Instructions
Use this topic to list your business plan objectives, which should be specific goals whose achievements can be measured. Normally you’ll have a numbered list of a few selected objectives. Keep your list to three or four, because long lists make it hard to focus.
Making your goals concrete is the best way, possibly the only way, to tell when you’ve achieved them. Your chance of implementation depends on your being able to track progress toward goals and measure results, and implementation is critical. So set measurable objectives such as sales or sales growth, profits or profitability, market share as published by an objective and accessible source, gross margin as percent of sales, for example.
Don’t list vague goals that can’t be tracked. Where general or intangible goals are critical to your business, find a way to make them specific. For example, if customer satisfaction is a priority, put your objectives in terms of percent of returns, specific numbers of complaints, or letters of praise, or some other measure related to satisfaction. If image or awareness is a priority, include a survey to measure the change in percentages in your plan. You can build a customer satisfaction survey into your plan, set the sample size and satisfaction scores you want to achieve, then carry out the survey to check on success.
Since you deal with products, you might watch gross margin or unit sales, so you should set objectives for these key factors. If you are a distribution company, for example, then you will also want to focus on tight management of logistics, working capital, and personnel costs. If you are a publisher, then you might focus on product quality, titles, or marketing. This obviously depends on your type of business.
Example
1. Sales increasing to more than $8 million by the third year.
2. Bring gross margin back up to above 30%, and maintain that level.
3. Sell $2 million of service, support, and training by 1998.
4. Improve inventory turnover to six turns next year, seven in 1996, and eight in 1997.
Mission
Instructions
Use your mission statement to establish your business’ fundamental goals for the quality of your business offering, customer satisfaction, employee welfare, compensation to owners, and so forth. A good mission statement can be a critical element in defining your business and communicating to employees, vendors, customers, and owners, partners, or shareholders.
For example, customer service experts frequently point out the need for a mission statement that explicitly states the importance of customer service, so that employees understand how much the company values its customers. Quality assurance experts will also turn to a mission statement as a fundamental plank of quality control. A company needs to state its goals and priorities so the people charged with carrying them out can know and understand them.
The mission statement is also a good opportunity to specifically define what business you are in. This can be critical to understanding your keys to success. For example, many experts say railroads suffered badly in the 1930-1960 period because they thought they were in the business of trains when they were really in the business of transporting goods and people; as a result, competition from highway transportation was brutal. In a similar way, a distribution company might be in the business of warehousing, shipping quickly, and enhancing its customers’ peace of mind, as much as it is in the business of selling specific products through specific channels. Often a distributor serves its channels by substituting speed of delivery and instant ordering for larger investories its store buyers might otherwise have to stock. Sometimes distribution values include ease of buying and managing inventory. A publisher, to cite another example, serves market needs for published books or records.
As another option, experts in value-based marketing recommend a mission statement that includes what they call a “value proposition.” We discuss the value proposition in more detail in the strategy and implementation section of the plan, but for now, the value proposition summarizes what benefits you offer, to whom, at what relative price. Using this reasoning, a tire company might be selling the benefit of highway safety, to safety-minded consumers (especially parents), at a price premium. A luxury car might actually be selling the benefit of prestige to status-conscious consumers at a price premium; or the benefit of reliability to value-conscious consumers at a price premium.
Example
AMT is built on the assumption that the management of information technology for business is like legal advice, accounting, graphic arts, and other bodies of knowledge, in that it is not inherently a do-it-yourself prospect. Smart business people who aren’t computer hobbyists need to find quality vendors of reliable hardware, software, service, and support. They need to use these quality vendors as they use their other professional service suppliers, as trusted allies.
AMT is such a vendor. It serves its clients as a trusted ally, providing them with the loyalty of a business partner and the economics of an outside vendor. We make sure that our clients have what they need to run their businesses as well as possible, with maximum efficiency and reliability. Many of our information applications are mission critical, so we give our clients the assurance that we will be there when they need us.
——————- another example ———-
Palo Alto Software develops, publishes, and markets business tools and business know-how together in a software product that includes software and documentation. It makes business techniques accessible to millions of business users who would otherwise not have the knowledge to use them. It makes a profit and generates cash. It provides a rewarding work environment and fair compensation to its employees, a fair return to its owners, and a fair royalty to its authors.
——————— another example —————–
Acme Widgets is a manufacturing company dedicated to developing better widget solutions for widget users who can’t get what they need from the mainstream widget manufacturers. We intend to make enough profit to generate a fair return for our investors and to finance continued growth and continued development in quality product. We also maintain a friendly, fair, and creative work environment, which respects diversity, new ideas, and hard work.
Company Summary
Instructions
Use this first paragraph to summarize the company-related information to follow in this chapter. If you follow the standard outline and choose not to delete topics, then the sub-topics that follow this one will include details on the company’s establishment, history, facilities and locations. In this introductory topic, be brief.
One good technique is to skip this topic until you have finished all the others in this chapter. Then come back here to write the highlights. The task wizard normally puts you here after most or all of the related chapter is already done, so you can summarize it.
Although most business plans include a chapter describing the company, remember that form follows function. You can delete topics and whole chapters to suit your purpose. For example, if your business plan is for internal use only, and all readers already know the company, then you might delete this topic, which would also automatically delete all its subtopics. Describing the company may not even be necessary, and if it isn’t, then don’t spend the time. Modify your outline to suit your needs.
Take a paragraph or two here to introduce your business by explaining where it is, how long it’s been around, what services it sells, and to whom. If you have trouble, think of this as writing to people who will only read this summary, not the rest of the chapter, and who don’t want to know more than what you can put in a single paragraph. You could also skip this topic for now, and fill in the following topics first.
This is the first of several topics that Business Plan Pro uses as summaries, the first topic in a section or chapter, to introduce the detail to follow. If you want to be really brief you could just leave these summary text topics blank. In that case, the topic heading would appear without text below it, followed by the next subheading. We think it looks a little better to include a brief summary; but remember, it’s your plan, not ours.
Example
Acme Widgets Company develops and manufactures widgets designed to help people manage their business. Its customers are intelligent business people who want practical widgets that accomplish useful tasks with as little expenditure of time and money as possible.
————————– another example —————
Palo Alto Software, Inc., started in Palo Alto in 1983 and moved to Oregon in 1992. It is privately owned. It is an Oregon corporation, Subchapter S.
————————another example —————–
AMT is a computer reseller based in the Uptown area. It was founded as a consulting-oriented VAR, and is emphasizing service and support to differentiate itself from more price-oriented national chains.
Company Ownership
Instructions
In this paragraph, describe the ownership and legal establishment of the company. This is mainly specifying whether your company is a corporation, partnership, sole proprietorship, or some other kind of legal entity, such as a limited liability partnership. You should also explain who owns the company, and, if there is more than one owner, in what proportion.
If your business is a corporation, specify whether it is a C (the more standard type) or an S (more suitable for small business without many different owners) corporation. Also, of course, specify whether it is privately owned or publicly traded.
Although many distribution businesses and publishers tend to be corporations, such businesses might also be sole proprietor businesses, or partnerships, or even limited liability corporations (LLC). The protection of incorporating is important, but sometimes the extra legal costs and hassles of turning in corporate tax forms with double-entry bookkeeping are not worth it. If you’re in doubt about how to establish a start-up company, this is a good question to take to a business attorney. You will be tempted to save the money and go through the pros and cons of different types of business yourself, but there is no substitute for a good attorney. The advisability of different types of business varies by state, and sometimes even by county, and definitely by type of business and inclination of the owners.
If you are a new business and you don’t know what type of company to establish, then you should probably just call it a sole proprietor business and explain it as simply as you can. Eventually your lawyer and accountants will help you decide which legal form is best.
Example
AMT is a privately-held C corporation owned in majority by its founder and president, Ralph Jones. There are six part owners, including four investors and two past employees. The largest of these (in percent of ownership) are Frank Dudley, our attorney, and Paul Karots, our public relations consultant. Neither owns more than 15%, but both are active participants in management decisions.
——————- another example ——————
Acme Widgets Company is a privately-held California corporation. John Smith, Acme’s founder, is the majority owner. Several members of the board of directors also hold minority stock positions.
Two of these are also vendors of outside services:
* Harold Callahan, public relations consultant.
* Perry Mason, attorney.
Start-up Summary
Instructions
This topic is here because your plan options are set for a start-up plan, for a new company, with no history. If you are an existing or ongoing company, then use the Plan Options menu to change your settings to ongoing instead of start-up.
Use this text area to explain the assumptions in your start-up table that is linked to this topic (unless you unlink it). The start-up costs and start-up investment table will print automatically after this text, followed by a bar chart illustrating your start-up assumptions. You can also change the linking (there are instructions in your manual and the on-line help) or even delete this topic, if you prefer.
Summarize your start-up plan. Explain the list of start-up expenses, which are expenses you make before you start the business in the first month. Typical start-up expenses include legal expenses of establishment, expenses for developing logo and stationery, and similar expenses for setting up an office. If you’re in the distribution business, for example, you might also be incurring expenses for warehouse space, packaging equipment, and perhaps delivery systems. After the expenses, you list the assets you want to have in the company as it starts. That would normally be cash in the bank account, opening inventory, and possibly short-term assets such as equipment. Some of these decisions depend on your accountant and on tax decisions. For example, we mention equipment in the context of expenses and assets because it can be either one, depending on tax code and some accounting options.
Then you show how you intend to finance both the expenses and the initial assets, which usually means investment or borrowing. Since your capital is always equal to assets less liabilities, the software will use a calculated loss at start-up to make your balance work.
The table instructions in table mode provide additional detail on the start-up table. This text is just for explanation and highlights.
Example
Our start-up costs come to $4,500, which is mostly stationery, legal costs, and expenses associated with opening our first office. The start-up costs are to be financed by direct owner investment. The assumptions are shown in Table 1 and Illustration 2.
Products and Services
Instructions
This is another summary topic that starts a chapter and introduces the topics to follow. The whole chapter is about the products you sell, so in the sub-topics you will list and describe your product lines, present detail about how they are provided, and by whom, and plans for future product offerings. This first topic can be a summary in three or four sentences.
One good technique is to skip this topic until you have finished all the others in this chapter. Then come back here to write the highlights. The task wizard normally puts you here after most or all of the related chapter is already done, so you can summarize it.
The introductory text for a chapter is good style, and makes the plan easy to read. It is also convenient for summarizing the whole plan, so you can pick up the introductory topics of several chapters for a loan summary or investment summary memo.
If you prefer, you can leave the text for the first topic blank, and just fill in the information in the sub-topics. That will leave this first heading as the chapter title, followed by the specific details.
Example
AMT Inc provides both computer products and services to make them useful to small business. We are especially focused on providing network systems and services to small and medium business. The systems include both PC-based LAN systems and minicomputer server-based systems. Our services include design and installation of network systems, training, and support.
———————— another example ————
Acme Widgets Company designs and markets customized widgets for small business users. Most of these focus on providing the user with specialized products to meet exact specifications, despite relatively low volume.
Market Analysis Summary
Instructions
This first paragraph is a simple summary. Assume that this paragraph might be included in a loan application or investment summary, so you need it to summarize the rest of the chapter. What information would be most important, if you had only one brief topic to include about your market?
One good technique is to skip this topic until you have finished all the others in this chapter, then come back here to write the highlights. The task wizard normally puts you here after most or all of the related chapter is already done, so you can summarize it.
Without going into great detail, you should generally describe the different groups of target customers included in your market analysis, and refer briefly to why you are selecting these as targets. You may also want to summarize market growth, citing highlights of some growth projections, if you have this information available.
The depth of detail in market analysis will depend a lot on the type of plan. You may not need to provide a complete market study in a plan developed for internal use, when all of your team knows the market well. Maybe you’ll just cite the type of customers you attract, and the part of town you serve. The market analysis chapter in a business plan is the chapter that is most likely to require research for information from outside your business, while most others require thinking and analysis of factors within your business.
This is a good point to add a word of caution about the level of detail required. Please remember that planning is about making good decisions, applying focus and enforcing priorities. A good useful business plan doesn’t necessarily include a market analysis suitable for a Ph.D. candidate in market research. Planning is not about testing your knowledge. If you are looking for investment, then you may have to use this section to display your wisdom and understanding of your industry, but don’t overdo it. If you are planning in an internal plan and have no audience other than your own team, we recommend enough market research to make sure you’re not missing key points.
The value of information is limited by its impact of decisions. If more market information is not going to help you do something better, then don’t bother.
If you are working with Marketing Plan Pro, you could just copy your text from Marketing Plan Pro’s “Target Markets” topic (normally 2.0) into this text. Open your marketing plan in Marketing Plan Pro and use the Copy and Paste features to copy from there and paste into this topic.
Example
AMT focuses on local markets, small business and home office, with special focus on the high-end home office and the 5-20 unit small business office.
—————— another example ————
The market for widgets is worth an estimated $3.8 billion at end-user value in 19__, and is projected to grow at 20% per year, according to professional forecasts published in Widget Reseller News in August of 19__. Sources included Ralph Research and Infocorp. The Widget Manufacturers Association estimates total retail sales of $3.075 billion in 19__.
$274 million of that was Bleep widgets, and $2.4 billion was Blap widgets. Market leaders are Malcolm Corporation, Arrog International, and Litmus Development Corporation. However, the industry is highly pulverized; its top 10 companies account for less than one third of the total market.
Market Segmentation
Instructions
Use this topic to explain the potential customers analysis table, which is normally linked to it, plus the market pie chart. Your analysis is based on a list of potential customer groups, each of which is a market segment. Explain how your segments are defined. The market segmentation concept is crucial to market assessment and market strategy. Divide the market into workable market segments–divided by age, income, product type, geography, buying patterns, customer needs, or other classification.
The most classic market segmentation divides people by demographics (age, income, gender, occupation, education, etc.) or geographics (city, state, county, ZIP code, etc.). Companies selling to businesses would expect to divide the business into groups based on type of business, size of business, and geographies. Personal computer companies frequently divide their market into buying segments including home, small office, large company, government, and education.
Some of the more recent trends include using behavioral patterns and so-called psychographics, which produces the famous classification of “yuppies” as young urban professionals, and of course the “baby boomers” with certain buying patterns. We’ve seen plans that focus on “high-end home office, technology-driven small business, and technology-phobic small business.” Teenagers sort themselves into groups with names like “nerds, dopers, jocks, and greasers.” Each of these labels actually stands for certain sets of behavior patterns, and has some value in segmentation.
However you decide to segment your market, use this topic to explain the segmentation, define the different classifications, and develop as much information as you feel you need about the customers within each market segment group. Normally you would list for each segment the demographics, buying patterns, information patterns, and other important factors.
If you are working with Marketing Plan Pro, you could just copy your text from the Marketing Plan Pro topic “Market Definition and Segmentation” directly into this topic. Although outlines can change, the default would make this Marketing Plan Pro’s topic 2.1. Open your marketing plan in Marketing Plan Pro and use the Copy and Paste features to copy from there and paste into this topic.
Example
Our market segmentation scheme allows some room for estimates and nonspecific definitions. We focus on a small-medium level of small business, and it is hard to find information to make an exact classification. Our target companies are large enough to need the high-quality information technology management we offer, but too small to have a separate computer management staff such as an MIS department. We say that our target market has 10-50 employees, and needs 5-20 workstations tied together in a local area network; the definition is flexible.
Defining the high-end home office is even more difficult. We generally know the characteristics of our target market, but we can’t find easy classifications that fit into available demographics. The high-end home office business is a business, not a hobby. It generates enough money to merit the owner’s paying real attention to the quality of information technology management, meaning that there is both budget and concerns that warrant working with our level of quality service and support. We can assume that we aren’t talking about home offices used only part-time by people who work elsewhere during the day, and that our target market home office wants to have powerful technology and a lot of links between computing, telecommunications, and video.
Target Market Segment Strategy
Instructions
In this topic you should introduce the strategy behind your market segmentation and your choice of target markets. Explain why your business is focusing on these specific target market groups. What makes these groups more interesting than the other groups that you’ve ruled out? Why are the characteristics you specify important.
This is more important for some businesses than others. A distributor, for example, might focus on one set of retailers as customers instead of another, for strategic reasons. A publisher might focus on books for accountants or lawyers. Some fast food restaurants focus on families with children under driving age. A graphic design firm might specialize in small or medium businesses that need Internet Web sites. Strategy is focus, it is creative, and it doesn’t follow pre-written formulas.
If you are working with Marketing Plan Pro, this topic is equivalent to the Marketing Plan Pro topic with the same name. You should be able to copy from that topic in your marketing plan, and paste into this topic in your business plan. The default would make that topic 2.2 in the marketing plan.
Example
Our choice of target markets is strategic. We assume that it definitely reflects our strengths and weaknesses. We are not selling to the self reliant users, because they buy computers as appliances based on features and price. Instead, we are selling to the service-seeking users whose needs match our strengths and weaknesses.
We don’t want to compete in the low-end or even medium home office market, because we realize that all except the high-end home buyer is going to look at computers as boxed prices and buy based mainly on price. This market belongs to the chain stores and office stores.
Regarding the small business segment, we are looking for the types of small business that appreciate our value added enough to pay for it, but aren’t big enough to have expertise in house. The small business that is very comfortable with computers and doesn’t want our added value is going to buy at price with the chains, and the larger businesses will buy in volume direct.
Industry Analysis
Instructions
This topic summarizes the sub-topics that follow, explaining the type of business. The sub-topics look at the size and concentration of businesses in this group, the way services are bought and sold, as well as specific competitors.
Depending on what you need for your specific plan, you could leave a brief summary in this topic and let the main information come in the following ones, or you could decide that all you need is a paragraph or two or three here, and then delete the sub-topics. Remember that form follows function, so if describing your industry doesn’t change any of your business decisions, and you are not using the plan to describe your business to an outsider, then you may not need to include this description at all.
Example
We are part of the computer reselling business, which includes several kinds of businesses:
1. Computer dealers: storefront computer resellers, usually less than 5,000 square feet, often focused on a few main brands of hardware, usually offering only a minimum of software, and variable amounts of service and support. These are usually old-fashioned (1980s-style) computer stores and they usually offer relatively few reasons for buyers to shop with them. Their service and support is not usually very good and their prices are usually higher than the larger stores.
2. Chain stores and computer superstores: these include major chains such as CompUSA, Computer City, Future Shop, etc. They are almost always more than 10,000 square feet of space, usually offer decent walk-in service, and are often warehouse-like locations where people go to find products in boxes with very aggressive pricing, and little support.
3. Mail order: the market is served increasingly by mail order businesses that offer aggressive pricing of boxed product. For the purely price-driven buyer, who buys boxes and expects no service, these are very good options.
4. Others: there are many other channels through which people buy their computers, usually variations of the main three types above.
Competition and Buying Patterns
Instructions
This topic is still in the general area of describing the industry, or type of business. Explain the general nature of competition in this business, and how the customers seem to choose one provider over another. In the computer business, for example, competition might depend on reputation and trends in one part of the market, and on channels of distribution and advertising in another. In many business-to-business industries the nature of competition depends on direct selling, because channels are impractical. Price is vital in products competing with each other on retail shelves, but delivery and reliability might be more important for materials used by manufacturers in volume, for which a shortage can affect an entire production line.
How do people in your target customer group choose between competing products? What factors make the most difference for your products? What might make customers choose one product over another? Price, or features? Reputation? Image and visibility? Are brand names important? Or is it simply word of mouth, in which the secret is long-term satisfied customers?
Example
The small business buyers understand the concept of service and support, and are much more likely to pay for it when the offering is clearly stated.
There is no doubt that we compete more against all the box pushers than against other service providers. We need to effectively compete against the idea that businesses should buy computers as plug-in appliances that don’t need ongoing service, support, and training.
Our focus group sessions indicated that our target Home Offices think about price, but would buy based on quality service if the offering were properly presented. They think about price because that’s all they ever see. We have very good indications that many would rather pay 10-20% more for a relationship with a long-term vendor providing back-up and quality service and support; they end up in the box-pusher channels because they aren’t aware of the alternatives.
Availability is also very important. The Home Office buyers tend to want immediate, local solutions to problems.
Strategy and Implementation
Instructions
In this first paragraph, summarize the sales and marketing strategy. Details will come on the following topics, so keep this first summary short, covering just the main points. Remember, this summary may be used as the only paragraph on this topic to be included in a loan application summary or an investment summary memo, so you don’t want to miss the main points.
As with the first topics in other chapters, you should probably wait until you’ve written the rest of the chapter before finishing up this summary topic. In this chapter, especially, you’ll find that some of the following topics will help you create a summary of strategy.
Think of strategy as focus. Of the whole range of possible market segments, and the whole range of distribution and possible sales and marketing activities, which are your main priorities? Avoid making long lists of priorities. More than three or four points makes them more like a to-do list than a strategic focus.
Example
1. Emphasize service and support.
We must differentiate ourselves from the box pushers. We need to establish our business offering as a clear and viable alternative for our target market, to the price-only kind of buying.
2. Build a relationship-oriented business.
Build long-term relationships with clients, not single-transaction deals with customers. Become their computer department, not just a vendor. Make them understand the value of the relationship.
3. Focus on target markets.
We need to focus our offerings on small business as the key market segment we should own. This means the 5-20 unit system, tied together in a local area network, in a company with 5-50 employees. Our values–training, installation, service, support, knowledge–are more cleanly differentiated in this segment.
As a corollary, the high end of the home office market is also appropriate. We do not want to compete for the buyers who go to the chain stores or mail order, but we definitely want to be able to sell individual systems to the smart home office buyers who want a reliable, full-service vendor.
4. Differentiate and fulfill the promise.
We can’t just market and sell service and support, we must actually deliver as well. We need to make sure we have the knowledge-intensive business and service-intensive business we claim to have.
Competitive Edge
Instructions
1. Emphasize service and support.
We must differentiate ourselves from the box pushers. We need to establish our business offering as a clear and viable alternative for our target market, to the price-only kind of buying.
2. Build a relationship-oriented business.
Build long-term relationships with clients, not single-transaction deals with customers. Become their computer department, not just a vendor. Make them understand the value of the relationship.
3. Focus on target markets.
We need to focus our offerings on small business as the key market segment we should own. This means the 5-20 unit system, tied together in a local area network, in a company with 5-50 employees. Our values–training, installation, service, support, knowledge–are more cleanly differentiated in this segment.
As a corollary, the high end of the home office market is also appropriate. We do not want to compete for the buyers who go to the chain stores or mail order, but we definitely want to be able to sell individual systems to the smart home office buyers who want a reliable, full-service vendor.
4. Differentiate and fulfill the promise.
We can’t just market and sell service and support, we must actually deliver as well. We need to make sure we have the knowledge-intensive business and service-intensive business we claim to have.
Example
Our competitive edge is our positioning as a strategic ally with our clients, who are clients more than customers. By building a business based on long-standing relationships with satisfied clients, we simultaneously build defenses against competition. The longer the relationship stands, the more we help our clients understand what we offer them and why they need it.
—————– another example ————-
Our most important competitive edge is our relationship with the health-foods-conscious community in Eugene. We are a known quantity. Our target market respects our brands and our image.
This is a serious barrier to entry of new competition. People in our market segment want to know about the vendors in the market. They want to be able to trust their vendors, trust their brand names.
Sales Strategy
Instructions
Describe sales strategy as it differs from marketing strategy. Sales should close the deals that marketing opens. Sales strategies deal with how and when to close sales prospects, how to compensate sales people, how to optimize order processing and database management, how to maneuver price, delivery, and conditions. This topic is the broad summary, to be followed by a detailed sales forecast and a discussion of specific sales programs.
To help differentiate between marketing strategy and sales strategy, think of marketing as the broader effort of generating sales leads on a large scale, and sales as the efforts to bring those sales leads into the system as individual sales transactions. Marketing might affect image and awareness and propensity to buy, while sales involves closing the deal and getting the order.
As with your marketing strategy, your sales strategy depends a great deal on which market segments you’ve chosen as target market groups. Obviously, you don’t sell major deals to large companies the same way you sell cereal boxes off grocery store shelves. Think about how you sell in your business. What is your strategy for optimizing your way of selling?
Example
1. We need to sell the company, not the product. We sell AMT, not Apple, IBM, Hewlett-Packard, or Compaq, or any of our software brand names.
2. We have to sell our service and support. The hardware is like the razor, and the support, service, software services, training, and seminars are the razor blades. We need to serve our customers with what they really need.
The Yearly Total Sales chart summarizes our ambitious sales forecast. We expect sales to increase from $5.3 million last year to more than $7 million next year and to more than $10 million in the last year of this plan.
Sales Forecast
Instructions
Use the text to summarize and highlight the Sales Forecast in the detailed sales forecast table, which will print automatically following this text. Your annual sales forecast prints with the text, and the monthlies are in the appendix.
Explain your sales forecast. Emphasize important points and explain assumptions. What growth rates are you expecting for the more important lines, and what growth rates in units, and in dollars? Why are you projecting your sales at this level, why not less or more? What are the main driving forces behind the sales forecast? How does it relate to your market analysis, your main target segments, your sales strategy and marketing strategy? Is your sales forecast believable? Why?
What risks are involved. What events might turn the sales forecast downward? What kind of things are you assuming will happen to make sure the sales happen?
Example
The important elements of the sales forecast are shown in the Total Sales by Month in Year 1 table. The non-hardware sales increase to about $2 million total in the third year.
Milestones
Instructions
The milestones, which will print in a table following this topic, are critical. This is where a business plan becomes a real plan, with specific and measurable activities, instead of just a document. Include as many specific programs as possible. For each program, give it a name, a person responsible, a milestone date, and a budget. In the table itself you see columns reserved for evaluating the actual results and the difference between plan and actual results, for each program. You have a place to track spending and milestone dates, and you can also sort the table by person responsible, milestone date, budget, and by department.
Make your plan real. Give it as many milestones as you can think of to make it more concrete. Then make sure that all your people know that you will be following the plan, and tracking results. Details are good.
Your software will print the plan portion of the table as part of the printed plan. The actual results, and plan-vs.-actual comparisons, don’t print automatically. We assume you’ll follow up with them, use them to manage the plan, and print them as required from the table directly.
Example
The following table lists important program milestones, with dates and managers in charge, and budgets for each. The milestone schedule indicates our emphasis on planning for implementation. The most important programs are the sales and marketing programs listed in detail in the previous topics.
———————– another example —————–
The accompanying table lists important program milestones, with dates and managers in charge, and budgets for each. The milestone schedule indicates our emphasis on planning for implementation.
What the table doesn’t show is the commitment behind it. Our business plan software includes complete provisions for plan-vs.-actual analysis, and we will be holding monthly follow-up meetings every month to discuss the variance and course corrections.
Management
Instructions
Use this first paragraph as a summary. As with the other first topics in chapters, it may be used to stand for the rest of the chapter, as part of a summary document. If you only have one or two paragraphs to include about your personnel and management team, this is it.
If you are in doubt, you should make sure you cover the basic information first. That would include how many employees the company has, how many managers, and how many of the managers are founders. Is your team complete, or are there gaps still to be filled? Is your organizational structure sound, with job descriptions and logical responsibilities for all the key members?
Particularly with start-up companies, you may not have the complete team as you write the plan. In that case, be sure to point out the hole and weaknesses, and how you intend to fill them.
Example
Our management philosophy is based on responsibility and mutual respect. People who work at AMT want to work at AMT because we have an environment that encourages creativity and achievement. The team includes 22 employees, under a president and four managers.
——————— another example —————–
Acme Widgets Distribution is slow to hire new people, and very loyal to those who are hired.
Immediate personnel plans call for increases from 11 people at present to 55 three years from now. The increase is needed to support the effort to move beyond the local region.
We will continue to work with part-time people to handle shipping and packaging, errands, phone back-up, etc.
————————- another example —————
Eugene Health Foods is owned and operated by its founders. It is a small company with a minimum command heirarchy and a maximum of community spirit and cooperation. Despite the loose style, we are still organized by function, and the business is done with logic and order.
Personnel Plan
Instructions
Use the Personnel table from the Tables menu to prepare a personnel plan, projecting employees, salaries, and departments. Use the text topic here to explain the plan, assumptions, personnel needs, costs, and benefits. The Personnel Plan will print automatically following this text.
As with several of the more table-oriented topics in the plan, this one is mainly a placeholder for the table. It is better if you find some text to highlight, so that the table displays better.
Example
The Personnel Plan reflects the need to bolster our capabilities to match our positioning. Our total headcount should increase to 22 this first year, and to 30 by the third year. Detailed monthly projections are included in the appendices.
Financial Plan
Instructions
This is another summary topic, a chapter head, which is followed by detailed topics covering your general assumptions, break-even analysis, profit and loss, cash flow, balance sheet, and ratios.
One option for this topic is to merely summarize those that follow. In that case, consider this a single topic that might stand for the whole chapter in a summary document, like an investment summary of a loan summarizes the more detailed topics to follow. You might want to write the following topics first, then do this summary. How fast is the business expected to grow, and how do you intend to finance that growth? Or are you growing slowly and producing profits?
Another option is to summarize your financial plan in a more general way. This option fits when your financial plan is a significant piece of your expansion or your new business start-up, either because it involves new investment, or new loans, or a change in the way you do business with accounts receivable, or payables, or inventory. For example, if you are planning to grow your manufacturing business and finance growth by factoring receivables, that might be an element of a new financial plan. A new long-term loan or major change in your short-term borrowing might also be part of a plan, even if these items don’t show up clearly in charts and tables that follow.
Example
The most important element in the financial plan is the critical need for improving several of the key factors that impact cash flow:
1. We must at any cost stop the slide in inventory turnover and develop better inventory management to bring the turnover back up to eight turns by the third year. This should also be a function of the shift in focus toward service revenues to add to the hardware revenues.
2. We must also bring the gross margin back up to 25%. This, too, is related to improving the mix between hardware and service revenues, because the service revenues offer much better margins.
3. We plan to borrow another $150,000 long-term this year. The amount seems in line with the balance sheet capabilities.
Important Assumptions
Instructions
Use this section to discuss important assumptions, including the assumptions covered in the attached spreadsheets. Explain how key assumptions have affected your financial projections. The annual values in the Assumptions table in your Tables menu will print automatically at this point, unless you specifically tell it not to. The monthly values for assumptions normally print sideways in the appendices.
There are probably additional assumptions, beyond the specific rows in your business table. For example, you might be assuming something about general economic conditions. Or you might be assuming that your competition isn’t going to release a new product during the next 12 months, or that it is. Assumptions of this type should be specified in this topic.
Example
The financial plan depends on important assumptions, most of which are shown in Table 6. The key underlying assumptions are:
* We assume a slow-growth economy, without major recession.
* We assume of course that there are no unforeseen changes in technology to make products immediately obsolete.
* We assume access to equity capital and financing sufficient to maintain our financial plan as shown in the tables.
Break-even Analysis
Instructions
Break-even is more useful for start-up companies than ongoing or already existing companies, because it assumes a snapshot of the business position at one imaginary point in time, and also because it deals with fixed costs in a way that may not be all that useful. The break-even is more valuable for start-ups and initial assessments because it offers some real insight into what might become the realities of a potential business. It is also hard to deal with because it requires making estimates of unit prices and unit variable costs for the entire business, rather than for each product or product line. It is frequently hard to come up with a single estimate.
However, even for ongoing companies, we do a break-even analysis because people who read business plans expect one. Despite its limitations, this is a standard analysis that financial readers and business plan experts will expect to see. Please note the Business Plan Pro manual’s discussion of why fixed costs should be taken as normal running costs, rather than what is technically considered fixed costs.
Explain the break-even assumptions in the table and chart that will normally print right after this topic. How have you decided to treat fixed costs? Are you using the strict financial definition that comes from textbooks, or the more practical definition we recommend, the normal running costs? How have you decided to set averages for price per unit and variable cost per unit?
You might also cover the implications of the break-even. For a start-up company, you should compare the break-even point with your sales prospects? How confident are you that you can make the minimum sales quantities you need to break even? For an on-going company, the break-even analysis should show that you are running comfortably above the break even point.
Example
For our break-even analysis, we assume running costs of approximately $94,000 per month, which includes our full payroll, rent, and utilities, and an estimation of other running costs. Payroll alone, at our present run rate, is only about $55,000.
Margins are harder to assume. Our overall average of $343/$248 is based on past sales. We hope to attain a margin that high in the future.
The chart shows that we need to sell about $340,000 per month to break even, according to these assumptions. This is about half of our planned 1995 sales level, and significantly below our last year’s sales level, so we believe we can maintain it.
Projected Profit and Loss
Instructions
Note the important points of your profit and loss projections, such as percentage increase in sales and profits, your gross margins, and key budget items. Your annual projections of profit and loss will normally print right after this topic, so what you are writing here is an explanation of those numbers. How realistic are your sales and expense projections? How good do your numbers look?
If you can, add some interest to the table. For example, you might note that you are spending less on sales and marketing expenses than the industry average (just a hypothetical example), and maybe that is because you are getting such great reviews in the consumer magazines, or for some other reason. At the very least, point out your main numbers and growth rates.
As with all the financial projections that include monthly values, the software will print your annual values right after this topic, and it will print an appendix that contains the month-by-month forecast. The appendix prints sideways to accommodate the width of the 12 months.
Example
The most important assumption in the Projected Profit and Loss statement is the gross margin, which is supposed to increase to 25%. This is up from barely 21% in the last year. The increase in gross margin is based on changing our sales mix, and it is critical.
Month-by-month assumptions for profit and loss are included in the appendices.
Projected Cash Flow
Instructions
Use the text portion to explain the key elements of the pro forma cash flow, which presents projected changes in cash balances. The cash flow table’s annual values will print automatically following this text, and that is followed by the important cash flow chart. The chart shows the month-by-month cash flow for the next year, which is critical information.
As you write, focus on the monthly cash flow chart. In most business plans, the cash flow is negative for some months, so the cash flow bar shows some negative values. The cash balance bar in the chart, however, must not go below zero ever, because that would be equivalent to a negative balance in the checking accounts, which means bounced checks and bad problems. Normally you will have to borrow money off of a credit line to support your weak months, and pay it off during your strong months. You might also be looking for new investment to improve your cash flow, or taking out a long-term loan, or selling assets. Explain your plan here, in as much detail as you can, because your cash flow is critical.
Remember, you don’t spend profits, you spend cash. Furthermore, you can be a profitable business and have no cash. Many businesses that die are profitable when they die, they just can’t get their money from inventory or receivables in order to pay their bills.
As with all the financial projections that include monthly values, the software will print your annual values right after this topic, and it will print an appendix that contains the month-by-month forecast. The appendix prints sideways to accommodate the width of the 12 months.
Example
The cash flow depends on assumptions for inventory turnover, payment days, and accounts receivable management. Our projected 45-day collection days is critical, and it is also reasonable. We need $150,000 in new financing in March to get through a cash flow dip as we build up for mid-year sales.
Projected Balance Sheet
Instructions
The most important item on your balance sheet is your cash, in the first row. You just dealt with cash in the previous section, the cash flow, and you also explained the assumptions related to cash. The full balance sheet includes all assets, liabilities, and capital. As with all the financial projections that include monthly values, the software will print your annual values right after this topic, and it will print an appendix that contains the month-by-month forecast. The appendix prints sideways to accommodate the width of the 12 months.
Try to add interest to the table by pointing out highlights. If your numbers look good, then your net worth is going to improve and you should point that out in this topic. The net worth is the bottom line of the balance sheet, assets less liabilities. If you are bringing in new investments, then you might want to point out the increase in equity capital. If your liabilities go down, or working capital increases, then point that out.
Sometimes you need to note a concern, a point of high risk, or a weakness in the balance sheet. Maybe the balance sheet shows that you need more capital, or that you are chronically weak on working capital or high in inventory and receivables. Business plans are not necessarily all good news. You might have to plan to improve the weaknesses in your balance sheet.
Example
The Projected Balance Sheet is quite solid. We do not project any real trouble meeting our debt obligations–as long as we can achieve our specific objectives.