DEVELOPING A BUSINESS PLAN FOR ENTREPRENEURS 3112

1. DEVELOPING A BUSINESS PLAN FOR ENTREPRENEURS3112 Steven C Seideman Extension Food Processing Specialist Cooperative Extension Service University of Arkansas

2. INTRODUCTION • You may have a great idea for a new food product or a marketing concept to bring a food product to market but you don’t know where to go to get started. • This module is about the next step in the process, that being a business plan. • A business plan is a written document that describes your business, the competition, cash-flow, and other necessary components that will justify the worthiness of the idea or concept.

3. Why Write a Business Plan? 1)To help you think through the venture and ensure you have considered all your options and anticipated any potential difficulties. 2)To convince lenders and investors that you are in control of the project and that their money will be safe with you. 3)To serve as an operating guide as you turn your idea into a viable business.

4. INTRODUCTION • You may need a business plan to get a startup loan or get potential investors to buy into your business, but the best reason for developing a business plan is for you to solidify your whole plan for the production, marketing and sales of your product. • The vast majority of startup businesses that fail do not fail due to the product idea or concept but fail due the lack of a good, solid, accurate business plan.

5. Managing Risk • Life has inherent risks to it as does just about everything that we do. • Starting a food business is no different. It has certain risks, and you as an entrepreneur are taking a risk. However, one can minimize that risk by thinking, studying, researching and ultimately writing a business plan. • I like to think of it as ‘prudent risk taking’. You know the risks involved, but you are also aware of the financial and personal rewards before you ever open the business.

6. Detailed Business Forms • There are a number of sources from which to obtain detailed business plan formats; • The United States Small Business Administration has a Business Plan form that can be downloaded from www.sba.gov/starting_business/planning/basic.html. • The Arkansas Small Business Development Center has an excellent booklet entitled “Start-Up Guide” that has a business plan in it. Call 501/324-9043 for a free copy.

8. Writing a Business Plan • Not everyone enjoys the art of writing, but writing a business plan can be fun and exciting. You are literally building a business in your mind. There is no risk, no real money spent- it sounds more like a game similar to Monopoly. • Have fun with it like a game remembering there is no real risk until after you have the plan all developed, and it looks good. Then you have to decide if you really want to spent your money.

9. Writing a Business Plan • Here is a step-by-step procedure for writing a business plan. 1)Go through this module for a general understanding of what it is all about. 2)Download a Federal Government form or get an Arkansas Small Business Development Center “Start-Up Guide”. 3)Once you have one of these detailed business plan formats, start writing the plan with what you know at that time. Don’t worry about not knowing everything. At this point, you will probably realize how little you know.

10. Writing a Business Plan 4)Collect more information by searching the Internet, going to food stores, talking to people in the business, going to the Arkansas Small Business Development Center resource libraries, etc. This is called market research. 5)Add your research findings to the business plan. 6)Go over your business plan several times per week adding more details as you research, think, plan, etc. Eventually, the business plan will start looking good.

11. Now let’s go through the major elements of a business plan and then proceed to a detailed explanation of what belongs in each element.

12. Elements of a Business Plan • The following are elements or sections of a business plan. Consider them like chapters in a book. 1)Cover Page 2)Title Page 3)Executive Summary 4)Table of Contents 5) Description of the Business 6) Business Location

13. Elements of the Business Plan 7) Licenses and Permits 8) Management 9) Personnel 10) Insurance 11) The Market 12) Competition 13) Financial Data 14) Supporting Documents

14. Cover Page • Your name, address and phone number of the business. • Give your plan a business-like appearance by typing on high quality paper and putting it in a vinyl or cardstock binder or a three-ring binder.

15. Title Page • Repeat the business name, address and phone number, and add the names and addresses of the principle owners. • Also show date of issue of the plan and type “Copy Number __” so you can number and control the copies of the business plan.

16. Executive Summary • A brief (one page) statement of the business plan objectives. Address the following questions and add additional information that will help you achieve your goals (You may choose to write this page last). A)What is the purpose of this plan? Will it be used as; a) an operating guide? b) a financial proposal ? What is the product or concept being proposed? B)What business structure have you chosen ( i.e. sole proprietorship, partnership, etc.)?. C) Who are the principle owners, and what are their proportions of ownership? D) Why will the venture be successful ?

17. Executive Summary • For financial proposals, one needs to add the following; E) Who is requesting the funds, and how much is needed? F) What will the money be used for? G) How will the funds be repaid? H) What collateral will be offered to secure the loan? I) Why does a loan or an investment make sense? (impact on local economy, job creation, increased tax base, investment in the future of the community)

18. Table of Contents • This is a single page showing the major topics and page numbers. • It is best to do this last after you have written the rest of the business plan.

19. Description of the Business • Answer as many of the following questions as are appropriate. A)What business are you in? (type of business, nature of product, what is special about your business?). B) What market do you intend to serve? What is the total market, and what is your expected share? C) How can you serve the market better than your competition? D) Present status of the business- startup, expansion? E) Will you be doing any contract work?

20. Description of the Business • For existing businesses; F) What is the history of the business? G) Why does the owner wish to sell at this time? H) If the business is going downhill, why and how can you turn it around.? I) How will your management make the business profitable? J) What is the purchase price formula? Give breakdown of buildings, improvements, equipment, inventory and goodwill.

21. Business Location • What is the business address, and why did you choose this location. • Will the building be leased or owned? • What are the terms and length of the lease contract? • What renovations will be needed, and what is the cost? • Describe the neighborhood. • What other kinds of businesses are in the neighborhood? • How much can your business expand before you will be forced to move or add on?

22. Licenses and Permits • Is your business name registered with the secretary of state? • State how you will be affected by local zoning regulations. • What other licenses or permits will you be required to obtain? • Will you trademark your brand name or patent your process?

23. Management • What is your business and management experience? • What education have you had, including both formal and informal courses, that contributed to your management abilities? • Are you physically suited for the job? • Do you have direct operational and/or management experience in this type of business? • Describe your organizational structure and include a brief description of who does what. • List proposed salaries and wages. • What other management resources will be available ( accountant, lawyer, SBDC) ?

24. Personnel • Write a paragraph or two about your personnel needs. • What are your anticipated personnel needs? • What skills must your employees have? • Can you use part-time help to meet changing business volume? • Will you have to train people and at what cost?

25. Insurance • Describe your potential business risks and tell what insurance coverage you will purchase to protect yourself.

26. The Market • Generally explain who needs your product and how you plan to reach them. • What is the size and growth potential of the market for your product? • What percentage of the market will you have now and in the future? • Describe age, sex, occupation, life-style, income etc. of your various market segments. • How will you attract and keep your segment of the market? ( product quality, price, public relations, personal selling etc ). • What features or services will you offer that will justify your price? • How will you handle credit sales?

27. Competition • Briefly describe your competition and tell how their operations are similar and dissimilar to yours. • What is your unique selling proposition and how will you use it to control the market? • Competitive edge- why will the customer choose your product over the competition.

28. Financial Data • Source and application of funds statement. • Capital equipment list. • Current balance sheet and income statement. • Break-even analysis. • Projected income statement: a) Detail by month, first year b) Detail by quarter, second year c) Notes of explanation and assumptions

29. Financial Data F) Cash Flow projections a) Detail by month, first year b) Detail by quarter, second year c) Notes of explanation and assumptions G) Projected Balance Sheet a) Notes of explanation and assumptions H) For an Existing Business a) Income statement b) Balance sheets c) Tax returns for past 3 years

30. Supporting Documents • Personal resumes for all principle owners. • Personal financial statements for all principle owners. • Letters of reference. • Letters of intent from prospective suppliers or customers • Copies of all leases, contracts or agreements, deeds or other legal documents. • Any other information that might help your case or answer potential questions.

31. That completes the elements of the business plan

32. The Arkansas Small Business Development Center • The preceding was taken from the “Start-Up Guide” from the Arkansas Small Business Development Center. I highly suggest that you get a copy of this guide. It not only has a business plan format but also contains a number of major issues that face the small business entrepreneur such as marketing research, project cost analysis, insurance considerations, etc.

35. The Arkansas Small Business Development Center • The Arkansas Small Business Development Center is headquartered in Little Rock ( 501/324-9043; www.asbdc.ualr.edu) but also has locations in Fort Smith, Harrison, Hot Springs, Magnolia, Osceola, Stuttgart, Arkadelphia, Fayetteville, Jonesboro and Dumas. • They have a wealth of knowledge and materials to help you get started. • In addition, they also provide counseling in areas that you may have problems.

37. Additional Help • If you are an entrepreneur wanting to get into the food processing business, it is suggested that you order the book entitled “ From Kitchen to Market” by Stephen Hall available through Amazon.com. • (cost about $20). • This is an excellent book on the business, regulations, labeling, marketing and selling of a food product.

39. Final Comment • The development and growth of a food company is hard work, but it can be rewarding in the long run. • The business plan is just the beginning of the journey. The suggested format of a business plan is just a general outline. Your product may not need all the elements and possibly not the extent suggested. • In general, it is suggested that entrepreneurs initially have their food product co-packed ( have a manufacturer make it for you) so you can concentrate on marketing and sales.