WRITING A BUSINESS PLAN: The What, Whether, Why and How of the Business Plan

1. WRITING A BUSINESS PLAN:The What, Whether, Why and How of the Business Plan BY SURENDRA P. SINGH PROFESSOR, AGRIBUSINESS TENNESSEE STATE UNIVERSITY NASHVILLE, TN 37209-1561

2. What is a Business Plan? • The business plan covers what you intend to do with your business and how it will be done. • Writing a business plan forces you to take a deep look at your idea and how you will turn it into a business. • It is a blue print of your business. • It will help you: • Define the purpose of your business and organize it. • Help you anticipate problems before they arise, so effectively deal with them • Determine how business will grow • Document for raising capital • What to expect from your company’s performance.

3. In short it helps you to decide: • Where your firm needs to go and how fast, how to get there and what to do along the way to reduce uncertainty and manage risk and change? • Doing so helps you recognize areas that need rethinking or support. • A business plan can be particularly helpful after start-up as a tool to understand and as a means of guiding growth. • Components of a Business Plan • Your business plan(BP) will typically include the following. • Business Description – What do you plan to do ? Why are you starting the business?

4. Market Analysis – Who will be your customers ; What do they want from you? • Competitor Assessment – Who will you compete against? What do these competitors offer? • Marketing Plan – How will you reach your customers? • Operating Plan – How do you plan to implement idea. • Financial Plan – How much money will it cost; and where will you get the necessary funds from ? • Executive Summary – What are the fundamental points : (Summary of summary).

5. Why Should I Write a Business Plan? • First, a business plan helps provide direction by making you discuss where you want to take the business. • Second, a business plan provides structure to your thinking and helps you make sure you’ve covered all of the important areas. • Third, a business plan prompts you to think about the future. • A good business plan will include ideas for dealing with new competitors in your market, helping you prepare your business for this situation. • A business plan will help you communicate your idea, not only to financers, but also to employees, potential employees, suppliers and customers.

6. Who Should Write the Business plan? • The person or persons responsible for implementing the plan should be heavily involved in its development. Some people hire consultants or have employees draft the plan. If you’re going to be accountable for the decision that will be based on the plan, then you need to be involved in its development. You might have input from experts…… • How long should a business plan be. • Part of answer depends on the audience of your plan. • If you are going to present it to potential investor – Detailed • If it is for internal use – yourself or partner- short, concise • More important than the length is what the plan says.

7. Business Plant outline • Business Description • Type of Business • Describe What the business does and what product(s)/service(s) it offers • Provide over view of the business and its objectives. • Clearly state your purpose for being in business. • Having a mission statement will help communicate this. Mission Statement – A statement of purpose is written to outline intentions and motivations.

8. Mission statement should explain why your business exists and what it hopes to achieve? It should answer three main questions: • What are the needs that you exist to fulfill? (address) – the purpose of business. • What are you doing to address these needs? How would you fulfill these needs? • What principles or beliefs guide your work (the values) Product Economic Social Ben & Jerry’s Mission Statement

9. 2. Business Overview/ History – Summary of current state of business, new, expansion, start-up, or the takeover of an existing firm, franchise? 3. Business Organization Legal structure – Sole proprietorship , LLC. Who the principal owners are? Also provide nature (type of business, retailer, food service, manufactures. 4. Business Position – Why your business different from others. Explain why you will be profitable and succeed.

10. II.Market Analysis -Market Characteristic • Your Business will be part of an industry. Describe industry. So readers can understand the market place. Include information on its size location, history, competitiveness, and profitability as well as its general health. In particular, discuss the current trends in opportunities and threats. • This is done to prove that a market exists for your product/service. • Your research will be foundation of your forecasted sales levels, size of operation, and the financing required. • Target Market, Target Customer Profile • Describe your target market, its present size, the share you will be able to capture tell if the market is growing or declining and if your share will grow or decline. • In Market analysis, you will narrow the range of potential customers to those specific ones

11. Who are willing and able to buy your product? • Define your target customer as specifically as possible both quantitatively and qualitatively. • Research and provide demographic information about who you’ll focus on and information to understand why customers buy products. • Thorough and detailed research sets a good business plan apart from an average one. • If you are selling to consumers, then consider the following: • Are your customers local, regional, national, and/or international? • Are your customers young, old, male, female, high income, low income, etc.,? • Are there behavioral characteristic that differentiate your customers? ( for instance price shoppers versus convenience shoppers) • Are there cultural considerations, social connections, or other personal factors that might shape your customer’s needs, wants, and buying behaviors?

12. If your customers are primarily businesses, then consider the following: • Do business customers’ needs differ by industry? • Do business customers in different regions have different needs? • Who in the business is involved in the purchasing decision? What is their job function? Who influences their decisions? What is their background and knowledge with respect to your product/service? • What are company buying policies and procedures, financial constraints, and timing of purchases? • Potential information sources are often publicly available, and you should augment them with interviews with people currently in the industry as well as your own experience. You should also include a statement of the potential opportunities for growth.

13. III. COMPETITOR ASSESSMENT – The Competition • All businesses have competitors in some form. • Some competitors sell similar products, while others sell a product that serves the same function. • First, identify (define) your competitors and then profile them. • Describe and assess competitors as what their business is doing. Focus on their strengths and weaknesses compare to your own. Understand their business – how your competitors fill consumers needs. Explain how your business will be better than theirs – how your business like theirs and how it is different. • When reviewing competitors, consider what they have as for as : • Market Share, relationship with customers, advertising plan, price, distribution, products/ service features, financial strength / cost position, and length of time in business.

14. IV. MARKETING PLAN- • Marketing Plan usually addresses four areas : Product Offered, Price Charged, Place (Distribution system) and Promotional efforts. • Product – describe what it is, What it does, its features, benefits. Describe its size, shape, color, qualities, life etc., Include pictures, packaging, Warranties, returns, training , services Service – Explain What the service is and What need it addresses for your target market, describe how you will perform services. • Pricing - Pricing strategies are based on the prescribed value of your product and services. • Many strategies – Simple to much sophisticated available.

15. As you make pricing decision, think about your cost to produce product/service. • This will be a “floor” on your price check • Check Market price. • Place – Distribution • Describe how your product/ service will be distributed and under what geographical area. • Concentrate on the methods and channels of delivery that will optimize your sales/ profits. • Describe how your product will be sold- through retailers, direct sales, and/or other methods. Describe how your product will reach customers.

16. Promotion: • Promotional activities are designed to communicate the value of your products and services to your customers. • The range of promotional tools available is broad – a combination is used • What is the most effective and efficient way to get your message in front of target segment. • Budget – how much money do you have to invest in promotional activities. • Time line of activities.

17. V.OPERATING PLAN • In this section discuss how the business will be owned and managed, your personal and physical resource needs, and the legal issues you will have. • Ownership & Management • Describe ownership, investors, amount of investment. • Explain how the business will be managed on a day to day basis. Partnership or corporation – composition and function of Board of Directors – Who will be involved in making decisions. • Managers – their qualifications, consultants. • Describe all key people and how you will organize each person’s responsibilities and authorities for the efficient operation of your business. Develop job descriptions.

18. 2.Resources and Production • Other Staffing - /what your personnel needs will be . Job descriptions • Production Methods- Outline the methods your will be using to produce your product. • Facilities and Equipment • Estimate What facilities and equipment you will use. • Operations • How your business will be operated in terms of both schedule and procedures. Part-time full-time, seasonal. Describe how you will manage your business. • Legal Issues- Trade marks, patents, service marks., • Compliance • Every business is subject to local, state and federal regulation. • Tax Identification number from the federal government – include it.

19. VI.FINANCIAL PLAN • Financing Sought – Give detailed description of what you are seeking. • If you want a loan (debt financing), describe the terms. • Generally, a leader will need to know your preferences on loan amount, length of the loan, interest rate (fixed, variable). • Indicate funds to this point in the business. • If seeking a loan describe the collateral involved. • Financial Statements • These, mostly in table form, support your loan/investment request and/or indicate the financial condition of your business ( past, present and future).

20. Forecasts of product demand, revenues, and expenses for new ventures will draw on the market research you conducted. Your projections are only as good as your assumptions, so make sure they are valid and realistic. Document as much as you possibly can, including how you developed your assumptions. • Provide projections for two to four years in the future, including : ( Projected). • Forecasted income (monthly for first two years, then by quarter of year thereafter). • Forecasted cash flows by month ( monthly for first two years, then by quarter or year there after) • Forecasted balance sheet for all years (year-end), and • Breakeven Analysis. • Risk • As with any venture, there will be risks. Identify and describe the most threatening risks to your business. Outline the activities you will pursue to manage the risks.

21. VII.EXECUTIVE SUMMARY • In Executive Summary you highlight the important aspects of your business. Try to fit in one- to – two page. In one page ( two at most) cover these key points: • Your Mission and Goals • The Product /Service • Business Description • Management Description • The Marketing Plan • Key Elements of your Operation • Funding Requirements, and Profit and Cash Forecasts

22. Describe how your business is financed. If you are looking for money, state the exact amount you will need. How it will be used and the type of financing (debt or equity) you prefer. If you are flexible, indicate your preference and then state that you are flexible. If you seek venture capital, indicate when the venture capitalist can expect to sell his or her shares in the company to earn the expected return on investment. • Cover Page The cover page should include the company name, address and phone number as well as a contact person’s name, address and phone number. Be sure the contact person will be available during reasonable business and after work hours.

23. Do’s and Don’ts – Business Plan • Do involve all of the management team in the preparation of the business. • Do make the plan logical. Comprehensive. And readable – and as short as possible. • Do demonstrate commitment to the venture by investing a significant amount of time and some money in preparing the plan. • Do articulate what the critical risks and assumptions are and how and why these are tolerable. • Do disclose and discuss any current or potential problems in the venture. • Do identify several alternative sources of financing.

24. Do spell out the proposed deal – how much for what ownership share – and how investors will win. • Do be creative in gaining the attention and interest of potential investors. • Do remember that plan is not the business and that an ounce of can-do implementation is worth two pounds of planning. • Do accept orders and customers that will generate a positive cash flow, even if it means you have to postpone writing the plan. • Do know your targeted investor groups (e.g., venture capitalist, bank, or leasing company) and what they really want and what they dislike, and tailor your plan accordingly. • Do let realistic market and sales projections drive the assumptions underlying the financial spreadsheets, rather than the reverse.

25. Don’ts • Don’t have unnamed, mysterious people on the management team (e.g., a “Mr. G” who is currently a financial vice president with another firm and who will join you later). • Don’t make ambiguous, vague, or unsubstantiated statements , such as estimating sales on the basis of what the team would like to produce. • Don’t describe technical products or manufacturing processes using jargon or in a way that only an expert can understand , because this limits the usefulness of the plan. For example, a venture capitalist will not invest in what he or she does not understand- or what he or she thinks the team does not understand. • Don’t spend money on developing fancy brochures, elaborate slide show presentations, and other “Sizzle” – instead, show the “steak”. • Don’t waste time writing a plan when you could be closing sales and collecting cash. • Don’t assume you have a done deal when you have a handshake or verbal commitment but no money in the bank. • ( The deal is done when the check clears!)