Business Plan Guide
Click on topic to jump to section:
►Statement of Purpose
►Table of Contents
►Section I: The
Location and Facilities
II: Financial Information
Loan / Investment Summary
III: Supporting Documents
Personal Credit Report
Resumes or Personal Data Sheets
Letters of Reference
Brochures and Testimonials
Specifications and Drawings
Market Research Studies
Capital Equipment List
Financial Statement Formats
Unlike many business planning publications, this
Guide will not attempt to evaluate your entrepreneurial
fitness, nor will it provide instruction in the various
management skills needed to start and operate a
business. Its sole purpose is to provide brief and
easily understood guidance for preparing a useable
business plan, especially for those for whom this is a
A business plan is a detailed written description of
why, how and when an enterprise will achieve a stated
level of sales and profitability. It should be first and
foremost an internal operating document to validate
planning assumptions for both new and existing
businesses and to provide the management team with a
blueprint for actions to which it will commit itself. It
may also be used as a selling document to describe to
prospective lenders or investors what and how management
intends to utilize the funding and human resources at
There is no single “correct” approach to writing a
business plan. However, certain key elements are always
needed to describe what the business does as well as
why, where, how and when economic success will be
achieved. Although the length, content and format of a
business plan will vary with the nature and complexity
of the venture, presentation is important. The document
should project professionalism, look appealing, be easy
to read, be well organized and follow a logical
There are generally three sections to a business
- A description of the business and its
- Historical and projected financial
- Appropriate supporting documents
The following pages present an approach to preparing
your business plan. Some material covered and questions
posed may not be relevant. Some important relevant
issues may not be covered. Please use this guidance to
help stimulate and organize your thinking and as a check
list to be sure you have covered all the bases. Although
you may wish to seek assistance as the plan takes shape,
the end result will be uniquely yours and should
clearly, concisely and completely describe YOUR
Keep in mind that writing an effective business plan
is a difficult, time consuming and repetitive process.
Your first draft will not be your last. With the
assistance of your SBDC counselor you will know when the
plan is ready for implementation. Good luck!
This section will immediately identify for the reader
who he or she is dealing with and why the business plan
has been generated. Information provided should include:
- Formal name of the business, including any
- Business address, telephone and fax numbers,
- Form of business organization, i.e. sole
proprietorship, corporation, partnership or limited
liability company (LLC)
- Names and titles of the principals
- Why the plan has been generated, i.e. as an
operating plan or in support of a funding proposal
(debt or equity)
- If in support of a loan application or
guarantee - the amount and pay back period requested
- If in support of an equity offering - the
amount and buyback strategy
Every business planning document should contain a
table of contents to help the reader understand what is
in the document and how to find specific information
The table of contents cannot be completed until the
format and number of pages in the plan has been
determined. It will usually follow the outline and be
among the last tasks in completing the document.
This is an extremely important part of any plan and
should be considered absolutely necessary. It should be
no longer than two pages designed to capture the
reader’s attention. It should be written last and should
highlight the key features of the venture and why it
will be successful.
An effectively written summary will:
- Explain the customer need to be satisfied
- Describe the product or service intended to
meet that need
- Distinguish the business from its competition
- Establish credibility of the management team
- Present the company’s marketing and financial
- Identify any funding being sought and how it
will be used
- Make the reader want to read the entire plan
Section I: The Business
This section should describe the company’s industry,
its perceived mission and its products or services. Here
is where you address the who, what, where, when, and how
questions of your business in as much detail as
necessary to present a complete and accurate picture.
Try to avoid technical jargon and assume the reader
knows little or nothing about your business. Detailed
brochures, specifications, drawings, flowcharts, etc.
can always be included as supporting documents where
Some questions that should be addressed:
- What is the industry’s recent history and
trends? Is it new or mature? Is it growing or
- Is this a start-up situation or are you
continuing an existing business? If the latter, why
is the present owner selling, and why do you feel
you can maintain the business or make it grow?
- What goals have you established for the
business (e.g. market share, sales, profit margins)?
- How is the product or service created, sold
and distributed? Describe each process briefly but
- Is there anything unique or proprietary about
the product or service? Are there any patents or
- Is there any seasonal variation in demand? If
so, how will you handle the low points?
- What, if any special permits or licenses are
required? Are there any unusual regulatory
Location and Facilities
An important consideration in starting or running any
business is its location and facilities. Selection
criteria are typically dictated by the type of business
(manufacturing, wholesale, retail) and industry. There
are many influencing factors, each to be considered
according to its importance and cost.
- Where will your business be located (i.e.
specific address)? This is a critical factor for
- Who are your neighbors and what are the
- What type of building will house the
business? How much space is needed?
- Will you own or lease the space? If lease,
what are the key terms and conditions?
- Will any significant expansion or renovation
be needed? If so, what, and how much will it cost?
- Are the necessary utilities in place?
- What, if any, special equipment will be
- Is there adequate parking for customers and
- Are there any licenses or permits required?
- What is the area’s economic, demographic and
Satisfying customer needs is the sole reason for the
existence of your business. This key section of the
business plan demonstrates that you understand what
customer needs you intend to satisfy, who your customers
are, where they are located and how you plan to find,
secure and retain them. It also provides the basis for
your sales projections. Accordingly, it will probably be
the most detailed and intensively examined section of
- What business are you in - i.e. what customer
needs will you satisfy?
- What reputation in the market place are you
- What are the demographic and motivational
characteristics of your customers?
- What is the geographic size of the market,
and what is your potential share?
- What specific market research have you done
to address the two previous questions?
- What is the long-term trend of your market -
i.e. is it growing, stable, or declining? How will
you use this to your advantage?
- What, if anything, is unique about your
product or service?
- What channels of distribution will you use?
- What is your pricing structure and strategy?
- What promotion and advertising techniques
will you use?
- What methods will you use to generate leads
and close sales?
- How did you develop a sales forecast? Is it
supported by market research data?
- Who will be responsible for marketing
Every business is faced with competition in some
form. This section of the plan should demonstrate a
thorough knowledge of the strengths and weaknesses of
your competitors and the position of your business in
comparison. Your venture will be successful only if you
can be competitive and still make a profit.
When studying your competition, it may be useful to
evaluate their affect on your business at three levels:
Primary - those that look and operate very
Secondary - those that may look and
operate differently but provide comparable products
Indirect - those that offer different
products or services that may provide customers with
an acceptable alternative.
- Who are your five strongest competitors? List
them by name.
- How will they react to your entry into the
- What are their strengths and how can you use
- What are their weaknesses and how can you
capitalize on them? Be careful not to use emotional
language or make unsubstantiated derogatory
- What is their pricing structure and strategy?
- How will you differentiate your business? In
quality? In price? In service?
- How will you keep informed about competitors’
positions and strategies?
Investors or lenders consider strong management one
of the most important factors contributing to business
success, and it will be one of the first things they
look for when reading your business plan. Here is where
to present the qualifications and relevant experience of
your management team. This should include your attorney,
accountant or other professionals with a close and
expected long-term relationship with the business.
You should describe how responsibilities will be
assigned to cover three key areas where strong
management skills are essential:
Operations - designing, developing and
creating the product or service. Who understands and
can deal with all the technical and operational
needs of the business? Have they managed a similar
business in the past?
Marketing - establishing and maintaining a
customer orientation. Who will provide marketing and
selling expertise? Has their background prepared
them to compete effectively in your industry?
Finance - keeping the business liquid
(cash flow) and profitable. What kind of accounting
and administrative systems will be used to measure
the use of cash and other assets - especially
accounts receivable and inventory? Who will have
financial management responsibilities?
This section of the plan should also discuss plans
for filling gaps should key team members become ill or
If your business is going to have employees or use
independent contractors, this section of the plan
presents your staffing, scheduling and training
requirements. Depending on the size of the business and
skills needed, the seeking, finding, hiring and
retaining of human resources can be very important.
- What are your staffing requirements - now and
in the future?
- Will you fill these requirements with
employees or outside help?
- What education and experience is necessary?
- What training, if any, will be needed and how
will it be provided?
- Will personnel be retained on a full-time of
- How will they be compensated? Will fringe
benefits be included?
Two words of caution:
Hiring employees requires
compliance with both federal and state laws governing
wage rates, tax withholdings and workers’ compensation
insurance. Be sure you understand what is required
before hiring anyone!
contractors who will function like employees raises
federal tax law compliance issues that should be
discussed with a tax advisor.
Section II: Financial Information
The potential investor or lender in your venture
wants to know how much money you need, for how long, and
how you intend to use the funds. This section should
clearly outline all of this information in a clear and
The summary should indicate:
- Purpose of the funding request
- Eligibility of the applicant - per specific
- Amount being requested
- If a loan - its assumed length, interest rate
and other terms
- If equity - any proposed exit strategies. A
separate section may be appropriate to cover this
- How the funds will be used. Identify each
major category of expenditures.
- Collateral offered
In order to establish the amount of funding needed
and how it will be used, you will need to estimate three
major categories of expenditures that warrant comment:
start-up expenses, capital equipment and working
In preparation for opening your business (either new
or existing) many tasks must be completed, many of which
require significant, one-time expenditures. These
include, but are not limited to:
- Architectural plans and specifications for
facilities construction or renovation
- Accounting and legal assistance to assure
regulatory compliance, negotiate agreements and
establish proper record keeping systems
- Pre-opening promotion and advertising
- Necessary licenses and permits
- Lease, utility and other deposits
- Initial inventory and supplies
Most businesses make major investments in so-called
“fixed assets” needed to produce and support its
products or services. Although accounting rules for such
expenditures will spread out the affect on profits, the
cash flow impact is immediate and needs to be estimated
accurately. This includes:
- Real estate
- Computer hardware and software
- Furniture and fixtures
- Vehicles (owned, not leased)
Your SBDC counselor or accountant can help define
your unique list and develop the appropriate accounting
In its simplest sense, working capital is the amount
of free cash you need to operate the business on a
month-to-month basis plus a reserve for emergencies.
Your initial working capital will be the difference
between start-up funding and start-up expenditures.
Thereafter, it will be a function of how well you manage
sales, collections, inventory levels and all other
functions affecting the use of cash. The optimum level
of working capital will vary depending on the type and
size of the business, but it should enable you to
withstand unexpected business problems during a typical
year or operating cycle.
The most important asset for most businesses is cash.
For small businesses the management of cash is critical
to survival. Accordingly, significant time and effort
must be spent estimating the amount and timing of future
cash inflows and outflows. Your SBDC counselor can help
explain the construction of a cash flow worksheet and
provide guidance regarding forecasting techniques.
When developing data for this worksheet remember that
you are measuring the flow of cash, not net income. For
example, if you make a credit sale in January the
accounting system will show this transaction as a sale
on your Income Statement in that month, but it will not
affect cash until a subsequent month when the customer
pays the bill. Similarly, if you purchase a computer for
$2,000 the resulting capital expenditure does not show
on the Income Statement, but cash is affected
The first column of your cash flow worksheet will
record one-time receipts and expenditures prior to
actual start-up of business operations. All following
columns will record the cash impact of normal
operations. Projections should be made for the first
year by month and for 2 subsequent years by quarter.
It is important that the cash flow worksheet reflect
your analysis and estimates. This will demonstrate your
understanding of what is required to establish and run
your business and the impact on cash flow.
Upon completion of this exercise you may want to
enlist help from your SBDC counselor or accountant to
generate projected income statements and balance sheets
discussed in the following sections. After making
mutually agreeable assumptions regarding non-cash
considerations (e.g. accounts receivable collection
period, inventory levels, depreciation) he or she can
make the necessary conversions and prepare appropriately
The income statement matches sales/revenues against
expenses made to generate them and calculates the
resulting “profit” for any given time period. It
measures whether your business is (or will be)
profitable after considering all costs of doing business
- both those affected by, as well as those independent
of cash flow.
Some things that should be kept in mind when
preparing or reading an income statement:
- Sales/revenues are shown when the sale is
made, not when the customer pays the invoice.
- Merchandise purchases are shown as a cost of
sales expense when the resulting product is sold,
not when they are made and the merchandise is placed
- Operating expenses are shown when incurred,
not when you pay the bill.
- Operating expenses include depreciation of
- Only the interest portion of debt service
payments shows as an expense. The remainder is a
reduction of loan principle.
- Unless the owner is a corporate employee, his
or her cash withdrawals are not considered operating
- If the business is a sole proprietorship,
partnership or “S” type corporation, no income taxes
appear as an expense. These taxes, if the business
is profitable, are paid by the owners as part of
their personal tax returns.
- If the business itself is subject to income
taxes (“C” type corporation), they are estimated and
shown as a non-operating expense that reduces
The format of income statements should be tailored to
reflect information content and level of detail to make
them most useful for management of the business.
Income statements should be projected by month for
the first year and by quarter for two additional years.
Once completed, the first year can be used as a budget
to be compared against actual results and the variances
analyzed to determine any necessary corrective action.
If your business has been operating for some time, or
if you are acquiring an existing business, you will also
need to provide up to three years of actual income
statements and tax returns.
Where appropriate, this section of the business plan
should also explain the method(s) used to generate
estimates. This is especially appropriate for
sales/revenue data, which should tie in with the
Marketing section of the plan. This is particularly
important if the plan is being used as a financing
proposal, since it will provide credibility for your
projections and give potential investors or lenders the
means to evaluate the plan’s strengths and weaknesses.
The balance sheet is a presentation of your business
assets, liabilities and equity at any point in time. It
shows what the business owns (assets) and who owns them
- creditors (liabilities) or investors (equity).
Although all balance sheets contain the same type of
information, the format and level of details may vary.
The following categories are generally presented:
- Current Assets - cash and anything that is
expected to be converted to cash within one year -
primarily accounts receivable and inventory.
- Fixed Assets - tangible items with expected
long-term use. This includes real estate, machinery,
equipment and vehicles.
- Current Liabilities - short-term financial
obligations which must be paid within one year. This
includes accounts payable, short term borrowing,
earned but unpaid wages and estimated taxes payable.
- Long-term Liabilities - longer-term financial
obligations like mortgages, equipment loans and
long-term notes payable over more than one year.
- Net Worth - owner’s equity in the business.
It reflects original and any subsequent investments
plus profit or loss from inception to date. It is
the difference between assets and liabilities.
The format of balance sheets can also be tailored to
Balance sheets should be generated for the end of
each period covered by projected income statements.
These two statements go together to measure the progress
and health of your business.
If your business has been operating for some time, or
if you are acquiring an existing business, you will also
need to provide actual balance sheets for prior years.
Financial ratios are tools used by all parties -
management, lenders and investors - to evaluate
comparative performance of a business. They can be
calculated from data in your business plan. The most
commonly used ratios fall into one of four categories:
Measures the ability to earn an adequate return
on sales/revenues, assets and invested capital
Profit Margin = Profit (Gross or
Net) ÷ Sales/Revenues
Return on Assets = Net Income ÷ Total Assets
Return on Equity = Net Income ÷ Total Equity
Measures how effectively assets are being used
to generate sales/revenues and collect cash
Collection Period = Accounts
Receivables ÷ (Sales/Revenues ÷ 360)
Inventory Turnover = Cost of Sales ÷ Inventory
Asset Turnover = Sales/Revenues ÷ Total Assets
Measures the ability to meet short-term
Current Ratio = Current Assets ÷ Current
Quick ratio = (Cash + Accounts
Receivable) ÷ Current Liabilities
Measures debt position in light of the firm’s
asset base and earning power
Debt to Equity = Total Debt ÷ Total Equity
Debt to Asset = Total Debt ÷ Total Assets
Times Interest Earned = (Income Before Interest +
Taxes) ÷ Interest Expense
Debt Coverage = Cash Flow ÷ Debt Service
You may also wish to calculate variations of these or
other ratios that have particular importance to your
industry or business. It is important to keep in mind,
however, that all ratios are valuable analytic tools
only in context of comparison with similar firms in your
industry, as well as to your own past performance.
Section III: Supporting Documents
Sections one and two of the business plan contain
information to provide the reader with an understanding
of what your business is, where you intend to take it,
and how you are going to get there, with a minimum of
unnecessary detail. Section three is where you can
include additional material for the serious reader. It
should present all relevant material that will clarify
or supplement any part of your business plan.
Although there is no limit to the type and length of
documents, don’t go overboard - size and weight are not
the criteria! Material should be added only if it is
required or will add to the credibility of you and your
business. Typical supporting documents are:
- Personal financial statement
- Personal credit report
- Resumes or personal data sheets
- Letters of reference and testimonials
- Organization charts
- Specifications and drawings
- Market research studies
- Capital equipment list
- Tax returns
Appendix: Financial Statement Formats