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How to Write a Business Plan - « back to Articles

What Makes a Good Business Plan

Definition

A Business Plan is a written document that outlines the business background, the proposed resources and strategies that will be used; and the expected results of a business for a stated period of time. The document should be organized, complete and factual.

A Business Plan can be prepared for either an existing, expanding or proposed new business. A Business Plan for an existing business would also include a summary of past results.

Why is a Business Plan Important?

There are a number of reasons for preparing a Business Plan. Some of them are for external purposes and others are for internal purposes.

The most common external reason is to provide support for financing applications. A well-prepared Business Plan makes it easier for a banker to understand the business and therefore increases the likelihood of receiving a loan approval.

A major internal reason for preparing a business plan is to provide management with a written document that can help to keep the business on track. By following the approved Business Plan, management is less likely to make business decisions that are inappropriate or inconsistent with the goals of the owners.

Five Cs of Credit

Since one of the major uses of a Business Plan is to support a loan application, an understanding of the criteria used by a banker in evaluating a loan proposal will enable a manager to prepare a more effective business plan.

While different banks use different terms to describe their lending criteria, five basic areas are considered. These can be referred to as the Five Cs of Credit.

Briefly stated below are the "Five Cs of Credit" and the questions that you will need to answer in your Business Plan that address these Five Cs.

Conditions
  • What type of business is it and what is its operating environment?
  • Who are the main competitors?
  • What makes the growth potential of the business?
  • What is the market size?
  • What is the growth trend in the industry?
Character
  • What are the educational backgrounds, experience, and proven management skills of principals?
  • What is their credit worthiness?
  • What is the daily involvement of each principal?
Capacity to Repay
  • How realistic are the financial and cash flow projections?
  • What is the element of risk?
Collateral
  • What is the realizable market value for the assets being pledged as collateral?
Capital
  • What is the level and nature of investment of the principals in the business?
  • How committed are the owners and management to the success of the proposed project?
Components of a Business Plan There are a number of necessary components in a good Business Plan. These are classified below. The questions you will need to answer in our Business Plan follow each component. Business Profile
  • Who are the owners of the business?
  • What is, or will be, the address and telephone number?
  • What is the proposed legal structure?
  • What is the business sector and what are the main products or services offered?
Marketing
  • What is the nature of the industry?
  • Who are the target customers?
  • Who are the main competitors?
  • What is the company's marketing strategy?
Operations
  • What competitive advantages does the business site offer?
  • What facilities and equipment are used?
  • What is the production process?
  • What is the cost of labour?
  • How skilled and experienced is the available work force?
Management
  • What is their education and experience?
  • What are their proven management abilities?
  • What is the credit worthiness of the principals?
  • How is the organization structured?
Financial Summary
  • What are the financial requirements?
  • What are the historical financial results?
  • What is the level and nature of existing debt?
  • What is the projected profitability?
  • What is the break-even sales level?
  • What are the cash flow requirements?
Appendices
  • What documents are needed to explain the information summarized in the body of the Business Plan?
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Business Profile

Purpose
This section of the Business Plan provides the reader with administrative information about the business, a profile of its legal structure and ownership, and a description of the basic product or service being offered.

Administrative Information

This component should include the basic information required to enable the reader to contact or visit the business.
  • Business name
  • Street address
  • Mailing Address (if different from the street address)
  • Postal code
  • Telephone number
  • FAX number (if applicable)
Ownership Particulars

This component of the business plan should include:
  • Legal name of the company
  • Legal structure of the business (e.g. proprietorship, partnership, corporation)
  • Date of registration of incorporation
  • Type of incorporation (Federal or Provincial)
  • Names of the partners (if applicable)
  • Names of limited partners and the extend of their liability
  • Names of shareholders and the percentage of shares owned (for corporations)
Business Sector

The basic business sector and the main products or services offered (e.g. high fashion men's retail clothing store; manufacturer of fiberglass canoes) should be given.

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Marketing

Purpose

This section of the Business Plan states the expected sales level and outlines the information that will support your sales projections.

The marketing section is usually the first major section of the Business Plan since it is the foundation upon which the balance of the Business Plan is built.

Industry Overview

This component should include:
  • A description of the basic changes that are taking place in the industry
  • The growth potential for this type of product or service
Target Customer

The component should include:
  • A description of your target customer
  • An outline of the needs and buying habits of the target customer
  • The target customer's expectations regarding price, quality and service
  • An estimation of the size of the market and of your anticipated market share
Competition

This component should include:
  • An evaluation of the strengths and weaknesses of your major competitors
  • An outline of your competitive advantages
  • An evaluation of the competitive barriers you will face and your plans for
  • dealing with them
Marketing Plan

This part of the marketing section outlines the strategy you will use to get and keep your share of the market.

Your marketing plan must convince the reader that:
  • There is an unsatisfied need in the marketplace for your product or service
  • You have a marketing strategy that will enable you to meet the identified need
  • You can sell your product or service at a profit
Your marketing plan should briefly cover the four main elements of a good marketing plan: Product, Distribution/Location, Price and Communication.

Product

This component should provide a brief description of the product or service you intend to sell to the target customer, and of your competitive advantage.

Distribution/Location

This component should describe the distribution system to be used or the location selected to reach the target market.

Price

This component should describe the pricing strategy to be followed in order to penetrate the market, maintain or increase market shares and make a profit.

Communication

This component should describe the advertising, promotional and merchandising techniques that will be used; and the expenditures required to attract the target market.

This section of the Business Plan states the expected sales level and outlines the information that will support your sales projections.

The marketing section is usually the first major section of the Business Plan since it is the foundation upon which the balance of the Business Plan is built.

Industry Overview

This component should include:
  • A description of the basic changes that are taking place in the industry
  • The growth potential for this type of product or service
Target Customer The component should include:
  • A description of your target customer
  • An outline of the needs and buying habits of the target customer
  • The target customer's expectations regarding price, quality and service
  • An estimation of the size of the market and of your anticipated market share
Competition

This component should include:
  • An evaluation of the strengths and weaknesses of your major competitors
  • An outline of your competitive advantages
  • An evaluation of the competitive barriers you will face and your plans for dealing with them
Marketing Plan

This part of the marketing section outlines the strategy you will use to get and keep your share of the market.

Your marketing plan must convince the reader that:
  • There is an unsatisfied need in the marketplace for your product or service
  • You have a marketing strategy that will enable you to meet the identified need
  • You can sell your product or service at a profit
Your marketing plan should briefly cover the four main elements of a good marketing plan: Product, Distribution/Location, Price and Communication.

Product

This component should provide a brief description of the product or service you intend to sell to the target customer, and of your competitive advantage.

Distribution/Location

This component should describe the distribution system to be used or the location selected to reach the target market.

Price

This component should describe the pricing strategy to be followed in order to penetrate the market, maintain or increase market shares and make a profit.

Communication

This component should describe the advertising, promotional and merchandising techniques that will be used; and the expenditures required to attract the target market.

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Operations

Purpose

This section of the Business Plan outlines the information that will support your ability to produce or provide the product or service in the quantity and quality indicated in your marketing plan.

Site

This component should describe the suitability of your business site and its proximity to important elements such as raw materials, transportation, parking, and skilled labour.

Facilities and Equipment

This component should describe the production process or the service operation and any competitive advantages it offers; the availability of raw materials and sources of supply; and the quality control procedures to be implemented.

Labour Force

This component should describe the types and availability of all labour requirements; special-training requirements; union contracts in place and the identification of all labour costs.

This section of the Business Plan outlines the information that will support your ability to produce or provide the product or service in the quantity and quality indicated in your marketing plan.

Site

This component should describe the suitability of your business site and its proximity to important elements such as raw materials, transportation, parking, and skilled labour.

Facilities and Equipment

This component should describe the production process or the service operation and any competitive advantages it offers; the availability of raw materials and sources of supply; and the quality control procedures to be implemented.

Labour Force

This component should describe the types and availability of all labour requirements; special-training requirements; union contracts in place and the identification of all labour costs.

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Managenment

Purpose

This section of the Business Plan provides the reader with information regarding the competency and reliability of management.

Individuals

This component should include:
  • Names of the key management personnel
  • Education and experience of management
  • Duties and main responsibilities of management
  • Steps that will be taken to offset major management deficiencies
  • Names of other businesses owned by the principals
Statements of personal net worth for the owners and financial statements for any other businesses they may own should be referred to and included in the Appendices section.

This section of the Business Plan provides the reader with information regarding the competency and reliability of management.

Individuals

This component should include:
  • Names of the key management personnel
  • Education and experience of management
  • Duties and main responsibilities of management
  • Steps that will be taken to offset major management deficiencies
  • Names of other businesses owned by the principals
Statements of personal net worth for the owners and financial statements for any other businesses they may own should be referred to and included in the Appendices section.

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Financial Summary

Purpose

This section of the Business Plan assures the reader that the level of risk to the investor or lender is reasonable in relation to the anticipated return and level of exposure.

Types of Financial Information

There are seven main types of financial information that should be included in this section:
  • Financial Requirements / Proposed Financing
  • Historical Financial Results (existing business)
  • Current Financial Position (existing business)
  • Operating Forecast
  • Break-even Calculation
  • Cash Flow Projection
  • Pro forma/Opening Balance Sheet
Each of these seven components are described below.

Financial Requirements / Proposed Funding

This component should list the various costs related to the business start-up or expansion, and the sources of investment capital and/or borrowed funds.

Historical Financial Results

This component (applicable to an existing business only) should summarize the historical performance of the business.

The summary should include sales, cost of goods sold, gross profit, total expanses before depreciation expense, depreciation expense, and net profit or loss.

A copy of the latest Income Statement should be included in the Appendices section of the Business Plan.

Current Financial Position

This component should include the following details on any outstanding debts:
  • Name of lender
  • Amount of original loan
  • Amount of debt outstanding
  • Maturity date (if appropriate)
  • Interest rate
  • Monthly payment
  • Security
Existing businesses should include a copy of the current Balance Sheet in the Appendices section.

Historical Financial Results

Provide a summary of the historical results in an easy to read format.

Current Financial Position

Provide details on all outstanding debts in an easy to understand format. Enclose the current Balance Sheet in the Appendices

Operating Forecast

This component should include an estimate of sales and expenses and a calculation of the anticipated profit for the next twelve months.

The sources of the information or assumptions used for numerical calculations must be documented and included with the operating forecast.

Operating Forecast

Provide a 12-month operating forecast in an easy to read format.

Break-even Calculation

This component should include a calculation of the break-even point in both dollars and units.

Cash Flow Projection

This component should include a month-by-month projection, for a twelve-month period, of the anticipated cash inflows and outflows.

The cash flow projection will enable you to predict the amount and timing of cash deficiencies or surpluses.

Opening Balance Sheet

Provide an opening balance sheet to reflect the financial position of the company immediately after the completion of the program and financing.

For existing business the current balance sheet will show the amendments reflecting the addition of the new financing/investment and the increase in assets and liabilities.

For a new business, an opening balance sheet shows the assets, liabilities and equity of the company once the program and financing are in place.

You may wish to review the Financial Charts that are available as a part of this Business Plan Guide. They provide a model of a format that is easy to read and understand; and that is acceptable to most financial institutions.

This section of the Business Plan assures the reader that the level of risk to the investor or lender is reasonable in relation to the anticipated return and level of exposure.

Types of Financial Information

There are seven main types of financial information that should be included in this section:
  • Financial Requirements / Proposed Financing
  • Historical Financial Results (existing business)
  • Current Financial Position (existing business)
  • Operating Forecast
  • Break-even Calculation
  • Cash Flow Projection
  • Pro forma/Opening Balance Sheet
Each of these seven components are described below.

Financial Requirements / Proposed Funding


This component should list the various costs related to the business start-up or expansion, and the sources of investment capital and/or borrowed funds.

Historical Financial Results

This component (applicable to an existing business only) should summarize the historical performance of the business.

The summary should include sales, cost of goods sold, gross profit, total expanses before depreciation expense, depreciation expense, and net profit or loss.

A copy of the latest Income Statement should be included in the Appendices section of the Business Plan.

Current Financial Position

This component should include the following details on any outstanding debts:
  • Name of lender
  • Amount of original loan
  • Amount of debt outstanding
  • Maturity date (if appropriate)
  • Interest rate
  • Monthly payment
  • Security
Existing businesses should include a copy of the current Balance Sheet in the Appendices section.

Historical Financial Results

Provide a summary of the historical results in an easy to read format.

Current Financial Position

Provide details on all outstanding debts in an easy to understand format. Enclose the current Balance Sheet in the Appendices

Operating Forecast

This component should include an estimate of sales and expenses and a calculation of the anticipated profit for the next twelve months.

The sources of the information or assumptions used for numerical calculations must be documented and included with the operating forecast.

Operating Forecast

Provide a 12-month operating forecast in an easy to read format.

Break-even Calculation

This component should include a calculation of the break-even point in both dollars and units.

Cash Flow Projection

This component should include a month-by-month projection, for a twelve-month period, of the anticipated cash inflows and outflows.

The cash flow projection will enable you to predict the amount and timing of cash deficiencies or surpluses.

Opening Balance Sheet

Provide an opening balance sheet to reflect the financial position of the company immediately after the completion of the program and financing.

For existing business the current balance sheet will show the amendments reflecting the addition of the new financing/investment and the increase in assets and liabilities.

For a new business, an opening balance sheet shows the assets, liabilities and equity of the company once the program and financing are in place.

You may wish to review the Financial Charts that are available as a part of this Business Plan Guide. They provide a model of a format that is easy to read and understand; and that is acceptable to most financial institutions.

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Appendices

Purpose

This section of the Business Plan provides the reader with copies of detailed documents referred to in various parts of the report.

Examples

Some of the documents that might be included in this section are:
  • Company registration / Certificate of incorporation
  • Consumer surveys
  • Pictures and drawings of product, services, plant, etc.
  • Maps
  • Plant layout plans
  • Survey plans
  • Appraisals of realty or equipment
  • Purchase and sale agreements
  • Patents
  • Statements of personal net worth
  • Organization charts
  • Construction quotations
  • Equipment lists
  • Contracts
  • Reference letters
  • Financial statements
This section of the Business Plan provides the reader with copies of detailed documents referred to in various parts of the report.

Examples

Some of the documents that might be included in this section are:
  • Company registration / Certificate of incorporation
  • Consumer surveys
  • Pictures and drawings of product, services, plant, etc.
  • Maps
  • Plant layout plans
  • Survey plans
  • Appraisals of realty or equipment
  • Purchase and sale agreements
  • Patents
  • Statements of personal net worth
  • Organization charts
  • Construction quotations
  • Equipment lists
  • Contracts
  • Reference letters
  • Financial statements
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Finishing Touches

Purpose

This section of the Planning Guide suggests some presentation techniques that will enhance the value of the Business Plan to the reader.

Presentation Techniques

The techniques to be covered are:
  • Executive Summary
  • Table of Contents / List of Appendices
  • Covering Letter
  • Presentation Tips
Each of these techniques is described below.

Executive Summary

The Executive Summary provides the reader with an overview of the key contents of the report. Although the Executive Summary appears at the beginning of the report, it should not be prepared until the report is completed. The summary should be as short as possible.

The items to be included are:
  • Objectives for the business
  • Products or services offered
  • Estimate of the market potential
  • Competitive advantages
  • Source and purpose of the desired financing
  • Projected financial results
  • Security offered or available
Table of Contents / List of Appendices

To aid the reader, both a Table of Contents and a List of Appendices should be provided with your Business Plan.

Covering Letter

Each time you send out a Business Plan, you should attach a covering letter addressed to a particular person. The letter should explain why the plan has been sent to this person, and should create interest in your plan without repeating the information contained in the Executive Summary.

Your letter should express confidence and enthusiasm without being aggressive or unbelievable.

Presentation Tips

The Business Plan's effectiveness will increase by paying careful attention to the presentation of the written document and the formal presentation. The following presentation tips should help:
  • Ensure that your plan is neatly typed and packaged. Use the draft you completed in this Planning Guide as a basis for developing your final plan.
  • Check your plan carefully for spelling, grammar and/or mathematical errors.
  • Ask a trusted advisor to review your plan objectively before sending it to the intended reader. Does the plan demonstrate:
    • Realistic market Share?
    • Reasonable marketing strategy?
    • Well-planned operations?
    • Capable management?
    • Identification of all costs?
    • Sufficient funding for both start-up and the continuation of operations?
    • Realistic forecasts?
    • Realistic break-even point?
    • Full financial commitment by the owners?
  • Control distribution of your plan as it contains confidential information.
  • Rehearse the presentation of your plan and be prepared for cross-examination.
  • Understand the contents of the plan thoroughly.
  • Make the plan realistic by including any negative aspects and their impact on your plans, but focus on the positive elements.
This section of the Planning Guide suggests some presentation techniques that will enhance the value of the Business Plan to the reader.

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