The Business Plan

Parts of the Business Plan

This is a general business plan format. For most businesses, the information contained in a business plan should be consistent with this format, although section titles and order can show some variety. The following information should be included in every business plan. A brief description of each section follows. 

I. Executive Summary

II. The Business Description
A. The Business
B. Business History
C. Form of Ownership
D. Ownership Interest
E. Industry Trends
F. Background Information About the Owners

III. The Marketing Plan
A. Products and Services
B. The Target Market
C. Business Location
D. Competition
E. Advertising and Promotion Strategies

IV. The Operations Plan
A. Inputs
B. Facilities
C. Operating Costs
D. Licenses, Permits, Zoning, Insurance, Taxpayer Number, Corporation Status
E. Capital Equipment
F. Production Methods 
G. Management Methods 
H. Employees
I. Outside Services

V. The Financial Plan
A. Need for and Sources of Cash
B. Equipment List
C. Income Statement
D. Break Even Analysis
E. Cash Flow Statement
F. Balance Sheet (or Personal Financial Statement)
G. Supporting Documents

VI. Attachments

Executive Summary

The executive summary is the first and most important section of a business plan. Its purpose is to convince the audience that this business is worthwhile. This “opening argument” must capture and hold the intended reader’s attention and direct it to a specific purpose. The executive summary should avoid industrial jargon – the reader may lose interest. Make the summery clear, concise, and convincing. Although the executive summary appears first in the plan, usually it is the last section written.

The Business Description

The Business. This section discusses the business’s name and its significance, the form of ownership, the business location, the service or product to be sold, and projections for the future. 

Business History. This section describes the history of an existing business or need for a new business. It describes how and why an existing business was founded or why a new business is needed. For an existing business, it should discuss the growth of the business on a local and regional level or beyond if appropriate. For a new business, it should discuss the industry on a local and regional basis and the projected growth of the business. 

Form of Ownership. This section specifies and discusses the rational for the type of business ownership. It includes documents or agreements between partners or shareholders. It discusses how the potential business owner determined the appropriate form of ownership for his or her business. The Secretary of State’s office in the state where the consumer wishes to open the business can help. In Montana, for example, the We Mean Business booklet contains the filing forms necessary to start a business and the information needed to determine the appropriate form of ownership. The booklet details the legal steps necessary to start, maintain and/or dissolve a business. A potential business owner should also contact a certified public accountant or a business consultant to discuss the appropriate form of ownership for his or her particular business. 

Ownership Interest. This section lists all owners, such as major shareholders or partners. It also documents owners’ or shareholders’ willingness to provide personal guarantees for any financing.

Industry Trends. This section discusses the current trends of the proposed (or existing) business and the industry. It describes whether or not the demand for the product or service exceeds current supply.

Background Information About the Owners. This section provides information about the owner(s), describing any experience in the industry or with managing a small business. This section also contains information about any business advisors other than lawyers or CPAs.

The Marketing Plan

Products and Services. This section describes the product or service, the currently-unsatisfied market need or desire, and describes how the product or service will meet that need or desire. 

The Target Market. This section describes the market and the customer. Many resources are available at public libraries that provide data on markets and customers. Here are just a few:

• County and City Data Book
• Statistics for States and Metropolitan Areas
• Statistical Abstract of the United States
• Trade Association Publications
• A Guide to Consumer Markets

Make sure you reference all information sources and describe the method used to gather target market data; describe the geographic market including its physical size, history, and trends (e.g., growth); and the proximity and relevance of potential customers. This section should also contain an estimate of the potential market, the number of customers the business expects to serve immediately after opening, the rate of expansion, and possible expansion into other markets.

Business Location. Describe possible locations explored, why the selected location is the best, and how it will benefit the business. 

Competition. This section describes others who are competing for the same market, what they charge, their weaknesses and strengths, how your product or service differs from theirs, and the features and benefits of your service or product versus the features and benefits of competitors’ service or product. Describe the methods used for gathering this information. 

Describe how you will gain market share. For example, will people patronize your business because of price, technical sophistication, image, superior product or service, location, or sales and/or marketing techniques? 

Advertising and Promotion Strategies. This section describes how the message about the product or service will be communicated to the users. It should describe the business owner’s philosophy about customer service, the image you wish to portray about your product through packaging, brochures, letterhead, business cards, displays, and the behavior/dress of employees. It also discusses all promotional activities and answers the following questions. What advertising media will be used – newspaper, radio, television, the Internet, windshield handouts, magazines, mailings, billboards, demonstration sites? What is the frequency of advertising – daily, weekly, monthly, bi-monthly? Will promotions (giveaways, discounts) be used? Who will contact customers – in-store sales staff, sales representatives, telemarketers? How will customers be contacted – by telephone, in-person cold-calls, trade show(s), e-mail? Will a website be created? 

Finally, this section should also discuss how customer satisfaction will be assessed. For example, through questionnaires, focus groups, repeat business, and/or referrals to others.

The Operations Plan

The operations plan explains how the work will be done and how the business will be managed and the business’s location. It also describes the manufacturing process including materials used in the process and employees and their duties. It also describes the business’s location.

Inputs. “Inputs” are materials, suppliers, and arrangements with suppliers. This section describes them and lists prices, volume discounts, and payment options that might influence the decision to trade with a higher-priced vendor.

Facilities. “Facilities” include location of the business and its physical layout. This section describes the location, features of the building and site, ownership, lease arrangement, remodeling needed (and costs), other businesses in the area, and zoning. It discusses why the location was selected and its advantages and disadvantages. It should include a floor plan. Questions that should be answered here include: Is the business located outside of the home? Is parking adequate? Are modifications necessary to accommodate the business owner’s disability or to ensure ADA compliance? 

Operating Costs. This section describes, and lists costs for, all utilities (heat, light, telephone and water) to be used by the business for production and operation. 

Licenses, Permits, Zoning, Insurance, Taxpayer Number, Corporation Status. The types of licenses, permits, insurances, and taxes paid vary according to the business. But it is likely that a business will require one or more of these to operate.

Capital Equipment. Capital equipment includes permanent items that the business keeps and uses for many years. These include equipment, furniture, and fixtures needed to start and run the business. This section describes each piece, discusses why it is necessary, and lists its cost and supplier.

Production Methods. This section describes both the tools used for making the products or performing the service and the work space(s), including the amount of room needed for each employee; the labor needed to produce the product or provide the service; methods for monitoring quality; and methods for complying with environmental and safety regulations. 

Management Methods. This section describes how the business will be managed and the business owner’s knowledge, skills and experience for completing day-to-day business functions and obtaining specialized services. 

Employees. This section describes staffing requirements for both production and business management. It discusses the type of work to be done, qualifications needed for the job(s), plans for filling open positions, wage rates, and benefits package(s).

Outside Services. This section describes the types and costs of outside services provided by non-employees, such as lawyers, bookkeepers, CPAs, and business managers.

The Financial Plan

This section discusses the investment required, sources of funds for the business, and financial statements. 

Developing these financial statements is one of the most difficult tasks facing a new business owner, because in most cases there is no history for reference. Unless you plan to purchase an existing business, these statements will be based on projections. Develop the Income Statement, Cash Flow Projections, and Balance Sheet statements for the first 2-3 years of business operation. First-year Cash Flow is projected monthly. Years 2 and 3 Cash Flow projections are quarterly rather than monthly. 

Need for and Sources of Cash. This statement lays out how much cash the business will need to open its doors and to operate until it is profitable. Most of this information will come from other parts of the business plan. 

Equipment List. This is a list of each item of business equipment and its value. Generally the items should have a useful life of one year or longer. You should consider whether or not to purchase or lease equipment. 

Income Statement. The income statement shows a business’s financial activity over a period of time to determine if the business made or lost money. It matches expenses with business revenues. The income statement includes total sales, cost of goods sold, gross profit, indirect expenses, other expenses, pre-tax profit or loss, taxes, and net profit or loss. 

Break-Even Analysis. The break-even analysis helps you determine the success of a business before it begins. It describes the number of units of a product or how many hours of a service must be sold to break even or to make a profit or the effect that changing a product’s price or reducing expenses has on profitability. 

Cash Flow Statement. Cash is even more important to a business than profits – a profitable business may still be unable to pay its bills. The cash flow statement shows when the business will receive cash and when cash must be available to pay bills. The cash flow statement shows when the cash actually will be received and the expenses actually paid. 

Don’t confuse this with your own personal cash flow statement you completed earlier . The personal statement shows the amount of money you need to live and cover monthly expenses. The business cash flow statement predicts when the business will need cash and when cash will be available.

The cash flow statement has two sections. The top section shows how and when cash will be received by the business. The bottom section shows how and when the money will be used to pay bills. Unlike the income statement, the cash flow statement shows money coming in only when the business actually receives it and going out only when the business actually pays a bill.

Balance Sheet. The balance sheet is a snapshot of a business at a particular point in time. It shows a business’s assets (what the business owns), liabilities (what the business owes), and owner’s equity (what the owner is worth). A new business gets its first Balance sheet when the business starts. It is updated annually thereafter, usually at year’s end. The balance sheet shows the business’s financial status and stability, and if the owner’s equity is increasing. It consists of two parts: Assets and Liabilities and Owner’s Equity. 

For many home-based, service businesses, or businesses where the owner has no credit rating separating personal and business assets and liabilities is difficult. When this is the case, a personal financial statement may be used in lieu of the balance sheet or the balance sheet should reflect personal assets, liabilities, and owner’s equity mixed with those of the business. 

Supporting Documents. This section includes other documents needed to support and validate the business and business plan. These include a cost-of-living budget and personal balance sheet for the business owner(s), resume(s), credit reports, contracts, legal documents, leases, job descriptions, letters of support and reference, letters from potential customers stating they will buy from the business when started, contracts, and other documents that bolster confidence in the proposed business.

Attachments

Other documents pertaining to or clarifying specific sections of the business plan.

© July 1998, 1st Revision June 1999, 2nd Revision February 2001