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How to Write a Business Plan

asusbtdc@astate.eduHerb Lawrence ASU SBTDC

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ASBTDC Services

• Training• Consulting• Market Research• Innovation

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Goals for today’s session• Develop understanding of why it’s important to

have a business plan and how it’s used in managing a business.

• Discuss in detail each element of a business plan.

• Understand the tools and resources necessary for completing business plan.

• Ask questions.

• Talk about next steps after this class.

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Reasons to have a business plan

• It is an organized, inclusive way to think about each functional aspect of your business.

• Writing clarifies and disciplines your thinking.

• It provides benchmarks against which to evaluate the progress of your business.

• It is a management tool; you can consult it to make important business decisions.

• It helps you “market” your business to others: lenders, landlords, suppliers, key employees.

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What is a business plan• Cover Page

• Table of Contents

• Executive Summary

• Financing Proposal

• Company Description

• Industry Analysis

• Products & Services

• Market Analysis

• Management & Organization

• Operational Plan

• Financial Plan & Projections

• Appendix

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Cover page• Owner’s name & business

name

• Company logo

• Phone numbers

• Mailing address & physical address

• Email & website address

• Confidentiality statement

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Table of Contents

• Include a table of contents as a quick reference to each topic discussed in your plan.

• You can have multiple topics referenced on a single page.

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Executive Summary• Most important section of the

business plan

• Likely only part ever read by some users

• Clear, concise summary of the plan

• Write LAST!

• Limit length to 1 or 2 pages

• Company Description

• Products & Services

• Target Customer

• Marketing Strategy

• Competitive Position

• Management Team

• Financial Summary

• Financing Proposal

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Financing Proposal• Loan amount requested

• Terms of Loan

• Utilization of Loan Proceeds

• Collateral for Loan

• Owner’s Equity Contribution

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Commercial Lending Decision

• Banks make lending decisions based on:

– Management ability

– Repayment ability

– Owner’s equity

– Collateral

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Company Description

• Name recognized by

• Mission statement

• Product or service offered

• Legal status and ownership

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Industry Analysis• Demonstrate your knowledge!

• Competitive “landscape”• What drives demand?• Fragmented or concentrated?• Labor or capital intensive?• Major players?

• Products, Operations, Technology• What mix of products/services are sold?• What percent of revenue comes from each?• How are they sold, what is the role of technology?• Sales per employee? Per square foot floor space?

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Industry Analysis (cont’)• Sales & Marketing – how do firms typically market

themselves? Location, advertising, website?

• Finance & Regulation – is cyclical cash flow management an issue? Is regulation pending?

• Business Challenges – what keeps managers “up at night?”

• Industry Opportunities – where is the industry trending? Where are the niches?

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SWOT Analysis• Strengths• Weaknesses

• Opportunities• Threats

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Products & Services• Describe the products and/or services

you intend to sell.

• How will you “position” your offerings?*

• Customer distribution channels – how will you sell to

the end user?

• How do you intend to price your offerings (generally),

and why?

*Positioning is the process of distinguishing yourself from competitors in specific ways in order to be the preferred provider for certain market segments.

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Market Analysis• Target Market

• Competitor Analysis

• Location Decision

• Marketing and Sales Strategy

• Supporting Market Research

Let’s talk about each of these in briefly!

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Target Market• Demographic description of target customer?

• Gender, age, race?• Children, family size• Income, net worth, homeowner?

• Geographic location of customer – trade area?

• Market segmentation system• Rich description – combines demographics

with buying behavior, lifestyle choices• Geodemographics – plot Tapestry

segments on your trade area• Example descriptions, map

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Example of Market Segmentation System

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Competitor Analysis• Always competition. No competition means no market for

product!

• Describe your major competitors

• Where are they located – Locator report

• What is their share of sales – Dun & Bradstreet

• Research them if possible - Company profiles

• Look for niche opportunities – entrepreneurs most successful

– example hardware store

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Mapping Existing Businesses

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Location Decision• Do you need a physical facility?

• How does this facility contribute to the competitive

advantage of the business?

• Consider a smaller advertising budget and a better

location.

• Enlist an experienced broker or agent to assist you.

• Use ASBTDC’s “Leasing Checklist.”

ASBTDC OfficesLead Center

University of Arkansas at Little RockDonald W. Reynolds Business Center

Suite 2602801 S. University Ave.Little Rock, AR 72204

501-683-7700asbtdc.ualr.edu

Arkansas State University, JonesboroCollege of Business

P.O. Box 2650Jonesboro, AR 72467

870-972-3517

Henderson State University, ArkadelphiaSchool of Business

P.O. Box 7624Arkadephia, AR 71999

870-230-5184

Southern Arkansas University, MagnoliaCollege of Business

P.O. Box 9192Magnolia, AR 71754

870-235-5033

University of Arkansas, FayettevilleSam M. Walton College of Business

D. W. Reynolds Center for Enterprise Development, Suite 140

Fayetteville, AR 72701479-575-5148

University of Arkansas - Fort SmithCollege of Business

P.O. Box 3649Fort Smith, AR 72913

479-788-7758

University of Arkansas at MonticelloCollege of Technology- McGehee

P.O. Box 747McGehee, AR 71654

870-222-4900

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Marketing and Sales Strategy

• The Marketing Mix

– Product

– Price

– Place (distribution)

– PromotionBalance 4 P’s to create perceived value and generate

a positive response in target customer

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Marketing and Sales Strategy

• Discuss marketing vehicles you intend to use to educate consumers about your business. Be mindful of:

– Fit – must reach target customer

– Mix – use more than one method

– Repetition – many exposures

– Affordability – must fit within your budget

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Marketing and Sales Strategy

• Examples of Marketing Vehicles include:

– Company website

– Print media

– Broadcast media

– Online advertising

– Direct mail

– Sampling

– Informal marketing/Networking

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Supporting Market Research• Use market research to bolster sections of the

business plan.

• You can’t just make statements based on what you think. Do your homework!

• Lenders understand the marketplace, particularly regarding loans they specialize in.

• ASBTDC assists with market research -- competitor analysis, site selection, target marketing, industry research, demographics, and more.

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Management & Organization

• Assess your strengths and weaknesses.

• Assemble an effective team:

– Tax advisor/accountant

– Banker/financial advisor

– Business attorney

– Technology consultant/web developer

– Insurance agent/risk management

– ASBTDC consultant

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Management & Organization

• Key positions in the business

• Qualifications of key personnel

• Organizational chart

• Compensation and incentives

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Operational Plan• This section covers the day-to-day operation of your

business:– Facilities

– Production plan, if applicable.

– Inventory management

– Supply and distribution

– Order fulfillment and Customer service

– Financial controls

– Legal issues

– Contingency planning

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Operational Plan• Don’t need to cover every detail. Address those

issues that:

– Are essential to the nature and success of your company.

– Provide you with a distinct competitive edge.

– Help you overcome a frequent problem in businesses of

your type.• Mundane, but vitally important

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Financial Plan & Projections• Pro forma financial statements

– Startup costs

– Balance sheet

– Income statement

– Cash flow statement• For existing business, include 3 years historical statements, if available.

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Start-up Costs• How much will you need?

• Inventory

• Equipment

• Deposits

• Working Capital•How much will it cost?

• Suppliers/Dealers

• Utilities

• Internet

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Balance Sheet

• Assets - what you own

• Liabilities - debts or obligations

• Equity - investment and undistributed profits

Assets = Liabilities + Equity

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•Revenues (income) less expenses

•Shows profitability over time

•Sales projection tools (RMA, Hillsearch, Industry)

Income Statement

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•Focus on not only amount but timing

•Allows for planning of potential cash shortfalls

•Demonstrates ability to repay debt

Cash Flow Projections

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Financial Plan & Projections• Techniques of financial analysis:

– Break-even analysis – drive net cash flow to zero by altering input such as price or costs.

– Sensitivity analysis – technique for determining the outcome of decision if a key prediction turns out to be wrong.

– Contribution margin – total revenue less total variable cost, helpful in making decisions about pricing, adding or subtracting products, or sales commissions.

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Financial Plan & Projections (cont’)

– Ratio analysis*

• Quick ratio – liquidity measure

• Inventory turnover – measure inventory management

• Return on assets – how effectively assets used to

generate profit

• Collection period – how quickly firm collects accounts

receivables*To be meaningful, most ratios must be compared to historical values of same firm, the firm’s forecasts, or ratios of similar firms.

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Financial Plan & Projections

• Tools available to help you

– RMA (Risk Management Association)

– Statement Studies of the Small Business

– ProfitCents™ software

– ASBTDC staff

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Appendix• Information supporting, confirming, and

reinforcing conclusions in body of plan.

• You might include:– Compelling market research findings– Resumes indicating special skills or abilities– Letters of reference– Personal financial statements– Impressive marketing materials

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Next Steps• Work up a draft of your business plan.

– Contact your ASBTDC for help with market research, financial projections, or any other area of concern.

• Provide a copy of your plan to the ASBTDC and

complete Request for Counseling.

• After review, we will meet to discuss our comments and

suggestions.

• Fill out course evaluation.