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How To Write A Business Plan

By Amy Fontinelle

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Table of Contents 1) Business Plan: Introduction 2) Business Plan: Do You Need One? 3) Business Plan: Describing Your Business 4) Business Plan: Composing Your Executive Summary 5) Business Plan: Analyzing Your Industry 6) Business Plan: Marketing And Sales 7) Business Plan: Your Organizational And Operating Plan 8) Business Plan: Your Financial Plan 9) Business Plan: Presenting Your Plan 10) Business Plan: Conclusion

Introduction

The purpose of a business plan is to explain in writing what your business idea is, why it is needed in the marketplace, how it will succeed and who will make it happen. In the process of writing a full business plan, you'll essentially be forced to run your new business on paper before you get in over your head. The plan will reveal any flaws in your idea or its execution and give you a chance to correct those issues before you invest too much time or money, or pledge your house as collateral for a commercial loan. Writing a business plan will also show you everything you need to know about your business as its owner.

Once your business is up and running, your business plan will be a document you can look back on any time your business is struggling or you are having doubts.

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Consulting your plan at times like these can show you if you are on track. Perhaps you've strayed from your plan and need to return to your original ideas; on the other hand, if you are on track and things just aren't working, the business plan will allow you to easily examine every detail of your business and see where you need to alter your plan to improve your business model.

In an ideal world, everyone would write a business plan before they actually started their business, but sometimes this is not the case. If you are already up and running but don't yet have a business plan, your primary motivation for preparing one will almost certainly be to obtain financing. An existing business that is undergoing a significant change would also benefit from preparing a business plan, regardless of whether it is seeking financing. The good news about creating a plan for an existing business is that you will have real-world experience and real-world financial data to work with.

Do You Need A Business Plan?

Because writing a business plan forces you to look at your business in great detail, every business owner should really write a business plan no matter what type of business he or she is starting. But the main reason that most people are actually forced to undertake this significant task is that they want to obtain external financing for their business. A business plan is almost always necessary to obtain financing, whether you are working in a new business or an existing one.

Your plan should convey your enthusiasm for your business and present it in the best possible light. That being said, you should not use sales hype, exaggerate or attempt to hide past mistakes. What's more, your plan should openly and honestly address challenges that your business is likely to face. Addressing the potential downsides shows that you are being realistic; it also puts you in a position to head off problems before they occur, or avoid being blindsided if they do occur. If you know what might go wrong and think about how you might be able to fix it ahead of time, you may be able to turn a bad situation around quickly.

While it is helpful to consult books and websites on how to prepare a business plan and what essential components you must include, it might not be the best idea to use a prewritten template or software package to prepare your plan.

John S. Reilly, a Dallas-based business-plan-writing consultant, says that "lenders and other funding sources can spot them a mile away because they all look the same. Why risk letting the funding source wonder just how much thought has really

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been invested in this plan, if it's obviously done on cookie-cutter software?"

Another problem with templates is that they may induce you to include information in your plan that doesn't make sense in your line of business or cause you to leave out key information. The former scenario wastes your time, and either will make you look lazy or foolish to your target audience.

Who Is Your Target Audience? Since business plans are commonly used to seek financing, we'll assume that potential lenders and investors are the audience for your business plan. However, business plans are also often written for internal use, especially by owners and managers.

Describing Your Business

In order to prevent your executive summary from being too long, and to give readers more detail on what your business actually does, you'll want to include a business description section in your business plan.

You probably spend most of your waking hours (and some of your sleeping hours) thinking about your business. You understand what you do, how you do it and why you do it better than anyone.

When you're writing your business plan, you have to think about your business from the perspective of an outsider. The person who will be reading your plan knows nothing about your business except: (1) what he or she knows about similar businesses, if there are any and (2) what they assume. What the reader thinks he knows (if anything) may not actually apply to your business. So, you need to explain everything a financier might want to know about it.

Start with the basics: provide your business's legal name, operating name, contact information (address, phone number, fax number, website address, email address), and the name of at least one contact person. Also include the names of any owners other than yourself and the names of your lawyer, CPA and insurance agent, if applicable.

Next you must explain what, exactly, your business does. "We run a grocery store" is not as descriptive as "We run the only grocery store in the greater Springfield area that exclusively sells foods grown or produced within a 100-mile radius." The latter description not only explains that you are in the grocery business, but it also says

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why your business is unique and shows that it fills a potentially untapped market. Also include your mission statement, which should describe your company's purpose, values and goals.

Relate the problem your business solves for consumers, and state the facts you have gathered to support the existence of this problem. Be as specific as possible. For example, describe the limited availability of locally grown and produced foods for purchase despite the abundance of farmers and artisanal food producers in the area. Describe the demand for these products and how your business would make them accessible and affordable.

Define the industry that your business belongs to, the major characteristics of that industry, and the major existing players in that industry. Where do their strengths and weaknesses lie? How will your business be able to compete with their strengths and improve on their weaknesses?

Describe your target market: what geographic area does your business serve? What are the demographics of the customers you intend to reach? What are the psychographics of your target customers? (Psychographic characteristics include purchasing motivations, lifestyles and values.)

When and how was your company formed? Provide a brief history of your company, lay out how your business is operated and outline its key players. Then explain how your firm operates. What are the steps it takes to bring its product or service to market? Are there unique characteristics of the way your company does this that gives it a competitive advantage? For example, Wal-Mart's highly efficient distribution system is one of the main factors that helps the company undercut its competitors' costs. Specify how your company sells its product or service and what quality control and customer service measures you use to make sure customers are satisfied.

How do your firm's products or services fit into their industry, and how to they interact with market conditions to create a potentially profitable opportunity? Explain the concrete reasons you expect your business to flourish, and enumerate the steps you will take to achieve your company's goals.

You should also state where your business is headed. What strategies have you planned but not yet implemented to expand your business and your customer base? (The answers to these questions may tie in directly with why you are seeking financing.)

Provide an overview of the important financial details that will make your business

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successful, such as your anticipated sales volume, the profit margin on key products and when you expect to reach your breakeven point. What are your financial goals? What existing financing do you have, and what financing are you currently seeking and why? Where does your company currently stand, financially speaking, and where has it been in the past?

The business description provides greater detail than the executive summary, but it is still essentially a summary. In later sections of the business plan, you will get into the fine points of your marketing and sales plan, your organizational and operational plan and your financial plan. The business description should provide a shorter and less technical explanation of these things. Like the executive summary, the business description should be one of the last things you write, since it draws on information contained in other sections of your plan.

Remember that the reader doesn't really care if it is your lifelong dream to open a local foods grocery store. They want to know how you will make the business profitable and why they should invest or lend you money. Your description should be based on facts, not feelings. Furthermore, every fact you present should be specific, detailed and supported by credible secondary sources and by primary research your company has conducted.

Composing Your Executive Summary

In order to prevent your executive summary from being too long, and to give readers more detail on what your business actually does, you'll want to include a business description section in your business plan.

You probably spend most of your waking hours (and some of your sleeping hours) thinking about your business. You understand what you do, how you do it and why you do it better than anyone.

When you're writing your business plan, you have to think about your business from the perspective of an outsider. The person who will be reading your plan knows nothing about your business except: (1) what he or she knows about similar businesses, if there are any and (2) what they assume. What the reader thinks he knows (if anything) may not actually apply to your business. So, you need to explain everything a financier might want to know about it.

Start with the basics: provide your business's legal name, operating name, contact information (address, phone number, fax number, website address, email address),

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