or services on the basis of quality, price, performance, service, and warranties.
• Discuss your three or four key competitors and why customers buy from them. From what you know about the competitor’s operations, explain why you think customers might leave them. Discuss what makes you think it will be easy or difficult to compete with them.

Advertising and Promotion

• Describe the approaches you will use to bring your product or service to the attention of prospective purchasers.
• Present a schedule and approximate cost of promotion and advertising for one year.

Pricing

• Discuss the prices to be charged for your product and service.
• Compare your pricing policy with those of your major competitors.
• Describe any discount allowance for prompt payment or volume purchases.

Management Team

This section is a description of the key management personnel and their primary duties. The existence of the proper balance of technical, managerial and business experience should be demonstrated.

Organization and Key Management Personnel

• Present the key management roles in the company and the individuals who will fill each position. (If the company is of sufficient size, an organizational chart needs to be included.)
• Discuss any current or past situations where key management people have worked together that could indicate how their skills complement each other and result in an effective management team.
• For each key person, describe career highlights, particularly relevant know-how, skills, and track record of accomplishments that demonstrate an ability to perform the assigned role.

Management Compensation and Ownership

• Compensation – State the salary to be paid, the stock ownership planned, and the amount of equity investment of each key member of management.
• Other Investors- Describe any other investors in your venture, the number and percent of outstanding shares they own, when they were acquired and at what price.
• Supporting Professional Advisors and Services- Indicate the names and affiliations of your legal and accounting advisors if any.

The Financial Plan

The financial plan needs to represent your best estimates of financial requirements. The purpose of the financial plan is to indicate the venture’s potential and to present a timetable for financial success.

Actual Income Statements and Balance Sheets

For an existing business, provide income statements and balance sheets for the current year and for the prior three years. The current financial statement should be no older than 90 days old. A listing of accounts receivable and accounts payable should be included.

Projections- Include any projections you have. For start-up or expanding companies, project cash flow monthly for twenty-four months of operation and project the income statement monthly for the first year and annually for the next two years.

Assumptions for Projections- Fully discuss assumptions made in preparing the projections, such as the timing of collection of receivables, trade discounts given, terms of payments to vendors, planned salary and wage increases, anticipated increases in any operating expenses, seasonality characteristics of the business as they affect inventory requirements, inventory turnovers per year and capital equipment purchases.

Source and Use of Funds

• Give the specific uses of the money you will be using.
• Give the sources of the money, for instance how much you are putting into the business and how much you want to borrow.

Four Critical Ingredients to Starting a Business

Have passion and more passion.

Just saying that you want to have a small business is not good enough. You must make a commitment and have that become your passion in order to be successful at starting your own business.

You have determination.

By determination, I mean the will to keep on going no matter what the obstacles. While passion will get you started, it is determination that will insure that you keep on going.

Have some similar experience. Trying to run a restaurant without any experience, even if you have the passion, is a sure sign for failure. If you have the passion without the experience, the business is not normally going to work. However, there are numerous ways to get experience including working for a similar business.

Have money.

Many people say you do not need money to start a business. While this might be true for a very, very small majority of the business startups, for most firms you will need some money to get started. As a general rule, you should have between 10 and 25 thousand rupees of cash ready to commit to this venture.

Reducing Risks

Obviously there are risks in starting your own business. How do you reduce these risks? Here are a few of the primary techniques that entrepreneurs can use to reduce the risk of starting their own business.

• Do as much homework as possible about the type of business and industry that you are considering.
• Look into franchising, as the risk here is a lot less than starting your business from scratch.
• Talk to some existing business owners that will not be competing with you to get their thoughts on how you should run your business.
• Take as many short courses as you can to gain an insight into your business.

Find a Mentor

Mentoring involves establishing a personal relationship with an existing business owner for the purpose of getting advice and support to help run your business. Most business owners can benefit from this type of relationship and should seek the help and assistance of an experienced entrepreneur.

Professional Associations

• Chamber of Commerce
• Trade Associations
• SMEDA

The Incorporation Process

Small Business Development Center

Contact SMEDA. They provide a variety of resources, which will help you with the incorporation process.

Business Licenses and other Necessary Permits

You will need to get a general business license, which is basically, a permit to operate a business locally. Check with the local planning department for building and zoning permits. Contact your local city and county government to determine the need for special licenses. Certain occupations require a special license, such as day care providers and general contractors. Getting through the maze of government regulations can be intimidating but it is important to do so because noncompliance can result in costly penalties. Contact Registration Department or FBR for assistance.

Determine a Location

Choosing a location involves a number of considerations. It is important to take into consideration factors, which will affect the profitability of the company. The choice of a location is more critical for some businesses than others depending on whether the customer needs frequent access to the location. Even so, once a business is established it is often very expensive and impractical to relocate so taking the time initially to make a good choice is important. A few factors to consider are:

Accessibility to your target market/customers

• Access must be convenient for target customers.
• Location should be close to niche market.

Business Environment

• Assess the competitive environment.
• How many competitors are near the location?
• What is your competitive advantage?
• Is there a need for your products and services in this area?
• Legal requirements
• Tax structure
• Location incentives

Availability of Resources

• Accessibility to Raw Materials
• Labor Supply

Costs

Buying, building and renting, it is difficult to know which is best. Many times it is better if start up companies rent. Renting a facility reduces the risks and responsibilities of owning. Renting a facility also gives the company time to grow and to assess what their long term needs will be. Lastly, by initially renting a facility the entrepreneur avoids the large initial cash outlay, which is required when purchasing a facility.

Demand for Sites and Locations

• Shared sites such as executive suites and business incubators can be helpful as they enable entrepreneurs to begin their business with low overhead.
• Study previous business success/failure for the location and area.
• Location incentives offered by the government may lure entrepreneurs in with their promise of tax relief.

Select a Business Name

Choose the name of your business carefully, one that will grow with your business. A name should tell or give some idea of the nature of your business as well as project the type of image that you desire to have. Once you come up with a name, check to see that it is not already being used. There are a number of resources available including local government offices and trade directories. (www.bustaname.com)

Obtain Tax ID#

Employer ID number (TIN) is a taxpayer identification number, which registers your business with the FBR. All businesses must apply for the TIN.

Sales Tax Certificate

The Applications for a certificate must be made prior to starting the business. These applications can be obtained from the FBR.

Obtain Necessary Insurance Coverage

The type of insurance needed depends on the type of business. It is important to identify risks to be insured and limit your coverage to major potential losses. An insurance agent can advise you about the types and amount of coverage that is best for your business. In order to do so they will need in depth information about your business. Your insurance agent should be able to tailor an insurance package that will meet your particular needs.

Financing A Business

Personal savings are the main source of funds for starting a business, and an entrepreneur must have some personal assets in the business. Lenders/and or investors want to see that the owner has a fair amount of his own money in the business before they are willing to invest. Friends and relatives are another source of new financing; however, they may feel that they have the right to offer suggestions, so it may be necessary to put this agreement in writing. Finally, other individual investors, known as angel investors are a source of equity financing.

Look for assistance

A business owner will need to establish relationships with a number of outside professionals that can assist them. They include an accountant, a banker, an attorney, an insurance agent, and consultants. CENTIN can provide you these guidelines and services in its INCUBATION CELL.

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