Developing your business plan

Business Model is the mechanism through which a company generates its profit, while
Business Proposal is a sales document sent to prospective client in order to obtain a job or contract which describe how the company will approach a project, state the value of the project to the client and solicit the client's business.

For Business Model, there is what is called Business Model Canvas that is used to structure every Business.

The purpose of this session is to discuss Developing Your Business Plan

Your business plan is a working document that you refer to regularly. It is not a static document. Make it work for you and update it regularly.

Later, as you make new business decisions, you can return to your plan to identify what you might change, how to go about changing, and how that change might affect the rest of your business.

There is no specific method of writing a business plan because we have different type of businesses. It is what you can do yourself.
It is a map or a guide for your business, although running a business is not always 100% with the plan, but it will help.

COMPONENTS OF A BUSINESS PLAN
1. Executive Summary
2. Background
3. Key Personnel
4. Operations
5. Marketing
6. Financial Plan

EXECUTIVE SUMMARY
The purpose of an executive summary is to provide a quick and concise overview of the business (in one or two pages).  Although this section appears first, it should be written last.

The plan summary should highlight key elements of the entire business plan, including:
- Objectives of the business (Mission Statement)
- Your products or services, with emphasis on distinguishing features and the market needs they will meet
- Your estimate of market potential and assessment of the competition
- Your management team's experience and talent
- How the products will be made or the services performed
- Projected financial results
- How much money is needed, and what will be done with it
- The anticipated return on investment

BACKGROUND
It contains company description, vision, mission, etc.
- The business you are in or plan to be in
- The background of your business, including when it was started, highlights of its progress
- Any previous financing and by whom
- The current ownership of your company

KEY PERSONNEL / ORGANIZATION & MANAGEMENT
- Explain how your company's management team is organized and describe the primary role each team member plays.  If appropriate, use an organization chart.

- Demonstrate how team members' skills complement each other.  Show the balance of marketing, financial, management and production skills, as well as experience with the product or service your are developing.

Key Managers:
Prepare a brief synopsis of each key manager, including:
- Duties and Responsibilities
- Career highlights
- Significant past accomplishments that demonstrate ability for the tasks that will be required
- Include resumes in an exhibit.  Resumes should include sufficient detail for future verification by a financial institution, an investor, government agency,...etc.
- This section should also discuss any apparent weakness in your management team.  

Are any critical skills missing?  If so, how will this be overcome - by training?  recruiting? outside advisors?

Compensation & Ownership:
- State how each person will be compensated (by salary? incentive bonus? profit sharing?), and what investment each has in the company.  Include a list of the stockholders and the number of shares each owns.

- Identify your board members (if any) and briefly discuss how each help in the development of your company.

Indicate any investment board members have made in your company.

OPERATIONS
This section should cover items such as:
- Location, capacity
- Costing and control
- Employees (numbers, union, etc.)
Sources of supply
Purchasing (Machinery-new or old, tools, dies, etc.)

- Facilities and equipment (describe the facilities and the equipment that will be required - What will these cost? Will you lease or buy? discuss future needs)

- Describe the manufacturing process or the method of performing the service

- Discuss the labour force where you will operate - What are the costs - Is there enough labour available with the right skills?  Will additional training be required? What will it cost? Is the labour force unionized or likely to be in the future?

MARKETING PLAN

Marketing research is the most important part of any business plan since it determines not only potential demand and the target market but also expected sales levels, future opportunities in the market, how many employees will be needed,...etc.  

In essence, the marketing plan is the foundation of a good business plan.

This section should demonstrate that you understand how your market should be segmented, and that you have the ability to sell and deliver your product or service effectively to the right targets.  This is the place to show why customers will buy from your company.

The marketing plan also contains the market history, Target market, competition, market share, pricing, sales plan and advertising.

I am trying to summarize it as best as possible because your business plan must be detailed and we'll focused document containing everything about the business the WHAT, WHY, HOW, WHERE & WHEN

FINANCIAL PLAN

You will need to include financial statements and projections for the past as well as next three to five years, including:
- Financial statements for the past three years of operation
- Cash flow projections by month for the next year
- Projected balance sheet and income statement for the next three years
- Break-even analysis

Your financial projections should be tied to your market expectations.  It is important to state clearly the assumptions you used when preparing the projections.  

Your financial analysis should identify and support the amount of money you are seeking from potential investors or financial institutions.  Preparing financial projections requires accounting and finance knowledge.

If none of your team members are qualified in this area, get a professional's help.

Make sure you include Money needed if you are applying for a loan or grant:

This section of your plan should indicate the amount of money you will need, when you will need it, and how it will be used.  Respond to questions like:

- How much money do you need now?
- How much will you need over the next three to five years, and when?
- What will you do if you have underestimated the amount you will need?
- How will you use the initial funds?
- What financial structure are you proposing for the financing (i.e. what portions of the funds will be debt and equity?)

- What will the terms be?
- Do you qualify for government assistance?

The generic business plan presented above should be modified to suit your specific type of business and the audience for which the plan is written.
Is it for Raising Capital or for Business?

To  Bankers
• Bankers want assurance of orderly repayment. If you intend using this plan to present to lenders, include:
- Amount of loan
- How the funds will be used
- What this will accomplish—how will it make the business stronger?
- Requested repayment terms (number of years to repay). You will probably not have much negotiating room on interest rate but may be able to negotiate a longer repayment term, which will help cash flow.
- Collateral offered, and a list of all existing legal claims against collateral.

To  Investors

• Investors have a different perspective. They are looking for dramatic growth, and
they expect to share in the rewards:
- Funds needed short-term
- Funds needed in two to five years
- How the company will use the funds, and what this will accomplish for
growth.
- Estimated return on investment
- Exit strategy for investors (buyback, sale)
- Percent of ownership that you will give up to investors.

For Business

*Manufacturing

• Planned production levels
• Anticipated levels of direct production costs and indirect (overhead) costs—how do these compare to industry averages (if available)?
• Prices per product line
• Gross profit margin, overall and for each product line
• Production/capacity limits of planned physical plant
• Production/capacity limits of equipment
• Purchasing and inventory management procedures
• New products under development or anticipated to come online after startup

*Service Businesses

• Service businesses sell intangible products. They are usually more flexible than other types of businesses, but they also have higher labor costs and generally very little in fixed assets.
• What are the key competitive factors in this industry?
• Your prices
• Methods used to set prices
• System of production management
• Quality control procedures. Standard or accepted industry quality standards.
How will you measure labor productivity?
• Percent of work subcontracted to other firms. Will you make a profit on subcontracting?
• Credit, payment, and collections policies and procedures
• Strategy for keeping client base

*Retail Business

• Company image
• Pricing:
- Explain markup policies.
- Prices should be profitable, competitive, and in accordance with company image.

• Inventory:
- Selection and price should be consistent with company image.
- Inventory level: Find industry average numbers for annual inventory turnover rate. Multiply your initial inventory investment by the average turnover rate. The result should be at least equal to your projected first year's cost of goods sold. If it is not, you may not have enough budgeted for startup inventory.

• Customer service policies: These should be competitive and in accord with company image.
• Location: Does it give the exposure that you need? Is it convenient for customers? Is it consistent with company image?
• Promotion: Methods used, cost. Does it project a consistent company image?
• Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor the cost into prices?