Chapter 6

The Business Plan

“If you don’t know where you’re going, any road may get you there. The question is, is it where you want to go?” –– Unknown

The business plan is like a road map. The process of writing a business plan helps the consumer make good decisions and reach his or her goal or destination.

If the consumer answered Beginning to Develop Your Business Plan questions, he or she has already done some of the initial development. In most cases, you will not be working directly with the consumer while he or she develops the plan. Although your VR agency’s process may differ, usually the consumer works with a consultant to develop the business plan. It is important to stress to both the consumer and the consultant that the business plan must be developed by the consumer. The consultant’s role is to guide the development of the business plan. The consultant assists with sources for conducting marketing research, problem solving, presentation and format of the plan, and funding.

Why Develop a Business Plan?

The number one reason businesses fail is lack of planning! Instead of making mistakes on paper, business owners too often make them with real money and real customers. That is why most business funding institutions and agencies require business plans and refuse to fund business start-ups that cannot provide a well-developed plan.

Entrepreneurs pride themselves on being active and optimistic. They identify a niche and are driven to fill it. They invent new products, processes, or services to manufacture and/or sell. To them, planning is an academic exercise for large corporations, classrooms, or consultants.In reality, planning is key to the success of any small business.

Marketplace or economic change has a greater impact on small businesses than on large corporations.Planning is the dynamic process that prepares small businesses for the future. A business manager/owner has four basic functions: plan, organize, staff, direct and control the business’s operation. Each function must take place in the order listed. Planning is the first activity, and all other activities are premised upon it.

Benefits of Planning

It requires that the business owner evaluate the entire business. Daily decision making often involves resolving a series of seemingly unrelated problems. Planning identifies the underlying reasons for recurring daily problems.
The business plan contains written information that can be useful to employees, investors, creditors, and other interested parties. It is difficult to communicate an informal, unwritten business plan to others.
The business world increasingly is becoming competitive. In order to survive, a small business owner must find a well-defined market niche. He or she can not compete on price, and therefore must serve that market in a customer-oriented, cost-effective manner. Planning forces the entrepreneur to address these issues and enhances the likelihood of success.
Small business products, services, and delivery systems are constantly changing. Change is a state of uncertainty, but it also presents opportunities to the prepared business owner. Planning is a systematic way to identify and capitalize on new opportunities.
Planning does not end with completion of a written plan – the process is continuous. The business owner must constantly evaluate how the business is doing versus what had been planned. Ongoing comparison of planned to actual results provides a terrific opportunity to continuously improve the business.

The steps in the business planning process are the same for all businesses, but the results differ for each one. A manufacturing company specializing in high-quality custom orders, a fast-food restaurant, a clothing retailer, and an organic herb farm all have very different plans. Each business plan is tailored to the individual business and business owner.

Parts of the Business Plan

This book provides a general business plan format and describes the necessary information for each section. We have included a sample business plan at the end of the book. We encourage you to look at corresponding sections of the sample plan as you study the remaining sections of Chapter 6. This will help you understand how each section pertains to a business, so you can evaluate business plans that are submitted to you. In general, the information contained in a business plan should be consistent with this format, although section titles and order can show some variety. A business consultant may use a slightly different format – that is OK. However, the following information should be included in every business plan.

The Executive Summary

The Business Description

The Business
Business History
Form of Ownership
Ownership Interest
Industry Trends
Background Information About the Owners

The Marketing Plan

Products and Services
The Target Market
Business Location
Competition
Advertising and Promotion Strategies

The Operations Plan

Inputs
Facilities
Operating Costs
Licenses, Permits, Zoning, Insurance, Tax Number, Corp. Status
Capital Equipment
Production Methods
Management Methods
Employees
Outside Services

The Financial Plan

Need for and Sources of Cash
Equipment List
Income Statement
Break Even Analysis
Cash Flow Statement
Balance Sheet (or Personal Financial Statement)
Supporting Documents

Attachments

Business Plan Checklists

Business Plan Checklists are a useful tool for evaluating the business plan and for informing the consumer how you will evaluate the completeness and contents of the plan. Examples of the Business Plan Checklists are included at the end of this chapter after all components of a business plan are discussed. Business Plan Checklists for your use and for the potential business owner are also included in the section labeled Forms.

Chapter 6 Business Plan Study Guide: Introduction

The business plan can be likened to a road map because it helps the consumer make _______________ and reach his or her _______________.
A main reason many businesses fail is because they do not _______________.
Developing a business plan is more than an exercise for the business owner. List three benefits of developing a plan.
The steps in a business plan are (the same/different) for all types of businesses.