Take Home Exam 2 (Business Plan 75 points)
You are to finish your Business Plan (BP), using and building on the BP Take Home Exam 1, following the below SBA business plan template and using chapter 6 from the textbook as a reference. Document any additional resources used either at the bottom of each page in question or at the end of the BP document in a reference or source list section.
Access the above link for supporting information in completing the first four sections of your business plan. Per the U.S. Small Business Administration (SBA), “A startup business plan serves several purposes. It can help convince investors or lenders to finance your business. It can persuade partners or key employees to join your company. Most importantly, it serves as a roadmap guiding the launch and growth of your new business. Writing a business plan is an opportunity to carefully think through every step of starting your company so you can prepare for success. This is your chance to discover any weaknesses in your business idea, identify opportunities you may not have considered, and plan how you will deal with challenges that are likely to arise. Be honest with yourself as you work through your business plan. Don’t gloss over potential problems; instead, figure out solutions. A good business plan is clear and concise. A person outside of your industry should be able to understand it. Avoid overusing industry jargon or terminology. Most of the time involved in writing your plan should be spent researching and thinking. Make sure to document your research, including the sources of any information you include. Avoid making unsubstantiated claims or sweeping statements. Investors, lenders and others reading your plan will want to see realistic projections and expect your assumptions to be supported with facts. “
Use the following SBA section-specific instructions in completing the second half of your business plan, as a continuation of Take Home Exam 1. Make sure to revisit previously completed sections (i.e. Take Home Exam 1) to ensure continuity and flow for the entire business plan. Finalize the Executive Summary once the BP is completed.
The following instructions are to be used in creating your business plan via a clean word document. Use the headings and sub-headings provided. However, DO NOT include the section-specific instructions or any other instructions in your final business plan document. Instructions in red inform whether the new section requires a new page.
Use the Take Home Exam 1 document and build upon it. You are to complete all remaining sections of your business plan (beginning with Operational Plan) – following the below section-specific instructions. Once all sections are complete, revisit/revise the Executive Summary, as you will be able to improve it to some degree.
I. Executive Summary
II. Company Description
III. Products and Services
IV. Marketing Plan
V. Operational Plan
VI. Management & Organization
VII. Startup Expenses & Capitalization
VIII. Financial Plan
Start here with page 1…
“Business Plan” title, Date, Company Name, and Owners Names only on the first page
Section I. “Executive Summary” starts on a new page
Instructions: Executive Summary
The Executive Summary is the most important part of your business plan. Often, it’s the only part that a prospective investor or lender reads before deciding whether or not to read the rest of your plan. It should convey your enthusiasm for your business idea and get readers excited about it, too.
Write your Executive Summary LAST, after you have completed the rest of the business plan. That way, you’ll have thought through all the elements of your startup and be prepared to summarize them.
The Executive Summary should briefly explain each of the below.
1. An overview of your business idea (one or two sentences).
2. A description of your product and/or service. What problems are you solving for your target customers?
3. Your goals for the business. Where do you expect the business to be in one year, three years, five years?
4. Your proposed target market. Who are your ideal customers?
5. Your competition and what differentiates your business. Who are you up against, and what unique selling proposition will help you succeed?
6. Your management team and their prior experience. What do they bring to the table that will give your business a competitive edge?
7. Financial outlook for the business. If you’re using the business plan for financing purposes, explain exactly how much money you want, how you will use it, and how that will make your business more profitable.
Limit your Executive Summary to one or two pages in total.
After reading the Executive Summary, readers should have a basic understanding of your business, should be excited about its potential, and should be interested enough to read further.
***After you’ve completed your business plan, come back to this section to write your executive summary.
Section II. “Company Description” begins at the top of a new page
Instructions: Company Description
This section explains the basic elements of your business. Include each of the below:
1. Company mission statement
A mission statement is a brief explanation of your company’s reason for being. It can be as short as a marketing tagline (“MoreDough is an app that helps consumers manage their personal finances in a fun, convenient way”) or more involved: (“Doggie Tales is a dog daycare and grooming salon specializing in convenient services for urban pet lovers. Our mission is to provide service, safety and a family atmosphere, enabling busy dog owners to spend less time taking care of their dog’s basic needs and more time having fun with their pet.”) In general, it’s best to keep your mission statement to one or two sentences.
2. Company philosophy and vision
a. What values does your business live by? Honesty, integrity, fun, innovation and community are values that might be important to your business philosophy.
b. Vision refers to the long-term outlook for your business. What do you ultimately want it to become? For instance, your vision for your doggie day-care center might be to become a national chain, franchise or to sell to a larger company.
3. Company goals
Specify your long- and short-term goals as well as any milestones or benchmarks you will use to measure your progress. For instance, if one of your goals is to open a second location, milestones might include reaching a specific sales volume or signing contracts with a certain number of clients in the new market.
4. Target market
You will cover this in-depth in the Marketing Plan section. Here, briefly explain who your target customers are.
Describe your industry and what makes your business competitive: Is the industry growing, mature or stable? What is the industry outlook long-term and short-term? How will your business take advantage of projected industry changes and trends? What might happen to your competitors and how will your business successfully compete?
6. Legal structure
a. Is your business a sole proprietorship, LLC, partnership or corporation? Why did you choose this particular form of business?
b. If there is more than one owner, explain how ownership is divided. If you have investors, explain the percentage of shares they own. This information is important to investors and lenders.
After reading the Company Description, the reader should have a basic understanding of your business’s mission and vision, goals, target market, competitive landscape and legal structure.
Section III. “Products & Services” begins at the top of a new page
Instructions: Products & Services
This section expands on the basic information about your products and services included in the Executive Summary and Company Description. Here are some items to consider:
1. Your company’s products and/or services: What do you sell, and how is it manufactured or provided? Include details of relationships with suppliers, manufacturers and/or partners that are essential to delivering the product or service to customers.
2. The problem the product or service solves: Every business needs to solve a problem that its customers face. Explain what the problem is and how your product or service solves it. What are its benefits, features and unique selling proposition? Yours won’t be the only solution (every business has competitors), but you need to explain why your solution is better than the others, targets a customer base your competitors are ignoring, or has some other characteristic that gives it a competitive edge.
3. Any proprietary features that give you a competitive advantage: Do you have a patent on your product or a patent pending? Do you have exclusive agreements with suppliers or vendors to sell a product or service that none of your competitors sell? Do you have the license for a product, technology or service that’s in high demand and/or short supply?
4. How you will price your product or service: Describe the pricing, fee, subscription or leasing structure of your product or service. How does your product or service fit into the competitive landscape in terms of pricing—are you on the low end, mid-range or high end? How will that pricing strategy help you attract customers? What is your projected profit margin?
Include any product or service details, such as technical specifications, drawings, photos, patent documents and other support information, in the Appendices.
After reading the Products & Services section, the reader should have a clear understanding of what your business does, what problem it solves for customers, and the unique selling proposition that makes it competitive.
Section IV. “Marketing Plan” begins at the top of a new page
Instructions: Marketing Plan
This section provides details on your industry, the competitive landscape, your target market and how you will market your business to those customers.
1. Market research
There are two kinds of research: primary and secondary. Primary market research is information you gather yourself. This could include going online or driving around town to identify competitors; interviewing or surveying people who fit the profile of your target customers; or doing traffic counts at a retail location you’re considering.
Secondary market research is information from sources such as trade organizations and journals, magazines and newspapers, Census data and demographic profiles. You can find this information online, at libraries, from chambers of commerce, from vendors who sell to your industry or from government agencies.
This section of your plan should explain:
• The total size of your industry
• Trends in the industry – is it growing or shrinking?
• The total size of your target market, and what share is realistic for you to obtain
• Trends in the target market – is it growing or shrinking? How are customer needs or preferences changing?
2. Barriers to entry
What barriers to entry does your startup face, and how do you plan to overcome them? Barriers to entry might include:
• High startup costs
• High production costs
• High marketing costs
• Brand recognition challenges
• Finding qualified employees
• Need for specialized technology or patents
• Tariffs and quotas
• Unionization in your industry
3. Threats and opportunities
Once your business surmounts the barriers to entry you mentioned, what additional threats might it face? Explain how the following could affect your startup:
• Changes in government regulations
• Changes in technology
• Changes in the economy
• Changes in your industry
4. Product/service features and benefits
Describe all of your products or services, being sure to focus on the customer’s point of view. For each product or service:
• Describe the most important features. What is special about it?
• Describe the most important benefits. What does it do for the customer?
In this section, explain any after-sale services you plan to provide, such as:
• Product delivery
• Service contracts
• Ongoing support
• Refund policy
5. Target customer
Describe your target customer. (This is also known as the ideal customer or buyer persona.)
You may have more than one target customer group. For instance, if you sell a product to consumers through distributors, such as retailers, you have at least two kinds of target customers: the distributors (businesses) and the end users (consumers).
Identify your target customer groups, and create a demographic profile for each group that includes:
• Education level
• Stage in business (startup, growing, mature)
• Annual sales
Now that you’ve assessed your industry, product/service, customers and competition, you should have a clear understanding of your business’s niche (your unique segment of the market) as well as your positioning (how you want to present your company to customers). Explain these in a short paragraph.
7. How you will market your product/service
In this section, explain the marketing and advertising tactics you plan to use.
Advertising may include:
• Cable television
Which media will you advertise in, why and how often?
Marketing may include:
• Business website
• Social media marketing
• Email marketing
• Mobile marketing
• Search engine optimization
• Content marketing
• Print marketing materials (brochures, flyers, business cards)
• Public relations
• Trade shows
What image do you want to project for your business brand?
What design elements will you use to market your business? (This includes your logo, signage and interior design.) Explain how they’ll support your brand.
You explained pricing briefly in the “Products & Services” section; now it’s time to go into more detail. How do you plan to set prices? Keep in mind that few small businesses can compete on price without hurting their profit margins. Instead of offering the lowest price, it’s better to go with an average price and compete on quality and service.
• Does your pricing strategy reflect your positioning?
• Compare your prices with your competitors’. Are they higher, lower or the same? Why?
• How important is price to your customers? It may not be a deciding factor.
• What will your customer service and credit policies be?
9. Location or proposed location
If you have a location picked out, explain why you believe this is a good location for your startup.
If you haven’t chosen a location yet, explain what you’ll be looking for in a location and why, including:
• Convenient location for customers
• Adequate parking for employees and customers
• Proximity to public transportation or major roads
• Type of space (industrial, retail, etc.)
• Types of businesses nearby
Focus on the location of your building, not the physical building itself. You’ll discuss that later, in the Operations section.
10. Distribution channels
What methods of distribution will you use to sell your products and/or services? These may include:
• Direct sales
• Inside sales force
• Outside sales representatives
If you have any strategic partnerships or key distributor relationships that will be a factor in your success, explain them here.
Section V. “Operational Plan” begins at the top of a new page
Instructions: Operational Plan
This section explains the daily operation of your business, including its location, equipment, personnel and processes.
How will you will produce your product or deliver your service? Describe your production methods, the equipment you’ll use and how much it will cost to produce what you sell.
2. Quality control
How will you maintain consistency? Describe the quality control procedures you’ll use.
Where is your business located? You briefly touched on this in the Company Overview. In this section, expand on that information with details such as:
• The size of your location
• The type of building (retail, industrial, commercial, etc.)
• Zoning restrictions
• Accessibility for customers, employees, suppliers and transportation if necessary
• Costs including rent, maintenance, utilities, insurance and any buildout or remodeling costs
4. Legal environment
What type of legal environment will your business operate in? How are you prepared to handle legal requirements? Include details such as:
• Any licenses and/or permits that are needed and whether you’ve obtained them
• Any trademarks, copyrights or patents that you have or are in the process of applying for
• The insurance coverage your business requires and how much it costs
• Any environmental, health or workplace regulations affecting your business
• Any special regulations affecting your industry
• Bonding requirements, if applicable
What type of personnel will your business need? Explain details such as:
• What types of employees? Are there any licensing or educational requirements?
• How many employees will you need?
• Will you ever hire freelancers or independent contractors?
• Include job descriptions.
• What is the pay structure (hourly, salaried, base plus commission, etc.)?
• How do you plan to find qualified employees and contractors?
• What type of training is needed and how will you train employees?
If your business requires inventory, explain:
• What kind of inventory will you keep on hand (raw materials, supplies, finished products)?
• What will be the average value of inventory (in other words, how much are you investing in inventory)?
• What rate of inventory turnover do you expect? How does this compare to industry averages?
• Will you need more inventory than normal during certain seasons? (For instance, a retailer might need additional inventory for the holiday shopping season.)
• What is your lead time for ordering inventory?
List your key suppliers, including:
• Names, addresses, websites
• Type and amount of inventory furnished
• Their credit and delivery policies
• History and reliability
• Do you expect any supply shortages or short-term delivery problems? If so, how will you handle them?
• Do you have more than one supplier for critical items (as a backup)?
• Do you expect the cost of supplies to hold steady or fluctuate? If the latter, how will you deal with changing costs?
• What are your suppliers’ payment terms?
8. Credit policies
If you plan to sell to customers on credit, explain:
• Whether this is typical in your industry (do customers expect it)?
• What your credit policies will be. How much credit will you extend? What are the criteria for extending credit?
• How will you check new customers’ creditworthiness?
• What credit terms will you offer?
• Detail how much it will cost you to offer credit, and show that you’ve built these costs into your pricing structure.
• How will you handle slow-paying customers? Explain your policies, such as when you will follow up on late payments, and when you will get an attorney or collections agency involved.
After reading the Operational Plan section, the reader should understand how your business will operate on a day-to-day basis.
Section VI. “Management & Organization” begins at the top of a new page
Instructions: Management and Organization Plan
This section should give readers an understanding of the people behind your business, their roles and responsibilities, and their prior experience. If you’re using your business plan to get financing, know that investors and lenders carefully assess whether you have a qualified management team.
Include brief biographies of the owner/s and key employees. Include resumes in the Appendix. Here, summarize your experience and those of your key employees in a few paragraphs per person. Focus on the prior experience and skills that have prepared your team to succeed in this business. If anyone has previous experience starting and growing a business, explain this in detail.
Explain how you plan to fill in any gaps in management and/or experience. For instance, if you lack financial know-how, will you hire a CFO or retain an accountant? If you don’t have sales skills, will you hire an in-house sales manager or use outside sales reps?
List the members of your professional/advisory support team, including:
• Board of directors
• Advisory board
• Insurance agent
• Mentors and other advisors
If they have experience or specializations that will increase your chances of success, explain. For instance, does your mentor have experience launching and growing a similar business?
4. Organization Chart
Develop and include an organization chart. This should include both roles that you’ve already filled and roles you plan to fill in the future.
After reading the Management & Organization section, the reader should feel confident that you have a qualified team leading your business.
Section VII. “Startup Expenses & Capitalization” begins at the top of a new page
Instructions: Startup Expenses & Capitalization
In this section, detail the expenses involved in opening for business and how much capital you’ll need. (Do not include ongoing expenses after your business opens; those are listed in the Financial Plan.) Estimating startup expenses as accurately as possible helps you gather enough startup capital.
1. Start-Up Expenses
Download and complete the Start-Up Expenses template. In working on this Business Plan, you should already have gathered most, if not all, of the information you need. In the body of this section, be sure to explain all of the assumptions behind the figures. How did you come up with these expenses? If you’ve secured or expect to secure loans, explain the source/s, amount/s and terms. If you’ve secured or expect to secure investors, explain how much each investor will contribute and what percentage of ownership each receives in return.
Be sure to include extra capital for unexpected expenses. Opening a new business almost always ends up costing more than expected, and you need to be prepared. List this figure in the Start-Up Expenses template under “Reserve for Contingencies.” How much should you set aside for contingencies? You can talk to other business owners in your industry to get a ballpark figure. If you can’t come up with a figure this way, a good rule of thumb is to set aside 20% to 25% of your total startup costs for contingencies.
2. Opening Day Balance Sheet
Download and complete the Opening Day Balance Sheet.. Use it to detail the expected state of your business finances on opening day. As with the Start-Up Expenses sheet, be sure to explain the assumptions behind the figures.
Section VIII. “Financial Plan” begins at the top of a new page
Instructions: Financial Plan
Your financial plan is perhaps the most important element of your business plan. Lenders and investors will review it in detail. Developing your financial plan helps you set financial goals for your startup and assess its financing needs. Include the following:
1. 12-month profit & loss projection
Also known as an income statement or P&L, the 12-month profit and loss projection is the centerpiece of your business plan. Download the 12-Month Profit and Loss Projection and fill in your projected sales, cost of goods sold and gross profit. (Refer to the Sales Forecast you created in Section IV). Then list your expenses, net profit before taxes, estimated taxes and net operating income.
Be sure to explain the assumptions behind the numbers in your P&L. Keep detailed notes about how you came up with these figures; you may need this information to answer questions from potential financing sources.
2. Cash flow projection
The cash flow statement tracks how much cash your business has on hand at any given time. Once your business is up and running, you’ll want to keep close tabs on your cash flow statement. For now, however, you’re creating a cash flow projection. Think of the cash flow projection as a forecast for your business checking account. It details when you need to spend money on things such as inventory, rent and payroll, and when you expect to receive payments from customers and clients. For example, you may make a sale, have to buy inventory to fulfill the sale, and not collect payment from the customer for 30, 60 or 90 days. The cash flow projection takes these factors into account, helping you budget for upcoming expenses so your business doesn’t run out of money.
Download the 12-Month Cash Flow Statement and use it to create your projections.
3. Projected balance sheet
A balance sheet subtracts the company’s liabilities from its assets to arrive at the owner’s equity. You already created an opening day balance sheet in Section 1. Now, download the Balance Sheet (Projected), and create a projected balance sheet showing the estimated financial condition of your business at the end of its first year. The major difference between the two is that the projected balance sheet includes any owner’s equity resulting from the business’s first year in operation. Lenders and investors may want to see this projection.
4. Break-even calculation
The break-even analysis projects the sales volume you need in order to cover your costs. In other words, when will the business break even? Download the Break-Even Analysis template and, using your profit and loss projections, enter your expected fixed and variable costs. Adjust the categories to reflect your own business.
You can even create a couple of different break-even analyses for different scenarios. For example, your payroll costs will vary depending on whether you hire full-time employees or use independent contractors. Creating different break-even analyses can help you determine the best option.
5. Use of capital
If you’re using the business plan to seek financing from lenders or investors, provide a breakdown of how you will the capital and what results you expect. For example, perhaps you will use the money to buy new equipment and expect that to double your production capacity.
After reading the Financial Plan section, the reader should understand the assumptions behind your financial projections and be able to judge whether these projections are realistic.
Section IX. “Appendices” begins at the top of a new page
Don’t slow your readers down by cluttering your business plan with supporting documents, such as worksheets, contracts or licenses. Instead, put these documents in the Appendices, and refer to them in the body of the plan so readers can find them if needed.
Below are some elements many business owners include in their Appendices.
• Worksheets that you want to share
• Agreements (Leases, contracts, purchase orders, letters of intent, etc.)
• Intellectual property (trademarks, licenses, patents, etc.)
• Resumes of owners/key employees
• Advertising/marketing material
• Public relations/publicity
• List of equipment
• Market research studies
• List of assets that can be used as collateral
You can also include any other materials that will give readers a fuller picture of your business or support the projections and assumptions you make in your plan. For instance, you might want to include photos of your proposed location, illustrations or photos of a product you are patenting, or charts showing the projected growth of your market.
After reviewing the Appendices, the reader should feel satisfied that the assumptions throughout the plan are backed up by documentation and evidence.
REMINDER: Now, go back and revise your Executive Summary!