Notice after each account item that a note and a number is stated. These numbers refer to the Notes to the Financial Statements and allows readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".
Also, notice J&B's three year Forecasted Income Statement is one page in length. The revenue and expense "items" are listed on the left hand side, while each year's forecasted revenues and expenses ("values") are shown in a column to the right. Your forecasted income statement for a three year period should appear in a similar fashion. Moreover, it is more professional and investors can compare your expected revenue and expense projections from year to year.
This concludes our discussion on how your forecasted income statements should appear in your Financial Plan. Remember it is imperative to understand the theory behind the income statement before attempting to forecast your own. To learn more about this statement, please refer to the section entitled " The Income Statement ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .
2. THE FORECASTED BALANCE SHEETS
The next statement to appear in the financial plan is your Forecasted Balance Sheets. Three, annual (year end) Forecasted Balance Sheets should follow your three year projected income statements. These forecasted balance sheets show investors the items your business anticipates to own at the beginning and end of each forecasted year. In addition, these statements will show investors how much your business anticipates to owe at the beginning and end of each forecasted period. By developing a forecasted annual balance sheet for three years into the future, you and investors will be able to determine if your proposed business provides an opportunity (IE profitable).
In addition to the three year forecasted balance sheets, investors will want to see an opening balance sheet. An opening balance sheet generally shows the businesses' assets, liabilities, and owner's investments into the business.
The three year forecasted balance sheets should be placed on one page. Moreover, the one page will consist of four columns - one column for your opening balance sheet, one column for the first year forecasted balance sheet, one column for the second year forecasted balance sheet, and one column for your third year forecasted balance sheet. Below provides an example of J&B Incorporated's forecasted Balance Sheet.
Ending Cash (note 21) | $ 63,314 | $ 57,608 | $ 61,968 | $ 94,091 |
Office Supplies (note 6) | $ 0 | $ 500 | $ 735 | $ 476 |
Finished Diskette Inventory (note 2) | $ 0 | $ 6,683 | $ 2,803 | $ 1,790 |
Finished CD Inventory (note 2) | $ 0 | $ 3,103 | $ 2,072 | $ 2,053 |
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Net Computer Equipment (note 16) | $ 7,602 | $ 9,426 | $ 10,034 | $ 11,642 |
Net Office Furniture (note 17) | $ 1,412 | $ 2,425 | $ 3,018 | $ 3,712 |
Net Intangible - Initial R&D (note 18) | $ 47,772 | $ 31,848 | $ 15,924 | $ 0 |
Net Intangible - Future R&D (note 19) | $ 0 | $ 74,161 | $140,923 | $179,789 |
Accounts Payable (note 22) | $ 0 | $ 4,975 | $ 5,274 | $ 6,394 |
Wages & Employee Benefits (note 23) | $ 0 | $ 1,686 | $ 2,049 | $ 2,336 |
Operating Loan Payable (note 13) | $20,000 | $ 0 | $ 0 | $ 0 |
Taxes Payable (note 20) | $ 0 | $ 29,698 | $ 31,728 | $ 34,919 |
100 Class A Common Shares(note 24) | $ 100 | $ 100 | $ 100 | $ 100 |
50 Class B Common Shares (note 24) | $100,000 | $100,000 | $100,000 | $100,000 |
Retained Earnings (note 25) | $ 0 | $ 49,294 | $ 98,326 | $149,804 |
* April 30, 1998 represents the forecasted account balances at the end of the product's development phase. | ||||
** April 30, 1999 represents the forecasted account balances at the end of the company's first year of operation. |
Notice J&B's three year Forecasted Balance is one page in length. The Asset, Liability, and Equity "items" are listed on the left hand side, while each year's forecasted account balances (values) are shown in a column to the right. Your forecasted balance sheet for a year three period should appear in a similar fashion. It is more tidy and investors can compare your expected financial position from year to year.
Also, notice after each account item that a note and a number is stated. These numbers refer to the Notes to the Financial Statements and allows readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".
This concludes our discussion on how your projected balance sheet should appear in your Financial Plan. Remember it is imperative to understand the theory behind the Balance Sheet before attempting to forecast your own. To learn more about this statement, please refer to the section entitled " The Balance Sheet ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .
3. FORECASTED CASH FLOW STATEMENTS
The next statement to appear in the financial plan is your Forecasted Cash-flow Statements. The Cash Flow Statement is a tool used to forecast the movement of cash into and out-off the business. The movement of cash into a company may result from sales to customers, cash from investors, cash from bank loans, cash from the owners, cash from interest earned, cash from commission sales, or from any other source that provides cash to the business. The movement of cash out-off the company might include items such as advertising, wages and salaries, inventory purchases, payment on taxes, payment on business loans, utilities, owner withdrawals, rent, dividends, and so on.
Without the necessary cash, a business will not survive. Therefore, a forecasted cash flow statement is constructed to determine if an entrepreneur's business will have enough cash to carry out the day to day (month to month) operations.
A cash flow statement can be organized on a daily, weekly, monthly or quarterly bases. Most bankers and other investors, however, prefer see a monthly cash flow statement for a three year period. In other words, you will be required to develop three forecasted cashflow statements, each consisting of a twelve month period.
This may seem overwhelming at first, but with the aid of a spreadsheet program such as Lotus 123 or Excel, the task becomes rather simple. If you do not have a spreadsheet program, you are advised to purchase one and learn how it operates - It is an invaluable business tool that will save you lots of time and money. Below provides an example of J&B's forecasted cashflow statement for a three year period. (please note: normally each annual cashflow statement is constructed in a spreadsheet program and consist of a twelve month forecasted period. Due to the margins of this program, we are unable to place twelve columns on one page. As a result, we have used two pages for each year to illustrate J&B's annual forecasted cash flow statement).
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Percentage of Sales (per month) | 3% | 3% | 8% | 8% | 9% | 9% | 10% |
Total Unit Sales/ Month) | 236 | 236 | 631 | 631 | 709 | 709 | 788 |
Diskette Sales (note 26) | 142 | 142 | 378 | 378 | 426 | 426 | 473 |
CD Sales (note 26) | 83 | 83 | 221 | 221 | 248 | 248 | 276 |
Internet Sales (note 26) | 12 | 12 | 32 | 32 | 35 | 35 | 39 |
Weighed Average Selling Price (1) | $73.89 | $73.89 | $73.89 | $73.89 | $73.89 | $73.89 | $73.89 |
Cash From Product Sales (100%) | $17,472 | $17,472 | $46,592 | $46,592 | $52,416 | $52,416 | $58,240 |
Less: Bad Debt Expense (1%) | $ 175 | $ 175 | $ 466 | $ 466 | $ 524 | $ 524 | $ 582 |
Purchase of Diskettes (note 27 a) | $8,670 | $ 0 | $ 0 | $ 8,670 | $ 0 | $ 8,670 | $ 0 |
Purchase of CD (note 27 b) | $2,500 | $ 0 | $ 0 | $ 0 | $ 2,500 | $ 0 | $ 0 |
Credit Card Charges (note 27 c) | $ 877 | $ 877 | $ 2,339 | $ 2,339 | $ 2,632 | $ 2,632 | $ 2,924 |
Packaging Charges (note 27 d) | $ 130 | $ 130 | $ 347 | $ 347 | $ 391 | $ 391 | $ 434 |
Actual Shipping Charges (note 27 e) | $ 636 | $ 636 | $ 1,696 | $ 1,696 | $ 1,908 | $ 1,908 | $ 2,120 |
Toll Free Charges (note 27 f) | $ 0 | $ 471 | $ 471 | $ 1,255 | $ 1,255 | $ 1,412 | $ 1,412 |
Commission on Sales (note 27 g) | $ 0 | $ 236 | $ 236 | $ 631 | $ 631 | $ 709 | $ 709 |
Product Miscellaneous (note 27 h) | $ 118 | $ 118 | $ 315 | $ 315 | $ 355 | $ 355 | $ 394 |
Advertising | $5,000 | $5,000 | $12,000 | $12,000 | $12,000 | $12,000 | $12,000 |
Wages & Employee Benefits | $6,217 | $6,900 | $10,464 | $10,857 | $10,857 | $10,857 | $10,857 |
Research & Development | $7,630 | $8,240 | $ 8,240 | $ 8,240 | $ 8,240 | $ 8,240 | $ 8,240 |
Casual Labor | $ 0 | $ 0 | $ 0 | $ 800 | $ 0 | $ 0 | $ 0 |
Office Supplies | $ 0 | $ 500 | $ 0 | $ 0 | $ 500 | $ 0 | $ 0 |
Rent | $1,000 | $1,000 | $ 1,000 | $ 1,000 | $ 1,000 | $ 1,000 | $ 1,000 |
Telephone/Fax | $ 0 | $ 300 | $ 300 | $ 300 | $ 300 | $ 300 | $ 300 |
Professional Services | $ 0 | $2,250 | $ 2,250 | $ 250 | $ 250 | $ 250 | $ 250 |
Business Insurance | $1,500 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Toll-free Charges above Variable | $ 0 | $ 471 | $ 471 | $ 1,255 | $ 1,255 | $ 1,412 | $ 1,412 |
Miscellaneous Charges | $ 200 | $ 200 | $ 200 | $ 200 | $ 200 | $ 200 | $ 200 |
Office Furniture | $1,618 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Office Equipment | $4,966 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Payment on Operating Loan | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Interest on Loan | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Internet Storage and Accounts | $ 150 | $ 150 | $ 150 | $ 150 | $ 150 | $ 150 | $ 150 |
Dividends Paid (note 28) | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $20,000 |
Net Cash Flow (Deficiency) | $-23,915 | $-10,183 | $5,646 | $-4,179 | $7,470 | $1,407 | $-4,744 |
Beginning Cash Balance (note 21) | $63,314 | $39,398 | $29,216 | $34,862 | $30,683 | $38,153 | $39,560 |
The remaining five (5) months of J&B's first year Forecasted Cashflow Statement is presented below. Recall this is not the correct format - the first year cashflow statement should be developed in a spreadsheet program and should appear on one page.
Percentage of Total Sales (per month) | 10% | 10% | 10% | 10% | 10% | 100% |
Total Unit Sales/ Month) | 788 | 788 | 788 | 788 | 788 | 7,882 |
Diskette Sales (note 26) | 473 | 473 | 473 | 473 | 473 | 4729 |
CD Sales (note 26) | 276 | 276 | 276 | 276 | 276 | 2,759 |
Internet Sales (note 26) | 39 | 39 | 39 | 39 | 39 | 394 |
Weighed Average Selling Price (note 1) | $73.89 | $73.89 | $73.89 | $73.89 | $73.89 | |
Cash From Product Sales (100%) | $58,240 | $58,240 | $58,240 | $58,240 | $58,240 | $582,401 |
Less: Bad Debt Expense (1%) | $ 582 | $ 582 | $ 582 | $ 582 | $ 582 | $ 5,824 |
Purchase of Diskettes (note 27 a) | $ 0 | $13,005 | $ 0 | $ 8,670 | $ 0 | $47,658 |
Purchase of CD (note 27 b) | $ 0 | $ 2,500 | $ 0 | $ 0 | $ 2,500 | $ 10,000 |
Credit Card Charges (note 27 c) | $2,924 | $ 2,924 | $ 2,924 | $ 2,924 | $ 2,924 | $ 29,242 |
Packaging Charges (note 27 d) | $ 434 | $ 434 | $ 434 | $ 434 | $ 434 | $ 4,343 |
Actual Shipping Charges (note 27 e) | $2,120 | $ 2,120 | $ 2,120 | $ 2,120 | $ 2,120 | $ 21,199 |
Toll Free Charges (note 27 f) | $1,569 | $ 1,569 | $ 1,569 | $ 1,569 | $ 1,569 | $ 14,117 |
Commission on Sales (note 27 g) | $ 788 | $ 788 | $ 788 | $ 788 | $ 788 | $ 7,094 |
Product Miscellaneous (note 27 h) | $ 394 | $ 394 | $ 394 | $ 394 | $ 394 | $ 3,941 |
Advertising | $12,000 | $12,000 | $12,000 | $12,000 | $12,000 | $130,000 |
Wages & Employee Benefits | $10,857 | $10,857 | $10,857 | $10,857 | $10,857 | $121,291 |
Research & Development | $8,240 | $8,240 | $ 8,240 | $ 8,240 | $ 8,240 | $ 98,271 |
Casual Labour | $ 800 | $ 0 | $ 0 | $ 0 | $ 800 | $ 2,400 |
Office Supplies | $ 500 | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,500 |
Rent | $1,000 | $1,000 | $ 1,000 | $ 1,000 | $ 1,000 | $ 12,000 |
Telephone/Fax | $ 300 | $ 300 | $ 300 | $ 300 | $ 300 | $ 3,300 |
Professional Services | $ 250 | $ 250 | $ 250 | $ 250 | $ 250 | $ 6,750 |
Business Insurance | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,500 |
Toll-free Charges above Variable | $1,569 | $1,569 | $ 1,569 | $ 1,569 | $ 1,569 | $ 14,117 |
Miscellaneous Charges | $ 200 | $ 200 | $ 200 | $ 200 | $ 200 | $ 2,400 |
Office Furniture | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,618 |
Office Equipment | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 4,966 |
Payment on Operating Loan | $20,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 20,000 |
Interest on Loan | $ 2,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 2,000 |
Internet Storage and Accounts | $ 900 | $ 150 | $ 150 | $ 150 | $ 150 | $ 2,550 |
Dividends Paid (note 28) | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 20,000 |
Net Cash Flow (Deficiency) | $(9,187) | $ (642) | $14,863 | $ 6,193 | $11,563 | |
Plus Beginning Cash Balance (note 21) | $34,816 | $25,629 | $24,988 | $39,851 | $46,044 | |
* Numbers are rounded. |
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Percentage of Sales (per month) | 8% | 7% | 7% | 8% | 8% | 10% | 9% |
Total Unit Sales/ Month) | 793 | 693 | 693 | 793 | 793 | 991 | 892 |
Diskette Sales (note 26) | 317 | 277 | 277 | 317 | 317 | 396 | 357 |
CD Sales (note 26) | 396 | 347 | 347 | 396 | 396 | 495 | 446 |
Internet Sales (note 26) | 79 | 69 | 69 | 79 | 79 | 99 | 89 |
Weighed Average Selling Price (1) | $68.01 | $68.01 | $68.01 | $68.01 | $68.01 | $68.01 | $68.01 |
Product Cost Inflation Rate | 5% | 5% | 5% | 5% | 5% | 5% | 5% |
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Cash From Product Sales (100%) | $53,902 | $47,164 | $47,164 | $53,902 | $53,902 | $67,378 | $60,640 |
Less: Bad Debt Expense (1%) | $ 539 | $ 472 | $ 472 | $ 539 | $ 539 | $ 674 | $ 606 |
Purchase of Diskettes (note 27 a) | $ 0 | $ 9,100 | $ 0 | $ 0 | $ 9,100 | $ 0 | $ 0 |
Purchase of CD (note 27 b) | $ 0 | $ 0 | $ 2,630 | $ 0 | $ 0 | $ 3,945 | $ 0 |
Credit Card Charges (note 27 c) | $ 2,726 | $ 2,386 | $ 2,386 | $ 2,726 | $ 2,726 | $ 3,408 | $ 3,067 |
Packaging Charges (note 27 d) | $ 435 | $ 381 | $ 381 | $ 435 | $ 435 | $ 544 | $ 490 |
Actual Shipping Charges (note 27 e) | $ 1,752 | $ 1,533 | $ 1,533 | $ 1,752 | $ 1,752 | $ 2,190 | $ 1,971 |
Toll Free Charges (note 27 f) | $ 1,569 | $ 1,656 | $ 1,449 | $ 1,449 | $ 1,656 | $ 1,656 | $ 2,071 |
Commission on Sales (note 27 g) | $ 788 | $ 832 | $ 728 | $ 728 | $ 832 | $ 832 | $ 1,040 |
Product Miscellaneous (note 27 h) | $ 420 | $ 368 | $ 368 | $ 420 | $ 420 | $ 525 | $ 473 |
Advertising | $12,500 | $12,500 | $12,500 | $12,500 | $12,500 | $12,500 | $12,500 |
Wages & Employee Benefits | $11,298 | $11,346 | $11,346 | $11,346 | $11,346 | $11,346 | $11,346 |
Research & Development | $ 9,850 | $10,165 | $10,165 | $10,165 | $10,165 | $10,165 | $10,165 |
Casual Labour | $ 750 | $ 0 | $ 0 | $ 750 | $ 0 | $ 0 | $ 0 |
Office Supplies | $ 500 | $ 0 | $ 0 | $ 488 | $ 0 | $ 488 | $ 0 |
Rent | $ 1,050 | $ 1,050 | $ 1,050 | $ 1,050 | $ 1,050 | $ 1,050 | $ 1,050 |
Telephone/Fax | $ 300 | $ 320 | $ 320 | $ 320 | $ 320 | $ 320 | $ 320 |
Professional Services | $ 250 | $ 292 | $ 292 | $ 292 | $ 292 | $ 292 | $ 292 |
Business Insurance | $ 1,650 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Toll-free Charges above Variable | $ 1,569 | $ 1,656 | $ 1,449 | $ 1,449 | $ 1,656 | $ 1,656 | $ 2,071 |
Miscellaneous Charges | $ 217 | $ 217 | $ 217 | $ 217 | $ 217 | $ 217 | $ 217 |
Taxes Payable | $29,698 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Office Furniture | $ 1,500 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Office Equipment | $ 5,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Internet Storage & Accounts | $ 160 | $ 160 | $ 160 | $ 160 | $ 160 | $ 160 | $ 160 |
Dividends Paid (note 28) | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $25,000 |
Net Cash Flow (Deficiency) | $-30,618 | $ -7,269 | $ - 281 | $ 7,115 | $ -1,265 | $15,410 | $-12,198 |
Plus Beginning Cash Balance | $57,608 | $26,989 | $19,721 | $19,440 | $26,555 | $25,290 | $40,700 |
The remaining five (5) months of J&B's second year Forecasted Cashflow Statement is presented below. Recall this is not the correct format - the second year cashflow statement should be developed in a spreadsheet program and should appear on one page.
Percentage of Total Sales (per month) | 8% | 7% | 10% | 9% | 9% | 100% |
Total Unit Sales/ Month) | 793 | 693 | 991 | 892 | 892 | 9,907 |
Diskette Sales (note 26) | 317 | 277 | 396 | 357 | 357 | 3,963 |
CD Sales (note 26) | 396 | 347 | 495 | 446 | 446 | 4,954 |
Internet Sales (note 26) | 79 | 69 | 99 | 89 | 89 | 991 |
Weighed Average Selling Price (note 1) | 68.01 | 68.01 | 68.01 | $68.01 | $68.01 | |
Product Cost Inflation Rate | 5% | 5% | 5% | 5% | 5% | |
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Cash From Product Sales (100%) | $53,902 | $47,164 | $67,378 | $60,640 | $60,640 | $673,775 |
Less: Bad Debt Expense (1%) | $ 539 | $ 472 | $ 674 | $ 606 | $ 606 | $ 6,738 |
Purchase of Diskettes (note 27 a) | $ 9,100 | $ 0 | $ 0 | $ 4,550 | $ 0 | $ 31,850 |
Purchase of CD (note 27 b) | $ 0 | $ 2,630 | $ 0 | $ 0 | $ 2,630 | $ 11,835 |
Credit Card Charges (note 27 c) | $ 2,726 | $ 2,386 | $ 3,408 | $ 3,067 | $ 3,067 | $ 34,080 |
Packaging Charges (note 27 d) | $ 435 | $ 381 | $ 544 | $ 490 | $ 490 | $ 5,439 |
Actual Shipping Charges (note 27 e) | $ 1,752 | $ 1,533 | $ 2,190 | $ 1,971 | $ 1,971 | $ 21,904 |
Toll Free Charges (note 27 f) | $ 1,864 | $ 1,656 | $ 1,449 | $ 2,071 | $ 1,864 | $ 20,411 |
Commission on Sales (note 27 g) | $ 936 | $ 832 | $ 728 | $ 1,040 | $ 936 | $ 10,254 |
Product Miscellaneous (note 27 h) | $ 420 | $ 368 | $ 525 | $ 473 | $ 473 | $ 5,251 |
Advertising | $12,500 | $12,500 | $12,500 | $12,500 | $12,500 | $150,000 |
Wages & Employee Benefits | $11,346 | $11,346 | $11,346 | $11,346 | $11,346 | $136,104 |
Research & Development | $10,165 | $10,165 | $10,165 | $10,165 | $10,165 | $121,662 |
Casual Labour | $ 750 | $ 0 | $ 0 | $ 0 | $ 750 | $ 3,000 |
Office Supplies | $ 0 | $ 488 | $ 0 | $ 0 | $ 488 | $ 2,450 |
Rent | $ 1,050 | $ 1,050 | $ 1,050 | $ 1,050 | $ 1,050 | $ 12,600 |
Telephone/Fax | $ 320 | $ 320 | $ 320 | $ 320 | $ 320 | $ 3,820 |
Professional Services | $ 292 | $ 292 | $ 292 | $ 292 | $ 292 | $ 3,458 |
Business Insurance | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,650 |
Toll-free Charges above variable | $ 1,864 | $ 1,656 | $ 1,449 | $ 2,071 | $ 1,864 | $ 20,411 |
Miscellaneous | $ 217 | $ 217 | $ 217 | $ 217 | $ 217 | $ 2,600 |
Taxes Payable | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 29,698 |
Office Furniture | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,500 |
Computer Equipment | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 5,000 |
Internet Storage & Accounts | $ 940 | $ 160 | $ 160 | $ 160 | $ 160 | $ 2,700 |
Dividends Paid | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 25,000 |
Net Cash Flow (Deficiency) | $-3,313 | $-1,286 | $20,360 | $ 8,252 | $ 9,453 | |
Plus: Beginning Cash Balance | $28,502 | $25,189 | $23,903 | $44,263 | $52,515 | |
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Percentage of Total Sales (per month) | 8% | 7% | 7% | 8% | 8% | 10% | 9% |
Total Unit Sales/ Month) | 928 | 812 | 812 | 928 | 928 | 1,160 | 1,044 |
Diskette Sales (note 26) | 186 | 162 | 162 | 186 | 186 | 232 | 209 |
CD Sales (note 26) | 603 | 528 | 528 | 603 | 603 | 754 | 679 |
Internet Sales (note 26) | 139 | 122 | 122 | 139 | 139 | 174 | 157 |
Weighed Average Selling Price ( 1) | $67.61 | $67.61 | $67.61 | $67.61 | $67.61 | $67.61 | $67.61 |
Product Cost Inflation Rate | 10% | 10% | 10% | 10% | 10% | 10% | 10% |
Cash From Product Sales (100%) | $62,753 | $54,909 | $54,909 | $62,753 | $62,753 | $78,441 | $70,597 |
Less: Bad Debt Expense (1%) | $ 628 | $ 549 | $ 549 | $ 628 | $ 628 | $ 784 | $ 706 |
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Purchase of Diskettes (note 27 a) | $ 0 | $ 9,540 | $ 0 | $ 0 | $ 0 | $ 0 | $ 9,540 |
Purchase of CD (note 27 b) | $ 0 | $ 5,500 | $ 0 | $ 0 | $ 5,500 | $ 0 | $ 0 |
Credit Card Charges (note 27 c) | $ 3,193 | $ 2,794 | $ 2,794 | $ 3,193 | $ 3,193 | $ 3,991 | $ 3,592 |
Packaging Charges (note 27 d) | $ 505 | $ 442 | $ 442 | $ 505 | $ 505 | $ 631 | $ 568 |
Actual Shipping Charges (note 27 e) | $ 1,554 | $ 1,360 | $ 1,360 | $ 1,554 | $ 1,554 | $ 1,943 | $ 1,748 |
Toll Free Charges (note 27 f) | $ 1,863 | $ 2,033 | $ 1,779 | $ 1,779 | $ 2,033 | $ 2,033 | $ 2,541 |
Commission on Sales (note 27 g) | $ 936 | $ 1,021 | $ 893 | $ 893 | $ 1,021 | $ 1,021 | $ 1,276 |
Product Miscellaneous (note 27 h) | $ 510 | $ 447 | $ 447 | $ 510 | $ 510 | $ 638 | $ 574 |
Advertising | $14,167 | $14,167 | $14,167 | $14,167 | $14,167 | $14,167 | $14,167 |
Wages & Employee Benefits | $13,694 | $13,952 | $13,952 | $13,952 | $13,952 | $13,952 | $13,952 |
Research & Development | $10,425 | $10,453 | $10,453 | $10,453 | $10,453 | $10,453 | $10,453 |
Casual Labour | $ 900 | $ 0 | $ 0 | $ 900 | $ 0 | $ 0 | $ 0 |
Office Supplies | $ 0 | $ 0 | $ 412 | $ 0 | $ 0 | $ 412 | $ 0 |
Rent | $ 1,102 | $ 1,102 | $ 1,102 | $ 1,102 | $ 1,102 | $ 1,102 | $ 1,102 |
Telephone/Fax | $ 320 | $ 340 | $ 340 | $ 340 | $ 340 | $ 340 | $ 340 |
Professional Services | $ 292 | $ 333 | $ 333 | $ 333 | $ 333 | $ 333 | $ 333 |
Business Insurance | $ 1,815 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Toll-free Charges above Variable | $ 1,864 | $ 2,033 | $ 1,779 | $ 1,779 | $ 2,033 | $ 2,033 | $ 2,541 |
Miscellaneous Charges | $ 233 | $ 233 | $ 233 | $ 233 | $ 233 | $ 233 | $ 233 |
Taxes Payable | $31,728 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Office Furniture | $ 0 | $ 2,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Office Equipment | $ 0 | $ 8,000 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 |
Internet Storage & Accounts | $ 170 | $ 170 | $ 170 | $ 170 | $ 170 | $ 170 | $ 170 |
Dividends Paid (note 28) | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $30,000 |
Net Cash Flow (Deficiency) | $-23,145 | $-21,560 | $3,704 | $10,261 | $ 5,026 | $24,204 | $-23,241 |
Plus Beginning Cash Balance | $61,968 | $38,823 | $17,263 | $20,967 | $31,228 | $36,254 | $60,457 |
The remaining five (5) months of J&B's third year Forecasted Cashflow Statement is presented below. Recall this is not the correct procedure - the third year cashflow statement should be developed in a spreadsheet program and should appear on one page.
Percentage of Total Sales (per month) | 8% | 7% | 10% | 9% | 9% | 100% |
Total Unit Sales/ Month) | 928 | 812 | 1,160 | 1044 | 1044 | 11,602 |
Diskette Sales (note 26) | 186 | 162 | 232 | 209 | 209 | 2320 |
CD Sales (note 26) | 603 | 528 | 754 | 679 | 679 | 7541 |
Internet Sales (note 26) | 139 | 122 | 174 | 157 | 157 | 1740 |
Weighed Average Selling Price (note 1) | $67.61 | $67.61 | $67.61 | $67.61 | $67.61 | |
Product Cost Inflation Rate | 10% | 10% | 10% | 10% | 10% | |
Cash From Product Sales (100%) | $62,753 | $54,909 | $78,441 | $70,597 | $70,597 | $784,411 |
Bad Debt Expense (1%) | $ 628 | $ 549 | $ 784 | $ 706 | $ 706 | $ 7,844 |
Purchase of Diskettes (note 27 a) | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,908 | $ 20,988 |
Purchase of CD (note 27 b) | $ 5,500 | $ 0 | $ 0 | $ 4,125 | $ 0 | $ 20,625 |
Credit Card Charges (note 27 c) | $ 3,193 | $ 2,794 | $ 3,991 | $ 3,592 | $ 3,592 | $ 39,911 |
Packaging Charges (note 27 d) | $ 505 | $ 442 | $ 631 | $ 568 | $ 568 | $ 6,311 |
Actual Shipping Charges (note 27 e) | $ 1,554 | $ 1,360 | $ 1,943 | $ 1,748 | $ 1,748 | $ 19,428 |
Toll Free Charges (note 27 f) | $ 2,287 | $ 2,033 | $ 1,779 | $ 2,541 | $ 2,287 | $ 24,985 |
Commission on Sales (note 27 g) | $ 1,149 | $ 1,021 | $ 893 | $ 1,276 | $ 1,149 | $ 12,550 |
Product Miscellaneous (note 27 h) | $ 510 | $ 447 | $ 638 | $ 574 | $ 574 | $ 6,381 |
Advertising | $14,167 | $14,167 | $14,167 | $14,167 | $14,167 | $170,000 |
Wages & Employee Benefits | $13,952 | $13,952 | $13,952 | $13,952 | $13,952 | $167,163 |
Research & Development | $10,453 | $10,453 | $10,453 | $10,453 | $10,453 | $125,411 |
Casual Labour | $ 900 | $ 0 | $ 0 | $ 0 | $ 900 | $ 3,600 |
Office Supplies | $ 0 | $ 412 | $ 0 | $ 0 | $ 412 | $ 1,650 |
Rent | $ 1,102 | $ 1,102 | $ 1,102 | $ 1,102 | $ 1,102 | $ 13,230 |
Telephone/Fax | $ 340 | $ 340 | $ 340 | $ 340 | $ 340 | $ 4,060 |
Professional Services | $ 333 | $ 333 | $ 333 | $ 333 | $ 333 | $ 3,958 |
Business Insurance | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 1,815 |
Toll-free Charges above Variable | $ 2,287 | $ 2,033 | $ 1,779 | $ 2,541 | $ 2,287 | $ 24,985 |
Miscellaneous Charges | $ 233 | $ 233 | $ 233 | $ 233 | $ 233 | $ 2,800 |
Taxes Payable | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 31,728 |
Office Furniture | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 2,000 |
Office Equipment | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 8,000 |
Internet Storage & Accounts | $ 995 | $ 170 | $ 170 | $ 170 | $ 170 | $ 2,865 |
Dividends Paid (note 28) | $ 0 | $ 0 | $ 0 | $ 0 | $ 0 | $ 30,000 |
Net Cash Flow (Deficiency) | $2,665 | $3,068 | $25,252 | $12,174 | $13,715 | |
Plus: Beginning Cash Balance | $37,217 | $39,882 | $42,949 | $68,202 | $80,376 | |
As you can see, the above forecasted cash flow statements project J&B's cash inflows (from customers, from a bank loan and investors) and all expected cash outflow (from purchases of inventory, for advertising, for rent etc,) each month for thirty-six months. The inflows and outflows are subtracted and the difference is known as the Net Cash Flow (Deficiency). The cash at the beginning of the month is then added to the Net Cash Flow (Deficiency) to produce the Ending Cash Balance for the month.
Notice at the beginning of each cash flow statement, an ASSUMPTION section has been used. This assists the reader (investor) in understanding how the entrepreneur arrived at various values throughout the Cash Flow Statement (optional).
Also notice, after some of the account items, a note and a number is stated. These numbers refer to the Notes to the Financial Statements and allows readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".
We can not stress enough that you should have three cash flow statements; one for each forecasted year. In addition, each cash flow statement will consist of a twelve month forecasted period; for a total of thirty-six months.
This concludes our discussion on how your forecasted cash flow statement should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the cash flow statement before attempting to forecast your own. To learn more about this statement, please refer to the section entitled " The Cash-Flow Statement ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .
4. FORECASTED BREAK-EVEN ANALYSIS
The next analysis to appear in your financial plan is the Forecasted Break-even Analysis. A Break Even Analysis, in its simplest form, is a tool used to determine the level of sales a business must earn in order to achieve neither a profit nor a loss. In other words, the point at which a business' Net Income is ZERO (revenues - expenses = 0).
The break-even analysis focuses mainly on the items included in a company's income statement (revenues and expenses). Moreover, the Break-even Analysis relies on your forecasted Fixed Costs, your forecasted Variable Costs and your forecasted Selling Price(s). Forecasted Fixed Costs are costs and expenses that do not fluctuate with sales increases or decreases. Forecasted Variable Costs are costs and expenses that do fluctuate with sales increases or decreases. A Forecasted Selling Price (s) is the price or prices you plan to sell your product at.
Your Forecasted Break-even analysis can consist of one page or two pages; depending upon how much detail you decide to offer. For example, J&B Incorporated's forecasted break-even analysis, presented below, consists of two parts. PART A. provides the reader with all information required in making the break-even calculation, and PART B shows the actual break-even calculation.
Selling Price per unit (note 1) | $73.89 | $68.01 | $67.61 |
Weighted Average Variable Cost per unit | $16.50 | $14.79 | $12.10 |
Advertising Expense (note 3) | $130,000 | $150,000 | $170,000 |
Wages & Employee Benefits (note 4) | $122,366 | $136,153 | $167,421 |
Casual Labor (note 5) | $ 2,400 | $ 3,000 | $ 3,600 |
Office Supplies (note 6) | $ 1,500 | $ 1,715 | $ 1,908 |
Rent Expense (note 7) | $ 12,000 | $ 12,600 | $ 13,230 |
Telephone/Fax Expense (note 8) | $ 3,600 | $ 3,840 | $ 4,080 |
Professional Services (note 9) | $ 7,000 | $ 3,500 | $ 4,000 |
Insurance Expenses (note 10) | $ 1,500 | $ 1,650 | $ 1,815 |
Toll-free Charges above Variable Cost (note 11) | $ 15,685 | $ 20,706 | $ 25,408 |
Bad Debt Expense (note 12) | $ 5,824 | $ 6,738 | $ 7,844 |
Interest on Operating Loan (note 13) | $ 2,000 | $ nil | $ nil |
Internet Storage & Accounts Expense (note 14) | $ 2,550 | $ 2,700 | $ 2,865 |
Miscellaneous Expenses (note 15) | $ 2,400 | $ 2,600 | $ 2,800 |
Depreciation Expense - Equipment (note 16) | $ 3,142 | $ 4,392 | $ 6,392 |
Depreciation Expense- Furniture (note 17) | $ 606 | $ 906 | $ 1,306 |
Amortization of Initial Development Costs (note 18) | $ 15,924 | $ 15,924 | $ 15,924 |
Amortization of Future Development Costs (note 19) | $ 24,720 | $ 55,215 | $ 86,575 |
Forecasted Sales in units per year | = | 7,882 units | 9,907 units | 11,602 units |
Forecasted Sales above Break-even | = | 1,727 units | 1,984 units | 2,321 units |
J&B is forecasting sales of 1,727 units above its break-even point in year one, 1,984 units above break-even in year two and 2,321 units above break-even in year three. |
In the above example, notice that J&B calculates its break-even point and provides an indication of how many units it plans to sell above its break-even point. To do this, J&B simply subtracts each years' forecasted break-even point from the number units it plans to sell in each forecasted year.
Also notice, J&B provides readers with all figures needed to calculate the break-even point. You may elect to use this format or you may decide to only provide the break-even calculations. Whichever format you decide, be sure your break-even point is calculated over a three year period - one column for each forecasted year. You may also decide to provide the reader with an explanation on why your forecasted break-even point is increasing or decreasing. For example, J&B's break-even point is increasing due to the company's planned decrease in its selling price, its estimated increase in variable costs, and its planned increase in fixed costs. As a result, the company is earning a lower contribution margin on each sale made during year two and three. Thus less "money" is contributing to their higher fixed costs.
This concludes our discussion on how your projected break-even analysis should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the break-even analysis before attempting to forecast your own. To learn more about this financial analysis, please refer to the section entitled " The Break-even Analysis ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .
5. SENSITIVITY ANALYSIS
A sensitivity analysis shows the effects on Net Income when forecasted sales are increased or decreased by various percentages. Since your forecasted sales will NEVER be one hundred percent accurate, the sensitivity analysis shows investors how your net income will change if your original sales forecast increases by 30%, 20% and 15% or if your original sales forecast decreases and a 15% or 20 %, for example. The percentages chosen for your sensitivity analysis is up to you, however, avoid percentages of 14% or lower.
Many entrepreneurs develop only one sensitivity analysis ( for their first year operation). Others develop three sensitivity analysis; one for each forecasted year of operation. Whichever format you plan to use is not important, what is important, however, is that you include this analysis in your business plan. It shows the investor that you understand; 1) the forecasting process and 2)that your original sales forecasts generally do NOT materialize as envisioned.
Like Break-even Analysis, the Sensitivity Analysis uses your forecasted income statement as its starting point. The analysis relies on distinguishing between Forecasted Fixed Costs and Forecasted Variable Costs. Recall, Forecasted Fixed Costs are costs and expenses that do not fluctuate with sales increases or decreases. Forecasted Variable Costs are costs and expenses that do fluctuate with sales increases or decreases.
Below provides an example of J&B's sensitivity analysis for its first forecasted year of operations. Notice, J&B has chosen a sales percentage increase of 15% of its original sales forecast and a sales percentage decrease of 20% of its original sales forecast.
| | | |
Sales in Units (note 1) | 6,306 units | 7,882 units | 9,064 units |
Weighted Average Selling Price (note 1) | $73.89 | $73.89 | $73.89 |
Cost of Goods Sold (note 2) | $104,153 | $130,191 | $149,720 |
: | |||
Advertising Expense | $130,000 | $130,000 | $130,000 |
Wages & Employee Benefits | $122,366 | $122,366 | $122,366 |
Casual Labor | $ 2,400 | $ 2,400 | $ 2,400 |
Office Supplies | $ 1,500 | $ 1,500 | $ 1,500 |
Rent Expense | $ 12,000 | $ 12,000 | $ 12,000 |
Telephone/Fax Expense | $ 3,600 | $ 3,600 | $ 3,600 |
Professional Services | $ 7,000 | $ 7,000 | $ 7,000 |
Insurance Expenses | $ 1,500 | $ 1,500 | $ 1,500 |
Toll-free above Variable | $ 15,685 | $ 15,685 | $ 15,685 |
Bad Debt Expense (note 12) | $ 5,824 | $ 5,824 | $ 5,824 |
Interest on Operating Loan | $ 2,000 | $ 2,000 | $ 2,000 |
Internet Storage & Accounts | $ 2,550 | $ 2,550 | $ 2,550 |
Miscellaneous Expenses | $ 2,400 | $ 2,400 | $ 2,400 |
Depreciation Exp. - Equipment | $ 3,142 | $ 3,142 | $ 3,142 |
Depreciation Exp.- Furniture | $ 606 | $ 606 | $ 606 |
Amortization of Initial R&D Costs | $ 15,924 | $ 15,924 | $ 15,924 |
Amortization of Future R&D Costs | $ 24,720 | $ 24,720 | $ 24,720 |
Net Income Before Taxes | $ 8,579 | $ 98,992 | $166,801 |
Less: Estimated Tax Rate (30%) | $ 2,574 | $ 29,698 | $ 50,040 |
* All Operating Expenses are considered Fixed Costs. ** The only Variable Cost is J&B's Cost of Goods Sold. *** Figures are rounded. |
Notice, J&B's forecasted Operating Expenses are considered to be Fixed Costs (they do not fluctuate with sales increases or decreases. Also, the company's Variable Costs, in this example, include only the Cost of Goods Sold (COGS will always fluctuate with sales increases or decreases and therefore will always be considered variable). The only other item, in the above example, that fluctuates with sales is Sales itself! In other words, if you increase the original forecasted sales by a certain percentage, then sales will have to increase by that amount (in units sold and in dollars). Alternatively if you decrease the original sales forecast by any amount, then SALES in units sold and in dollar will certainly change by that amount or percentage.
This concludes our discussion on how your projected sensitivity analysis should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the sensitivity analysis before attempting to forecast your own. To learn more about this financial analysis, please refer to the section entitled " The Sensitivity Analysis ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .
6. RATIO ANALYSIS
The next analysis appearing in the financial plan should be your Forecasted Ratio Analysis. In a nutshell, Ratio Analysis is a general technique for analyzing the performance of an existing or potential business.
Ratios involve dividing numbers from the Balance Sheet and Income Statement to create percentages and decimals. When aspiring entrepreneurs and existing business owners apply for a loan, for example, bankers usually look at their forecasted ratios and compare them to ratios of other businesses operating within the same industry.
Your projected ratios should be calculated over a three year forecasted period. Many business plan writers calculate the ratios and provide a narrative discussion, depicting how each has changed over the three year forecasted period. Others calculate the ratios and provide a footnote stating "a complete analysis regarding the forecasted ratios is available upon request. Yet other business plan writers feel the need to calculate various ratios and compare them to ratios of other businesses within the industry. The later approach can be time consuming and may not be "cost effective". Below provides an example of J&B's forecasted Ratio Calculations.
Current Assets Current Liabilities | = | $67,894 $36,359 | $67578 $39051 | $98410 $43649 |
Current Assets -Current Liabilities Current Liabilities | = | $31,535 $36,359 | $28,526 $39,051 | $54,761 $43,649 |
Total Debt Total Assets | = | $36,359 $185,753 | $39,051 $237,477 | $43,649 $293,553 |
: | ||||
Total Debt Total Equity | = | $ 36,359 $149,394 | $ 39,051 $198,426 | $ 43,649 $249,904 |
: | ||||
Net Income after tax Sales | = | $ 69,294 $582,401 | $ 74,032 $673,775 | $81,478 $78,441 |
: | ||||
Net Income after tax Total Equity | = | $ 69,294 $149,394 | $ 74,032 $198,426 | $ 81,478 $249,904 |
NOTE: Complete analysis on above ratios is available upon request . |
Notice the information provided in the above example. The name of each ratio, the formula required in calculating each ratio, the dollar amounts for each formula item, and the ratio calculation for each of the forecasted years. It is important to stress that these dollar amounts have been taking from J&B's forecasted Balance Sheet and Forecasted Income Statement. Therefore, the forecasted balance sheet and income statement must be complete before ratios can be calculated.
Also notice that J&B decided to calculate the ratios without providing any narrative discussion. Moreover, the company states that a "complete analysis is available upon request". If you want to impress the investor, it might in your best interest to provide the ratio analysis (narrative discussion) in your business plan. To do this, simply calculate each ratio for the three year forecasted period and then briefly discuss the variables attributing to change in ratio value.
This concludes our discussion on how your projected ratio analysis should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the ratio analysis before attempting to forecast your own. To learn more about how to read or determine the meaning behind ratios, please refer to the section entitled " Ratio Analysis ". This section will also provide you with other ratio formulas which you may decide to include in your analysis.
This concludes PART B of the financial plan entitled "Forecasted Financial Statements".The purpose of this section was not to show you how to develop forecasted financial statements, rather the purpose was to show you how the statements generally appear in the Financial Plan.
To learn the theory behind each financial statement, please refer to the section entitled " Learning and Understanding Financial Statements ". To learn how to forecast your own financial statements, please refer to the section entitled " Forecasting your Own Financial Statements ".
In summary, be sure your forecasted financial statements and analysis provide for a three year forecasted period and include the following;
Forecasted Income Statements | all on one page |
Forecasted Balance Sheets | all on one page |
Forecasted Cash Flow Statements | one page for each cash flow statement |
Break-even Analysis | Calculations on one page, analysis is unlimited |
Sensitivity Analysis | One page for each sensitivity, analysis is unlimited |
Ratio Analysis | on one to three pages depending upon your format |
Please Note: as mentioned earlier, you will save yourself time and money if you develop the above financial items using a spreadsheet program.
PART C - NOTES TO THE FINANCIAL STATEMENTS
The third and final part of the financial section of the Business Plan is known as the notes to the forecasted financial statements. Notes to the Forecasted Financial Statements summarize the "activities" and "assumptions" made when creating the forecasted financial statements.. The Notes will give the readers (bankers, investors, and other readers) the necessary information needed to understand and comprehend your forecasts and projections. It also alleviates any guessing or questioning a reader may have when analyzing the financial section of the business plan. NOTE: never, ever, ever, create the notes to the forecasted financial statements until you have" fully completed" all forecasted statements and analysis.
There is no set structure nor specific guideline that dictate which topics should be included in the notes to the financial statements. Rather it is left up to the individual to decide which items warrant a "note" and which items are self explanatory. The following list provides some suggestions you may use when creating your notes section.
Sales Forecast note to the financial statements |
Gross Margin note to the financial statements |
Management and Staff note to the financial statements |
Office or Store Supplies note to the financial statements |
Bad Debt Expense Rate note to the financial statements |
Marketing Expenses Breakdown note to the financial statements |
Income Tax Rate notes to the financial statements |
Income Tax Payable note to the financial statements |
Net Income note to the financial statements |
Accounts Receivable note to the financial statements |
Personal Assets Invested by the Owner note to financial statements |
Fixed Asset Purchases note to the financial statements |
Total Fixed Assets Available note to the financial statements |
Deprecation Rates on Fixed Assets note to the financial statements |
Inventory note to the financial statements |
Accounts Payable note to the financial statements |
Short-term Loans note to the financial statements |
Long-term Debt (mortgage) note to the financial statements |
Sales Tax note to the financial statements |
Owner (s)Capital Account note to the financial statements |
Retained Earnings note to the financial statements |
Dividend Distribution note to the financial statements |
Your notes should provide details on each of the required three year forecasted periods. Below provides a link to J&B's Notes to the Forecasted Financial Statements. BUT FIRST - recall from above, the word "note" and a "number" followed several account items on J&B's forecasted income statement, balance sheet and cash flow statement, etc. For instance, on the company's income statement, an account called revenue from sales is present. Following the revenue from sales account is a "note 1". This refers to the first note under the Notes to the Forecasted Financial Statements. When investors read J&B's income statement and see note 1 beside the account item entitled "Total Revenue From Sales", they can quickly refer to the Notes section for information on how the entrepreneur arrived at these dollars amounts. As a result, the investor better understands the financial statements and the assumptions used when creating them. . Try is yourself - print off all J&B's financial statements and refer to the Notes below. You'll find your understanding of the financial statements as well as the company's initiatives is much better. Remember, when investors understand your financial projections, it reduces their risk, and in many cases, it increases your chances of receiving financing.
Link to: J&B Incorporated's Notes to their Forecasted Financial Statements
For additional information on this topic, please refer to the section entitled " Notes to the Financial Statements ".
CONCLUSION OF THE FINANCIAL PLAN
This concludes our discussion on the Financial Plan section of a business plan. Remember the Financial Plan generally consists of three parts:
The Introduction |
The Forecasted Financial Statements |
The Notes to the Forecasted Financial Statements |
Below provides examples of how your Financial Plan should appear in its entirety. (Please note, the financial statements and analysis for two of the examples below; namely The Internet Company and Scholarship Information Services provide forecasts for a two year period. Your financial statements and analysis, however, generally provide projections for at least a three year period.
EXAMPLES OF THE FINANCIAL PLAN SECTION OF A BUSINESS PLAN J&B Incorporated Scholarship Information Services The Internet Company
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Understanding business plans, how to write a business plan, common elements of a business plan, how often should a business plan be updated, the bottom line, business plan: what it is, what's included, and how to write one.
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
A business plan is a document that details a company's goals and how it intends to achieve them. Business plans can be of benefit to both startups and well-established companies. For startups, a business plan can be essential for winning over potential lenders and investors. Established businesses can find one useful for staying on track and not losing sight of their goals. This article explains what an effective business plan needs to include and how to write one.
Investopedia / Ryan Oakley
Any new business should have a business plan in place prior to beginning operations. In fact, banks and venture capital firms often want to see a business plan before they'll consider making a loan or providing capital to new businesses.
Even if a business isn't looking to raise additional money, a business plan can help it focus on its goals. A 2017 Harvard Business Review article reported that, "Entrepreneurs who write formal plans are 16% more likely to achieve viability than the otherwise identical nonplanning entrepreneurs."
Ideally, a business plan should be reviewed and updated periodically to reflect any goals that have been achieved or that may have changed. An established business that has decided to move in a new direction might create an entirely new business plan for itself.
There are numerous benefits to creating (and sticking to) a well-conceived business plan. These include being able to think through ideas before investing too much money in them and highlighting any potential obstacles to success. A company might also share its business plan with trusted outsiders to get their objective feedback. In addition, a business plan can help keep a company's executive team on the same page about strategic action items and priorities.
Business plans, even among competitors in the same industry, are rarely identical. However, they often have some of the same basic elements, as we describe below.
While it's a good idea to provide as much detail as necessary, it's also important that a business plan be concise enough to hold a reader's attention to the end.
While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.
Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.
The length of a business plan can vary greatly from business to business. Regardless, it's best to fit the basic information into a 15- to 25-page document. Other crucial elements that take up a lot of space—such as applications for patents—can be referenced in the main document and attached as appendices.
These are some of the most common elements in many business plans:
The best business plans aren't generic ones created from easily accessed templates. A company should aim to entice readers with a plan that demonstrates its uniqueness and potential for success.
Business plans can take many forms, but they are sometimes divided into two basic categories: traditional and lean startup. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.
A business plan is not a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections to begin with. Markets and the overall economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All of this calls for building some flexibility into your plan, so you can pivot to a new course if needed.
How frequently a business plan needs to be revised will depend on the nature of the business. A well-established business might want to review its plan once a year and make changes if necessary. A new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.
The lean startup business plan is an option when a company prefers to give a quick explanation of its business. For example, a brand-new company may feel that it doesn't have a lot of information to provide yet.
Sections can include: a value proposition ; the company's major activities and advantages; resources such as staff, intellectual property, and capital; a list of partnerships; customer segments; and revenue sources.
A business plan can be useful to companies of all kinds. But as a company grows and the world around it changes, so too should its business plan. So don't think of your business plan as carved in granite but as a living document designed to evolve with your business.
Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."
U.S. Small Business Administration. " Write Your Business Plan ."
Every successful business has one thing in common, a good and well-executed business plan. A business plan is more than a document, it is a complete guide that outlines the goals your business wants to achieve, including its financial goals . It helps you analyze results, make strategic decisions, show your business operations and growth.
If you want to start a business or already have one and need to pitch it to investors for funding, writing a good business plan improves your chances of attracting financiers. As a startup, if you want to secure loans from financial institutions, part of the requirements involve submitting your business plan.
Writing a business plan does not have to be a complicated or time-consuming process. In this article, you will learn the step-by-step process for writing a successful business plan.
You will also learn what you need a business plan for, tips and strategies for writing a convincing business plan, business plan examples and templates that will save you tons of time, and the alternatives to the traditional business plan.
Let’s get started.
Businesses create business plans for different purposes such as to secure funds, monitor business growth, measure your marketing strategies, and measure your business success.
One of the primary reasons for writing a business plan is to secure funds, either from financial institutions/agencies or investors.
For you to effectively acquire funds, your business plan must contain the key elements of your business plan . For example, your business plan should include your growth plans, goals you want to achieve, and milestones you have recorded.
A business plan can also attract new business partners that are willing to contribute financially and intellectually. If you are writing a business plan to a bank, your project must show your traction , that is, the proof that you can pay back any loan borrowed.
Also, if you are writing to an investor, your plan must contain evidence that you can effectively utilize the funds you want them to invest in your business. Here, you are using your business plan to persuade a group or an individual that your business is a source of a good investment.
A business plan can help you track cash flows in your business. It steers your business to greater heights. A business plan capable of tracking business growth should contain:
A good business plan should guide you through every step in achieving your goals. It can also track the allocation of assets to every aspect of the business. You can tell when you are spending more than you should on a project.
You can compare a business plan to a written GPS. It helps you manage your business and hints at the right time to expand your business.
A business plan can help you measure your business success rate. Some small-scale businesses are thriving better than more prominent companies because of their track record of success.
Right from the onset of your business operation, set goals and work towards them. Write a plan to guide you through your procedures. Use your plan to measure how much you have achieved and how much is left to attain.
You can also weigh your success by monitoring the position of your brand relative to competitors. On the other hand, a business plan can also show you why you have not achieved a goal. It can tell if you have elapsed the time frame you set to attain a goal.
You can use a business plan to document your marketing plans. Every business should have an effective marketing plan.
Competition mandates every business owner to go the extraordinary mile to remain relevant in the market. Your business plan should contain your marketing strategies that work. You can measure the success rate of your marketing plans.
In your business plan, your marketing strategy must answer the questions:
1. create your executive summary.
The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans . Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.
Generally, there are nine sections in a business plan, the executive summary should condense essential ideas from the other eight sections.
A good executive summary should do the following:
The executive summary is the make-or-break section of your business plan. If your summary cannot in less than two pages cannot clearly describe how your business will solve a particular problem of your target audience and make a profit, your business plan is set on a faulty foundation.
Avoid using the executive summary to hype your business, instead, focus on helping the reader understand the what and how of your plan.
View the executive summary as an opportunity to introduce your vision for your company. You know your executive summary is powerful when it can answer these key questions:
Writing the executive summary last although it is the most important section of your business plan is an excellent idea. The reason why is because it is a high-level overview of your business plan. It is the section that determines whether potential investors and lenders will read further or not.
The executive summary can be a stand-alone document that covers everything in your business plan. It is not uncommon for investors to request only the executive summary when evaluating your business. If the information in the executive summary impresses them, they will ask for the complete business plan.
If you are writing your business plan for your planning purposes, you do not need to write the executive summary.
The company overview or description is the next section in your business plan after the executive summary. It describes what your business does.
Adding your company overview can be tricky especially when your business is still in the planning stages. Existing businesses can easily summarize their current operations but may encounter difficulties trying to explain what they plan to become.
Your company overview should contain the following:
When creating a company overview, you have to focus on three basics: identifying your industry, identifying your customer, and explaining the problem you solve.
If you are stuck when creating your company overview, try to answer some of these questions that pertain to you.
After answering some or all of these questions, you will get more than enough information you need to write your company overview or description section. When writing this section, describe what your company does for your customers.
The company description or overview section contains three elements: mission statement, history, and objectives.
The mission statement refers to the reason why your business or company is existing. It goes beyond what you do or sell, it is about the ‘why’. A good mission statement should be emotional and inspirational.
Your mission statement should follow the KISS rule (Keep It Simple, Stupid). For example, Shopify’s mission statement is “Make commerce better for everyone.”
When describing your company’s history, make it simple and avoid the temptation of tying it to a defensive narrative. Write it in the manner you would a profile. Your company’s history should include the following information:
When you fill in this information, you use it to write one or two paragraphs about your company’s history.
Your business objective must be SMART (specific, measurable, achievable, realistic, and time-bound.) Failure to clearly identify your business objectives does not inspire confidence and makes it hard for your team members to work towards a common purpose.
The third step in writing a business plan is the market and competitive analysis section. Every business, no matter the size, needs to perform comprehensive market and competitive analyses before it enters into a market.
Performing market and competitive analyses are critical for the success of your business. It helps you avoid entering the right market with the wrong product, or vice versa. Anyone reading your business plans, especially financiers and financial institutions will want to see proof that there is a big enough business opportunity you are targeting.
This section is where you describe the market and industry you want to operate in and show the big opportunities in the market that your business can leverage to make a profit. If you noticed any unique trends when doing your research, show them in this section.
Market analysis alone is not enough, you have to add competitive analysis to strengthen this section. There are already businesses in the industry or market, how do you plan to take a share of the market from them?
You have to clearly illustrate the competitive landscape in your business plan. Are there areas your competitors are doing well? Are there areas where they are not doing so well? Show it.
Make it clear in this section why you are moving into the industry and what weaknesses are present there that you plan to explain. How are your competitors going to react to your market entry? How do you plan to get customers? Do you plan on taking your competitors' competitors, tap into other sources for customers, or both?
Illustrate the competitive landscape as well. What are your competitors doing well and not so well?
Answering these questions and thoughts will aid your market and competitive analysis of the opportunities in your space. Depending on how sophisticated your industry is, or the expectations of your financiers, you may need to carry out a more comprehensive market and competitive analysis to prove that big business opportunity.
Instead of looking at the market and competitive analyses as one entity, separating them will make the research even more comprehensive.
Market analysis, boarding speaking, refers to research a business carried out on its industry, market, and competitors. It helps businesses gain a good understanding of their target market and the outlook of their industry. Before starting a company, it is vital to carry out market research to find out if the market is viable.
The market analysis section is a key part of the business plan. It is the section where you identify who your best clients or customers are. You cannot omit this section, without it your business plan is incomplete.
A good market analysis will tell your readers how you fit into the existing market and what makes you stand out. This section requires in-depth research, it will probably be the most time-consuming part of the business plan to write.
To create a compelling market analysis that will win over investors and financial institutions, you have to carry out thorough market research . Your market research should be targeted at your primary target market for your products or services. Here is what you want to find out about your target market.
The purpose of carrying out a marketing analysis is to get all the information you need to show that you have a solid and thorough understanding of your target audience.
Only after you have fully understood the people you plan to sell your products or services to, can you evaluate correctly if your target market will be interested in your products or services.
You can easily convince interested parties to invest in your business if you can show them you thoroughly understand the market and show them that there is a market for your products or services.
How to Quantify Your Target Market
One of the goals of your marketing research is to understand who your ideal customers are and their purchasing power. To quantify your target market, you have to determine the following:
What Does a Good Market Analysis Entail?
Your business does not exist on its own, it can only flourish within an industry and alongside competitors. Market analysis takes into consideration your industry, target market, and competitors. Understanding these three entities will drastically improve your company’s chances of success.
You can view your market analysis as an examination of the market you want to break into and an education on the emerging trends and themes in that market. Good market analyses include the following:
The market analysis section is not just for talking about your target market, industry, and competitors. You also have to explain how your company can fill the hole you have identified in the market.
Here are some questions you can answer that can help you position your product or service in a positive light to your readers.
Basically, your market analysis should include an analysis of what already exists in the market and an explanation of how your company fits into the market.
In the competitive analysis section, y ou have to understand who your direct and indirect competitions are, and how successful they are in the marketplace. It is the section where you assess the strengths and weaknesses of your competitors, the advantage(s) they possess in the market and show the unique features or qualities that make you different from your competitors.
Many businesses do market analysis and competitive analysis together. However, to fully understand what the competitive analysis entails, it is essential to separate it from the market analysis.
Competitive analysis for your business can also include analysis on how to overcome barriers to entry in your target market.
The primary goal of conducting a competitive analysis is to distinguish your business from your competitors. A strong competitive analysis is essential if you want to convince potential funding sources to invest in your business. You have to show potential investors and lenders that your business has what it takes to compete in the marketplace successfully.
Competitive analysis will s how you what the strengths of your competition are and what they are doing to maintain that advantage.
When doing your competitive research, you first have to identify your competitor and then get all the information you can about them. The idea of spending time to identify your competitor and learn everything about them may seem daunting but it is well worth it.
Find answers to the following questions after you have identified who your competitors are.
If your competitors have a website, it is a good idea to visit their websites for more competitors’ research. Check their “About Us” page for more information.
If you are presenting your business plan to investors, you need to clearly distinguish yourself from your competitors. Investors can easily tell when you have not properly researched your competitors.
Take time to think about what unique qualities or features set you apart from your competitors. If you do not have any direct competition offering your product to the market, it does not mean you leave out the competitor analysis section blank. Instead research on other companies that are providing a similar product, or whose product is solving the problem your product solves.
The next step is to create a table listing the top competitors you want to include in your business plan. Ensure you list your business as the last and on the right. What you just created is known as the competitor analysis table.
Direct vs Indirect Competition
You cannot know if your product or service will be a fit for your target market if you have not understood your business and the competitive landscape.
There is no market you want to target where you will not encounter competition, even if your product is innovative. Including competitive analysis in your business plan is essential.
If you are entering an established market, you need to explain how you plan to differentiate your products from the available options in the market. Also, include a list of few companies that you view as your direct competitors The competition you face in an established market is your direct competition.
In situations where you are entering a market with no direct competition, it does not mean there is no competition there. Consider your indirect competition that offers substitutes for the products or services you offer.
For example, if you sell an innovative SaaS product, let us say a project management software , a company offering time management software is your indirect competition.
There is an easy way to find out who your indirect competitors are in the absence of no direct competitors. You simply have to research how your potential customers are solving the problems that your product or service seeks to solve. That is your direct competition.
Factors that Differentiate Your Business from the Competition
There are three main factors that any business can use to differentiate itself from its competition. They are cost leadership, product differentiation, and market segmentation.
1. Cost Leadership
A strategy you can impose to maximize your profits and gain an edge over your competitors. It involves offering lower prices than what the majority of your competitors are offering.
A common practice among businesses looking to enter into a market where there are dominant players is to use free trials or pricing to attract as many customers as possible to their offer.
2. Product Differentiation
Your product or service should have a unique selling proposition (USP) that your competitors do not have or do not stress in their marketing.
Part of the marketing strategy should involve making your products unique and different from your competitors. It does not have to be different from your competitors, it can be the addition to a feature or benefit that your competitors do not currently have.
3. Market Segmentation
As a new business seeking to break into an industry, you will gain more success from focusing on a specific niche or target market, and not the whole industry.
If your competitors are focused on a general need or target market, you can differentiate yourself from them by having a small and hyper-targeted audience. For example, if your competitors are selling men’s clothes in their online stores , you can sell hoodies for men.
The next step in your business plan is your business and management structure. It is the section where you describe the legal structure of your business and the team running it.
Your business is only as good as the management team that runs it, while the management team can only strive when there is a proper business and management structure in place.
If your company is a sole proprietor or a limited liability company (LLC), a general or limited partnership, or a C or an S corporation, state it clearly in this section.
Use an organizational chart to show the management structure in your business. Clearly show who is in charge of what area in your company. It is where you show how each key manager or team leader’s unique experience can contribute immensely to the success of your company. You can also opt to add the resumes and CVs of the key players in your company.
The business and management structure section should show who the owner is, and other owners of the businesses (if the business has other owners). For businesses or companies with multiple owners, include the percent ownership of the various owners and clearly show the extent of each others’ involvement in the company.
Investors want to know who is behind the company and the team running it to determine if it has the right management to achieve its set goals.
The management team section is where you show that you have the right team in place to successfully execute the business operations and ideas. Take time to create the management structure for your business. Think about all the important roles and responsibilities that you need managers for to grow your business.
Include brief bios of each key team member and ensure you highlight only the relevant information that is needed. If your team members have background industry experience or have held top positions for other companies and achieved success while filling that role, highlight it in this section.
A common mistake that many startups make is assigning C-level titles such as (CMO and CEO) to everyone on their team. It is unrealistic for a small business to have those titles. While it may look good on paper for the ego of your team members, it can prevent investors from investing in your business.
Instead of building an unrealistic management structure that does not fit your business reality, it is best to allow business titles to grow as the business grows. Starting everyone at the top leaves no room for future change or growth, which is bad for productivity.
Your management team does not have to be complete before you start writing your business plan. You can have a complete business plan even when there are managerial positions that are empty and need filling.
If you have management gaps in your team, simply show the gaps and indicate you are searching for the right candidates for the role(s). Investors do not expect you to have a full management team when you are just starting your business.
1. Avoid Adding ‘Ghost’ Names to Your Management Team
There is always that temptation to include a ‘ghost’ name to your management team to attract and influence investors to invest in your business. Although the presence of these celebrity management team members may attract the attention of investors, it can cause your business to lose any credibility if you get found out.
Seasoned investors will investigate further the members of your management team before committing fully to your business If they find out that the celebrity name used does not play any actual role in your business, they will not invest and may write you off as dishonest.
2. Focus on Credentials But Pay Extra Attention to the Roles
Investors want to know the experience that your key team members have to determine if they can successfully reach the company’s growth and financial goals.
While it is an excellent boost for your key management team to have the right credentials, you also want to pay extra attention to the roles they will play in your company.
Adding an organizational chart in this section of your business plan is not necessary, you can do it in your business plan’s appendix.
If you are exploring funding options, it is not uncommon to get asked for your organizational chart. The function of an organizational chart goes beyond raising money, you can also use it as a useful planning tool for your business.
An organizational chart can help you identify how best to structure your management team for maximum productivity and point you towards key roles you need to fill in the future.
You can use the organizational chart to show your company’s internal management structure such as the roles and responsibilities of your management team, and relationships that exist between them.
In your business plan, you have to describe what you sell or the service you plan to offer. It is the next step after defining your business and management structure. The products and services section is where you sell the benefits of your business.
Here you have to explain how your product or service will benefit your customers and describe your product lifecycle. It is also the section where you write down your plans for intellectual property like patent filings and copyrighting.
The research and development that you are undertaking for your product or service need to be explained in detail in this section. However, do not get too technical, sell the general idea and its benefits.
If you have any diagrams or intricate designs of your product or service, do not include them in the products and services section. Instead, leave them for the addendum page. Also, if you are leaving out diagrams or designs for the addendum, ensure you add this phrase “For more detail, visit the addendum Page #.”
Your product and service section in your business plan should include the following:
In the products and services section, you have to distill the benefits, lifecycle, and production process of your products and services.
When describing the benefits of your products or services, here are some key factors to focus on.
When describing the product life cycle of your products or services, here are some key factors to focus on.
When describing the production process for your products or services, you need to think about the following:
1. Avoid Technical Descriptions and Industry Buzzwords
The products and services section of your business plan should clearly describe the products and services that your company provides. However, it is not a section to include technical jargons that anyone outside your industry will not understand.
A good practice is to remove highly detailed or technical descriptions in favor of simple terms. Industry buzzwords are not necessary, if there are simpler terms you can use, then use them. If you plan to use your business plan to source funds, making the product or service section so technical will do you no favors.
2. Describe How Your Products or Services Differ from Your Competitors
When potential investors look at your business plan, they want to know how the products and services you are offering differ from that of your competition. Differentiating your products or services from your competition in a way that makes your solution more attractive is critical.
If you are going the innovative path and there is no market currently for your product or service, you need to describe in this section why the market needs your product or service.
For example, overnight delivery was a niche business that only a few companies were participating in. Federal Express (FedEx) had to show in its business plan that there was a large opportunity for that service and they justified why the market needed that service.
3. Long or Short Products or Services Section
Should your products or services section be short? Does the long products or services section attract more investors?
There are no straightforward answers to these questions. Whether your products or services section should be long or relatively short depends on the nature of your business.
If your business is product-focused, then automatically you need to use more space to describe the details of your products. However, if the product your business sells is a commodity item that relies on competitive pricing or other pricing strategies, you do not have to use up so much space to provide significant details about the product.
Likewise, if you are selling a commodity that is available in numerous outlets, then you do not have to spend time on writing a long products or services section.
The key to the success of your business is most likely the effectiveness of your marketing strategies compared to your competitors. Use more space to address that section.
If you are creating a new product or service that the market does not know about, your products or services section can be lengthy. The reason why is because you need to explain everything about the product or service such as the nature of the product, its use case, and values.
A short products or services section for an innovative product or service will not give the readers enough information to properly evaluate your business.
4. Describe Your Relationships with Vendors or Suppliers
Your business will rely on vendors or suppliers to supply raw materials or the components needed to make your products. In your products and services section, describe your relationships with your vendors and suppliers fully.
Avoid the mistake of relying on only one supplier or vendor. If that supplier or vendor fails to supply or goes out of business, you can easily face supply problems and struggle to meet your demands. Plan to set up multiple vendor or supplier relationships for better business stability.
5. Your Primary Goal Is to Convince Your Readers
The primary goal of your business plan is to convince your readers that your business is viable and to create a guide for your business to follow. It applies to the products and services section.
When drafting this section, think like the reader. See your reader as someone who has no idea about your products and services. You are using the products and services section to provide the needed information to help your reader understand your products and services. As a result, you have to be clear and to the point.
While you want to educate your readers about your products or services, you also do not want to bore them with lots of technical details. Show your products and services and not your fancy choice of words.
Your products and services section should provide the answer to the “what” question for your business. You and your management team may run the business, but it is your products and services that are the lifeblood of the business.
Answering these questions can help you write your products and services section quickly and in a way that will appeal to your readers.
You can also hint at the marketing or promotion plans you have for your products or services such as how you plan to build awareness or retain customers. The next section is where you can go fully into details about your business’s marketing and sales plan.
Providing great products and services is wonderful, but it means nothing if you do not have a marketing and sales plan to inform your customers about them. Your marketing and sales plan is critical to the success of your business.
The sales and marketing section is where you show and offer a detailed explanation of your marketing and sales plan and how you plan to execute it. It covers your pricing plan, proposed advertising and promotion activities, activities and partnerships you need to make your business a success, and the benefits of your products and services.
There are several ways you can approach your marketing and sales strategy. Ideally, your marketing and sales strategy has to fit the unique needs of your business.
In this section, you describe how the plans your business has for attracting and retaining customers, and the exact process for making a sale happen. It is essential to thoroughly describe your complete marketing and sales plans because you are still going to reference this section when you are making financial projections for your business.
The sales and marketing section is where you outline your business’s unique selling proposition (USP). When you are developing your unique selling proposition, think about the strongest reasons why people should buy from you over your competition. That reason(s) is most likely a good fit to serve as your unique selling proposition (USP).
Plans on how to get your products or services to your target market and how to get your target audience to buy them go into this section. You also highlight the strengths of your business here, particularly what sets them apart from your competition.
Before you start writing your marketing and sales plan, you need to have properly defined your target audience and fleshed out your buyer persona. If you do not first understand the individual you are marketing to, your marketing and sales plan will lack any substance and easily fall.
Marketing your products and services is an investment that requires you to spend money. Like any other investment, you have to generate a good return on investment (ROI) to justify using that marketing and sales plan. Good marketing and sales plans bring in high sales and profits to your company.
Avoid spending money on unproductive marketing channels. Do your research and find out the best marketing and sales plan that works best for your company.
Your marketing and sales plan can be broken into different parts: your positioning statement, pricing, promotion, packaging, advertising, public relations, content marketing, social media, and strategic alliances.
Your positioning statement is the first part of your marketing and sales plan. It refers to the way you present your company to your customers.
Are you the premium solution, the low-price solution, or are you the intermediary between the two extremes in the market? What do you offer that your competitors do not that can give you leverage in the market?
Before you start writing your positioning statement, you need to spend some time evaluating the current market conditions. Here are some questions that can help you to evaluate the market
After answering these questions, then you can start writing your positioning statement. Your positioning statement does not have to be in-depth or too long.
All you need to explain with your positioning statement are two focus areas. The first is the position of your company within the competitive landscape. The other focus area is the core value proposition that sets your company apart from other alternatives that your ideal customer might consider.
Here is a simple template you can use to develop a positioning statement.
For [description of target market] who [need of target market], [product or service] [how it meets the need]. Unlike [top competition], it [most essential distinguishing feature].
For example, let’s create the positioning statement for fictional accounting software and QuickBooks alternative , TBooks.
“For small business owners who need accounting services, TBooks is an accounting software that helps small businesses handle their small business bookkeeping basics quickly and easily. Unlike Wave, TBooks gives small businesses access to live sessions with top accountants.”
You can edit this positioning statement sample and fill it with your business details.
After writing your positioning statement, the next step is the pricing of your offerings. The overall positioning strategy you set in your positioning statement will often determine how you price your products or services.
Pricing is a powerful tool that sends a strong message to your customers. Failure to get your pricing strategy right can make or mar your business. If you are targeting a low-income audience, setting a premium price can result in low sales.
You can use pricing to communicate your positioning to your customers. For example, if you are offering a product at a premium price, you are sending a message to your customers that the product belongs to the premium category.
Basic Rules to Follow When Pricing Your Offering
Setting a price for your offering involves more than just putting a price tag on it. Deciding on the right pricing for your offering requires following some basic rules. They include covering your costs, primary and secondary profit center pricing, and matching the market rate.
Pricing Strategy
Your pricing strategy influences the price of your offering. There are several pricing strategies available for you to choose from when examining the right pricing strategy for your business. They include cost-plus pricing, market-based pricing, value pricing, and more.
After carefully sorting out your positioning statement and pricing, the next item to look at is your promotional strategy. Your promotional strategy explains how you plan on communicating with your customers and prospects.
As a business, you must measure all your costs, including the cost of your promotions. You also want to measure how much sales your promotions bring for your business to determine its usefulness. Promotional strategies or programs that do not lead to profit need to be removed.
There are different types of promotional strategies you can adopt for your business, they include advertising, public relations, and content marketing.
Advertising
Your business plan should include your advertising plan which can be found in the marketing and sales plan section. You need to include an overview of your advertising plans such as the areas you plan to spend money on to advertise your business and offers.
Ensure that you make it clear in this section if your business will be advertising online or using the more traditional offline media, or the combination of both online and offline media. You can also include the advertising medium you want to use to raise awareness about your business and offers.
Some common online advertising mediums you can use include social media ads, landing pages, sales pages, SEO, Pay-Per-Click, emails, Google Ads, and others. Some common traditional and offline advertising mediums include word of mouth, radios, direct mail, televisions, flyers, billboards, posters, and others.
A key component of your advertising strategy is how you plan to measure the effectiveness and success of your advertising campaign. There is no point in sticking with an advertising plan or medium that does not produce results for your business in the long run.
Public Relations
A great way to reach your customers is to get the media to cover your business or product. Publicity, especially good ones, should be a part of your marketing and sales plan. In this section, show your plans for getting prominent reviews of your product from reputable publications and sources.
Your business needs that exposure to grow. If public relations is a crucial part of your promotional strategy, provide details about your public relations plan here.
Content Marketing
Content marketing is a popular promotional strategy used by businesses to inform and attract their customers. It is about teaching and educating your prospects on various topics of interest in your niche, it does not just involve informing them about the benefits and features of the products and services you have,
Businesses publish content usually for free where they provide useful information, tips, and advice so that their target market can be made aware of the importance of their products and services. Content marketing strategies seek to nurture prospects into buyers over time by simply providing value.
Your company can create a blog where it will be publishing content for its target market. You will need to use the best website builder such as Wix and Squarespace and the best web hosting services such as Bluehost, Hostinger, and other Bluehost alternatives to create a functional blog or website.
If content marketing is a crucial part of your promotional strategy (as it should be), detail your plans under promotions.
Including high-quality images of the packaging of your product in your business plan is a lovely idea. You can add the images of the packaging of that product in the marketing and sales plan section. If you are not selling a product, then you do not need to include any worry about the physical packaging of your product.
When organizing the packaging section of your business plan, you can answer the following questions to make maximum use of this section.
Your 21st-century business needs to have a good social media presence. Not having one is leaving out opportunities for growth and reaching out to your prospect.
You do not have to join the thousands of social media platforms out there. What you need to do is join the ones that your customers are active on and be active there.
Businesses use social media to provide information about their products such as promotions, discounts, the benefits of their products, and content on their blogs.
Social media is also a platform for engaging with your customers and getting feedback about your products or services. Make no mistake, more and more of your prospects are using social media channels to find more information about companies.
You need to consider the social media channels you want to prioritize your business (prioritize the ones your customers are active in) and your branding plans in this section.
If your company plans to work closely with other companies as part of your sales and marketing plan, include it in this section. Prove details about those partnerships in your business plan if you have already established them.
Strategic alliances can be beneficial for all parties involved including your company. Working closely with another company in the form of a partnership can provide access to a different target market segment for your company.
The company you are partnering with may also gain access to your target market or simply offer a new product or service (that of your company) to its customers.
Mutually beneficial partnerships can cover the weaknesses of one company with the strength of another. You should consider strategic alliances with companies that sell complimentary products to yours. For example, if you provide printers, you can partner with a company that produces ink since the customers that buy printers from you will also need inks for printing.
1. Focus on Your Target Market
Identify who your customers are, the market you want to target. Then determine the best ways to get your products or services to your potential customers.
2. Evaluate Your Competition
One of the goals of having a marketing plan is to distinguish yourself from your competition. You cannot stand out from them without first knowing them in and out.
You can know your competitors by gathering information about their products, pricing, service, and advertising campaigns.
These questions can help you know your competition.
3. Consider Your Brand
Customers' perception of your brand has a strong impact on your sales. Your marketing and sales plan should seek to bolster the image of your brand. Before you start marketing your business, think about the message you want to pass across about your business and your products and services.
4. Focus on Benefits
The majority of your customers do not view your product in terms of features, what they want to know is the benefits and solutions your product offers. Think about the problems your product solves and the benefits it delivers, and use it to create the right sales and marketing message.
Your marketing plan should focus on what you want your customer to get instead of what you provide. Identify those benefits in your marketing and sales plan.
5. Focus on Differentiation
Your marketing and sales plan should look for a unique angle they can take that differentiates your business from the competition, even if the products offered are similar. Some good areas of differentiation you can use are your benefits, pricing, and features.
You may want to include samples of marketing materials you plan to use such as print ads, website descriptions, and social media ads. While it is not compulsory to include these samples, it can help you better communicate your marketing and sales plan and objectives.
The purpose of the marketing and sales section is to answer this question “How will you reach your customers?” If you cannot convincingly provide an answer to this question, you need to rework your marketing and sales section.
If you are writing your business plan to ask for funding from investors or financial institutions, the funding request section is where you will outline your funding requirements. The funding request section should answer the question ‘How much money will your business need in the near future (3 to 5 years)?’
A good funding request section will clearly outline and explain the amount of funding your business needs over the next five years. You need to know the amount of money your business needs to make an accurate funding request.
Also, when writing your funding request, provide details of how the funds will be used over the period. Specify if you want to use the funds to buy raw materials or machinery, pay salaries, pay for advertisements, and cover specific bills such as rent and electricity.
In addition to explaining what you want to use the funds requested for, you need to clearly state the projected return on investment (ROI) . Investors and creditors want to know if your business can generate profit for them if they put funds into it.
Ensure you do not inflate the figures and stay as realistic as possible. Investors and financial institutions you are seeking funds from will do their research before investing money in your business.
If you are not sure of an exact number to request from, you can use some range of numbers as rough estimates. Add a best-case scenario and a work-case scenario to your funding request. Also, include a description of your strategic future financial plans such as selling your business or paying off debts.
When making your funding request, specify the type of funding you want. Do you want debt or equity? Draw out the terms that will be applicable for the funding, and the length of time the funding request will cover.
Case for Equity
If your new business has not yet started generating profits, you are most likely preparing to sell equity in your business to raise capital at the early stage. Equity here refers to ownership. In this case, you are selling a portion of your company to raise capital.
Although this method of raising capital for your business does not put your business in debt, keep in mind that an equity owner may expect to play a key role in company decisions even if he does not hold a major stake in the company.
Most equity sales for startups are usually private transactions . If you are making a funding request by offering equity in exchange for funding, let the investor know that they will be paid a dividend (a share of the company’s profit). Also, let the investor know the process for selling their equity in your business.
Case for Debt
You may decide not to offer equity in exchange for funds, instead, you make a funding request with the promise to pay back the money borrowed at the agreed time frame.
When making a funding request with an agreement to pay back, note that you will have to repay your creditors both the principal amount borrowed and the interest on it. Financial institutions offer this type of funding for businesses.
Large companies combine both equity and debt in their capital structure. When drafting your business plan, decide if you want to offer both or one over the other.
Before you sell equity in exchange for funding in your business, consider if you are willing to accept not being in total control of your business. Also, before you seek loans in your funding request section, ensure that the terms of repayment are favorable.
You should set a clear timeline in your funding request so that potential investors and creditors can know what you are expecting. Some investors and creditors may agree to your funding request and then delay payment for longer than 30 days, meanwhile, your business needs an immediate cash injection to operate efficiently.
The funding request section is not necessary for every business, it is only needed by businesses who plan to use their business plan to secure funding.
If you are adding the funding request section to your business plan, provide an itemized summary of how you plan to use the funds requested. Hiring a lawyer, accountant, or other professionals may be necessary for the proper development of this section.
You should also gather and use financial statements that add credibility and support to your funding requests. Ensure that the financial statements you use should include your projected financial data such as projected cash flows, forecast statements, and expenditure budgets.
If you are an existing business, include all historical financial statements such as cash flow statements, balance sheets and income statements .
Provide monthly and quarterly financial statements for a year. If your business has records that date back beyond the one-year mark, add the yearly statements of those years. These documents are for the appendix section of your business plan.
If you used the funding request section in your business plan, supplement it with a financial plan, metrics, and projections. This section paints a picture of the past performance of your business and then goes ahead to make an informed projection about its future.
The goal of this section is to convince readers that your business is going to be a financial success. It outlines your business plan to generate enough profit to repay the loan (with interest if applicable) and to generate a decent return on investment for investors.
If you have an existing business already in operation, use this section to demonstrate stability through finance. This section should include your cash flow statements, balance sheets, and income statements covering the last three to five years. If your business has some acceptable collateral that you can use to acquire loans, list it in the financial plan, metrics, and projection section.
Apart from current financial statements, this section should also contain a prospective financial outlook that spans the next five years. Include forecasted income statements, cash flow statements, balance sheets, and capital expenditure budget.
If your business is new and is not yet generating profit, use clear and realistic projections to show the potentials of your business.
When drafting this section, research industry norms and the performance of comparable businesses. Your financial projections should cover at least five years. State the logic behind your financial projections. Remember you can always make adjustments to this section as the variables change.
The financial plan, metrics, and projection section create a baseline which your business can either exceed or fail to reach. If your business fails to reach your projections in this section, you need to understand why it failed.
Investors and loan managers spend a lot of time going through the financial plan, metrics, and projection section compared to other parts of the business plan. Ensure you spend time creating credible financial analyses for your business in this section.
Many entrepreneurs find this section daunting to write. You do not need a business degree to create a solid financial forecast for your business. Business finances, especially for startups, are not as complicated as they seem. There are several online tools and templates that make writing this section so much easier.
The financial plan, metrics, and projection section is a great place to use graphs and charts to tell the financial story of your business. Charts and images make it easier to communicate your finances.
Accuracy in this section is key, ensure you carefully analyze your past financial statements properly before making financial projects.
Keep your financial plan, metrics, and projection realistic. It is okay to be optimistic in your financial projection, however, you have to justify it.
You should also address the various risk factors associated with your business in this section. Investors want to know the potential risks involved, show them. You should also show your plans for mitigating those risks.
The financial plan, metrics, and projection section of your business plan should have monthly sales and revenue forecasts for the first year. It should also include annual projections that cover 3 to 5 years.
A three-year projection is a basic requirement to have in your business plan. However, some investors may request a five-year forecast.
Your business plan should include the following financial statements: sales forecast, personnel plan, income statement, income statement, cash flow statement, balance sheet, and an exit strategy.
1. Sales Forecast
Sales forecast refers to your projections about the number of sales your business is going to record over the next few years. It is typically broken into several rows, with each row assigned to a core product or service that your business is offering.
One common mistake people make in their business plan is to break down the sales forecast section into long details. A sales forecast should forecast the high-level details.
For example, if you are forecasting sales for a payroll software provider, you could break down your forecast into target market segments or subscription categories.
Your sales forecast section should also have a corresponding row for each sales row to cover the direct cost or Cost of Goods Sold (COGS). The objective of these rows is to show the expenses that your business incurs in making and delivering your product or service.
Note that your Cost of Goods Sold (COGS) should only cover those direct costs incurred when making your products. Other indirect expenses such as insurance, salaries, payroll tax, and rent should not be included.
For example, the Cost of Goods Sold (COGS) for a restaurant is the cost of ingredients while for a consulting company it will be the cost of paper and other presentation materials.
2. Personnel Plan
The personnel plan section is where you provide details about the payment plan for your employees. For a small business, you can easily list every position in your company and how much you plan to pay in the personnel plan.
However, for larger businesses, you have to break the personnel plan into functional groups such as sales and marketing.
The personnel plan will also include the cost of an employee beyond salary, commonly referred to as the employee burden. These costs include insurance, payroll taxes , and other essential costs incurred monthly as a result of having employees on your payroll.
3. Income Statement
The income statement section shows if your business is making a profit or taking a loss. Another name for the income statement is the profit and loss (P&L). It takes data from your sales forecast and personnel plan and adds other ongoing expenses you incur while running your business.
Every business plan should have an income statement. It subtracts your business expenses from its earnings to show if your business is generating profit or incurring losses.
The income statement has the following items: sales, Cost of Goods Sold (COGS), gross margin, operating expenses, total operating expenses, operating income , total expenses, and net profit.
4. Cash Flow Statement
The cash flow statement tracks the money you have in the bank at any given point. It is often confused with the income statement or the profit and loss statement. They are both different types of financial statements. The income statement calculates your profits and losses while the cash flow statement shows you how much you have in the bank.
5. Balance Sheet
The balance sheet is a financial statement that provides an overview of the financial health of your business. It contains information about the assets and liabilities of your company, and owner’s or shareholders’ equity.
You can get the net worth of your company by subtracting your company’s liabilities from its assets.
6. Exit Strategy
The exit strategy refers to a probable plan for selling your business either to the public in an IPO or to another company. It is the last thing you include in the financial plan, metrics, and projection section.
You can choose to omit the exit strategy from your business plan if you plan to maintain full ownership of your business and do not plan on seeking angel investment or virtual capitalist (VC) funding.
Investors may want to know what your exit plan is. They invest in your business to get a good return on investment.
Your exit strategy does not have to include long and boring details. Ensure you identify some interested parties who may be interested in buying the company if it becomes a success.
Your financial plan, metrics, and projection section helps investors, creditors, or your internal managers to understand what your expenses are, the amount of cash you need, and what it takes to make your company profitable. It also shows what you will be doing with any funding.
You do not need to show actual financial data if you do not have one. Adding forecasts and projections to your financial statements is added proof that your strategy is feasible and shows investors you have planned properly.
Here are some key questions to answer to help you develop this section.
Adding an appendix to your business plan is optional. It is a useful place to put any charts, tables, legal notes, definitions, permits, résumés, and other critical information that do not fit into other sections of your business plan.
The appendix section is where you would want to include details of a patent or patent-pending if you have one. You can always add illustrations or images of your products here. It is the last section of your business plan.
When writing your business plan, there are details you cut short or remove to prevent the entire section from becoming too lengthy. There are also details you want to include in the business plan but are not a good fit for any of the previous sections. You can add that additional information to the appendix section.
Businesses also use the appendix section to include supporting documents or other materials specially requested by investors or lenders.
You can include just about any information that supports the assumptions and statements you made in the business plan under the appendix. It is the one place in the business plan where unrelated data and information can coexist amicably.
If your appendix section is lengthy, try organizing it by adding a table of contents at the beginning of the appendix section. It is also advisable to group similar information to make it easier for the reader to access them.
A well-organized appendix section makes it easier to share your information clearly and concisely. Add footnotes throughout the rest of the business plan or make references in the plan to the documents in the appendix.
The appendix section is usually only necessary if you are seeking funding from investors or lenders, or hoping to attract partners.
People reading business plans do not want to spend time going through a heap of backup information, numbers, and charts. Keep these documents or information in the Appendix section in case the reader wants to dig deeper.
The appendix section includes documents that supplement or support the information or claims given in other sections of the business plans. Common items you can include in the appendix section include:
Avoid using the appendix section as a place to dump any document or information you feel like adding. Only add documents or information that you support or increase the credibility of your business plan.
To achieve a perfect business plan, you need to consider some key tips and strategies. These tips will raise the efficiency of your business plan above average.
When writing a business plan, you need to know your audience . Business owners write business plans for different reasons. Your business plan has to be specific. For example, you can write business plans to potential investors, banks, and even fellow board members of the company.
The audience you are writing to determines the structure of the business plan. As a business owner, you have to know your audience. Not everyone will be your audience. Knowing your audience will help you to narrow the scope of your business plan.
Consider what your audience wants to see in your projects, the likely questions they might ask, and what interests them.
Writing a business plan from scratch as an entrepreneur can be daunting. That is why you need the right inspiration to push you to write one. You can gain inspiration from the successful business plans of other businesses. Look at their business plans, the style they use, the structure of the project, etc.
To make your business plan easier to create, search companies related to your business to get an exact copy of what you need to create an effective business plan. You can also make references while citing examples in your business plans.
When drafting your business plan, get as much help from others as you possibly can. By getting inspiration from people, you can create something better than what they have.
Many business owners make use of strong adjectives to qualify their content. One of the big mistakes entrepreneurs make when preparing a business plan is promising too much.
The use of superlatives and over-optimistic claims can prepare the audience for more than you can offer. In the end, you disappoint the confidence they have in you.
In most cases, the best option is to be realistic with your claims and statistics. Most of the investors can sense a bit of incompetency from the overuse of superlatives. As a new entrepreneur, do not be tempted to over-promise to get the interests of investors.
The concept of entrepreneurship centers on risks, nothing is certain when you make future analyses. What separates the best is the ability to do careful research and work towards achieving that, not promising more than you can achieve.
To make an excellent first impression as an entrepreneur, replace superlatives with compelling data-driven content. In this way, you are more specific than someone promising a huge ROI from an investment.
When writing business plans, ensure you keep them simple throughout. Irrespective of the purpose of the business plan, your goal is to convince the audience.
One way to achieve this goal is to make them understand your proposal. Therefore, it would be best if you avoid the use of complex grammar to express yourself. It would be a huge turn-off if the people you want to convince are not familiar with your use of words.
Another thing to note is the length of your business plan. It would be best if you made it as brief as possible.
You hardly see investors or agencies that read through an extremely long document. In that case, if your first few pages can’t convince them, then you have lost it. The more pages you write, the higher the chances of you derailing from the essential contents.
To ensure your business plan has a high conversion rate, you need to dispose of every unnecessary information. For example, if you have a strategy that you are not sure of, it would be best to leave it out of the plan.
A perfect business plan must have touched every part needed to convince the audience. Business owners get easily tempted to concentrate more on their products than on other sections. Doing this can be detrimental to the efficiency of the business plan.
For example, imagine you talking about a product but omitting or providing very little information about the target audience. You will leave your clients confused.
To ensure that your business plan communicates your full business model to readers, you have to input all the necessary information in it. One of the best ways to achieve this is to design a structure and stick to it.
This structure is what guides you throughout the writing. To make your work easier, you can assign an estimated word count or page limit to every section to avoid making it too bulky for easy reading. As a guide, the necessary things your business plan must contain are:
Some specific businesses can include some other essential sections, but these are the key sections that must be in every business plan.
When writing a business plan, you must tie all loose ends to get a perfect result. When you are done with writing, call a professional to go through the document for you. You are bound to make mistakes, and the way to correct them is to get external help.
You should get a professional in your field who can relate to every section of your business plan. It would be easier for the professional to notice the inner flaws in the document than an editor with no knowledge of your business.
In addition to getting a professional to proofread, get an editor to proofread and edit your document. The editor will help you identify grammatical errors, spelling mistakes, and inappropriate writing styles.
Writing a business plan can be daunting, but you can surmount that obstacle and get the best out of it with these tips.
1. hubspot's one-page business plan.
The one-page business plan template by HubSpot is the perfect guide for businesses of any size, irrespective of their business strategy. Although the template is condensed into a page, your final business plan should not be a page long! The template is designed to ask helpful questions that can help you develop your business plan.
Hubspot’s one-page business plan template is divided into nine fields:
Bplans' free business plan template is investor-approved. It is a rich template used by prestigious educational institutions such as Babson College and Princeton University to teach entrepreneurs how to create a business plan.
The template has six sections: the executive summary, opportunity, execution, company, financial plan, and appendix. There is a step-by-step guide for writing every little detail in the business plan. Follow the instructions each step of the way and you will create a business plan that impresses investors or lenders easily.
HubSpot’s downloadable business plan template is a more comprehensive option compared to the one-page business template by HubSpot. This free and downloadable business plan template is designed for entrepreneurs.
The template is a comprehensive guide and checklist for business owners just starting their businesses. It tells you everything you need to fill in each section of the business plan and how to do it.
There are nine sections in this business plan template: an executive summary, company and business description, product and services line, market analysis, marketing plan, sales plan, legal notes, financial considerations, and appendix.
My Own Business Institute (MOBI) which is a part of Santa Clara University's Center for Innovation and Entrepreneurship offers a free business plan template. You can either copy the free business template from the link provided above or download it as a Word document.
The comprehensive template consists of a whopping 15 sections.
There are lots of helpful tips on how to fill each section in the free business plan template by MOBI.
Score is an American nonprofit organization that helps entrepreneurs build successful companies. This business plan template for startups by Score is available for free download. The business plan template asks a whooping 150 generic questions that help entrepreneurs from different fields to set up the perfect business plan.
The business plan template for startups contains clear instructions and worksheets, all you have to do is answer the questions and fill the worksheets.
There are nine sections in the business plan template: executive summary, company description, products and services, marketing plan, operational plan, management and organization, startup expenses and capitalization, financial plan, and appendices.
The ‘refining the plan’ resource contains instructions that help you modify your business plan to suit your specific needs, industry, and target audience. After you have completed Score’s business plan template, you can work with a SCORE mentor for expert advice in business planning.
The minimalist architecture business plan template is a simple template by Venngage that you can customize to suit your business needs .
There are five sections in the template: an executive summary, statement of problem, approach and methodology, qualifications, and schedule and benchmark. The business plan template has instructions that guide users on what to fill in each section.
The Small Business Administration (SBA) offers two free business plan templates, filled with practical real-life examples that you can model to create your business plan. Both free business plan templates are written by fictional business owners: Rebecca who owns a consulting firm, and Andrew who owns a toy company.
There are five sections in the two SBA’s free business plan templates.
The one-page business plan by the $100 startup is a simple business plan template for entrepreneurs who do not want to create a long and complicated plan . You can include more details in the appendices for funders who want more information beyond what you can put in the one-page business plan.
There are five sections in the one-page business plan such as overview, ka-ching, hustling, success, and obstacles or challenges or open questions. You can answer all the questions using one or two sentences.
The free business plan template by PandaDoc is a comprehensive 15-page document that describes the information you should include in every section.
There are 11 sections in PandaDoc’s free business plan template.
You have to sign up for its 14-day free trial to access the template. You will find different business plan templates on PandaDoc once you sign up (including templates for general businesses and specific businesses such as bakeries, startups, restaurants, salons, hotels, and coffee shops)
PandaDoc allows you to customize its business plan templates to fit the needs of your business. After editing the template, you can send it to interested parties and track opens and views through PandaDoc.
InvoiceBerry is a U.K based online invoicing and tracking platform that offers free business plan templates in .docx, .odt, .xlsx, and .pptx formats for freelancers and small businesses.
Before you can download the free business plan template, it will ask you to give it your email address. After you complete the little task, it will send the download link to your inbox for you to download. It also provides a business plan checklist in .xlsx file format that ensures you add the right information to the business plan.
A business plan is very important in mapping out how one expects their business to grow over a set number of years, particularly when they need external investment in their business. However, many investors do not have the time to watch you present your business plan. It is a long and boring read.
Luckily, there are three alternatives to the traditional business plan (the Business Model Canvas, Lean Canvas, and Startup Pitch Deck). These alternatives are less laborious and easier and quicker to present to investors.
The business model canvas is a business tool used to present all the important components of setting up a business, such as customers, route to market, value proposition, and finance in a single sheet. It provides a very focused blueprint that defines your business initially which you can later expand on if needed.
The sheet is divided mainly into company, industry, and consumer models that are interconnected in how they find problems and proffer solutions.
The business model canvas was developed by founder Alexander Osterwalder to answer important business questions. It contains nine segments.
The lean canvas is a problem-oriented alternative to the standard business model canvas. It was proposed by Ash Maurya, creator of Lean Stack as a development of the business model generation. It uses a more problem-focused approach and it majorly targets entrepreneurs and startup businesses.
Lean Canvas uses the same 9 blocks concept as the business model canvas, however, they have been modified slightly to suit the needs and purpose of a small startup. The key partners, key activities, customer relationships, and key resources are replaced by new segments which are:
While the business model canvas compresses into a factual sheet, startup pitch decks expand flamboyantly.
Pitch decks, through slides, convey your business plan, often through graphs and images used to emphasize estimations and observations in your presentation. Entrepreneurs often use pitch decks to fully convince their target audience of their plans before discussing funding arrangements.
Considering the likelihood of it being used in a small time frame, a good startup pitch deck should ideally contain 20 slides or less to have enough time to answer questions from the audience.
Unlike the standard and lean business model canvases, a pitch deck doesn't have a set template on how to present your business plan but there are still important components to it. These components often mirror those of the business model canvas except that they are in slide form and contain more details.
Using Airbnb (one of the most successful start-ups in recent history) for reference, the important components of a good slide are listed below.
It is important to support your calculations with pictorial renditions. Infographics, such as pie charts or bar graphs, will be more effective in presenting the information than just listing numbers. For example, a six-month graph that shows rising profit margins will easily look more impressive than merely writing it.
Lastly, since a pitch deck is primarily used to secure meetings and you may be sharing your pitch with several investors, it is advisable to keep a separate public version that doesn't include financials. Only disclose the one with projections once you have secured a link with an investor.
Business plans are important for any entrepreneur who is looking for a framework to run their company over some time or seeking external support. Although they are essential for new businesses, every company should ideally have a business plan to track their growth from time to time. They can be used by startups seeking investments or loans to convey their business ideas or an employee to convince his boss of the feasibility of starting a new project. They can also be used by companies seeking to recruit high-profile employee targets into key positions or trying to secure partnerships with other firms.
Business plans often vary depending on your target audience, the scope, and the goals for the plan. Startup plans are the most common among the different types of business plans. A start-up plan is used by a new business to present all the necessary information to help get the business up and running. They are usually used by entrepreneurs who are seeking funding from investors or bank loans. The established company alternative to a start-up plan is a feasibility plan. A feasibility plan is often used by an established company looking for new business opportunities. They are used to show the upsides of creating a new product for a consumer base. Because the audience is usually company people, it requires less company analysis. The third type of business plan is the lean business plan. A lean business plan is a brief, straight-to-the-point breakdown of your ideas and analysis for your business. It does not contain details of your proposal and can be written on one page. Finally, you have the what-if plan. As it implies, a what-if plan is a preparation for the worst-case scenario. You must always be prepared for the possibility of your original plan being rejected. A good what-if plan will serve as a good plan B to the original.
A good business plan has 10 key components. They include an executive plan, product analysis, desired customer base, company analysis, industry analysis, marketing strategy, sales strategy, financial projection, funding, and appendix. Executive Plan Your business should begin with your executive plan. An executive plan will provide early insight into what you are planning to achieve with your business. It should include your mission statement and highlight some of the important points which you will explain later. Product Analysis The next component of your business plan is your product analysis. A key part of this section is explaining the type of item or service you are going to offer as well as the market problems your product will solve. Desired Consumer Base Your product analysis should be supplemented with a detailed breakdown of your desired consumer base. Investors are always interested in knowing the economic power of your market as well as potential MVP customers. Company Analysis The next component of your business plan is your company analysis. Here, you explain how you want to run your business. It will include your operational strategy, an insight into the workforce needed to keep the company running, and important executive positions. It will also provide a calculation of expected operational costs. Industry Analysis A good business plan should also contain well laid out industry analysis. It is important to convince potential investors you know the companies you will be competing with, as well as your plans to gain an edge on the competition. Marketing Strategy Your business plan should also include your marketing strategy. This is how you intend to spread awareness of your product. It should include a detailed explanation of the company brand as well as your advertising methods. Sales Strategy Your sales strategy comes after the market strategy. Here you give an overview of your company's pricing strategy and how you aim to maximize profits. You can also explain how your prices will adapt to market behaviors. Financial Projection The financial projection is the next component of your business plan. It explains your company's expected running cost and revenue earned during the tenure of the business plan. Financial projection gives a clear idea of how your company will develop in the future. Funding The next component of your business plan is funding. You have to detail how much external investment you need to get your business idea off the ground here. Appendix The last component of your plan is the appendix. This is where you put licenses, graphs, or key information that does not fit in any of the other components.
The business model canvas is a business management tool used to quickly define your business idea and model. It is often used when investors need you to pitch your business idea during a brief window.
A pitch deck is similar to a business model canvas except that it makes use of slides in its presentation. A pitch is not primarily used to secure funding, rather its main purpose is to entice potential investors by selling a very optimistic outlook on the business.
Business plan competitions help you evaluate the strength of your business plan. By participating in business plan competitions, you are improving your experience. The experience provides you with a degree of validation while practicing important skills. The main motivation for entering into the competitions is often to secure funding by finishing in podium positions. There is also the chance that you may catch the eye of a casual observer outside of the competition. These competitions also provide good networking opportunities. You could meet mentors who will take a keen interest in guiding you in your business journey. You also have the opportunity to meet other entrepreneurs whose ideas can complement yours.
Martin luenendonk.
Martin loves entrepreneurship and has helped dozens of entrepreneurs by validating the business idea, finding scalable customer acquisition channels, and building a data-driven organization. During his time working in investment banking, tech startups, and industry-leading companies he gained extensive knowledge in using different software tools to optimize business processes.
This insights and his love for researching SaaS products enables him to provide in-depth, fact-based software reviews to enable software buyers make better decisions.
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Written by Jesse Sumrak | May 14, 2023
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Business plans might seem like an old-school stiff-collared practice, but they deserve a place in the startup realm, too. It’s probably not going to be the frame-worthy document you hang in the office—yet, it may one day be deserving of the privilege.
Whether you’re looking to win the heart of an angel investor or convince a bank to lend you money, you’ll need a business plan. And not just any ol’ notes and scribble on the back of a pizza box or napkin—you’ll need a professional, standardized report.
Bah. Sounds like homework, right?
Yes. Yes, it does.
However, just like bookkeeping, loan applications, and 404 redirects, business plans are an essential step in cementing your business foundation.
Don’t worry. We’ll show you how to write a business plan without boring you to tears. We’ve jam-packed this article with all the business plan examples, templates, and tips you need to take your non-existent proposal from concept to completion.
Table of Contents
What Is a Business Plan?
How to Write a Business Plan in 6 Steps
Startup Business Plan Template
Business Plan Examples
Work on Making Your Business Plan
What is a business plan why do you desperately need one.
A business plan is a roadmap that outlines:
While it’s not required when starting a business, having a business plan is helpful for a few reasons:
Beyond the reasoning, let’s look at what the data says:
Convinced yet? If those numbers and reasons don’t have you scrambling for pen and paper, who knows what will.
Don’t Skip: Business Startup Costs Checklist
Before we get into the nitty-gritty steps of how to write a business plan, let’s look at some high-level tips to get you started in the right direction:
You might be tempted to get cutesy or revolutionary with your business plan—resist the urge. While you should let your brand and creativity shine with everything you produce, business plans fall more into the realm of professional documents.
Think of your business plan the same way as your terms and conditions, employee contracts, or financial statements. You want your plan to be as uniform as possible so investors, lenders, partners, and prospective employees can find the information they need to make important decisions.
If you want to create a fun summary business plan for internal consumption, then, by all means, go right ahead. However, for the purpose of writing this external-facing document, keep it legit.
Your official business plan document is for lenders, investors, partners, and big-time prospective employees. Keep these names and faces in your mind as you draft your plan.
Think about what they might be interested in seeing, what questions they’ll ask, and what might convince (or scare) them. Cut the jargon and tailor your language so these individuals can understand.
Remember, these are busy people. They’re likely looking at hundreds of applicants and startup investments every month. Keep your business plan succinct and to the point. Include the most pertinent information and omit the sections that won’t impact their decision-making.
You might not have answers to all the sections you should include in your business plan. Don’t skip over these!
Your audience will want:
Your answers can’t be hypothetical or opinionated. You need research to back up your claims. If you don’t have that data yet, then invest time and money in collecting it. That information isn’t just critical for your business plan—it’s essential for owning, operating, and growing your company.
Your business may be ambitious, but reign in the enthusiasm just a teeny-tiny bit. The last thing you want to do is have an angel investor call BS and say “I’m out” before even giving you a chance.
The folks looking at your business and evaluating your plan have been around the block—they know a thing or two about fact and fiction. Your plan should be a blueprint for success. It should be the step-by-step roadmap for how you’re going from Point A to Point B.
Not every business plan looks the same, but most share a few common elements. Here’s what they typically include:
Below, we’ll break down each of these sections in more detail.
While your executive summary is the first page of your business plan, it’s the section you’ll write last. That’s because it summarizes your entire business plan into a succinct one-pager.
Begin with an executive summary that introduces the reader to your business and gives them an overview of what’s inside the business plan.
Your executive summary highlights key points of your plan. Consider this your elevator pitch. You want to put all your juiciest strengths and opportunities strategically in this section.
In this section, you can dive deeper into the elements of your business, including answering:
Don’t overlook your mission statement. This powerful sentence or paragraph could be the inspiration that drives an investor to take an interest in your business. Here are a few examples of powerful mission statements that just might give you the goosebumps:
As the owner, you know your business and the industry inside and out. However, whoever’s reading your document might not. You’re going to need to break down your products and services in minute detail.
For example, if you own a SaaS business, you’re going to need to explain how this business model works and what you’re selling.
You’ll need to include:
Your market analysis essentially explains how your products and services address customer concerns and pain points. This section will include research and data on the state and direction of your industry and target market.
This research should reveal lucrative opportunities and how your business is uniquely positioned to seize the advantage. You’ll also want to touch on your marketing strategy and how it will (or does) work for your audience.
Include a detailed analysis of your target customers. This describes the people you serve and sell your product to. Be careful not to go too broad here—you don’t want to fall into the common entrepreneurial trap of trying to sell to everyone and thereby not differentiating yourself enough to survive the competition.
The market analysis section will include your unique value proposition. Your unique value proposition (UVP) is the thing that makes you stand out from your competitors. This is your key to success.
If you don’t have a UVP, you don’t have a way to take on competitors who are already in this space. Here’s an example of an ecommerce internet business plan outlining their competitive edge:
FireStarters’ competitive advantage is offering product lines that make a statement but won’t leave you broke. The major brands are expensive and not distinctive enough to satisfy the changing taste of our target customers. FireStarters offers products that are just ahead of the curve and so affordable that our customers will return to the website often to check out what’s new.
Your competitive analysis examines the strengths and weaknesses of competing businesses in your market or industry. This will include direct and indirect competitors. It can also include threats and opportunities, like economic concerns or legal restraints.
The best way to sum up this section is with a classic SWOT analysis. This will explain your company’s position in relation to your competitors.
Your financial strategy will sum up your revenue, expenses, profit (or loss), and financial plan for the future. It’ll explain how you make money, where your cash flow goes, and how you’ll become profitable or stay profitable.
This is one of the most important sections for lenders and investors. Have you ever watched Shark Tank? They always ask about the company’s financial situation. How has it performed in the past? What’s the ongoing outlook moving forward? How does the business plan to make it happen?
Answer all of these questions in your financial strategy so that your audience doesn’t have to ask. Go ahead and include forecasts and graphs in your plan, too:
It takes cash to change the world—lenders and investors get it. If you’re short on funding, explain how much money you’ll need and how you’ll use the capital. Where are you looking for financing? Are you looking to take out a business loan, or would you rather trade equity for capital instead?
Read More: 16 Financial Concepts Every Entrepreneur Needs to Know
Ready to write your own business plan? Copy/paste the startup business plan template below and fill in the blanks.
Executive Summary Remember, do this last. Summarize who you are and your business plan in one page.
Business Overview Describe your business. What’s it do? Who owns it? How’s it structured? What’s the mission statement?
Products and Services Detail the products and services you offer. How do they work? What do you charge?
Market Analysis Write about the state of the market and opportunities. Use date. Describe your customers. Include your UVP.
Competitive Analysis Outline the competitors in your market and industry. Include threats and opportunities. Add a SWOT analysis of your business.
Financial Strategy Sum up your revenue, expenses, profit (or loss), and financial plan for the future. If you’re applying for a loan, include how you’ll use the funding to progress the business.
Want to explore other templates and examples? We got you covered. Check out these 5 business plan examples you can use as inspiration when writing your plan:
If you find you’re getting stuck on perfecting your document, opt for a simple one-page business plan —and then get to work. You can always polish up your official plan later as you learn more about your business and the industry.
Remember, business plans are not a requirement for starting a business—they’re only truly essential if a bank or investor is asking for it.
Ask others to review your business plan. Get feedback from other startups and successful business owners. They’ll likely be able to see holes in your planning or undetected opportunities—just make sure these individuals aren’t your competitors (or potential competitors).
Your business plan isn’t a one-and-done report—it’s a living, breathing document. You’ll make changes to it as you grow and evolve. When the market or your customers change, your plan will need to change to adapt.
That means when you’re finished with this exercise, it’s not time to print your plan out and stuff it in a file cabinet somewhere. No, it should sit on your desk as a day-to-day reference. Use it (and update it) as you make decisions about your product, customers, and financial plan.
Review your business plan frequently, update it routinely, and follow the path you’ve developed to the future you’re building.
Keep Learning: New Product Development Process in 8 Easy Steps
Be as detailed as you can without assuming too much. For example, include your expected revenue, expenses, profit, and growth for the future.
The most common mistake is turning your business plan into a textbook. A business plan is an internal guide and an external pitching tool. Cut the fat and only include the most relevant information to start and run your business.
Co-founders, investors, or a board of advisors. Otherwise, reach out to a trusted mentor, your local chamber of commerce, or someone you know that runs a business.
Don’t let creating a business plan hold you back from starting your business. Writing documents might not be your thing—that doesn’t mean your business is a bad idea.
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Jesse Sumrak is a writing zealot focused on creating killer content. He’s spent almost a decade writing about startup, marketing, and entrepreneurship topics, having built and sold his own post-apocalyptic fitness bootstrapped business. A writer by day and a peak bagger by night (and early early morning), you can usually find Jesse preparing for the apocalypse on a precipitous peak somewhere in the Rocky Mountains of Colorado.
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As an aspiring entrepreneur gearing up to start your own business , you likely know the importance of drafting a business plan. However, you might not be entirely sure where to begin or what specific details to include. That’s where examining business plan examples can be beneficial. Sample business plans serve as real-world templates to help you craft your own plan with confidence. They also provide insight into the key sections that make up a business plan, as well as demonstrate how to structure and present your ideas effectively.
To understand how to write a business plan, let’s study an example structured using a seven-part template. Here’s a quick overview of those parts:
In this section, you’ll find hypothetical and real-world examples of each aspect of a business plan to show you how the whole thing comes together.
Your executive summary offers a high-level overview of the rest of your business plan. You’ll want to include a brief description of your company, market research, competitor analysis, and financial information.
In this free business plan template, the executive summary is three paragraphs and occupies nearly half the page:
You might go more in-depth with your company description and include the following sections:
You can also repurpose your company description elsewhere, like on your About page, Instagram page, or other properties that ask for a boilerplate description of your business. Hair extensions brand Luxy Hair has a blurb on it’s About page that could easily be repurposed as a company description for its business plan.
Market analysis comprises research on product supply and demand, your target market, the competitive landscape, and industry trends. You might do a SWOT analysis to learn where you stand and identify market gaps that you could exploit to establish your footing. Here’s an example of a SWOT analysis for a hypothetical ecommerce business:
You’ll also want to run a competitive analysis as part of the market analysis component of your business plan. This will show you who you’re up against and give you ideas on how to gain an edge over the competition.
This part of your business plan describes your product or service, how it will be priced, and the ways it will compete against similar offerings in the market. Don’t go into too much detail here—a few lines are enough to introduce your item to the reader.
Potential investors will want to know how you’ll get the word out about your business. So it’s essential to build a marketing plan that highlights the promotion and customer acquisition strategies you’re planning to adopt.
Most marketing plans focus on the four Ps: product, price, place, and promotion. However, it’s easier when you break it down by the different marketing channels . Mention how you intend to promote your business using blogs, email, social media, and word-of-mouth marketing.
Here’s an example of a hypothetical marketing plan for a real estate website:
This section of your business plan provides information about your production, facilities, equipment, shipping and fulfillment, and inventory.
The financial plan (a.k.a. financial statement) offers a breakdown of your sales, revenue, expenses, profit, and other financial metrics. You’ll want to include all the numbers and concrete data to project your current and projected financial state.
In this business plan example, the financial statement for ecommerce brand Nature’s Candy includes forecasted revenue, expenses, and net profit in graphs.
It then goes deeper into the financials, citing:
You can use Shopify’s financial plan template to create your own income statement, cash-flow statement, and balance sheet.
A one-page business plan is a pared down version of a standard business plan that’s easy for potential investors and partners to understand. You’ll want to include all of these sections, but make sure they’re abbreviated and summarized:
A startup business plan is meant to secure outside funding for a new business. Typically, there’s a big focus on the financials, as well as other sections that help determine the viability of your business idea—market analysis, for example. Shopify has a great business plan template for startups that include all the below points:
Your internal business plan acts as the enforcer of your company’s vision. It reminds your team of the long-term objective and keeps them strategically aligned toward the same goal. Be sure to include:
A feasibility business plan is essentially a feasibility study that helps you evaluate whether your product or idea is worthy of a full business plan. Include the following sections:
A strategic (or growth) business plan lays out your long-term vision and goals. This means your predictions stretch further into the future, and you aim for greater growth and revenue. While crafting this document, you use all the parts of a usual business plan but add more to each one:
Now that you’re familiar with what’s included and how to format a business plan, let’s go over a few templates you can fill out or draw inspiration from.
Bplans’ free business plan template focuses a lot on the financial side of running a business. It has many pages just for your financial plan and statements. Once you fill it out, you’ll see exactly where your business stands financially and what you need to do to keep it on track or make it better.
PandaDoc’s free business plan template is detailed and guides you through every section, so you don’t have to figure everything out on your own. Filling it out, you’ll grasp the ins and outs of your business and how each part fits together. It’s also handy because it connects to PandaDoc’s e-signature for easy signing, ideal for businesses with partners or a board.
Miro’s Business Model Canvas Template helps you map out the essentials of your business, like partnerships, core activities, and what makes you different. It’s a collaborative tool for you and your team to learn how everything in your business is linked.
Building a business plan is key to establishing a clear direction and strategy for your venture. With a solid plan in hand, you’ll know what steps to take for achieving each of your business goals. Kickstart your business planning and set yourself up for success with a defined roadmap—utilizing the sample business plans above to inform your approach.
What are the 3 main points of a business plan.
To create a simple business plan, start with an executive summary that details your business vision and objectives. Follow this with a concise description of your company’s structure, your market analysis, and information about your products or services. Conclude your plan with financial projections that outline your expected revenue, expenses, and profitability.
The optimal format for a business plan arranges your plan in a clear and structured way, helping potential investors get a quick grasp of what your business is about and what you aim to achieve. Always start with a summary of your plan and finish with the financial details or any extra information at the end.
10 min. read
Updated May 10, 2024
There’s no question that starting and running a business is hard work. But it’s also incredibly rewarding. And, one of the most important things you can do to increase your chances of success is to have a business plan.
A business plan is a foundational document that is essential for any company, no matter the size or age. From attracting potential investors to keeping your business on track—a business plan helps you achieve important milestones and grow in the right direction.
A business plan isn’t just a document you put together once when starting your business. It’s a living, breathing guide for existing businesses – one that business owners should revisit and update regularly.
Unfortunately, writing a business plan is often a daunting task for potential entrepreneurs. So, do you really need a business plan? Is it really worth the investment of time and resources? Can’t you just wing it and skip the whole planning process?
Good questions. Here’s every reason why you need a business plan.
Writing a business plan isn’t about producing a document that accurately predicts the future of your company. The process of writing your plan is what’s important. Writing your plan and reviewing it regularly gives you a better window into what you need to do to achieve your goals and succeed.
You don’t have to just take our word for it. Studies have proven that companies that plan and review their results regularly grow 30 percent faster. Beyond faster growth, research also shows that companies that plan actually perform better. They’re less likely to become one of those woeful failure statistics, or experience cash flow crises that threaten to close them down.
One of the top reasons to have a business plan is to make it easier to raise money for your business. Without a business plan, it’s difficult to know how much money you need to raise, how you will spend the money once you raise it, and what your budget should be.
Investors want to know that you have a solid plan in place – that your business is headed in the right direction and that there is long-term potential in your venture.
A business plan shows that your business is serious and that there are clearly defined steps on how it aims to become successful. It also demonstrates that you have the necessary competence to make that vision a reality.
Investors, partners, and creditors will want to see detailed financial forecasts for your business that shows how you plan to grow and how you plan on spending their money.
When you’re just starting out, there’s so much you don’t know—about your customers, your competition, and even about operations.
As a business owner, you signed up for some of that uncertainty when you started your business, but there’s a lot you can do to reduce your risk . Creating and reviewing your business plan regularly is a great way to uncover your weak spots—the flaws, gaps, and assumptions you’ve made—and develop contingency plans.
Your business plan will also help you define budgets and revenue goals. And, if you’re not meeting your goals, you can quickly adjust spending plans and create more realistic budgets to keep your business healthy.
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A business plan is like a roadmap for your business. It helps you set, track and reach business milestones.
For your plan to function in this way, your business plan should first outline your company’s short- and long-term goals. You can then fill in the specific steps necessary to reach those goals. This ensures that you measure your progress (or lack thereof) and make necessary adjustments along the way to stay on track while avoiding costly detours.
In fact, one of the top reasons why new businesses fail is due to bad business planning. Combine this with inflexibility and you have a recipe for disaster.
And planning is not just for startups. Established businesses benefit greatly from revisiting their business plan. It keeps them on track, even when the global market rapidly shifts as we’ve seen in recent years.
To turn your idea into reality, you need to accurately assess the feasibility of your business idea.
You need to verify:
A business plan forces you to take a step back and look at your business objectively, which makes it far easier to make tough decisions down the road. Additionally, a business plan helps you to identify risks and opportunities early on, providing you with the necessary time to come up with strategies to address them properly.
Finally, a business plan helps you work through the nuts and bolts of how your business will work financially and if it can become sustainable over time.
As your business grows, you’ll have to figure out when to hire new employees, when to expand to a new location, or whether you can afford a major purchase.
These are always major spending decisions, and if you’re regularly reviewing the forecasts you mapped out in your business plan, you’re going to have better information to use to make your decisions.
The other side of those major spending decisions is understanding and monitoring your business’s cash flow. Your cash flow statement is one of the three key financial statements you’ll put together for your business plan. (The other two are your balance sheet and your income statement (P&L).
Reviewing your cash flow statement regularly as part of your regular business plan review will help you see potential cash flow challenges earlier so you can take action to avoid a cash crisis where you can’t pay your bills.
Competitors are one of the factors that you need to take into account when starting a business. Luckily, competitive research is an integral part of writing a business plan. It encourages you to ask questions like:
Finding answers to these questions helps you solidify a strategic market position and identify ways to differentiate yourself. It also proves to potential investors that you’ve done your homework and understand how to compete.
A vital part of starting a business is understanding what your expenses will be and how you will generate revenue to cover those expenses. Creating a business plan helps you do just that while also defining ongoing financial needs to keep in mind.
Without a business model, it’s difficult to know whether your business idea will generate revenue. By detailing how you plan to make money, you can effectively assess the viability and scalability of your business.
Understanding this early on can help you avoid unnecessary risks and start with the confidence that your business is set up to succeed.
A business plan is a great way to document your marketing plan. This will ensure that all of your marketing activities are aligned with your overall goals. After all, a business can’t grow without customers and you’ll need a strategy for acquiring those customers.
Your business plan should include information about your target market, your marketing strategy, and your marketing budget. Detail things like how you plan to attract and retain customers, acquire new leads, how the digital marketing funnel will work, etc.
Having a documented marketing plan will help you to automate business operations, stay on track and ensure that you’re making the most of your marketing dollars.
In order to create a successful business, you need a clear vision and a plan for how you’re going to achieve it. This is all detailed with your mission statement, which defines the purpose of your business, and your personnel plan, which outlines the roles and responsibilities of current and future employees. Together, they establish the long-term vision you have in mind and who will need to be involved to get there.
Additionally, your business plan is a great tool for getting your team in sync. Through consistent plan reviews, you can easily get everyone in your company on the same page and direct your workforce toward tasks that truly move the needle.
A business plan helps you to evaluate your current situation and make realistic projections for the future.
This is an essential step in growing your business, and it’s one that’s often overlooked. When you have a business plan in place, it’s easier to identify opportunities and make informed decisions based on data.
Therefore, it requires you to outline goals, strategies, and tactics to help the organization stay focused on what’s important.
By regularly revisiting your business plan, especially when the global market changes, you’ll be better equipped to handle whatever challenges come your way, and pivot faster.
You’ll also be in a better position to seize opportunities as they arise.
Further Reading: 5 fundamental principles of business planning
An often overlooked purpose of a business plan is as a tool to define success metrics. A key part of writing your plan involves pulling together a viable financial plan. This includes financial statements such as your profit and loss, cash flow, balance sheet, and sales forecast.
By housing these financial metrics within your business plan, you suddenly have an easy way to relate your strategy to actual performance. You can track progress, measure results, and follow up on how the company is progressing. Without a plan, it’s almost impossible to gauge whether you’re on track or not.
Additionally, by evaluating your successes and failures, you learn what works and what doesn’t and you can make necessary changes to your plan. In short, having a business plan gives you a framework for measuring your success. It also helps with building up a “lessons learned” knowledge database to avoid costly mistakes in the future.
Down the road, you might decide that you want to sell your business or position yourself for acquisition. Having a solid business plan is going to help you make the case for a higher valuation. Your business is likely to be worth more to a buyer if it’s easy for them to understand your business model, your target market, and your overall potential to grow and scale.
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By taking the time to create a business plan, you ensure that your business is heading in the right direction and that you have a roadmap to get there. We hope that this post has shown you just how important and valuable a business plan can be. While it may still seem daunting, the benefits far outweigh the time investment and learning curve for writing one.
Luckily, you can write a plan in as little as 30 minutes. And there are plenty of excellent planning tools and business plan templates out there if you’re looking for more step-by-step guidance. Whatever it takes, write your plan and you’ll quickly see how useful it can be.
Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.
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Updated: Apr 7, 2024, 1:44pm
Before you begin: get in the right mindset, 1. determine your business concept, 2. research your competitors and market, 3. create your business plan, 4. choose your business structure, 5. register your business and get licenses, 6. get your finances in order, 7. fund your business, 8. apply for business insurance, 9. get the right business tools, 10. market your business, 11. scale your business, what are the best states to start a business, bottom line, frequently asked questions (faqs).
Starting a business is one of the most exciting and rewarding experiences you can have. But where do you begin? There are several ways to approach creating a business, along with many important considerations. To help take the guesswork out of the process and improve your chances of success, follow our comprehensive guide on how to start a business. We’ll walk you through each step of the process, from defining your business idea to registering, launching and growing your business.
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The public often hears about overnight successes because they make for a great headline. However, it’s rarely that simple—they don’t see the years of dreaming, building and positioning before a big public launch. For this reason, remember to focus on your business journey and don’t measure your success against someone else’s.
New business owners tend to feed off their motivation initially but get frustrated when that motivation wanes. This is why it’s essential to create habits and follow routines that power you through when motivation goes away.
Some business owners dive in headfirst without looking and make things up as they go along. Then, there are business owners who stay stuck in analysis paralysis and never start. Perhaps you’re a mixture of the two—and that’s right where you need to be. The best way to accomplish any business or personal goal is to write out every possible step it takes to achieve the goal. Then, order those steps by what needs to happen first. Some steps may take minutes while others take a long time. The point is to always take the next step.
Most business advice tells you to monetize what you love, but it misses two other very important elements: it needs to be profitable and something you’re good at. For example, you may love music, but how viable is your business idea if you’re not a great singer or songwriter? Maybe you love making soap and want to open a soap shop in your small town that already has three close by—it won’t be easy to corner the market when you’re creating the same product as other nearby stores.
If you don’t have a firm idea of what your business will entail, ask yourself the following questions:
These questions can lead you to an idea for your business. If you already have an idea, they might help you expand it. Once you have your idea, measure it against whether you’re good at it and if it’s profitable.
Your business idea also doesn’t have to be the next Scrub Daddy or Squatty Potty. Instead, you can take an existing product and improve upon it. You can also sell a digital product so there’s little overhead.
Before you choose the type of business to start, there are some key things to consider:
Not sure what business to start? Consider one of these popular business ideas:
Most entrepreneurs spend more time on their products than they do getting to know the competition. If you ever apply for outside funding, the potential lender or partner wants to know: what sets you (or your business idea) apart? If market analysis indicates your product or service is saturated in your area, see if you can think of a different approach. Take housekeeping, for example—rather than general cleaning services, you might specialize in homes with pets or focus on garage cleanups.
The first stage of any competition study is primary research, which entails obtaining data directly from potential customers rather than basing your conclusions on past data. You can use questionnaires, surveys and interviews to learn what consumers want. Surveying friends and family isn’t recommended unless they’re your target market. People who say they’d buy something and people who do are very different. The last thing you want is to take so much stock in what they say, create the product and flop when you try to sell it because all of the people who said they’d buy it don’t because the product isn’t something they’d buy.
Utilize existing sources of information, such as census data, to gather information when you do secondary research. The current data may be studied, compiled and analyzed in various ways that are appropriate for your needs but it may not be as detailed as primary research.
SWOT stands for strengths, weaknesses, opportunities and threats. Conducting a SWOT analysis allows you to look at the facts about how your product or idea might perform if taken to market, and it can also help you make decisions about the direction of your idea. Your business idea might have some weaknesses that you hadn’t considered or there may be some opportunities to improve on a competitor’s product.
Asking pertinent questions during a SWOT analysis can help you identify and address weaknesses before they tank your new business.
A business plan is a dynamic document that serves as a roadmap for establishing a new business. This document makes it simple for potential investors, financial institutions and company management to understand and absorb. Even if you intend to self-finance, a business plan can help you flesh out your idea and spot potential problems. When writing a well-rounded business plan, include the following sections:
Learn more: Download our free simple business plan template .
An exit strategy is important for any business that is seeking funding because it outlines how you’ll sell the company or transfer ownership if you decide to retire or move on to other projects. An exit strategy also allows you to get the most value out of your business when it’s time to sell. There are a few different options for exiting a business, and the best option for you depends on your goals and circumstances.
The most common exit strategies are:
As your small business grows, it’s important to have a scalable business model so that you can accommodate additional customers without incurring additional costs. A scalable business model is one that can be replicated easily to serve more customers without a significant increase in expenses.
Some common scalable business models are:
One of the most important things to do when starting a small business is to start planning for taxes. Taxes can be complex, and there are several different types of taxes you may be liable for, including income tax, self-employment tax, sales tax and property tax. Depending on the type of business you’re operating, you may also be required to pay other taxes, such as payroll tax or unemployment tax.
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When structuring your business, it’s essential to consider how each structure impacts the amount of taxes you owe, daily operations and whether your personal assets are at risk.
An LLC limits your personal liability for business debts. LLCs can be owned by one or more people or companies and must include a registered agent . These owners are referred to as members.
An LLP is similar to an LLC but is typically used for licensed business professionals such as an attorney or accountant. These arrangements require a partnership agreement.
If you start a solo business, you might consider a sole proprietorship . The company and the owner, for legal and tax purposes, are considered the same. The business owner assumes liability for the business. So, if the business fails, the owner is personally and financially responsible for all business debts.
A corporation limits your personal liability for business debts just as an LLC does. A corporation can be taxed as a C corporation (C-corp) or an S corporation (S-corp). S-corp status offers pass-through taxation to small corporations that meet certain IRS requirements. Larger companies and startups hoping to attract venture capital are usually taxed as C-corps.
Before you decide on a business structure, discuss your situation with a small business accountant and possibly an attorney, as each business type has different tax treatments that could affect your bottom line.
There are several legal issues to address when starting a business after choosing the business structure. The following is a good checklist of items to consider when establishing your business:
Make it memorable but not too difficult. Choose the same domain name, if available, to establish your internet presence. A business name cannot be the same as another registered company in your state, nor can it infringe on another trademark or service mark that is already registered with the United States Patent and Trademark Office (USPTO).
Business Name vs. DBA
There are business names, and then there are fictitious business names known as “Doing Business As” or DBA. You may need to file a DBA if you’re operating under a name that’s different from the legal name of your business. For example, “Mike’s Bike Shop” is doing business as “Mike’s Bikes.” The legal name of the business is “Mike’s Bike Shop,” and “Mike’s Bikes” is the DBA.
You may need to file a DBA with your state, county or city government offices. The benefits of a DBA include:
You’ll officially create a corporation, LLC or other business entity by filing forms with your state’s business agency―usually the Secretary of State. As part of this process, you’ll need to choose a registered agent to accept legal documents on behalf of your business. You’ll also pay a filing fee. The state will send you a certificate that you can use to apply for licenses, a tax identification number (TIN) and business bank accounts.
Next, apply for an employer identification number (EIN) . All businesses, other than sole proprietorships with no employees, must have a federal employer identification number. Submit your application to the IRS and you’ll typically receive your number in minutes.
Legal requirements are determined by your industry and jurisdiction. Most businesses need a mixture of local, state and federal licenses to operate. Check with your local government office (and even an attorney) for licensing information tailored to your area.
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Keep your business and personal finances separate. Here’s how to choose a business checking account —and why separate business accounts are essential. When you open a business bank account, you’ll need to provide your business name and your business tax identification number (EIN). This business bank account can be used for your business transactions, such as paying suppliers or invoicing customers. Most times, a bank will require a separate business bank account to issue a business loan or line of credit.
If you sell a product, you need an inventory function in your accounting software to manage and track inventory. The software should have ledger and journal entries and the ability to generate financial statements.
Some software programs double as bookkeeping tools. These often include features such as check writing and managing receivables and payables. You can also use this software to track your income and expenses, generate invoices, run reports and calculate taxes.
There are many bookkeeping services available that can do all of this for you, and more. These services can be accessed online from any computer or mobile device and often include features such as bank reconciliation and invoicing. Check out the best accounting software for small business, or see if you want to handle the bookkeeping yourself.
Before you fund your business, you must get an idea of your startup costs. To determine these, make a list of all the physical supplies you need, estimate the cost of any professional services you will require, determine the price of any licenses or permits required to operate and calculate the cost of office space or other real estate. Add in the costs of payroll and benefits, if applicable.
Businesses can take years to turn a profit, so it’s better to overestimate the startup costs and have too much money than too little. Many experts recommend having enough cash on hand to cover six months of operating expenses.
When you know how much you need to get started with your business, you need to know the point at which your business makes money. This figure is your break-even point.
In contrast, the contribution margin = total sales revenue – cost to make product
For example, let’s say you’re starting a small business that sells miniature birdhouses for fairy gardens. You have determined that it will cost you $500 in startup costs. Your variable costs are $0.40 per birdhouse produced, and you sell them for $1.50 each.
Let’s write these out so it’s easy to follow:
COMMENTS
The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan.
7. Build a Visual Report. If you've closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using "what-if" scenarios. Now, we'll prepare visual reports to present your numbers in a visually appealing and easily digestible format.
Here is everything you need to include in your financial plan, along with optional performance metrics, funding specifics, mistakes to avoid, and free templates. Key components of a financial plan. A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:
The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders ...
3. Equity: Total assets minus total liabilities (Assets = liabilities + equity.) Analysis. It's good to offer readers an analysis of the three basic financial statements — how they fit ...
The balance sheet portion of the financial plan aims to give an idea of what the business will be worth, considering all its assets and liabilities, at a future date. To do this, it uses figures from the income statement and cash flow statement. The essence of a balance sheet is found in the equation: Liabilities + Equity = Assets.
The goal here is to showcase why your team is the best to run your business. Investors want to know you're unified, organized and reliable. This is also a potential opportunity to bring more humanity to your business plan and showcase the faces behind the ideas and product. 5. Marketing and sales.
Most business plans also include financial forecasts for the future. These set sales goals, budget for expenses, and predict profits and cash flow. A good business plan is much more than just a document that you write once and forget about. It's also a guide that helps you outline and achieve your goals. After completing your plan, you can ...
The final financial statement required for the business plan's financial section is a balance sheet. This statement is a snapshot of the company's net worth at a given point in time. Established businesses produce a balance sheet annually. Information from the income statement and cash flow projection are used to complete this statement.
The financial section of your business plan is critical, especially if you want to circulate the plan to investors or lenders. The purpose of this section is threefold: to 1) outline your business's financial plan, 2) demonstrate your profit potential, and 3) share your financing needs.
Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you'll need to plan for your business's future, and to make your case to potential investors. You will need to include supporting financial documents and any ...
Step 2: Do your market research homework. The next step in writing a business plan is to conduct market research. This involves gathering information about your target market (or customer persona), your competition, and the industry as a whole. You can use a variety of research methods such as surveys, focus groups, and online research to ...
Sales Forecast. #4 Income statement or Profit & Loss Statement. #5 The Balance Sheet. #6 How to put together your Personnel Plan. #7 Conclusion. Useful Links. I know that the financial plan can feel like the most intimidating part of putting a business plan together. Like many other business owners, you may not have a degree in accounting or ...
Here are some of the components of an effective business plan. 1. Executive Summary. One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.
Tips on Writing a Business Plan. 1. Be clear and concise: Keep your language simple and straightforward. Avoid jargon and overly technical terms. A clear and concise business plan is easier for investors and stakeholders to understand and demonstrates your ability to communicate effectively. 2.
13 Key Business Plan Components. We've built a comprehensive guide to the major parts of a business plan for you. From elements like the executive summary to product descriptions, traction, and financials, we'll guide you on all of the key sections you should include in your business plan. December 14th, 2022 | By: The Startups Team | Tags ...
The financial section of the business plan can be developed by you or an accountant. At any rate, the structure of the financial section generally includes the following items; A. Introduction to the Financial Plan. B. Forecasted Financial Statements. C. Notes to the Forecasted Financial Statements.
Business Plan: A business plan is a written document that describes in detail how a business, usually a new one, is going to achieve its goals. A business plan lays out a written plan from a ...
1. Create Your Executive Summary. The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans. Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.
Effective business plans contain several key components that cover various aspects of a company's goals. The most important parts of a business plan include: 1. Executive summary. The executive summary is the first and one of the most critical parts of a business plan. This summary provides an overview of the business plan as a whole and ...
Here are 10 sections of a business plan that you may wish to include: 1. Executive summary. This is an essential part of a successful business plan that often takes the most time to complete. It's also one that you may consider completing last, even though it's usually the first thing that the reader sees. An executive summary is the definitive ...
1. Executive Summary. While your executive summary is the first page of your business plan, it's the section you'll write last. That's because it summarizes your entire business plan into a succinct one-pager. Begin with an executive summary that introduces the reader to your business and gives them an overview of what's inside the ...
How do you write a business plan? It can seem overwhelming, but your plan is an important step in helping your company launch and grow. Parts of a Business Plan: 7 Essential Sections
Components of a Financial Services Business Plan. 1. Executive Summary. The executive summary is your plan's elevator pitch. In a concise manner, it should capture the essence of your business ...
Marketing plan: A strategic outline of how you plan to market and promote your business before, during, and after your company launches into the market. Logistics and operations plan: An explanation of the systems, processes, and tools that are needed to run your business in the background. Financial plan: A map of your short-term (and even ...
Build a strategy. 4. Crafts a roadmap to achieve important milestones. A business plan is like a roadmap for your business. It helps you set, track and reach business milestones. For your plan to function in this way, your business plan should first outline your company's short- and long-term goals.
The best way to accomplish any business or personal goal is to write out every possible step it takes to achieve the goal. Then, order those steps by what needs to happen first. Some steps may ...
A financial plan is a way to assess your current financial situation, identify long-term financial goals, and create a road map to achieve them. A good financial plan not only considers your current finances—including your cash flow, budget, debt, and savings—but also your long-term financial goals like saving for retirement .
Our template steps you through the process of developing a succession plan with links to extra information if you need it. You may want to check our tips below before you start. 1. Analyse your market. 2. Set your goals and objectives. 3. Outline your marketing strategies. 4.
Part 1 - Federal Acquisition Regulations System. Part 2 - Definitions of Words and Terms. Part 3 - Improper Business Practices and Personal Conflicts of Interest. Part 4 - Administrative and Information Matters. Part 5 - Publicizing Contract Actions.