The material in this publication may not be reproduced or transmitted
in any form or by any means -- electronic, mechanical, photocopying
or other -- without prior written permission of the U.S. Small
Business Administration. "How to Write a Business Plan."
Copyright 1990, Linda Pinson and Jerry Jinnett. All right reserved.
All of SBA's programs and services are extended to the
public on a nondiscriminatory basis.
TABLE OF CONTENTS
INTRODUCTION
A Note on Using This Publication
What's in This for Me?
Why Am I in Business?
What Business Am I In?
Market Area
Who Are Your Competitors?
How Do You Rate Your Competitors?
Advantages over Competitors
Distribution
Market Trends
Share of the Market
Sales Volume
Manufacturing Operations
Raw Materials
Equipment
Labor Skills
Space
Overhead
HOW MUCH MONEY IS NEEDED?
Expected Sales and Expenses Figures
Cash Flow Figures
Current Balance Sheet Figures
GETTING THE WORK DONE
MAKING YOUR PLAN WORK
Inventory Control
Production
Quality Control
Sales
Disbursements
Breaking Even
KEEPING YOUR PLAN CURRENT
APPENDIXES
A. Income Projection Statement
B. Monthly Cash Flow Projection
C. Balance Sheet
D. How to Write a Business Plan
E. Information Resources
INTRODUCTION
A business plan can provide the owner-manager or prospective
owner-manager of a small manufacturing firm with a pathway to
profit. This publication is designed to help an owner-manager
draw up a business plan.
In building a pathway to profit you need to consider the following
questions: What business am I in? What goods do I sell? Where
is my market? Who will buy? Who is my competition? What is my
sales strategy? What merchandising methods will I use? How much
money is needed to operate my company? How will I get the work
done? What management controls are needed? How can they be carried
out? When should I revise my plan? Where can I go for help?
No one can answer these questions for you. As the owner-manager
you must answer them and draw up a business plan. This publication
is a combination of text and workspaces so you can write in
the information you gather in developing your business plan.
A Note on Using This Publication
It takes time, energy and patience to draw up a satisfactory
business plan. Use this publication to get your ideas and the
supporting facts down on paper. And, above all, make changes
on these pages as the plan unfolds and you see the need for
changes. Bear in mind that any factors you leave out of the
picture will create an additional cost when they unexpectedly
crop up later.
If you leave out or ignore enough items, your business is headed
for disaster. Keep in mind, too, that your final goal is to
put your plan into action. More will be said about this step
near the end of this publication.
What's in This for Me?
There was a time when an individual could start a small business
and prosper, provided he or she was strong enough to work long
hours and had the knack for selling at a higher price than raw
materials or product cost. Small stores, grist mills, livery
stables and blacksmith shops sprang up in many crossroads communities
as Americans applied their energy and native intelligence to
settling the continent.
Today this native intelligence is still important. But by itself
the common sense for which Americans are famous will not ensure
success in a small business. Technology, the marketplace and
even people themselves have become more complicated than they
were one hundred, or even twenty-five, years ago.
Common sense must be combined with new techniques in order
to succeed in the space age. Just as one would not think of
launching a manned space capsule without a flight plan, one
should not think of launching a new small manufacturing business
without a business plan.
A business plan is an exciting tool you can use to plot a course
for your company. Such a plan is a logical progression from
a common sense starting point to a common sense ending point.
To build a business plan for your company, you need only to
think and react as a manager to questions such as What product
is to be manufactured? How can it best be made? What will it
cost me? Who will buy the product? What profit can I make?
Why Am I in Business?
If you're like most business people, you're in business to
make money and be your own boss. But few business people would
be able to say that those are the only reasons. The money you
will make from your business will seldom seem like enough for
all the long hours, hard work and responsibility that go along
with being the boss.
Then, why do so many stay in business?
This is hardly the time for philosophy. If you're starting
or expanding a business, you have enough to think about. But,
whether or not you even think about it, the way you operate
your business will reflect your business philosophy.
Consider this. An owner-manager inspects a production run and
finds a minor defect. Even though in nine out of ten cases the
user of the product will not notice the defect, the owner decides
to scrap the entire run. What does this tell you? It shows that
that owner gets an important reward from doing what is right
in this case, providing a quality product.
The purpose of this section is not to play down the importance
of making a profit. Profits are important. They will keep your
business going and attract additional capital. But you should
be aware that there are other rewards and responsibilities associated
with having your own business.
In your planning, you might give some thought to your responsibilities
to employees, the community, stockholders, customers, product
and profit. Jot these down. Later, when you've lined up your
management team, discuss these subjects with the members. This
type of group thinking will help everyone, including yourself,
understand the basic purposes for each day's work.
Even though you won't advertise it throughout your market,
the way you operate your business will reflect your business
philosophy.
What Business Am I In?
In making your business plan, the next question to consider
is What business am I really in? At first reading, this question
may seem silly. If there is one thing I know, you say to yourself,
it is what business I'm in. But hold on. Some owner-managers
go broke and others waste their savings because they are confused
about the business they are really in.
The experience of an old-line manufacturing company provides
an example of dealing with this question. Early in this century,
the founder of the company had no trouble answering. As he put
it, I make and sell metal trash cans. This answer held true
for his son until the mid-1950s when sales began to drop off.
After much thought, the son decided he was in the container
business.
Based on this answer, the company dropped several of its lines
of metal trash cans, modified other lines and introduced new
products, such as shipping cartons used by other manufacturers
and government agencies.
What business am I in? (Write your answer here.)
Ask yourself questions like What does my product do for my
customer? Why? When? Where? How? What doesn't it do? What should
it do later but doesn't now? The answers can lead to the ultimate
conclusion of what business you're in and possibly direct you
to new lines of products or enterprises.
MARKETING
When you have decided what business you're really in, you have
made your first decision. Now you must face other marketing
considerations.
Successful marketing starts with you, the owner-manager. You
have to know your product, market, customers and competition.
Before you plan production, you must decide who your market
is, where it is, why customers will buy your product, whether
the market is a growth or static one, if there are any seasonal
aspects of the market and what percentage of the market you
will shoot for in the first, second and third years of operation.
Your production goals and plans must be based on and be responsive
to this kind of fact finding (marketing feasibility and research).
The following narrative and work blocks are designed to help
you work out a marketing plan. Your objective is to determine
what needs to be done to bring in sales dollars.
In some directories, marketing information is listed according
to the Standard Industrial Classification (SIC) of the product
and industry. The SIC categorizes firms by the type of activity
they're engaged in and is used to promote the uniformity and
comparability of statistical data relating to market research.
When you begin your market research, you may find it useful
to have already classified your products according to this code.
(The Standard Industrial Classification Manual is available
for sale from the Superintendent of Documents, U.S. Government
Printing Office, Washington D.C. 20402. It may also be available
at your local library.)
Product |
SIC no. |
| 1. ______________________ |
__________________ |
| 2. ______________________ |
__________________ |
Market Area
Where and to whom are you going to sell your product? Describe
the market area you will serve in terms of geography and customer
profile:
_________________________________________________________
Who Are Your Competitors?
List the principal competitors selling in your market area,
estimate their percentage of market penetration and dollar sales
in that market and estimate their potential loss of sales as
a result of your entry into the market.
Name
of
Competitor
& location |
@
share of
market |
Estimated
sales |
Estimated
sales loss
because of you |
| 1. ________ |
________ |
$ _______ |
________ |
2. ________ |
________ |
$ _______ |
________ |
3. ________ |
________ |
$ _______ |
________ |
How Do You Rate Your Competitors?
Try to find out the strengths and weaknesses of each competitor.
Then write your opinion of each of your principal competitors
their principal products facilities marketing characteristics
and new product development or adaptability to changing market
conditions.
_________________________________________________________
Have any of your competitors recently closed operations or
have they withdrawn from your market area? (State reasons if
you know them.)
_________________________________________________________
Advantages over Competitors
On what basis will you be able to capture your projected share
of the market? Below is a list of characteristics that may indicate
the advantages your product(s) enjoy over those offered by competitors.
Indicate those advantages by placing a check in the proper space.
If there is more than one competitor you may want to make more
than one checklist. Attach these to the worksheet.
Analyze each characteristic. For example a higher price may
not be a disadvantage if your product is of higher quality than
your competitor's. You may want to make a more detailed analysis
than is presented here. If you wish to list the specifics of
each characteristic and explain the disadvantages of your product
and how these will be overcome attach this list to the worksheet.
The unique characteristics of your product can also be the basis
for advertising and sales promotion. Remember the more extensive
your planning the more your business plan will help you.
What if anything is unique about your product?
_________________________________________________________
_________________________________________________________
_________________________________________________________
Distribution
How will you get your product to the ultimate consumer? Will
you sell it directly through your own sales organization or
indirectly through the manufacturer's agents brokers wholesalers
and so on? Write a brief statement of your method of distribution
and manner of sales:
_________________________________________________________
_________________________________________________________
What will this method of distribution cost you?
_________________________________________________________
Do you plan to use special marketing sales or merchandising
techniques? Describe them here:
_________________________________________________________
_________________________________________________________
List your customers by name the total amount they buy from
you and the amount they spend for each of your products.
Names
of
principal
customers |
Total
purchasing
volume |
By-
products |
%
of your sales |
| __________ |
__________ |
__________ |
__________ |
| __________ |
__________ |
__________ |
__________ |
| __________ |
__________ |
__________ |
__________ |
Market Trends
What has the sales trend for your principal product(s) been
in your market area over the last five years? What do you expect
it to be five years from now? You should indicate the source
of your data and the basis of your projections.* Industry and
product statistics are usually indicated in dollars. Units such
as numbers of customers numbers of items sold etc. may be used
but you should also relate your sales to dollars.
* This is a marketing research problem. You
will have to do some digging in order to come up with a market
projection. Trade associations will probably be your most helpful
source of information. The U.S. Census Bureau publishes many
useful statistics.
Product |
Source
of data |
Sales
5 years ago |
Current
sales |
Projected
sales in
5 years |
| 1. ________ |
_________ |
_________ |
_________ |
_________ |
| 2. ________ |
_________ |
_________ |
_________ |
_________ |
List the name and address of trade associations serving your
industry and indicate whether you are a member:
_________________________________________________________
List the name and address of other organizations government
agencies industry associations etc. from which you intend to
obtain management technical economic or other types of information
and assistance:
_________________________________________________________
Share of the Market
What percentage of total sales in your market area do you
expect to obtain for your products after your facility is in
full operation?
Products
or
products category |
Local
market (%) |
Total
market (%) |
| ___________ |
___________ |
__________ |
___________ |
___________ |
__________ |
___________ |
___________ |
__________ |
Sales Volume
What sales volume do you expect to re
|
Total
sales |
Product
1 |
Product
2 |
| First
year |
$ __________ |
$ ___________ |
$ __________ |
Units |
___________ |
___________ |
___________ |
Second
year |
$ __________ |
$ ___________ |
$ __________ |
Units |
___________ |
___________ |
___________ |
Third
year |
$ __________ |
$ ___________ |
$ __________ |
Units |
___________ |
___________ |
___________ |
ach with your products?
PRODUCTION
In making your business plan you have to consider all the
activities involved in turning raw materials into finished products.
The work blocks that follow are designed to help you determine
what production facilities and equipment you need.
Manufacturing Operations
List the basic operations (e.g. cut and sew machine and assemble
etc.) that are needed in order to make your product:
_________________________________________________________
_________________________________________________________
Raw Materials
What raw materials or components will you need and where will
you get them?
Material/
component |
Source |
Price |
Comments
(location delivery
financing etc.) |
| ___________ |
___________ |
$ ___________ |
___________ |
___________ |
___________ |
$ ___________ |
___________ |
___________ |
___________ |
$ ___________ |
___________ |
What amount of raw materials and/or components will you need
to stock?
_________________________________________________________
_________________________________________________________
Are there any special considerations concerning the storage
requirements of your raw material? For example will you use
chemicals that can only be stored for a short time before they
lose their potency?
_________________________________________________________
_________________________________________________________
Equipment
List the equipment needed to perform the manufacturing operations.
Indicate whether you will rent or buy the equipment and what
your cost will be.
Equipment |
Buy |
Rent |
Your
cost |
| ___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
___________ |
Your equipment facilities and method of operation must comply
with the Occupational Safety and Health Act of 1970. You may
obtain a copy of Standards for General Industry from the Superintendent
of Documents U.S. Government Printing Office Washington DC 20402
or a field office of the Occupational Safety and Health Administration.
Labor Skills
List the labor skills needed to run the equipment:
Skill
classification |
Number
of persons needed |
Pay
rate |
Availability |
| 1. ___________ |
___________ |
___________ |
___________ |
| 2. ___________ |
___________ |
___________ |
___________ |
List the indirect labor (e.g. material handlers stockpersons
janitors etc.) needed to keep the plant operating:
Skill
classification |
Number
of persons needed |
Pay
rate |
Availability |
| 1. ___________ |
___________ |
___________ |
___________ |
| 2. ___________ |
___________ |
___________ |
___________ |
If persons with these skills are not already on your payroll
where will you get them?
_________________________________________________________
Space
How much space will you need to make the product? Include
rest rooms storage for raw material and for finished products
and employee parking facilities if appropriate. Are there any
local ordinances with which you must comply?
_________________________________________________________
_________________________________________________________
Do you own this space or will you buy or lease it?
_________________________________________________________
How much will it cost you? ____________________________________
Overhead
List the overhead items needed in addition to indirect labor
and include their cost. Examples are tools supplies utilities
office help telephone payroll taxes holidays vacations and salaries
and benefits for your key people (sales manager plant manager
and supervisor).
_________________________________________________________
_________________________________________________________
HOW MUCH MONEY IS NEEDED
Money is a tool you can use to make your plan work. Money
is also a measuring device. You will measure your plan in terms
of dollars and outsiders such as bankers and other lenders will
do the same.
When you determine how much money is needed to start (or expand)
your business you can decide whether or not to move ahead. If
the cost is greater than the profits that the business can earn
there are two things to consider. Many businesses do not show
a profit until the second or third year of operation. If this
looks like the case with your business you will need the financial
reserves to carry you through this period. On the other hand
you might be better off putting your money into stocks bonds
or other reliable investments rather than taking on the job
of managing a small business.
If your new business or expansion is like most you will need
a loan. You must be able to show the lender how the borrowed
money will be spent and how and when you will repay the loan.
To determine whether your plan is economically feasible you
need to pull together three sets of figures:
1. Expected sales and expense figures for 12 months.
2. Cash flow figures for 12 months.
3. Current balance sheet figures if you're planning an expansion.
Then visit your lender and remember that he or she is your
friend not your enemy. So meet regularly and share all your
information. If the lender is ready to help you he or she needs
to know not only your strengths but also your weaknesses.
Expected Sales and Expenses Figures
To determine whether or not your business can make its way
in the market place you should estimate your sales and expenses
for twelve months. The Income Projection Statement for one year
is designed to help you in this task.
Cash Flow Projection
Estimates of future sales will not pay an owner-manager's
bills. Cash must flow into the business at the proper times
if bills are to be paid and a profit realized at the end of
the year. To determine whether your projected sales and expenses
figures are realistic you should prepare a Cash Flow Projection
for the 12 months covered by your estimates of sales and expenses.
Current Balance Sheet Figures
A balance sheet shows the financial conditions of a business
as of a certain date. It lists what a business has what it owes
and the investment of the owner. A balance sheet enables you
to see at a glance your assets and liabilities.
Use the blanks to draw up a current balance sheet for your
company.
GETTING THE WORK DONE
Your manufacturing business is only part way home when you
have planned your marketing and production. Organization is
needed if your plant is to produce what you expect it to produce.
It is also essential because as the owner-manager you'll probably
have to delegate work responsibility and authority. A helpful
tool in getting this done is an organizational chart. It shows
at a glance who is responsible for the major activities of a
business. However no matter how your operation is organized
keep control of the financial management. Examples are given
below to help you in preparing an organizational chart for your
business.
In the beginning the president of a small manufacturing company
probably does everything. (See Chart 1.)
As the company grows to perhaps fifty to one hundred employees
the organization may begin to look something like Chart 2.
CHART
3
President
(Vice President)
In the above space or on a separate piece of paper
draw an organizational chart for your business.
It is important that you recognize your weaknesses
early in the game and plan to get assistance wherever you need
it. This may be done by using consultants on an as-needed basis
by hiring the needed personnel or by retaining a lawyer and
accountant.
The work block below lists some of the areas
you may want to consider. Adapt it to your needs and indicate
who will take care of each function. (One name may appear more
than once.)
Manufacturing ________________________________________________________
Marketing ___________________________________________________________
Research and technical backup ___________________________________________
Accounting ___________________________________________________________
Legal _______________________________________________________________
Insurance ___________________________________________________________
Other:
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
MAKING YOUR PLAN WORK
To make your plan work you will need feedback. For example
the year-end profit and loss (income) statement shows whether
your business made a profit or loss for the past twelve months.
But you can't wait twelve months for the score. To keep your
plan on target you need readings at frequent intervals. A profit
and loss statement at the end of each month or at the end of
each quarter is one type of frequent feedback. Beware of relying
too heavily on the profit and loss statement. Since it only
shows actual income and expenses for a given period you may
find that at certain times you have more losses than profits.
To keep a balanced perspective on your business you must continuously
review and update your cash flow projection. This will help
you to anticipate changing levels of income and expenses.
You must set up a management control system that will help
you to ensure the right things are being done from day to day
and from week to week. This system should give you precise information
on inventory production quality sales collection of accounts
receivable and disbursements. The simpler the system the better.
Its purpose is to give you and your key people current information
in time to correct deviations from approved policies procedures
or practices. You are after facts with an emphasis on trouble
spots.
Inventory Control
The purpose of controlling inventory is to provide maximum
service to your customers. Your aim should be to achieve a rapid
turnover on your inventory; the fewer dollars you tie up in
raw materials and finished goods inventory the faster you can
reinvest your capital to meet additional consumer needs.
In setting up inventory controls keep in mind that in addition
to the cost of inventory there are also the costs of purchasing
receiving and storing raw materials and the cost of keeping
inventory records.
Production
In preparing this business plan you have estimated costs for
your manufacturing operation. Use these figures to measure the
cost of your day-to-day operations to ensure that profits are
not eaten away through excessive worker hours processing time
delays or down time. Periodic production reports will allow
you to keep your finger on potential drains on your profits
and should also provide feedback on your overhead expenses.
Quality Control
Poorly made products cause a company to lose customers. In
addition when a product fails to perform satisfactorily shipments
are held up inventory is increased and a severe financial strain
can result. Moreover when quality is poor it's a good bet that
waste and spoilage on the production line are greater than they
should be.
A quality control system focuses on one question: What needs
to be done to see that work is done right the first time? The
details of the system -- checkpoints, reports and so on -- will
depend on your type of production system. Also keep in mind
any extensive quality control needed on raw materials -- this
can be an added expense.
Sales
To keep on top of sales you need answers to questions such
as How many sales were made? What was the dollar amount? What
products were sold? At what price? What delivery dates were
promised? What credit terms were given to customers?
It is also important that you set up an effective collection
system for accounts receivable so you don't tie up your capital
in aging accounts.
Disbursements
Your management controls should also give you information
about the dollars your company pays out. In checking on your
bills you do not want to be penny-wise and pound-foolish. You
need to know that major items such as paying bills on time to
get a supplier's discount are being handled according to your
policies. Your review system should also give you the opportunity
to make judgments on the use of funds. This will keep you on
top of emergencies as well as routine situations. Your system
should also monitor that tax monies such as payroll deductions
are set aside and deposited at the proper time.
Breaking Even
Break-even analysis is a management control device that shows
how much you must sell under given conditions in order to cover
your costs with no profit and no loss.
In preparing to start or expand a manufacturing business you
should determine the approximate level of sales at which a new
product will pay for itself and begin to bring in a profit.
Profit depends on sales volume selling price and costs. So
to figure your break-even point first separate your fixed costs
such as rent or depreciation allowance from your variable costs
per unit such as direct labor. The formula is
Breakeven volume equals total fixed costs divided
by
selling price minus variable cost per unit
For example Ajax Plastics has determined its fixed costs to
be $100,000 and variable costs to be $50 per unit. If the selling
price per unit is $100 then Ajax's break-even volume is
$100,000 divided by $100 minus 50 equals 2,000
units
Earlier you estimated your expected sales for each product
and total sales. Compute the break-even point for each.
Product 1: _________ Product 2: ______ Total sales: ________
KEEPING YOUR PLAN CURRENT
The best business plan becomes outdated because conditions
change. Sometimes the change is within your company -- for example
several of your skilled operators quit their jobs. Sometimes
the change is with customers -- their desires and tastes shift.
For example a new idea can sweep the country in six months and
die overnight. Sometimes the change is technological as when
new raw materials or components are put on the market.
In order to adjust a business plan to account for such changes
as owner-manager you must do the following:
1. Be alert to the changes that come about in your company
industry market and community.
2. Check your business plan against these changes.
3. Determine what revisions if any are needed in your plan.
You may be able to delegate parts of this work. For example
you might assign your shop supervisor the task of watching for
technical changes as reported in trade journals. Or you might
expect your sales manager to keep you informed of significant
changes occurring in your markets. But you cannot delegate the
hardest part of this work. You cannot delegate the decisions
as to what revisions will be made in your plan. As owner-manager
you have to make those judgments on an ongoing basis.
When judgments are wrong cut your losses as soon as possible
and learn from the experience.
The mental anguish caused by wrong judgments is part of the
price paid for being your own boss. You get your rewards from
the satisfaction and profits that result from correct judgments.
Sometimes serious problems can be anticipated and a course
of action planned. For example what if sales are 25 percent
lower than you anticipated or costs are 10 percent higher? You
have prepared what you consider a reasonable budget. It might
be a good idea to prepare a problem budget based on either lower
sales higher costs or a combination of the two.
You will also have to exercise caution if your sales are higher
than you anticipated. The growth in sales may only be temporary.
Plan your expansion. New equipment and additional personnel
could prove to be crippling if sales return to a previous lower
level.
Keep in mind that few owner-managers are right 100 percent
of the time. They can improve their batting average by operating
with a business plan and by keeping that plan current.
APPENDIX A: INCOME PROJECTION STATEMENT
The income projection (profit and loss) statement is valuable
as both a planning tool and a key management tool to help control
business operations. It enables the owner-manager to develop a
preview of the amount of income generated each month and for the
business year, based on reasonable predictions of monthly levels
of sales, costs and expenses.
As monthly projects are developed and entered into the income
projection statement, they can serve as definite goals for controlling
the business operation. As actual operating results become known
each month, they should be recorded for comparison with the monthly
projections. A completed income statement allows the owner-manager
to compare actual figures with monthly projections and to take
steps to correct any problems.
Industry Percentage
In the industry percentage column, enter the percentages of
total sales (revenues) that are standard for your industry which
are derived by dividing
cost/expense items by total net sales x 100%
These percentages can be obtained from various sources, such
as trade associations, accountants or banks. The reference librarian
in your nearest public library can refer you to documents that
contain the percentage figures, for example, Robert Morris Associates'
Annual Statement Studies (1 Liberty Place, Philadelphia PA 19103)
Industry figures serve as a useful benchmark against which to
compare cost and expense estimates that you develop for your firm.
Compare the figures in the industry column to those in the annual
percentage column
Total Net Sales (Revenues)
Determine the total number of units or products or services
you realistically expect to sell each month in each department
at the prices you expect to get. Use this step to create the projection
to review your pricing practices.
! What returns, allowances and markdowns can be expected?
! Exclude any revenue that is not strictly related to
the business.
Cost of Sales
The key to calculating your cost of sales is that you do not
overlook any costs that you have incurred. Calculate cost of sales
for all products and services used to determine total net sales.
Where inventory is involved, do not overlook transportation costs.
Also include any direct labor.
Gross Profit
Subtract the total cost of sales from the total net sales to
obtain gross profit.
Gross Profit Margin.
The gross profit margin is expressed as a percentage of total
sales (revenues) it is calculated by dividing
gross profits by total net sales
Controllable Expenses
! Salary expenses -- Base pay plus
overtime.
! Payroll expenses -- Include paid
vacations, sick leave, health insurance unemployment insurance
and social security taxes.
! Outside services -- Include costs
of subcontracts, overflow work and special or one-time services.
! Supplies -- Services and items
purchase for use in the business.
! Repairs and maintenance -- Regular
maintenance and repair, including periodic large expenditures
such as painting.
! Advertising -- Include desired
sales volume and classified directory advertising expenses.
! Car, delivery and travel -- Include
charges if personal car is used in business, including parking,
tolls, buying trips, etc.
! Accounting and legal -- Outside
professional services.
Fixed Expenses
! Rent -- List only real estate
used in the business
! Depreciation -- Amortization of
capital assets.
! Utilities -- Water, heat, light,
etc.
! Insurance -- Fire or liability
on property or products. Include workers' compensation.
! Loan repayments -- Interest on
outstanding loans.
! Miscellaneous -- Unspecified;
small expenditures without separate accounts.
Net Profit (loss)
(before taxes) |
| |
Subtract total expenses from gross profit
|
| Taxes |
| |
Include inventory and sales taxes, excise tax, real estate
tax, etc. |
Net Profit (loss)
(after taxes) |
| |
Subtract taxes from net profit (before taxes) |
| Annual Total |
| |
For each of the sales and expense items in your income projection
statement, add all the monthly figures across the table and
put the results in the annual total column. |
| Annual Percentage |
| |
Calculate the percentage by dividing annual total by total
net sales x 100% |
| |
| |
Compare this figure to the industry percentage in the first
column |
APPENDIX B: MONTHLY CASH FLOW PROJECTION
This is a form which cannot be reproduced in this format.
APPENDIX C: BALANCE SHEET
INSTRUCTIONS FOR BALANCE SHEET
Figures used to compile the balance sheet are taken from the
previous and current balance sheet as well as the current income
statement. The income statement is usually attached to the balance
sheet. The following text covers the essential elements of the
balance sheet.
At the top of the page fill in the legal name of the business,
the type of statement and the day, month and year.
Assets
List anything of value that is owned or legally due the business.
Total assets include all net values. These are the amounts derived
when you subtract depreciation and amortization from the original
costs of acquiring the assets.
Current Assets
! Cash -- List cash and resources that
can be converted into cash within 12 months of the date of the
balance sheet (or during one established cycle of operations).
Include money on hand and demand deposits in the bank, e.g.,
checking accounts and regular savings accounts.
! Petty cash -- If your business has
a fund for small miscellaneous expenditures, include the total
here.
! Accounts receivable -- The amounts
due from customers in payment for merchandise or services.
! Inventory -- Includes raw materials
on hand, work in progress and all finished goods, either manufactured
or purchased for resale.
! Short-term investments -- Also called
temporary investments in marketable securities, these include
interest- or dividend-yielding holdings expected to be converted
into cash within a year. List stocks and bonds, certificates
of deposit and time-deposit savings accounts at either their
cost or market value, whichever is less.
! Prepaid expenses -- Goods, benefits
or services a business buys or rents in advance. Examples are
office supplies, insurance protection and floor space.
Long-term investments
Also called long-term assets, these are holdings the business
intends to keep for at least a year and that typically yield interest
or dividends. Included are stocks, bonds and savings accounts
earmarked for special purposes.
Fixed Assets
Also called plant and equipment. Includes all resources a business
owns or acquires for use in operations and no intended for resale.
Fixed assets, except for land, are listed at cost less depreciation.
Fixed assets may be leased. Depending on the leasing arrangement,
both the value and the liability of the leased property may need
to be listed on the balance sheet.
! Land -- List original purchase price
without allowances for market value.
! Buildings
! Improvements
! Equipment
! Furniture
! Automobiles/vehicles
Liabilities
Current liabilities
List all debts, monetary obligations and claims payable within
12 months or within one cycle of operations. Typically they include
the following:
! Accounts payable -- Amounts owed to
suppliers for goods and services purchased in connection with
business operations.
! Notes payable -- The balance of principal
die to pay off short-term debt for borrowed funds. Also include
the current amount due of total balance on notes whose terms
exceed 12 months.
! Interest payable -- Any accrued fees
due for use of both short- and long-term borrowed capital and
credit extended to the business.
! Taxes payable -- Amounts estimated
by an accountant to have been incurred during the accounting
period.
! Payroll accrual -- Salaries and wages
currently owed.
Long-term Liabilities
Notes payable -- List notes, contract payments or mortgage payments
due over a period exceeding 12 months or one cycle of operations.
They are listed by outstanding balance less the current portion
due.
Net Worth
Also called owner's equity, net worth is the claim of the owner(s)
on the assets of the business. In proprietorship or partnership,
equity is each owner's original investment plus any earnings or
withdrawals.
Total Liabilities and Net Worth
The sum of these two amounts must always match at of total assets.
APPENDIX D: HOW TO WRITE A BUSINESS PLAN
The following pages provide a suggested outline of the material
that should be included in your business plan. Your final plan
may vary according to your needs or because of the individual
requirements of your lender.
What Are the Benefits?
Every business can benefit from the preparation of a carefully
written plan. There are two main purposes for writing that plan:
1. To serve as a guide during the lifetime of the business.
It is the blueprint of your business and will provide you with
the tools for analysis and change.
2. A business plan is a requirement if you are planning to
seek a loan. It will provide potential lenders with detailed
information on all aspects of your company's past and current
operations and provide future projections.
Business Plan Outline
I. Cover sheet
Serves as the title page of your business plan. It should
contain the following:
! Name of the company
! Company address
! Company phone number (include area code)
! Logo (if you have one)
! Names titles addresses phone numbers (include
area code) of owners
! Month and year your plan was issued
! Name of preparer
II. Statement of purpose
(Same as executive summary.) This is the thesis statement
and includes business plan objectives. Use the key words (who,
what, where, when, why, how, and how much) to briefly tell about
the following:
! What your company is (also who what where
and when).
! What your objectives are.
! If you need a loan why you need it.
! How much you need.
! Why you will be successful.
! How and when you plan to repay your loan.
III. Table of contents
A page listing the major topics and references.
IV. The business
Covers the details of your business. Include information about
your industry in general, and your business in particular. Address
the following:
! Legal structure -- Tell what legal
structure you have chosen and state reasons for your choice.
! Description of the business --
Detail your business. Tell about your history present status
and future projections. Outline your product or service in terms
of marketability. Project a sense of what you expect to accomplish
in the next few years.
! Products or services -- Give a
detailed description of your products from raw materials to
finished items. Tell about your manufacturing process. If you
provide a service tell what it is how it is provided and why
it is unique. List future products or services you plan to provide.
! Location -- Describe site and
why it was chosen. (If location is important to your marketing
plan focus on this in the marketing section below.)
! Management -- Describe who is
behind the business. For each owner tell about responsibilities
and abilities. Support with resumes.
! Personnel -- Who will be doing
the work why are they qualified what is their wage what are
their responsibilities?
! Methods of record keeping -- What
accounting system will you use? Who will do your record keeping?
Do you have a plan to help you use your records in analyzing
your business?
! Insurance -- What kinds of insurance
will you need? What will these cost and who will you use for
a carrier?
! Security -- Address security in
terms of inventory control and theft of information.
V. Marketing
Covers the details of your marketing plan. Include information
about the total market with emphasis on your target market.
Identify your customers and tell about the means to make your
product or service available to them.
! Target market -- Identify characteristics
of your customers. Tell how you arrived at your results. Back
up information with demographics questionnaires and surveys.
Project size of your market.
! Competition -- Evaluate indirect
and direct competition. Show how you can compete. Evaluate competition
in terms of location market and business history.
! Methods of distribution -- Tell
about the manner in which products and services will be made
available to the customer. Back up decisions with statistical
reports rate sheets etc.
! Advertising -- How will your advertising
be tailored to your target market? Include rate sheets promotional
material and time lines for your advertising campaign.
! Pricing -- Pricing will be determined
as a result of market research and costing your product or service.
Tell how you arrived at your pricing structure and back it up
with materials from your research.
! Product design -- Answer key questions
regarding product design and packaging. Include graphics and
proprietary rights information.
! Timing of market entry -- Tell
when you plan to enter the market and how you arrived at your
decision.
! Location -- If your choice of
location is related to target market cover it in this section
of your business plan. (See location in the business section
of this outline.)
! Industry trends -- Give current
trends project how the market may change and what you plan to
do to keep up.
VI. Financial documents
These are the records used to show past, current and projected
finances. The following are the major documents you will want
to include in your business plan. The work is easier if these
are done in the order presented.
! Summary of financial needs -- This
is an outline indicating why you are applying for a loan and
how much you need.
! Sources and uses of funds statement
-- It will be necessary for you to tell how you intend to disperse
the loan funds. Back up your statement with supporting data.
! Cash flow statement (budget) --
This document projects what your business plan means in terms
of dollars. It shows cash inflow and outflow over a period of
time and is used for internal planning. Cash flow statements
show both how much and when cash must flow in and out of your
business.
! Three-year income projection --
A pro forma income statement showing your projections for your
company for the next three years. Use the pro forma cash flow
statement for the first year's figures and project the next
according to economic and industry trends.
! Break-even analysis -- The break-even
point is when a company's expenses exactly match the sales or
service volume. It can be expressed in total dollars or revenue
exactly offset by total expenses or total units of production
(cost of which exactly equals the income derived by their sales).
This analysis can be done either mathematically or graphically.
Note: The following are actual performance statements reflecting
the activity of your business in the past. If you are a new
business owner your financial section will end here and you
will add a personal financial history. If you are an established
business you will include the actual performance statements
that follow.
! Balance sheet -- Shows the condition
of the business as of a fixed date. It is a picture of your
firm's financial condition at a particular moment and will show
you whether your financial position is strong or weak. It is
usually done at the close of an accounting period and contains
assets liabilities and net worth.
! Income (profit and loss) statement
-- Shows your business financial activity over a period of time
(monthly annually). It is a moving picture showing what has
happened in your business and is an excellent tool for assessing
your business. Your ledger is closed and balanced and the revenue
and expense totals transferred to this statement.
! Business financial history --
This is a summary of financial information about your company
from its start to the present. The business financial history
and loan application are usually the same. If you have completed
the rest of the financial section you should be able to transfer
all the needed information to this document.
VII. Supporting documents
These are the records that back up the statements and decisions
made in the three main parts of your business plan. Those most
commonly included are as follows:
! Personal resumes -- Should be limited
to one page and include work history educational background
professional affiliations and honors and special skills.
! Personal financial statement --
A statement of personal assets and liabilities. For a new business
owner this will be part of your financial section.
! Credit reports -- Business and
personal from suppliers or wholesalers credit bureaus and banks.
! Copies of leases -- All agreements
currently in force between your company and a leasing agency.
! Letters of reference -- Letters
recommending you as being a reputable and reliable business
person worthy of being considered a good risk. (Include both
business and personal references.)
! Contracts -- Include all business
contracts both completed and currently in force.
! Legal documents -- All legal papers
pertaining to your legal structure proprietary rights insurance
titles etc.
! Miscellaneous documents -- All
other documents that have been referred to but are not included
in the main body of the plan (e.g. location plans demographics
advertising plan etc.).
Putting Your Plan Together
When you are finished: Your business plan should look professional,
but the lender needs to know that it was done by you. A business
plan will be the best indicator he or she has to judge your potential
for success. It should be no more than 30 to 40 pages long. Include
only the supporting documents that will be of immediate interest
to your potential lender. Keep the others in your own copy where
they will be available on short notice. Have copies of your plan
bound at your local print shop, or with a blue, black or brown
cover purchased from the stationery store. Make copies for yourself
and each lender you wish to approach. Do not give out too many
copies at once, and keep track of each copy. If your loan is refused,
be sure to retrieve your business plan. For a more detailed explanation
of each section of the business plan outline, see SBA's publication,
How to Write a Business Plan, which includes step-by-step
directions and sample sections of actual business plans. Also
available from the SBA is a VHS videotape and workbook, The
Business Plan: Your Roadmap for Success.
APPENDIX E: INFORMATION RESOURCES
U.S. Small Business Administration (SBA)
The SBA offers an extensive selection of information on most
business management topics, from how to start a business to
exporting your products.
SBA has offices throughout the country. Consult the U.S.
Government section in your telephone directory for the office
nearest you. SBA offers a number of programs and services, including
training and educational programs, counseling services, financial
programs and contract assistance. Ask about
- SCORE: Counselors to America’s Small Business, a
national organization sponsored by SBA of over 11,000 volunteer
business executives who provide free counseling, workshops
and seminars to prospective and existing small business people.
Free online counseling and training at www.score.org.
- Small Business Development Centers (SBDCs), sponsored
by the SBA in partnership with state governments, the educational
community and the private sector. They provide assistance,
counseling and training to prospective and existing business
people.
- Women’s Business Centers (WBCs), sponsored by the
SBA in partnership with local non-government organizations
across the nation. Centers are geared specifically to provide
training for women in finance, management, marketing, procurement
and the Internet.
For more information about SBA business development programs
and services call the SBA Small Business Answer Desk at 1-800-U-ASK-SBA
(827-5722) or visit our website, www.sba.gov.
Other U.S. Government Resources
Many publications on business management and other related
topics are available from the Government Printing Office (GPO).
GPO bookstores are located in 24 major cities and are listed in
the Yellow Pages under the bookstore heading. Find a “Catalog
of Government Publications at http://catalog.gpo.gov/F
Many federal agencies offer Websites and publications of interest
to small businesses. There is a nominal fee for some, but most
are free. Below is a selected list of government agencies that
provide publications and other services targeted to small businesses.
To get their publications, contact the regional offices listed
in the telephone directory or write to the addresses below:
Federal Citizen Information Center (FCIC)
Http://www.pueblo.gsa.gov
1-800-333-4636
The CIO offers a consumer information catalog of federal publications.
Consumer Product Safety Commission (CPSC)
Publications Request
Washington, DC 20207
http://www.cpsc.gov/cpscpub/pubs/pub_idx.html
The CPSC offers guidelines for product safety requirements.
U.S. Department of Agriculture (USDA)
12th Street and Independence Avenue, SW
Washington, DC 20250
http://www.usda.gov
The USDA offers publications on selling to the USDA. Publications
and programs on entrepreneurship are also available through
county extension offices nationwide.
U.S. Department of Commerce (DOC)
Office of Business Liaison
14th Street and Constitution Avenue, NW
Washington, DC 20230
http://www.osec.doc.gov/obl/
DOC's Business Liaison Center provides listings of business
opportunities available in the federal government. This service
also will refer businesses to different programs and services
in the DOC and other federal agencies.
U.S. Department of Health and Human Services (HHS)
Substance Abuse and Mental Health Services Administration
1 Choke Cherry Road
Rockville, MD 20857
http://www.workplace.samhsa.gov
Helpline: 1-800-workplace. Provides information on Employee
Assistance Programs Drug, Alcohol and other Substance Abuse.
U.S. Department of Labor (DOL)
Employment Standards Administration
200 Constitution Avenue, NW
Washington, DC 20210
The DOL offers publications on compliance with labor laws.
U.S. Department of Treasury
Internal Revenue Service (IRS)
1500 Pennsylvania Avenue NW
Washington DC 20230
http://www.irs.gov/business/index.html
The IRS offers information on tax requirements for small
businesses.
U.S. Environmental Protection Agency (EPA)
Small Business Ombudsman
1200 Pennsylvania Avenue NW
Washington, DC 20480
http://epa.gov/sbo
Hotline: 1-800-368-5888
The EPA offers more than 100 publications designed to help small
businesses understand how they can comply with EPA regulations.
U.S. Food and Drug Administration (FDA)
5600 Fishers Lane
Rockville MD 20857-0001
http://www.fda.gov
Hotline: 1-888-463-6332
The FDA offers information on packaging and labeling requirements
for food and food-related products.
For More Information
A librarian can help you locate the specific information
you need in reference books. Most libraries have a variety of
directories, indexes and encyclopedias that cover many business
topics. They also have other resources, such as
- Trade association information
Ask the librarian to show you a directory of trade associations.
Associations provide a valuable network of resources to their
members through publications and services such as newsletters,
conferences and seminars.
- Books
Many guidebooks, textbooks and manuals on small business
are published annually. To find the names of books not in
your local library check Books In Print, a directory of books
currently available from publishers.
- Magazine and newspaper articles
Business and professional magazines provide information that
is more current than that found in books and textbooks. There
are a number of indexes to help you find specific articles
in periodicals.
- Internet Search Engines
In addition to books and magazines, many libraries offer
free workshops, free access to computers and the Internet, lend
skill-building tapes and have catalogues and brochures describing
continuing education opportunities.
